Economy

This article is an on-site version of our Trade Secrets newsletter. Premium subscribers can sign up here to get the newsletter delivered every Monday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersEight days until the US election. I was in Washington talking to people last week and I’ve never had conversations addressing such a weird set of outcomes. On the Harris hand, a narrow range of possibilities: continuity Biden with maybe a tweaking of industrial policy, perhaps a bit more action on renewables and a little less on steel, all very marginal. On the Trump hand, who the hell knows? Massive tariff rises? The end of modern globalisation? A big deal with Xi Jinping? A fundamental rupture in US democracy making trade policy somewhat secondary? Today’s main piece is on what trading partners can do to prepare for Trump, plus some reader feedback on the IMF and World Bank. Charted Waters is on the European companies exposed to a Trump trade war. Question for you this week: if you had to predict Trump’s actual trade policy in a single sentence, what would it be? Get in touch. Email me at alan.beattie@ft.comTilting at TrumpI see the briefing from Brussels continues apace about the tough actions it will take on trade (and other matters) if Trump gets elected and threatens to put tariffs on EU exports. Hmm. No one knows, obviously, but I must say I’m not entirely convinced that going in with a battle plan to “hit back fast and hard” — still less signalling that plan in advance — is necessarily the right tactic.Let’s remember two things. One, Trump doesn’t seem to care much about incurring collateral damage. American agriculture got clobbered from Chinese retaliation during his first term. It cost the federal government a lot in bailing out farmers, but did the fiscally incontinent Trump care about the cost? No. Did it materially hurt him politically in farm states? Also no. Iowa voted for Trump in 2020 and will vote for him again next week.A now well-known study from the economist David Autor and others showed that regions which were more exposed to Trump’s tariffs shifted towards supporting him even if they didn’t benefit economically, and even if they suffered from retaliation by trading partners. Some voters probably don’t think anything will make much difference anyway and just want to see America lashing out.One of the most successful tactics of almost any trading partner with Trump was harrumphed at by purists (including me, I’ll confess) at the time. In July 2018, then European Commission president Jean-Claude Juncker headed off a threat of car tariffs by promising Trump that the EU would buy soyabeans and liquefied natural gas (LNG), plus some talk of a zero-for-zero deal on industrial tariffs.This was a genius con on Juncker’s part, including co-opting Larry Kudlow, then the director of the White House National Economic Council and one of the more free-trade characters in the Trump administration. The commission has zero ability to increase soyabean or LNG procurement, and the tariff deal predictably came to nothing. It was extemporised, it was unannounced beforehand and unplanned with EU member states, and it made no real-world sense. But it appealed to Trump’s dealmaking instinct, and it worked. The car tariffs remained unimposed.I don’t have a superior plan of campaign to the one the EU is briefing. But I do think generally that being flexible and quick-witted — and prepared to dissemble on a giant scale — might be better than preparing a battle plan that commits Brussels to escalating a trade war that it might just have wriggled out of.The shaky wall of conflicted BricsPresident Vladimir Putin hosted the Brics countries summit in Russia last week, supposedly signalling rising opposition to a world order run by rich countries. Really, though? Of the original members, Brazil is currently trying to push through a trade deal between the Mercosur trade bloc and the EU, while India has actively been courting more investment and closer security ties with the US. And if new Brics member Egypt dislikes US hegemony all that much it could always return some of the $1.3bn in military aid it trousers from the American taxpayer each year and stop borrowing from the US-dominated IMF when it gets into trouble. It’s more accurate to describe the Brics summit as Putin creating an alternative reality than a new world order.Flattering the Fund and bigging up the BankThere were not many concrete outcomes from the IMF/World Bank meetings last week and I heard nothing to change my conviction that private capital will not, in fact, finance the green transition in developing countries.I asked you last week to say something nice about the fund and the bank and got some positive replies, some of which I have good reason to believe are from actual people rather than the institutions’ respective managements writing in under assumed names.Most respondents focused on the institutions’ role in cushioning the blow from the Covid-19 pandemic. The IMF stepped up during Covid and provided a lot of lending. Specifically, it increased global liquidity by a one-off issuance of Special Drawing Rights, imperfect though that mechanism is, and on a bigger scale than an SDR allocation after the global financial crisis in 2009. Similarly the bank and particularly its grant/soft-loan arm (the International Development Association) was praised for increasing its support after the pandemic started in 2020.The problem is, as more than one reader pointed out, the bank and fund can’t keep this level of lending going in normal circumstances. They’re good in an emergency but not powerful enough the rest of the time. Much like the rest of us, to be honest. As Chekhov reportedly once said, “Any idiot can face a crisis — it’s this day-to-day living that wears you out.”Charted watersThe potential threat from a trade war is reflected in stock prices, with those European companies more exposed to US tariffs underperforming those that are not.Trade linksTodd Tucker of the Roosevelt Institute, a leading Biden-whisperer on trade, makes the case for making the administration’s approach a permanent part of US trade policy.The IMF looks at the macroeconomic implications of the EU’s shift to buying Chinese EVs and concludes it’s small in the short run and nil in the long run.Charles Michel, outgoing president of the European Council of EU member states, joins the chorus of officials warning Brussels not to lecture developing countries over trade, among other issues.There’s now a rival to Senator Rick Scott of Florida, who tried to ban Chinese garlic on national security grounds, for the silliest intervention over food trade with China. Francesco Mutti, chief executive of the eponymous Italian food company, wants to restrict imports of Chinese tomatoes to restore the “dignity” of the Italian variety.On top of mindlessly rejecting an offer from the EU of a youth mobility agreement (plus dishonestly misrepresenting its intentions), and haring off in pursuit of a trade deal with India, the UK’s Labour government is going to continue and deepen the pointless programme of freeports that wastes time and taxpayer money to no discernible end. Still, at least it isn’t going to create more of them, which is what Downing Street incompetently briefed on Friday.Another bunch of non-trade policymakers are warning about protectionism. As I said last week, they do this a lot. I guess they’ll be right one day.Trade Secrets is edited by Harvey NriapiaRecommended newsletters for youChris Giles on Central Banks — Vital news and views on what central banks are thinking, inflation, interest rates and money. 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BEIJING (Reuters) – China outlined steps on Monday to improve family planning and parenting measures in an effort to boost the number of births, a statement from the state council, or cabinet, showed, after two consecutive years of a shrinking population.The birth rate hit a record low last year in China, which has a population of 1.4 billion, as fellow Asian giant India outpaced it to become the world’s most populous nation. The state council called for efforts to build “a new marriage and childbearing culture” by spreading respect for childbearing, marriages at the right age, and parents’ shared responsibility for childcare.Measures on offer are better maternity insurance, maternity leave, subsidies and medical resources for children, with the cabinet urging local governments to budget for childcare centres and levy preferential taxes and fees for such services.”Supporting childbirth at this stage is of great significance,” said Yang Chang, chief policy analyst at Zhongtai Securities Research Institute, adding that Monday’s announcement would serve as a template for future measures.With the number of women of childbearing age between 15 and 49 likely to decline, and willingness to bear children not expected to rise soon, policy support was key to help reverse the downward trend in births, he added.Although China abandoned its 35-year-old one-child policy in 2015, it has struggled to get the birth rate up, particularly as the period saw rural people stream into the cities for jobs.Education is another area targeted, with local authorities asked to step up financial aid for students from disadvantaged families, with a mention of the “gradual expansion of the scope of free education”.Local authorities were also told to assist with the burden of housing and employment, by providing more support for families with multiple children to buy homes, and beef up protection for pregnant women and new mothers among workers.Setting up non-commercial platforms for young people to make friends, date and get married was another way to encourage births, the cabinet said.Monday’s measures follow a survey this month by health officials seeking to understand the factors governing attitudes towards childbearing and the fear around having offspring. More

(Reuters) – The nine days until Federal Reserve officials sit down to decide what to do next with interest rates features a veritable murderers’ row of events to shape their move – everything from key employment and inflation data to a closely fought U.S. presidential election.Even so, it’s not clear what among that mix might steer the U.S. central bank from what is seen widely as its most likely next decision: A second in a series of interest rate cuts aimed at keeping the U.S. labor market healthy and the economy out of recession as inflation cools.The Fed’s initial rate cut in September brought the policy rate down by a half of a percentage point to the 4.75%-5.00% range, a decisive turn after more than two years of battling decades-high inflation and one motivated by what had appeared to be signs of a weakening labor market over the summer.Since then, however, the data has generally come in stronger than expected, with consumer spending and job creation looking particularly robust, and price pressures picking up slightly. Citigroup’s U.S. Economic Surprise Index is at a six-month high.But rather than second-guessing their decision to ease policy, nearly all Fed officials who have spoken publicly since the Sept. 18 rate cut have said they are pleased with an unemployment rate at 4.1% and inflation that is now much closer to the central bank’s 2% goal than before, and even the most hawkish among them have signaled support for further rate cuts to keep it that way.”So far I haven’t seen any information that would suggest we wouldn’t continue to reduce the interest rate,” San Francisco Fed President Mary Daly said last week. Noting that policy is “very tight” for an economy where inflation is easing, she said, “I don’t want to see the labor market slow further.”Daly was one of a few policymakers who signaled they could be open to a rate-cutting pause at an upcoming meeting. But none have pushed for skipping a move in November.DEBATE AND DATA DELUGEThat’s not to say there won’t be a debate or that it won’t be, as September’s decision was, a close call for many. And yet all Fed policymakers making substantive comments on the policy outlook since the last meeting have expressed comfort with additional rate cuts.Updated projections published at the meeting last month show each of them believe there is at least a full percentage point of rate cuts to go before the policy rate gets to its longer-term “neutral” level. The Summary of Economic Projections, or SEP, shows a majority believe there’s at least two full percentage points of room for cuts. “While much attention is given to the size of cuts over the next meeting or two, I think the larger message of the SEP is that there is a considerable extent of policy restrictiveness to remove, and if the economy continues in its current sweet spot, this will happen gradually,” Fed Governor Christopher Waller said earlier this month.Fed policymakers this week will get the latest reading of their preferred inflation gauge, which is expected to show underlying price pressures remain sticky while year-over-year headline inflation ticks down to 2.1%. Also on the docket is a first look at third-quarter economic growth, expected to come in at a strong 3% annual rate, and an updated estimate of how many job openings there are for every job seeker, a favorite labor-market metric for Fed Chair Jerome Powell that has been showing gradual cooling.The U.S. government also is due to release the October jobs report, which is expected to show job growth slowed, though the underlying trend could be hard to parse since recent hurricanes and an ongoing strike at Boeing (NYSE:BA) could reduce the month’s payrolls by as much as 100,000 jobs and push up the jobless rate.”Fed officials have flagged the fact that the data is going to be messy in the months ahead for a variety of temporary factors,” Thomas Simons, a senior economist at Jefferies, wrote in a note. “We do not see any reason why the Fed would skip a rate cut at either of the two upcoming meetings this year.”Fed policymakers observe a communications blackout for the 10 days ahead of every scheduled policy meeting, so they have no chance to publicly guide expectations one way or another in the event of a data surprise during those periods. But, like Simons, most analysts have stuck to their calls for a quarter-percentage-point cut next month. Financial markets have firmed up bets on the same outcome.OUTLIERSThen comes Nov. 5, the day Americans go to the polls to elect a new president, members of Congress and countless other office-holders.With Fed officials convening the very next day, Macquarie strategist Thierry Wizman, for one, says a victory by Republican former President Donald Trump over Democratic Vice President Kamala Harris in the race for the White House could mean a Fed pause – not for any political reason, but because Wizman figures financial markets would react by pricing in sharply higher inflation expectations based on Trump’s calls for higher tariffs on imports, an immigration crackdown and lower taxes.Joseph Tracy, a distinguished fellow at Purdue University, says the Fed should go ahead with another half-percentage-point cut, arguing monetary policy rules call for getting rates more quickly within striking distance of their ultimate destination before making smaller adjustments to fine-tune the landing. Neither path looks likely. Despite their attention to policy rules, U.S. central bankers don’t hew to them too closely, preferring to use judgment and consensus in their decision-making process.And as for abandoning rate cuts after a hypothetical Trump election victory? Among the many other reasons not to do so, including overall anchored inflation expectations, the optics “are terrible,” Tim Duy, chief U.S. economist at SGH Macro Advisors, wrote in a note.Next month’s policy debate could set the stage for a pause in the easing cycle in December, particularly if inflation continues to edge up and the labor market remains strong. That’s a move that nearly half of Fed policymakers may have supported last month, according to the projections.But for now – barring anything extraordinary – the U.S. central bank looks headed toward further reductions in borrowing costs.”The Fed is on track for rate cuts in November and, we think, December as it recalibrates policy to a more neutral stance,” Duy wrote. More

“We have already made very good progress in certain areas, particularly on institutional issues and state aid,” Viola Amherd told reporters in Bern. “In other areas, especially immigration, positions need to converge further.”Amherd has previously said that Switzerland is looking to wrap up a deal with the EU this year, when her one-year term also comes to an end. “Personally, I remain optimistic that we will manage,” she added.Previous attempts to reach a deal foundered over concerns about Swiss sovereignty. One of the remaining challenges is domestic opposition from the leading right-wing Swiss People’s Party (SVP), and Amherd admitted talks with them were “almost impossible”. “We have other possibilities inside Switzerland to guarantee that we don’t want to reduce salaries and that we don’t want immigration without control. I am persuaded we will find a solution,” she said. More

NEW YORK (Reuters) – The U.S. commercial real estate industry is pushing for tax relief and incentives championed by former Republican President Donald Trump to continue in the next administration, as the sector struggles with surging delinquencies, record vacancy rates, and elevated costs of financing.Commercial real estate is especially vulnerable to higher taxes because its high fixed costs make it less able to offset them, according to industry trade groups. They said they are particularly concerned about key tax breaks being retained or left unchallenged in the coming years. “‘Do no harm’ is the biggest thing with real estate organizations,” said David McCarthy, the managing director and head of legislative affairs at the Commercial Real Estate Finance Council, a nonpartisan trade group. “Given that the nature of real estate is not super liquid, anything that raises costs now would come at the worst possible time.”Key measures that the industry is concerned about preserving include pass-through deductions, like-kind exchanges and low capital gains taxes. Trump has endorsed making his tax cuts permanent although he has not been specific about these measures. Many of his 2017 tax cuts are set to expire next year. So far, campaign contributions from the finance, insurance and real estate sectors favor Trump, with $234.9 million donations to the former president versus the $117 million in giving to Vice President Kamala Harris, a Democrat, according to data from politics money tracker OpenSecrets.  Industry trade group the National Association of Realtors has also donated more to Republicans, with $5.2 million to the GOP versus $3.9 million to Democrats.”Regardless of who is in office in January, we will be dealing with the tax cuts … expiring at the end of 2025, and we want to keep those,” said NAR director of commercial and policy oversight Erin Stackley. The Harris and Trump campaigns did not respond to requests for comment.Among the real estate mega donors who have backed Trump are budget hotelier Robert Bigelow’s Bigelow Aerospace which donated $14.2 million to Trump’s Super PAC, the OpenSecrets data shows.Newmark Chairman Howard Lutnick’s investment firm, Cantor Fitzgerald, has given at least $6 million to the PAC. Lutnick co-chairs Trump’s transition team.Mega donors tied to real estate who back Harris include Simon Property Group (NYSE:SPG) heiress Deborah Simon, who has donated at least $1 million, and Worthe Real Estate Group head Jeff Worthe, who has also given at least $1 million, OpenSecrets shows.Bigelow, Lutnick and Simon declined to comment. Worthe said he supported being able to focus on “what’s good for business,” adding that he supported Harris because he wanted stability in Washington. TAX BREAKS While some see signs of a market bottom, others argue that the commercial real estate (CRE) industry needs time to recover from high interest rates and work-from-home trends. Next year, it will face $1 trillion wall of debt, a surge in office sector delinquencies on commercial mortgage-backed securities to 11% and record-high office vacancies in urban centers, according to ratings agency reports. Falling interest rates may offer scant relief.”Over the last 18 months … operating costs have … risen dramatically at the same time the availability of capital and credit have diminished,” said Jeff DeBoer, CEO of the Real Estate Roundtable, an invitation-only group whose members include Blackstone (NYSE:BX), Brookfield Property Partners (NASDAQ:BPY) and Starwood Capital Group. “All of that creates stress and challenges in the CRE marketplace.”  McCarthy said the industry specifically wants to see a reauthorization of key provisions included in Trump’s 2017 tax cuts, including the 199A deduction, also known as the qualified business income deduction. That is set to expire in 2025, according to nonpartisan policy research group the Brookings Institution. This allows owners of pass-through businesses and partnerships, including CRE owners, to deduct up to 20% of their business income from their taxable income. Harris has not explicitly said, in campaign speeches and filings, whether she will support the pass-through deduction, though in her campaign documents she does state she would roll back the 2017 Trump tax cuts for the richest Americans. Trump said in speeches, interviews and campaign documents that he would make tax cuts permanent, although it is not clear his specific views on 199A.   Another measure of concern to the industry is 1031 “like-kind” exchanges, which enable real estate investors to defer capital gains taxes by reinvesting proceeds of sales into new purchases. Harris supports limiting this for high earners, according to an analysis by the nonpartisan Tax Foundation based on Harris’s endorsement of President Biden’s 2025 budget tax proposals. Trump has not made clear specific views on 1031. Capital gains tax rates are also of paramount concern.“When I talk to my members, the biggest concern they have is what’s going to happen to the capital gains tax rate,” said Aquiles F. Suarez, senior vice president for government affairs at NAIOP, the commercial real estate development association, whose members include top leaders from real estate firms such as JLL and CBRE. NAIOP says it advocates for industry interests rather than partisan politics. Harris has proposed increasing the top capital gains rate to 28% for households earning more than $1 million annually from the current rates, which range up to 20%. Higher capital gains tax rates can discourage investors from selling properties, reducing transactions.  Another key question for the industry is working out a solution for empty office buildings across the U.S. Adapting office towers into housing, a proposal that Harris has supported, is an idea that will only be realistic for about 10% of the U.S.’s office stock, industry trade groups say. Trump has not officially endorsed the idea of converting offices into housing. This is “the number one, two and three issue right now because it affects the entire real estate market,” said David A. Nasatir, Chairman of law firm Obermayer Rebmann Maxwell & Hippel LLP. More

WASHINGTON (Reuters) – Politicians within Germany’s three-way coalition government should put their differences aside to address the country’s stagnating growth, the president of the German Savings Banks Association (DSGV) told Reuters in an interview.The German economy contracted last year and the government foresees it will shrink again this year, while the International Monetary Fund last week also cut its forecasts for the country.”We are very worried about the economic situation in Germany,” DSGV President Ulrich Reuter said on the sidelines of the International Monetary Fund and World Bank annual meetings on Friday.”We need to free ourselves from bureaucratic hurdles and find a clear and future-oriented path for more competitiveness,” he said. “That must be our main focus. (Politicians) must leave everything else aside.”The three parties of the so-called “traffic light” coalition of the centre-left Social Democrats, the Greens and the FDP, which has ruled Europe’s largest economy since 2021, hold diverging views on how to spur growth. Chancellor Olaf Scholz from the SPD and Economy Minister Robert Habeck from the Greens have already laid out their economic plans.German Finance Minister Christian Lindner told Reuters in an interview on Friday that he is also working on his own proposals, which will be presented shortly. “The direction is right with all these proposals,” Reuter said. “You just have to make a package out of it. That’s what the economy will very much wish for: agree and move on.”Reuter’s association has a business relationship with three out of four companies in Germany, and plays a big role in the financing of the small and mid-sized companies known as Mittelstand that together provide 55% of Germany’s jobs. Germany is working on structural reforms to stimulate anaemic growth, which Reuter sees as “an important step”, but he called for further reforms ahead of the next election in September 2025. The economic downturn is taking its toll on the Mittelstand, with companies being very cautious in their demand for credit, holding back innovation and investment, he said.”The Mittelstand is still the backbone of the German economy, but the pressure is rising.” More