Author: business

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

To mark the new era of things staying where they are, this week’s chart quiz is about international trade.

The charts below show imports and exports by country and dollar value. Your task is to name the three commodities/commodity classes shown:

It’s sort of a no-budget version of the OECD’s Tradle game, except we’re giving away a T-shirt rather than asking you to buy one, and maybe it helps to know the answers are on a theme.

Email your guesses with QUIZ in the subject line. One correct entry will be drawn at random for the prize of a not-available-to-buy Alphaville chart-quiz-winner T-shirt.

We usually name correspondents who get all the answers. If you don’t want that to happen, be sure to tell us. The deadline for entries is whenever we get around to it on Monday and the judge’s decision is final.

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Your guide to what the 2024 US election means for Washington and the world

Normally, it wouldn’t be unusual to have a Federal Reserve chair — or any Fed official — say they plan to serve out their full term.

As we keep saying, these are not normal times.

So it’s notable that Fed Chair Jay Powell said Friday that he plans to remain in his role. If this week is any indication, the next year seems like it could be a rather . . . important period for US price stability. And employment. And financial stability, for that matter.

“I fully intend to serve all of my term,” Powell said in a Q&A with the Society for Advancing Business Editing and Writing, or Sabew.

It wasn’t 100-per-cent clear what exact period of time he meant: he’ll be chair of the rate-setting policy committee until May 2026, but his full term on the Board of Governors continues until January 31 2028. (He has previously declined to answer the question of whether he’ll stay until 2028.)

One reason this is interesting: If he does plan to stick around until 2028, Fed Board members serve on the rate-setting policy committee, so this would give him continued (if somewhat diminished) influence over monetary policy after the end of his leadership role.

Another reason that’s maybe more pressing: There seems to be a nascent conflict between him and the US President about rate policy.

Minutes before Powell started speaking at the Sabew event, President Trump posted that it would be “a perfect time” for the Fed to cut rates. This certainly breaks decorum, and in the past, presidential comments about rates have been interpreted as an assault on the Fed’s independence (which has only really existed since 1951, and was not imposed by Congress).

But the White House is making far more aggressive intrusions into other agencies’ independence. And it’s been threatening an aspect of independence that has the legal protection of being created by Congress: Personnel, and their terms of service.

The Trump Administration dismissed two Federal Trade Commissioners last month, despite a 1935 ruling that says the president doesn’t have “illimitable power of removal” for agencies created by Congress. This was in a case specifically about the FTC.

Still, Powell doesn’t seem too concerned about monetary policy input from the US President at the moment.

“It feels like we don’t need to be in a hurry” to cut rates, he told Sabew. Stocks didn’t have a huge reaction to that news in real time, though, so it doesn’t seem like investors were waiting on Powell to save their bags.

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Funny how stuff comes together sometimes.

Last month, mainFT’s Valentina Romei and our very own Robin covered how a January surge in US gold imports by traders trying to get ahead of tariffs had temporarily broken the Atlanta Fed’s GDPNow model, leading it to indicate a looming recession. The culprit behind the leap in “finished metal shape” (aka gold bar) imports was Switzerland.

And if you’re a Swiss cheese exporter with a large US clientele, that could end up mattering a lot, depending on the future whims of the White House.

The reason is simple — again, in a stupid kind of way. We’ve dwelled a lot upon how inane the Trump Administration’s “discounted”, “reciprocal” tariff calculation is.

If you’ve somehow missed it, it’s broadly (with some exceptions, including a blanket 20 per cent levy on EU goods): take America’s 2024 trade balance with a country, divide it by the amount the US imported from that country, divide the result by two, and make that the tariff percentage. If the percentage is below 10, make it 10. Sorry to the UK.

It’s a crude mechanism, and one that produces particularly wild results for smaller economies that often simply sell the US things the US can’t make or grow itself.

But it’s easy to get caught in the stupefying simplicity of the calculation, and ignore the stupefying simplicity of the data pool. Justifying the tariffs, the USTR release says:

The failure of trade deficits to balance has many causes, with tariff and non-tariff economic fundamentals as major contributors. Regulatory barriers to American products, environmental reviews, differences in consumption tax rates, compliance hurdles and costs, currency manipulation and undervaluation all serve to deter American goods and keep trade balances distorted. As a result, U.S. consumer demand has been siphoned out of the U.S. economy into the global economy, leading to the closure of more than 90,000 American factories since 1997, and a decline in our manufacturing workforce of more than 6.6 million jobs, more than a third from its peak.

So how better to assess that epochal, multi-decade economic shift than by extrapolating an entire policy from only 2024 data?

Back to Switzerland. Exports of goods deemed Swiss to the US face a reciprocal tariff of 31 per cent — markedly higher than that flat 20-per-cent EU rate — reflecting $64bn of Swiss exports to the US and a trade surplus of $39bn against the Americans in 2024.

Now, the GDPNow-distorting influx of gold fell within 2025, but the US also saw less extreme “finished metal shapes” jumps last year that lined up with rises in imports from Switzerland. In short, the overall Swiss 2024 numbers also seem to be unusually swollen by the yellow stuff.

So how different might Wednesday’s tariff announcement have been if “Liberation Day” had been this time last year, based on 2023’s figures, or in another recent-ish year? Well, quite a lot:

It’s a tough break for Swiss cheesemakers and clockmakers, who now face a bigger tariff barrier than they might have got in 2024 or 2023. But could things get worse?

Let’s imagine “Liberation Day” becomes an annual occurrence — a federal stock-market holiday, even! — and on April 2, journalists gather in the Oval Office as the President presents updated tariffs based on the same formula. This would probably create all kinds of odd situations around countries trying to game their trade stats, but for now let’s hand-wave that away.

Over enough time, this could mean the long-term average tariffs paid are “fairer”, insofar as the (crude, unfair) tariffs would at least not be biased by any potential oddities of a single year, 2024.

Of course, rates could still end up biased by a series of other potential oddities from other individual years. That potential volatility would force exporters to the US to plan for a future in which the price of their goods fluctuates wildly each year based on their country’s annual trade balance. Not great for planning.

But there is no clear plan for “Liberation Day” to be an annual occurrence, of course. These tariffs are supposedly going to be the baseline for the rest of the Trump Administration; or until President Trump changes his mind; or possibly forever, depending on how confident you feel about the strength of US institutions. In other words, 2024’s trade data might end up mattering for a long time. Who might then appear be victim of timing, and who might have just got lucky?

Well, here are all the countries for whom FT Alphaville could get enough sequential data to roughly answer that question. Relatively bigger 2024 column compare with previous years = more hard-done-by. Relatively smaller = a good year to be tariffed on:

(Note that in this and the subsequent diagrams we’ve shown EU countries as disaggregated, ie they get a variable 2020–23 implied rate and only receive the blanket 20 per treatment for 2024.)

Sequencing them by the spread between 2023’s implied rate and 2024’s actual rate, things look tough for Vanuatu and Laos (and we’re left wondering what happened in Comoros last year):

We will concede that the Y-axis labels above are unforgivably small, but we refuse to change that because 2023 is of course equally flawed as a single year to look at.

A mildly better way to assess fairness is to compare the applied tariffs to some kind of average. So now that we understand the system, let’s compare the announced rates with an theoretical average over five years (even though that will capture some pandemic-era jankiness):

Vanuatu . . . ouch. Assuming its trade relationship normalises to recent trends this year, Vanuatuan exporters should really hope Liberation Day does become a regular thing.

Swiss cheesemakers may feel differently. As a reminder, here’s how the US/Swiss trade relationship shifted in January:

Managing roughly half an ordinary year’s worth of exports to the US in a single month means — if Liberation Day does return — that Switzerland could be on track for a horrible tariff recalculation.

If so — and unless there’s a monumental reversal over the rest of this year — then 2 April 2026 would be a bad day in the Swiss dairy.

Further reading:
— O dirang, Donald? (FTAV)
— Reciprocal tariffs: You won’t believe how they came up with the numbers (FTAV)
— The stupidest chart you’ll see today (FTAV)
— Academic citation malpractice, reciprocal tariffs edition (FTAV)

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

‘Liberation day’ proved suboptimal for the stock market. The S&P 500’s 4.84 per cent decline was the 23rd biggest since at least 2000, and a larger drop than the one that followed Lehman’s bankruptcy in 2008. Nice.

By the look of Asian and European markets and US futures, today is going to be another bad day, with even Wall Street’s more cautious and circumspect analysts sounding pretty morose right now.

However, like Pavlov’s dogs, retail traders have been conditioned for years to buy the f***ing dip, and this they did in size yesterday. From JPMorgan’s equities team overnight, with their emphasis below:

Despite a sea of red, retail investors stood firm and not only bought the dip but did so at a historic pace. They ended today with +$4.7B of net buying, the largest level over the past decade and +4.4z above last 1Y average. Throughout the day, they bought aggressively at 11am when the market dipped briefly, then gradually sold as the market recovered.

Inflows were remarkably balanced between ETFs (+$2.4B) and singles (+$2.3B). Initially, inflows were spread across multiple names in the first half of the day, but gradually concentrated into Retail favorites (i.e. longer term buy and holds).

. . . . Although the market has undergone its worst 1D performance in five years, the response by Retail investors stood in stark contrast to the 2020 COVID sell-off. At that time, they largely exacerbated the existing institutional selling, with ~75% correlation between market performance and their subsequent flows. Even on days they did decide to step in, they did not have the confidence to pick stocks but instead opted for more diversified ETF exposure, leading to a high ETF-to-singles ratio.

Interestingly, retail traders actually dumped Tesla stock yesterday, despite it being the standout BTFD fave of 2025 so far. In fact, it was the only Mag7 stock that suffered net selling.

Unfortunately, even a record $4.7bn of net buying wasn’t even near enough to provide even a little bit of support for the market, given the massive amounts of selling that institutional investors conducted.

As JPMorgan’s equity derivatives analysts noted yesterday, leveraged ETFs alone probably sold about $22bn of stocks in the US stock market’s closing auction. More selling is inevitably coming from various investment strategies that tie their net exposure to the level of volatility. JPMorgan estimates that up to $20bn could be dumped by vol-targeting investors “over the next few days”.

Moreover, retail traders have not enjoyed a lot of success lately, with JPMorgan estimating that they are collectively down nearly 13 per cent so far in 2025, compared to the S&P 500’s 8.3 per cent decline.

Getting absolutely creamed in 2022 failed to break the BTFD mentality, but a few more weeks like this and they might begin to buckle.

Further reading:
— Stock trader head in hands (Alamy)

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American households are about to take a wild ride through the basics of global economic policy, thanks to their country’s Big Beautiful Leap Forward. Or the Great Leap Onshoreward, if you’d prefer.

This is being signaled very clearly by Thursday’s stock-market moves. Are stocks the economy? No. But they have direct effects on the capital costs of companies, who are the economy (especially during an ongoing project to strip the public sector of power). And stocks can provide a pretty good outlook of what investors expect.

Today, at least, investors see a big reckoning for the American consumer. For a while now, the American Pitch has been that if you sacrifice universal healthcare, you can buy cheap screens and nice clothes, and maybe dream of becoming very wealthy and powerful despite your worsening statistical chances. This deal used to involve homeownership, but that was ages ago (before 2008).

Now the White House’s narrow focus on bilateral trade balances threatens to end the rest of the Cheap Stuff party.

That will probably have broader economic implications. But first, let’s step back and look at the shares of companies that sell Stuff.

They’re tanking, predictably, because countries like Bangladesh, Cambodia, Indonesia, Sri Lanka, Thailand and Vietnam all face the biggest “reciprocal” tariff burdens, and are big exporters of consumer goods like textiles and electronic parts. We’ll call these the American Stuff Stocks:

As you can see above, the S&P 500’s biggest losers today include retailers like Ralph Lauren, the mega-Americana brand, and Deckers Outdoor, the maker of Uggs. About 35 per cent of RL’s suppliers are in China and Vietnam, which got hit with tariffs of 34 per cent (on top of the existing ones) and 46 per cent, respectively.

Toymaker Hasbro and electronics retailer Best Buy are both down bad too. Same goes for Williams-Sonoma, which sells higher-end home goods.

Home-goods store RH (fka Restoration Hardware) has fared even worse on Thursday. As its CEO said in the company’s earnings call today, with our emphasis:

I mean, I guess, the stock went down based on some of the numbers we reported and then it got killed because of a – oh, really? Oh, shit, OK.

Sure, you could argue that all of this will be offset by substitution effects and domestic investment within the US.

But the Secondary Stuff Stocks, whose profits rely more on consumer spending than tariffs, aren’t looking so hot either:

Synchrony Financial isn’t an importer! It does, however, sponsor the retailers’ store cards that shoppers use to sign up for discounts. So it’s down bigly as well. Airline and cruise stocks, which are also tied to consumer demand, are also falling (their capital spending is big, but rarer and often financed separately).

This trade pretty clearly goes beyond the mechanical tariff impacts, though. Gambling stocks are selling off hard, and they don’t really sell Stuff! But people do gamble less if they don’t have money to spend. Ideally.

And then we have the Staple Stuff stocks:

On the other side of the vice ledger from gambling, shares of cigarette maker Philip Morris are doing just fine.

Investors also appear to be more bullish on soup (Campbell Co) and processed grains (General Mills). No need to worry about GMO grains or Red-40 if you can only afford to have cereal for dinner!

The best performer in the consumer staples sector? That’s Lamb Weston, which sells frozen potatoes.

And this is all before we even get into the rates market, which is sounding the siren of recession. The US yield curve is now inverted as Hell, to use the technical term.

As Unhedged’s Rob Armstrong pointed out late last year, Americans are “fundamentally people who buy things”.

This type of trading heralds an identity crisis.

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To mark Liquidation Day, all three charts in last week’s quiz were made from OECD international trade data. The theme to guess was fish.

Here’s what you should have said:

That’s 2022 total value of international trade of fisheries commodities, as made apparent by those mirror-image Norway and Japan bars.

Chinese Taipei on the export side is the big clue above. It’s live fish (data code HS17_0301).

China leading on exports but with zero imports? Japan third for imports with zero exports? France importing and exporting almost exactly the same amount? It can only be caviar (data code HS17_160431).

Only one correct entry this week, so no need for the FTAV wheel of fortune. It was from Sean Lightbown of T Rowe Price. To him, congratulations. To everyone else, come back Friday for another go.

By now you’ll surely have seen the Trump administration’s self-cancelling and probably back-engineered tariff formula, as summarised below by a Stinson Dean tweet:

But it’s not the only bit of padding in the tariff policy note posted overnight. In the “references” section is an academic paper not mentioned in the main text: Trade Wars with Trade Deficits (2024) by Pau Pujolas and Jack Rossbach.

The paper starts with an idea associated with Canadian economist Harry Johnson: trade wars in general are counter-productive nonsense, but the country with the higher elasticity of substitution between domestic and imported goods can still claim victory. A trade deficit is similar to having a more elastic demand than the trading partner, say the authors.

Here’s what the lead author, Pau Pujolas of McMaster University in Canada, told FT Alphaville by email:

The work was done using the trade war between the US and China in 2018, it is not about the tariffs just announced.

Our paper shows that bilateral trade deficits change the way we have been understanding trade wars so far. I suspect that is the reason why the Trump administration is using the paper. It became somewhat well-known when we first put the pre-print on SSRN, as it is changing the way people should look at trade wars.

In a nutshell, the way people have been thinking about a trade war is like the Prisoner’s Dilemma: if I set tariffs and you don’t, I win, and you lose. If we both set tariffs, though, we are both made worse off.

But our results show that this result starts to crumble when there is a trade deficit: if I buy products from you and you don’t buy them from me, I can tariff you but you can’t tariff me, so I will reap the benefits of a impoverishing you, and you can’t do anything about it.

Hence, when trade deficits arise, the question about a trade war is quantitative: how much does the mechanism we uncover matter?

The paper uses a big-data trade model to figure out what tariffs a country should set and the likelihood of victory. Its authors add in a Spanish-language blog post published in January that the US could theoretically win a trade war against China, but the tariffs imposed in Trump’s first term were so poorly designed that both sides lost.

Pujolas told FTAV:

For a country like the US against a country like China (with a large trade deficit and also with rather large tariffs from China to the US) the US wins from starting a trade war. Similarly, against Canada. But we find that the US should not do that against, say, the European Union. Also, we find that the tariffs should be in the range of 10 per cent to 25 per cent. Making them higher is a bad idea for the United States.

And this is where the discrepancies between our work and the table that President Trump showed arises. Our results arise from a heavily computational exercise. We use supercomputers to find the optimal tariffs. The Trump administration seems to have taken a bit of a shortcut there. Also, our results suggest that the EU should not be tariffed, and yet they set high tariffs against them. Finally, our range of optimal tariffs is substantially lower than the ones the Administration just announced.

Jack Rossbach, of Georgetown University, the paper’s co-author, added:

I think the announcement shows we’re in a situation where it’s less about the specific numbers, and more a signal of how the administration expects things to proceed. If you want continued access to the US market, the administration is telling countries to come one-by-one to the negotiating table and start making offers.

It remains to be seen how countries will react to this.  We may start seeing countries announce lower tariffs, improved market access, or commitments to buy more American goods to avoid these tariffs.  If you import as much from the United States as you export, then the formula in the announcement says you’ll face zero tariffs.  It’s also possible that countries might start retaliating.  The paragraph in the announcement where they say the elasticity is 2, but we were conservative and went with 4, signals that the United States is happy to double these tariffs if countries try to fight instead of looking to negotiate.  The passthrough talk is a signal that the administration will be closely watching how firms adjust their prices in response to the tariffs.

We’ll have to wait to see what actually happens.  An all out trade war is going to have a very different impact than a joint investment venture.

We also checked in with Anson Soderbery of Purdue University, whose 2018 paper Trade elasticities, heterogeneity, and optimal tariffs gets a Trump citation. He told us:

While I do not believe reducing the US trade deficit through tariffs should be a central policy goal, if policymakers insist on this path, I urge against reductionist policy. That is to say, there are more efficient ways to craft trade policies to reduce trade deficits than a universal tariff ignoring industry and partner specific effects of tariffs.

Another paper cited in the main text, The Long and Short (Run) of Trade Elasticities (2023), is co-authored by University of Michigan’s Andrei Levchenko. Here, in full, is what he told us:

The goal of the import tariffs is to reduce imports: the higher are the tari&s, the lower imports will be. But how much lower? The formula used requires a number that gives the percent change in imports that will result from a 1% change in tariffs (called the “trade elasticity, or e in the document).

Our paper [ . . . ] is cited as a source for an estimate of this number. This note argues that our elasticity estimate should not be directly applied in this tariff calculation. The key reason is that the concept of the trade elasticity holds everything else constant (in technical terms, it is a “partial equilibrium elasticity”). This characterization applies equally to every other estimate of the trade elasticity, including the other papers cited.

In practice, everything else will not be constant. In particular, US exports (labeled xi in the document) could change. That can come from a variety of channels, but one important one is tarff retaliation by trading partners. If a trading partner puts tariffs on US exports to it, they will fall, (at least partially) un-doing the impact of lower imports on the trade deficit.

Beyond this, there are many other ways in which the change in US imports and exports will differ from the formula that directly applies a partial equilibrium trade elasticity. For example, trade elasticity estimates do not account for any impact of the change in tariffs on wages, prices, exchange rates, and the stock market. Those can go in different directions depending on the country, the product, the production technology used, etc.

For small tariff changes on individual products from individual countries, these changes might be small and could reasonably be ignored. However, the change in imports and in the bilateral trade balance implied by the partial equilibrium trade elasticity is likely to be unreliable when the tariff change is large and comprehensive (covering all goods), as is the case today. There is a way of assessing the change in imports and bilateral trade balances with large tariff changes. That would require a large-scale model of world trade with many countries, goods, adjustment mechanisms, etc. Our elasticity estimate would be one of many inputs into such a model.

And we spoke to Brent Neiman, of University of Chicago, whose co-authored work may or may not be cited in the explainer. There’s a citation in the main text to “Cavallo et al, 2021”, which might refer to Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy — by Alberto Cavallo, Gita Gopinath, Brent Neiman and Jenny Tang — but there’s nothing in the actual reference section.

 Neiman told us:

It is not clear what the government note is referencing or not from our work [ . . . ] But I believe our work suggests a much higher value should be used for the elasticity of import prices to tariffs than what the government note uses.

 The government note uses a value of 0.25 for ‘the elasticity of import prices with respect to tariffs’, denoted with the Greek letter phi. But our estimates found a value of 0.943 — very close to 1 — for this elasticity. 0.943 is obtained using the very first number in Table 1, which equals -0.057. To translate this to their phi, you have to add 1 to this value, i.e. 0.943 = 1 — 0.057.

In non-technical terms, we write in the introduction to our paper, “ . . . our regressions suggest that a 20 per cent tariff, for example, would be associated with a 1.1 per cent decline in the ex-tariff price, and an 18.9 per cent increase in the total price paid by the US importer.” (Bolding added.) The government note assumes, I believe, that a 20 per cent tariff would only cause a 5 per cent increase in the price paid by the US importer.

I do not agree that the government calculation is an appropriate way to think about reciprocal tariffs. That said, using a value of 0.25 in their calculation, compared to a value closer to 1, results in reciprocal tariffs that are four times larger.

All in all, it’s a bit sloppy.

A paper about how tariffs need to be cleverly designed and carefully applied — and how Trump failed on both measures during his first term — is an odd thing to reference for a policy whose core formula is “divide this by that”. But to be fair, there’s no evidence that anyone involved in preparing the document has read it.