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FT : China imposes retaliatory tariffs on $14bn worth of US goods

China has imposed retaliatory tariffs on the US, hitting about $14bn worth of goods and dashing hopes that a trade war between the world’s two largest economies could be avoided.

Beijing announced the tariffs last week in response to a US decision to impose an additional 10 per cent levy on Chinese products, which US President Donald Trump called an “opening salvo” in a renewed trade offensive against China.

Compared with the blanket US tariffs, China’s measures — which target US exports of liquefied natural gas, coal, crude oil and farm equipment as well as some automotive goods with levies of 10 per cent to 15 per cent — were seen as creating space for negotiations to avert a wide trade conflict.

But by the Sunday deadline there was no news of a deal and China’s embassy in Washington said the tariffs came into effect at 12.01am Beijing time on Monday (11.01am on Sunday in Washington DC).

Beijing last week also announced an antitrust probe into Google, whose search engine is blocked in China, and Illumina, a US biotechnology company. And it blacklisted the holding company of US clothing brands Calvin Klein and Tommy Hilfiger.

China underlined its control of the rare earths supply chain by restricting exports to the US of five critical metals used in defence-related industries, solar panels, electric vehicle batteries and other green energy products. China produces about 60 per cent of the world’s rare earths and accounts for 90 per cent of processing in the industry.

Financial markets had initially hoped Trump might follow the same playbook with China as with Canada and Mexico — against which he also announced tariffs, but then gave a month’s reprieve following last-minute talks with their leaders.

Trump had suggested he would speak with Chinese President Xi Jinping, but later said he was in “no rush” to do so.

Experts have suggested Beijing might have objected to Trump’s tactics, announcing the tariffs just two days before they came into effect, and before approaching Chinese officials for negotiations.

Trump has accused China, along with Mexico and Canada, of failing to curb the flow of the deadly opioid fentanyl into the US.

He has also instructed the US Trade Representative to investigate Chinese compliance with the first phase of the trade deal he sealed with China in 2020 during his first term in the White House, under which Beijing agreed to buy more American products.

The USTR is due to report the findings from the probe on April 1, at which point there could be another confrontation, analysts said.

Beijing has taken some measures to stem the flow of ingredients for fentanyl — known as precursor chemicals — since a summit in San Francisco in late 2023 involving the then US president Joe Biden and Xi. But the Trump administration accuses Beijing of subsidising Chinese companies that make the precursors.

The US-China trading relationship has shaped both countries’ economies in recent decades.

But China’s share of total US imports has fallen markedly since Trump introduced tariffs during his first term, leading some analysts to suggest that Beijing may be better placed this time to endure the president’s measures.

Frederic Neumann, chief Asia economist at HSBC, said many Chinese companies would be able to bear a 10 per cent tariff on their goods, given the country’s export prices had declined much more than those of rival producers over the past two years.

“If there was only a 10 per cent tariff on China and we left it at that, I think many investors would sleep more comfortably,” he added. “The big worry, of course, is this is a prelude to potentially larger trade restrictions.”

President says ‘fraud and abuse’ at the Pentagon will be the next target of cost-cutting by Elon Musk

Donald Trump said he would seek to cut billions of dollars from the Pentagon budget as the next big target in the effort led by Elon Musk to slash spending by US government agencies.

In an interview on Sunday, Trump backed Musk’s cost-cutting push through the so-called “Department of Government Efficiency” even as it faces growing setbacks in federal courts and allegations from Democrats that it is exceeding its powers.

Trump said Musk had been “terrific” and a “great help” in scouring the federal government for possible spending cuts so far. He indicated that the defence department, which has an annual budget of about $800bn, would be next in the billionaire’s sights.

“Let’s check the military. We’re going to find billions, hundreds of billions of dollars of fraud and abuse. You know, the people elected me on that,” Trump said.

Musk’s potential role in scouring the Pentagon for savings has already raised concerns about potential conflicts of interest, given that his companies SpaceX and its subsidiary Starlink have contracts with the government.

But Mike Waltz, Trump’s national security adviser, brushed off those worries in an interview with NBC. He said “all of the appropriate firewalls” would be in place to prevent any conflicts, though he did not offer further details.

“The American people have said enough, enough with the bloat and the waste and the debt,” Waltz said. “We do need great minds and we do need business leaders to go in there and absolutely reform the Pentagon’s acquisition process,” he said.

With Musk in a leading role, Trump’s second administration has moved aggressively to grind some federal programmes and agencies to a halt.

In one setback for Musk on Saturday, a federal judge in New York temporarily blocked his team’s effort to gain access to the US Treasury department’s payment data, saying it could lead to the disclosure of sensitive personal information that could cause “irreparable harm” to Americans.

Democrats have increasingly been crying foul.

“This is the most serious constitutional crisis the country has faced, certainly since Watergate,” Chris Murphy, the Democratic senator from Connecticut, told ABC on Sunday.

“The president wants to be able to decide how and where money is spent so that he can reward his political friends, he can punish his political enemies. That is the evisceration of democracy,” he added.

The hardest hit federal agencies include USAID, which administers foreign aid, and the Consumer Financial Protection Bureau, whose employees were told on Saturday by its acting director Russell Vought to cease virtually all of their activities, including investigations and supervision. Trump has also vowed to eliminate the Department of Education, which has long been a target of conservative ire.

Republicans in Congress have stood by Trump and Musk as they have moved to halt a wide range of federal programmes, even though the push has undermined the constitutional role of lawmakers in authorising spending.

Mike Turner, an Ohio Republican, said on ABC that the Trump administration needed to take a “critical view” of US spending policies because the country’s fiscal path was “unsustainable”. But he also said Musk could be moving more artfully.

“He needs to, in a more professional way, communicate with the American public,” Turner said.

Canadian investment firm Brookfield plans to invest €20 billion by 2030 in artificial intelligence projects in France (around $20.7 billion at current exchange rates), according to a report from La Tribune Dimanche confirmed by news agency AFP. The majority of the sum will be used to build AI-focused data centers.

This announcement is the latest in a series of investment commitments as heads of state and global tech leaders plan to gather for the Artificial Intelligence Action Summit in Paris starting on Monday.

According to La Tribune Dimanche, around €15 billion of Brookfield’s investment will go toward a massive data center in Cambrai in the North of France. This data center will have a capacity of up to one gigawatt. The rest will be used for new infrastructure projects, including the construction of new electricity production capabilities.

On Friday, France and the United Arab Emirates announced an AI campus project along with a large investment of up to €50 billion ($52 billion). Once again, most of the investment will go toward a data center with a capacity of up to one gigawatt.

There are two reasons why these mega investment projects are occurring right now. First, on January 21, OpenAI, SoftBank, MGX and other partners unveiled the Stargate Project, a $500 billion investment program to build multiple data centers for AI in the United States.

While it’s unclear how much each investor is actually willing to commit to Stargate, this announcement — combined with Mario Draghi’s recent report on European competitiveness — acted as a wake-up call for many policy-makers in Europe.

Second, the majority of France’s electricity production comes from nuclear power plants (around 65%) and renewable sources (around 25%). It also produces more electricity than it needs. Tech companies are struggling to reduce their carbon footprint and find sufficient electricity capacity, so they are increasingly looking to France as an attractive location for their power-hungry data centers.

Separately, Bpifrance, France’s public investment bank, announced that it plans to invest as much as €10 billion ($10.3 billion) in the AI ecosystem in France. This isn’t a data center project, as Bpifrance mostly wants to back more AI startups and become a limited partner in VC firms specialized in AI investments. Bpifrance is already a shareholder in Mistral, H and Poolside.

Finally, Iliad, the telecom company founded by French billionaire Xavier Niel, is allocating €3 billion toward AI investments ($3.1 billion) with the help of financial partners, such as Infravia. Around €2.5 billion ($2.6 billion) will be used to build new AI-focused data centers with “hundreds of megawatts of capacity.”

Scaleway, a cloud computing company based in France, is a subsidiary of Iliad. So the new computing power will likely be available through Scaleway. Some European AI companies have already used Scaleway to train their AI models, such as Mistral, H and Photoroom. (Interestingly, Xavier Niel also happens to be an investor in Mistral and H.)

If you add up all these announcements, France could receive €83 billion ($85 billion) in AI-related investments in the coming years, primarily related to data centers and infrastructure projects. And there might be more to come at the AI Action Summit.

The nonstop news from the White House didn’t shake investors in January. Also: A Financial Flashback to 40 years ago, the ‘Volcker rally’ that sent the dollar to a high.

Fund investors in January absorbed the fast and furious news coming out of the new administration in Washington, rewarding their patience with solid gains.

The average U.S.-stock fund posted a return of 3.6% in January, according to data from LSEG, formerly Refinitiv Lipper. That built on the 17.4% gain that stock funds registered for all of 2024. (See funds-data tables including Mutual-Fund Yardsticks.)

Tariffs… interest-rate uncertainty… the DeepSeek artificial-intelligence bombshell. Investors watched it all, with heads spinning, but largely stuck by their guns.

“Tariff news is developing on top of a U.S. economy that is still very strong. This should provide some ballast against trade developments in the near term,” says Lauren Goodwin, economist and chief market strategist at New York Life Investments.

“The U.S. election results in November have boosted both business and consumer confidence,” says Linda Bakhshian, deputy chief investment officer of equities and multi assets at Macquarie Asset Management. That said, stock valuations “remain elevated,” Bakhshian says, so “earnings growth will be crucial to support stock performance in 2025. And be prepared for volatility.”

International-stock funds were up 4.5% in January—nearly as much as in all of 2024, when the funds gained only 4.8%, significantly lagging behind their U.S. counterparts.

Bond funds were also up for the month. Funds focused on investment-grade debt (the most common type of fixed-income fund) posted an average return of 0.6%, adding to the 1.8% gain for all of 2024.

FINANCIAL FLASHBACK

A look back at Wall Street Journal headlines from this month in history

40 YEARS AGO: The Dollar’s ‘Volcker Rally’

After World War II, the U.S. dollar became the world’s top reserve currency, and the global economy flourished. But fast-forward to 1985, and things got a bit out of control.

The dollar index—a measure of the greenback’s value against a basket of major currencies such as the British pound and the German mark—hit an all-time high of 160. There seemed to be “no end in sight to the dollar’s strength,” as The Wall Street Journal quoted one banker in late February of 1985.

It was called the Volcker Rally, recalls Win Thin, chief strategist at Brown Brothers Harriman. Paul Volcker headed the Federal Reserve and successfully crushed U.S. inflation by raising short-term interest rates to 20%.

Deregulation from the Reagan administration and corporate tax cuts helped boost stocks. And higher U.S. rates meant the dollar became a magnet for foreign capital, sending the dollar sky-high, Thin says. “It was sort of exceptional.”

The good news was that a strong dollar meant cheaper U.S. imports. But exports became massively expensive. At the same time, dollar-denominated commodities sank, with wheat prices shedding 29% from $3.89 a bushel in August 1983 to a low of $2.75 in 1985.

U.S. farmers, manufacturers and tech firms suffered under the rally, and they demanded change. The result was a September 1985 meeting at the New York Plaza Hotel, where an agreement was made to depreciate the greenback relative to the other major currencies. It became known as the Plaza Accord and resulted in avoiding new tariffs on imports.

Trump’s nominee for SEC chair has been critical of regulatory burdens for public companies

Wall Street is holding out for a hero to revive a beleaguered IPO market. Enter Paul Atkins, President Trump’s nominee to lead the Securities and Exchange Commission.

Investors are hopeful that the agency’s next chairman will ease regulatory burdens for publicly traded companies and help spark a rebound in stock-market debuts. Former SEC Chair Gary Gensler was viewed by bankers as an impediment to the U.S. market for initial public offerings, given his penchant for enforcement actions and support for tighter disclosure rules on a range of corporate issues.

“It’s part excitement, and it’s also part relief,” said Jim Toes, president and CEO of the trade group Security Traders Association. “The most recent chair did very little in this role to encourage companies to go public.”

Atkins is a conservative lawyer who served as a Republican member of the SEC under former President George W. Bush. If confirmed as the new chair, he is expected to re-examine the agency’s actions during the Biden administration.

Just how much he and the SEC can do to reverse a decadeslong trend of fewer companies listing on public markets is unclear. Sharp stock market swings—such as those in the first weeks of Trump’s presidency—are also bad for IPOs because they make valuing companies tricky.

U.S. companies raised just $32 billion in traditional IPOs in 2024, well below the 10-year average of around $49 billion, according to data from Dealogic. There were fewer than 4,000 publicly traded companies in the country last year, down from more than 7,000 in 1998, according to the Center for Research in Security Prices.

Access to seemingly endless investor cash and concerns about the costs of public listings have kept companies private longer. The Federal Reserve’s interest-rate hikes during the pandemic also put a huge damper on new listings.

“Many of the rules that we’ve done over the past four years, there have been burdens associated that one worries at the margin could have a negative effect on companies’ willingness to go public,” said acting SEC chair Mark Uyeda in an interview last month.

Atkins has yet to reveal any specific plans for the SEC. His confirmation is expected to take place this month, though he may not step into the role until March, according to people close to the situation. But he has also cited factors creating an unfriendly environment for discouraging companies from going public.

“One is the cost of regulation and two, other things like the fear of litigation,” he said in a 2017 interview on Bloomberg TV.

A hallmark of Gensler’s tenure at the SEC was his targeting of crypto companies, which he sought to regulate more closely. Gensler also pursued legal actions that led to billions of dollars in fines for other companies.

The SEC won’t be able to enact sweeping changes without new legislation. But some bankers are hopeful the agency will take steps to make it more appealing for companies to go public.

For instance, the SEC could look at reducing disclosure requirements in areas such as stock buybacks and financial risks from climate change. The agency is also expected to ease restrictions on special-purpose acquisition companies, or SPACs. These firms boomed during 2020 and 2021, but increased scrutiny from the SEC effectively shut down the market.

For now, bankers have been tempering their hopes for an IPO market comeback in 2025.

Trump’s tariffs are fueling uncertainty over how much more inflation and interest rates might come down this year.

Last month, Venture Global cut the target price for its IPO by more than 40% due to muted investor demand. Shares of pork producer Smithfield Foods also got a tepid reception.

“Given macroeconomic forces, I’m not sure someone new at the top job at the SEC lights the match for a flaming IPO market this year,” said David Peinsipp, co-chair of Cooley’s global capital markets group.

The activist hedge fund is encouraging BP to consider more dramatic moves than it has made so far to restore the once venerable company’s fortunes

Activist hedge fund Elliott Management has built a stake in British oil major BP BP 0.99%increase; green up pointing triangle and will push for transformational changes to improve the company’s performance, according to people familiar with the investment.

The U.S. hedge fund, which manages around $70 billion in assets, is one of Wall Street’s most influential investors, known for pressuring companies to fire management, break apart and spin off businesses, all with the goal of increasing shareholder returns.

The size of Elliott’s BP stake couldn’t be learned. Elliott is encouraging BP to consider more dramatic moves than it has made so far to restore the once venerable company’s fortunes, the people said.

The U.K. oil company’s strategy has whipsawed in recent years. It pivoted away from its traditional oil and gas businesses five years ago in favor of low-carbon energy investments such as wind, solar and electric-vehicle charging.

BP shares have lagged behind those of bigger rivals such as Shell and Exxon Mobil, spurring many BP investors privately to call for a new battle plan. Its market value of around $87 billion is less than half of Shell’s and less than one-fifth Exxon’s.

BP sharply cut its dividend in the pandemic and has been battling back ever since. It has struggled to reduce high debt levels and cut costs. Elliott’s arrival will add to executives’ concerns that the clock is ticking to improve BP’s performance.

BP has trumpeted what executives see as meaningful signs of progress and growth in areas like Iraq and the Gulf of Mexico, where BP is a dominant player. Executives have argued for more time to show they are on the right track, according to people involved in discussions with investors.

Last month BP said it would cut about 4,700 jobs, or more than 5% of its global workforce, and slice contractor numbers. It also warned that disappointing refining margins and other factors could leave as much as a $300-million hole in fourth-quarter profit. Its full earnings release is scheduled for Feb. 11.

The company has looked to cut costs further by bringing in partners for offshore-wind projects and by putting a Germany refinery and U.S. onshore-wind business up for sale.

Elliott’s stake, earlier reported by Bloomberg News, adds to the mounting challenges facing BP Chief Executive Murray Auchincloss, a veteran company finance executive named to the top job 13 months ago. He took over as interim boss after the previous CEO, Bernard Looney, was ousted over his failure to disclose details about past relationships with colleagues.

Auchincloss was widely labeled by investors and analysts as the continuation candidate for the role. BP’s chairman and other key board members stayed, underscoring the efforts by BP and Auchincloss to squelch expectations for a drastic change in course.

In private meetings with investors late last year, Auchincloss and other senior BP officials signaled that the company wasn’t planning dramatic strategic changes. They were responding to stepped-up criticism of the company’s performance, according to people who attended the meetings.

At a strategy update scheduled for Feb. 26, Auchincloss is expected to try to reassure investors that BP will rejigger how it spends money to take more advantage of its global oil and gas footprint and massive trading business.

With a 48-year record of shaking up companies, the Florida- and New York-based Elliott, which also has a London office, is famous for its deep dives into corporate structures and management and its knack for rallying other investors to its causes. Recent targets have ranged from Starbucks and Southwest Airlines to sprawling industrial icons.

Last year, Elliott amassed a $5 billion stake in Honeywell International and sought to break apart one of America’s last surviving industrial conglomerates. Honeywell’s shares had underperformed the broader market. Earlier this month, Honeywell said it would split into three independent companies.

Elliott isn’t the first to agitate against BP. Last year a tiny London hedge fund, Bluebell Capital Partners, attacked BP’s commitment to shrinking oil-and-gas production while boosting investment in less-profitable green-energy sources. Bluebell also called for replacing BP’s chairman, Helge Lund, a key backer of BP’s earlier pivot to low-carbon energy. Lund didn’t respond to a request for comment Sunday.

BP largely brushed off the criticism, telling investors it had shareholders’ support and didn’t need an activist weighing in. Though small, Bluebell struck a chord with other investors. Bluebell later closed its public funds.