EU politicians bristle at US trade deal

0:02Good morning from the Financial Times. Today is Tuesday, July 29th, and this is your FT News Briefing. There's a tiff between the UK's economic heavy hitters, and European politicians are feeling pretty sore over the bloc's US trade deal. Actually, what we've ended up with is this kind of chaotic, unclear, high-level political agreement which hasn't actually got everything agreed. Plus, the U.S. economy is defying expectations, but some economists are worried the pain just hasn't kicked in yet. I'm Mark Filippino, and here's the news you need to start your day.

0:47Bank of England Governor Andrew Bailey and U.K. Chancellor Rachel Reeves are at odds. Bailey stopped a meeting that Reeves set up between financial watchdogs and the fintech company Revolut. That's according to people familiar with the matter. The meeting was supposed to be about the startup's goal to become a fully-fledged bank. Reeves wants that to get greenlit as soon as possible. Bailey, meanwhile, has publicly expressed frustration with Reeves' push to deregulate and has distanced himself from the effort. But the chancellor's team insisted that personal relations were very good. The Treasury declined to comment on the Revolut meeting.

1:25The BOE and Revolut declined to comment.

1:34The EU and the U.S. agreed to a trade deal over the weekend. It's going to hit most European imports with a 15 % tariff. The deal also requires the bloc to invest hundreds of billions of euros into American energy products and weapons. Now, the EU trade commissioner said he was, quote, quote, 100 % sure this deal is better than an all-out trade war, but it still results in U.S. tariffs being at their highest level in decades. I'm joined now by the FT's Alice Hancock to unpack this. She covers the EU. Hi, Alice. Hi, Mark. So how have markets reacted and what does that tell you about how this deal might impact Europe's economy?

2:14I think that quote you used from the EU trade commissioner about it, avoiding an all-out trade war. It's the kind of damning with faint praise that sums up most of the reaction to this deal. Markets were up on the kind of relief of getting a deal. But then they, of course, fell back on Monday when everyone realized that that still meant that there would be a huge proportion of goods that were covered by a 15 % tariff, as you said, for most goods. And that's obviously vastly more than the EU was paying before the Trump presidency. So based on the quote and by the market reaction, I'm getting the sense that European politicians aren't super hot on the deal?

2:50No, I can give you a little flavour from some of the leaders from near where I sit in Brussels. The Dutch Prime Minister said that no tariffs would have been better, obviously. And the Dutch Prime Minister said it might be a moment of relief, but it's certainly not one of celebration. The French Prime Minister said that the trade deal was an act of, quote, submission and described it as a dark day for Europe. And a former EU trade official, actually, who used to be very high up but in the Directorate of Trade just said that the EU had totally submitted itself to the US and had lost all its political power doing this.

3:23So Alice, despite the strong reaction, it's important to point out that this is just a handshake deal and much of the detail still needs to be hammered out. What are the main points that need to be decided? Yeah, I was going to actually start by saying that I should probably caveat everything I say with the fact that we've seen nothing on paper yet. So this is all just based on briefings from officials. And so there's this 15 % on most goods that can include, as we understand it at the moment, semiconductors, pharmaceutical cars. There is things like steel could be subject to a 50 % rate indeed, depending on an agreed quota.

3:58And then there are other elements included in the deal, such as the EU promising to buy or invest in$750 billion worth of US energy products over the next three years. Put into context, that's an absolutely wild number, given that the EU spent 375 billion euros on energy imports from the whole world in 2024. It's also much more a sort of symbolic thing, given that the Commission has absolutely no power to mandate that it would have to come entirely from private companies. As you're speaking, I'm kind of getting the sense that this may have been done just to get something in under the wire because the deadline is friday right and who knows what would have happened had this not gotten completed before then yeah it's a good point i mean there have been hundreds of hours of negotiations since april but of course trump keeps changing the goalposts so there was definitely a feeling that when he was coming over to scotland they had to kind of get to this point because he wanted to have this deal done before his deadline and there There were points open during their negotiations on Sunday.

5:07But this is why I think that there are still so many gaps that have been left. Alice, from your perch, what does this all tell you about the EU making deals with the Trump administration, the process, the outcome, all that? It's been a fascinating process to watch. The EU is a very process-driven place, very bureaucratic. It likes, you know, obvious, clear steps. And actually what we've ended up with is this kind of chaotic, unclear, high-level political agreement which hasn't actually got everything agreed. And at the moment, what we hear from ambassadors, what we hear from diplomats is that the EU isn't actually clear about how they will agree this as a trade deal.

5:48So at the moment, we are waiting to hear exactly how it will be formalized. Alice Hancock covers the European Union for the FT. Thanks, Alice. Thanks a lot, Mark.

6:04Bain and Company is shutting down its consultancy business in South Africa. It was involved in a corruption scandal that brought down the country's former president. The scandal involved Bain, McKinsey, and KPMG under Jacob Zuma's presidency. Key state agencies were hollowed out by graft and stripped of financial assets in the mid-2010s. In 2022, South Africa's national treasury barred Bain from doing business with the state for a decade. The firm has legally challenged the punishment. Bain will still have some presence in the country. The company says the Johannesburg office will support Bain's global operations and retain the majority of its local employees.

6:50The U.S. economy is defying expectations. Forecasters predicted a big economic hit from President Donald Trump's policy agenda. but those fears haven't materialized, at least not yet. So is it time to rethink how economists make their assessments? Here to help answer that is the FT's U.S. economics correspondent, Miles McCormick. Hey, Miles. Hey, Mark. So tell us what economists thought would happen under Trump's policy agenda and what actually did end up happening. Yeah, so when Trump took office with a promise to overhaul the U.S. economy, taking steps from slashing government contracts to deporting thousands of people to reshaping international commerce with tariffs.

7:34There was a lot of fear among economic forecasters that there'd be a form of chaos appearing in the economic data. But we're now six months in, and there is very little sign of the disruption that was anticipated. I mean, for example, inflation has ticked up a little bit, but not by a significant amount so far. The labor market is still robust. Hiring is strong. Unemployment is low. The stock market dipped, but it's bounced back. The upheaval that a lot of economists feared would kick in just hasn't materialized yet. So then what is going on with the economy, Miles? I mean, why is it staying so resilient?

8:15Are we in the clear here? So I wouldn't go that far. And I suppose it depends who you talk to, to some extent. If you speak to some folks in the Trump camp, they will tell you that this is evidence that a lot of the fears were overblown. Other folks will tell you it's still too soon to tell. And in the case of those tariffs, where they have been implemented, it's just going to take a little bit more time for it to seep through to the consumer. Okay, then what are the things we're already seeing that could be a bigger issue down the road, Miles? Some of the specific red flags that economists have highlighted are, for example, in the labor market.

8:57Yes, hiring is strong, but in recent months, that has been driven by an unusual level of public sector hiring at the state level, while private sector hiring begins to cool a bit. Another point that people flag is that while inflation remains in check, it has begun to tick up. So these red flags suggest that there could be stuff going on below the surface that will really break out in the months ahead. So it seems like what is actually going on with the economy is still up for debate. Is that right? Yeah, I think that's fair to say. So then what does the strong performance so far tell us about how economists make forecasts, Miles?

9:38Well, there's an argument from some in the industry that the current way economic forecasting is done and the models it relies on are not fit for purpose. And that that is because that current modeling is built on a set of assumptions that free markets are always optimal. And that anything that interferes with that assumption is automatically going to imply that things are going to get worse. But other economists will argue that current models work just fine. There is just this lag as to when policy is converted into economic data points. And some light might be shed on where we're going this week with various economic data points due to drop, including Q2 GDP and including the latest employment figures.

10:34Speaking of wait and see, Miles, let's talk about the Federal Reserve. What position does this all leave the Fed in? It's meeting this week to make a decision on interest rates. And, you know, just yesterday, President Trump once again pressured Fed Chair Jay Powell to lower interest rates. So it all leaves the Fed in a bit of a bind, really. As you say, Powell is under serious pressure from the president to lower rates. but by all accounts most economists and analysts expect the Fed to hold rates steady again when they meet this week and that comes down to the fact that most members of the Fed's rate setting committee still want to wait and see to what extent tariffs that have been implemented by the president are going to affect inflation but there is a growing schism among folks on that committee.

11:30And it's possible we will have a divided vote, which kind of underlines the extent to which economists are debating what we should be reading from from the data at the moment. Miles McCormick is the FT's U.S. economics correspondent. Thanks so much, Miles. Thanks, Mark.

11:50You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news. Thank you.