EU pushes a UK-style trade deal with the US

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0:32Good morning from the Financial Times. Today is Friday, June 20th, and this is your FT News Briefing. Russia's wartime economy is starting to slow down. And the European Union wants to seal trade talks with the U.S. Plus, a U.N. official sounds the alarm on aid distribution in Gaza. I'm Josh Gabbard-Doyant, and here's the news you need to start your day.

1:02Russia may be heading towards a recession, so says the country's finance minister. That's the first time the government has admitted serious economic difficulty since Moscow's invasion of Ukraine more than three years ago. The Russian economy has been kept afloat so far by sky-high outlays on defense. Military spending was up 25 % last year, and that's led to strong wage increases and low unemployment. But the boost from public spending has since tapered off, and stubborn inflation has forced the central bank to keep its interest rates high, and that's meant higher borrowing costs for businesses.

1:39Russia's President Vladimir Putin hinted earlier in the week that he'd support a lower interest rate to get the economy growing again.

1:52The European Union is pushing for a trade agreement with the U.S., and they want to model it on the trade deal the UK just struck with Washington. Time is of the essence. Brussels is rushing to meet the July 9th deadline, the day when US President Donald Trump's so-called Liberation Day tariffs are supposed to snap back into place. My colleague, Andy Bounds, is here to tell us about it. Hello, Andy. Hi, Josh. Okay, so what exactly would a UK-style trade deal look like? Yeah, this has become a bit of a buzzword in the trade world because the UK was the first to do a deal with Donald Trump's administration.

2:30Basically, it keeps in place the 10 % across-the-board reciprocal tariffs that Trump has imposed, and it also gives some carve-out from the steel car tariffs and other sectoral tariffs that he's imposed. Now, the reason that the EU wants to do something along these lines is they're beginning to think it's the best they can get, and if they don't get a deal or at least a sort of agreement towards a deal on July the 9th, then, as you say, the other tariffs snap back, which would be 50 % across the board reciprocal tariffs. Okay, you mentioned this idea also of the carve-out sectoral tariff. Which industries are the biggest source of tension right now between the EU and the US?

3:09Well, it's very much cars is a huge one because the EU sends a lot of cars to the US and doesn't import very many. And steel is a very sensitive subject in the US. And there's been tariffs on steel for quite some time. So in these areas, what the EU is hoping to do is what the UK did, which is to say some sort of historic levels of quota that they normally send, would be a reduced rate tariff or possibly even tariff-free or down to the rate of 10%. Right. Let's say the EU and the US can't come to an agreement. What happens next? How would the EU respond if Trump puts in place this 50 % tariff?

3:47Well, that is a very, very big question. Basically, the trade policy of the EU is run by the European Commission, which is the sort of central authority, the member states have to approve by majority actions such as doing trade deals or taking punitive measures. Now, back in April, they did agree to hit the US with tariffs on 21 billion worth of goods, but they then delayed that retaliation because there were talks. But of course, the longer this goes on, the more the EU industry is paying tariffs and getting shut out of the US market, while the US industry is not being discriminated against at all.

4:24So you get into this asymmetrical relationship where some EU member states are pushing to say, if we don't get something by July the 9th, we need to hit back. But other member states are saying, actually, this will be a self-inflicted wound. Why would we want to put tariffs on imports and make things more expensive for our companies and our consumers? Andy, it also seems like there's just a general shifting of the goalposts on global trade. Is this a new era for EU trade with the rest of the world? Yeah, I mean, there's nobody I've spoken to in Brussels who believes that we're going to go back to the relationship that we had before Trump came into power, which was tariffs of 2 % or 3 % across the board on each side, maybe some sensitive products with higher tariffs, agricultural products, steel, the odd tit for tat.

5:12But it's not just the US that they have trouble with. There's quite a lot of trouble with China as well. The US has its own problems with what it calls Chinese overcapacity. So lots and lots of manufactured goods coming out of China and being sold on US markets and EU markets. And the EU is looking to protect itself a bit further and protect its market a bit further than China and also force open the Chinese market to EU manufacturing to give itself an alternative to the US market. On the other hand, they're hopeful of doing more trade deals with other countries around the world. And I think this is the one sort of flip side of the Trump-Tarish story is that if you're in Canada or in Australia or in India and you see the US market closing to you, you want to do deals with other people.

5:52So the EU is trying to find alternative markets for their goods that will no longer be welcome in the US. Andy Bounds is the FT's EU correspondent. Thank you very much, Andy. Thank you.

6:10The Bank of England held interest rates steady at 4.25 % yesterday. That followed their quarter point cut in May. One reason to stick to the current rate? Inflation. It was 3.4 % last month, well above the bank's 2 % target. But that's not the only thing policymakers are wrestling with. There's also new uncertainty posed by fighting between Israel and Iran. That conflict could have a big impact on global energy prices. Looking ahead, the bank said it might lower interest rates in the coming months to prevent too much damage to the labor market. Over 100 ,000 people fell off UK payrolls last month, the largest monthly contraction since May 2020.

6:59In the last few weeks, Israel has allowed limited amounts of food to be distributed across the Gaza Strip. It's coming in through an organization called the Gaza Humanitarian Foundation, a new U.S.-backed group that's staffed by private security contractors. But most aid organizations, including the U.N., have refused to work with the group. Gazans, for their part, need to travel long distances to the aid distribution centers. And according to local officials, dozens have been shot and killed while queuing for food. Journalists have not been allowed into the enclave to witness what's going on.

7:32But James Elder, global spokesperson for UNICEF, recently spent 10 days in Gaza. He joins me now. Hi, James. Josh, hi there. Talk to me about this distribution program. In theory, how is it supposed to work? Well, we've never seen anything like it, Josh, so it's hard to say how it's supposed to work. Humanitarian aid is based, Josh, on going to where people need it. So the ceasefire in Gaza was perfect. Hostages go home, and we had 400 distribution points across the Gaza Strip, 400. In fact, UNICEF would go door-to-door on malnutrition. What's happened now is that we've got a virtual blockade again, less than 5 % of humanitarian aid, and these sites, there's less than a handful.

8:10So you've gone from 400 across the Gaza Strip to around three or four As one person said, those with knives prevail and 90 % of people go away with nothing. It's a combat site, which was always our fear. Humanitarian aid can't be militarized. We have to work with all parties. I mean, I sat with a little boy who simply went to get food for his family. He was given money to get bread and he saw this flood of people heading south and he thought, this is my moment to come back with a box of food. It was chaos, quadcopters, tank shell, the shrapnel from a tank shell ripped through his body. I sat with him in the hospital bed as he told me the story, in immense pain because there's no painkillers.

8:46And we visited him a couple of times. And the day I left, after two weeks, he died yesterday. These sites are reinforcing the horrors of Gaza. They're deepening despair for a population. You said these are combat sites, private military contractors, like I mentioned, are the ones running distribution here. What does that mean for the aid operation? Exactly. So I can't go to them, all right? We don't have clearance to go to them, but I could see them from a building and I would look at them at nighttime and people would start arriving from, say, eight to midnight and they're corralled into sort of cages.

9:23And then around midnight, you start hearing fire. I've got footage of all of this immense fire, gunfire, tank fire, quadcopter fire. There's no clarity on when the sites are open, Josh. And remember, you've got half a million people facing starvation. Now, contradictory information in a war zone gets you killed. So then, you know, people are still going. They're guessing, they're hoping, they're waiting. And it turns into mass casualty events day after day, unfortunately increasing in terms of numbers of people killed and wounded. The situation sounds incredibly chaotic. What do you think needs to be done to improve the logistics of this operation?

10:01Well, you can't improve an aid operation, which is guarded by one party to the conflict, who chooses who gets food and who deems it to be a combat site, because that's always the reason why all these people were killed was a combat site. So, you know, we get to these points where you get famine warnings and every time there's a famine warning, the international community puts pressure and says, no, this is not okay. Things are loosened and aid is allowed in, but then attention wanes and it's tightened again. Now that's very dangerous because famine is always too late. Worse than this, we have a water famine now.

10:34Water relies on fuel. Fuel pumps desalination plants, fuel pumps wells across the Gaza Strip, and fuel is for trucks to take water. Fuel has not been allowed into the Gaza Strip for more than 100 days. If this continues, we start to see children dying of thirst. James, final question. Do we have any signs of things changing? What's going to happen next? What happens to happen is the same things always. Any type of ceasefire to get hostages home. At the same time, that allows us to flood the Gaza Strip. Josh, if not, then just let aid come in. Let's deal with those arguments of looting, because looting occurs based on the economics of scarcity.

11:12If you have a blockade and then you let a few trucks in, the economics of scarcity are that people will loot them. So we've just got to go back to allowing aid to civilians who have hit breaking point many months ago. James Elder is a spokesperson for the United Nations Agency, UNICEF. Thank you so much, James. Thanks. Pleasure. The Israeli government did not respond to a request for comment. In the past, Israel has said that its restrictions on food and medicines are in place to stop provisions being diverted to Hamas.

11:44You can read more on all of these stories for free when you click on the links in our show notes. This has been your daily FT News briefing. Check back next week for the latest business news. The FT News Briefing is produced by Sonia Hudson, Fiona Simon, Misha Frankel-Duval, Ethan Plotkin, Kasia Broussallian, Henry Larson, Mark Filipino, and me, Josh Gabor-Doyant. Our intern is Michaela Say. Our show was mixed this week by Alex Higgins, Kelly Gary, and Blake Maples. We had help this week from Michael Lello, Peter Barber, David Da Silva, and Gavin Kalman. Flo Phillips is our executive producer.

12:19Our acting co-head of audio is Topher Forges, and our theme song is By Metaphor Music.

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