UK Steel: Trump has taken a sledgehammer to free trade
The UK steel sector fears that Donald Trump’s new tariffs on steel will disrupt global trade, and lead to a surge of foreign steel into Britain – potentially hurting the domestic industry.
Gareth Stace, director general of trade body UK Steel, says:
“President Trump has taken a sledgehammer to free trade with huge ramifications for the steel sector in the UK and across the world.
This will not only hinder UK exports to the US, but it will also have hugely distortive effects on international trade flows, adding further import pressure to our own market.
Stace insists that UK steel isn’t a threat to US national security, and indeed is vital to American industry:
Our high-quality products serve key US industries, many of which cannot source these domestically. This is a moment where our countries should work together to tackle global steel overproduction, not to be at loggerheads. The UK stands with the US on tackling global excess steel capacity and unfair trade, and our industry urges the UK Government to take stronger action on these issues.
“This is clearly a new era for global trade. We are confident the UK Government recognises the impact on our industry and will explore all available options. Both immediate responses, such as negotiating a solution and long-term measures to prevent harmful trade diversion into the UK market, are options.”
Key events
Sky News: Octopus Energy wades into battle for Thames Water’s future
The future of Thames Water has taken another twist, after energy supplier Octopus struck a deal to provide technology to a consortium planning a takeover of the troubled water utility.
Sky News are reporting that Octopus’s technology arm, Kraken, has struck a deal to partner with Covalis Capital and Suez in a consortium that would inject about £1bn of equity into the debt-laden water company.
Back in December, Thames received a bid from Covalis Capital that would result in France’s Suez Group being brought in to manage a restructure of the UK’s largest water company.
Today, Sky says:
The deal with Kraken would provide Covalis Capital, the infrastructure investor spearheading the consortium, with critical technology expertise as it seeks to manage one of the UK’s most complex utilities – and one with a long-standing reputation for poor customer service.
Earlier reports said that Covalis would inject about £1bn into Thames Water, with £4bn more raised from asset sales, refinancing and a stock market listing.
More here:
Exclusive: Octopus Energy Group is wading into the fight for future control of Thames Water after agreeing a deal with a Covalis Capital-led consortium that would see its technology arm, Kraken, managing the 16m customers of the UK’s biggest water utility. https://t.co/n0nNmrYwe3
— Mark Kleinman (@MarkKleinmanSky) February 11, 2025
Last week, London’s high court heard that Thames Water may need as much as £10bn in debt and equity investment to repair its finances, according to a representative of creditors hoping to lend the struggling utility another £3bn.
And while Kraken’s tech might improve the service for Thames customers, it wouldn’t be able to fix the poor state of its infrastructure.
Andrew Bailey also suggests that the speed of change in financial markets is being underestimated.
Citing the rise of the non-banking sector, Bailey says this pace of change shows no signs of dropping off.
He explains:
As authorities responsible for ensuring financial stability, both domestically and globally, we have to keep our assessment and understanding up to speed.
And he cites two major changes made by the Bank:
The first is to introduce more dynamic – flow-style – market stress exercises alongside the more established and more static institutional stress tests. This allows us to stress test markets more efficiently, and, critically, as part of that test the assumptions that market participants make about the reactions and behaviour of each other, and thus of markets as a whole. This process of holding a mirror up is crucial.
The second change is the introduction of a contingent liquidity facility for certain non-banks, designed to act as protection against stress in core markets.
Bank of England governor warns against ripping out regulations
Newsflash: The governor of the Bank of England has warned against ripping out regulations introduced after the great financial crisis (GFC) almost two decades ago.
In a speech to the University of Chicago Booth School of Business in London, Andrew Bailey has insisted that financial stability and economic growth go hand-in-hand, rather than acting as opposing forces.
Bailey says:
There is a reaction taking place against regulation, and the responses to the GFC. We must not forget the lasting damage done by the GFC. There is no trade off between economic growth and financial stability.
Bailey concedes, though, that there are usually choices about how policymakers deal with evidence of vulnerabilities, saying:
It is critical that we have and develop tools of assessment and intervention. But these interventions may not always need to be more regulation.
They can be liquidity facilities, and they can be to improve areas of the financial infrastructure…
Bailey’s comments come as UK chancellor Rachel Reeves pushes UK regulators to ‘tearr down’ barriers holding back economic growth.
In the US, Elon Musk is pushing for a “wholesale removal of regulations”, sparking warnings that the Tesla boss was desecrating the US constitution.
TUI shares fall after booking growth slows
Julia Kollewe
Shares in Europe’s biggest travel company Tui fell by nearly 10% today after it said bookings growth had slowed.
The company reported a jump in underlying profits to €51m between October and December, from €6m a year earlier. Revenues rose by 13% to €4.9bn, as 3.7 million people travelled with Tui. Dynamically packaged holidays grew by 18% to £700,000 – those customised travel packages that allow travellers to choose their flights, accommodation, and other travel components, have become more popular.
But high spending, on marketing and IT, and more interest in dynamic packages and flexible pricing, have clouded the outlook, and Tui is forecasting that profit growth will ease to between 7% and 10% this year, mainly due to one-off costs.
Tui chief executive Sebastian Ebel said bookings growth has slowed to 2% because the company has been less aggressive in adding holidays and keeping prices low. Demand is also shifting to new destinations and away from previous strong markets, like Turkey.
Average prices for winter breaks are 4% above last year’s levels, with the Canary Islands, Egypt and the Cape Verde Islands in demand. For summer deals, prices are also 4% higher than last year, with many people booking trips to Spain, Greece and Turkey.
Ebel said there was a slight dip in bookings after Christmas, amid poor weather in Britain and less consumer spending power after the holidays.
Overall, demand remained robust though, he insisted, adding:
“People prioritise their holidays even in times of change, and even in a challenging economic environment in Europe for almost all sectors.”
Like other European airline businesses, Tui has been affected by Boeing delivery delays and high costs. Ebel said he hopes the Boeing 737 MAX delivery delays will be resolved by 2027.
BBC: UK will not immediately respond to US metal tariffs
The BBC are reporting that the UK will not retaliate immediately to the renewal of steel and aluminium tariffs by the US.
“Cool heads” were necessary to avoid escalating trade tensions with the Trump administration, UK government sources have said, adding that retaliatory tariffs may not be in the best interest of the industry.
UK ministers will meet the steel industry and unions later on Tuesday and visit key steel companies later this week, the Beeb’s Faisal Islam adds.
South Korea’s top think tank lowers economic growth projection, citing Trump’s tariffs
South Korea’s top economic think tank has slashed its growth forecast for the country’s economy for the second time in four months, Associated Press reports, expressing concern about the impact of U.S. President Donald Trump’s expanding tariffs.
The state-run Korea Development Institute now projects South Korea’s economy to grow by 1.6% in 2025, which is 0.4 percentage points lower than its previous estimate announced in November.
Kim Jiyeon, a KDI economist, said the “deterioration of the trade environment” following Trump’s inauguration was a major factor. South Korea is also grappling with political instability caused by the impeachment and criminal indictment of President Yoon Suk Yeol after he briefly imposed martial law in December.
Domestic demand remains weak due to slowing consumer spending and a declining job market, and the pace of exports is slowing with most key industries aside from semiconductors struggling to find momentum, said Jung Kyuchul, who heads KDI’s macroeconomic analysis department.
KDI could further lower its growth projections if Trump’s trade actions intensify or South Korea’s political turmoil drags on, Jung said.
Jung told a briefing:
“In November, we assumed that Trump’s steps to increase tariffs would proceed gradually over time and wouldn’t be carried out so quickly this year, but there have already been tariff increases targeting countries like China.”
“We expected that uncertainties would be gradually resolved after the Trump administration took office, but we are now in a situation where uncertainties have actually grown.”
Economics professor Justin Wolfers shows that the last time Donald Trump imposed tariffs on steel, it led to a small increase in jobs in steel making, but a larger fall in headcount among steel users:
Economists at Deutsche Bank have calculated that Donald Trump’s new metal tariffs will be inflationary.
If sustained, steel and aluminium tariffs combined with reciprocal tariffs could increase core PCE [an inflation measure] in 2025 by an additional 30-40bps (0.3 to 0.4 percentage points).
Deutsche’s Jim Reid says:
If the delayed Canada and Mexico tariffs were to ultimately go into effect as well, inflation in 2025 could be above 3.5%, though the assumption is that tariffs would have limited impact beyond this year.
While our economists’ baseline is that the Fed would prefer to “look through” the price level impact by keeping rates steady, their ability to do so could be constrained if inflation expectations begin to rise and / or the labour market reemerges as an additional source of inflationary pressure.
Recent data suggest both these outcomes cannot be fully discounted.
Any fears that the UK could suffer a ‘buyers strike’ on its debt should be eased by news of record demand at a bond sale this morning.
Investors placed record orders worth more than £140bn at the sale of a new 4.5% 2035 British government bond, Reuters reports.
£13bn of debt was available, with buyers attracted by the relatively high yields available on British bonds.
The timing, breadth and scope of US tariffs will fuel uncertainty, and act as a brake to economic growth, warns Karsten Junius, chief economist at J. Safra Sarasin Sustainable Asset Management:
The US economy started the year with strong momentum, and fundamentals remain solid. Under normal circumstances, these factors would justify an upward revision to our growth forecast. Yet President Trump’s decision to launch a global trade war – imposing steep tariffs on all imports from Mexico, Canada, and China – have led us to reconsider the growth revision.
Tariffs were not unexpected; Trump campaigned on protectionism. What was striking was the timing, scale, and scope of these measures. Shortly after taking office, he instructed federal agencies to review trade policy, suggesting a more methodical approach. But his latest move – slapping 25% tariffs on almost all imports from Mexico and Canada, effectively breaking apart USMCA, his own trade deal central to American manufacturing – was anything but methodical. The 10ppt tariff increase on Chinese imports, along with potential retaliatory measures, initially escaped much attention. But they are much more consequential for the US economy compared to what he did in his first term.
Although Trump later backtracked, offering a one-month reprieve to Mexico and Canada but kept tariffs on China, the real issue for businesses and investors is the lack of clarity about his ultimate aim. Even if the final tariff increases are relatively modest, heightened policy uncertainty will weigh on growth and fuel financial market volatility. As a result, our 2025 US GDP growth forecast remains unchanged at 2.2%.
Former US Treasury Secretary Larry Summers has warned that the US economy will suffer from Donald Trump’s new tariffs on steel and aluminium.
Posting on X, he says:
This will mean fewer American jobs, more American inflation and because of damage to us exports probably a bigger trade deficit. I do not see any national security gain from tariffing Canada.
I’m sorry that Trump’s threatened steel and aluminum tariffs have now been implemented.
This will mean fewer American jobs, more American inflation and because of damage to us exports probably a bigger trade deficit. I do not see any national security gain from tariffing Canada.
— Lawrence H. Summers (@LHSummers) February 11, 2025
