Good morning from the Financial Times.
Today is Thursday, April 16th, and this is your FT News Briefing.
Gulf states go on a wartime borrowing spree and we look into what oil rationing might soon look like.
Plus, China had a record trade surplus last year, and that is fueling worries the world will be overwhelmed by its exports.
I'm Victoria Craig, and here's the news you need to start your day.
Gulf states are tapping international debt markets as they tally the cost of rebuilding after the US-Iran war.
Many discreetly raised nearly 10 billion in private bond sales this month after the conflict hit their economies hard.
It's forced them to halt oil and gas exports and caused widespread damage to their energy facilities.
Typically the Gulf fundraises on public markets, but Abu Dhabi, Qatar and Kuwait sidestepped that process this time.
Borrowing costs can be more uncertain in those public markets.
The governments did not respond to FT requests for comment, but the private debt sales highlight how the pause in fighting is giving those states an opportunity to quickly raise cash.
The last of the oil tankers that set sail before the war in Iran began are now reaching their final destinations.
And with the critical Strait of Hormuz still shut and no peace agreement yet reached, governments are going to need to start thinking about what running out of oil might actually look like.
Here to discuss that is the FT's Camilla Palladino.
She is the deputy head of our Lex column.
Hi, Camilla.
Hi.
Thank you for having me.
Thanks for being here.
So I guess the big question is are we really on the precipice of a real and problematic global oil shortage?
Yes, definitely.
This is when the last of the supply chain from the Strait of Hormuz gets to us.
And after that, there's nothing behind it.
And so we're going to feel the impact.
For example, it takes 15 days for tankers from the Gulf to get to India.
So in India, there's already been a shortage for some weeks.
So you know, some countries have already begun eating into their stockpiles.
Some are only now starting to feel the shortage.
So even when you do have stockpiles, it's not 100% clear what they cushion and for how long.
Is there anything else that governments around the world are doing to prepare for this real shortage where note oil comes out of the Strait of Hormuz?
Yes, no, absolutely.
In America, we've had the release of some strategic storage.
We've had a campaign in Australia trying to get people to use less fuel.
And in Asia, there's been lots and lots of demand containment measures.
In Bangladesh, they've been limiting air conditioning to 25 degrees.
In Cambodia, the civil servants are meeting online.
They're not going into work.
So it's been a little bit bitty at the moment and in lots of places people are trying to save fuel.
Camilla, what happens if this war continues and the Strait of Hormuz remains closed long term, or even if Iran does impose permanently that 2 million fee to cross?
Is the world starting to think about longer term workarounds? for the Strait of Hormuz.
I'm sure.
So there's sort of two types of workarounds, right?
The first is other ways to get the oil out of the region.
And, you know, building a pipeline takes...
It's not a quick fix, but I'm pretty sure that that's going to be on the agenda at this point.
And then also, the longer higher prices last, the more people have an incentive to buy solar panels, buy EVs, build out renewables.
If you're a government,
So this is also going to accelerate the shift away from fossil fuels.
And can you talk to me a little bit about what countries, and who in those countries, are going to be more affected than others?
It's quite tricky to unpick, really, because at the minute, what we have is a logistical disruption.
Once we've worked through that, it becomes a question of how much people can pay for oil, rather than whether they can get to it.
And at that point, the sort of the GDP of the single countries is an indication.
But then countries have wide dispersion of wealth.
And you know, the wealthier in a poor country may be better equipped than the poor in a wealthy country.
So after that, exactly who doesn't use oil at what price is quite hard to work through.
So effectively, we're talking about countries and companies rationing and bidding for oil.
What does all this mean for consumers, who are already seeing higher prices, for example at the gas pump?
Well, if it lasts, it means prices get a lot higher.
So the oil price then feeds into everything else.
So where it's freight, where it's transport, the cost of transport feeds into the cost of products.
We will feel that increased price in lots of different ways.
And because everything will become more expensive, we will use less of it, and oil demand gets cut that way too.
I guess we're all going to be battening down the hatches of our personal finances.
Camilla Palladino is the deputy head of our Lex column.
Thanks so much for your time, Camilla.
Thank you.
U.S.
President Donald Trump is threatening once again to fire Federal Reserve Chair Jay Powell.
Powell's term as chair is up next month, and he said he would stay in the position after that time, until his successor, Kevin Warsh, is confirmed.
Powell cited a longstanding precedent for that move.
But Trump told Fox Business yesterday that if Powell doesn't leave by the end of his term...
Then I'll have to fire him, okay?
If he's not leaving on time, I've held back firing him.
I've wanted to fire him, but I hate to be controversial.
Senate Republicans have held up Warsh's confirmation.
They've indicated they will not vote on it until a Department of Justice probe into Powell is resolved.
The DOJ is looking into how the Fed chair handled renovations to the central bank's headquarters.
Many investors and other central bankers view that investigation as an attempt to erode the Fed's independence.
Trump also said yesterday that he won't drop that investigation.
Still, it looks like Warsh will be getting a confirmation hearing next week, according to the chair of the Senate Banking Committee.
Treasury Secretary Scott Besant said at yesterday's White House press briefing, that means Trump's threat will not be an issue.
He's a great candidate and I am very optimistic that Kevin Walsh will be the chair of the Fed on time, and that will be a moot question.
A spokesperson for the Fed, meanwhile, declined to comment.
Twenty years ago, a wave of low-cost exports made in China destroyed the business models of manufacturers in advanced economies.
Millions of workers lost their jobs, and anger against globalization fueled the rise of populist politicians around the world, including US.
President Donald Trump.
Now a second shock is underway, one that's even more threatening to China's trading partners.
This time, it's an assault on high-end manufacturing.
Ryan McMurrow writes about China technology for the FT, and he's helped pen a three-part series out today on this topic, called China Shock 20.
Hi, Ryan.
Hi there.
Thanks for having me on.
Thanks for being here.
So China has managed to generate world beating champions in things like electric vehicles, solar panels batteries, wind turbines.
How has it managed to do all of this?
Yeah, it starts and ends with the government.
For any Chinese company getting off the ground.
There are really a ream of subsidies financing all types of policies to help them.
And so the incentives for every local government is to recruit new companies and help spawn new companies.
So really they're competing with each other to bring in companies that produce locally and hire locally.
The more factories that any local government has, the more tax revenue they're getting.
And at the same time, China's currency is weaker than it's been in years.
The IMF has recently said that the currency is undervalued by 16%.
So that helps all the Chinese companies as they go abroad.
The goods that they're making are even cheaper.
So those subsidies and support from the government might seem like a good thing for Chinese companies that ultimately want to stay in business, but it has created a lot of problems for those companies.
Walk us through some of those.
Yeah, at least to start.
It's a good thing because it helps all these companies and new industries get off the ground.
The problem starts to come when every locality has their company that is now producing and competing against other companies.
And there's just too much capacity of the various products that are being made.
What is the impact of all of this on China's trading partners?
Yeah, I mean it's super interesting talking to people who work at Volkswagen on the ground here in China.
They've been sitting here watching these Chinese EV makers innovate, just pack more and more technology into their cars.
And they've kind of been caught flat footed as everything's been done out of Germany.
So they can't really work at the same speed as their Chinese competitors.
So within the last couple years volkswagen has really pivoted to giving their local chinese unit much more autonomy and that company there is going to be developing and engineering all of their new models for china and eventually they see it as also their place to produce low-cost vehicles for the global south, the middle east And it's still not entirely clear, but maybe someday Europe and the US.
So how concerned are China's trade partners about all of this?
It's kind of playing out at an odd moment where there's so many disputes between the US and Europe that there's not really a unified point of view on dealing with China's excess overcapacity.
But definitely for Europe it's an existential shock that all these high quality Chinese goods at really low prices are kind of fixating on the European market right now because tariffs in the US remain pretty high.
So I think European policymakers are aware and definitely nervous about this.
The European Commission has set up a new body that's looking at any extreme rise in Chinese imports.
France's President Macron, when he was visiting Beijing recently, said The surge of high quality Chinese goods represented nothing less than a question of life or death for manufacturing in Europe.
So it's definitely something top of mind for European policymakers, especially.
Really fascinating reporting.
And we've really only touched the tip of the iceberg.
We're going to put a link to the China 2.0 series in our show notes today.
Ryan McMurrow writes about China technology for the FT.
Ryan, thanks so much for your time.
Yep.
Thank you for having me on.
Before we go if you've ever bought a pair of Allbirds sneakers well, that might have been your last.
The San Francisco-based company is known for its wool trainers and at one point it was valued at 4 billion.
But after its stock plunged, the Shoemaker was sold earlier this month for just under $40 million.
And now its new owner is turning Allbirds into an AI company.
The announcement of that AI pivot turned Allbirds into a bit of a meme stock and sent its shares soaring as much as 800.
You can read more on those once high-flying kicks and all of the other stories in today's podcast 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.
