Good morning from the Financial Times.
Today is Monday, February 3rd, and this is your FT News Briefing.
U .S. President Donald Trump has taken the first shot in a new global trade war.
And the European Union is looking outside the bloc to boost its defenses.
Plus, Shell is relying on a controversial strategy to hit its climate targets.
I'm Kasha Broussalyan, and here's the news you need to start your day.
Trump is hitting America's three biggest trading partners with steep tariffs.
The president said that nearly all imports from Canada and Mexico will face a 25 percent levy starting on Tuesday.
For Chinese goods, it's another 10 percent.
The move signals a new era in trade protectionism, one that could have major consequences for the global economy.
The FT's Amy Williams is here to explain more.
Hey, Amy. Hi there.
So talk to me about Trump's thinking behind kicking off this trade war.
What's he hoping to ultimately achieve by imposing these tariffs?
Well, he's on paper and initially linked these tariffs to his upset around illegal immigration into the U .S., primarily across the southern border with Mexico.
But he also has attacked Canada on that issue.
And he's also attacked both countries and China on the issue of fentanyl.
However, he has also just railed in general Against U .S.
trade deficits with other countries This is an old theme for him We heard a lot about this during his last administration And he has said in a press conference on Friday That the tariffs were pure economic And not to be used for negotiating leverage So those are the issues that he wants to address with these
tariffs But in what ways might Trump's tactics here backfire?
Well, the main one is that it will just sharply raise prices for American consumers.
We're talking about 25 percent on all imports from Mexico and Canada, apart from oil and gas, which has an exemption, just going on straight away on Tuesday.
And 10 percent on Chinese imports also, that's across the board.
So that includes consumer goods like iPhones.
Under his last administration, his tariffs on China were a little more targeted.
This is just a very blunt instrument.
It is likely to push up prices for American consumers.
Now, you've been talking about the U .S.
economy, but what about globally?
What sort of scenario might we see should this trade war really become entrenched?
Well, I mean, the two most immediate potential casualties here are Canada and Mexico.
and they are threatening to retaliate then on Saturday when the White House was briefing on Trump's tariff plans they pointed out that if Mexico, Canada or China retaliate the US would retaliate further so you quite quickly see that there's no way to kind of hit stop and prevent this from coming into
an escalating tit -for -tat.
Prices go up and up and up and more and more goods are hit.
There's a lot of danger here for countries, not just the U .S.
Amy Williams has been covering U .S.
trade for the FT. Thanks, Amy.
Thank you. Now, Mexico and Canada trade with the U .S.
a lot. In fact, more than any other country.
But that makes both economies incredibly susceptible to any policy changes that come out of Washington, like, you guessed it, tariffs.
So Mexico and Canada both send more than three quarters of their exports to the United States.
Economists have a range of estimates, but all believe that both economies could fall into recession if these tariffs remain in place for a long time.
The FT's Christine Murray has been covering the emerging trade war from Mexico City, and she says leaders from the two countries might team up to confront Trump's tariffs.
We don't know to what extent the two countries will coordinate on the tariffs.
It's not easy to do.
But on Saturday night, Prime Minister Justin Trudeau called Mexico's President Claudia Sheinbaum to discuss possibly sharing information, avoiding creating problems for the other and certainly letting each other know in advance what they plan to do so that they can be on the same page.
Trudeau has announced that Canada will impose its own 25 % tariffs on a range of U .S.
goods. That includes everything from beer and bourbon to lumber, while Shane Baum has promised that Mexico will also hit back.
Mexico accounts for about 15 % of U .S.
imports, and that's products like computers, cars, agricultural products like avocados and berries.
Canada is a similar, slightly lower level, but close to that.
And it's mostly energy, vehicles, machinery.
The two countries can certainly hurt US firms in those sectors.
They can certainly put pressure on local members of Congress who might be able to speak to or try to convince Trump to relax the measures.
And there is a broader price rise effect for American consumers on the imported products.
All of these new barriers are turning North America's longstanding trade relationships upside down.
And many economists are warning that everyone is at risk of feeling the pain.
For decades, the U .S., Mexico and Canada have been integrating their economies and supply chains, increasing foreign investment in each other's economies, creating jobs across different sectors.
The U .S.-Mexico relationship in particular also covers questions of security and migration.
So there is a lot at stake here for the entire region.
Christine Murray is the FT's Mexico and Central America correspondent.
it. The EU is exploring ways to include outsiders like the UK and Norway in a, quote, coalition of the willing on defense.
UK Prime Minister Keir Starmer will join the bloc's leaders at a summit in Brussels today.
They'll be looking at ways to increase Europe's military capabilities and share the costs of rearmament.
Governments across the continent are facing pressure to take on more responsibility for their own security.
And the pressure's not just coming from Russia's war in Ukraine.
Donald Trump has also been demanding that Europeans spend more on defense.
The European Commission estimates that the EU currently has a military funding gap of more than 500 billion euros.
Shell is trying to keep its climate promises, but not in the way that you might think.
The oil major is relying on something called carbon offsets, credits that companies use to try and cancel out their own emissions.
The carbon credit market has taken off recently among energy companies, and Shell is at the head of the pack.
Kenza Bryan has been reporting on this and she joins me now.
Hi Kenza. Hi Kasha.
So first, how exactly do carbon credits work when it comes to companies and what's the background there?
So carbon credits are issued by projects all around the world that try to remove carbon from the atmosphere or reduce how many emissions are going into the atmosphere.
So that could mean planting trees or protecting a forest from being destroyed, or in some cases it can mean taking the CO2 from the atmosphere and storing it underground.
And a credit precisely is meant to represent one tonne of CO2 or other greenhouse gases, but they're traded in a relatively small, relatively unregulated market.
It's valued at around $1 .4 billion last year, which is many magnitudes smaller than the big government compliance carbon credit schemes.
This is a lot more casual as a system and much less liquid.
Got it. So then how is Shell tapping into this voluntary market?
So the latest data show that Shell is by far the biggest user of these voluntary carbon credits.
Last year, it used around 15 million, representing 50 million tons of CO2.
And that was more than twice as many as the next biggest user, which was Italian energy producer, Eni.
And it's using these credits to cancel out its own emissions.
So emissions from the production of oil and gas and from the burning of oil and gas.
Now, like you said, it's not just Shell and other energy companies that are relying on these credits.
So to what extent are other industries using them too?
Most industries buy carbon credits because of the acknowledgement that cutting emissions in your own supply chain is really hard and really expensive.
In some cases, like in the production of steel, for example, it can basically be impossible to cut emissions to zero and keep selling the same product.
Oil and gas companies, according to this data, are particularly heavy users and buyers of credits.
It's pretty obvious why oil and gas as an industry compared to even the most high emitting industries would need to be reliant on an external source of compensation to cut emissions down fast, given that the burning of fossil fuels is the lead cause of emissions globally.
But I guess I'm wondering, what's the downside to carbon credits?
Companies claim that carbon credits can be used in a very straightforward way.
One ton of co2 emissions can be cancelled out with one credit some activists scientists and risk analysts say things aren't that simple there are many people who think that they do lock in business as usual that they can act as a smoke screen for companies to hide behind and shell is particularly reliant
on a very controversial and quite cheap kind of credit linked to avoided deforestation So where a carbon credit project protects a forest from being cut down and then makes assumptions about how many emissions would have been put into the atmosphere as a result of the forest destruction.
I think there's no question that to get onto a net zero pathway, energy companies would have to overhaul their entire business model and frankly sell fewer barrels of oil.
It remains to be seen whether the top players are really prepared to do that.
Kenza Bryan is a climate reporter for the FT.
Thanks, Kenza. Thanks very much.
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