This episode is brought to you by Avid Reader Press.
Legendary investor Ray Dalio's new book, How Countries Go Broke, The Big Cycle, explains the mechanics behind big debt crises.
Larry Summers says Dalio's brilliant, iconoclastic approach is an invaluable resource.
Hank Paulson says it provides a solution to what is the biggest and most certain threat to our prosperity.
And the Financial Times warns policymakers would do well to pay attention to his concerns.
Get your copy wherever books are sold. Good morning from the Financial Times.
Today is Tuesday, August 12th, and this is your FT News Briefing.
Europe wants more of a say in what goes down between Donald Trump and Vladimir Putin on Friday.
And the Mexican peso? Doing really good right now.
Plus, where does Taiwan go from here now that its recall vote failed?
I'm Mark Filippino, and here's the news you need to start your day.
European leaders plan to meet U.S. President Donald Trump this week ahead of a sit-down with Russian President Vladimir Putin.
Trump and Putin are scheduled to meet in Alaska on Friday to talk about the future of Ukraine.
And Germany has convened a virtual meeting on Wednesday to discuss more ways to put pressure on Moscow.
Leaders from countries including France, the UK and Poland will be there.
So will Ukrainian President Volodymyr Zelensky.
Now it's worth noting that Zelensky will not be at Friday's meeting between Trump and Putin.
Trump has suggested so-called territorial swaps between Russia and Ukraine, in which Russia would take control of some Ukrainian land.
European and Ukrainian leaders have pushed back on this suggestion.
Mexico was one of the early losers of U.S.
President Donald Trump's ongoing tariff war.
In February, Trump previewed a blanket 25% levy on America's southern neighbor.
But several months on, the country is in a much better position, especially the Mexican peso.
And that's due to something called carry trading.
Christine Murray is the FT's Mexico and Central America correspondent.
She joins me now from Mexico City. Hey, Christine.
Hi, Mark. So set the table for us. How well is the Mexican peso doing?
Walk us through the ups and the downs of the last few months.
So at the beginning of the year when President Trump took office, there was wide expectations that Mexico's economy was going to be severely hurt by Trump's tariffs.
And the Mexican peso weakened a lot significantly.
As the year progressed, the peso strengthened.
So in the last three months, it's actually up more than 4% against the US dollar, making it one of the best performing currencies of a basket of highly traded liquid currencies tracked by Bloomberg.
Never would have guessed that. Why is it doing so well?
So there are two sort of main reasons. And the one that a lot of analysts put most weight on is this famous carry trade.
So investors will borrow money in a low yielding currency like the US dollar or the Japanese yen, and they'll convert it into pesos and invest in Mexican assets that have basically higher yields, higher interest rates.
But the other reason is, you know, the absence of Some of the worst measures that people were expecting from Mexico's perspective in terms of tariffs from the US.
So actually, currently, the vast majority of Mexican exports to the United States are going tariff free because of an exemption that President Trump carved out for the USMCA.
That's the US-Mexico-Canada trade deal. Right.
And I know there's some major stuff in there like car manufacturing parts.
But, Christine, is the peso rally that we've been talking about actually good for the Mexican economy?
So it's a bit of a double-edged sword because Mexico is a very important exporter to the United States.
And so a peso that's too strong is actually bad for that export industry.
But it is important to say that... The Mexican peso is very affected by this carry trade, which really is just a very pure kind of interest rate play.
So, yeah, it's not always as simple as a stronger peso means the Mexican economies are going to do well.
It's actually having quite a difficult year this year and isn't expected to grow really at all.
What does the current state of Mexico tell you about the relationship between the US and Mexico right now?
Has President Claudia Sheinbaum found a sweet spot?
So insofar as the peso reflects the absence of major tariffs on most exports, obviously Mexico is in a better position than a lot of other US trading partners.
The 90-day extension that the US and Mexico announced last month for the non-exempt goods was also an important signal because it was the first time that the US differentiated between Mexico and Canada.
So any good that is not being traded under USMCA is currently paying a tariff of 25%.
And there was a threat that that would be raised to 35%.
But President Trump and Mexico's President, Claudia Sheinbaum, spoke and agreed a 90-day extension of the current situation while it raised the tariffs on Canada.
So I think a lot of people took it as a sign that the talks were going relatively better, but there are still huge questions and risks remaining.
So I would say this will continue to be a rocky ride for Mexico in the coming months.
Christine Murray is the FT's Mexico and Central America correspondent.
Thanks so much, Christine. President Trump has confirmed that he will allow NVIDIA to sell more AI chips to China so long as the U.S. gets a cut of the sales.
The FT broke the story over the weekend.
We reported that NVIDIA got the go-ahead to sell its older H2O chip model.
In exchange, the U.S. government will take 15% of the sales.
President Trump now says deals for other NVIDIA chips may be on the table.
The moves have angered some U.S. officials, though, according to FT sources.
That's because AI chip sales to China are restricted for national security reasons.
Last month, Taiwan saw an unprecedented mass recall vote, with grassroots local activists targeting pro-Chinese politicians across the country.
But the vote was unsuccessful. Not a single politician was removed.
And it's left major divisions in Taiwanese political life.
Here to talk to me about what happens next is Catherine Hilla in Taipei.
Hi, Catherine. Hello. So, Catherine, remind me, what was this mass recall campaign and what was it trying to do?
It was really civil society campaigners trying to unseat people that were voted into their office just a little more than a year ago.
And they were trying to remove them because they felt that these people were being too friendly to China.
They were accusing them of colluding with the Chinese Communist Party, basically of being agents of a hostile foreign power.
I mean, how many politicians are accused of being pro-Chinese, Catherine?
How big do campaigners say this problem is?
In the last elections in January last year, the main opposition party gained one seat more than the ruling party.
And this main opposition party, that's the Kuomintang or KMT, they were founded in China.
And so they still continue to embrace a Chinese identity that basically is ready to say Taiwan is part of some kind of Chinese nation.
But we don't say it's the People's Republic of China.
We don't like the Communist Party, but they embrace this.
And because they embrace it, they are more willing to have exchanges with Beijing and basically the majority in parliament now.
Right. And so why did these recall votes fail?
The two main factors, I think, is one, just a technical one, that the pro-recall movement was organized by civil society campaigners.
And in the end, the KMT as a party came out and used its well-ordered party machine.
So it won. But the main reason, I think, is that many people, especially in the middle of the political spectrum, they felt that the debate was getting too toxic.
The campaigners accusing the opposition of colluding with China.
And many people started to worry that this effort to supposedly protect and strengthen Taiwan's society from within was actually weakening its cohesion and making society weaker when it comes to facing China.
How serious is this pro-Chinese influence?
I mean, what has the KMT been doing exactly to get people nervous?
The KMT, if you ask them themselves whether they are pro-China, they fiercely reject that attribute.
They say that they are patriots, but patriots of the Republic of China, which is like the official name Taiwan has.
But they deny that they collude with the Chinese Communist Party.
What they are doing, however, is many of their politicians are engaging in frequent exchanges with the Communist Party of China.
They travel to Beijing. They are hosted by senior Communist Party officials.
They're friendly and polite, parroting some of the language the Chinese Communist Party officials use, denouncing Taiwan's president or denying its sovereignty and so on.
Catherine, what are you going to be watching now that this mass recall campaign has run its course?
I will be watching whether Taiwan can pull itself together again.
What Taiwan can least afford now is being internally divided and not having any consensus about anything.
So I will be watching the president, whether he can find a way of appealing to the opposition, identifying common interests that everyone can pursue together.
It's going to be challenging. And I will certainly also observe and pay attention to whether China tries to exploit this difficult domestic political situation in Taiwan any further, and maybe also whether this infighting undermines Taiwan's relations with the U.S. because they don't have a counterpart over there in Washington that's very easy to handle either.
Catherine Hilla is the FT's Greater China Correspondent.
Thanks so much, Catherine. Thanks so much for having me.
You 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.
Banking with Capital One helps you keep more money in your wallet with no fees or minimums on checking accounts and no overdraft fees.
Just ask the Capital One bank guy. It's pretty much all he talks about, in a good way.
He'd also tell you that this podcast is his favorite podcast, too.
Ah, really? Thanks, Capital One bank guy.
What's in your wallet? Terms apply. See CapitalOne.com slash bank.
Capital One N.A. member FDIC. Now you can fly anywhere in the world and pay discount prices on your airline tickets.
Book a flight today to London, Paris, Madrid, or anywhere else you want to go and pay a lot less guaranteed.
Call the International Travel Department right now at Low Cost Airlines.
800-215-5141. 800-215-5141. That's 800-215-5141.
