Welcome to the trade war
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
Welcome to the trade war. US President Donald Trump on Saturday implemented tariffs of varying severity on Mexico, Canada and China, before threatening similar levies on EU goods. Canada retaliated. Mexico and China intend to.
This ranks among the more serious tariff scenarios. Until now there remained considerable scepticism as to whether Trump would follow through, and what the impacts on the global economy might be - I wrote about the muted reaction to his first day in office two weeks ago.
It's been a volatile morning already. The dollar surged and risk assets like equities and crypto fell sharply. Economists broadly expect higher rates in the short term and less growth in the medium term. That could, if it holds, reshape the drivers of wealth creation that have characterised the past two years. The US S&P 500 has enjoyed two consecutive annual gains of more than 20%, which has swelled the fortunes of the wealthy and by extension acted as a key driver of global prime property sales.
But will it hold? Trump likes to be liked by American business leaders and they do not like tariffs. Yet, much will depend on the scale of retaliatory measures, particularly from China, analysts suggest. Trump was asked on Sunday whether the UK would face tariffs, to which he responded, "it might happen".
Flexibility
UK chancellor Rachel Reeves has so far been tight lipped as to exactly how the government will water down its plans for taxing non-doms. She's not the only one keeping her options open.
The number of residential tenancies starting above £1,000 per week in London during the final quarter of 2024 was 8% higher than a year earlier, Knight Frank data shows. Above £5,000 per week, in the so-called super-prime price bracket, there was an 11% increase.
“With the non-dom tax changes limiting ultra-high net worth individuals to four years in the UK, a lot of clients have elected to rent as opposed to buy.” says Tom Smith, head of super-prime lettings at Knight Frank. “We currently have our largest ever pipeline of super-prime tenancies."
By the same token, the uncertainty is weighing on the sales market, writes Tom Bill. The number of new prospective buyers registering in London was 8% below the five-year average in the second half of 2024. The number of offers made was down 11% over the same period.
Natural disasters
The California wildfires destroyed 18,000 structures, more than 16,000 of which were homes. The resulting damage could run to $275 billion, according to early estimates, making the fires the costliest natural disaster in US history.
Insuring real estate is becoming more complex, and expensive, every year. Insurance companies have dropped hundreds of thousands of policies in recent years, leaving California residents scrambling for coverage. The state finds itself at the sharp end of a debate that, in time, will become all encompassing almost everywhere.
Indeed, surging costs of natural disasters such as flooding and fires "is the biggest risk facing society, frankly,” Petra Hielkema, chair of the European Insurance and Occupational Pensions Authority, tells the FT today. “There are a lot of reasons why it could have a financial stability impact — first a lot of property losses need to be paid for and that becomes a problem — also it is a larger problem if people cannot get insurance for their houses and they can’t build.”
Last week, her organisation increased the amount of capital that EU insurers have to set aside to cover the risks of natural disasters by 10%. The speed at which damages are rising is leaving EU member states unable to cope, she added.
Flooding
The Bank of England is trying to get a handle on how serious the threat is to financial stability, but last month admitted that there remain shortcomings at UK companies spanning risk management, climate accounting, scenario analysis and data gathering, to name just a few.
It has previously flagged figures from Swiss Re, which suggested that annual insured losses for natural catastrophes have been growing by 5%–7% on average for the last three decades, and the trend is unlikely to slow. "Insured property catastrophe losses" in key global markets (including China, France, Germany and the UK) will rise by as much as 120% over the next 20 years, the company said.
Flooding presents the most immediate risk to the UK. A year ago, I wrote about the Public Accounts Committee's dire assessment of the government's progress in protecting the 5.7 million homes in England at risk of flooding. That problem has languished - flood defence integrity is at its lowest level since 2009-10, with approximately 60,000 properties less well protected than if flood defences were at optimal condition, Emma Hardy, Secretary of State for Water and Flooding, told Parliament last month.
The government is now playing catch up - a Floods Resilience Taskforce began gathering in September and ministers expect to spend £2.4 billion on flood defences over 2024-25 and 2025-26.
In other news...
Keir Starmer's EU reset (Times).