This week in Geopolitical Concerns, we examine India’s largest strike on Pakistan in five decades following a deadly terror attack, the mounting threat of a Chinese blockade of Taiwan, and the growing axis between China and Russia aimed at reshaping Eurasia. In Geoeconomics, we track how Trump-era tariffs and a weakening dollar are upending U.S. export flows, challenging the dollar’s dominance, and exposing grid and energy vulnerabilities across Europe and oil-dependent states. Global Junctions turns to Huawei’s secretive chip buildup in Shenzhen, cascading supply chain breakdowns at U.S. ports, and the mounting costs of clean energy instability—highlighting how industrial policy, logistics, and climate infrastructure are colliding in real time. Finally, in Global Trajectories, we spotlight the assertive rise of middle powers, the strategic recalibrations following Trump’s tariff shocks, and Warren Buffett’s retirement as a metaphor for a global market pivot away from long-termism amid mounting systemic risk.
Geopolitical Concerns
India strikes Pakistan to avenge a terrorist attack
The Economist
A superpower crunch over Taiwan is coming
The Economist
Chinese military exercises foreshadow a blockade of Taiwan
The Economist
China, Russia and the remaking of the Eurasian supercontinent
James Crabtree, The Financial Times
Shortly after midnight on May 7th, Indian missiles struck Pakistan. India claimed it targeted “terrorist infrastructure” at nine locations in Pakistani-administered Kashmir and Punjab, calling them “known terror camps” where attacks on India had been planned. The strike followed a terrorist attack in Kashmir on April 22nd that killed 26 civilians—the worst since 2019 and deadliest on Indian civilians since 2008. Pakistan said India hit six locations, killed 26 civilians, and denied the sites were terror-related. It called the strike “an act of war,” alleging a hydropower dam was hit—the largest aerial assault on Pakistan in over 50 years. India reportedly used Scalp cruise missiles and Hammer smart bombs launched from Rafale jets within Indian airspace to avoid losses like in 2019. Pakistan claimed it downed five Indian fighters, a drone, and three Rafales—claims India hasn’t confirmed. India also suspended the 65-year-old Indus Waters Treaty on April 23rd, reportedly disrupting flows. Civil-defense drills were held nationwide; Rajasthan entered high alert, and northern airports closed. Modi’s government, under fire over Kashmir since revoking autonomy in 2019, views the strike as restoring deterrence. India briefed Secretary of State Marco Rubio, while President Trump responded with insouciance. Pakistan answered with shelling that India said killed three civilians. Further escalation is possible, though Pakistan is expected to calibrate its response.
Meanwhile, U.S.-China tensions are rising, with Taiwan the flashpoint. China claims the island and is prepared to invade, while Taiwan insists on democracy. The U.S. opposes force but offers no security guarantee. Tensions have grown due to pro-independence elections, TSMC’s chip dominance since 2010, and China’s tripled defense spending. Under Trump, deterrence is seen as weakening. His administration imposed steep tariffs, warning in 2024 that an invasion would raise them to 150–200% (currently at 145%), but the trade-war approach is seen as spent. U.S. protectionism strains allies like Japan, South Korea, and Australia. China is expanding “grey-zone” tactics, such as customs delays and using its coastguard. In April, “Strait Thunder 2025a” drills simulated bombing ports and energy sites—suggesting capacity for a naval blockade. A full blockade would mean war, but a coastguard “quarantine” could be framed as law enforcement. Taiwan, which imported 96% of its energy and 70% of food calories in 2023, is highly exposed. Its 14 undersea cables are also vulnerable. China seeks to erode Taiwan’s sovereignty and cast doubt on U.S. resolve. Polarized politics and waning U.S. trust raise the risk of Taiwan slipping away without conflict—disastrous for democracy and chip supplies. Simultaneously, China’s growing ties with Russia and Belt and Road investments suggest a rising Eurasian axis. Strategists like Hal Brands and Zack Cooper warn of autocratic ascendancy; others, like Geoff Raby, propose a “grand bargain.” Trump’s focus on places like the Panama Canal and Greenland—and limited interest in Taiwan—suggests he might accept one, risking America’s traditional balancing role.
Geoeconomics
This time really is different for the dollar, writes Kenneth Rogoff (a must)
The Economist
Will Trump shatter ‘trinity’ of US trade deficit, capital inflows and dollar status?
Hiroyuki Nishimur, Nikkei
Trump trade tariffs slump widens to ‘nearly all U.S. exports,’ supply chain data shows
Lori Ann LaRocco, CNBC
In Wall Street’s Epic Comeback, Unsolved Market Mysteries Abound
Lu Wang and Isabelle Lee, Bloomberg
The U.S. dollar, long dominant in global finance, has experienced a gradual erosion of its pre-eminence since around 2015, as reflected in measures like central bank exchange-rate anchors. This shift has been partly driven by China’s moves toward currency flexibility as its economic cycle diverged from America’s, alongside Europe’s efforts to reduce dollar reliance through digital currency initiatives. Domestically, growing U.S. debt and increasing political challenges to the Federal Reserve’s independence further strain the dollar’s standing. The dollar’s “exorbitant privilege”—a borrowing advantage that lowers Treasury yields by around 100 basis points—is now at risk, implying higher long-term interest rates and reduced sanctions leverage. While this decline predates Donald Trump, his presidency accelerated the trend by undermining pillars of dollar dominance like the global trade regime and the rule of law. Diminished legal reliability makes U.S. assets less attractive to foreign holders. Mainstream economists counter Trump-era views on trade, stressing a key “trinity” of trade deficits, capital inflows, and dollar dominance. Yet Trump’s disruptive rhetoric and ideas—like taxing foreign central banks’ Treasury holdings—have unsettled markets. The term premium on Treasurys hit a 10.5-year high, signaling increased investor risk concerns. The Penn Wharton Budget Model estimates that reduced imports from tariffs could shrink long-run GDP by 6% and wages by 5%, while raising U.S. funding costs due to lower capital inflows.
Supply chain data highlights the steep impact of Trump’s trade tariffs, with a sharp decline in U.S. exports beginning in early 2025, worsening through April. This is tied to a dramatic 43% week-over-week plunge in import containers through April 28—the worst disruption since summer 2020. Exports of nearly all U.S. goods, especially agriculture, have slumped, prompting farmer warnings of a “full-blown crisis.” Export volumes at key ports dropped sharply post-tariffs: Portland -51%, Tacoma -28%, Los Angeles -17.3%, and Savannah -13.3%. Matson, a freight liner from China to Long Beach, reported a 30% year-over-year container volume drop since April and expects lower rates and volumes in Q2. Experts warn many retailers, holding only 1–2 months of stock, may face shortages ahead of the holiday season, with June critical for securing shipping capacity. Falling vessel arrivals have created surplus labor and logistics capacity in supply hubs, raising job-loss fears. Despite these economic warnings and forecasts of a 15–20% fall in U.S. container imports from Asia, Wall Street has rebounded—erasing April’s tariff-related losses, with spikes in bond sales and speculative assets like Bitcoin, which neared the six-figure mark. Yet deeper concerns persist: bond markets suggest the Fed is constrained, credit-equity dislocations are evident, bankruptcies are rising, and analysts are cutting earnings projections. Market anxiety remains elevated, with the dollar-Treasury yield link broken since April. Some see dollar weakness as a sign of declining U.S. influence, drawing parallels to the Smoot-Hawley Tariff era, marking a pivot away from the post-Cold War era of globalization.
Global Junctions
Oil Prices Are Falling. Here’s Where That Could Spell Trouble.
Neil MacFarquhar, The New York Times
Europe’s first grid crisis may not be its last
Rachel Millard, Jamie Smyth, and Ian Johnston; The Financial Times
EU Set to Propose Banning Russian Gas Imports by End of 2027
Alberto Nardelli, John Ainger, and Ewa Krukowska; Bloomberg
Satellite images reveal Huawei’s advanced chip production line in China
Eleanor Olcott, Zijing Wu, and Chris Cook; The Financial Times
Amid rising geopolitical and economic tensions, Huawei is spearheading a major expansion of China’s domestic semiconductor production in Shenzhen’s Guanlan district, building three advanced facilities—two run by start-ups SiCarrier and SwaySure, both believed to be backed and staffed by Huawei. The move, supported by local government funds and informal collaboration with SMIC and SMEE, aims to bypass U.S. sanctions and vertically integrate China’s AI chip supply chain, though analysts doubt Huawei can match global leaders like TSMC. In Europe, the European Union is finalizing a proposal to ban all Russian gas imports by 2027, including existing long-term pipeline and LNG contracts that still totaled €23 billion in 2024. The plan, which also targets Russian nuclear fuel, comes amid U.S.-EU trade talks to increase American LNG exports. However, opposition from Hungary and Slovakia—still heavily dependent on Russian energy—could delay or dilute the legislation. Meanwhile, a massive blackout on May 2 plunged Spain and Portugal into crisis after about half of Spain’s power generation failed, disrupting hospitals, transportation, and communication networks. Experts blame the cascading failure on weaknesses in renewable-heavy grids lacking stabilizing infrastructure like batteries and interconnections. The incident highlights broader global grid vulnerabilities as electricity demand surges and investment in grid modernization lags far behind the estimated $800 billion annually needed by the 2030s.
Simultaneously, global oil prices have dropped to four-year lows, straining economies dependent on petroleum exports. While Gulf states like Saudi Arabia and the UAE can cushion the blow with reserves to fund megaprojects like Neom and Vision 2030, nations like Iran, Iraq, Libya, Nigeria, and Venezuela face deeper risks. Iran is stuck offering steep oil discounts amid U.S. sanctions and low Chinese demand, Iraq may struggle to pay public salaries, and Libya’s divided government could clash over dwindling revenues. Even Russia, whose federal budget depends on energy exports discounted to China and India, is under pressure as falling prices threaten its war financing and economic stability.
Global Trajectories
Warren Buffett Took the Long View
Matt Levine, Bloomberg
Trump Tariffs Were An Earthquake. The Trade War Tsunami Is Just Hitting U.S. Ports.
Kit Norton, Investor’s Business Daily
Richard Heydarian, Nikkei Asia
As U.S.-China tensions intensify under President Trump’s second term, middle powers in Asia and Europe are forging stronger alliances to navigate an increasingly multipolar world. During the 2025 Balikatan military exercises, the U.S. and the Philippines held their largest joint drills yet, joined by Japan and Australia, and observed by several European nations. At the same time, countries like the Philippines are diversifying partnerships to hedge against both Washington and Beijing. China’s growing unpopularity—due to territorial disputes, trade practices, and its alignment with Russia—has prompted nations to explore closer ties with democratic partners and seek new trade agreements with the EU.
Meanwhile, Trump’s sweeping April tariffs have ignited a deepening trade war with China, disrupting U.S. ports and pushing the economy toward recession. With canceled shipments and collapsing supply chains, major retailers and exporters are bracing for a sharp decline in imports and rising costs. Amid economic turbulence, Warren Buffett announced his retirement at Berkshire Hathaway’s 2025 meeting, closing a legendary investing chapter marked by patient, long-term bets like Apple. As markets shift toward quantitative strategies and volatile returns—as seen in hedge fund losses and private credit’s retail expansion—Buffett’s style may be fading, but his influence remains a benchmark in uncertain times.
