At the Intersection of Geopolitics and Geoeconomics
Here is a summary of the most important events that unfolded over the last month in the United States, Canada, Europe, India, China, and Japan and which may affect economic, financial, and geopolitical issues in the months ahead. Tomorrow, we will be publishing our Crossroads Part II which covers the MENA, Latin America, Asia (ex. China/India/Japan), and Sub-Saharan Africa regions.
Top News This Month
- Over the weekend, the House Budget Committee narrowly advanced the “One Big Beautiful Bill” a sweeping tax and spending package central to U.S. President Donald Trump’s second-term agenda.
- On May 8th, U.S. President Donald Trump and British Prime Minister Keir Starmer announced a limited bilateral trade agreement.
- Following a surprise breakthrough during a trade meeting led by U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng in Geneva, Switzerland, U.S. and Chinese negotiators agreed to cut tariffs by 115 percentage points for 90 days.
- Between April 22nd and May 10th, India and Pakistan engaged in a military standoff triggered by a militant attack killing 26 civilians in Indian-administered Kashmir, ending with a U.S.-mediated ceasefire announced on May 10th.
United States & Canada
- Over the weekend, the House Budget Committee narrowly advanced the “One Big Beautiful Bill” a sweeping tax and spending package central to U.S. President Donald Trump’s second-term agenda. The 17–16 vote came after four hardline fiscal conservatives—concerned about the bill’s $2.5 trillion price tag—shifted their votes to “present,” allowing the measure to move forward. The bill would extend Trump’s 2017 tax cuts, eliminate taxes on tips and overtime wages, and boost spending on immigration and defense. In exchange, it proposes major cuts to Medicaid, SNAP, and clean energy credits. Speaker Mike Johnson hailed the vote as a “big win” but acknowledged more negotiations were needed. Tensions remain high between GOP leadership, ultraconservatives demanding deeper cuts, and moderates wary of harming social programs. With a razor-thin majority, Johnson has until Memorial Day to unify Republicans before a House vote. President Trump, though not directly involved, is monitoring negotiations closely through Johnson.
- A group of small businesses is challenging President Donald Trump’s global tariffs in the U.S. Court of International Trade, arguing that Trump wrongly used the International Emergency Economic Powers Act (IEEPA) by declaring trade deficits a national emergency to justify tariffs. The businesses claim this is an unprecedented expansion of presidential authority that bypasses meaningful judicial oversight. The Trump administration counters that persistent trade deficits pose a genuine economic and national security threat and that courts cannot second-guess the president’s emergency declaration, citing historical precedent from the Nixon era. The court has yet to rule, with the case testing limits on executive power and potentially impacting trillions in global trade. This lawsuit is part of broader legal battles over Trump’s tariffs, including challenges from states and tribal groups, who argue the tariffs are effectively a tax on consumers and overreach congressional authority. Any ruling against the tariffs is expected to face appeals, possibly reaching the Supreme Court.
- In early May, President Trump targeted Harvard University by freezing over $2.6 billion in federal research funding and threatening to revoke its tax-exempt status, actions aimed at forcing policy changes on governance, admissions, and diversity programs. The administration alleges Harvard has failed to adequately combat antisemitism on campus, especially following protests linked to the Israel-Gaza conflict. Harvard sued the government, arguing that withholding funds violates its First Amendment rights by coercing the university to conform to political demands and interferes with its academic independence. Harvard warns the funding freeze will severely impact vital medical research and graduate education. President Trump’s efforts reflect his broader campaign against elite universities, accusing them of promoting anti-American and discriminatory policies. Meanwhile, other top universities face similar pressures, though responses vary. Harvard’s tax-exempt status—saving it hundreds of millions annually—is central to the dispute, with critics raising legal concerns about the president’s authority to target institutions for political reasons.
- On April 28th, Mark Carney, former central banker and new Liberal Party leader, won Canada’s election, securing a fourth term for the Liberals but without a majority, meaning he must work with smaller parties to pass legislation. Carney’s campaign focused on confronting President Trump’s trade war and threats to annex Canada, positioning himself as the defender of national sovereignty. Despite never meeting Trump in person before the election, Carney pledged to maintain retaliatory tariffs while diversifying Canada’s trade alliances. His victory was a dramatic comeback from trailing Conservatives by nearly 30 points, sparked by Trump’s aggressive rhetoric and tariffs. The Conservative Party, led by Pierre Poilievre, gained votes but Poilievre lost his own seat, weakening his leadership despite pledging to stay. Carney now faces immediate challenges, including forming a cabinet, navigating Parliament, and preparing to host the upcoming G7 summit, where he will engage with Trump and other world leaders on security and economic issues.
- Market Implications: Though U.S. markets have notably calmed since “Liberation Day”, especially following the temporary easing of tensions between the U.S. and China, we remain cautious, with concerns that we may still be headed toward a recession by the end of the year. Recent U.S. developments have created notable sector divergence in the markets: Technology and financial services have outperformed, while retail and consumer discretionary stocks have underperformed as investors hedge against potential supply chain disruptions. Inflation resurgence, policy changes, and potential Federal Reserve pause on any rate decreases remain top concerns for investors. Meanwhile, Mark Carney’s electoral success as Canadian Prime Minister has provided stability for Canadian markets. The S&P/TSX Composite has outperformed its U.S. counterparts since the election results, with Canadian financials and resources leading the gains. The Canadian dollar has appreciated 1.2% against the US dollar, reflecting investor confidence in policy continuity and Canada’s improving fiscal position.
Europe
- On May 8th, U.S. President Donald Trump and British Prime Minister Keir Starmer announced a limited bilateral trade agreement, marking the first such deal since Trump launched a global tariff campaign. While the agreement reduces certain U.S. tariffs—such as lowering duties on British car imports and removing steel and ethanol tariffs—it retains a 10% baseline tariff on United Kingdom (UK) goods. Trump praised the deal as opening a “tremendous market,” while Starmer called it a “historic” step, though both acknowledged it’s not a full free trade agreement. The deal includes modest gains for agriculture, especially U.S. beef exports, without compromising UK food standards. U.S. duties on British cars will drop from 27.5% to 10% for up to 100,000 vehicles. The UK secured future protections against new U.S. tariffs and preferential treatment in national security trade probes. However, UK businesses voiced concern over continued duties and limited scope, emphasizing the need for deeper integration in digital and other sectors.
- Friedrich Merz of Germany’s Christian Democratic Union (CDU) was elected Chancellor this month after failing to secure a majority in the first round of parliamentary voting—a postwar first. He won the second round with 325 votes, just above the 316 needed. The initial stumble underscored the weakness of his political mandate and the internal divisions within his coalition. While Merz has pledged to elevate Germany’s international profile, domestic constraints and a fragile governing base are expected to limit his ability to implement major reforms. His leadership now faces immediate tests both at home and abroad.
- At Pope Francis’s funeral in Rome on April 26th, President Donald Trump and Ukrainian President Volodymyr Zelensky met briefly in a symbolic one-on-one conversation, their first since a tense Oval Office meeting in February. Zelensky used the gathering to launch a diplomatic push against a controversial U.S. proposal that would end the war on terms favorable to Russia, including recognition of its annexation of Crimea. Trump, while criticizing Russian President Vladimir Putin for deadly missile strikes on Ukraine, threatened new banking and secondary sanctions. Despite these threats, Trump’s administration has struggled to advance its peace plan. His envoy met Putin recently, but no breakthrough occurred. European leaders, alarmed by the U.S. proposal, rallied around Zelensky and discussed alternative terms prioritizing a ceasefire. Russia continues to hold military advantages, and mutual distrust is stalling diplomatic efforts despite symbolic gestures.
- Last week, French President Emmanuel Macron expressed openness to discussing the deployment of French nuclear weapons in other European countries, including Germany and Poland, to strengthen defense against Russia. His remarks, made during a TF1 interview, reflect growing European concerns over U.S. commitment to NATO amid signals that Donald Trump may reduce America’s military presence on the continent. Macron outlined three conditions: France will not fund others’ security, any deployment must not weaken its own defenses, and control over nuclear use remains solely with the French president. The proposal seeks to reassure European allies while maintaining France’s strategic autonomy. Although France’s nuclear arsenal is smaller than the U.S.’s, Macron emphasized a need for Europe to adapt to a shifting geopolitical reality. Discussions are ongoing but unlikely to alter France’s nuclear doctrine. Russia condemned the idea, arguing that increased nuclear proliferation in Europe would reduce regional stability rather than enhance it.
- A massive blackout on April 28th left tens of millions without power across Spain, Portugal, and parts of southern France for up to 18 hours. Authorities are still investigating the cause. Initial reports suggest the outage began after a high-voltage connection between France and Spain was interrupted, though this alone wouldn’t normally cause a full system collapse. A cyberattack has been ruled out. The blackout severely disrupted hospitals, banks, schools, internet, phone networks, and public transportation. Spain’s rapid transition to renewable energy has sparked debate about grid stability, though officials deny a direct link between renewables and the outage. The power grid’s vulnerability may stem from insufficient infrastructure and backup systems. The incident adds to a history of large-scale European blackouts, such as Italy’s in 2003 and Germany’s in 2006. The European Commission is now involved in the investigation, reflecting the widespread concern and complexity of modern energy networks.
- Romania, Poland, and Portugal held elections this past weekend in what is being called an electoral “super Sunday”. In Romania, Nicușor Dan, the centrist and liberal mayor of Bucharest, won the presidential election, defeating far-right nationalist George Simion, signaling a shift toward moderate leadership after a previously annulled vote. Poland held the first round of its presidential election, where liberal Warsaw mayor Rafał Trzaskowski narrowly led with 30.8% of the vote, just ahead of national-conservative historian Karol Nawrocki at 29.1%, setting the stage for a runoff on June 1. Meanwhile, in Portugal’s general election, the center-right Democratic Alliance (AD) emerged with the most votes—between 29.1% and 35.1%—but fell short of a majority, while the far-right Chega party made notable gains, nearly matching the opposition Socialist Party’s support. These results reflect a dynamic political landscape across the region, with both centrist and far-right forces gaining ground.
- Market Implications: Friedrich Merz’s challenging path to becoming Chancellor has introduced policy uncertainty into Europe’s largest economy. Germany’s DAX index has responded with cautious optimism as investors assess the coalition’s ability to implement promised corporate tax reforms. European defense stocks have responded positively to recent developments, with a pan-European defense index (Indxx Top 10 Europe Defense Index) up more than 84% year-to-date. Defense contractors and cybersecurity firms have seen increased investor interest, while broader market sentiment reflects concerns about escalating strategic competition. Following the recently announced US-UK trade framework, the pound has strengthened 1.3% against the euro since the announcement, reflecting expectations of increased transatlantic business activity. We continue to see European markets outperforming the U.S, as they have been doing year-to-date.
China, India, & Japan
- Following a surprise breakthrough during a trade meeting led by U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng in Geneva, Switzerland, U.S. and Chinese negotiators agreed to cut tariffs by 115 percentage points for 90 days. The news triggered a 300% surge in container bookings from China to the U.S. by May 13th. U.S. tariffs on Chinese imports dropped to 30%, while China’s duties on most U.S. goods fell from 125% to 10%, spurring a 30% increase in demand at some Chinese export firms and a scramble to ship delayed orders. Shipping costs for a container to the U.S. jumped 50% to $6,000, and companies like Maersk, which had seen 30–40% drops in China-U.S. ocean volumes in April, rushed to add trans-Pacific capacity. Despite the rush, uncertainty remains as businesses consider shifting to Southeast Asia—where production costs may be 10–15% higher—while navigating two countdowns: the 90-day China tariff pause and potential new U.S. duties on countries like Vietnam and Cambodia.
- Between April 22nd and May 10th, India and Pakistan engaged in a military standoff triggered by a militant attack killing 26 civilians in Indian-administered Kashmir, ending with a U.S.-mediated ceasefire announced on May 10th. India struck deep into Pakistan’s Punjab province—targeting four sites including major population centers such as Lahore and Karachi—marking its first such strikes since the 1971 war, while Pakistan claimed to have downed multiple Indian jets, with at least one Rafale and one Russian-made aircraft confirmed lost. Pakistan gained from internationalizing the Kashmir dispute through the US-brokered ceasefire, while India strengthened its diplomatic case against Pakistan-backed militant groups and demonstrated superior military reach, striking targets well beyond the Line of Control. Although both sides claim victory, analysts suggest the ceasefire reflects a mutual interest in de-escalation rather than clear military gains, with ongoing risks due to unresolved tensions and insurgencies in Kashmir and Balochistan. Peace talks are ongoing.
- In early May, the UK and India finalized a trade deal to reduce tariffs over the next decade, cutting UK whisky and gin tariffs in India from 150% to 75% immediately and to 40% by year 10, while Indian tariffs on UK cars will drop from over 100% to 10%, with the deal taking up to a year to come into effect. Trade between the two nations, which was £42 billion in 2024, is expected to rise by £25.5 billion annually by 2040 and boost the UK economy by £4.8 billion, though this is a small share of the £2.85 trillion GDP. The UK’s third-largest deal after Australia and Japan, it follows nearly three years of talks, easing market access for British services and Indian manufacturers, and includes India’s requested Double Contribution Convention on social security for Indian workers in the UK. The deal does not change UK immigration policies for Indian students but grants a three-year social security exemption for Indian employees on short-term visas and adds about 1,800 new temporary visas for skilled workers like chefs, musicians, and yoga teachers.
- In April 2025, global investors bought a record 8.21 trillion yen ($55.4 billion) in Japanese stocks and bonds, marking the largest monthly net inflow on record, with 3.67 trillion yen net purchased in equities and 4.53 trillion yen in medium- and long-term bonds, the latter being the second highest since 2005. This surge was driven by turmoil in U.S. markets amid President Trump’s aggressive tariffs and criticism of Fed Chair Powell, prompting investors to seek Japan as a safe haven and pushing the Nikkei to the 36,000 range by month-end. Despite the inflows, the Japanese yen gained only 0.1% against the U.S. dollar since April 8th, lagging other major currencies like the Taiwan dollar (+10%) and Australian dollar (+8%), reflecting shifting investor preferences. However, inflows slowed sharply from 5.85 trillion yen in early April to just 308.3 billion yen at month-end, as easing U.S.-China trade tensions and fading special factors tempered demand, while Japan faces political debates on fiscal expansion ahead of summer elections.
- Market Implications: The high-level trade discussions in Geneva this week mark a potential inflection point in bilateral relations between the U.S. and China. Chinese equities responded positively, with the CSI 300 gaining 2.3% on indications that some technology export restrictions may be eased. Semiconductor and advanced manufacturing shares led the rally, with the sector index up 4.7%. The offshore yuan strengthened moderately to 6.74 against the dollar, reflecting cautious optimism about reduced trade friction. Supply chain-oriented ETFs have seen inflows of approximately $870 million since the meeting announcement, indicating investor anticipation of more stable cross-border commerce. Foreign capital continues to flow into Japanese markets at unprecedented levels, with April’s $55 billion inflow representing a 22% increase year-over-year. Japan’s Nikkei 225 has outperformed other developed markets with a 7.3% gain year-to-date. India’s Nifty 50 index has surged nearly 17% from its early-year lows, driven by easing geopolitical tensions, favorable trade agreements (like the India-UK trade agreement), and strong corporate earnings. Defense and security-related stocks have outperformed, while consumer discretionary and tourism sectors face headwinds.
Suggested Reading
America has given China a strangely good tariff deal
The Economist
Will We See More Nuclear Proliferation?
Joseph Nye Jr., Project Syndicate
Who’s Going to Unite Europe on Defense?
Sophia Besch and Erik Brown, Carnegie Endowment
The ‘Berlin Wall of Asia’ between India and Pakistan is a strange site of theater and tears
Sophie Landrin, Le Monde
