North America

• Tensions with Canada and Mexico have escalated following Donald Trump’s threat to impose a 25% tariff on goods imported from both countries unless they enhance border security with the US. Canadian officials, including Prime Minister Justin Trudeau, emphasized differences between the two borders, citing Mexico as a “back door” for Chinese investments and illicit activities, which prompted strong responses from Mexican President Claudia Sheinbaum, advocating for mutual respect. Trade dynamics further strain relations, with Canada imposing steep tariffs on Chinese goods such as EVs and steel while Mexico has refrained from similar measures, deepening divisions within the North American trade bloc. The US-Mexico border reported over 2 million migrant encounters and 21,000 pounds of fentanyl seizures in a year, compared to just under 200,000 encounters and 43 pounds of fentanyl at the US-Canada border, highlighting the stark disparities in challenges each nation faces. Additionally, incoming president Trump has promised a 10% increase to any tariffs already in place on Chinese goods.

• In early December, the US announced new export restrictions aimed at limiting China’s access to advanced semiconductor technology, drawing swift condemnation from Beijing. The Biden administration’s measures target 140 entities, including Chinese chip firms like Piotech and Naura Technology Group, as well as restricting exports of two dozen chip-making equipment types and advanced software. These moves align with Washington’s “small yard, high fence” policy to safeguard national security by impeding China’s progress in AI and military modernization, with allies like the Netherlands signaling agreement. As Donald Trump prepares to take office, expectations are high for even stricter controls, intensifying the US-China technology rivalry in sectors critical to AI and modern warfare.

• President-elect Donald Trump has chosen a cabinet for his second term that includes a mix of loyalists from his first term, prominent figures from conservative media, and several controversial picks with limited experience in their respective fields. For Secretary of State, Trump has chosen Marco Rubio, a seasoned Senator and former rival who has since become a vocal supporter and who will likely orient US foreign policy to increase efforts against China and give more attention to Latin America. Trump’s picks for Secretary of Defense, Pete Hegseth, a Fox and Friends Weekend Edition host, and National Security Advisor, Michael Waltz, are both military veterans with hawkish views. Hegseth is viewed as lacking experience in leading large organizations and has had allegations of sexual assault and misconduct levied against him. Other notable picks include Linda McMahon returning as Secretary of Education, Robert F. Kennedy Jr. as head of Health and Human Services, and Pam Bondi as Attorney General after Congressman Matt Gaetz’s withdrawal.

• On December 4th, Democrat Adam Gray won California’s 13th Congressional District, flipping a seat for the Democrats in the final undecided House race, resulting in a Republican majority of 220-215 in the House. Despite this narrow margin, the GOP is poised for full control of Washington come January, with Donald Trump elected president, Republicans holding 53 Senate seats, and retaining leadership roles for Mike Johnson and Steve Scalise in the House while John Thune will succeed Mitch McConnell as Republican Leader in the Senate and become the Senate Majority Leader. Challenges to the GOP’s slim margin of control in the House include Rep. Matt Gaetz’s resignation following an ethics investigation and his withdrawal as Trump’s attorney general nominee, with his seat to be filled in a special election on April 1st. Additional challenges for Republicans include pending vacancies for Rep. Elise Stefanik, selected as UN ambassador, and Rep. Michael Waltz, chosen as national security adviser, straining their slim majority in the upcoming 119th Congress.

• Market Implications: Washington’s expanded restrictions on Chinese access to advanced technologies, including semiconductors, aim to curb China’s technological capabilities but risk retaliatory measures, potentially disrupting US companies reliant on Chinese supply chains or markets. Sectors like semiconductors and AI may experience volatility as the US enforces stricter export controls and pushes for domestic innovation to offset dependency. Meanwhile, Donald Trump’s threats of new tariffs on Canada, China, and Mexico could exacerbate trade tensions. If implemented, tariffs may disrupt supply chains, raising costs for businesses and consumers. The automotive, agricultural, and tech industries—heavily integrated with these economies—might face heightened challenges. Investors may exhibit risk aversion, impacting equities, especially in multinational companies exposed to tariff-affected regions. Combined, these policies create an uncertain landscape, with potential inflationary pressures and shifts in trade flows likely influencing sectors from technology to manufacturing. The US market’s resilience will hinge on strategic adaptation by affected industries and government countermeasures to minimize broader economic fallout. The geopolitical evolution in hand, along with the conventional and mainstream currency analysis, articulates a thesis of a stronger dollar going forward. We have our reservations about it, especially for the second half of 2025. We wouldn’t be surprised if a weaker dollar starts emerging by the fall of 2025.

Europe

• The French government collapsed on December 4th after a no-confidence vote ousted Prime Minister Michel Barnier, with 331 MPs supporting the motion against him just three months into his term. The vote was triggered by opposition to Barnier’s use of special powers to pass a €60 billion deficit-reduction budget, deemed “toxic” by Marine Le Pen’s far-right National Rally (RN) and the left-wing New Popular Front (NFP). This marks the first no-confidence collapse of a French government since 1962, deepening the political instability caused by a fragmented parliament following snap elections last summer. President Emmanuel Macron is expected to appoint a new prime minister promptly, while the Assembly’s gridlock will persist until new elections in July.

• Ukrainian President Volodymyr Zelensky revealed on November 30th that 43,000 Ukrainian soldiers have been killed and 370,000 injured since Russia’s full-scale invasion began, marking a sharp rise in casualties compared to February’s figure of 31,000 deaths. He estimated that Russian losses include 198,000 dead and 550,000 wounded, figures consistent with Western estimates but disputed by Moscow, which claims Ukrainian losses are higher. Amid heavy fighting, Russia has captured 2,350 sq km of territory in eastern Ukraine and the Kursk region this year, while Ukraine holds a small amount of Russian territory gained in a surprise August offensive. Talks involving Zelensky, French President Emmanuel Macron, and US President-elect Donald Trump emphasized the need for a durable peace, with Trump pushing for immediate negotiations and the Kremlin reiterating its June conditions for a ceasefire, which Kyiv has rejected.

• Romania’s Constitutional Court annulled the results of its presidential election on December 6th, citing widespread flaws, including alleged cyberattacks and possible Russian meddling, which had been flagged by security services. The annulment affects both the first round held on November 24th and the scheduled runoff vote, which ultranationalist candidate Calin Georgescu was poised to win against centrist mayor Elena Lasconi. Georgescu, who has voiced admiration for Vladimir Putin and criticized support for Ukraine, condemned the ruling as a “legalized coup,” while outgoing President Klaus Iohannis defended it as a matter of national security due to foreign interference concerns. The ruling has thrown Romania, a NATO member bordering Ukraine, into political turmoil, exacerbated by inconclusive parliamentary elections, and drawn sharp reactions from Western allies wary of rising pro-Russian sentiment in Eastern Europe.

• In Georgia, 48 people were detained on December 6th following violent clashes during pro-European Union protests in Tbilisi, with riot police using water cannons and tear gas. The demonstrations erupted after the government, led by Prime Minister Irakli Kobakhidze, announced its decision to delay EU accession talks until 2028, sparking more than a week of mass protests. The unrest comes amid broader political instability since an October election consolidated the ruling party’s power, further fueling concerns about Georgia’s alignment with Russia’s influence. Over 300 arrests have been made during this period of unrest, which have drawn international criticism and sanctions from Ukraine, Latvia, and Lithuania against Georgian officials for the violent crackdown.

• Market Implications: European equity markets are facing heightened challenges stemming from political and geopolitical upheavals. The collapse of the French government has created a wave of uncertainty, undermining investor confidence. France’s pivotal role in the Eurozone means that political instability could delay critical reforms and fiscal policies, particularly those aimed at energy transition and infrastructure development. Sectors like banking and consumer goods may experience increased volatility as sentiment wavers. Broader European markets are also likely to see ripple effects. Meanwhile, the Russia-Ukraine war continues to reshape the European market landscape. The volatility of energy supplies, particularly natural gas, has severely impacted energy-intensive industries such as manufacturing and chemicals. Sanctions against Russia and disruptions in agricultural exports from Ukraine are exacerbating inflationary pressures, affecting food and commodities markets. Moreover, metals and minerals critical to the automotive and aerospace sectors are becoming increasingly expensive and difficult to source, creating additional operational challenges for these industries. The convergence of these crises underscores a complex risk environment for European equities. While certain sectors, such as renewable energy, could benefit from strategic pivots away from Russian energy dependence, most industries are bracing for sustained headwinds. Investors are likely to favor defensive sectors like healthcare and utilities while adopting a cautious stance on cyclicals. Strategic clarity on energy policies and geopolitical developments will be essential for market stabilization in the medium term.

China & India

• Jimmy Lai, the 76-year-old founder of the pro-democracy Hong Kong tabloid Apple Daily, testified in his national security trial, denying allegations of foreign collusion to influence Hong Kong’s foreign policy. Lai, who is already serving prison sentences for his role in the 2019 protests, faces life imprisonment under the 2020 National Security Law (NSL). Despite claims by Beijing, Lai maintains his newspaper upheld Hong Kong’s core values, such as freedom of speech and democracy, and was not involved in advocating for Hong Kong’s independence. His trial has drawn international attention, with figures like US President-elect Donald Trump and UK Prime Minister Keir Starmer calling for his release. Additionally, on November 19th, 45 pro-democracy activists were sentenced to jail after China’s largest trial under its national security law.

• China sent troops to Pakistan for the first joint counterterrorism exercise in five years. The “Warrior-VIII” drills aim to enhance the two countries’ ability to conduct joint counterterrorism operations, following a surge in attacks against Pakistani security forces attributed to the Tehrik-i-Taliban Pakistan (TTP). The move comes amid heightened concerns over the safety of Chinese nationals in Pakistan, especially after the deadly Karachi bombing in November, which killed two Chinese engineers. The collaboration, which involves the People’s Liberation Army’s Western Theater Command, follows strained relations due to repeated attacks on Chinese citizens, leading China to pressure Pakistan for stronger security measures.

• US authorities indicted Indian billionaire Gautam Adani, charging him with securities fraud and conspiracy related to a $265 million bribery scheme that involved his company, Adani Green Energy Ltd. The scheme aimed to secure lucrative state energy contracts in India, including a 12-gigawatt solar power project, through bribes to government officials while misrepresenting the project to US investors. Adani, along with co-defendants including his nephew Sagar Adani and former CEO Vneet Jaain, allegedly misled investors by claiming the company had a robust anti-bribery program. The Securities and Exchange Commission also filed a civil suit, seeking penalties against Adani and his associates, with the case being heard in Brooklyn federal court.

• Last month, New Delhi, India, suffered the world’s worst air quality, with pollution levels reaching over 1,600 on the IQAir index, leading authorities to close schools and urge residents to stay indoors. This toxic smog, which has also affected neighboring Pakistan for weeks, led to the declaration of a health emergency in both regions due to rising respiratory issues and eye irritation. In Pakistan’s Punjab province, pollution surpassed 1,000 on the IQAir index, prompting the closure of schools, parks, and construction sites, along with a ban on outdoor events. Both countries’ air quality deteriorated due to seasonal crop-burning practices and cooler temperatures trapping pollutants, with the smog severely impacting the health of millions in these densely populated areas.

• Market Implications: China and India’s equity markets are facing complex dynamics influenced by geopolitical and environmental factors. The announcement of joint counterterrorism drills between China and Pakistan signals deepening military cooperation aimed at addressing regional security threats. This development may bolster investor confidence in defense and technology sectors within China, as the collaboration suggests a focus on security technologies and military advancements. However, the instability in regions critical to the Belt and Road Initiative (BRI) may heighten concerns about infrastructure project vulnerabilities, potentially affecting related investments. In India, escalating air pollution, declared a “medical emergency” in Delhi, underscores pressing environmental challenges. The situation is likely to drive increased regulatory actions, potentially affecting industries such as construction, manufacturing, and energy. Companies in the renewable energy sector, however, may benefit from government efforts to transition toward cleaner technologies. Investor sentiment could shift toward sustainable investments, as stricter environmental norms gain traction. Overall, the Chinese market is likely to see mixed reactions, with gains in security-related stocks but potential concerns in sectors tied to volatile regions like Pakistan. In India, the equity markets could experience pressure on pollution-heavy industries while seeing opportunities for growth in green sectors. Both nations’ markets reflect a blend of risks and opportunities influenced by these critical developments.

Suggested Reading

China Comes Out Swinging as Trump Trade War Looms

Rebecca Feng, Heather Somerville, and Jon Emont, The Wall Street Journal

France steps into deep trouble

The Economist

Will China Take Over the Global Auto Industry?

Brad Setser, Council on Foreign Relations

India Will Carve Its Own Path

Manjari Chatterjee Miller, Foreign Affairs