At the Intersection of Geopolitics and Geoeconomics
North America
- On April 2nd, U.S. President Donald Trump launched his “Liberation Day” tariff plan, imposing 10%–50% tariffs on nearly all foreign imports using a controversial formula based on trade surpluses, only to contradict prior statements over the following week by announcing an 90-day pause and exempting key sectors like semiconductors, pharmaceuticals, and energy. In the following days, Trump and top officials—Peter Navarro, Scott Bessent, and Howard Lutnick—issued conflicting messages on whether tariffs were negotiable, with Trump first rejecting talks and then opening the door to deals “if they’re phenomenal.” On April 9th, just hours after tariffs took effect at 12:01 a.m., Trump stunned markets by pausing most tariffs for 90 days while simultaneously increasing Chinese tariffs by 125% and signaling massive domestic chip manufacturing plans. Despite U.S. Customs issuing guidance on April 11th excluding electronics from tariffs, Trump denied this on April 13th, claiming the items were simply moved to a new “tariff bucket,” and announced a sweeping review of the electronics supply chain— sowing further confusion and uncertainty.
- Last week, the House narrowly passed its GOP-led budget framework 216-214, following intense late-night negotiations led by Speaker Mike Johnson (R-La.) and Senate Majority Leader John Thune (R-S.D.) to appease conservative holdouts demanding $1.5 trillion in spending cuts. The House plan raises the debt ceiling by $4 trillion, while the Senate’s version, passed on April 6th, proposes a $5 trillion increase to avoid another standoff before the November 2026 midterms—setting up a major intra-party clash over fiscal policy. Central to the package are plans to preserve and expand Trump-era tax cuts totaling $7 trillion over a decade, fund $175 billion for deportations, and match that for defense, with Republicans vowing to protect Medicare, Medicaid, and Social Security while cracking down on “waste, fraud, and abuse.” A key dispute involves the Senate’s use of a controversial budget maneuver that excludes the $4.5 trillion cost of extending 2017 tax cuts from new spending tallies—an accounting tactic infuriating House conservatives and threatening final agreement.
- At the beginning of April, Democrats made relative gains in Florida and Wisconsin special elections, signaling potential concern for Republicans ahead of 2026. In Florida’s 1st and 6th congressional districts, GOP candidates won but saw margin swings of 17.4% and 19% toward Democrats compared to 2024, with turnout showing GOP reliance on less consistent voters. In Wisconsin, liberal Susan Crawford defeated MAGA-aligned Brad Schimel 54%-46% in the most expensive state supreme court race in U.S. history, with turnout up 12% and Crawford outperforming 2024 Democrats in key counties. The result was seen as a rebuke to both Trump and Elon Musk—who campaigned heavily for Schimel and now faces growing backlash within the administration and the public.
- Between April 2nd and April 6th, a stalled storm system fueled by tropical Gulf moisture dumped over 15.68 inches of rain in Benton, Kentucky, breaking regional records and triggering catastrophic flooding across Arkansas, Kentucky, and Tennessee. At least 24 people died across seven states—including Mississippi, Georgia, and Indiana—as 26 river gauges entered major flood stage, and cities like Memphis and Jonesboro logged their wettest April days since recordkeeping began in the 19th century. The high-pressure “roadblock” over the Atlantic and Rockies held the storm in place, while saturated soils from a wet March in places like Louisville and Nashville worsened the deluge. Federal officials linked the extremity of the event to climate change, citing a 45% rise in extreme precipitation events in the Midwest and 37% in the Southeast over recent decades.
- Market Implications: President Donald Trump’s “Liberation Day” tariffs, announced on April 2nd, have introduced significant uncertainty and volatility, with more turmoil expected despite the 90-day pause on some tariffs. At this stage, chances are that the U.S. will be in recession by the end of the year, and, consequently, markets are expected to be volatile for at least a few months. China’s retaliatory 125% tariffs have exacerbated trade tensions, leading to sharp declines in global equity markets and a $5 trillion loss in the MSCI All-Country Index. Trade with China has mostly, if not altogether, frozen at this stage. Supply chains will be affected, and inflationary pressures are expected to materialize within 3-4 months. Even worse, trust in international trade, and possibly in the international monetary system, has been shaken. If the latter materializes, then we are talking about a potential radical change that could have reverberations and ramifications for decades to come. While certain sectors, such as technology, received temporary relief, the overarching uncertainty has dampened investor confidence. Meanwhile, the White House has directed federal agencies to repeal regulations deemed unlawful under recent Supreme Court decisions, signaling a broader deregulatory push. These developments may influence sectors sensitive to regulatory changes, such as energy and finance. The increased regularity of extreme weather has continued to disrupt agriculture and infrastructure, threatening crop yields and supply chains, potentially leading to increased commodity prices and affecting consumer spending.
Europe
- Friedrich Merz, leader of Germany’s Christian Democratic Union (CDU), secured a coalition deal to form a government following the February 23rd election, despite plummeting CDU support and rising popularity of the far-right AfD, which reached 25% in an Ipsos poll. Merz, who aims to boost competitiveness and reduce illegal immigration, outlined a plan including a one-trillion-euro defense and infrastructure spending package, reversing his prior fiscal restraint stance. However, his controversial policy shift, including a reduction in federal government payrolls by 8%, has sparked backlash, with 60% of voters considering him unfit to lead. If approved by party members, Merz is set to be elected chancellor by the German parliament in early May 2025.
- European Commission President Ursula von der Leyen announced a 90-day suspension of EU counter-tariffs after President Trump paused a planned 20% blanket duty on European imports—excluding China, which will face increased trade levies. The EU’s retaliatory package, which included tariffs on U.S. goods such as soybeans, motorcycles, and chewing gum, had gained wide support among member states before being put on hold. Trump’s move preserves the existing 25% tariffs on European metals and cars, while signaling limited flexibility. EU Trade Commissioner Maros Sefcovic and U.S. Commerce Secretary Howard Lutnik have opened dialogue, but Brussels warns that “all options remain on the table” should talks falter. Meanwhile, Spanish Prime Minister Pedro Sanchez, who was in Beijing visiting Xi Jinping over the weekend, is urging an EU pivot toward China as part of a broader strategy to counter U.S. trade unpredictability and secure investment in green tech and EVs.
- Marine Le Pen, leader of France’s far-right National Rally (RN), appealed a March 31st conviction by a Paris court that found her and 11 others guilty of misappropriating EU funds—allegedly using European Parliament salaries to pay party staff. Le Pen was sentenced to a partly suspended jail term, fined €250,000, and banned from holding office for five years, potentially blocking her from the 2027 presidential race. Of the 24 people convicted, only 12—including RN deputy leader and Perpignan mayor Louis Aliot—filed appeals before the April 10 deadline. The Paris Court of Appeal confirmed it will review the case by summer 2026, a timeline that could allow Le Pen to run if the verdict is overturned.
- On April 13th, two Russian ballistic missiles struck the Ukrainian city of Sumy—just 18 miles from the Russian border—killing at least 34 people and injuring over 100 during Palm Sunday celebrations. President Trump, speaking aboard Air Force One, called the attack “a mistake” and “horrible,” while senior officials like Secretary of State Marco Rubio and Special Envoy Keith Kellogg issued sharper condemnations, accusing Moscow of violating civilian protections. The strike occurred just two days after Trump’s envoy Steve Witkoff met with Vladimir Putin in St. Petersburg to discuss a cease-fire, casting doubt on the sincerity of Russia’s negotiating stance. Ukrainian President Volodymyr Zelensky, speaking from Kryvyi Rih—also hit by a deadly Russian strike earlier this month—invited Trump to visit Ukraine and witness the war’s devastation before pursuing further diplomacy. Despite the Kremlin’s prior agreements to prisoner swaps and a ban on strikes against energy facilities, Russia has been accused of stonewalling broader truce negotiations by presenting delaying conditions and demands, leading to skepticism about the sincerity of Russia’s commitment to a lasting peace. While peace prospects remain a critical goal, the ongoing violence and deep-seated mistrust between the parties have cast doubt on the ability to achieve a lasting resolution.
- On April 5th, an estimated 150,000 protesters marched in Madrid—joined by demonstrations in 40 other Spanish cities, including Málaga, Vigo, Valencia, and Barcelona—to demand urgent housing reforms amid soaring rents. Housing costs now exceed 30% of income for 1.4 million Spanish households, with rents in Barcelona rising 70% in a decade while wages grew just 17.5%, and Balearic Islands’ rents are up 40% in five years to €1,400—more than local average salaries. Protesters, led by groups like the Madrid tenants’ union, called for indefinite leases, a 50% rent reduction, and taxation on multi-property owners, citing policy models like Singapore’s progressive property tax. Amid 15,000 illegal tourist apartments in Madrid and 10,000 expiring licenses in Barcelona by 2028, housing has become Spain’s top social issue, with 85% of under-30s still living with their parents.
- Market Implications: The European economic landscape is currently navigating a complex array of developments with wide-ranging implications for regional markets. The recent German coalition agreement has brought Friedrich Merz to the chancellorship, signaling a pragmatic blend of pro-business and social welfare policies, with a €500 billion public investment plan focused on green energy, digital infrastructure, and military modernization. This development is likely to act as a catalyst for domestic growth, particularly within construction, industrial automation, and renewable energy markets, though questions around long-term fiscal sustainability may temper bond market enthusiasm. European markets continue outperforming US markets (both equity and debt), and the trajectory seems to be reinforcing that trend for now. While the US market is down by 8.8% year-to-date (YTD), the Eurozone market is up by more than 10%, while some markets such as the Polish one has a YTD return of over 30%. Simultaneously, the EU’s decision to temporarily suspend retaliatory tariffs against the U.S. has introduced a short-term reprieve in cross-Atlantic economic tensions, though the temporary nature of the pause creates a window of uncertainty. The Russia-Ukraine conflict continues to exert pressure on European energy markets and defense policy, with energy importers in Central and Eastern Europe remaining vulnerable to supply shocks.
China & India
- Last week, the U.S.-China rivalry over strategic infrastructure intensified as Washington escalated claims—led by Defense Secretary Pete Hegseth—that Beijing is seeking to “weaponize” the Panama Canal, where 40% of U.S. container traffic passes. China, whose firms like CK Hutchison operate logistics hubs near the canal, strongly denied these accusations after BlackRock acquired 43 ports, including two Panamanian sites, in a $22.8 billion deal framed by the U.S. as a counter to Chinese influence. Panama, under President José Raúl Mulino, withdrew from China’s Belt and Road Initiative in February but has tried to balance pressure from both powers, including negotiating “neutral cost” Navy access for the U.S. while reaffirming national sovereignty. Beijing criticized the “militarization” of the canal and questioned who truly poses the threat, as the Trump administration pushes for further concessions and even hinted at reestablishing U.S. military bases—leaving Panama diplomatically strained in the middle of a deepening U.S.-China tug of war.
- In response to Trump’s increased tariff rates on Chinese imports, Beijing responded with across-the-board retaliatory levies, raising tariffs on U.S. goods to 125%. Last week, China’s offshore currency fell as much as 1.1%, setting an all-time low. Amid the trade tensions, Beijing is weakening its currency in order to raise the appeal of its exports, a key driver of growth now under greater pressure due to U.S. tariffs. Furthermore, China’s Ministry of Commerce and Foreign Affairs canceled all staff leave, summoned dozens of envoys to Beijing, and intensified global outreach—sending letters to G20 countries and engaging Japan, South Korea, and EU states to rally against U.S. trade pressure. Chinese President Xi Jinping invoked Mao-era rhetoric and issued a nationwide call for economic resilience, including curbs on American films, warnings against U.S. travel, and a shift toward domestic consumption as a strategic buffer. Despite past overtures—including Xi’s offer to meet Trump and unsuccessful attempts by Foreign Minister Wang Yi to engage Secretary of State Marco Rubio and NSA Mike Waltz—China has now entered a defiant “never yield” posture, leveraging wartime-style mobilization and propaganda to confront what it calls unilateral U.S. hegemony.
- On April 1st, China launched large-scale military exercises around Taiwan, involving the army, navy, air force, and rocket force in a simulated multi-directional blockade and attack, following Taiwanese President Lai Ching-te’s March 13th speech labeling China a “hostile foreign force” and outlining 17 defensive measures. The drills included sea-air combat readiness patrols, joint seizures, and maritime-ground assaults, with key assets like the Shandong aircraft carrier observed near Taiwan as early as March 29th. Beijing declared the operations a “resolute punishment” for Lai’s pro-independence stance, with Taiwan Affairs Office spokesperson Zhu Fenglian warning that “Taiwan independence means war.” These maneuvers coincided with U.S. Defense Secretary Pete Hegseth’s recent regional visit and Washington’s strategic military shift to deter Chinese aggression in the Indo-Pacific.
- Earlier this month, the Reserve Bank of India cut its key repo rate by 25 basis points to 6%—its second consecutive cut—and shifted its policy stance from “neutral” to “accommodative” amid a global slowdown and U.S. tariff shocks. Inflation dropped to 3.61% in February, a seven-month low, enabling RBI Governor Sanjay Malhotra to forecast a 6.5% GDP growth rate for FY2025–26, down from 6.7%. India, facing a 26% U.S. tariff imposed under President Trump’s new trade measures effective today, became the first Asian central bank to adjust its policy in response. The RBI cited weakened investment and spending and noted the impact of lower crude and commodity prices in managing inflation risks.
- Elon Musk’s X filed a lawsuit in the Karnataka High Court against India’s IT Ministry, alleging unlawful expansion of censorship powers through a Ministry of Home Affairs-backed website enabling mass content takedowns. The platform claims the new mechanism bypasses India’s legal safeguards—previously reserved for threats to sovereignty or public order—and empowers “countless” officials to issue removal orders without oversight. The legal feud escalates as Musk prepares to expand Starlink and Tesla in India and follows a previous 2021 standoff during the farmers’ protest. The case, first reported on March 21st, continued on March 27th with no verdict yet delivered.
- Market Implications: Both China and India are navigating complicated economic landscapes shaped by escalating trade tensions, domestic policy shifts, and global market uncertainties. China’s strategic concerns over foreign control of critical infrastructure and its retaliation to U.S. tariffs reflect broader apprehensions about U.S. influence and the potential implications for its Belt and Road Initiative. Domestically, China continues to grapple with deflationary pressures, highlighting the challenges facing its economy amid weakening demand and trade uncertainties. The Chinese equity market faces its own challenges (as a consequence of its economic weaknesses and U.S. tariffs), however, it still outperforms U.S. equity markets (+8.2% for China vs. -8.8% for the U.S.). India has become the first major Asian economy to cut interest rates amid the current wave of U.S. tariff hikes, with the Reserve Bank of India reducing the repo rate to support economic growth. In parallel, the Indian government is considering measures to support exporters affected by U.S. tariffs, aiming to bolster vulnerable sectors such as gems and jewelry, chemicals, pharmaceuticals, and engineering goods. The Indian equity market has lost 3.5% since the beginning of the year, and the major concern at this stage is the consumers’ squeeze due to the rising debt levels on both the consumer and business side of the national ledger. The interplay of these developments suggests a period of heightened volatility and strategic realignment in both Chinese and Indian markets.
Suggested Reading
Council on Foreign Relations
Why China thinks it might win a trade war with Trump
The Economist
Between China and the US, the European Union seeks the right balance
Virginie Malingre, Le Monde
