EU Cools on China Investment Pact Amid Rising Trade Tensions and Industrial Overcapacity

Economic

Summary:

The European Union has reaffirmed it has no intention to revive the stalled Comprehensive Agreement on Investment (CAI) with China, citing deep-rooted trade imbalances...

EU Signals Strategic Shift Away from Investment Pact with China

During a recent forum discussion with Chinese officials, Marjut Hannonen, the EU Delegation’s Head of Trade in China, firmly dismissed the possibility of resuming negotiations on the long-stalled Comprehensive Agreement on Investment (CAI). According to Hannonen, the EU’s priority lies not in reopening the deal but in addressing the widening structural issues plaguing EU–China economic relations.

Her remarks follow a cooling in bilateral tensions after China lifted sanctions on several EU parliamentarians and institutions—a move widely interpreted as an attempt to reopen CAI talks. However, Hannonen was unequivocal in her response: "There is no intention on the EU’s part to do anything with the CAI. It’s not even under consideration."

A Legacy of Stalled Engagement and Rising Distrust

The CAI, initially hailed as a landmark agreement in 2020, lost momentum after the European Parliament froze its ratification in 2021 in response to China’s sanctions related to accusations of human rights violations in Xinjiang—claims which Beijing denies. The diplomatic standoff has since left the agreement dormant, and current EU rhetoric signals that its revival is politically untenable.

Hannonen highlighted a broader deterioration in trade relations over the past two decades, attributing this trend to rising barriers against European firms and asymmetric market access in China. While some sectors like services show promise, the overall trade relationship is strained by deeper systemic imbalances.

Subsidies and Overcapacity Emerge as Core Issues

A central grievance from the EU is China’s aggressive subsidization of its domestic industries. This policy has triggered concerns across multiple sectors, especially in areas where Chinese industrial output is flooding European markets with underpriced goods, such as electric vehicles and solar panels.

The problem, according to Hannonen, is not merely national but global: “Overcapacity is a severe and worsening issue. Instead of addressing it, China is doubling down on production, further destabilizing the international trade environment.” The EU has responded with defensive measures, such as imposing tariffs on Chinese EV imports in 2024, prompting retaliatory actions from Beijing.

These developments underscore the EU’s strategic pivot from negotiation to protectionism, aimed at shielding its own industries from systemic disadvantages.

China Calls for Dialogue but Criticizes Western Trade Policies

Responding to the EU's tough stance, Li Jian, Director-General for European Affairs at China’s Foreign Ministry, acknowledged existing bilateral frictions but called for constructive dialogue. He warned against policies of economic coercion and unilateralism—implicitly criticizing the U.S., and by extension, likeminded allies for contributing to global instability.

His call for China and Europe to exercise “responsible leadership” reflects Beijing’s diplomatic attempt to maintain engagement while resisting perceived Western encirclement. However, without structural reforms from China or a clear shift in EU strategy, dialogue alone appears insufficient to bridge the divide.

Strategic Decoupling Gains Ground

The EU’s unequivocal dismissal of CAI revival reflects a maturing recognition that trade liberalization with China may no longer be strategically viable under current conditions. Deepening subsidy tensions, persistent overcapacity, and political mistrust have created a landscape where multilateral investment frameworks struggle to gain traction.

In this evolving context, the EU appears to be recalibrating its approach—prioritizing defensive economic measures, targeted engagement, and issue-based cooperation rather than sweeping trade deals. Unless China addresses the structural concerns raised, particularly in industrial policy and human rights, the CAI will likely remain shelved, a relic of a geopolitical climate that no longer exists.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Damon

Political

President Donald Trump said the US had presented Iran with a proposal over Tehran’s nuclear ambitions and that the country’s negotiators needed to move soon on the offer as talks intensify.

“They have a proposal, more importantly they know they have to move quickly or something bad — something bad’s going to happen,” Trump told reporters aboard Air Force One as he returned to Washington from a visit to the Middle East.

The president did not provide details on the proposal that follows talks being led by his special envoy, Steve Witkoff, and mediated by Oman. The most recent session was Sunday.

A major sticking point has been whether the US would accept Iran keeping some kind of civil nuclear program as part of the deal, and US officials have given conflicting messages on the levels of uranium enrichment they would accept.

Trump has repeatedly threatened military action against Iran if Tehran does not reach a deal to limit its atomic work in exchange for relief from crippling US sanctions. Iran says its program is peaceful but it’s long faced suspicion that it could be weaponized.

Iran’s lead negotiator, Foreign Minister Abbas Araghchi, repeated his insistence that Iran retain some enrichment capacity in comments late Thursday, while citing “contradictory” negotiating positions from the US.

“What the parties to the negotiations say in the media is not the same as what they say behind closed doors,” he said.

Tehran also sent negotiators to Istanbul on Friday to discuss nuclear issues and sanctions with the European signatories of the 2015 nuclear deal that Trump withdrew from in his first term.

“We will meet again if necessary to continue talks,” Deputy Foreign Minister Kazem Gharibabadi said on X, adding that Iran, the UK, France and Germany were “determined to sustain and make the best use of diplomacy.”

During his Mideast visit, Trump suggested that the US is moving closer to an agreement to curb Iran’s nuclear activities even as he has sought to ramp up pressure on the country, warning that his offer will not remain on the table indefinitely.

Source: Yahoo Finance

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

China–U.S. Trade War

Trump Administration Prepares Tariff Wave Amid Stalled Global Negotiations

In a bold and decisive statement from Abu Dhabi, U.S. President Donald Trump announced on May 16 that his administration will begin imposing new tariffs on multiple trading partners within the next 2–3 weeks. The announcement reflects the administration’s frustration with the logistical impossibility of negotiating trade agreements simultaneously with up to 150 countries.

According to Trump, the Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick will soon notify foreign governments of revised tariff rates. He emphasized the U.S. would remain “fair” but firm in enforcing new trade terms, a stance that sharply contrasts with multilateral trade frameworks.

Diplomatic Timeframe Narrowing: From Pause to Penalty

The decision follows a 90-day tariff suspension announced on April 9, which was intended to allow time for trade negotiations. However, with the grace period nearing its end on July 8, few agreements have been finalized. Only two frameworks—one with the United Kingdom and a second with China—have been formally announced so far, negotiated in Geneva by senior U.S. officials.

Meanwhile, over 100 countries have expressed interest in commencing talks, creating a bottleneck that U.S. trade officials admit they cannot realistically resolve within the timeframe. As a result, countries that fail to reach a deal may face retaliatory tariffs as high as 50%, a threshold previously mentioned by Trump as a potential ultimate goal by mid-2026.

Tariff Uncertainty Roils Global Trade Landscape

The Trump administration’s ambiguous position on tariff levels is generating widespread market anxiety. While the U.S. currently maintains a basic 10% import tariff for most goods, some sectors already face significantly higher rates. Notably, the President has hinted that many countries will soon be subject to rates far exceeding the 10% “floor” cited by Commerce Secretary Lutnick.

The recent trade deal with the U.K. allows British goods to enter at the 10% rate, but Trump declared that such "generous terms" would not extend to others. For countries like Vietnam, Japan, India, and the EU, which are still in negotiations, the looming threat of elevated tariffs presents significant economic and diplomatic risks.

Fitch Ratings and Investor Concerns Amplify Policy Volatility

According to Fitch Ratings, the U.S. average tariff remains elevated at 13%—far above the pre-Trump baseline of 2.3%—even after temporary rollbacks tied to talks with China. While this is down from 23% in early April, the current level still represents a significant departure from historical norms and global trade expectations.

This persistent unpredictability is sparking strong reactions from financial markets. In recent weeks, stock prices have swung violently in response to mixed messages from the Trump administration—oscillating between aggressive rhetoric and negotiation overtures. Economists now estimate a 50% chance of a U.S. recession, citing the disruptive effects of trade policy as a key risk factor.

Domestic Impact: Businesses and Consumers Brace for Fallout

Beyond geopolitics, the uncertainty surrounding Trump’s trade policies is weighing heavily on U.S. businesses and consumers. Unpredictable tariffs complicate supply chains, delay procurement decisions, and create pricing volatility in both imported goods and domestic alternatives.

While some firms are attempting to frontload imports or reconfigure supply chains, many face rising costs that will eventually pass through to consumers. The short-term benefit of tariff suspensions has failed to provide the stable planning horizon that industries need to manage risk.

Unilateral Trade Escalation Risks Global Retaliation

As the July 8 deadline approaches, the Trump administration’s shift toward broad-based tariffs appears imminent. The lack of clarity about specific tariff levels, combined with the collapse of a multilateral strategy, introduces significant volatility into global trade dynamics. Though some deals may still materialize, the broader pattern suggests a return to the “America First” doctrine that prioritizes leverage over cooperation.

With key U.S. trading partners still awaiting formal terms, and global investors increasingly wary, the coming weeks may mark a turning point in the post-pandemic trade order—one shaped more by bilateral pressure than by rules-based negotiation. Whether this yields stronger U.S. economic outcomes or triggers a wave of global retaliation remains a question markets and policymakers are watching closely.

Source: Yahoo Finance

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

U.S. Creditworthiness Takes a Hit Amid Mounting Fiscal Pressures

In a move that caught markets off guard, Moody’s Investors Service downgraded the U.S. credit rating from Aaa to Aa1 on May 17, 2025, citing concerns over the sustainability of the country’s ballooning national debt, now surpassing $36 trillion. The decision follows a prolonged period of fiscal deterioration and reflects waning confidence in the government's ability to implement credible budget reforms.

Although Moody’s revised the U.S. outlook from “negative” to “stable,” the downgrade underscores the structural nature of America’s fiscal challenges, particularly the widening gap between revenue generation and expenditure control.

Political Gridlock Undermines Fiscal Reform

Moody’s justification centers on repeated failures by successive administrations and Congress to reach bipartisan agreements to contain budget deficits and rising interest obligations. Despite the Trump administration’s renewed promises to balance the federal budget, its signature tax cut extension proposals—touted as legacy-defining legislation—have stumbled in Congress. Resistance from hardline Republicans demanding more aggressive spending cuts has dealt a rare political setback to President Trump.

Moody’s projects the federal debt-to-GDP ratio to rise from 98% in 2024 to 134% by 2035 unless structural reforms are implemented. These projections imply a worsening fiscal trajectory, making it harder for the U.S. to maintain investor confidence in its long-term credit profile.

Market Reactions and Broader Financial Implications

The downgrade has already triggered turbulence in the financial markets. U.S. Treasury yields rose sharply after the announcement, and analysts warn that investor sentiment may weaken further as markets reopen. Long-term yields, in particular, could continue to climb unless offset by flight-to-safety behavior during broader economic uncertainty.

Jay Hatfield of Infrastructure Capital Advisors emphasized that the downgrade hits at a moment of market fragility, especially as investors digest a wave of recent Trump-imposed tariffs and rising concerns over inflation. Spencer Hakimian of Tolou Capital Management noted that lower credit ratings typically translate into higher borrowing costs—not just for the federal government, but for the broader economy, including businesses and consumers.

Skepticism and Political Fallout

The downgrade has reignited partisan tensions. Former Trump economic adviser Stephen Moore denounced the move as irrational, while White House communications director Steven Cheung publicly attacked Moody’s analyst Mark Zandi, calling his assessment politically motivated. Meanwhile, Democrats, including Senate Majority Leader Chuck Schumer, claimed the downgrade reflects the consequences of "reckless" tax-cut policies and the Republican party’s fiscal irresponsibility.

The U.S. Treasury Department has yet to issue a formal response, but Treasury Secretary Scott Bessent has previously emphasized efforts to reduce the cost of government borrowing. However, the lack of tangible progress in spending restraint or revenue enhancement continues to weigh on the government’s fiscal credibility.

Historical Context and Long-Term Outlook

This marks the third credit downgrade in U.S. history. Standard & Poor’s stripped the U.S. of its AAA rating in 2011 during a debt ceiling crisis, and Fitch followed suit in August 2023 amid recurring last-minute debt ceiling negotiations. Moody’s, the last of the three major agencies to maintain a top-tier rating for the U.S., now joins the others in issuing a warning about America's long-term fiscal health.

Analysts argue that unless Washington can engineer a reliable, bipartisan budget framework, the risk of future downgrades and market instability will persist. Brian Bethune of Boston University stressed the need for a “credible fiscal pact” that places deficits on a downward path. Without it, the cost of inaction will likely be reflected in diminished fiscal flexibility, rising debt service costs, and a weakening of the U.S. dollar’s safe-haven status.

Moody’s downgrade of U.S. creditworthiness is more than a symbolic move—it is a signal to global investors that America’s long-term fiscal discipline is in question. At a time when interest rates are high, trade tensions are escalating, and debt servicing costs are growing, the downgrade may further strain the government’s capacity to respond to economic shocks. Without a shift toward transparent and sustainable fiscal policy, the U.S. risks not only higher borrowing costs but also a loss of credibility in global capital markets.

Source: The Independent

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Commodity

Cryptocurrency

Bond

Fed's Quiet Return to Quantitative Easing Signals Policy Recalibration

In a move that has escaped broad public attention, the U.S. Federal Reserve recently executed large-scale purchases of Treasury bonds amounting to $43.6 billion over just four days. Notably, $8.8 billion was allocated to 30-year bonds on May 8 alone. This activity diverges sharply from the public narrative of monetary tightening, raising speculation that the Fed may be softening its stance to preempt economic headwinds.

Rather than representing a reversal of official policy, this appears to be a cautious, almost experimental reintroduction of liquidity into the market. For market-savvy investors, the scale and subtlety of these actions serve as an early signal of deeper systemic shifts that could influence global capital flows.

Commodities React First: Gold as the Barometer of Skepticism

Gold, long regarded as a hedge against financial uncertainty, has been among the first asset classes to respond. Since early 2024, gold has appreciated significantly, fueled by growing distrust toward central banks and political actors. Unlike fiat currencies, gold responds primarily to quantifiable shifts in monetary supply and sovereign risk—making it a particularly sensitive gauge in the current macroeconomic context.

The trend is global. China, for example, has expanded its gold import quotas, enabling domestic banks to directly convert U.S. dollars into gold. This maneuver indicates strategic diversification away from U.S. Treasuries, reflecting Beijing’s apprehension about the long-term security of holding $784 billion in U.S. government debt.

If even 10% of that portfolio were redirected into gold, the impact on global financial markets would be profound.

Bitcoin Rises on Institutional Validation and Strategic Accumulation

Bitcoin, often seen as the digital counterpart to gold, has also reacted strongly. After undergoing its latest “halving” event—a reduction in mining rewards that historically precedes multi-year bull cycles—Bitcoin has surged in price and institutional relevance.

In a noteworthy shift, the Trump administration has embraced Bitcoin at a strategic level, establishing a national reserve of the digital currency. This move, alongside growing inflows into Bitcoin ETFs, indicates that the asset is transitioning from fringe speculation to mainstream acceptance. Fed liquidity, whether explicit or implicit, tends to bolster risk-on assets, giving further upside to the crypto market.

Central Banks Quietly Prepare for a Global Financial Realignment

Not only the U.S. and China, but central banks across the globe are increasing their gold holdings and reassessing the composition of their reserves. This coordinated behavior suggests that many monetary authorities are anticipating a systemic recalibration—either from inflation volatility, geopolitical fragmentation, or long-term currency depreciation.

The import of gold by the U.S. itself reinforces the notion that even Washington is hedging against internal fiscal risks, including the expanding debt burden and weakening sovereign credit profile, recently spotlighted by Moody’s downgrade.

Emerging Markets and Resource Economies Enter the Spotlight

While traditional markets brace for turbulence, resource-rich nations—especially in Latin America—are experiencing a wave of investor interest. Brazil stands out. Benefiting from a commodities boom, its financial instruments have soared: the iShares MSCI Brazil ETF and the iShares Latin America 40 ETF have risen approximately 24% year-to-date.

These gains are not random; they reflect a calculated reallocation of global capital toward economies seen as relatively insulated from Western financial fragility. As the dollar softens and global demand for commodities rises, Brazil and similar economies emerge as both safe havens and growth plays.

Early Moves in a Broader Monetary Realignment

The Fed’s discreet re-engagement in bond markets may signal more than tactical liquidity support—it may foreshadow a larger-scale monetary recalibration. As institutional confidence in fiat systems erodes and inflationary pressures remain unresolved, gold and bitcoin are increasingly seen as viable hedges, while Latin America offers geographic and economic diversification.

While U.S. equities have historically benefitted from loose monetary policy, this time may be different. The evolving distrust in central banking, alongside geopolitical instability, is redistributing market confidence toward non-traditional stores of value and emerging market assets. For investors alert to early policy signals, the window of strategic repositioning is already opening.

Source: MorningStar

Risk Warnings and Disclaimers

Add to Favorites

Owen Li

Economic

Commodity

Amid the doom and gloom of falling crude prices and weakening demand growth, oil bulls could find one nugget of cheer in the latest report from the International Energy Agency: a modest upward revision to historical consumption.

That may not seem terribly exciting, but it wiped out three years’ worth of apparent global oil stockbuilds and drained an ocean of “missing barrels.”

The world used about 330,000 barrels a day more in 2023 than was previously reported, according to the IEA. Africa accounted for three-quarters of that revision, with higher consumption in Egypt and Nigeria.

Because of the way forecasts are generated, that historical increase gets rolled forward into subsequent years, raising the level of demand for this year and next even if it does nothing for year-on-year growth.

Rather than predicting actual oil consumption for 195 countries, analysts tend to forecast incremental demand by region using assumptions about population and economic growth, and then applying those numbers to “known” historical consumption levels.

Raise the starting point and everything else rises, even as annual growth is unaltered.

At a stroke, the IEA’s revision wiped out all the stockbuilds it saw in 2022, 2023 and 2024.

Rather than adding 220 million barrels of oil to global inventories during those three years, the IEA now says we have drawn them down by nearly 75 million barrels. That swing is equivalent to almost three-quarters of the US strategic reserve.

Before we get too excited, though, the IEA still sees supply running ahead of demand in 2025 and 2026.

Even if OPEC+ pauses its output increases after the big hikes planned for this month and next, supply will still exceed demand by more than 1 million barrels a day in the third quarter, the agency says. And that’s before any possible return of Iranian barrels.

The spare oil will head for storage tanks that are a lot less full than previously believed.

While it’s not a recipe for rising prices, erasure of the missing barrels might help put a floor under them, at least for a little while.

Exports of US crude are tumbling as OPEC+ restores production into a market grappling with weakening demand because of the trade war and reduced refinery capacity. Average US oil exports dropped 10% to 3.76 million barrels a day in the four weeks through May 9, according to Energy Information Administration data. That’s the slowest pace since January and well below seasonal levels from the past two years.

US Treasury officials met with Hong Kong banks in April to warn them against facilitating Iranian oil shipments to China, just a month before sanctioning nine non-bank entities allegedly involved in such trades, people familiar with the matter said.

Canadian oil tycoon Adam Waterous’ Strathcona Resources Ltd. announced plans to make a takeover bid for MEG Energy Corp. that values the oil-sands company at about C$6 billion ($4 billion).

Vistra Corp. agreed to buy seven gas-fired power plants for $1.9 billion, the latest big US generator betting on the fossil fuel to feed the voracious appetite of artificial intelligence.

Taiwan is shutting its last nuclear reactor this weekend, putting pressure on the island’s energy-guzzling chipmakers in the face of soaring demand for their products.

Ice-cream cones will likely cost more this summer as the price of coconut oil, a key ingredient, keeps setting records, Bloomberg Opinion’s Javier Blas writes.

China’s liquefied natural gas demand may see limited benefit from the recent slash in US tariffs, according to BloombergNEF. The existing levies, domestic economic malaise and elevated LNG prices are set to curb Chinese buying interest. Imports may reach 68 million metric tons — 1.1 million tons more than forecast last month during the peak of the trade war. Yet that’s still 8.2 million tons, or 11%, lower year-on-year.

Join us in Doha for the Qatar Economic Forum on May 20-22. Since 2021, the forum powered by Bloomberg has convened more than 6,500 influential leaders to explore bold ideas and tackle the challenges shaping the global economy. Request an invitation today.

Source: Bloomberg Europe

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Weak Q1 Signals Mounting Economic Stress for Russia

The latest data released by Russia’s Federal Statistics Service (Rosstat) reveals that the country’s economic growth slowed significantly in the first quarter of 2025. GDP expanded by only 1.4%, a steep decline from 4.5% in the previous quarter and markedly below the 5.4% growth seen in Q1 2024. The result also fell short of expectations from the Ministry of Economic Development (1.7%) and Bloomberg analysts (1.8%).

This downturn represents the slowest pace of growth in over a year, raising renewed concerns about the sustainability of Russia’s economic trajectory under prolonged geopolitical and financial pressure.

Financial Headwinds and Policy Constraints Deepen Economic Challenges

Egor Susin, an executive at Gazprombank, described the data as indicative of a significant downturn, arguing that Russia is now facing clear signs of economic contraction. Analysts attribute the sluggish growth to several interlinked issues: tight monetary policy from the Bank of Russia, persistent inflation, sanctions-induced supply constraints, and a weakening revenue base from oil exports.

The impact of declining energy income is particularly pronounced. According to Raiffeisenbank, oil and gas revenues fell by 10% between January and April 2025, weakening the fiscal cushion that has historically helped Russia navigate economic shocks. This drop in hydrocarbon earnings is especially damaging given the country’s reliance on energy exports for budget stability and foreign currency inflows.

Sanctions and War Pressure Create a Persistent Drag

In parallel, sanctions stemming from the Ukraine conflict continue to erode Russia’s trade capabilities and investment environment. A recent study by the Stockholm Institute of Transition Economics (SITE) underscores how escalating Western restrictions are compounding internal structural weaknesses, limiting access to critical technology, capital, and markets.

Additionally, the ongoing conflict poses complex future risks. If peace negotiations between Moscow and Kyiv lead to military expenditure cuts, the Russian economy could experience a further contraction due to reduced government spending—currently a key driver of domestic demand. On the other hand, failure to reach a peace agreement may prompt the EU and U.S. to escalate sanctions, deepening financial isolation and curtailing growth prospects.

Outlook Uncertain Amid Policy and Geopolitical Crossroads

The sharp deceleration in Russia’s economic growth illustrates the accumulating toll of international sanctions, inflationary pressures, and energy revenue instability. As the war in Ukraine drags on and oil prices remain subdued, Russia’s macroeconomic stability hangs in the balance. Moving forward, the country’s economic direction will be shaped by geopolitical developments and the government’s ability—or inability—to navigate these challenges with sustainable fiscal and monetary strategies. Without meaningful structural reform or easing of external constraints, Russia may struggle to avoid a deeper slowdown in the coming quarters.