Europe Faces Pressure as U.S. Tariffs Divert China’s $440B Export Surge

Economic

China–U.S. Trade War

Summary:

Despite a 90-day tariff truce with the U.S., China remains subject to a 30% import tax on most goods. As a result, the world’s top exporter is accelerating its redirection of over $440 billion worth of exports..

Trade Tensions Shift Pressure from U.S. to Europe

China, with its $18.5 trillion economy, is recalibrating export flows in the wake of persistent U.S. tariffs. Although a temporary trade truce was signed in Geneva between Vice Premier He Lifeng and U.S. officials, the American tariff wall — now over 30 percentage points higher than at the beginning of 2025 — remains largely intact for China.

This leaves Beijing with limited access to its largest market, pushing Chinese manufacturers to offload excess goods elsewhere — especially to Europe, where trade barriers are lower and regulatory hurdles are less politically charged than in the U.S.

Alarming Trade Imbalance Raises Red Flags in Brussels

From January to April 2025, China’s trade surplus with the EU hit a record $90 billion, a sharp rise from historical averages. Analysts warn this is not an anomaly, but a sign of a structural shift: as Chinese goods face steep U.S. tariffs, they are now pivoting toward Europe and emerging markets.

According to Maxime Darmet of Allianz Trade, China will attempt to “defend global market share” by flooding open markets — particularly the EU — with competitively priced products, further aided by the yuan's 10-year low against the euro.

Europe Confronts Its Free Trade Dilemma

For decades, the EU has championed open trade. But with China rerouting massive volumes of exports, European policymakers now face a painful reckoning. There is growing concern that an unchecked influx of Chinese products — particularly in green technology, EVs, and machinery — will undermine domestic industries, which are already losing global competitiveness.

Alicia Garcia Herrero of Natixis warns that “free trade cannot survive in a protectionist world,” and that Europe will need customs tools to guard vulnerable sectors, especially as it seeks to build its own green industrial base.

Chinese EVs, European Taxes, and a Brewing Trade Battle

Despite the EU’s recent move to impose anti-dumping tariffs on Chinese electric vehicles, Chinese automakers have quickly adapted, boosting exports of hybrids and traditional fuel cars. These models — benefiting from massive domestic subsidies and lower costs — are quickly gaining ground in the EU market, particularly in price-sensitive segments.

Tensions have escalated further with China slapping retaliatory tariffs on French cognac exports — a crucial sector for France — amid deepening rifts with individual EU nations like Germany and France.

In 2020, Germany ran an $18 billion surplus with China. By 2023, that flipped to a $12 billion surplus in China’s favor, and estimates suggest it could exceed $25 billion by the end of 2025.

A Wake-Up Call for EU Trade Policy

European Trade Commissioner Maros Sefcovic has publicly acknowledged the threat of “trade diversion” and is expected to release a preliminary report this month. The issue is also set to dominate upcoming EU trade minister meetings in Brussels, as the bloc debates how to respond to China’s export redirection.

Darmet warns that “this is no longer just a U.S.–China conflict”. Instead, it is an unfolding global realignment that “demands a strategic response” from European regulators.

Strategic Shifts Ahead

If the EU fails to act, it risks a structural erosion of its industrial base. A renewed focus on: reshoring production, strengthening internal manufacturing, and tightening import scrutinyis becoming a strategic necessity.

The post-COVID recovery boom has faded, inflation remains volatile, and energy costs are still high. Against this backdrop, a surge in ultra-competitive Chinese exports could be the final blow to fragile sectors — unless Brussels adjusts its course.

China's rerouted exports are not just an economic issue; they are a geopolitical warning. For the EU, the next few months may determine whether it continues to be an open trading bloc — or whether it finally embraces a “strategic protectionism” to survive a new era of trade realignment.

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Commodity

Central Bank

An Unusual Surge in Physical Gold Imports

In just the first two months of 2025, the United States imported over 600 tonnes of physical gold — primarily from London and Switzerland — according to World Gold Council data. This volume, equivalent to 13% of the Fort Knox reserve, has triggered concern among analysts who warn this isn't merely speculative positioning or trade hedging. Instead, it's being interpreted as a strategic stockpiling maneuver.

This trend occurs alongside a third consecutive year in which global central banks purchased over 1,000 tonnes of gold, the highest accumulation rate since the 1950s. Leading the charge are Russia and China, nations whose monetary strategies suggest a hedging move against systemic risks — or preparation for triggering structural change.

Gold as a Hedge Against Systemic Instability

Why the sudden return to gold?

Because gold is the ultimate neutral asset — one that holds value regardless of political regime, fiat dilution, or currency collapse. While fiat currencies can be inflated or restructured, gold is finite, tangible, and independent of central bank policy manipulation.

Ray Dalio, founder of Bridgewater Associates, has labeled the current moment as the “end of a long-term debt cycle,” referencing historic turning points like the collapse of Bretton Woods. That monetary system — which pegged currencies to the U.S. dollar backed by gold — has now lasted over 80 years, exceeding historical norms and, many argue, nearing its expiration.

China and Russia: Strategic Moves in the Shadows

China, holding $784 billion in U.S. Treasuries, has now permitted domestic enterprises to use foreign currency to purchase physical gold. If just 10% of those Treasuries were converted into bullion, the volume would rival nearly 8% of Fort Knox’s gold.

Russia, meanwhile, has aggressively grown its reserves amid sanctions and geopolitical isolation, seeing gold as a politically neutral safeguard that bypasses the dollar-dominated SWIFT system.

Both countries’ actions imply not only a hedge against inflation or dollar risk — but the foreshadowing of an alternative global monetary framework.

The U.S. Joins the Gold Game — Quietly

While the U.S. has long downplayed gold’s relevance in modern finance, recent moves suggest a pivot. The sudden inflow of massive gold shipments to U.S. vaults — rather than settling contracts digitally or via ETFs — is unprecedented in scale and intent.

Some observers link this to U.S. President Donald Trump's second-term monetary rhetoric, including his suggestion to audit Fort Knox, which revived conspiracy theories over actual reserve levels. Though official accounts claim no change in America’s 8,133 tonnes of gold, the physical import wave tells a different story.

Implications for Investors: Follow the Gold Trail

The market message is clear: gold is rising not for its shine, but for its strategic significance. Central banks — the most cautious institutions on Earth — are buying at record levels. This is not a retail-led rally. It’s led by sovereign strategies anticipating a world where gold will once again define trust, value, and stability.

If the world's financial architecture is preparing for restructuring — possibly due to U.S. trade volatility, supply shocks, geopolitical fragmentation, or systemic debt stress — then gold is the anchor asset in the storm.

Source: MarketWatch

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Economic

Forex

Softer U.S. Data Shifts Rate Cut Outlook

A sharp decline in U.S. producer price inflation (PPI) and slowing retail sales data capped off a week of dovish economic signals, fueling bets that the Federal Reserve may lower rates twice or more by year-end. Following Thursday’s data, futures markets priced in 57 basis points of cuts, up from 49 bps earlier in the week.

The benchmark 10-year Treasury yield slipped to 4.4217%, extending a 7-basis-point decline, while the 2-year yield dropped below 4% to 3.9467% — indicating market confidence in an easier monetary policy path.

Despite this, Fed Chair Jerome Powell cautioned in a Thursday speech that the central bank is re-evaluating its policy framework, now placing more emphasis on inflation over employment. That recalibration could raise the threshold for actual rate cuts if inflation pressures return later this year.

Dollar Retreats Despite Monday’s Surge

The dollar index fell 0.2% to 100.57, yet remained on track for a modest weekly gain, thanks to a 1.3% surge on Monday after the initial excitement over the Geneva tariff truce between the U.S. and China.

However, the dollar retreated broadly on Friday:

Euro rose to $1.2130 (+0.26%)

Sterling strengthened to $1.3325 (+0.14%)

Yen appreciated to 145.30 per dollar (-0.33%)

Australian dollar climbed to $0.6430 (+0.39%)

New Zealand dollar advanced to $0.5910 (+0.6%)

The yen gained despite Japan’s Q1 GDP contraction and dovish remarks from a BOJ policymaker. Analysts noted Japan may negotiate tariff relief with the U.S. soon, which could offset economic weakness and reduce pressure on the BOJ to act.

Won Volatility Signals Intervention Speculation

The South Korean won saw sharp gains for a second consecutive session, dropping 0.4% to 1,390 per dollar, amid signs that U.S. and Korean officials had discussed FX market conditions earlier this month. The episode mirrored a similar situation with the Taiwan dollar recently, fueling speculation that the Trump administration may be encouraging Asian currencies to appreciate as a trade strategy.

George Vessey of Convera noted that a weaker dollar aligns with the Trump administration’s efforts to challenge long-standing export advantages held by Asian economies through currency suppression.

Outlook: Dollar Faces Crosswinds

The dollar’s outlook is now tied to two conflicting forces:

Macro softness and easing inflation, which favor Fed cuts and dollar weakness.

Global trade realignments, such as tariff rollbacks and geopolitical deals, which can temporarily boost the dollar on safe-haven flows or economic optimism.

While the immediate trajectory appears downward due to macro data and falling yields, strategists like Kristina Clifton from CBA caution that upside inflation surprises or policy hawkishness could stall or even reverse this trend.

Conclusion:With the Fed leaning dovish, U.S. yields softening, and global currencies regaining ground, the dollar faces renewed downward pressure despite early-week strength. Barring inflation shocks, the market appears increasingly convinced of a 2025 easing cycle — leaving risk-sensitive assets and export-oriented Asian currencies poised to benefit.

Source: Reuters

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Economic

China–U.S. Trade War

A Near-Miss with Social Instability

After April’s tariff shock saw U.S. import duties on Chinese goods spike to as high as 145%, fears of mass unemployment and social unrest loomed large over Beijing’s leadership. For the ruling Communist Party, preserving social stability is vital to regime legitimacy.

Economists such as Alicia Garcia-Herrero had warned of up to 9 million job losses under the triple-digit tariff regime. The Geneva de-escalation last week — which brought tariffs down to 30% — reduced that threat substantially. Current forecasts suggest 4–6 million jobs remain at risk, with potential losses shrinking to 1.5–2.5 million if duties are cut further.

Still, the economic damage has already been done for many. Workers like Liu Shengzun, who lost two factory jobs in a single month, have abandoned manufacturing altogether and returned to subsistence farming.

Lingering Tariffs, Lingering Risk

Despite progress, 30% tariffs remain punitive. A Chinese government adviser told Reuters that while the “worst-case” scenario has been avoided, the current level of duties will “continue to be a burden on China’s economic development.” The uncertainty of Donald Trump’s policy swings compounds this hesitancy.

Lu Zhe of Soochow Securities estimates that job losses could now stay under 1 million, down from nearly 7 million projected at the peak of the trade dispute.

But analysts remain cautious. Companies impacted by the April spike are not rushing to rehire, worried about future shocks. Garcia-Herrero emphasized that “at 30%, I doubt [companies] will say, ‘okay, come back.’”

A Fragile Employment Landscape

China’s export-heavy sectors like lighting, furniture, footwear, and industrial components were already operating on thin margins before April. The tariff shock accelerated workforce reductions, and with global demand weakening, firms are turning even more conservative in their labor strategies.

Li Qiang, once employed in a pneumatic cylinder export firm, is now a ride-hailing driver in Chengdu. Despite the easing of tariffs, he has no intention of returning to the sector: “Trump’s policies toward China could change at any time… I don’t plan to put any effort into working in the export sector anymore.”

Beijing’s Response: Targeted Stimulus

In an effort to contain job losses, China is deploying fiscal and monetary tools. The People’s Bank of China (PBOC) has introduced new funding support for labor-intensive service sectors, including elderly care.

Jia Kang, a key economic adviser, stated that state investment will be the main driver of job creation this year. While Beijing intends to maintain its budget deficit near 4%, a higher ratio remains an option “if a serious situation arises.”

Exporters Still in Retreat

Though full data on April job losses is lacking, the signal from business confidence is clear: the hiring outlook remains grim. Many exporters are downsizing quietly, focusing on survival rather than expansion — a dynamic that could trap the economy in a deflationary spiral.

An unnamed policy adviser likened the situation to “frost on top of snow,” underscoring that the tariffs are compounding pre-existing economic weaknesses rather than acting as the root cause alone.

The U.S.-China trade truce has averted immediate catastrophe for China’s job market, but it has not reversed the damage. Persistent tariffs, sluggish global demand, and structural uncertainty continue to undermine employment in the export sector. The psychological scars from April’s tariff spike are likely to keep both firms and workers wary — and China’s government under pressure to find alternative engines of job growth.

Source: Reuters

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Economic

Record Inflows Driven by U.S. Volatility

Amid the financial turbulence unleashed by President Donald Trump’s sweeping April 2 tariff announcement, global investors channeled ¥8.21 trillion ($56.6 billion) into Japanese equities and long-term bonds, marking the largest net monthly inflow in nearly three decades, according to Japan’s Finance Ministry and Morningstar data.

Much of this influx occurred within the first week of April, when the U.S. 10-year Treasury yield spiked by 30 basis points, reflecting growing investor risk aversion, while Japan’s 10-year yield fell by 21 basis points, bolstering demand for yen-denominated assets.

Japan Reclaims Its ‘Safe Haven’ Status

With U.S. markets rattled by policy uncertainty and geopolitical stress, Japanese assets reasserted themselves as a global safe haven. Rashmi Garg of Al Dhabi Capital noted that “sell-U.S.” sentiment pushed large institutional investors — including reserve managers, life insurers, and pension funds — toward Japan’s relatively stable environment.

Japan’s Nikkei 225 rose over 1% in April, while the S&P 500 slipped nearly 1%, reinforcing the relative attractiveness of Tokyo’s markets.

Nomura strategist Yujiro Goto confirmed that institutional capital, rather than retail flows, dominated this surge, especially into long-dated Japanese government bonds and large-cap stocks.

Not a One-Off — But a New Allocation Strategy?

Although the April surge was partly driven by immediate volatility, the underlying strategic reallocation of global capital may have longer legs. OCBC’s Vasu Menon pointed out that U.S. credibility has suffered due to erratic policy shifts, which could lead fund managers to permanently trim U.S. exposure in favor of alternative markets like Japan.

Even as the U.S. has begun de-escalating its tariff wars — including a 90-day truce with China and a new trade agreement with the U.K. — analysts suggest Japan will retain inflow momentum thanks to its internal reforms and macro stability.

Corporate Governance Reforms Add to Momentum

Foreign investors are also responding to Tokyo Stock Exchange (TSE) reforms introduced in 2023. These policies require companies trading below book value to “comply or explain”, incentivizing higher returns to shareholders.

This governance push has already triggered record share buybacks, supporting earnings per share and share prices — a structural shift that asset managers, including Asset Management One International, say will sustain long-term equity attractiveness.

Yen Strength and Rebound Signals More Upside

Despite some recent strengthening of the U.S. dollar, investors still view the yen’s rebound potential as an attractive macro play. Japan’s economy, which contracted mildly in Q1 due to weak exports, is expected to recover, especially if tariffs on Japanese goods are relaxed in upcoming U.S.–Japan trade negotiations.

Kei Okamura of Neuberger Berman remains bullish: “This trend has legs. Japan will likely continue to see good flows,” he told CNBC, emphasizing the realignment of asset allocation away from the U.S.

Morningstar’s Makdad also anticipates net inflows into Japanese equities to continue at a pace not seen in a decade, though he noted that the short-term T-bill trade has faded as negative interest rate arbitrage opportunities have disappeared.

A Structural Rotation in Motion

April’s historic capital shift into Japanese markets was more than just a reaction to tariffs — it was a reflection of changing global asset allocation logic. As Japan maintains macro stability, improves shareholder returns, and reforms corporate practices, it is no longer just a defensive play — it’s becoming a core strategic destination for institutional capital.

With U.S. volatility far from over and Europe increasingly vulnerable to China’s export redirection, Japan’s safe haven credentials and reform-driven equity story position it as one of the most attractive markets in the Asia-Pacific region for the rest of 2025.

Source: CNBC

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Olivia Brooks

Economic

Barclays no longer expects the U.S. economy to slip into a recession later this year and has revised up its growth forecasts, given signs of a de-escalation in U.S.-China trade tensions, the bank said in a note released late Thursday.

Barclays said it now expects the U.S. economy to grow 0.5% this year and 1.6% next year, up from previous forecasts of -0.3% and 1.5%, respectively.

Reduced uncertainty and an improved economic backdrop also led Barclays to lift its euro area growth expectations. It now forecasts flat economic growth this year, compared to a 0.2% contraction previously.

Barclays noted it still expects a technical euro zone recession in the second half of 2025, but with growth contracting by less than previously forecast.

"Overall, we remain downbeat about the growth outlook in the euro area because uncertainty remains very elevated and the negotiations on reciprocal tariffs between the European Union (EU) and the U.S. remain at a technical level and there are no signs of progress," Barclays said in a note.

Source: Yahoo Finance

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Commodity

A Revenue Drop Despite More Oil

Russia exported 7.55 million barrels of oil per day (bpd) in April, up from previous months, but total revenue dropped sharply due to declining oil prices. The IEA reported that Russia’s average oil price was $55.6 per barrel, falling below the G7-imposed price cap. This price weakness was attributed to global market instability, declining demand — particularly from China — and fears surrounding U.S. tariff policies.

Although exports of the premium VSTO blend surged past 1 million bpd, Chinese refineries reportedly cut purchases from Russia’s Far East terminals, likely in response to broader economic uncertainties.

Oil Budget Dependency and Mounting Deficit

Russia's federal budget is heavily reliant on oil and gas, which typically account for about 30% of total revenue. The April revenue slump worsens the country's fiscal deficit, which continues to grow amid sustained military spending on the war in Ukraine.

With Brent crude prices falling over 14% since January, Moscow is now struggling to secure the same dollar-for-barrel value even as it pushes out more volume. A growing oversupply risk, fueled by Iran’s reentry into global markets, is also exacerbating the price slide.

Economic and Strategic Implications

The IEA highlighted a paradox: increased export volume has failed to offset losses in value, due to heavy discounts required to attract buyers under sanctions and price caps. This means Russia’s oil sector is working harder for less return.

Russia’s total oil production in April hit 9.3 million bpd, aided by the partial recovery of domestic refineries damaged in recent Ukrainian drone strikes. Still, the financial strain may be prompting Kremlin officials to view a ceasefire as a potential lever to stabilize the economy.

In Q1 2025, the value of Russia’s overall goods exports stood at $94.9 billion, a 6.8% drop year-over-year, despite stable or growing shipment volumes — a troubling sign of weakening terms of trade.

Russia’s oil industry is producing and exporting more, but at steeply discounted prices that are failing to support the national budget. With global oil demand softening and geopolitical uncertainties rising, the country’s economic resilience — especially in the face of ongoing military expenditure — is being tested more severely than at any time since 2023.