Japan Seeks Rare Earths Alliance Amid Tariff Talks with U.S.

Commodity

China–U.S. Trade War

Summary:

Japan is set to propose deeper cooperation with the U.S. on rare earth supply chains during ongoing tariff negotiations, aiming to counterbalance China's export restrictions...

Strategic Resource Diplomacy Meets Trade Tensions

As the fifth round of U.S.-Japan tariff negotiations commences, Japan plans to put rare earth cooperation at the forefront of its agenda. According to the Nikkei, Tokyo aims to propose a strategic partnership with Washington to secure rare earth supplies—critical materials for electronics, defense, and green technologies—amid rising concerns over Chinese export controls. This proposal reflects growing anxiety in Tokyo and Washington about supply chain vulnerability in the face of Beijing’s geopolitical leverage over critical minerals.

Rare earths, though not scarce, are predominantly mined and processed in China, which gives the country a dominant role in the global market. By aligning with the U.S., Japan hopes to diversify sourcing and reduce dependency, particularly after China’s recent export curbs on gallium and germanium rattled supply chains across high-tech sectors.

Tariff Flexibility from Washington?

At the same time, Japan is pushing for relief from steep reciprocal tariffs imposed under Trump’s ongoing trade reset. While a universal 10% tariff remains in place on Japanese exports to the U.S., an additional 14%—part of a broader 24% package—has been suspended until July to allow time for negotiation. Reports from Jiji Press suggest the U.S. has shown signs of flexibility in reducing or lifting the suspended portion, providing some hope for Japanese exporters.

Chief negotiator Ryosei Akazawa is currently in Washington to lead the Japanese delegation. His talks with U.S. Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick are critical, especially as Tokyo continues to protest the 25% levy on Japanese-made vehicles—an industry that remains the cornerstone of Japan’s economy.

Auto Industry at the Center of Japan’s Concerns

While rare earths signal long-term strategic alignment, the more immediate concern for Japan is the preservation of its automotive exports. The 25% tariff on Japanese vehicles, though temporarily paused, poses a significant threat to one of Japan’s largest economic sectors. Japanese officials argue that such tariffs are not only economically damaging but also run counter to the spirit of alliance and shared values between the two nations.

Japan’s auto sector has already faced headwinds from global EV competition, currency volatility, and supply chain restructuring. The additional tariffs risk further complicating their U.S. market access, just as automakers are ramping up investments in battery-electric models for American consumers.

Outlook and Implications

The convergence of resource security and tariff negotiations signals a new phase in U.S.-Japan economic diplomacy, where shared geopolitical interests—particularly regarding China—may help break the impasse. If Japan can secure concessions on tariffs in exchange for rare earth supply cooperation, both nations stand to benefit strategically: the U.S. would reduce its dependence on Chinese critical minerals, while Japan would secure market access for its vehicles and manufactured goods.

However, with the Trump administration pushing for aggressive trade realignment and tighter control over industrial inputs, any outcome will hinge on a delicate balancing act between domestic economic priorities and international strategic alliances.

Source: Reuters

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Economic

Unpredictable Trade Shocks Disrupt Policy Tools

In an interview with the Financial Times, Gita Gopinath emphasized that emerging markets now face greater difficulty than during the pandemic because of the “differential effects” caused by trade wars. While COVID-19 was a global demand shock that could be countered with monetary easing and stimulus, trade tensions are creating fragmented, asymmetric shocks across developing economies. The fallout from tariffs is not only unpredictable but also prolonged, affecting inflation, investment sentiment, exchange rate stability, and export competitiveness differently across regions.

Emerging market central banks, which often rely on flexible monetary tools to counter external volatility, are now confronted with constraints. Aggressive easing could risk capital outflows, currency depreciation, and inflationary pressure—particularly if their economies are heavily reliant on exports or foreign direct investment from the U.S. or China.

Greater Complexity, Less Room for Maneuver

Gopinath’s remarks highlight how today’s geopolitical trade landscape complicates macroeconomic management for emerging economies. During COVID-19, the synchronized global downturn gave central banks across both advanced and developing economies a shared rationale to slash interest rates and inject liquidity. In contrast, the tariff-driven trade war is asynchronous and more selective, requiring nuanced responses to sector-specific and bilateral disruptions.

Many emerging markets are now facing inflation that stems not from overheating domestic demand, but from supply-side disruptions and higher import costs—particularly for intermediate goods, food, and energy. This limits the effectiveness of traditional monetary easing, while also making inflation targeting more fragile in the face of volatile global prices.

Implications for Global Financial Stability

The IMF's warning underlines broader systemic concerns. As Gopinath notes, central banks in the developing world must now balance between stabilizing their economies and defending their currencies, all while dealing with capital flow volatility triggered by policy swings in major economies. For countries with high external debt or commodity-dependence, the risks are amplified.

If left unmitigated, these pressures could deepen inequality across the global South, stall investment, and lead to divergent recoveries. The IMF may need to ramp up tailored financial support or policy coordination to help stabilize vulnerable economies caught in the crossfire of the U.S.-China tariff escalation.

The IMF’s assessment serves as a stark reminder that while pandemics shock economies through health and supply channels, trade wars erode the very foundation of international economic integration. For central banks in emerging markets, the stakes are now higher, the policy space narrower, and the consequences more unequal. As the trade war unfolds, the resilience of developing economies will depend not just on monetary tools, but also on targeted fiscal support, structural reforms, and global cooperation.

Source: Reuters

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Economic

Expanded Travel Ban Follows Boulder Attack and Border Concerns

In a move echoing his 2017 "Muslim ban," President Trump announced a new travel ban affecting nationals from 12 countries, including Afghanistan, Iran, Libya, Somalia, and Yemen. The proclamation came shortly after a terror attack in Boulder, Colorado, which Trump used to reinforce concerns about inadequate visa screening and overstays. Although the suspect in the attack—a man from Egypt who overstayed a visa—was not from one of the banned countries, Trump cited the incident as justification for broader entry restrictions.

The administration emphasized the need to protect the U.S. from what it called “unvetted foreign nationals,” with Trump declaring in a video, “We don’t want them.” While those with existing visas, permanent residents, and individuals traveling for events like the Olympics are exempt, the proclamation signals a return to Trump's earlier restrictive immigration policies.

Harvard University Targeted in Separate Proclamation

In a surprising extension of the travel policy, Trump also issued a separate order targeting foreign exchange students at Harvard University. The administration accused the university of lax enforcement of disciplinary conduct, especially among foreign students, and of withholding critical records from federal authorities. The proclamation suspends new visas for Harvard’s exchange programs, escalating Trump’s campaign against perceived liberal academic institutions.

Trump specifically cited “antisemitic conduct” and “failure to discipline violations” as justification, although the university has not publicly responded to the accusations.

Legal and Political Implications

The expanded travel ban is expected to face immediate legal challenges, just as Trump’s original executive order did in 2017. That policy—widely referred to as a “Muslim ban”—sparked global outrage and was ultimately upheld by the U.S. Supreme Court in 2018 after multiple revisions. Trump’s latest version aims to preempt legal criticism by including non-Muslim-majority countries like Haiti and Venezuela and by outlining specific exemptions.

Legal experts suggest the courts will again be called to determine whether the ban violates constitutional protections or immigration statutes. Nonetheless, Trump appears undeterred, framing his actions as part of a broader national security campaign and asserting broad executive authority over border control.

Broader Immigration Agenda and Election Pledge Fulfillment

This proclamation marks another cornerstone of Trump’s revived immigration strategy in his second term. Since returning to office, he has declared a national emergency at the southern border, deployed military resources, increased deportations, and attempted to challenge birthright citizenship—moves that have drawn both legal pushback and praise from conservative voters.

Trump's use of executive orders to reinstate his signature travel ban fulfills a major 2024 campaign promise. He had pledged not only to reinstate but also to expand the original ban, particularly warning about refugees from conflict zones such as Gaza. His administration has also employed trade tools—namely tariffs—to pressure Mexico and Canada to enforce stricter immigration controls on their own borders.

Trump’s reinstatement and expansion of the travel ban underscore a strategic pivot back to the combative immigration stance that defined his first presidency. With global tensions rising and migration again a politically charged issue, this latest move is likely to energize his base while provoking fierce opposition from immigrant advocacy groups, legal watchdogs, and civil liberties organizations. Whether the new ban will withstand judicial scrutiny remains to be seen, but its political impact is already being felt.

Source: Bloomberg

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Forex

Technical Analysis

Economic

Despite weak US macroeconomic data, the EURUSD pair still struggles to break above the 1.1425 resistance level, indicating persistent seller pressure. EURUSD technical analysis points to waning upward momentum and an increased risk of a correction towards 1.1270.

The EURUSD pair is correcting despite persistent pressure on the US dollar from weak macroeconomic data. Find out more in our analysis for 5 June 2025.

EURUSD forecast: key trading points

●The ADP report showed the US private sector added only 37 thousand jobs in May

●The US ISM services PMI fell to 49.9 points in May

●The drop in ISM reflects a decline in business activity

●EURUSD forecast for 5 June 2025: 1.1270

Fundamental analysis

The EURUSD rate is showing a slight decline. Sellers continue to defend the key resistance level at 1.1425, holding back further upward attempts.

The US dollar came under pressure after disappointing macroeconomic figures. According to the ADP report, the private sector created just 37 thousand jobs in May, well below the forecast of 80 thousand, marking the weakest performance in two years.

Further downside came from the ISM services PMI, which fell to 49.9 in May, dipping below the 50 mark for the first time in a year, indicating contraction. This reading missed the 52.6 forecast and points to a sharp decline in new business amid rising resource costs.

EURUSD technical analysis

While the EURUSD rate maintains its upward trajectory, the failure to reach a new local high suggests weakening bullish momentum. Today's EURUSD forecast anticipates a potential breakout below the support level and a corrective move towards 1.1270. The Stochastic Oscillator signals a likely bearish turn, with its values rebounding from the resistance level, forming a downward reversal. A breakout below the lower boundary of the bullish channel will confirm the bearish scenario, with the price consolidating below 1.1355.

Source: RoboForex

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Economic

Musk’s Rebellion Against Republican Fiscal Plan

Elon Musk’s public opposition to the Trump administration’s flagship tax package marks a dramatic escalation in political tensions between the Tesla CEO and the White House. After personal lobbying efforts with House Speaker Mike Johnson failed to save the EV tax credits, Musk took to X (formerly Twitter), urging Americans to “KILL” the bill, warning that the legislation would “bankrupt America.” Musk described the bill as a “disgusting abomination,” aligning himself with GOP fiscal hawks like Representative Thomas Massie, who echoed concerns about long-term economic sustainability and Musk’s Mars colonization ambitions.

This rare public dissent from a billionaire donor and former Trump advisor has thrown a wrench into the Republican legislative push. The House-approved bill—estimated to increase deficits by $2.4 trillion over a decade—relies heavily on supply-side assumptions that tax cuts will spur enough growth to offset the cost, an argument the Congressional Budget Office does not fully support.

Backlash, Fallout, and Political Implications

Musk’s backlash has broader implications. His recent departure from the Department of Government Efficiency, a symbolic post intended to champion federal budget cuts, coincided with plummeting Tesla sales, tarnishing both his political and corporate brand. Musk’s credibility as an economic adviser within Trump’s circle appears diminished; Senator Roger Marshall bluntly stated Musk was “not important at all” in Wednesday’s GOP meetings.

However, Musk’s political clout remains formidable. As the top political donor in 2024—contributing over $290 million to Republican campaigns, including $255 million to Trump’s reelection—his financial influence is pivotal. Should he withdraw support in protest, the GOP could face significant setbacks in the 2026 midterm elections, where fewer than two dozen close House races are expected to determine control.

EV Industry at Risk as Credits Face Elimination

The heart of Musk’s frustration is the planned sunset of EV subsidies, which have played a crucial role in Tesla’s business model and the broader U.S. transition to clean energy. With Chinese and European automakers rapidly advancing their EV ecosystems and receiving strong state support, Musk views the rollback of incentives as a strategic misstep that could undercut American competitiveness in the green tech sector.

Tesla, already facing declining margins and intensifying price wars, may lose more ground without these tax credits, especially as legacy automakers like Ford and GM accelerate their EV lineups.

White House Defends Bill Amid Corporate Outcry

Despite Musk’s scathing critique, the Trump administration has stood by its bill. The White House released a statement calling the legislation a catalyst for “unprecedented economic growth,” maintaining that the tax cuts will pay for themselves. Speaker Johnson reinforced this message, labeling Musk’s criticisms as “dead wrong.”

Behind the scenes, infighting within the administration appears to have compounded the issue. Sources suggest that Musk’s prior conflicts with Presidential Personnel Chief Sergio Gor led to the withdrawal of Jared Isaacman’s NASA nomination, a move widely interpreted as retaliation tied to Musk’s diminishing influence.

Musk’s opposition to the Trump tax bill has created a rare and highly visible rift within the Republican establishment. His shift from the administration’s budget champion to one of its fiercest critics signals growing tension between fiscal conservatives, tech billionaires, and populist tax policy. With EV subsidies on the chopping block, budget deficits rising, and the 2026 midterms looming, the stakes of this political standoff could reshape not only economic policy but the future of America’s green technology leadership.

Source: Bloomberg

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Economic

China–U.S. Trade War

From Confidence to Caution: A Swift Sentiment Reversal

In what the Association of International Certified Professional Accountants (AICPA) calls a “clear pivot,” the confidence of U.S. business leaders has tumbled dramatically since the beginning of the year. After a brief post-election surge in executive optimism, recent data from the AICPA survey show a collapse in confidence, with less than a third of respondents maintaining a positive view of the economic trajectory. This marks a near 60% plunge compared to sentiment captured shortly after Trump’s re-election in Q4 2024.

Executives cited growing concern over trade policy volatility, specifically the uncertain fate of Trump’s tariff initiatives, as a primary driver of deteriorating sentiment. Although the administration paused many tariffs for 90 days, lingering tensions—especially with China—have cast a shadow over investment decisions. The President’s recent public accusations against Beijing for violating trade terms have exacerbated these concerns, further eroding confidence.

Recession Fears Intensify, Hiring and Profit Expectations Falter

The softening optimism is closely tied to mounting recession fears. One in five executives already believe the U.S. economy is in recession, and an additional 34% expect one by year’s end. Of those, 75% anticipate it will be moderate to severe in impact. Businesses are recalibrating accordingly: 86% are either delaying hiring or not hiring at all, and only 14% plan to expand their workforce immediately—down from 20% in Q1.

Profitability expectations have also slumped. Companies now foresee an average loss of 0.3% in the next 12 months, compared to a 1.7% projected profit in the previous quarter. Revenue growth expectations have dwindled to just 1%—the weakest outlook since the pandemic-crippled third quarter of 2020.

Executives Brace for a Tumultuous Year

Domestic economic conditions have overtaken inflation as the top concern among business leaders. Supply costs, leadership uncertainty, and stagnant or declining market demand round out the list of key risks. The volatility of Trump-era economic policy, particularly on taxation and trade, is amplifying these anxieties. Proposals to increase costs for international investors and stricter tax enforcement are seen as potential headwinds for capital inflows and global business operations.

This policy instability is reflected in corporate behavior. Mentions of “uncertainty” have spiked during earnings calls, with many firms suspending forward guidance entirely. The labor market is already reacting: private payrolls rose by only 37,000 in May—the slowest pace in two years, according to ADP.

The AICPA survey of 328 top-level executives paints a picture of a corporate sector turning inward, retreating from risk and growth initiatives. With geopolitical uncertainties, recession fears, and protectionist trade policies all converging, the early 2025 optimism has evaporated into cautious retrenchment. Unless trade tensions are resolved and macroeconomic signals stabilize, the U.S. may be headed for a year of subdued business activity, strategic belt-tightening, and muted job creation

Source: Bloomberg

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Commodity

Economic

Oil Market Sentiment Sours Amid Tariff-Driven Economic Risks

The International Energy Agency’s (IEA) latest World Energy Investment report forecasts that global oil investment will decline by 6% in 2025, reversing nearly a decade of steady growth. This shift reflects growing pessimism about future demand and oil prices, compounded by geopolitical friction — particularly U.S. President Donald Trump’s protectionist trade policies, which are dampening global growth forecasts. IEA Executive Director Fatih Birol attributes the downturn to a “sharp decline in spending on U.S. tight oil,” a reference to reduced capital flow into shale operations due to cost pressures and diminishing returns.

Crude oil prices have weakened under the weight of robust OPEC+ production and tepid global consumption. While initial projections anticipated flat investment in oil and gas, deteriorating sentiment and macroeconomic uncertainty have turned the outlook negative.

Upstream and Refining Investment Slows Sharply

Total upstream oil and gas investment is now expected to dip to just under $570 billion, a 4% decrease from 2024 levels. Of this amount, approximately 40% will be allocated to mitigating production decline at mature fields — suggesting limited capital is going toward new exploration or frontier assets. Refinery investment, a key indicator of future supply infrastructure, is expected to fall to a decade-low of $30 billion in 2025. This trend reflects both decarbonization efforts and stagnating global fuel demand growth, particularly in advanced economies.

Natural Gas Investment Holds Steady, LNG Surges

In contrast to oil, natural gas investment remains resilient. Spending in gas fields is projected to maintain 2024 levels, while liquefied natural gas (LNG) infrastructure continues to attract robust capital. The IEA notes that LNG investment is “on a strong upward trajectory,” driven by major capacity expansions underway in the U.S., Qatar, Canada, and other exporting regions.

This upcoming wave of LNG facilities — expected to come online between 2026 and 2028 — will mark the largest capacity growth in LNG market history. It signals a structural pivot in global energy trade, positioning LNG as a bridge fuel in both developed and developing economies transitioning toward cleaner power systems.

Strategic Implications: A Shift from Oil to Flexibility and Clean Energy

The declining trend in oil investment — alongside record-high global clean energy investment of $3.3 trillion projected for 2025 — highlights the growing divergence between traditional and emerging energy sources. With capital migrating toward renewables, energy storage, and digital infrastructure, oil’s long-term role in the global energy mix may be increasingly constrained to regions with competitive production costs or specific industrial demand.

The report also underscores that geopolitical instability, including trade tensions and supply chain fragility, is reshaping investment strategies. Companies are adopting a more cautious approach, prioritizing projects with quicker payback and lower risk exposure. As a result, even oil-rich nations and firms must contend with the reality of capital flight toward more future-proof technologies.

The IEA’s 2025 forecast signals more than just a cyclical downturn — it illustrates a structural pivot away from fossil fuel expansion and toward cleaner, more flexible energy systems. While natural gas and LNG remain resilient, oil’s shrinking investment base may foreshadow a future of tighter margins, increased volatility, and a redefined strategic role in the energy transition.