Trump’s Leverage Wobbles As China Trade Talks Get Started

China–U.S. Trade War

Summary:

One argument made for President Donald Trump’s tariffs is that they give him leverage over other countries. But what happens when signs emerge that his leverage is a diminishing asset?

It’s a very real and immediate question. As US and Chinese negotiators gather in London on Monday it’s hard to make the case the US has the strengthening hand. Or that Trump’s bargaining position is about to improve.

Ever since April 2 and the Rose Garden rollout of his “Liberation Day” tariffs, Trump’s been engaged in tactical retreats.

You can argue those have all been in support of the ultimate strategic aim — erecting a tariff wall around the US. But they’ve also come at a cost to Trump’s credibility in negotiations.

That was before a US court ruled those tariffs were illegal, raising the very real prospect the new import taxes at the center of his strategy will eventually be defunct. Even if Trump manages to piece together some more duties using other available authorities, that will take time. And as time passes, leverage evaporates.

‘TACO’ Trade

In financial markets the president’s weakening position is manifested in the now infamous TACO — ‘Trump always chickens out’ — trade. If equities markets are up, it holds, it’s not because of Trump’s policies. It’s because he always backs down from the most extreme version of them. Which implies less revolution, or economic damage, and therefore higher valuations.

There’s a good chance investors underestimate the damage remaining tariffs will do, or the weakness in the US and global economies in which uncertainty is causing companies to hit the brakes on investment and hiring.

It’s still early. But as Jason Miller, a Michigan State University supply chains expert, pointed out last week, US trade data is already signaling alarming things. The US in April exported a fifth as many cars from Michigan to Canada as it did in a normal month in 2024, by his calculations. Which is not a good omen for Michigan autoworkers.

A weaker economy provides less leverage for Trump in negotiations with other countries, especially if his own policies cause the slowdown. Which may be one reason he is applying so much pressure on Jerome Powell and the Federal Reserve to cut rates. And why Republicans are so eager to pass a tax bill that is prompting growing fiscal concerns in the markets and turning routine bond auctions into meaningful tests.

But the biggest sign of Trump’s diminishing power lies in those negotiations with China.

London Talks

The talks that kick off Monday in London continue a conversation begun in Geneva last month that led to a de-escalation of tariffs sitting at blockade levels.

They are proceeding after a period of growing alarm in the US, Asia and Europe about Chinese export controls over rare earths used in magnets. China’s slow approval of export licenses led to meaningful production slowdowns. More importantly, it served as a reminder of Chinese leverage. And led to a call between Trump and China’s Xi Jinping that Chinese readouts pointed out came at Trump’s request and led to this week’s encounter.

For both sides the incentive is to keep talking. But whether the talks will lead somewhere meaningful is unlikely to be clear for weeks or even months.

All this is also coming as the clock ticks on Trump’s negotiations with other countries, which face a self-imposed July 9 deadline.

Deal Deadline

Trump’s tariffs, the White House likes to say, have forced the world to come visit America’s negotiating table. But so far, as Bloomberg’s Josh Wingrove wrote Friday, the evidence is scant that meaningful deals are really coming.

The location of these latest talks between the US and China is a reminder of that. A much-touted agreement with the UK, which until now is the closest Trump has come to landing a new pact, turned out really to be a sketch of what talks might lead to.

In the coming days US tanks are due to parade through the streets of Washington in a showcase of American military might. After which Trump will head to a summit of G-7 leaders in Canada, where he will be eager to project more strength and will undoubtedly command the most attention. It’s just not clear Trump will enter those meetings with fellow G-7 leaders with as much leverage as he had even a few weeks ago.

Source: Bloomberg Europe

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Michelle

Economic

Stocks

Citi analysts said they raised their year-end 2025 S&P 500 target to 6300, driven by "a marginally more constructive fundamental view and an expectation for persistency of the current valuation backdrop."

Looking further ahead, the bank’s mid-2026 target of 6500 implies a high-single-digit percentage upside over the next twelve months, underscoring their "structural bullishness on U.S. large cap."

Citi maintains a preference for growth stocks, as the artificial intelligence (AI) theme continues to gain momentum.

The first half of 2025 saw a "whipsaw" market, according to Citi. Their initial expectation for a flat first half followed by a stronger second half was challenged in April, when tariff risks led to a target downgrade.

However, a subsequent rally, fueled by Q1 results and renewed confidence in the AI trade, demonstrated "broader confidence in corporate adaptability and, with it, fundamental stability."

Citi’s revised S&P 500 base case of 6300 for year-end 2025 and 6500 for mid-2026 effectively brings them back to their initial directional outlook for the year.

They have also increased their full-year index earnings estimate to $261 from a previous $255. While this remains below the initial $270 projection and the current $264 consensus, Citi notes that "as worst-case tariff impacts are negated, a modestly higher terminal multiple is applied."

Regarding valuation, Citi acknowledges that the S&P 500 is trading "toward the higher end of its historic valuation range," but they "presume the index can hold 21x forward."

Citi also highlights an "ongoing structural shift in earnings contribution away from Cyclicals and toward Growth," which provides context for historical valuation comparisons.

Citi notes that while concerns persist regarding consumption trends and policy implications on rates/currency, the “AI trade seems to be gaining renewed momentum.”

Source: Investing

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Gerik

Economic

Rising Tariffs, Rising Fraud

Since President Trump reinstated sweeping import tariffs—some as high as 145%—Chinese firms and American importers have turned to dubious schemes to evade taxes. Thousands of solicitations offering “legal” loopholes flood inboxes and social media platforms like TikTok. The most common offer? Shipping goods through third countries like Malaysia or Mexico, disguising their Chinese origin.This deceptive maneuver, called transshipment, allows firms to pay lower tariffs. A garment made in China might be relabeled as “Made in Cambodia” and shipped to the U.S. under a 10% tariff rather than 145%. While sellers claim legality, U.S. customs experts call it a clear violation.

Illegal Tactics Go Mainstream

Chinese logistics firms offer to falsify invoices, underreport declared values, or manipulate origin documents—services promoted via slick videos or WhatsApp messages. Some even promise “fixed 10% duty, zero risk,” and “paperwork guaranteed.”From April to May 2025, direct shipments from China to the U.S. dropped by 21%, while exports from China to Southeast Asian nations spiked. The numbers align almost perfectly—evidence that goods are merely rerouted, not locally manufactured. Analysts estimate over 3,000 firms in Mexico now rely on Chinese components for 75% of their supply chains, many of which are fronts for re-export into the U.S.

Impact on Honest U.S. Businesses

Firms like Charlotte Pipe and Foundry and Plews & Edelmann are fighting to stay competitive while playing by the rules. Leslie Jordan, a veteran apparel maker in Oregon, has faced repeated offers to manipulate customs filings—offers she refuses. Yet she pays tens of thousands in legitimate duties while fraudulent competitors slash costs and undercut her in the market.“This has become systemic,” said Jordan. “When good businesses are punished and cheats profit, trust in the system collapses.”

Government Response: Whac-a-Mole Enforcement

The Trump administration has declared trade fraud a top DOJ priority, and U.S. Customs and Border Protection (CBP) collected over $630 million from 2,000 flagged shipments in just one week in May. However, staffing shortages and shifting political priorities have undermined enforcement. Many trade officers were reassigned to immigration tasks, and fraudulent shippers quickly rebrand as new shell companies when caught.As one executive put it, “It’s like Whac-a-Mole. You shut one down, and another pops up across the street.”

To shield U.S. firms from liability, Chinese suppliers now offer Delivered Duty Paid (DDP) terms, where the foreign seller retains ownership through customs, pays the duties, and transfers the goods only upon U.S. delivery. This makes tracing and prosecuting fraud nearly impossible, as the responsible party is often a phantom entity abroad.Trade attorney John Foote warns, “Even with DDP, if the deal only works because of customs fraud, you’re still liable.”

Congress Urged to Step In

While Trump’s trade strategy aims to punish unfair foreign practices, industry leaders say tariffs without structural reform only breed fraud. Executives are calling for systemic legislative solutions, including: Greater CBP funding, Real-time trade data sharing, Stiffer criminal penalties for fraud, Revised customs laws for third-country transshipment.

Brad Muller of Charlotte Pipe supports tariffs but urges Congress to replace “shoot-first” policies with long-term strategic reforms. “Both parties have ignored this problem for too long,” he said. “We need coordinated enforcement, not reactionary chaos.

As trade fraud surges under the pressure of triple-digit tariffs, the U.S. is hemorrhaging revenue and sacrificing fair competition. Southeast Asia has become the preferred detour, and Washington’s enforcement tools are lagging behind. Without comprehensive reform, the price of evasion will only rise—not just in lost taxes, but in weakened industry and trust in the rule of law.

Source: The New York Times

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Glendon

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Forex

Bitcoin could be on the verge of a massive breakout, according to popular crypto analyst Doctor Profit, who predicts a potential price surge of up to 170% in the coming months. With a Golden Cross formation, key support near $100K, and a pivotal CPI inflation report just days away, the market may be heading for explosive gains.

Bitcoin Eyes Breakout as Key Resistance Is Tested

At the start of June, Bitcoin was trading at $104,588.85, but briefly dipped 4.10% between June 3–5. However, it bounced back sharply from $100,400 on June 6, rising 2.74% in a single day. Since then, BTC has gained another 5.07%, currently sitting around $106,663.68.

Doctor Profit shared on X (formerly Twitter) that Bitcoin is attempting to break a diagonal resistance line—a move he believes could launch BTC into a new all-time high soon.

“A confirmed Golden Cross and strong $100K support signal a bullish breakout. BTC could rise 70–170% if macro factors align,” he wrote.

Why CPI Inflation Data Could Make or Break BTC Rally

All eyes are on the U.S. Consumer Price Index (CPI) data release scheduled for June 11, 2025. In April, CPI rose from 319.799 to 320.795 points. This month, it's projected to reach 321.9, according to TEForecast.

More importantly, the U.S. inflation rate, which dropped to 2.3% in April, is expected by Wall Street to rise slightly to 2.5%. However, Doctor Profit believes the number could surprise to the downside—possibly between 2.1% and 2.3%. A lower-than-expected CPI could spark optimism, increasing chances of a Fed rate cut—a bullish catalyst for Bitcoin.

Next Bitcoin Price Target: $108K–$110K?

Doctor Profit also notes a liquidity cluster between $108K and $110K, which may be BTC's next short-term target before a bigger breakout. If Bitcoin pushes through that zone, it could open the path for a sustained rally.

Source: CryptoSlate

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Michelle

Economic

Forex

The European Central Bank is likely to continue cutting interest rates in the second half of 2025, according to analysts at Barclays.

Despite President Christine Lagarde’s signal that the current monetary easing cycle may be nearing its end, Barclays expects two additional 25-basis-point reductions at the ECB’s September and December meetings. This would bring the deposit facility rate down to 1.5% by year-end.

At its June meeting, the ECB lowered policy rates by 25 basis points, citing lower inflation projections.

However, Lagarde struck a more hawkish tone than expected, stating, “We are getting to the end of the monetary policy cycle,” and dismissed inflation undershoots in 2026 as largely driven by energy prices and currency effects.

Barclays analysts believe that, despite the rhetoric, a majority on the Governing Council will support further easing based on current economic and inflation data.

Headline inflation dropped to 1.9% year-on-year in May, below the ECB’s 2% medium-term target. Core inflation also eased, falling to 2.3% from 2.7% the previous month.

Services inflation saw a notable decline, partly reversing holiday-related price spikes. Barclays’ inflation tracker projects headline inflation will stay below target through 2026, bottoming at 1.4% in early 2026 and settling at 1.7% later that year. This path is broadly consistent with updated ECB staff forecasts.

On the growth front, euro area GDP expanded 0.6% quarter-on-quarter in the first quarter, but this figure was inflated by a 9.7% surge in Irish GDP, which reflects multinational activity rather than domestic demand.

Excluding Ireland, the euro area grew 0.3%. Barclays noted that the boost from U.S. firms’ front-loading purchases ahead of tariffs, which temporarily lifted exports, is already fading.

Recent data suggest a slowdown in activity. April industrial production declined across Germany, France and Spain, while factory orders in Germany rose only on the back of strength in two volatile sectors.

Services and retail data were more stable, and the unemployment rate fell slightly in April. Still, Barclays sees overall momentum as weak.

Barclays also questioned the ECB’s baseline growth assumptions, which remain unchanged for 2025 at 0.9% and were revised only slightly downward for 2026.

Analysts said these appear optimistic in light of persistent economic headwinds and delays in fiscal stimulus, especially in Germany, where tax reforms and infrastructure spending are expected to have more impact after 2027.

While the ECB maintains a meeting-by-meeting approach, Barclays sees sufficient evidence for continued policy easing.

Analysts argue that the projected inflation undershoot, combined with fragile growth, supports further rate cuts even if the central bank refrains from signaling them in advance.

Source: Investing

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Gerik

Economic

China–U.S. Trade War

Strategic Urgency: Why the U.S. is Betting Big on Domestic Shipbuilding

President Trump and a bipartisan group in Congress are pushing for a full-scale revival of the U.S. shipbuilding industry, aiming to counter China's overwhelming dominance in global ship production. China has delivered nearly half of all commercial ships over the past decade, while the U.S. has built only 37.

Reviving this sector will require more than policy—it demands a long-term commitment to investment. A key testing ground is the Hanwha Philly Shipyard in Philadelphia, recently acquired by South Korean industrial giant Hanwha. CEO David Kim insists the facility is ready to scale up, but only if it gets consistent orders and government support.

Policy Moves: Heavy Subsidies, Penalties for Foreign Ships, U.S.-First Mandates

Trump recently signed an executive order aimed at restoring American shipbuilding, pledging massive spending. The U.S. Trade Representative's office followed up with rules penalizing Chinese-built vessels and requiring certain commercial ships to be built domestically.

Congress is drafting a major bill to subsidize a 250-vessel “Strategic Commercial Fleet,” built in the U.S. and crewed by Americans, which could be deployed for national defense logistics. The bill also offers financial incentives to offset the high cost of U.S. labor and production, aiming to both stabilize orders and encourage industrial growth.

David vs. Goliath: America's Late Start Against China's Shipyard Juggernaut

In sheer numbers, the U.S. is trailing badly. Chinese shipyards delivered 6,765 commercial vessels over the past decade, while the U.S. managed fewer than 40. Even Japan and South Korea remain far ahead. Hanwha’s shipyard in Philadelphia, for example, produces just 1.5 ships a year, while its South Korean facilities build one per week.

Cost disparities are staggering. A Jones Act-compliant container ship built in the U.S. costs roughly $330 million, versus $70 million in Asia. The Jones Act requires vessels transporting goods between U.S. ports to be American-built, but critics argue this inflates costs without creating competitive scale.

Revival Dreams Meet Labor Reality

Even if Hanwha can transfer advanced technology to its U.S. shipyard, finding skilled labor is a major bottleneck. The company hopes to double its workforce from 1,500 in less than 10 years, and increase apprentices to 240 next year. But worker retention remains a serious issue—many leave within their first year.

Union leaders and defense officials support training programs to build a long-term maritime workforce. Maritime officers on U.S. international routes can earn over $200,000 per year and retire after two decades, making it a potentially lucrative career. Still, attracting and retaining workers in this demanding industry is a hurdle.

Not Just Business—A National Strategy

Supporters argue this is more than an economic initiative—it’s a national security imperative. With China subsidizing its shipbuilding at scale, U.S. policymakers see domestic shipyards as critical infrastructure. New Trump-era rules will require an increasing share of LNG carriers to be U.S.-built in the coming years, adding urgency.

While critics suggest outsourcing to allies like Japan or South Korea would be more cost-effective, Hanwha’s Kim contends that outsourcing has weakened American industry. “This is about more than business,” he said. “It’s about national priorities, labor, and strategic choices.”

America’s attempt to rebuild its shipbuilding capability from near collapse is a massive undertaking—financially, industrially, and politically. With China advancing at high speed, the U.S. is betting on protectionism, patriotism, and persistence. Whether this strategy pays off remains uncertain, but Washington has made it clear: losing the seas is not an option.

Source: The New York Times

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Gerik

Economic

China–U.S. Trade War

Industry Panic Echoes Pandemic-Era Disruptions

Global automakers are facing their third major supply chain crisis in five years. After the COVID-19 pandemic and the semiconductor shortage, China’s tightening of rare-earth exports has now sparked what executives describe as full-blown panic. Car factories across Europe are already pausing production due to a shortage of rare-earth magnets—essential components used in electric motors and a wide range of vehicle systems.

Frank Eckard, CEO of German magnet supplier Magnosphere, reported desperate calls from automakers seeking alternative magnet sources, some warning of factory shutdowns as early as July. With Beijing holding a near-monopoly over global rare-earth refining and magnet production, many fear the industry is once again at the mercy of geopolitics.

China's Grip on Rare Earths Paralyzes Global Production

Rare-earth elements like neodymium, praseodymium, and dysprosium are critical for producing permanent magnets, used in everything from EV motors to braking sensors and speakers. China controls about 70% of global mining, 85% of refining, and 90% of magnet production, according to AlixPartners. This dominance leaves the automotive sector extremely exposed.

Although President Trump claimed a recent agreement with President Xi would allow rare-earth shipments to the U.S. to resume, the global situation remains tense. Hundreds of export permit applications are under review in China, and with limited transparency, many auto suppliers are in the dark about when or whether critical shipments will resume.

Auto Supply Chains Remain Vulnerable Despite Past Lessons

Despite lessons from the COVID-19 and chip crises, the sector has not made meaningful structural changes. Just-in-time inventory strategies—while cost-efficient—have left automakers with little buffer. Frank Eckard criticized the industry for its lack of preparedness: “Nobody has learned from the past.”

The European Association of Automotive Suppliers (CLEPA) confirmed that multiple plants have already been forced offline. CLEPA’s Secretary-General warned that the impact will “confront everyone” as magnet shortages ripple through the broader industry.

Race for Rare-Earth Alternatives Gains Momentum

Some manufacturers have accelerated R&D efforts to create rare-earth-free motors and magnets. BMW, GM, ZF, and BorgWarner are developing alternatives, but most are still years away from large-scale, cost-effective production. U.S.-based Niron Magnetics, which raised $250 million from Stellantis, Magna, and GM, plans to launch a rare-earth-free magnet factory in 2029. Warwick Acoustics is introducing rare-earth-free speakers in luxury cars later this year.

However, these developments won’t solve the immediate crisis. European magnet recycling efforts remain underutilized—Heraeus’ facility is running at just 1% capacity and faces closure next year due to low sales and competition from cheaper Chinese products.

Short-Term Solutions: Hoarding and Partial Production

With viable near-term alternatives lacking, automakers are reverting to crisis playbooks developed during the chip shortage. Some companies are considering producing vehicles without certain components and stockpiling them until parts arrive. Mercedes-Benz, among others, is negotiating with suppliers to build magnet stockpiles.

The European Union’s Critical Raw Materials Act aims to reduce dependency on China, but experts like Noah Barkin of Rhodium Group say efforts have been too slow to respond to current bottlenecks.

Geopolitical Risk Spills into Broader Raw Materials

Rare earths are only part of the broader strategic materials problem. The European Commission warns that China controls over 50% of global supply for 19 critical raw materials, including graphite, aluminum, and manganese. Andy Leyland of SC Insights sees China’s actions as a “warning shot” that any of these resources could be used for future leverage.

The rare-earths crisis exposes the fragile foundation of today’s global auto supply chains. Despite efforts to regionalize or diversify sourcing after the pandemic and chip disruptions, the reliance on Chinese production for key inputs remains alarmingly high. Without accelerated investment in alternative magnet technologies and localized supply chains, the industry risks deeper disruptions in the face of future geopolitical tensions.

The scramble for rare earths is not just a supply hiccup—it’s a strategic reckoning.