Ukraine Seeks U.S. Security Pact and $800B Recovery Deal

As India prepares for its February 1 federal budget announcement, expectations are centered on continued fiscal consolidation, though the pace may slow. For equity markets, the budget is unlikely to offer significant near-term relief, with government finances once again leaning on a substantial dividend from the Reserve Bank of India (RBI).

Fiscal Deficit Targets Under Scrutiny

Analysts at Jefferies project the Indian government will aim for a fiscal deficit of approximately 4.2% of GDP in fiscal year 2027, a significant reduction from the 9.2% peak seen in FY21.

However, an alternative scenario is possible. If the government chooses to prioritize short-term economic growth, the deficit could be held closer to 4.4%. While this approach would likely benefit equities, it could also exert upward pressure on bond yields.

The Crucial Role of the RBI Dividend

The government's ability to meet its fiscal targets, especially amidst weaker tax collections, is expected to be bolstered by the RBI. Jefferies estimates the central bank's dividend for FY27 could increase by 10% to 15%, reaching around Rs 3 trillion, partly aided by rupee depreciation.

Capex Priorities: Defence Leads the Way

Government capital expenditure is forecast to grow by about 12% in FY27, totaling Rs 12.5 trillion. The allocation, however, reveals a clear strategic priority.

• Defence Capex: Spending in this sector could rise by approximately 25%, building on the 57% year-to-date growth in FY26.

• Non-Defence Capex: Growth is expected to slow considerably, falling into the 5% to 10% range.

Potential Pay Hikes and Their Fiscal Impact

The budget may also address long-delayed pay hikes for central government employees, linked to the next Central Pay Commission. According to Jefferies, salary increases for central government staff alone could widen the fiscal deficit by 20 to 30 basis points of GDP. The combined effect, including state-level adjustments, could reach as high as 100 basis points over a two-year period.

Key Market and Sector Implications

Investors will be closely watching for specific policy measures that could sway market sentiment and channel funds into key sectors.

Any relief on capital gains for select foreign portfolio investors would be a clear positive for the stock market. Conversely, measures designed to boost bank deposits, such as new tax incentives, would support the banking sector but could be a negative for equities by diverting investment flows.

Key areas to monitor in the budget include:

• Defence: Allocations will be a major focus.

• Manufacturing: Funding for the mobile manufacturing Production-Linked Incentive (PLI) scheme.

• Renewable Energy: Support for the PM Kusum programme.

• Consumer Goods: Any pay-related measures that could lift demand for consumer durables and vehicles.

A new trade agreement between Canada and China is drawing sharp criticism from Washington, with top US officials warning that Ottawa will regret its decision to allow a limited number of Chinese-made electric vehicles into its market. The move is seen by the Trump administration as a potential threat to the North American auto industry.

"I think they'll look back at this decision and surely regret it to bring Chinese cars into their market," US Transportation Secretary Sean Duffy stated on Friday during an event at a Ford factory in Ohio.

The Details of the New Trade Pact

The controversy stems from an announcement by Canadian Prime Minister Mark Carney in Beijing. The new deal permits up to 49,000 Chinese EVs to enter Canada under a 6.1% most-favoured-nation tariff. This marks a sharp reversal from Canada's 2024 policy, which imposed a 100% tariff on Chinese EVs, aligning with a similar US measure.

The agreement has sparked alarm in Washington, with officials concerned it could give China a strategic foothold in the North American auto market, even as the US intensifies its hardline stance on vehicle and parts imports.

As part of the broader trade agreements, Carney also announced that he expects China to lower its tariffs on Canadian canola seed to approximately 15% by March 1, a significant reduction from the current 85%.

Washington's Official Response

US officials have been clear that while they disapprove of the deal, the vehicles are not expected to cross the border into the United States.

"Those cars are going to Canada – they're not coming here," said US Trade Representative Jamieson Greer, adding that he does not anticipate the deal will disrupt American vehicle exports to Canada.

Despite this, Greer labeled Canada's decision "problematic" in a separate interview with CNBC. "There's a reason why we don't sell a lot of Chinese cars in the United States," he explained. "It's because we have tariffs to protect American auto workers and Americans from those vehicles."

Greer also expressed skepticism about the canola seed agreement, predicting, "I think in the long run, they're not going to like having made that deal."

Cybersecurity as a Key Barrier

Greer highlighted that US regulations present a significant obstacle for Chinese vehicles. He pointed to rules established in January 2025 governing the cybersecurity of internet-connected vehicles and their navigation systems.

"I think it would be hard for them to operate here," Greer commented. "There are rules and regulations in place in America about the cybersecurity of our vehicles and the systems that go into those, so I think it might be hard for the Chinese to comply with those kind of rules."

Bipartisan Opposition to Chinese Vehicles

While President Donald Trump has previously expressed interest in having Chinese automakers build vehicles in the US, there is strong, bipartisan opposition from lawmakers. Major American car manufacturers have also warned that China poses a threat to the domestic auto sector.

This sentiment was echoed at the Ohio event, where Republican Senator Bernie Moreno received applause for his firm stance.

"As long as I have air in my body, there will not be Chinese vehicles sold in the United States of America — period," Moreno declared.

The Canadian Embassy in Washington has not yet provided a comment on the matter.

Greenland's 57,000 inhabitants are navigating a tense geopolitical landscape as U.S. President Donald Trump publicly pursues the acquisition of their vast Arctic island. Faced with the ambitions of a global superpower, many residents express a sense of helplessness, balanced by a cautious hope in a growing international response.

The situation has prompted an unusual military and diplomatic scramble, with European allies and U.S. lawmakers stepping into the fray.

European Troops Arrive in Nuuk

In a direct response to Trump's stated goal of taking control of Greenland "one way or the other," a handful of European countries, including France and Germany, have deployed a modest number of military personnel to the autonomous Danish territory.

Though no U.S. soldiers are part of this contingent, the European presence has been welcomed by locals in the capital, Nuuk.

"I feel safer," said Marie Sofie Pedersen, a local social worker. "I hope they won't stay here forever, but just as long as we're vulnerable and something could happen."

The deployment comes as Trump criticizes Denmark for not sufficiently ensuring Greenland's security, a claim made despite the island being protected under NATO's collective defense treaty. The advance troops are preparing for future Danish-led military exercises in the Arctic.

Local sentiment reflects a desire for solidarity. "We have to stay together in Europe," a 39-year-old union representative told AFP. "Otherwise, the Americans will crush us. We are not big enough, but together, we will be."

Greenland's deputy prime minister, Mute Egede, confirmed on Wednesday that more NATO activity is expected, stating, "There will be more military flights and ships."

Diplomatic Talks Falter as Tensions Rise

The military movements coincide with a diplomatic stalemate. Recent talks at the White House involving Danish, Greenlandic, and U.S. officials failed to resolve the core differences between Washington and its allies over the island's future.

Experts characterize the European military deployment as "strategic signaling" to the United States. However, the White House appears unmoved.

"I don't think troops in Europe impact the president's decision-making process, nor does it impact his goal of the acquisition of Greenland at all," Press Secretary Karoline Leavitt said on Thursday.

U.S. Senator Lisa Murkowski speaks to the press amid rising geopolitical tensions over Greenland's future.

Adding another layer to the political maneuvering, a bipartisan U.S. congressional delegation began a visit to Copenhagen on Friday. The group, set to meet with both Danish Prime Minister Mette Frederiksen and her Greenlandic counterpart, aims to voice support for Denmark and Greenland.

This visit has provided a source of hope for some. "Congress would never approve of a military action in Greenland," the union activist said. "If people in Congress want to save their own democracy, they have to step up."

Independence Ambitions on Hold

The crisis has forced a dramatic shift in Greenland's domestic politics, temporarily sidelining its long-held ambition for full independence from Denmark after three centuries of sovereignty.

Greenlandic Prime Minister Jens-Frederik Nielsen stated that now is not the time for such a move. "We are now facing a geopolitical crisis," he said, clarifying that if forced to choose between the U.S. and Denmark, "We choose Denmark."

However, not all Greenlanders oppose Trump's interest. Julio Sandsteen, an unemployed resident of Nuuk, voiced his support for an American takeover.

"The Americans have protected the island for a long time. The Danes can't do it," he said. "Trump wants to have Greenland? I love it."

AGRI-FOOD PARTNERSHIP

CARNEY SAYS CHINA 'MORE PREDICTABLE'

Source: Reuters

Canada and China have forged a new trade agreement that dramatically lowers tariffs on Chinese electric vehicles (EVs) and Canadian canola, signaling a major reset in relations between the two countries. The deal was announced during Prime Minister Mark Carney’s visit to Beijing, the first by a Canadian prime minister since 2017.

Canadian Prime Minister Mark Carney and Chinese President Xi Jinping meet in Beijing to finalize a new trade agreement.

The agreement aims to mend diplomatic and economic ties that have frayed in recent years, positioning Canada to navigate a complex global trade environment.

A Landmark Reversal on EV and Agricultural Trade

The centerpiece of the deal is a significant rollback of tariffs on Chinese-made electric vehicles. Under the new terms, Canada will permit an initial quota of 49,000 Chinese EVs to enter the country at a 6.1% tariff.

This marks a stark reversal from the 100% tariff imposed in 2024 under former Prime Minister Justin Trudeau, a policy that mirrored similar penalties from the United States. For context, China exported 41,678 EVs to Canada in 2023.

"This is a return to levels prior to recent trade frictions, but under an agreement that promises much more for Canadians," Carney told reporters after meeting with Chinese President Xi Jinping.

The EV quota is set to expand, reaching approximately 70,000 vehicles within five years. Carney justified the policy shift as a strategic move to bolster Canada's own EV industry.

"For Canada to build its own competitive EV sector, we will need to learn from innovative partners, access their supply chains, and increase local demand," he explained. This new rationale moves away from the previous government's argument that high tariffs were necessary to shield domestic manufacturers from subsidized competition.

In exchange for the EV concessions, China has agreed to adjust its own trade measures:

• Canola Seed: Tariffs will be reduced from 84% to a combined rate of about 15% by March 1.

• Other Agricultural Goods: Anti-discrimination tariffs on Canadian canola meal, lobsters, crabs, and peas are expected to be removed from March 1 through the end of the year.

China’s Commerce Ministry confirmed it was adjusting anti-dumping and anti-discrimination measures on Canadian agricultural and aquatic products in response to Canada’s move on EV tariffs. Carney estimated the deal would unlock nearly $3 billion in new export orders for Canadian farmers and fish harvesters.

Domestic Pushback and U.S. Reaction

The deal immediately drew criticism at home. Doug Ford, Premier of Ontario—Canada’s automotive manufacturing hub—condemned the agreement.

"The federal government is inviting a flood of cheap made-in-China electric vehicles without any real guarantee of equal or immediate investments in Canada's economy, auto sector or supply chain," he posted on X.

The policy also represents a departure from Washington's approach. While some members of U.S. President Donald Trump’s cabinet criticized the move ahead of a review of the U.S.-Canada-Mexico trade deal, Trump himself offered his support.

"That's what he should be doing," Trump told reporters. "It's a good thing for him to sign a trade deal. If you can get a deal with China, you should do that."

Deepening Economic Cooperation

Beyond the tariff adjustments, the two nations pledged to restart high-level economic and financial dialogues and strengthen cooperation in several key sectors, including agriculture, oil, gas, and green energy.

Carney highlighted Canada's ambitious energy plans, noting that the country will double its energy grid over the next 15 years and sees opportunities for Chinese investment in areas like offshore wind. He also stated that Canada is scaling up its liquified natural gas (LNG) exports, aiming to produce 50 million tonnes annually for Asian markets by 2030.

Additionally, Carney said President Xi committed to providing visa-free access for Canadians traveling to China, though further details were not provided.

A Pragmatic Pivot Amid Global Tensions

Analysts suggest the move is a pragmatic response to Canada's increasingly strained trade relationship with the United States under President Trump, who has imposed tariffs on some Canadian goods.

"Given current complexities in Canada's trade relationship with the U.S., it's no surprise that Carney's government is keen to improve the bilateral trade and investment relationship with Beijing," said Even Rogers Pay of Trivium China.

When asked if China was now a more reliable partner than the U.S., Carney responded, "In terms of the way our relationship has progressed in recent months with China, it is more predictable, and you see results coming from that." He also mentioned having "much alignment of views" with Xi on the topic of Greenland.

While the Canada-China rapprochement could reshape the context of the broader Sino-U.S. rivalry, experts do not expect a dramatic strategic shift away from Washington.

"Canada is a core U.S. ally and deeply embedded in American security and intelligence frameworks," said Sun Chenghao, a fellow at Tsinghua University's Centre for International Security and Strategy. "It is therefore very unlikely to realign strategically away from Washington."

Following weeks of disruptive protests across Iran—met with internet blackouts and a severe security crackdown—US President Donald Trump has kept the region on edge with repeated threats of military action if the violence escalates.

These demonstrations represent one of the most serious challenges the Islamic Republic has faced in years. They have spread across numerous cities, involved diverse social groups, and triggered a level of state force that reveals how threatened the country's leadership feels. By warning Iran against killing protestors, Trump has signaled that internal repression will now have external consequences.

Although the White House pulled back from military action on one occasion, the threat of force remains a key part of the president's strategy. This approach keeps the possibility of escalation alive, preserving the element of surprise and his freedom to act.

Iran's Strategic Vulnerability

While the protests have subsided under heavy repression, many observers believe sustained external pressure from the US is necessary to prevent the Iranian regime from returning to business as usual.

Trump's warnings come at a time when Iran is strategically exposed. Since October 7, 2023, sustained Israeli strikes against its "axis of resistance" and a direct war between the two nations—which included US strikes on Iranian nuclear facilities last summer—have weakened Iran's deterrence and revealed the limits of its defensive capabilities.

The domestic protests add another layer of vulnerability, combining regional setbacks with internal political and economic strain. This creates an opportunity that Washington is now actively seeking to leverage. Understanding Trump's Iran strategy requires looking beyond individual statements and tactical moves to see how his administration is working to turn Iran's accumulated weaknesses into a lasting strategic advantage for the US.

The Goal: Strategic Submission, Not Regime Change

In his second term, President Trump’s Iran policy is a mix of strategic calculation and his belief in pressure and unpredictability. This approach is not improvised; it is rooted in the core principles of his administration's National Security Strategy, which prioritizes strategic competition and deterrence through strength.

The ultimate objective is not classic regime change but "strategic submission." The goal is to force Iran's leadership to accept permanent limits on its nuclear ambitions, scale back its regional influence, and understand that the US is prepared to escalate swiftly if its red lines are crossed.

Iran's future now seems increasingly dependent on how the United States chooses to apply or withhold pressure in the coming months.

Key Pillars of the US Pressure Campaign

Washington's strategy relies on several coordinated efforts designed to constrain Tehran from multiple angles.

Tying Domestic Repression to Global Consequences

A significant policy shift has been the explicit link between Iran's internal conduct and external consequences. Since the protests started, Trump has repeatedly stated that mass killings or executions would provoke a US response, potentially including military force. These threats are designed to attach an international cost to domestic repression at a time when the regime is already stretched thin by regional and economic pressures.

Neutralizing the Nuclear Threat

Iran's nuclear program remains a central focus of Trump's strategy. On June 22 of last year, the US conducted direct military strikes on Iranian nuclear facilities in Operation Midnight Hammer. This marked a major escalation in the effort to deny Tehran a path to a nuclear weapon.

Following the operation, Trump declared that Iran's nuclear program had been "effectively buried." This reflects the administration's view that a combination of US pressure, Israeli military action, covert operations, and cyberattacks has placed Tehran in a strategically weakened position.

Expanding Economic Warfare

Economic pressure, a long-standing tool of Trump's Iran policy, has become broader and more punitive. Beyond the "maximum pressure" sanctions implemented after the US left the Iran nuclear deal in 2018, the administration has proposed a 25% tariff on any country or company doing business with Tehran.

This move from financial sanctions to trade punishment aims to deter third parties from serving as an economic lifeline for Iran. By threatening access to the massive US market, Washington seeks to compound the regime's regional losses with severe domestic economic strain.

Maintaining Military Ambiguity

Military signaling remains a core component of the strategy. Reports indicate that a US aircraft carrier, the USS Lincoln, is en route to the region, though the timing and scope of any future military action remain intentionally ambiguous.

This posture is guided by Trump's belief that Iran has consistently underestimated American resolve. Examples include Tehran's assumption that Washington would not leave the nuclear deal in 2018, its miscalculation before the US killed Qassem Suleimani in 2020, and its actions during the war last summer. Current US force adjustments are intended to prevent Tehran from believing the situation has stabilized.

A Transactional Path to a Deal

Even as pressure mounts, President Trump has deliberately left an opening for a negotiated settlement. His references to wanting a deal and "making Iran great again" are transactional signals directed at the leadership, not the Iranian people.

The message is that economic relief and reintegration into the global community are possible, but only after Iran accepts permanent, verifiable limits on its nuclear and ballistic missile programs and alters its regional behavior. The key question is whether Tehran has fully grasped this reality after a series of shocks and warnings.

If Iran has, it is more likely to respond with greater restraint at home and abroad. If not, further miscalculation appears inevitable. Trump's strategy is less about engineering internal change and more about forcing Iran's leaders to recognize the limits of their resistance, with major implications for the regime's durability and the future of US-Iran relations.