Washington Signals Progress But Shifts Responsibility: Trade De-escalation “Up to China,” Says Treasury Secretary

China–U.S. Trade War

Summary:

U.S. Treasury Secretary Scott Bessent emphasized that easing trade tensions depends on China's actions, despite recent partial tariff rollbacks, as businesses brace for supply shortages and economic strain from escalating U.S.-China tariffs...

Shifting the Diplomatic Burden to Beijing

As trade frictions between the U.S. and China escalate, U.S. Treasury Secretary Scott Bessent asserted on Monday that reducing tensions now "depends on China." This framing comes amid mixed signals from the White House, including President Trump’s alternating threats and overtures. The message implies that although some steps have been taken—such as China's quiet removal of tariffs on certain U.S. semiconductors and pharmaceuticals—the broader responsibility for de-escalation rests with Beijing.

Bessent’s remarks follow a growing pattern in U.S. diplomacy: strategic ambiguity from the Trump administration is used both as pressure and leverage. In this case, it has created a situation where even marginal Chinese adjustments are interpreted as positive signs, while the bulk of resolution responsibility remains externalized.

Tariff Fallout Deepens Across Key Sectors

Since the U.S. imposed a steep 145% tariff on most Chinese imports in April, trade volumes have plummeted. Bloomberg estimates a 60% drop in shipments to the U.S., and retailers such as Walmart and Target are already warning about empty shelves and rising prices. The impact is set to intensify by mid-May, when businesses will urgently need to replenish inventory—if supply chains allow.

The transport, logistics, and retail sectors are projected to suffer heavily, with forecasts of mass layoffs and distribution bottlenecks. The economic correlation is clear: trade barriers are disrupting flow, inflating costs, and undermining employment stability, with potential knock-on effects throughout the broader consumer economy.

Mixed Messages Cloud Negotiation Outlook

President Trump’s contradictory statements have further complicated the geopolitical landscape. While claiming to have spoken with Chinese President Xi Jinping—an assertion Beijing denies—Trump has simultaneously threatened to maintain tariffs unless offered something “significant.” The inconsistency leaves both investors and international partners uncertain about Washington’s true objectives or timelines.

Despite this volatility, recent signs of partial tariff relief have raised hopes for broader de-escalation. The rollback of duties on select U.S. tech and medical goods by China is seen by some as a signal of potential compromise. However, these actions may be more tactical than strategic—intended to ease domestic supply constraints in China without signaling broader concession.

Market Outlook and Tariff Complexity

The current 10% base tariff imposed on April 5 remains in place for most imports, but speculation is mounting over upcoming exemptions and deferrals. Trump has hinted at suspending levies on auto parts and select consumer tech, despite reaffirming that tariffs will remain central to his trade agenda.

Meanwhile, the administration has initiated new investigations into imported trucks, potentially opening the door for additional duties. These actions reflect a broader pattern of sector-by-sector escalation, creating prolonged uncertainty for supply chain planners and investors alike.

With tariffs reaching historically high levels—145% from the U.S. and up to 125% from China—trade normalization now hinges on political decisions as much as economic realities. While Secretary Bessent acknowledges some progress, his declaration that it’s “up to China” subtly shifts blame while buying time for U.S. strategists. Unless a structured negotiation framework emerges soon, the tariff standoff is likely to continue weighing on global markets, business operations, and economic confidence well into the second half of 2025.

Source: Yahoo Finance

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Gerik

Economic

Unexpected Euro Surge Compounds Tariff Pain

Contrary to conventional expectations that trade-targeted currencies would weaken, the euro has instead surged nearly 10% since early March 2025, marking its strongest trade-weighted performance since 2022. The rally was driven not only by a sharp decline in the U.S. dollar—once a safe haven—but also by Germany’s expansionary fiscal shift, which injected optimism into the eurozone outlook. However, this appreciation has created new challenges for European exporters, especially those heavily exposed to U.S. markets.

The strengthening euro, in this context, does not mitigate the negative effects of tariffs but rather amplifies them. This inverse correlation challenges standard economic forecasts and indicates that capital is shifting toward the euro as a perceived alternative safe asset—thus linking macroeconomic sentiment directly to corporate profitability outcomes in Europe.

Earnings Outlook Weakens Across Export-Heavy Sectors

Analysts at Goldman Sachs and Barclays note that about 60% of STOXX 600 company revenues are generated abroad, with the U.S. contributing close to half. A 10% euro appreciation, according to BNP Paribas, typically erodes 2–3% of corporate earnings. This drag comes on top of the direct margin pressure from new American tariffs.

Companies have started flagging the impact. Unilever has already reported revenue erosion in Q1 2025 due to adverse currency movements. L’Oreal estimates that if the euro remains at $1.15 for the rest of the year, its net sales may decline by as much as 2.9%. These cases illustrate a causal link between the euro's strength and lower reported earnings, particularly for firms with dollar-denominated revenue but euro-based cost structures.

Macroeconomic Concerns Deepen in Export-Focused Economies

Germany, the eurozone’s largest and most export-reliant economy, is at particular risk. Bundesbank President Joachim Nagel recently acknowledged that the country could slide into a mild recession in 2025. The IMF has already downgraded growth forecasts for the euro area for both 2025 and 2026. A stronger euro further reduces competitiveness at a time when European industries—especially automotive—face intensifying competition from China and additional U.S. tariffs.

The automotive sector exemplifies this double burden. Since Trump’s re-election and the onset of tariff expansions, European car and parts manufacturers have seen stock prices fall roughly 8%, while the broader STOXX 600 declined by less than 1%. The relative underperformance signals investor recognition of sector-specific vulnerabilities.

Investor Sentiment and Hedging Constraints

Currency appreciation, while theoretically beneficial to consumers via cheaper imports, delivers only marginal relief in practice, especially when energy and raw materials markets remain volatile. More importantly, investors are becoming increasingly cautious. Strategists like Frederique Carrier of RBC Wealth Management now favor domestically focused stocks and companies likely to benefit from German fiscal stimulus, rather than multinationals vulnerable to forex and trade shocks.

Adding to corporate anxiety is uncertainty around the effectiveness of currency hedging. Rapid currency fluctuations and market volatility have made traditional derivative strategies less reliable or more expensive, limiting companies’ ability to shield earnings from exchange rate risk. This represents a critical breakdown in risk management at a time when geopolitical and monetary instability are both rising.

The sharp appreciation of the euro has compounded the negative effects of U.S. tariffs on Europe’s export-reliant companies, particularly in the manufacturing and automotive sectors. As revenue forecasts dim and profit margins compress, firms face rising pressure from both external trade shocks and internal currency-driven competitiveness erosion. Unless the euro stabilizes or alternative policy responses emerge, the combination of trade friction, forex risk, and economic slowdown may further weigh on Europe’s corporate earnings landscape in the months ahead.

Source: Reuters

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Glendon

Economic

Forex

The U.S. Dollar, the world's reserve currencyand the ultimate safe-haven asset, is now the world's worst-performing majorcurrency in 2025. Octa Broker explains why.

The historical role of the U.S. dollar as theworld's leading safe-haven currency is under threat. Despite risingmacroeconomic uncertainty, investors are fleeing the U.S. dollar, defyingconventional safe-haven flows. Greenback's rapid depreciation over the pastweeks has fuelled speculation over the loss of confidence in its safe-havenstatus. With USDCHF trading news multi-year low, Octa Broker analyzes if we arein the midst of dramatic regime change in markets and explains why the U.S.dollar is struggling amid global trade turmoil

Introduction

The U.S. dollar (USD), the buck or the greenback,as it is often informally referred to, has long occupied a rather exclusiveposition in global finance. Ever since the end of World War II and theestablishment of the Bretton Woods monetary system, the greenback has played acrucial role in facilitating cross-border transactions and smoothinginternational trade flows, in addition to serving as a primary reserve currencyfor central banks around the world. Being the official currency of the world'slargest economy, the United States, has certainly helped the dollar maintainits dominant position. Indeed, the sheer size of the U.S. economy, its deep andliquid financial markets, strong private property rights and the rule of lawenshrined in the U.S. Constitution, and last but not least, the unrivalledpower of the U.S. military, made the dollar the most trusted global currency.

As a result, the greenback became what market participants call ‘a safe-havencurrency’, a refuge for investors during times of macroeconomic uncertainty ormarket turmoil. Most recently, however, the instability in global financialmarkets triggered by rising trade tariffs and exacerbated by fears of a globalrecession seems to have upended this narrative, undermining the dollar's establishedrole.

Tradetensions

The U.S.dollar has been depreciating almost relentlessly since mid-January. In justthree and a half months, the Dollar Index (DXY), which measures the value ofthe greenback relative to a basket of six major foreign currencies, includingthe euro, Japanese yen, British pound, Canadian dollar, Swedish krona, andSwiss franc, lost more than 10% in value (from 13 January high to 21 Aprillow). On 11 April, it breached the critical 100.00 level, and although it hassince increased slightly, it remains by far the worst-performing currency amongother major currencies this year so far. This decline has raised an importantquestion: Is the U.S. dollar losing its safe-haven status, or is it merely atemporary setback?

Thecatalyst for the dollar's slide is rooted in the escalating trade tensions,particularly the aggressive tariff policies enacted by U.S. President DonaldTrump. In recent weeks, the U.S. imposed a 10% baseline tariff on all imports,with much steeper duties imposed on key trading partners like China, which, inturn, retaliated with its own 125% levies on U.S. goods. These moves havestoked fears of a global recession, as international supply chains may getdisrupted with potentially devastating consequences for the world economy.Historically, such uncertainty would bolster the dollar, as investors seek thesafety of U.S. assets. However, this time around, the greenback is faltering,while alternative safe-haven currencies like the Swiss franc (CHF) and Japaneseyen (JPY) are gaining ground.

Hedging

Kar YongAng, a financial market analyst at Octa Broker, says that the U.S. dollar'srecent weakness is driven by a diversification shift among investors intoalternative safe-haven currencies, motivated by risk-hedging and fears over thegrowth prospects of the U.S. economy.

'Weare witnessing a major reallocation of capital. Market participants realisethat in a trade war, there are no winners. In the short term, the U.S. economywill face the consequences, and they will not be pretty. Big players with largeinvestments in the U.S. realised they needed to hedge their currency risk, sothey moved into the Swiss franc and the Japanese yen. Also, higher tariffs arefuelling recession fears, so traders have increased their bets on additionalrate cuts by the Fed [Federal Reserve].That too had a bearish effect on the greenback'.

Indeed, onApril 21, USDCHF dropped below the 0.80500 mark, the level unseen in almost 14years, while USDJPY was hovering near the critical 140.00 area, a drop belowwhich will open the way towards new multi-year lows. Significant shifts incapital flow allocations have prompted some analysts to conclude that the U.S.dollar is facing a crisis of confidence. However, Octa analysts have adifferent view and believe that the current situation doesn't reflect a broaderosion of investors' long-term trust in the U.S. dollar.

Kar Yong Ang said: 'The issue isn't so much a fundamental lossof faith in the U.S. dollar's long-term prospects. What we are witnessing rightnow is a dramatic, yet logical response to the probable economic implicationsof Donald Trump's trade policies. You have an administration, which iseffectively re-structuring the global trade order, that does not conceal itsdissatisfaction with the Fed and apparently believes in a weak dollar. Ifyou're a foreign investor in the U.S., you simply cannot afford to be unhedgedthese days. But also, let's not forget that the greenback has been falling fromrelatively high levels, so a healthy downward correction was long overdue'.

In other words, the recent slide in the U.S. dollar is not an unusualphenomenon or an anomaly; it is quite natural and probably a short-termoccurrence. In fact, even after an 11% drop in 2025, the greenback is stillsome 38% above its historical low set in 2008. Furthermore, it is clear thatonce key global actors adopt more conciliatory diplomatic rhetoric and engagein active trade negotiations, the situation will normalise immediately.

Conclusion

As for thedollar's long-term prospects, its dominant status will likely continue to bechallenged, but no single currency can take its crown for now. According to the Bank of InternationalSettlements (BIS), the U.S. dollar still accounts for nearly 88% ofinternational transactions, and its dominance in Forex markets remainsunmatched, with daily trading volumes dwarfing those of the yen or franc.According to the International Monetary Fund (IMF), more than half (57.8%) ofthe $12.4 trillion in global foreign exchange reserves were in U.S. dollars.Therefore, while the greenback may not be the automatic refuge it once was, itsrole as a Forex cornerstone endures for now.

Source: ForexLive

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Gerik

Stocks

Massive Value Loss Raises Red Flags

From its peak in December to a dismal Q1 earnings report, Tesla’s market capitalization has plunged by roughly $800 billion. The personal net worth of CEO Elon Musk has also shrunk by around $100 billion. While some investors welcomed his pledge to reduce time spent in U.S. governmental roles—especially his leadership of the newly formed Department of Government Efficiency (DOGE)—this half-hearted promise to only "scale back slightly" hasn't reassured markets. Musk admitted he will still dedicate “a day or two per week” to political duties, raising questions about his full commitment to Tesla.

The causal chain is clear: Musk’s growing political involvement has diverted his attention, undermining investor confidence and accelerating Tesla’s stock decline. This shift in focus, particularly during a critical phase for EV competition and innovation, reveals a widening leadership gap at the top of one of the world’s most valuable car companies.

Tesla’s Fundamentals Are Faltering

Beyond Musk’s personal distractions, Tesla faces deteriorating business fundamentals. Its global vehicle sales declined slightly in 2024, and profits increasingly depend on selling carbon credits rather than cars. The once-groundbreaking product line has grown stale, and the long-promised launch of affordable EVs remains delayed—allowing Chinese competitors like BYD to seize the innovation edge.

Consumer backlash is also growing. Political controversies and pro-MAGA associations have sparked boycotts and showroom protests. Tesla’s February launch of Full Self-Driving (FSD) in China was met with apathy, as local automakers already offer similar features at lower prices. The erosion of product leadership further undermines Tesla’s competitive positioning, indicating that Musk’s absence is not merely symbolic but operationally consequential.

Investor Patience Wearing Thin

Despite recent price recovery, Tesla’s valuation remains under pressure. Analysts argue that if judged by traditional automotive metrics, Tesla would command a far lower market cap, suggesting that much of its valuation still hinges on belief in Musk’s long-term vision. That belief, however, is increasingly strained by his erratic behavior, frequent political commentary, and time-consuming media appearances on platforms like X (formerly Twitter).

The situation reflects a tension between speculative optimism and corporate governance. Many shareholders now believe Tesla would benefit from a more “normal” executive structure. Recent rulings from the Delaware Chancery Court, which criticized Tesla’s board for excessive loyalty to Musk and poor oversight of his 2023 compensation package, reinforce this concern.

Musk’s Vision Still Commands Loyalty—But For How Long?

To his credit, Elon Musk remains one of the most visionary entrepreneurs of the 21st century. His ambitions—ranging from humanoid robots (Optimus) to autonomous ride-hailing fleets (Cybercab)—still command attention and inspire markets. But realization of these ambitions depends not on charisma alone, but on leadership discipline, operational clarity, and focus.

Musk’s scattered energy—split between political theatrics, livestreams, and advisory roles—threatens the execution of his own bold plans. Unless he recommits fully to Tesla or appoints a CEO with operational authority and autonomy, the company risks slipping further behind in a fiercely competitive global EV race.

Tesla’s $800 billion decline is not just a market correction—it is a cautionary tale of what happens when visionary leadership veers into distraction. Elon Musk’s continued political entanglements and media theatrics are testing investor patience and undermining Tesla’s credibility as a cutting-edge automaker. If Tesla is to recover its trajectory, it needs either a full-time Musk—or a new CEO altogether. The future of Tesla now depends not just on technology, but on governance, focus, and leadership choices made in the months ahead.

Source: Financial Times

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Patricia Franklin

Commodity

Economic

Gold prices dropped on Tuesday as softening trade tensions between the U.S. and its trading partners dulled the metal's safe-haven appeal, while investors awaited U.S. economic data to assess the Federal Reserve's policy path.

Spot gold was down 0.8% at $3,314.65 an ounce, as of 0619 GMT. U.S. gold futures lost 0.7% to $3,324.20.

A line chart titled "Spot gold price in USD per oz" that tracks the metric over time.

"The risk environment has clearly improved recently, with market participants buoyed by optimism that the worst of the trade tensions may be behind us amid encouraging rhetoric around trade deals," said IG market strategist Yeap Jun Rong.

U.S. Treasury Secretary Scott Bessent said on Monday several top trading partners had made "very good" proposals to avoid U.S. tariffs, with India likely to be among the first to finalize a deal.

China's recent moves to exempt certain U.S. goods from its retaliatory tariffs showed a willingness to de-escalate trade tensions, Bessent added.

U.S. President Donald Trump's administration will also move to reduce the impact of his automotive tariffs by alleviating some duties imposed on foreign parts in domestically-manufactured cars.

But risks are high that the global economy will slip into recession this year, according to a majority of economists in a Reuters poll, with many saying Trump's tariffs have damaged business sentiment.

Bullion, traditionally seen as a hedge against political and financial instability, rose to an all-time high of $3,500.05/oz last week due to elevated uncertainties.

Investors will monitor economic data this week, including the U.S. job openings report later in the day, Personal Consumption Expenditures on Wednesday, and the non-farm payrolls report on Friday.

"Longer-term structural tailwinds for gold prices are likely to keep the broader upward trend intact, supported by room for ongoing reserve diversification among emerging market central banks," Rong said.

Spot silver was down 0.6% at $32.98 an ounce, platinum fell 0.2% to $984.65 and palladium lost 0.5% to $944.34.

Source: Reuters

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Gerik

China–U.S. Trade War

Strategic Retaliation Targets U.S. Dependence

In response to heightened U.S. tariffs, China has tightened export controls on rare earth minerals, particularly dysprosium-based magnets essential for electric vehicles (EVs) and other advanced technologies. Over 90% of the global supply of refined dysprosium originates from China, making this an effective point of leverage. The immediate consequence is a growing supply crunch for American manufacturers, especially in the EV sector where alternatives to permanent magnets are limited.

This move demonstrates a direct cause-effect relationship: U.S. tariff actions have prompted a targeted Chinese response, exacerbating existing structural weaknesses in American industrial supply chains.

Elon Musk and Industry Leaders Raise Alarms

The impact is already palpable. Tesla CEO Elon Musk warned that shortages of rare earth magnets could delay projects like the Optimus humanoid robot at Tesla’s Texas factory. He emphasized the importance of securing necessary export licenses, highlighting concerns that Chinese authorities could prolong or deny applications under the guise of military end-use restrictions, even when civilian applications are evident.

Auto executives have stressed that without reliable access to rare earth magnets, EV production in the U.S. could face significant disruptions. Here, the dependency on Chinese technology and materials becomes a bottleneck, revealing the deep integration between globalized supply chains and U.S. manufacturing aspirations.

Supply Chain Bottlenecks and Rising Costs

Analysts estimate that existing inventories of rare earth magnets will suffice only through the end of May 2025. Prices have already surged, with terbium—a related rare earth element—jumping 25% in just one month, according to Benchmark Mineral Intelligence. This price spike not only reflects tightening supply but also amplifies cost pressures across sectors ranging from automotive to electronics and defense.

The causal chain is clear: export restrictions tighten supply, triggering price increases, and magnifying operational uncertainties for downstream manufacturers.

Structural Weakness in U.S. Rare Earth Supply

The United States possesses only one significant dysprosium-producing mine in California, and even at full capacity, it cannot satisfy domestic needs. Moreover, refining capabilities remain embryonic, with technical processes such as dysprosium separation from ore still undeveloped at industrial scale in the U.S.

Building a fully independent supply chain is a daunting task. According to S&P Global Market Intelligence, developing a new mine in the U.S. typically takes 29 years. Additionally, production costs in the U.S. and Australia far exceed those in China—$35–40 per kilogram compared to China’s $11–15 per kilogram. This stark cost differential underscores the economic advantage China holds and why replicating its capabilities poses formidable challenges.

Thus, while the resource base exists globally, the absence of competitive refining expertise and cost-effective production outside China traps the U.S. and its allies in a structural dependency, revealing an asymmetric vulnerability.

Ripple Effects Across Critical Industries

The strategic importance of rare earth elements extends far beyond electric vehicles. They are crucial for medical devices, satellites, jet fighters, and high-tech consumer goods. Automakers are now urgently reviewing component lists, discovering rare earth dependencies even in brake systems, dashboard displays, gear shifters, and windshield wipers.

While non-rare earth alternatives exist for some automotive components, for core electric motor functions, viable substitutes remain elusive. Consequently, China's control over these inputs represents not just a tactical advantage in the current trade war, but a strategic chokepoint in global technological development.

China’s move to restrict rare earth exports highlights deep vulnerabilities in American manufacturing and supply chains. As prices spike and inventories dwindle, industries critical to U.S. economic and technological leadership face mounting risks. The challenges of developing domestic rare earth capabilities—long timelines, high costs, and lack of technical expertise—mean that strategic dependency on China will persist in the medium term, shaping the future balance of global industrial power.

Source: WSJ

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Gerik

Economic

Timeline Extension Reflects Mounting Economic Challenges

On April 28, both the Bank of Korea (BoK) and the International Monetary Fund (IMF) updated their forecasts, indicating that South Korea will not reach the symbolic milestone of $40,000 GDP per capita until 2029. Previously, the IMF had projected this achievement for 2027 in its October 2024 World Economic Outlook. The two-year delay illustrates the compounding effects of weaker-than-expected economic growth and currency volatility on South Korea's long-term income trajectory.

This revision shows a direct causal relationship: declining growth momentum and an unfavorable exchange rate environment have pushed back South Korea’s timeline for achieving higher living standards.

Stagnating Income Levels Despite Past Gains

From 2020 to 2021, South Korea’s GDP per capita rose impressively from $33,653 to $37,518, driven by strong post-pandemic recovery dynamics. However, subsequent years witnessed a reversal: GDP per capita fell to $34,822 in 2022, edged up to $35,563 in 2023, and is expected to reach only $36,129 in 2024.

Projections for 2025 anticipate another decline to $34,642, a 4.1% drop from 2024, effectively erasing gains made since 2022. This trend reveals a concerning correlation between broader economic slowdowns and income stagnation. Although wage growth is forecasted to resume gradually from 2026 onward, structural issues remain that could temper the pace of recovery.

Currency Strength and Domestic Weakness as Key Drivers

According to the IMF, the persistent strength of the Korean won against major currencies has hurt export competitiveness while making Korean goods relatively more expensive abroad. Additionally, sluggish domestic demand recovery—exacerbated by recent political instability—has further weakened growth fundamentals.

The interaction between these factors suggests a mutually reinforcing effect: political uncertainties dampen investment and consumer confidence, while currency misalignments undermine external sector support, collectively constraining overall GDP growth. In this context, the delay in reaching the $40,000 mark is not merely coincidental but rooted in a chain of interconnected vulnerabilities.

Long-Term Projections Still Show Moderate Optimism

Despite short-term setbacks, the IMF maintains a moderately positive long-term outlook. Projections anticipate GDP per capita climbing to $35,880 in 2026, $37,367 in 2027, $38,850 in 2028, and finally $43,411 in 2029.

This forecast suggests that while the economic engine has temporarily lost steam, structural strengths such as industrial capacity, technological leadership, and robust institutional frameworks may eventually drive a rebound. However, achieving these figures depends critically on restoring political stability, invigorating domestic consumption, and maintaining favorable external conditions—none of which are guaranteed in the current global climate.

South Korea's path to surpassing $40,000 GDP per capita has been delayed by two years, with the IMF now forecasting the milestone for 2029 instead of 2027. Weak economic growth, a strong domestic currency, political turmoil, and sluggish internal demand have all contributed to this adjustment. While long-term projections still offer hope for eventual income growth, the immediate outlook remains cautious, requiring significant policy focus on economic revitalization and risk mitigation to sustain upward momentum.