Tag: USA

U.S. Investment Surges into European AI – A Swiss Perspective

Since pulling back during 2023’s tech downturn, U.S. investors are once again muscling into deal flows in Europe – and AI is the magnet. Data released by PitchBook* shows the U.S. share of deal making in Europe is once again climbing, and the standout category which is pulling American investors back into the market is AI. Experts suggest that from a global perspective, the capital base is there as U.S. private investment in AI in 2024 was circa USD 109 Billion with ample dry powder** to deploy into the European markets when the time is right.

*PitchBook – Is the premier resource for comprehensive, best-in-class data and insights on the global capital markets.

**Dry Powder – This refers to unallocated cash reserves or highly liquid assets held by investment firms, venture capital funds, hedge funds, and private individuals which in this case is ready to be deployed for investment purposes.

A Brief Overview

From a Swiss vantage point there are three forces which are converging and the first is a dense research-to- start-up pipeline anchored by ETH Zurich and EPFL.

ETH Zurich is a public research university and is widely regarded as a leading institution known for its strong focus on science and technology, significant research contributions, and prestigious academic standings.

Based in Lausanne, EPFL is Europe’s most cosmopolitan university and it welcomes students, professors, and collaborators from more than 120 different countries. EPFL has both Swiss and international vocation and focuses/specialises on three different missions being teaching, research, and innovation.

The second force is regulatory clarity via the EU AI Act, with Switzerland chartering a lighter sector-based path.

The third force is Switzerland’s world-class infrastructure and their electricity reliability which makes the country (and its neighbours) a first-class destination to build and run AI.

Why Switzerland Hits the Sweet Spot

Talent and Spin-Out Velocity

ETH Zurich’s AI ecosystem is a massive magnet to investors as in 2024 ETH spinoffs raised CHF 425 Million across 42 rounds, a ten year ten times increase and a powerful sign that even in choppy markets the pipeline to start-ups is in a healthy state. Indeed, the ETH A1 centre’s network of affiliated start-ups spans applied robotics, industrial AI, and model reliability which according to experts is exactly where corporates from the United States are looking to invest their capital.

Regulatory Readability

As opposed to the EU’S (European Union) horizontal* AI Act**, Switzerland’s Federal Council chose a more sector-specific approach, integrating AI duties into existing laws whilst planning to implement the Council of Europe’s AI convention. This they felt would be more beneficial, rather than passing a sweeping one size fits all AI law, which for founders and investors reduces the legislative shock whilst still tracking the usual international norms on safety and rights. It should be noted that the EU AI Act is highly relevant to Swiss companies who are selling into the Eurozone/single market, as for example obligations for general purpose AI (GPAI)*** and the EU is ensuring that timelines do not slip. All in all, the dexterity and agility of the Swiss together with the EU-grade clarity on market entry makes investment decisions by U.S. investors much easier.

*Horizontal in Law – This refers to the ability of legal requirements meant to apply only to public bodies to affect private rights. It arises where a court dealing with a legal dispute between two private entities interprets a legal provision to be consistent with certain legal norms in such a way as to affect the legal rights and obligations of the parties before it.

**EU AI Act – On 12th July 2025 this Act was published in the Official Journal of the European Union and entered into Law and became binding on 1st August 2025. This Act refers to the European Union’s Artificial Intelligence, a comprehensive regulation aimed at governing the development and use of artificial intelligence systems within the EU. It is the first major AI regulation of its kind, and focuses on risk assessment, and categorisation of AI systems to ensure safety and ethical development.

***GPAI – This refers to all General-Purpose AI models as defined within the EU AI Act. These are powerful AI models trained on broad datasets****, capable of performing a wide range of tasks, and potentially integrated into various downstream AI systems. The EU AI Act places significant obligations on providers of these models, especially those with systemic risks.

****Datasets – This is a structured collection of data used to train and test artificial intelligence models. These datasets provide the raw materials for AI algorithms to learn patterns, make predictions, and perform tasks and can, simply put, be viewed as a textbook from which AI models can learn.

Infrastructure Gravity

The Alps supercomputer at the CSCS (Swiss National Supercomputing Centre) is a critical component offering significant processing power for AI applications and is a key part of the AI initiative at positioning Switzerland as a leading hub for trustworthy AI development. Overall, the build-out of AI in Europe is accelerating fast with San Francisco’s Open AI Inc launching their Stargate Norway, the first AI data centre initiative in Europe. Whilst this build does not situate itself in Switzerland, its proximity and any grid stability across the region changes the equation as to where to build AI-heavy companies and experts suggest that Switzerland is primed as a European hub that U.S. investors will back for “near-compute*” opportunities.

*Near-Compute – This refers to the concept of placing processing units (like CPU’s – central processing unit or GPU’s – graphic processing unit) closer to memory or even within the memory itself, rather than relying solely on traditional computing architectures. This approach aims to minimize data movement between memory and processing units which can significantly reduce latency and energy consumption.

Switzerland has enjoyed a number of AI deals such as Meteomatics in St Gallen, a USD 22 Million to scale high-resolution AI-enhanced weather models and drone systems selling into the automotive, aviation, and energy sectors. Another success is Daedalean the Zurich avionics-AI pioneer has just entered into (subject to closing a USD 200 Million acquisition by Destinus a big player in the European aerospace sector, who pioneer autonomous flight systems. Other successes included Zurich’s LatticeFlow, an AI governance and reliability model and ANYbotics which operates in the robotic sector and industrial AI.

Conclusion

Whilst Switzerland’s overall start-up funding cooled in 2024 (down CHF 2.3 Billion which is -15% Y-O-Y), interestingly AI rounds doubled accounting for 22% of all rounds, and is uniquely placed due to infrastructure, power/electricity, the ability to build AI with EU-Act readiness, the ability to stand next to compute, and the ability to use the country’s events and clusters as magnets for U.S and global investment. The macro capital tide is unmistakable with generative AI venture capital setting a new pace in Q1 and Q2 in 2025, and Switzerland sits first and third in Europe and globally respectively for Deep Tech venture capital funding per capita, which, according to experts indicates a strong international interest in the country’s AI ecosystem.

Furthermore, Microsoft has made substantial investments in Switzerland’s AI and cloud infrastructure including a USD 400 Million investment (announced in June of this year) to expand its datacentres near Zurich and Geneva which will meet growing demand for AI services whilst keeping data within the country’s borders. As mentioned before, the companies from the United States are taking bigger and bigger slices of the European AI action, and Switzerland will, according to experts, massively benefit because it pairs deep technical IP and enterprise-friendly regulation with direct access to the Eurozone’s markets.

Trump Hits Switzerland with 39% Tariffs

The highlight of Switzerland’s summer calendar is the national holiday (Switzerland’s birthday), which fell last Friday, 1st of August, but all of Switzerland, including the government, woke up to the headlines that President Donald Trump had hit the country with punitive tariffs of 39%. The tariffs cover all Swiss imports to the United States and in 2024, according to data released by the United Nations COMTRADE data base totalled USD 72.88 Billion, leaving America with a trade deficit of USD 38 Billion, (though other figures suggest it’s as high as USD 47.4 Billion,) the 13th largest of any nation with the USA. This has obviously caught the eye of President Trump who has made it clear that he wishes to eradicate trade imbalances with all of America’s trading partners.

This has come as a huge shock for both the politicians and the business elite as only a few weeks ago the government was exuding confidence regarding its tariff negotiations with the United States. Indeed, back in May, Switzerland hosted the United States and China in the hope of preventing a trade war which gave Switzerland’s President Karin Keller-Suter the opportunity to meet with Scott Bessent, the United States Trade Secretary. It appeared that the meeting was successful having been told that Switzerland was second in the queue after Great Britain to strike a trade deal with the U.S. at potentially a 10% tariff, much lower than the 31% as unveiled by President Trump back in April’s “liberation day”.

Therefore, the 39% has come at a complete shock and politicians are divided as to the negotiation tactics, with some saying the government were too obsequious, and others saying they were too tough, while many just said the negotiation tactics were not up to scratch. However, the trade deficit according to officials is the sticking point, and basically the Swiss sell more to the U.S. than it buys, and the population of just 9 million quite frankly just do not like U.S. goods such as their cheese, chocolates, and cars. However, the Swiss have tried to compensate for the trade deficit by reducing their own tariffs on imported U.S. industrial goods to zero, and many of the Swiss companies have multibillion dollar investments in U.S. plants. Data suggests that Swiss investment in the U.S has created circa 400,000 jobs, furthermore Trump has ignored service industries which would bring the deficit down to USD 22 Billion, but sadly President Trump is just fixated on trade imbalances.

Analysts point to one problem which is where on earth did the 39% come from, which makes it appear that President Trump is just arbitrarily picking out numbers from thin air. There appears to be little wiggle room in negotiations, but Switzerland could import LNG (Liquified Natural Gas) from the U.S. plus they can also point out they are committed to investments in the United States totalling USD 105 Billion. In Q1 two thirds of the trade deficit was due to shipments of gold bullion, this was due to the price of gold not due to any added value by the Swiss refineries. Experts point out that gold is not manufactured in Switzerland but reprocessed into bars and one offer to Trump could be a one off tariff of 50% on gold.

This Thursday, 7th August is deadline day for tariffs and experts point out that the Swiss government will be moving heaven and earth to get an extension. Indeed, officials from the Swiss State Secretariat for Economic affairs have already contacted their counterparts in the United States to try and negotiate a way forward, plus the President of Switzerland herself is flying to Washington (without an invitation) to meet face-to-face with Trump in the hope of avoiding the increase in tariffs. Trump is known for flip flopping at the last minute so the President of Switzerland can only hope they can extend the current deadline and get a reprieve, otherwise the damage to their economy could be quite serious. Experts point out that the key to the current tariff impasse would be that instead of dealing with Trump’s negotiators is instead to win over the man himself.

For Switzerland’s export-driven economy, the impact could be significant. Key industries—including luxury watchmaking, pharmaceuticals, and precision engineering—depend heavily on access to the U.S. market. Higher tariffs risk eroding profit margins, raising prices for American consumers, and prompting Swiss firms to reassess their U.S. expansion plans. Politically, the move is a shock to a nation that prides itself on neutrality and stable bilateral relations. It signals that even close, low-conflict partners are not immune from politically motivated trade actions.

The tariffs also complicate Switzerland’s position within the EU-Swiss economic framework, as Brussels weighs its own responses to Trump’s trade policy. In the short term, Swiss exporters may absorb some costs to maintain market share, but over time, the pressure could accelerate efforts to diversify export destinations and invest in U.S.-based production—ironically, one of Trump’s intended outcomes.

Overview of the New Trade Agreement Between the European Union and the United States

On Sunday 27th July, and after weeks of tense behind the scenes negotiations, the President of the European Union, Ursula von de Leyen, shook hands with United States President, Donald Trump, concluding a trade pact a week before the upcoming deadline as set by the White House. The trade deal was announced by the two leaders at Donald Trump’s golf course, Turnberry, located in Ayrshire, West Scotland. Those close to the negotiations said the “framework deal” was finally stuck, and ultimately it took a face-to-face meeting between the two leaders to reach an agreement. However, a number of EU member countries have already voiced their disapproval and in some cases outright hostility to the agreement.

The White House administration has lauded the agreement as a big win for Donald Trump, advising that based on last year’s trade figures the US governments will be better off by circa USD 90 Billion. Furthermore, included in the agreement is the EU’s promise to purchase arms and energy products from the United States which analysts estimate to be in the region of hundreds of billions of US Dollars. Elsewhere, carmakers in the EU will only face a 15% surcharge on imports into America, whereas the global tariff introduced in April is 25%. Indeed, the Eurozone agreement to a 15% tariff on most exports (steel will remain at 50%) to the United States has prevented a trade war which would have probably dealt a hammer blow to the global economy.

Not all European leaders were happy with the agreement with initial words coming from Benjamin Haddad, France’s Junior Minister for Foreign Affairs, who called the agreement “unbalanced”, Hanneke Boerma, the Dutch Minister for Foreign Trade, said the deal was “not ideal” and urged further negotiations with the United States, and the French Prime Minister Francois Bayou said it was “tantamount to a submission”. On Wednesday 30th July France’s President, Emmanuel Macron, said the deal is “not the end of it”. He went on to say that “the European Union had not been feared enough in negotiations with the United States towards a trade deal”, pledging to be firm in follow-up talks. Meanwhile, Friedrich Merz, the German Chancellor, said the agreement would “substantially damage the nation’s finances”, France’s far right leader, Marine Le Pen, said the agreement was a “political, economic and moral fiasco”, whilst the Hungarian leader, Viktor Orban, announced that “Trump had eaten von de Leyen for breakfast”.

A number of experts have already said that this is a bad deal for the European Union. In fact, when Great Britain announced a 10% tariff agreement with the United States, the statement that came out of Brussels was “we will never accept such humiliating terms”. Analysts now suggest that the hit to the EU’s economy would be 0.4 percentage points by the end of 2026 and the average tariffs on imports from the Union are set to rise from 1.5% (when Trump was elected) to circa 16%. Meanwhile, experts are suggesting that the EU is now a pushover and will have a weakened hand in future negotiations, and recently the Sino/EU trade negotiations came to nought partly as in part the Chinese would not make any concessions to a European Union that lacks leverage.

However, von der Leyen said the deal avoided the near-term catastrophe of an all-out trade war and had nullified any near-term uncertainty. Sadly, some experts and economists have said there is a perception that the European Union cannot defend their own interests which will undermine their position as a key geopolitical player which is the key to their wish for the Euro to play a bigger global role. Indeed, the president of the European Central Bank, Christine Lagarde, recently advocated a greater international role for the Euro, specifically its active function as an international reserve currency. Experts suggest that since the US/EU trade agreement such words may well fall on deaf ears. The US/EU trade agreement is not a done deal, just look at all the negative comments and outright hostility being shown by some member countries towards this agreement, and it suggests some very choppy seas are just around the corner.

The Federal Reserve Keeps Interest Rates on Hold

On Wednesday, 30th July and for the fifth straight time, the Federal Reserve’s FOMC (Federal Open Market Committee) kept interest rates steady at 4.25% – 4.50%. The committee voted 9 – 2 to keep interest rates on hold with the two dissenting voices belonging to Governor Christopher Waller and Governor Michelle Bowman. Both governors are appointees of President Donald Trump and experts point out that such dissension from political appointees has not occurred for over 30 years which is a sign of both political pressure and economic uncertainty being felt by the Federal Reserve. Chairman Powell indicated he was not concerned with the dissenting voices but he did say “On the dissents, what you want from everybody and also from a dissenter is a clear explanation of what you are thinking and what arguments you are making”. 

Officials from the Federal Reserve downgraded their view of the economy saying “recent indicators suggest that growth of economic activity moderated in the first half of the year” as opposed to previous statements where growth was characterised as expanding at a solid pace. Interestingly, analysts have pointed out that today’s interest rate decisions were made without key data, and the Chairman of the Federal Reserve Powell has pointed out that decisions are currently data driven. This key data is the Commerce Department’s Personal Income and Outlays report, (due out 31st July), which provides essential data on household spending and income, and the Personal Consumption Expenditures price index which is the Federal Reserves favoured inflation gauge.  

Following the FOMC meeting, Chairman Powell said the central bank has confidence in the economy of the United States and that it is strong enough to hold interest rates steady as it determines how the tariff policy of President Trump ultimately plays out and their effect on the economy. He went on to say “Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen. A reasonable base case is that the effects on inflation could be short lived, reflecting a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent and that is a risk to be assessed and managed”.  

Despite political pressure and personal insults from President Trump to Chairman Jerome Powell the Federal Reserve held interest rates steady. Despite many experts predicting a rate cut at the next meeting of the FOMC (16th – 17th September), the financial markets pared back bets expectations for a rate cut, whilst interest rate futures indicated a 50/50 chance of a rate cut in September down from 60%. Data released showed that GDP had increased on an annualised basis by 3% in Q2 after Q1 showed a shrinking of 0.5%, experts put the swing down to companies front-loading of imports to avoid tariffs. Consumer spending advanced at its slowest pace over Q1 and Q2 since the pandemic.  

Chairman Powell has made it clear that there is still room to hold rates, something that will no doubt send President Trump into a fit of rage. Data released since the FOMC’s last meeting on 17th – 18th June has given officials little reason to shift from their “wait and see” policy stance, which has been in effect since Donald Trump’s elevation to the White House. Whilst there will be a cornucopia of data between now and the September meeting of the FOMC, experts point out that the Jackson Hole Economic Symposium (in Kansas City) is being held between 21st – 23rd August. The Federal Reserve Bank of Kansas City hosts central bankers, policymakers, academics and economists from around the world, and Chairman Powell has been known to indicate forthcoming policy shifts, so perhaps financial markets and President Trump will get a peek into future Federal Reserve policy. 

Major Banks Have Ditched the Net Zero Banking Alliance

The NZBA (Net Zero Banking Alliance) was convened in April 2021 by the UN (United Nations) Environment Programme finance initiative and led by banks whose mission statement was to support efforts to align lending, investment, and capital market activities with achieving net-zero greenhouse gas emissions by 2050. Founding luminaries of the banking world were Citigroup, Bank of America, HSBC Group, and NatWest Group and 39 other leading global financial institutions.

However, the NZBA is under pressure, as back in January this year a number of U.S. banks left the group and most recently HSBC Group has followed suit. The general feeling is that the American banks resigned from the NZBA* as they were under pressure from the then President Elect Donald Trump as he was pushing for higher production of oil and gas thus spurring a backlash against the Net Zero climate bodies. A number of pro net-zero activists have accused the banks of pandering to the political pendulum, and their current efforts are to avoid criticism from the then in-coming Trump administration.

*American Banks No Longer with the NZBA – Citigroup, Bank of America, Morgan Stanley, Wells Fargo, Goldman Sachs, and JP Morgan all resigned before 1st December 2024.

Earlier this month, HSBC was the first British Bank to leave the NZBA, with the move perhaps a potential trigger for other British banks to follow suit. At the launch of the NZBA, the then CEO of HSBC Group Noel Quinn said it was “Vital to establish a robust and transparent framework for monitoring progress towards net-zero carbon emissions. We want to set that standard for the banking industry. Industry – wide collaboration is essential in achieving that goal”. Interestingly, HSBC’s new CEO, George Elhedery, confirmed back in late October 2024 that their Chief Sustainability officer Celine Herweijer had been removed from the bank’s top internal decision-making process, the “executive committee”. She subsequently resigned from HSBC shortly after being dropped from the executive committee.

Some experts have voiced little surprise that HSBC has resigned from the NZBA, citing not only have the top 6 US banks resigned but removing Celine Herweijer from her post on the executive committee may suggest that HSBC was taking a different path regarding climate control. CEO George Elhedery was quick to point out it was all part of a restructuring process and reaffirmed HSBC’s commitment to supporting net-zero. In January 2024, HSBC unveiled its first “net-zero transition plan” detailing its strategies to achieve its climate targets by 2050 (downgraded from 2030) plus its investment decisions it aims to undertake to facilitate decarbonisation across various sectors of finance. A number of senior voices in the net-zero world took issue with HSBC accusing the bank of profits at any cost.

Following their net-zero transition plan, the new Chief Sustainability Officer (not on the new Operating Committee) Julian Wentzel said back in February of this year that the bank would take a “more measured approach” to lending to the fossil fuel industry, giving way to concerns to the net-zero world that the bank would row back on its promises.

On HSBC’s website, it is written that targets for cutting emissions linked to their loan book “would continue to be informed by the latest scientific evidence and credible industry-specific pathways, which again bank detractors say is bank-speak for rowing back on its promises. Meanwhile in America, Republican politicians have instructed some banks to testify before the relevant policymakers who have accused them of unfairly penalising fossil fuel producers with their memberships of the NZBA and other similar groups. Experts point to the obvious political pressure put on banks to leave these organisations.

Elsewhere in the net-zero world and almost a decade on from the Paris Climate Agreement (under Trump the USA has withdrawn for the second time) the world’s largest companies who despite on-going promises and climate manifestos are still struggling to meet net-zero goals. A study produced by a well-known body suggests that only 16% of companies are actually on target to meet their 2050 net-zero goals and a well-respected senior voice in the climate control industry has said “to reach 2050 net-zero goals all of us need to move faster, together, to reinvent sustainable value chains using deep collaboration and transformative technologies”.

According to recently released data, global financing of fossil fuel companies has increased in 2024 (an increase of USD 162 Billion to USD 869 Billion) for the first time since 2021 with banks who have left the NZBA among the biggest funders. So where does this leave the NZBA in its efforts to get banks to increase financing for green projects? Obviously, the organisation is sad it has lost the previously mentioned banks but they still today have over 120 members and currently represents about 41% of banking assets.

Whilst some members have increased their fossil fuel financing some have made cuts to their financing with Santander making the largest single reduction in expansion finance (USD 2.2 Billion) and ING came top in terms of overall divestment slashing its annual fossil fuel financing by USD 3.2 Billion compared with their figure for 2023. Experts in the net-zero world say the NZBA is here to stay with many large banks still on the membership roll. Indeed, on April 15th this year in Geneva membership voted overwhelmingly in favour of backing plans to strengthen the support it provides to its members, marking a new phase for the Alliance’s work which is in line with the goals of the Paris Agreement.

Is the Russian Banking System Close to a Systemic Crisis?

Experts in the Russian banking arena, plus a number of Russian banking officials themselves, have advised that the banking system in Russia is close to a systemic* crisis. A number of officials within the Russian banking community have advised that bad debt on Russian banks’ balance sheets is in the trillions of rubles. Although official figures may mask the extent of the problem, an increasing number of retail and corporate clients are either deferring or defaulting on interest and principal loan repayments.

*Systemic Banking Crisis – this occurs when a significant number of banks within a country experience severe financial distress simultaneously, potentially jeopardising the entire financial system.

A timeline for this crisis of around 12 months is currently being bounced around by economists, experts, and Russian banking analysts. A number of officials have cited the alarm felt by banks over the non-payment of loan interest, as well as the non-repayment of loan principals. Many experts feel that the corporate and retail sectors within the Russian economy are struggling with high interest rates, with the key benchmark interest rate currently sitting at 20%. If circumstances fail to improve, a debt crisis may well spread through the whole banking community.

Experts contend that Russia’s two-tier economy is impacting the private sector as businesses have to contend with rising costs, slower demand, and decreasing prices for exports. On the other hand, huge benefits have been realised by massive state spending on Russia’s war machine and military industrial complexes. What is not well documented is the favourable loans that banks granted to help fund the war effort, and experts are hearing that there is more pressure on Russian banks as they seek repayments for these loans.

Headquartered in Moscow, ACRA is Russia’s rating agency which, in May of this year, warned of a “deterioration in the quality of loan debt”. They also went on to report that 20% of the entire Russian banking capital is tied up with borrowers whose creditworthiness is under severe scrutiny and may be downgraded due mainly to high interest rates. Furthermore, the military war machine’s appetite for more labour has severely impacted this market, resulting in massive labour shortages. At the same time, this has boosted the earnings of those in work, causing inflation to a peak at 10%.

At the recent St Petersburg International Economic Forum, the Russian Economy Minister said, “We are on the verge of slipping into recession”. However, in a speech the following day, President Putin said, “Some specialists, experts, point to the risks of stagflation and even recession. This, of course, should not be allowed under any circumstances”. A number of political experts read this statement as Putin essentially saying this has nothing to do with me, it is officials who need to put this right. However, Russia is in the middle of a credit crunch, with data showing that Russian banks’ corporate loan portfolio is set to decrease by Rubles 1.5 Trillion (USD 19 Billion) in Q1 of 2025.

In mitigation of the credit crunch, and for the first time in three years, the Central Bank cut its benchmark interest rate to 20%, with many experts and analysts saying that the rate is still far too high. However, earlier this month the Kremlin-linked CMASF (Centre for Macroeconomic Analysis and Short-Term Forecasting) said there is an increased likelihood of a run on Russian banks. The CMASF also went on to say that the MOEX (Russian Stock Market) is a good indicator of heightened economic uncertainty, and it experienced a sharp drop after new sanctions threats by President Trump and his taunt that Putin is crazy.

On the sanctions front, President Trump has so far held off on his threats as it appears he really does not want to go to war with Putin – especially through the non-military option of sanctions. However, the European Union is already in discussions about further sanctions on the Russian banking sector, which could negatively impact the sustainability of Putin’s war on Ukraine. However, without further sanctions, the current Russian economy definitely has a negative outlook and, with rising inflation, labour shortages, and declining growth, could severely hamper Putin’s ability to sustain the current war with Ukraine. However, if there is a full-blown banking crisis – all bets are off, and who knows what the Kremlin might do to sustain not only the current war, but the status quo with the Russian population.

United States and China Trading Update

Without a doubt, President Trump’s tariff war has severely disrupted trade between the two economic powerhouses, and nowhere else is this as dramatically highlighted as Apple’s iPhone and mobile devices, where shipments to the United States in April 2025 are down to levels not seen since 2011. Customs data revealed that Smartphone exports slid 72% or circa USD 700 Million in April, outpacing by a long way an overall drop in Chinese shipments to the U.S. of 21%.

Elsewhere in early May 2025, the busiest container hub in the United States, the Port of Los Angeles, saw a drop in shipments by circa 30% as the weight of Trump’s tariffs took their toll. Data released shows that retailers and importers were the most affected, especially those linked to China. Bilateral trade in 2024 between China and the U.S. was circa USD 690 Billion and investors feel that tariffs will significantly erode this figure.

Despite the temporary reprieve in tariffs between the two nations, data reveals that the trade war has left a deep unwelcome imprint on Chinese exporters with many looking to new markets away from the United States. Well known in the trade insurance arena, Allianz Trade having conducted a poll of Chinese exporters found 95% will or already are more determined than ever to double down on exporting their goods to non-U.S. markets.

China’s coastal city of Ningbo is host to China’s second largest port (Ningbo-Zhoushan Port) by cargo tonnage where local businesses, despite the de-escalation in tariffs still plan to reduce exports to the United States and “Go Global’. Senior experts and economists at the Economic Intelligence Unit confirmed this fact whilst also confirming Southeast Asia* remained the favoured destination among many businesses seeking to move production away from China.

*Southeast Asia – comprises eleven countries Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Timor-Leste, and Vietnam. Note that many Chinese companies are somewhat wary of Vietnam with concerns over rising cost weighed against an attractive labour market. Indonesia appears to be the favoured destination.

Experts in the Sino – U.S. arena suggest that decoupling in the medium term seems to be the favoured outcome as Chinese exporters move away from the United States and American companies look to increase efforts to move production out of China with Apple already accelerating a shift in production to India. Apple was railed against by President Trump for not moving production back to the United States, experts close to the situation have said that scenario is unfeasible. The deal struck in Geneva between China and the United States brought tariff rates down to levels before the tit-for-tat tariff skirmish. But with time eating into the 90-day de-escalation agreement, the world will hold their breath whilst these two economic giants try and come to a sensible agreement.

Moody’s Downgrades the United States’ Sovereign Credit Rating

On Friday May 16th, 2025, the credit rating agency Moody’s downgraded the Unites States’ sovereign credit rating from Aaa (equivalent to AAA at Standard & Poor’s and Fitch) by one notch to Aa1 due to growing concerns over the nation’s USD 36 Trillion debt pile. Moody’s is the last of the three most important and recognisable rating agencies to downgrade the sovereign credit rating of the United States, with Fitch downgrading in 2023 and Standard and Poor’s downgrading in 2011. The United States has held a perfect credit rating from Moody’s since 1917, however the rating agency back in November when 2023 advised it might lower the U.S. credit rating when it changed its outlook from stable to negative.

The reaction from the White House was predictable, with spokesman Kush Desai saying, “If Moody’s had any credibility, they would not have stayed silent as the fiscal disaster of the past four years unfolded.” In another statement the White House advised that the administration was focused on fixing Biden’s mess. The White House communications director Steven Cheung also laid into Moody’s singling out their chief, Mark Zandi, who he said was a political opponent of President Trump, and is a Clinton donor and advisor to Obama. He went on to say, “nobody takes his analysis seriously and he has been proven wrong time and time again”.

Moody’s pointed out that in 2024, the government spending was higher than receipts by circa USD 1.8 Trillion, being the fifth year in a row where fiscal deficits have been above USD 1 Trillion. Debt interest has been growing year on year and eating into sizeable chunks of government revenue, with Moody’s pointing out that federal interest payments in 2021 absorbed 9% of revenue in 2021, 18% in 2024, and predict circa 30% by 2035. The GAO (Government Accountability Office), which is seen as an investigation arm of Congress has called the current situation unsustainable and went on to say that unless there is a change of policy debt held by the public will be double the size of the national economy by 2047.

After the announcement on Friday 16th, markets were unnerved on the following Monday morning, with stock markets recovering by the end of the day with experts confirming that markets had shrugged off the news, but some were advising that investors should be wary of complacency. However, some analysts advise the downgrade is a warning sign and may be the catalyst for profit taking after a huge run in the past month for equities. At the end of the day, United States Treasury Bonds are currently viewed by global investors as the safest investment in the world, and a downgrade by Moody’s is unlikely to stifle appetite for treasuries.

For most money managers and other global investors and market participants experts advise that the downgrade was probably seen coming for some time and lands in a market already wary of risks from tariffs and fiscal dysfunction. However, currently President Trump is pushing the Republican controlled Congress to pass a bill extending the 2017 tax cuts, a move some analysts predict will add many trillions to an already highly inflated government debt. However, hardline Republicans blocked the bill denuding deeper spending cuts. There was volatility in US Treasuries on Monday after the Moody’s announcement with 30-year treasuries breaking through the symbolic barrier of 5% (first time since October 2023) but slipped back to 4.937% by close of business. Experts suggest that the bond market had already priced in risk premium for government economic policy already in disarray, meaning Monday’s upward move in yields was just a knee-jerk reaction.

United States and China Agree 90-Day Trade Deal

On Monday 11th May 2025, both China and the United States agreed to de-escalate their trade war with each other by announcing a 90-day pause on tariffs. The United States agreed to cut tariffs on Chinese goods from 145% to 30% and China agreed to cut tariffs on American goods from 125% to 10%. After the agreement was announced in Geneva, the U.S. Treasury Secretary said, “neither side wanted a decoupling and we do want trade, we want more balanced trade, and I think that both sides are committed to achieving that”. In a joint statement it was announced it had been agreed “to establish a mechanism to continue discussions about economic and trade relations. These discussions may be conducted alternately in China and the United States or a third country upon agreement of the Parties”.

A spokesperson for the Chinese Commerce Ministry said of the joint statement, “it is an important step by both sides to resolve differences through equal-footing dialogue and consultation, laying the groundwork and creating conditions for further bridging gaps and deepening cooperation”. This is a surprising outcome and took markets by surprise as before the Chinese had taken a hard-nosed stance demanding that the United States remove ALL tariffs on China before agreeing to come to the negotiating table. However, several analysts have pointed to the fact that this is just a 90-day ceasefire and pointed out this may not be a lasting peace between the two countries.

Global stock markets rallied on news of the China/United States trade agreement, with the S&P 500 and Nasdaq futures rising 2.7% and 3.7% respectively, plus the US Dollar rose 1% against a basket of currencies. Elsewhere, gold retreated by 2.8% as investors negatively impacted safe haven assets and Brent crude oil futures gained 2.8% rising to $65.71pb. In Europe, both France’s CAC 40 and Germany’s DAX both up just under 1%, Europe’s STOXX 60 and STOXX 600 rose 1.9% and 1% respectively and London’s FTSE 100 only rose by circa 0.50%. In Asia, both China and Hong Kong’s benchmark indices rose, with China’s CSI 300 rising 0.6% and Hong Kong’s Hang Seng index rising 0.8%.

Sadly, there are no guarantees that come 90 days, talks will have progressed further with further positive steps being announced between the two countries. Experts advise that many investors remain wary of the United States due to the flip flop policies of the Trump2 administration, plus President Donald Trump’s continued attacks on the Chairman of the Federal Reserve, Jerome Powell. Analysts advise that some institutions are acting like the risks have disappeared. If this is true, they must have been asleep since inauguration day, as many of their peers seem to be adopting a wait and see attitude. Analysts advise that in the past four weeks investors pulled $24.8 billion from U.S. stocks and with huge U.S. conglomerates such as Mattel Inc, United Parcel Service Inc and the Ford Motor Co recently withdrawing earnings guidance due to supply chain and tariff uncertainty being now extremely hard to navigate, there may be more unwanted surprises around the corner.

Donald Trump Tariffs Pushes India and Great Britain into a Landmark Trade Agreement

In the days since President Trump announced he would be hitting all imports into the United States, countries around the world have been talking with each other regarding free trade deals. As a result of the fallout over Trump’s tariffs, India and Great Britain yesterday sealed a historic multi-billion-pound trade deal. The trade deal will significantly slash Indian tariffs on key products such as medical devices, whisky and cosmetics and will lock in reductions on 90% of tariff lines on UK exports to India, with 85% of these exports becoming fully tariff-free within 10 years.

Prime Minister Keir Starmer announced that this is the United Kingdom’s biggest agreement since Brexit, whilst his counterpart Prime Minister Narendra Modi said this is the first deal of its kind with a European economy. This agreement is the culmination of three years of talks under four British prime ministers and was certainly helped over the line by President Trump and his protectionist policies. Experts advise that the two prime ministers are both seeking to to build barriers or insulate them against the Trump tariffs, whilst at the same time looking for favourable deals with the United States.

Experts suggest that this agreement between India and the UK has huge potential for the future, especially in the alcohol sector where, for example, data released shows both Diageo and Pernod enjoy 12% of their revenue from India. The trade deal agreement shows that tariffs on whisky and gin will be reduced by 50% to 75% before being reduced to 40% by the 10th year, whilst in the automotive sector, tariffs will be reduced to 10% – under quota – from 100% over that period. Interestingly, part of the deal exempts Indian nationals working for less than three years in the UK from insurance payments.

Members of the main opposition conservative party immediately jumped on the national insurance agreement, saying the Prime Minister once again has put British workers last, having hiked national insurance payments on them whilst exempting Indian nationals. One member of the conservative party was heard to say, “Every time Labour negotiates, Britain loses”. Labour countered by saying that the tax break goes both ways and there would be no double taxation on Britons temporarily working in India, adding that this was just an extension of current agreements already in place with other countries.

India on the other hand, according to individuals close to the negotiations, has won reductions on circa 99% of tariff lines for goods exported to the United Kingdom. India according to the same individuals has also secured an agreement for access to services including Information Technology and have also secured recourse against those exports impacted by Europe’s carbon emission rules. Both India and the UK still have to iron out legalities before the agreement can be ratified through domestic ratification processes. Experts suggest the trade pact will take up to 12 months for the deal to come into effect.

According to analysts, the India/UK trade deal should in the long run increase bilateral trade by £25.5 Billion, UK GDP by £4.8 Billion and wages by £2.2 Billion. Furthermore, businesses in the United Kingdom will be able to enjoy a competitive edge over their international competition when entering the Indian market which is forecasted to be the world’s third largest by 2028. Analysts also suggest that, based on figures from 2022, India will be cutting tariffs by £400 Million when the deal comes into force which after 10 years will more than double to circa £900 Million. Whilst this is good news all round for importers and exporters alike, the reality is that the United Kingdom has to secure a decent trade deal with Donald Trump and if not, they will have to secure a similar pact with the EU (European Union) and other countries. However, the spectre of tariffs may push countries into trade deals that before they would not have contemplated.