GLOBAL TRADE
The Supreme Court is next scheduled to sit this Friday, February 20, with additional opinion days scheduled for February 24 and 25. The IEEPA case is one of 12 argued in October or November that haven’t yet been publicly decided.
In the interim, all eyes were on the Munich Security Conference this weekend. Secretary of State Marco Rubio addressed the conference yesterday, a speech that was generally received more favorably than that of Vice President JD Vance last year. The Vance speech was characterized as putting Europe on notice, accusing the EU of pursuing a self-destructive political agenda that had promoted censorship, increased energy prices, and made the West less safe.
Secretary Rubio’s speech, on the other hand, focused on the shared history between the U.S. and Europe, imploring Europeans to join the U.S. in shaping the next century. Among Rubio’s most prescient points (paraphrased here):
- The European continent was divided against itself when the Munich Security Conference held its inaugural meeting in 1963. Soviet communism was on the march. Unified by a common purpose, Europe and America prevailed and a civilization was made whole again.
- The euphoria of this triumph led to the delusion that a rules-based global order would replace the national interest. This was a foolish idea that ignored history and cost the West dearly. Dogmatic free and unfettered trade was promoted while many of America’s trading partners remained closed. The West outsourced its sovereignty. To appease a “climate cult,” the West imposed policies that made its least worse off. Combined with an embrace of mass migration, the West has collectively threatened the future of our people.
- Western civilization must face our mistakes and rebuild. The U.S. will take on the task of renewal and restoration. It is our hope to do this together with friends in Europe. The two belong together. One civilization-Western civilization. Yes, the U.S. is direct but that is because the challenge is urgent. Americans care deeply about Europe’s future and our own. We are connected spiritually. The U.S. destiny is-and will always be-intertwined with Europe’s.
- The fundamental question is what are we defending? The answer is we are defending a great civilization. Only if we are unapologetic of our culture can we move forward together to re-industrialize and stop the mass migration crisis. Together, we must focus on our mutual interests. We must take back control of our critical supply chains and national borders. We can no longer place the global order above our own people-these institutions (e.g., United Nations) must be reformed and rebuilt. We do not live in a perfect world.
- This is the path that President Donald Trump and the United States have embarked upon and that we are asking you to join. Decline in the face of communism was a choice and our predecessors refused to make it. No adversary will be allowed to test our will and strength. This is why we want our allies to join us. We have no interest in being polite and orderly caretakers of the West’s decline.
- What has ailed our societies is not just bad policy but a malaise of hopelessness. We want an alliance that is bold to define the future. Above all, an alliance that recognizes that what the West has inherited is unique. Acting together, we will restore a clear sense of ourselves and rebuke those forces that menace. Let it be known that the end of the transatlantic relationship is vastly overstated.
- 250 years later, our histories and our fates remain linked. We have bled and died side by side. America is charting a path for a new century of prosperity-and we want to do it with you, our cherished friends and oldest allies.
German Chancellor Friedrich Merz, whom Rubio met with in Munich, is straddling the line between EU dogma and resurgent U.S. might. He recently said Europe must “learn the language of power politics” and take greater responsibility for its security through “technological independence” and economic growth.
Enter a growing rivalry between the German leadership and that of France, with Merz arguing against a common issuance of debt and a more tailored approach to President Emmanuel Macron’s wide-reaching “Made in Europe” push.
Macron’s rhetoric hews closer to the strategy outlined by Canadian Prime Minister Mark Carney at the World Economic Forum last month. In fact, Canada has its own “Buy Canadian” campaign, shifting away from U.S. arms sales as outlined in a “Defence and Industrial Strategy” document to be publicly released tomorrow. The similar approach of Canada and France could be literally seen when both countries opened consulates in the Greenlandic capital of Nuuk two weeks ago.
Last week, Macron accused the Trump Administration of being “openly anti-European” and seeking the EU’s “dismemberment.” And in a rebuff to Secretary Rubio’s Munich speech, Macron stated, “Decarbonization must become a driver of competitiveness, not a vector of industrial decline.”
Moving to the East, Commerce Secretary Howard Lutnick and Japanese Trade Minister Ryosei Akazawa are close to agreeing on the first U.S. project to be funded under the $550 billion Japanese investment trade Agreement commitment. Under the terms of the Agreement, Lutnick is authorized to select specific projects with input from the Japanese. The selected projects will then be presented to President Trump for his approval. Japan could face snap-back tariffs if they do not fund a project within 45 days of Trump making a decision. Financing is to be provided-via equity, loans, and loan guarantees-by the Japan Bank for International Cooperation (JBIC) and Nippon Export and Investment Insurance.
Staying in the East, two former trade Frameworks became Agreements this week, with Bangladesh and Taiwan both reaching Agreement on Reciprocal Trade (ART) status. The latter Agreement includes reprieves for U.S. tech companies (more below). USTR paper on each agreement can be found below:
- U.S.-Bangladesh Joint Statement
- U.S.-Bangladesh Text
- U.S.-Bangladesh Fact Sheet
- U.S.-Taiwan Press Release
- U.S.-Taiwan Text
- U.S.-Taiwan Fact Sheet
As a sidenote to the Taiwan Agreement, its economy expanded by 8.6 percent last year powered by the AI boom. This figure marks Taiwan’s largest annual growth since 2010-a reflection of the fact that it produces roughly 90 percent of the world’s advanced chips.
With the addition of North Macedonia reaching a Framework deal this week, below is a trade lookahead for the coming weeks:
- EU Framework. The European Parliament reached a deal to advance the U.S. trade Agreement, but with the proviso of a March 2028 sunset and a trigger to suspend the Agreement in the event of threats to territorial integrity.
- India Framework. According to the India Foreign Minister, implementing Agreement language of the U.S.-India Framework is anticipated by mid-March. Meanwhile, the India AI Impact Summit begins today in New Delhi.
- Indonesia Framework. Indonesia President Subianto Prabowo will visit Washington next week to attend the inaugural “Board of Peace” meeting and is expected to sign the July Framework into an Agreement.
- South Korea Agreement. The South Korean Parliament is expected to pass the U.S. investment fund bill by mid-March, making good on a key pillar of its trade Agreement.
- Vietnam Framework. Leader To Lam will be in town for the Board of Peace next week, as well, and could make progress on the Framework that was reached in late October, though transshipments remain an obstacle.
- 232 Steel and Aluminum Tariffs. Reports surfaced late last week of the long-awaited roll-back of President Trump’s Section 232 Steel and Aluminum Tariffs. Stakeholders eagerly await a final determination and details from the Administration, which is purportedly reviewing which affected products to exempt, with an eye towards American consumer affordability. American aluminum buyers, for example, now pay a 68 percent premium over the London Metal Exchange (LME). The all-in price for U.S. aluminum buyers has risen from less than $3,000/ton to over $5,000/ton in the last year.
- Chip Tariffs. As noted above, the Trump Administration is planning to exempt major U.S. hyper-scalers from tariffs on chips assuming commitments made in the U.S.-Taiwan Agreement are met. The carve-out would allow Taiwanese companies building semiconductor plants in the U.S. to import 2.5 times the new facilities’ planned capacity in duty-free chips during the construction period. Those companies that have already built plants would be allowed to import 1.5 times their completed facilities’ capacity tariff-free. TSMC has already pledged $165 billion in U.S. building capacity.
DONROE DOCTRINE
Last week started with a bang as President Trump threatened to block the completion of the Gordie Howe bridge connecting Ontario and Michigan. Among his criticisms posted to Truth Social were that the bridge is owned by the Canadians and construction excluded American materials. Further objections, which have been stated in the past, included Ontario’s ban on U.S. beverage alcohol, U.S. access to the Canadian dairy market, and Canada’s recent trade agreement with the Chinese.
Prior to the Truth post, Secretary of Commerce Howard Lutnick reportedly met with Michigan businessman Matt Moroun, who owns and operates a nearby existing bridge linking the two countries. Following his social media salvo, Trump held a call with Canadian Prime Minister Mark Carney last Tuesday and deputized U.S. Ambassador to Canada Pete Hoekstra to commence negotiations immediately.
Relatedly, the House rule preventing trade-related matters from coming to the floor expired at the end of January. Thus, House Democrats are now planning a series of privileged resolutions to end the President’s tariffs on a country-by-country basis. Last week’s resolution-and those to come-are all likely to pass but unlikely to gain veto proof majorities. For example, the Canadian resolution passed 219-211, with only six House Republicans voting with Democrats.
The President has been loath to show any signs of defection within the Party on his trade agenda, especially with the Supreme Court decision on IEEPA still outstanding. But despite the media attention over last week’s resolution, we see no signs of an intra-party “jail break” among Republicans.
The above frustrations no doubt factored into the President’s recent private ruminations about unilaterally withdrawing from USMCA prior to the end of the July 1 review period. As we have previously indicated, rhetoric like this is to be expected. Though we have not yet seen public threats to withdraw, it is only a matter of time. Unlikely, though still possible, is an actual withdrawal announcement, which requires 60-days’ advance notice.
Even still, should the President notice withdrawal, the risk of him seeing it to its conclusion is minimal. Disrupting the preferential USMCA-compliant trade of North America, an overall goods relationship quantified at roughly $2 trillion, would have a seismic impact on the U.S. economy. The prospect of a self-inflicted wound of this magnitude during a consequential midterm election year is remote. So while we will see increased rhetoric, it is to be viewed more clearly as an attempt at negotiating leverage by the President.
Last Tuesday, USTR Ambassador Jamieson Greer reiterated that negotiations with Canada and Mexico will be bilateral and separate. According to Greer, “the Mexicans are being quite pragmatic right now. We’ve had a lot of discussions with them. With the Canadians, it’s more challenging.” Greer has made clear that he will only recommend renewal to the President if U.S. stakeholder input is incorporated into a rewritten agreement, highlighting rules of origin, critical minerals partnerships, labor protections, and anti-dumping rules as key metrics.
As Greer alluded to, the U.S.-Mexico relationship remains copacetic. News on talks between the two has been relatively quiet but for the temporary restriction of flights to/from the El Paso International Airport (ELP). The Department of Transportation officially blamed the closure on a “cartel drone incursion” but other reports are of U.S. agency miscommunication related to drone testing. Mexican President Claudia Sheinbaum professed no knowledge of the incident, but the episode again picks at the scab of Mexican sovereignty, which has been an ongoing headache for Sheinbaum’s domestic politics.
Wrapping up U.S. influence in Latin America:
- Nicaragua. Migration Agency Director Juan Emilio Rivas Benitez blocked Cuban migrants from entering the country without a visa, choking off a popular route to the U.S. The government has previously allowed such entry for Haitians, Libyans, Moroccans, and Venezuelans, as well. The Trump Administration, however, has been ramping up pressure on co-presidents Daniel Ortega and Rosario Murillo steadily for the last 12 months, including visa restrictions, ending deportation protections for migrants, and an additional 15 percent tariff. In an apparent sign of appeasement, the Nicaraguan government released dozens of political prisoners just days after the U.S. capture of Nicolas Maduro.
- Peru. The South American country finds itself as a “battleground for foreign investment” with its mining industry drawing attention. The State Department’s Bureau of Western Affairs recently raised concerns with Chinese ownership control of Peru’s Chancay port, one of its largest and issued a warning to others: “Let this be a cautionary tale for the region and the world: cheap Chinese money costs sovereignty.” Meanwhile, a U.S. private equity firm, I Squared Capital, and the investment arm of the Canada Pension Plan (CPP) struck a deal last week to buy Inkia Energy, a Peruvian utility provider. According to The Wall Street Journal, the deal is indicative of recent investment firm focus in infrastructure opportunities that “align with the Trump administration’s policy goals.”
- Venezuela. U.S. Treasury issued a general license on Friday allowing Chevron, Shell, BP, ENI, and Repsol to invest in new oil operations in Venezuela. This follows Venezuela amending its hydrocarbon law and Energy Secretary Chris Wright’s tour of Venezuelan oil fields last Thursday. New licenses require royalty payments to state-run Petróleos de Venezuela via Treasury’s foreign deposit fund.
UPDATES ON OUR ADVERSARIES
China Truce. Press reports have confirmed that the President’s visit to Beijing will take place during the first week of April. Amidst that inflection point, the House passed a bill last week by an overwhelmingly bipartisan vote of 395-2 that would ban China from global financial institutions should it threaten Taiwan and pose a danger to American interests. Given the President’s upcoming visit to Beijing, it’s not clear whether he will sign the bill if it passes the Senate.
Thus, though the truce remains intact, there are actions and reactions by both sides that could send it off course, including espionage efforts. For example, the CIA has been leveraging President Xi Jinping’s ongoing purge of PLA military leaders to target existing Chinese military officers. In an AI-generated Mandarin recruiting video, a fictional PLA officer states, “Any man qualified to lead us is deemed a threat and unceremoniously removed. I am a soldier and I signed up to defend my home and my country. This is the path I choose in order to serve.” The fictional character then sends government files-presumably to the U.S.-from his computer.
The Chinese Embassy in Washington quickly responded to the recruitment video stating, “China strongly condemns the move and will take all necessary means to resolutely counter infiltration and sabotage by anti-China forces abroad…” CIA Director John Ratcliffe noted that the videos will continue and have widespread reach within China.
For its part, China is pumping $1 trillion into decoupling from the U.S., including subsidizing nascent soybean production in the northeast grain belt. This self-sufficiency model, not too dissimilar from the Trump Administration’s own goals, has led to a drop in Chinese exports to the U.S. of 7.5 percent over the last year. At the beginning of the first Trump Administration, the U.S. imported 19 percent of all Chinese exports. That figure now stands at 11 percent. Total trade between the two has receded to 2010 levels, though China still ranks as the U.S.’s third-largest trading partner.
Over the next five years, the CCP plans to invest heavily in several home-grown priority industries including chipmaking, software, machinery, biomanufacturing, medical equipment, and advanced materials. But fuel imports are creating a newfound challenge as China has benefited from below-market and illicit oil from Iran, Russia, and Venezuela, all three of which have had their exports severely disrupted by U.S. policy in the last few months. The PRC imports 1.8 million barrels of oil per day, hence its strategy to hook the global automotive market on its electric vehicles.
Illicit Fuel. U.S. efforts to choke off Iranian, Russian, and Venezuelan oil is gaining momentum and partners, a move designed to squeeze Iranian and Russian revenue, while limiting supply to foreign adversaries, particularly China and Cuba. On February 6, the Indian Coast Guard announced that it had seized three tankers from the so-called worldwide “dark fleet,” which transports Iranian and Russian oil and fuel via puppet countries and/or false flags. All three of the seized tankers had previously been sanctioned by the U.S. for links to Iran.
Just this year alone, U.S. Treasury has sanctioned an additional 20 ships transporting Iranian oil. In total, there are roughly 1,500 tankers operating in the dark fleet globally. If a ship is falsely flagged or disowned by its supposed home country, it becomes subject to U.S. jurisdiction while in international waters, with sanctions providing further legal justification. American interdiction operations in the Middle East are primarily led by a U.S. Coast Guard base in Bahrain. Yesterday, the Department of War announced that it had tracked down another sanctioned oil tanker leaving the Caribbean for the Indian Ocean under a false Panamanian flag.
Prior to its tanker seizures at the beginning of the month, India had already announced that it would not allow sanctioned tankers to discharge at its ports. Similarly, Malaysia detained two tankers earlier this month that had been conducting ship-to-ship transfers of oil without permission.
With Venezuelan oil shipments now subject to heavy U.S. scrutiny, if not control, the Chinese are left to rely on Iran and Russia for below-market fuel (roughly $10/barrel cheaper). Venezuelan oil has instead been shipped to the U.S., India, Israel (the first time since 2020), and Spain. Notably, more than 80 percent of Iranian oil exports are shipped to China.
Should the President levy a new 25 percent tariff from his executive order (EO) threatening those countries that do business with Iran, the U.S.-China relationship could face additional stress, as would the Iranian economy.
For their part, Russian war-funding revenue is at risk with the potential loss of the Indian market and U.S. pressure on eastern European countries. Secretary Rubio departed the Munich Security Conference to meet with Slovakian Prime Minister Robert Fico yesterday and Hungarian leader Viktor Orban today-both of whom he is pressuring to end purchases of Russian oil.
There are, however, governors to the U.S. strategy, the biggest being effects on global oil prices. Affordability issues remain top of mind with U.S. voters heading into the midterms and could impact the lengths to which the Administration is willing to risk disruption. Should Iran shut down the Strait of Hormuz, the global supply would be severely disrupted. The second limiting factor for the U.S. strategy is replacement oil. Canadian exports to China, for example, have spiked.
Russia and the Dollar. News broke last week of a Russian memo developed in January outlining a new economic cooperation offer with the United States, perhaps attempting to sweeten the pot for a more Russian-favorable peace agreement with Ukraine.
Named the “Dmitriev Package” by Ukraine whose intelligence service uncovered the document, the heart of the memo would proffer a Russian return to the dollar settlement system, a massive reversal of policy for the Russian Federation with implications for the global financial order and its relationship with China. Kirill Dmitriev serves as both a negotiator for Russia, as well as the head of its sovereign wealth fund. Seven areas of economic cooperation were identified in the memo:
- Aviation contracts and U.S. participation in Russian manufacturing
- Joint oil and LNG ventures, including allowing U.S. firms to recover past losses
- Preferential market access for U.S. firms
- Nuclear energy cooperation and AI ventures
- Return to the dollar settlement system
- Raw material cooperation (e.g., lithium, copper, nickel, platinum)
- Fossil fuel promotion (countering the EU and China)
Iran Talks. The U.S. and Iran are expected to continue talks with President Trump “insisting” to Israeli Prime Minister Benjamin Netanyahu last Wednesday that a diplomatic approach is his “preference.” The President did, however, publicly expand his scope of goals for the talks to include Iran’s ballistic missiles program.
To date, Iran has been attempting to limit negotiations to nuclear weapons in exchange for sanctions relief and being able to continue enriching uranium for “civilian” purposes. Israel is also pressing the Administration to take a harder line against Iran’s support for militant proxies in the region, though that issue has not yet entered the talks.
In addition to meeting with Trump, Netanyahu also sat down with Secretary of State Marco Rubio, Special Envoy Steve Witkoff, and Jared Kushner last week. Witkoff and Kushner are scheduled to hold their second round of talks with Iran tomorrow in Geneva. Oman will continue to mediate, with Foreign Minister Abbas Araqchi represented the Iranian side. Last week, Witkoff delivered messages to the Iranians via the Omani foreign minister. An Iranian response is expected at the Tuesday meeting.
In a twist, Iran appears to now be offering bilateral economic enticements as reported by Reuters over the weekend. According to Hamid Ghanbari, Iran’s Deputy Director for Economic Diplomacy, “For the sake of an agreement’s durability, it is essential that the U.S. also benefits in areas with high and quick economic returns. Common interests in the oil and gas fields, joint fields, mining investments, and even aircraft purchases are included in the negotiations.”
That said, U.S. military options remain on the table. After President Trump opined that he may deploy an additional aircraft carrier strike group to the region, news broke on Friday that the Navy’s largest and most advanced carrier, the USS Gerald R. Ford, was ordered to the Middle East. The carrier has most recently been in the Caribbean, supporting oil tanker seizures and the military incursion to capture Nicolas Maduro last month. The new deployment will add to the assets already in the region, including the USS Abraham Lincoln and five missile destroyers.
Since the government’s crackdown, Iranian protests have moved from the streets to inside the political apparatus. The regime has begun detaining members of the Reformist Front, including a former deputy foreign minister, who have previously provided a moderating influence within the government. We believe this represents another key inflection point for potential U.S. military action.
Should Iran not offer meaningful concessions in the near-term, a strike would appear all but inevitable. As the Wall Street Journal reported on Friday, protestors may have gone inside, but many now believe the regime is irredeemable. According to an unnamed Iranian student, “America should really raze it [Tehran] to the ground and collect its ashes.”
For now, Trump is keeping open the diplomatic option, and the 27-member “Board of Peace” will hold its first meeting on February 19 in Washington. Though it is tasked with handling the Gaza peace agreement ($5 billion in pledges have been announced thus far), the Board of Peace could very well venture into various other global conflicts.
European leaders’ support for the President’s Board is tepid at best. France, Germany, Italy, Norway and Sweden, and the UK have all either declined to join or not yet signed on. Netanyahu, however, agreed to join while meeting with Secretary Rubio this past week.
OUTLOOK/ANALYSIS. It is hard to keep pace with the seemingly infinite trade and geopolitical fronts that President Trump manages and alters on a daily basis. Yet one thing is clear, U.S. foreign policy now favors proactive engagement rather than idle monitoring.
Case in point is the deployment of the Donroe Doctrine from National Security Strategy in November to kinetic action in January. Latin American countries are being forced to choose between previous Chinese investments and more recent U.S. demands.
Building in real-time is an economic and diplomatic pressure campaign against the China, Iran, Russia alliance, with use of force implicitly on the table. The incursion into Venezuela, aggressive policing of the global shadow oil fleet, and now deployment of two carriers to the Middle East demonstrates President Trump’s penchant for strategic use of the “might makes right” adage.
The trade picture is equally kinetic. With last week’s India Framework news, nearly all major U.S. trading partners-but for Brazil-have reached either Framework or Agreement status in less than one year since Liberation Day. This provides some semblance of stability to the global economy, though growing pains remain.
As always, the economy will reign supreme with voters as we head into the consequential U.S. midterm elections, meaning the “affordability” goals of the White House could bring further stabilization-via relief-to the tariff outlook.
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