Last week was defined by a single structural question that no ceasefire extension, summit announcement, or earnings record could resolve: does the IRGC have a veto over Iranian diplomacy, and if so, can the U.S. blockade break it? This weekend’s scheduled talks in Islamabad ended before they started as President Trump called off U.S. participation for lack of a credible unified Iranian authority. A revised Iranian proposal, however, shows that progress continues while the fragile ceasefire holds.
Markets have chosen to look through the war with striking conviction. The Nasdaq has gained 15% in April, its strongest monthly performance since 2023. The S&P 500 is trading around record highs, and first-quarter earnings delivered a blended net profit margin of 13.4%, the strongest since FactSet began tracking in 2009. While the AI trade continues to carry the day, the physical oil market tells a different story: 500 million barrels drawn from global stockpiles and an estimated six-month mine-clearing timeline with no resolution to the IRGC’s Hormuz closure or President Trump’s naval blockade.
On the trade front, USTR Ambassador Jamieson Greer testified before the House Ways and Means Committee last Wednesday, notably placing Canada alongside China as the only two countries to have economically retaliated against the United States. With USMCA bilateral negotiations underway, the separately anticipated May 14 Beijing summit will now be defined by the Iran war’s geopolitical reshuffling and an AI technology confrontation that has escalated on multiple fronts.
Finally, King Charles III arrives at the White House tomorrow for the first official State Visit of President Trump’s second term, a symbolically significant bilateral reset to an alliance under its most acute strain since the early days of World War II.
GEOPOLITICAL UPDATE
While President Trump announced an “indefinite” ceasefire prior to its expiration early last week, Axios reports that it is indeed not “open-ended.” Rather, Administration officials tell the outlet that it is a short window to allow Iranian factions to produce a unified proposal. The picture inside Iran continues to show a breakdown in the regime’s leadership hierarchy. Supreme Leader Mojtaba Khamenei is barely communicating, suffering from critical injuries incurred during the initial bombing of the war. Neither faction reportedly has access to Khamenei. Instead, IRGC generals are wielding a powerful veto over Iran’s more pragmatic diplomatic negotiators. U.S. officials identify Israel’s March assassination of Ali Larijani—the previous SNSC secretary who held the political weight to coordinate Iran’s decision-making—as the root cause of the internal decision-making breakdown. His replacement, Mohammad Bagher Zolghadr, is described by a U.S. official as “not effective.”
The timeline of the Islamabad 2.0 talks scheduled for the beginning of last week, prior to the original expiration of the ceasefire, demonstrates the confusion that has been caused. On Monday evening, Iranians appeared to give Pakistani mediators a green light for talks to begin. By Tuesday morning, the decision had been reversed and replaced with a precondition that the U.S. first lift its naval blockade. IRGC Aerospace Commander General Majid Mousavi simultaneously warned Gulf states hosting U.S. facilities to “say goodbye to oil production in the Middle East region.” While Air Force Two sat idle at Joint Base Andrews, Special Envoy Steve Witkoff and Jared Kushner’s plane left Miami for Washington. The entire U.S. delegation was then grounded as a result of Iran’s preconditions and provocations.
President Trump doubled down on the U.S. blockade throughout the week, while allowing for an extension of the ceasefire. Treasury Secretary Scott Bessent reinforced the President’s economic pressure strategy, saying: “In a matter of days, Kharg Island storage will be full and the fragile Iranian oil wells will be shut in.” Bessent’s use of the term “shut in” refers to Iran’s pressure-sensitive reservoir geology which makes prolonged production shut-in uniquely damaging and months-long to reverse. Bessent branded the Treasury track “Economic Fury.”
Treasury’s “Economic Fury” campaign has already produced three OFAC actions that collectively target Iran’s revenue infrastructure. The most sweeping action sanctioned Hengli Petrochemical (Dalian) Refinery Co., Ltd., China’s second-largest independent “teapot” refinery and one of Iran’s largest crude oil customers. This includes crude directly overseen by the oil sales arm of Iran’s Armed Forces General Staff. The Hengli designation is the most significant China-facing action of Treasury’s campaign, sending a direct message to Beijing’s private refining sector in the lead up to the May 14 summit.
A second OFAC action targeted the Shamkhani network, sanctioning more than two dozen individuals, companies, and vessels operating under Iranian oil shipping magnate Mohammad Hossein Shamkhani’s front companies in the UAE. The action also targeted a Hezbollah gold financing scheme benefiting Iran’s military.
A third action designated nine individuals and entities in Iran, Turkey, and the UAE who facilitated procurement of precursor chemicals and machinery for IRGC and MODAFL missile and UAV programs, and proliferated UAVs to third countries. As Bessent stated, “Economic Fury is imposing a financial stranglehold on the Iranian regime, hampering its aggression in the Middle East and helping to curtail its nuclear ambitions.”
Heading into this weekend, Islamabad 3.0 followed a similar pattern to the leadership confusion surrounding the disbanded 2.0 talks. Foreign Minister Abbas Araghchi arrived in Pakistan on Saturday morning and met with Prime Minister Shehbaz Sharif. Sharif separately held a “warm and constructive” call with Iranian President Masoud Pezeshkian. Iran then sent a new peace proposal that Trump rejected immediately as insufficient, leading to a new offer “10 minutes” later that was deemed “much better.” But this was all followed by Iran’s joint military command issuing a fresh rhetorical threat that continued U.S. “naval blockades, banditry, and piracy” would provoke a decisive military response.
Trump publicly called off Witkoff and Kushner’s travel Saturday afternoon, noting that travel was unnecessary if the U.S. “wasn’t meeting with the leader of the country.” The President announced that future diplomacy would be held by phone, instead, saying “they can call us anytime they want.”
Araghchi departed Islamabad for Oman, returning later in the weekend and is now headed to Russia. One source said Araghchi made it clear to mediators that “there’s no consensus inside the Iranian leadership about how to address the U.S. demands.”
Axios reports that the latest Iranian proposal would reopen the Strait of Hormuz and permanently end the war, though nuclear negotiations would be postponed for a later stage. The question is whether the U.S. is willing to give up its blockade (and resulting leverage) without a nuclear deal. President Trump told Fox News on Sunday that he wants to continue the blockade: “When you have vast amounts of oil pouring through your system … if for any reason this line is closed because you can’t put it into containers or ships … what happens is that line explodes from within. … They say they only have about three days before that happens.”
Thus, the USS George H.W. Bush carrier strike group—carrying approximately 6,000 personnel including Carrier Air Wing 7—arrived in the Middle East on Thursday, bringing the total U.S. carrier cohort to three (USS Abraham Lincoln and USS Gerald R. Ford). The U.S. military presence in the region now exceeds 60,000 personnel, including the Boxer ARG with the 11th Marine Expeditionary Unit. The three-carrier posture amplifies the President’s stick should the diplomatic carrot fail: a maximum military and economic pressure campaign.
The economic pressure is not just being felt by Iran. Similar to repercussions for China, Treasury is also squeezing Iraq, announcing that it would block nearly $500 million in U.S. banknotes scheduled to be delivered to Iraq’s central bank. Per the Wall Street Journal, this is the second blocked shipment to Iraq as Washington presses Baghdad to dismantle Iranian-backed militias. Iraq holds more than $100 billion in reserves in U.S. accounts and relies on cargo-plane cash deliveries from the Federal Reserve for its domestic banking system. The action extends Bessent’s “Economic Fury” campaign beyond Iran proper into the militia financing network running through Baghdad.
In a tangential sign of positive of progress, President Trump announced last Thursday that the Israel-Lebanon ceasefire would be extended by three weeks following a White House meeting with the Israeli and Lebanese ambassadors. “The United States is going to work with Lebanon in order to help it protect itself from Hezbollah,” Trump posted on Truth Social, adding he looks forward to hosting Prime Minister Benjamin Netanyahu and Lebanese President Joseph Aoun at the White House. Hezbollah responded immediately, calling the pause “meaningless,” consistent with the organization’s pre-ceasefire pledge of non-compliance.
Finally, Pentagon personnel changes continue despite an active wartime period. Navy Secretary John Phelan departed the service’s top civilian post on Wednesday in a surprise resignation after just over a year in the position. Undersecretary Hung Cao will serve as acting secretary. Phelan, a financier brought in to address shipbuilding dysfunction, oversaw the cancellation of the Constellation-class frigate and the announcement of a Trump-named battleship class.
Shipping
The most significant shipping news of the week came last Wednesday when the Pentagon informed the House Armed Services Committee (HASC) in a classified briefing that it could take up to six months to fully clear the Strait of Hormuz of Iranian mines; and further that mine-clearing would not begin until the war formally ends. Iran has deployed 20 or more mines including GPS-guided remote-deployment technology. The shipping picture is stark: even under the most optimistic diplomatic scenario, Hormuz does not return to normal commercial operations before late 2026 at the earliest.
The same day, the IRGC attacked at least three commercial vessels, seizing two of them: the Panama-flagged MSC Francesca and the Liberia-flagged Epaminondas. The IRGC has long claimed the MSC has Israeli connections; owner Gianluigi Aponte has a Jewish wife and MSC calls on Israeli ports. The UKMTO confirmed an IRGC gunboat approached one vessel with no warning before firing, causing “heavy damage to the bridge.” Both ships were escorted to Iranian ports. Iran framed the seizures as reciprocal action for the U.S. boarding of the Touska.
Trump responded on Thursday by ordering the U.S. Navy to shoot and kill any vessel laying mines in the Strait. Meanwhile, blockade integrity is imperfect: at least two Iranian VLCCs—the Hero II and the Hedy—transited past the blockade line by going dark, disabling AIS transponders. Vortexa data shows approximately 9 million barrels of Iranian crude have reached market despite the blockade.
Germany’s Defense Minister Boris Pistorius announced Saturday that Germany will deploy minesweeper ships to the Mediterranean, positioned for potential transfer to the Strait of Hormuz following an end to hostilities. Bundestag approval is required before any Hormuz mission. It is the first concrete NATO member commitment of mine-clearing assets to the post-war reopening mission, but it demonstrates the reality noted in the Pentagon’s mid-week briefing on the Hill: mine clearing will not begin in earnest until after the war is declared over.
NATO
The war’s strain on the transatlantic alliance continues to surface. Polish Prime Minister Donald Tusk, speaking at an EU defense clause meeting in Cyprus, publicly questioned U.S. commitment to Article 5: “The question is if the United States is ready to be as loyal as it is described in our NATO treaties,” Tusk said, adding that Russia could attack a member within “months.”
The Pentagon simultaneously outlined formal options for punishing European allies President Trump believes failed to support the Iran war, per a Reuters-obtained internal email. Options include seeking to suspend Spain from NATO and reviewing U.S. support for the United Kingdom’s claim over the Falkland Islands. The UK government issued a quick rebuttal, saying Falklands sovereignty “is not in question.” Revelation of the Pentagon document signals the Administration views alliance membership as transactional.
ECONOMIC OUTLOOK
Three important reads came in last week—retail sales, pending home sales, and manufacturing data—all pointing in a positive, if cautious, direction. March retail sales jumped 1.7% month-over-month to $752.1 billion, the largest monthly gain since January 2023, beating the 1.4% consensus and February revised up to 0.7%. Twelve of thirteen major retail categories advanced. Gasoline station receipts surged 15.5%, accounting for roughly two-thirds of the headline beat. Strip gasoline and the story still holds. Retail sales excluding autos and gas rose 0.6%, the strongest since June, and the control group (GDP goods consumption) climbed 0.7%, three-and-a-half times consensus. The outliers were food services and drinking places, which edged up just 0.1%, the weakest since November and a potential canary to watch for household financial stress. The read-through for the April 30 advance GDP print is constructive on goods consumption, but retail sales are not inflation-adjusted and at $4.10/gallon nationally, consumers are spending more to drive the same miles.
Pending home sales rose 1.5% in March to an index reading of 73.7 and a four-month high, beating the 0.5% consensus and representing the second consecutive monthly gain. The driver is supply as new listings surged 21.2% from February, now showing three consecutive months of annual inventory gains and 4.1 months of supply nationally. Mortgage rates averaged 6.18% in March, nudging the month’s sales forward. But rates have now drifted back above 6.3% as Treasury yields remain volatile, threatening to blunt April’s read.
The Trump Administration highlighted a manufacturing data cluster which it is framing as evidence of a structural reshoring trend. The ISM manufacturing index registered its third consecutive month of expansion, reaching its highest reading since 2022. The New Orders Index expanded for a third straight month and the Production Index expanded for a fifth consecutive month, its fastest pace since the Biden-era slowdown. The Philadelphia Fed Manufacturing Index surged in April, materially exceeding expectations. Q1 2026 produced the sector’s first quarter of positive manufacturing job growth in three years.
The Administration’s reshoring interpretation is worth analyzing. The ISM expansion streak and Philly Fed beat are real, but manufacturing surveys measure current activity and sentiment, not capital commitment. Goldman Sachs’ analysis showing U.S. production costs running nearly 50% above the top three exporting countries for most goods remains the structural constraint on whether survey-level expansion converts to durable capacity investment. The Q1 job growth figure—the first positive print in three years—is the most durable signal in the cluster and warrants monitoring against the April read due next month.
Initial jobless claims rose modestly to 214,000 for the week ending April 18, up 6,000 from the prior week and slightly above the 210,000 consensus. Continuing claims edging up 12,000 to 1.821 million. Claims remain near the low end of the historical range with no sign of broad-based layoffs. Economists describe the current dynamic as “low hire, low fire” with employers reluctant to expand headcount but equally reluctant to cut.
Equity Markets
U.S. equities closed last week at record highs. The Nasdaq gained 15% in April—its strongest monthly performance since 2023—while the S&P 500 rose 10% against a 5% gain for Europe’s Stoxx 600 and the widest U.S.-Europe performance gap since June 2025. The divergence is best seen in U.S. AI earnings and energy exports. By contrast, European economic activity contracted in April per PMI data.
The S&P 500’s blended Q1 net profit margin stands at 13.4%, on track for the strongest quarter since FactSet began tracking in 2009, with nearly 80% of reporters beating estimates. Goldman Sachs projects AI investment spending will lift S&P 500 EPS 12% this year and 10% next, with a year-end index target of 7,600.
Marshall Wace chief market strategist Seb Barker said the oil “shock needs to run on for months and months before it poses the risk of a material fall in the US equity market.” By contrast, “Europe needs it to end in the next two to three weeks.” PGIM’s Magdalena Polan invoked caution for all saying, “Markets may be applying the ‘transitory’ principle to a situation that will continue to work its way through the system over a prolonged period of time.”
Economic Calendar
The Fed’s April 28–29 meeting is one of four major central bank decisions this week. The European Central Bank (ECB) meets Thursday and is expected to hold rates at 2%, balancing energy inflation against a Eurozone economy whose April PMI data showed contraction. The BoE will meet Thursday as well, facing a March CPI reading of 3.3% alongside private sector wage growth of 3.2% over the last three months, suggesting inflation has not yet translated into a wage-price spiral. Finally, the Bank of Japan (BoJ) faces negative real interest rates but is expected to hold back from tightening due to oil price uncertainty from Hormuz.
U.S. markets are relatively unchanged at week’s open, though Asia and Europe traded higher on the news of Iran’s proposal for ending the war. Japan’s Nikkei surged 1.38% to close at a record high of 60,537.36, while South Korea’s Kospi jumped 2.15% to end at 6,615.03, also a new peak. Hong Kong’s Hang Seng was slightly softer, off 0.24% in its final hour of trade, and mainland China’s CSI 300 closed little changed at 4,770.95 after China’s industrial profits jumped 15.8%. European banks led the day ahead of a heavy week of earnings including Barclays, UBS, Deutsche Bank, and BNP Paribas.
Outside of the central bank decisions, this week’s most watched economic data will revolve around the AI trade. Five of the “Magnificent Seven” report earnings. Alphabet, Amazon, Meta, and Microsoft are all due Wednesday, with Apple on Thursday. Additional datapoints this week include:
- Monday: China’s March industrial profit figures and Germany’s GfK consumer climate survey
- Tuesday: Conference Board U.S. consumer confidence survey for April
- Wednesday: Australia March CPI; Brazil and Canada interest rate announcements; Germany’s preliminary April CPI
- Thursday: advance estimate of U.S. Q1 2026 GDP; U.S. weekly jobless claims; EU preliminary Q1 GDP; April eurozone inflation; France and Germany preliminary Q1 GDP
- Friday: manufacturing PMI data across Canada, Japan, the UK, and the U.S.
- Weekend: Berkshire Hathaway annual shareholders meeting; Milken Institute Global Conference
Oil Shock
The world’s largest independent oil trading houses delivered a unified warning at the FT Commodities Global Summit in Lausanne that the worst of the demand hit from Hormuz has not yet arrived. Vitol CEO Russell Hardy put current demand destruction at roughly 4 million barrels per day, noting the figure will grow as the closure persists. Gunvor projected lost consumption could double to 5 million barrels per day in May, stating that a three-month Hormuz closure will trigger a global recession. The IEA has revised 2026 oil demand growth from +730,000 bpd to a net decline of 80,000 bpd.
CFO Jeff Webster confirmed Gunvor had been “preparing for a long war scenario” given the pressure to balance sheets. The firm extended credit lines at the conflict’s outset and is now placing additional borrowing facilities. As a result, Gunvor made more gross profit in Q1 2026 than the $1.6 billion it made in all of last year. Mercuria projected similar with ROE of 25-50% for 2026, implying $2.3-$3.2 billion in profit against last year’s $1.5 billion. As Castleton CEO Bill Reed admitted, “these types of events are positive” for trading houses’ earnings and Trafigura CEO Holtum described himself as “extremely happy” with financial performance.
Tom Barrack of Citadel attributed oil and gas volatility (300% increase) to not only the war’s uncertainty, but the President’s Truth Social posts. The two combine and make tracking physical flows insufficient when judging trading. According to Barrack, “You need to understand that the market is moving based on this information” and regard the Administration’s stabilization toolkit—SPR releases, naval escorts, DFC marine insurance—as “a little under-thought.”
Seeking another tool, President Trump signed five presidential determinations last Monday invoking the Defense Production Act (DPA) to unlock federal funding for domestic energy projects, formally designating insufficiencies in petroleum production and refining, domestic coal-fired power, LNG pipelines and processing, and power-grid infrastructure as threats to national defense. The move authorizes the Energy Department to deploy OBBBA funding through purchases, financial support, and other tools to overcome financing shortfalls, regulatory delays, and market barriers. Eligible projects include natural gas turbines and electrical transformers—both in critical short supply with extended lead times.
The President also extended the Jones Act waiver by 90 days on Friday (effective May 18 until mid-July), the second invocation of the law’s suspension since the war began. White House data indicates that over 40 tankers utilized the initial waiver, facilitating the movement of more than 9 million barrels of U.S. oil to domestic destinations. According to the Administration, “New data compiled since the initial waiver was issued revealed that significantly more supply was able to reach U.S. ports faster.” The domestic maritime industry, however, is openly hostile. The Offshore Marine Service Association stated the initial waiver “has not reduced gasoline prices, rather prices have increased in every U.S. market while benefiting NATO countries that have refused to support U.S. military operations.”
Bloomberg Opinion’s Liam Denning challenged market consensus this week, pointing to the futures market. Roughly 15 million barrels per day (15% of global demand) are bottled up in Hormuz and Goldman Sachs estimates global stockpiles have been drawn down approximately 500 million barrels. At the current pace, the drawdown will reach one billion barrels as early as Memorial Day. The EIA corroborated Denning’s contrarian view on Friday, showing dated Brent spot has surged to a premium of more than $25 per barrel over front-month futures, one of the widest backwardation spreads on record. Diamondback Energy CEO Kaes Van’t Hof stated: “The real problem is the back end of the curve is lying to us.” He described the U.S. production response as “putting a garden hose into an emptied Olympic-sized swimming pool.” Both Brent and WTI remain settled into their respective uncertainty equilibrium pricing we have previously identified.
Downstream, fuel price pressures continue to plague the airline industry. Alaska Air Group’s Q1 earnings report posted a $193 million net loss on $3.3 billion in revenue and suspended full-year guidance entirely. Jet fuel averaged $2.98/gallon in Q1, up 14% year-over-year. April prices are expected to average $4.75/gallon, up from $2.50 on February 27, with Q2 averaging approximately $4.50. That trajectory adds roughly $600 million in incremental fuel expense for the quarter alone, reducing EPS by an estimated $3.60. Nationally, jet fuel hit $4.88/gallon last week. Delta, American, JetBlue, and United have responded by raising checked baggage fees; KLM, Lufthansa, Vietnam Airlines, Air New Zealand, and SAS have cancelled flights or prepared contingency plans.
The war’s downstream commodity price spiral is hitting American farming with equal force. Anhydrous ammonia costs, $800/ton before the war, have reached $1,050, a 31% increase on this planting season. Nitrogen fertilizer prices have risen more than 30% since February’s end and urea is up 47%, a record increase per the AFBF. Farm diesel is up 46% over the same period. Approximately 70% of AFBF survey respondents reported being unable to afford all the fertilizer they need—a supply rationing signal with direct yield consequences. On a “currency of corn” basis, farmers now need 185 bushels per ton of urea, the highest level on record. The food price transmission is a lagging indicator, arriving six to nine months from now.
Russian Urals continues to benefit and is now at a 13-year high. Singapore, the world’s largest ship refueling port, is replacing lost Middle Eastern crude cargoes with Russian oil at double the 2025 average monthly volume, per Vortexa. This structural shift could be hard to unwind for Middle Eastern producers once the war is over.
The Fed
The dollar has surrendered most of its war-driven gains, running counter to the previous safe-haven narrative. The dollar’s softness, which creates higher inflationary import prices, will bring added pressure to the Fed’s rate decision. U.S. banks led by Goldman Sachs have simultaneously borrowed record amounts of renminbi this year as low Chinese interest rates attract foreign investors to offshore yuan debt markets. American banks borrowing in renminbi at scale provides the yuan with market validation as a funding currency independent of any government policy choice.
Federal Reserve Chair nominee Kevin Warsh appeared before the Senate Banking Committee last Tuesday for his confirmation hearing. Two statements by Warsh are worth noting. Speaking on the Fed’s rate decisions, Warsh called for “a regime change in the conduct of policy” and “a different, new inflation framework,” signaling a willingness to revisit the Fed’s 2% average inflation targeting structure. Second, Warsh addressed the Fed’s practice of forward guidance, saying flatly that he doesn’t believe in “previewing for you what a future decision might be.” The repudiation introduces a new communication paradigm for markets conditioned to parse every Fed Chair’s utterance for rate path signals.
The most notable news was U.S. Attorney Jeanine Pirro’s announcement on Friday that she was dropping the criminal investigation into Jay Powell. The last procedural obstacle to Warsh’s confirmation then fell on Sunday when Senator Thom Tillis (R-NC) announced he was ending his hold on Warsh’s nomination after receiving assurances from the Justice Department that the criminal case against Powell and the Federal Reserve is “completely and fully settled.” Tillis: “I look forward to supporting Kevin Warsh’s confirmation.” The Senate Banking Committee has scheduled a vote to report Warsh’s nomination on Wednesday, April 29, the same day as the FOMC rate decision. Thus, Powell will chair his last FOMC meeting this week and the institutional instability at the Fed is beginning to settle.
Currency Swaps
Treasury Secretary Bessent disclosed this week that he has received currency swap requests from the UAE and “many” other Gulf and Asian allies. Gulf states with dollar pegs have been forced to defend those pegs by selling U.S. Treasury holdings. A large-scale allied Treasury sale would push U.S. yields higher. A swap line therefore provides Gulf central banks dollars directly without requiring Treasury sales in exchange for their own currency as collateral. As Bessent stated, “Swap lines, whether it’s from the Federal Reserve or the Treasury, are to maintain order in the dollar-funding markets and to prevent the sale of U.S. assets in a disorderly way.”
The Financial Times identifies a potential limit to Bessent’s strategy—UAE’s Central Bank Governor raised the possibility of settling oil trade in Chinese yuan if dollar access becomes sufficiently constrained, forewarning that petrodollar architecture is being tested. China has spent a decade building yuan oil settlement infrastructure with limited success; the Iran war is now providing the stress test needed.
TRADE UPDATE
The Consolidated Administration and Processing of Entries system—CBP’s new IEEPA tariff refund portal—is now live, but the Administration is actively discouraging its use. Trump has warned companies against filing refund claims and congressional pressure runs bipartisan in the same direction: Republicans are debating whether to include refund checks in the nascent reconciliation 3.0 package, while Democrats have repeatedly urged companies to pass any refunds to customers rather than retain them. The political environment around CAPE filings is sufficiently hostile that companies face reputational and legislative risk for using a system the government itself built under court order.
USTR Ambassador Jamieson Greer appeared before the House Ways and Means Committee last Wednesday for the annual 2026 Trade Policy Agenda hearing. On the Administration’s macro trade record, Greer framed the program against a $1.2 trillion annual goods trade deficit, the largest in human history, growing 40% between 2020 and 2024. Greer stated this had created “a hyperglobalized world characterized by rampant offshoring and the loss of American manufacturing primacy.” Greer further cited a study finding that health outcomes for workers who lost jobs due to NAFTA outweighed the agreement’s welfare gains. “The trade policy of the last thirty-odd years was not kind to American workers,” Greer said. “It suppressed wages. It unnecessarily pitted industrial manufacturers against farmers. It celebrated China export dominance as a global good. It jeopardized our national security.”
Against that baseline, Greer highlighted a 24% reduction in the goods trade deficit from April 2025 through February 2026. Additional metrics noted by Greer: China’s share of U.S. imports fell to approximately 9%, its lowest since WTO accession in 2001; real manufacturing worker pay increased $2,400 in one year; and the U.S. services trade surplus reached a record $339.5 billion in 2025. Since 1985, the U.S. has negotiated 14 free trade agreements. By comparison, Greer noted that USTR has concluded nine Agreements on Reciprocal Trade (ART) and entered into an additional nine frameworks.
A counterpoint to Greer’s framing was surfaced in a paper from Minneapolis Fed economist Michael Waugh last week, identifying a structural tension between the Administration’s trade and technology objectives. AI-related imports—compute hardware, electrical infrastructure, networking equipment, and data center cooling systems—accounted for 23% of all U.S. imports in 2025, up from 15% in 2023, growing more than 70% over the period versus 3% for all other imported goods. Absent the AI boom, the U.S. goods trade deficit would have been approximately $200 billion smaller in 2025. AI-related goods faced an effective tariff rate of 4.5% versus 12.1% for non-AI goods. The Administration has thus bifurcated its tariff regime: maximum pressure on traditional goods vs. near-zero pressure on AI buildout inputs.
For example, U.S.-bound Mexican goods rose more than 6% last year despite facing the same tariff treatment as Canadian goods. Waugh attributes the divergence entirely to Mexico’s role as the single largest source of AI-related imports (roughly 25% of the category), through its electrical, cooling, and networking equipment exports. Ironically, U.S. negotiators pressing Mexico on rules of origin are simultaneously exempting the imports driving Mexico’s export surge.
Another downstream impact is being felt through inflationary transmission. Data center cooling systems compete with the same equipment going into commercial and residential construction. AI buildout demand spills into prices for everyone (including housing affordability), running counter—in the short term—to the disinflationary wave AI is expected to eventually deliver.
USMCA
Prior to his Hill testimony, Ambassador Greer traveled to Mexico City for meetings last Monday with President Claudia Sheinbaum and Secretary of Economy Marcelo Ebrard. A joint statement following the meeting directed technical teams to advance discussions across four workstreams: economic security and complementary trade actions, strengthened rules of origin for key industrial goods, critical minerals collaboration, and resolution of outstanding bilateral trade irritants. The first official bilateral negotiating round for the USMCA Review is now set for the week of May 25 in Mexico City. With the July 1 Joint Review deadline just over two months away, the May 25 round leaves a six-week window. This timeline structurally forecloses comprehensive resolution and confirms the partial-progress framework Greer previously signaled at the Hudson Institute.
The Mexico City bilateral produced a significant public clarification of the tariff baseline governing the May 25 negotiations. Reuters reporting on Greer’s private remarks to Mexican industry confirmed what the Administration has long implied: tariffs on autos, steel, and aluminum are permanent features of the bilateral architecture, not leverage to be traded away. One source characterized Greer’s message as: “Tariffs are here to stay. President Trump likes them. We will never go back to a zero-tariff world.”
Secretary Ebrard publicly absorbed this with notable pragmatism: “We shouldn’t be nostalgic about a time when there were no tariffs. When it comes to the automotive industry, steel and aluminum—which have been our priority—we know it is very difficult to think that tariffs will disappear. What we are looking for is how to reduce them.” Both sides have publicly accepted the same tariff-permanence baseline, removing a foundational ambiguity that could have derailed the May 25 round. Mexico also revised rules governing private electricity generators ahead of talks—a substantive pre-negotiation confidence-building measure addressing one of USTR’s formally stated USMCA barriers.
While the bilateral U.S./Mexico atmosphere remains positive, friction points remain. The Washington Post reported that two CIA officers operating under embassy cover were killed in a car crash in Chihuahua while returning from a counter-narcotics operation targeting one of the largest clandestine methamphetamine facilities ever discovered in Mexico. Sheinbaum announced her government would investigate whether the CIA operation violated Mexican national security laws, directing scrutiny at the American involvement rather than the crash’s cause. Brookings Institution analyst Vanda Felbab-Brown assessed the dynamic directly: Sheinbaum is using the incident for domestic political cover and “potentially as a bargaining chip with the U.S.” At the same time, OFAC sanctioned 23 individuals and entities comprising an opioid network with ties to the Sinaloa Cartel. The network’s architecture receives Indian shipments through Guatemala to Sinaloa and Mexico City. With the final production stage in Mexico, Sheinbaum’s government and the U.S. will continue to spar over U.S. interdiction and sovereignty.
With the Mexico negotiations up and running, the Canada track remains stalled. At Wednesday’s hearing, Greer pointedly stated that “There are two countries that have retaliated economically against the United States in the past year: the People’s Republic of China and Canada.” The equivalence—placing Ottawa alongside Beijing on economic retaliation—is a stark public characterization. Greer added that there “may have to be an enforcement action” on wine and spirits, a continued irritant and stated precondition to formal negotiations beginning. He further singled Canada out for disadvantaging U.S. workers through third-country shipment practices on rules of origin.
Ontario Premier Doug Ford offered the Canadian posture in response, saying he would relent on American alcohol sales “in a heartbeat,” but only once U.S. tariffs on Ontario’s auto sector are removed. Both sides are conditioning concessions on the other moving first. Canada is simultaneously pursuing alternatives—first Carney’s investment framework with the Chinese and now Ottawa’s talks with Brussels to gain access to the EU’s “Made in Europe” manufacturing scheme.
Canada’s U.S. trade lead Dominic LeBlanc, however, struck a tone on Section 232 tariffs that mirrors Ebrard’s pragmatic acceptance on the Mexican side: “I think we should be realistic. They have not taken anybody to zero. Is there a level or an adjustment? Sure, there is.” Canada’s strategic view of the July 1 deadline is a “checkpoint, not a cliff,” signaling Ottawa is prepared to let the Joint Review period expire without a comprehensive agreement rather than make precondition concessions under deadline pressure.
Overall, Greer reiterated at the Ways and Means hearing that USMCA renewal would not be a “rubber stamp” of the existing agreement, while identifying agriculture as the exception he intends to “maintain.” On autos, Reuters reported the U.S. wants 100% North American content for engines, major electronics, and software—a threshold that would effectively eliminate Asian-component supply chains embedded in North American auto production. Bloomberg’s parallel reporting noted that the U.S. objective is to limit automakers’ ability to use offsets to lower their effective tariff rate, targeting an effective 10% tariff on USMCA-compliant vehicles (still below the 15% applied to European, Japanese, and South Korean autos). Commerce Secretary Howard Lutnick separately told Semafor that Chinese EV makers will not be allowed to invest in America, with an explicit warning to Canada and Mexico to follow suit or risk their preferential U.S. market access.
Donroe Doctrine
Our note’s coverage of the Donroe Doctrine was affirmed last week in an FT analysis of the Trump Administration’s November 2025 National Security Strategy. The document identified the Americas—not China competition, not European security—as the Administration’s foremost foreign policy priority, invoking the “Trump Corollary” to the historical Monroe Doctrine. The Administration’s explicit goal of preventing competitors from owning or controlling strategically vital assets in the Western Hemisphere is indeed a reality. As veteran diplomat Aaron David Miller summarized: “The document sends the unmistakable message: Stay out of America’s backyard, and we may be prepared to stay out of yours.”
According to the FT, the Administration’s wins include: Venezuela effectively removed from Russian and Chinese influence; Panama’s Supreme Court ruling against Chinese operation of the Canal; the Doral Summit’s “Shield of the Americas” framework; Cuban engagement via senior-level in-person diplomacy; and the recent Serra Verde rare earth acquisition by a U.S. firm (more on that below).
But as we have suggested, there exist notable holdouts. The three countries most critical to the drug interdiction pillar—Brazil, Colombia, and Mexico—were absent from Doral and remain governed by left-leaning administrations, with at least two explicitly opposed to the Trump Administration’s goals. Brazil exports more to China than to Europe and the U.S. combined. Latin American trade with China has grown from $12 billion in 2000 to $518.5 billion in 2024.
USTR staff circulated findings this week identifying foreign trade practices in Latin America that “undercut American workers, contaminate global supply chains, and harm the environment and local communities,” with Brazil, Colombia, and Mexico specifically named. USTR estimates that nearly 50% of all Brazilian wood harvested—and approximately 90% of timber from the Brazilian Amazon—is illegal, depressing global wood prices and disadvantaging U.S. producers. An estimated 47% of Colombian timber sold is of illegal origin, with illegal timber reportedly laundered into export supply chains.
USTR also flagged Mexican fishing vessels—often linked to transnational criminal organizations—that routinely cross into U.S. waters in the Gulf of America to harvest red snapper, grouper, and shark. In 2025, U.S. fish imports from Mexico totaled $646.9 million, with $60.2 million in snapper alone; illegal imports sold well below market value further depress the Gulf Coast red snapper market.
The USTR findings add a trade enforcement dimension to the Donroe Doctrine’s pressure toolkit that operates independently of the security and drug interdiction tracks. This is creating pre-electoral leverage points with Brazil and Colombia ahead of their 2026 presidential elections.
The Administration’s pitch rests on the upside of an economically unified and secure Western Hemisphere. A Rystad Energy analysis this week quantifies the South American production upside at sustained $100 oil: an additional 2.1 million barrels per day by 2035, with Venezuela accounting for 910,000 bpd conditional on fiscal reforms and sanctions relief—both currently in motion. Rystad calculates South American government revenues are on track to rise approximately $43 billion in 2026 relative to the pre-war case, with Petrobras alone capturing $13.1 billion. The Hormuz disruption has, in effect, stress-tested and validated the hemispheric supply diversification thesis the Donroe Doctrine is advancing.
Argentina. More negative economic data out of Argentina as its economy contracted 2.6% in February compared to January—the largest monthly decline since Javier Milei took office—and fell 2.1% year-on-year. Mining and agriculture expanded 9.9% and 8.4% year-on-year respectively, but manufacturing and retail contracted 8.7% and 7%, the country’s two largest employing sectors. Milei has deliberately designed the transition, slashing tariffs to expose uncompetitive domestic industries while redirecting capital toward extractive and agricultural exports. The war’s commodity price windfall flows disproportionately to the sectors Milei is prioritizing, providing near-term fiscal relief that blunts the employment costs accumulating elsewhere.
Milei’s approval rating fell to 36% in March as unemployment hit 7.5% in Q4 2025, the highest fourth-quarter reading since the pandemic. StoneX strategist Ramiro Blazquez Giomi: “The government thinks that lowering inflation alone will be its ticket to victory in 2027, but I’m not sure that equation is bulletproof.” The recent Treasury swap stabilized Argentina’s currency and rebuilt reserves, but it does not address the domestic demand compression that tight monetary policy and import liberalization are imposing on the economy’s two largest employing sectors. The Donroe Doctrine’s Argentina investment thesis depends on Milei surviving to 2027. The February data is a political durability signal that merits monitoring.
Brazil. USA Rare Earth announced last Monday that it will acquire 100% of Serra Verde Group, the Brazilian owner of the Pela Ema mine in Goiás state and the only producer outside Asia capable of supplying all four magnetic rare earths at scale, along with yttrium. According to Rare Earth CEO Barbara Humpton, “Serra Verde’s Pela Ema mine is a one-of-a-kind asset.” The mine’s particular significance lies in its heavy rare earth concentration, a subset China dominates globally and for which ex-China supply is exceptionally scarce. The acquisition is USA Rare Earth’s second major vertical integration move in months, following its November purchase of Less Common Metals, a U.K.-based rare-earth metals processor. Together, a mine-to-magnets supply chain is taking shape within the Western Hemisphere and outside of Chinese control. USA Rare Earth began commissioning its first rare-earth magnet production line in Q1 2026.
The Donroe Doctrine is not only a national security strategy, it is a critical supply chain imperative. U.S. capital is successfully locking up ex-Asia heavy rare earth mining at scale. Brazil’s reluctance to grant exclusive U.S. access to its critical minerals—“we do not reserve our minerals for one specific country”—makes the private capital acquisition route the Administration’s most effective available instrument.
Cuba. The Trump Administration confirmed that a senior State Department delegation traveled to Havana earlier this month, the first U.S. government flight to Cuban soil outside Guantánamo Bay since 2016. Cuba’s Foreign Ministry confirmed the meeting as “respectful and professional.” The delegation also held a separate one-on-one meeting with Colonel Raúl Guillermo Rodríguez Castro—El Cangrejo, Raúl Castro’s grandson—consistent with the back-channel dynamic reported in prior weeks.
The U.S. agenda included release of political prisoners and broader civil liberties, Starlink satellite internet with free connectivity for Cuban citizens, removal of foreign intelligence and military presences within 100 miles of U.S. territory, economic and governance reforms, and compensation for confiscated American properties.
The delegation explicitly warned that Cuba’s economy is in “free fall” with a narrowing window before conditions become irreversible. President Díaz-Canel took a defiant tone at the 65th anniversary of the revolution’s socialist declaration: “Cuba is not a failed state. Cuba is a besieged state.” The dual posture mirrors the factional complexity documented in prior weeks, with Raúl’s influence guiding the engagement track while hardline rhetoric holds the domestic line.
Peru. April 12’s first-round presidential election produced a result with direct Donroe Doctrine implications. Conservative Keiko Fujimori secured first place outright and a June 7 runoff berth. The contest for second place remains unresolved, with leftist former congressman Roberto Sánchez holding a thin lead over conservative former Lima Mayor Rafael López Aliaga. The winner will be forced to deal with a divided though slightly conservative majority congress. Fujimori ran unsuccessfully for president in 2011, 2016 and 2021, narrowly losing her last race to radical leftist Pedro Castillo (now serving a prison sentence). Fujimori’s father, Alberto Fujimori, tamed hyperinflation and oversaw rapid economic growth during his 1990-2000 tenure. The younger Fujimori has pledged to control crime and has described the left as “the enemy.” Sánchez, on the other hand, has alarmed investors with a pledge to rewrite Peru’s business-friendly Fujimori-era constitution.
A Fujimori win would add Peru to the Administration’s growing hemispheric alignment. A Sánchez runoff victory would complicate that picture considerably, particularly given Peru’s role as a major copper producer and its proximity to the critical minerals supply chain narrative. As the FT points out, Peru has experienced a revolving door of nine presidents in a decade, with four former leaders in jail. Results continue to trickle in and are not expected to be finalized until mid-May. What’s more, the country’s foreign and defense ministers both resigned last week over the procurement of US fighter jets. Iván Alonso, an economist and columnist, said: “The debate has become bitterly tense, with the country on edge…”
Venezuela. The WSJ’s reporting on the ELN’s control of Venezuela’s cocaine trade surfaces the Donroe Doctrine’s central unresolved tension. The National Liberation Army—a Colombian Marxist guerrilla organization that tripled in size to approximately 6,000 fighters by taking refuge in Venezuela—now controls the cocaine-producing Catatumbo border region and operates its own processing laboratories. The ELN’s expansion was facilitated by, and in some cases conducted with, the Maduro government’s security services. With Delcy Rodríguez installed as interim president, the ELN’s structural role in Venezuela’s cocaine economy has not changed. President Trump’s stated objective of ending Venezuelan drug trafficking now runs directly into an organization controlling the border corridor with near-state capacity, party to no normalization agreement.
China
Last week, China deployed a naval task group through the Yokoate Waterway—between Japan’s Amami Oshima and Yokoate islands—for combat training drills, per a PLA Eastern Theater Command statement. The Yokoate transit is significant as China routinely uses the Miyako Strait for Pacific access, not the Yokoate transit which lies closer to the Japanese mainland. China launched the drills as Japan joined the Balikatan exercises (U.S.-Philippines joint drills), marking Tokyo’s inaugural participation. Days earlier, China’s Foreign Ministry formally protested a Japanese MSDF vessel transiting the Taiwan Strait. Beijing’s simultaneous hedging posture heading into the May summit appears to be a deepening engagement with the U.S. while pressuring U.S. allies in the region through an aggressive military posture.
The Chinese need for U.S. engagement shows a structural dependency that strengthens the U.S. hand heading into the Beijing summit. China is on pace to import a record 800,000 tons of U.S. ethane in April alone—roughly 60% above the monthly average—as Chinese petrochemical producers scramble to replace naphtha and LPG supplies cut off by the effective Hormuz closure. Ethane is the primary feedstock for ethylene production, the foundational building block for plastics across Chinese manufacturing. Given Chinese petrochemical capacity was built around U.S. ethane, the CCP has no near-term substitution pathway. President Trump arrives in Beijing having provided China relief on both Iranian crude access and petrochemical feedstock supply, while Beijing faces record dependence on U.S. ethane. The U.S. leverage asymmetry will narrow over time as China’s clean energy buildout reduces its hydrocarbon dependence—but for now it is a material negotiating table dynamic.
Aside from military postures and energy leverage, the race for AI dominance remains the existential tension in the U.S./China relationship. Significantly, OSTP Director Michael Kratsios issued a formal White House memorandum last week entitled “Adversarial Distillation of American AI Models,” outlining systematic Chinese AI theft. “The United States government has information indicating that foreign entities, principally based in China, are engaged in deliberate, industrial-scale campaigns to distill U.S. frontier AI systems,” Kratsios wrote. Tens of thousands of proxy accounts are used to evade detection while querying proprietary U.S. AI models through APIs millions of times, generating datasets that allow foreign actors to replicate model behavior at a fraction of development cost. The memo names Anthropic, whose Claude models were targeted by approximately 24,000 fraudulent accounts, and OpenAI as having already identified such activity. Kratsios characterized distillation as national security risk beyond IP theft—stripped models lack the safety guardrails designed to keep AI outputs “ideologically neutral and truth-seeking.” Separately, Secretary Lutnick committed unequivocally in a congressional hearing last week against providing “our best chips to China under any circumstances,” including the Blackwell.
Meanwhile, Treasury Assistant Secretary for Investment Security Chris Pilkerton delivered public comments on the Administration’s bilateral investment security architecture at the ACI CFIUS Conference, framing both inbound and outbound investment screening as integrated tools of the same China-facing national security strategy. On the inbound side, Pilkerton said CFIUS will facilitate investment from allies with “verifiable distance and independence from foreign adversaries,” explicitly disadvantaging Chinese-linked investors. CFIUS is also scrutinizing non-Chinese buyers with significant Chinese relationships including joint ventures and supply arrangements. Non-notified transactions are a stated enforcement priority and the Department of War has built its own non-notified team to search for transactions with defense equities not voluntarily brought to the Committee. On the outbound side, Pilkerton noted that the Comprehensive Outbound Investment National Security Act (COINS Act) requires a notice-and-comment rulemaking by March 2027.
China is actively pushing back, though again in a reactionary mode. The CCP’s National Development and Reform Commission (NDRC) said on Monday it would prohibit “foreign investment” in Manus and has “required the relevant parties to cancel the acquisition transaction”. Undoing the deal would be complex, as Meta has already integrated Manus into its tools. Spinning off its acquisition to a new buyer and selling it back to its former investors would provide the NDRC’s new restrictive national security/investment regime with credibility. CCP directives to private Chinese tech firms—including leading AI pioneers—to reject U.S.-origin capital in funding rounds without prior government approval is an aggressive signal against the Treasury’s CFIUS and outbound investment postures.
Meanwhile, DeepSeek rolled out previews of its new flagship model, billing it the most powerful open-source platform yet. Washington, meanwhile, is seeking to block Chinese developers from leveraging U.S. frontier models. Both sides are building walls as the Beijing summit approaches: the Manus/Meta exit bans, OSTP’s memo, and continued congressional pressure (e.g., the MATCH Act, the Deterring AI Model Theft Act), all landed within the same week.
The House Foreign Affairs Committee advanced more than 20 largely bipartisan export control bills Wednesday targeting Chinese access to American technology, the most comprehensive legislative action on technology transfer since Biden-era export control rules. The three headline bills: the MATCH Act prohibiting the sale of the most essential semiconductor manufacturing equipment to any country of concern including China; the Stop Stealing Our Chips Act establishing a BIS whistleblower incentive program; and the Deterring American AI Model Theft Act authorizing sanctions against AI model theft—the legislative complement to the Manus/Meta exit-ban episode and the OSTP distillation theft memo. The package accompanied the China Select Committee’s release of “Buy What It Can, Steal What It Must,” detailing China’s legal and illegal semiconductor and AI acquisition strategy.
Miscellaneous
- European Union. EU Trade Commissioner Maros Sefcovic was in Washington Wednesday through Friday of last week, resulting in a U.S.–EU critical minerals action plan announced by USTR on Friday. The action plan commits to “address unjustified trade barriers,” widely read as a nod toward U.S. grievances on digital services taxes (DSTs). Greer confirmed to Ways and Means that he has a draft Section 301 investigation ready on digital trade, accusing the EU of treating U.S. technology firms as a “cash cow.” Meanwhile, EU member states continue to debate changes made to the U.S. trade deal by the European Parliament, particularly the sunset clause.
- Exclusions. Regarding the new Section 301 investigations, Greer told Ways and Means not to expect an exclusion process as the President is “very much opposed” to opening an office for that purpose. The framing confirms the primary analytical lens for the new 301 investigations: they are a legal and mathematical exercise to replace the IEEPA tariffs before the Section 122 July 24 expiration deadline, not a substantive trade policy overhaul.
- India. Chief negotiator Darpan Jain was in Washington last week for trade talks, described as “positive and productive” by the U.S. side and “constructive” by the Indian side. Greer flagged India’s agricultural markets as protectionist—an ongoing friction point. Notably, no timeline has emerged for converting the existing bilateral framework into ART status.
- South Korea. Finance Minister Koo Yoon-cheol met with Bessent last week, covering AI, critical minerals, and ART implementation.
- United Kingdom. President Trump threatened new tariffs on the UK over DSTs ahead of King Charles’ state visit. The UK affirmed its “position remains” on DSTs. The state visit will likely calm rhetorical temperature near-term, but Greer’s draft Section 301 threat on digital trade remains loaded.
OUTLOOK / ANALYSIS
Last week’s defining analytical tension was not between war and peace, rather the physical market’s honest accounting of the disruption and the financial market’s bet that it ends before it matters. Both cannot be right simultaneously. The resolution of that tension affects U.S. firms across every asset class, every supply chain, and every policy calendar on this note’s radar.
The Iran negotiating framework is structurally impaired, not temporarily stalled. The IRGC veto over civilian diplomacy is an institutional fact produced by Larijani’s assassination and Khamenei’s absence. The Islamabad pattern has repeated itself three times: signal, reversal, standdown. What changed by the weekend was that Iran submitted a revised proposal Trump described as “much better.” That is genuine progress. It is also not a deal. Trump’s telephone diplomacy posture shifts the onus to Tehran, which must produce a unified proposal from a fractured decision-making structure in which the faction capable of implementing any agreement—the IRGC—remains publicly committed to blocking it. The naval blockade is Trump’s primary instrument precisely because it operates independently of the diplomatic track. Kharg Island storage fills regardless of anything short of peace deal.
The six-month mine-clearing timeline is the most consequential shipping news. The Pentagon’s estimate is a physical and engineering constraint. It means that even the most optimistic scenario produces normal Hormuz commercial operations no earlier than October or November. The traders preparing for a long-war scenario, the airlines suspending guidance, the farmers rationing fertilizer, and the governments withholding SPR releases are all calibrating to this timeline. Futures markets are not—the back end of the curve prices a diplomatic outcome.
The equity market’s resilience is real but its foundation is narrow. The 80% earnings beat rate, the 13.4% blended Q1 profit margin, and Goldman’s 12% EPS growth forecast are not fabrications. The AI trade is generating genuine revenue and the U.S. is a net energy exporter insulated from the oil shock in ways Asian and European markets are not. What the market is not pricing is the sequential nature of the shock’s transmission: Q1 earnings predate the war’s most acute economic disruption; Q2 earnings will report results from the period of maximum disruption; and the six-month mine-clearing timeline means the disruption extends well into Q3. PGIM’s “transitory” invocation is pointing to the risk: markets have borrowed from the future and borrowed time has a shelf life measured in weeks.
The Donroe Doctrine’s electoral calendar is an important forward-looking variable. Colombia votes in May and June; Peru is ongoing; and Brazil in October. These races are all shaping toward runoffs between the left and Trump-aligned candidates. A rightward shift in Latin countries expands the Shield of the Americas’ operational reach materially. The doctrine’s drug interdiction pillar remains inoperable without Brazil, Colombia, and Mexico. U.S. interdiction presence in Mexico for counter-narcotics is simultaneously the doctrine’s instrument and Sheinbaum’s most effective domestic political card.
The Beijing summit is a global convergence point. China arrives at May 14 with leverage over Tehran, military tensions throughout its region, and new AI capital controls insulating its tech sector from American investment. The U.S. arrives with three carrier strike groups in the Middle East, the OSTP distillation theft memo naming China by name, and Greer’s equivalence of Canada and China on economic retaliation. The rare earth mine acquisition in Brazil and the Gulf yuan petrodollar stress are data points outside traditional diplomatic channels. Bessent and Miller’s internal directive against disrupting the China relationship ahead of the summit is being tested on a daily basis.
King Charles visit and Powell closure are stabilizing counterweights. The first State Visit of Trump’s second term going to the United Kingdom, at the moment of maximum transatlantic strain, is a deliberate signal of bilateral priority. The Oval Office bilateral on Tuesday is where any substantive repair, if it occurs, happens out of public view. The Powell investigation’s closure removes the primary justification for the Tillis blockade and opens the path to a confirmed Fed chair prior to May 15, a consequential institutional stabilization. Both developments reduce the accumulation of compounding uncertainty.
This week opens with no further Islamabad talks planned and the U.S. searching for a unified position out of a fractured Iranian authority. Whether this weekend’s “much better” proposal is a sign of progress is still too early to tell. What we do know is that the ceasefire remains in place, Gulf commercial traffic continues to be blocked, and markets are trading at record highs. The financial market and the physical market are reading the same facts and reaching opposite conclusions. One of them is wrong—the results of the Iranian power struggle will reveal the answer.
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