by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an assessment of the US effort to guarantee smooth economic relations with China. Next, we turn to the fine that the EU levied against X for violating its controversial new tech rules. We then provide an overview of critical global developments, including Japan’s bond market concerns, US lawmakers’ attempt to curtail advanced chip exports to Russia and China, and the latest indicators of a regional arms build-up in the Indo-Pacific. Finally, we close with a roundup of the essential domestic and international data releases.

Tensions Cool: The US and China trade tensions appear to have cooled after extending the deadline for trade talks last month. US Trade Representative Jamieson Greer stated that the US is prioritizing a stable trade dynamic with China as it seeks to prevent a new conflict. His comments are likely to reinforce the view that the White House is looking to calm fears of ongoing trade disruption as they seek to reduce uncertainty that could potentially hinder growth in a midterm election year.

• Greer’s comment comes as the US and China work to fully implement an understanding reached during trade talks in early November. While a written agreement has not been formalized, the US announced plans to lower certain trade tariffs. In a reciprocal move, China committed to suspending export restrictions on rare earth elements vital for technology manufacturing, and the White House confirmed that China also promised to increase its purchases of US soybeans and other farm products.
• Following the talks, Chinese officials called on the US to honor commitments to curb rhetoric related to Taiwan’s independence. This has complicated the regional security landscape and has forced the US to navigate heightened tensions stemming from Japan’s claim that a Chinese takeover of Taiwan poses a national security risk. Also, similar concerns were voiced by Taiwanese leader Lai Ching-te regarding President Xi Jinping’s rumored desire for the Chinese military to be ready for an invasion by 2027.
• Stable relations with China are likely crucial for the White House’s goal of retaining control of both houses of Congress in the upcoming election year. To avoid voter backlash, the administration must ensure no disruptions in trade — such as the loss of rare earth elements that has historically caused a pull-back in equities — while also securing China’s continued purchases of US agricultural products.
• That said, we view the US stance of prioritizing stability and avoiding tensions with China as particularly favorable for domestic equity markets heading into next year. The suspected resumption of trade consistency and the avoidance of new tariffs are expected to bolster corporate confidence, encouraging companies to pursue expansion, especially given the considerable tax incentives provided by recent legislation.

EU Fines: The European Union imposed a penalty on Elon Musk’s X for failing to comply with its Digital Services Act (DSA). Despite the fine being less than anticipated, estimated at 120 million EUR ($140 million), it provoked swift criticism from the White House. The US administration asserted that the EU’s action unfairly targets American tech firms and encroaches upon principles of free expression. The divergent approaches to tech regulation continue to pose a significant challenge to transatlantic relations even as both sides work toward resolving trade disputes.

Japan Bond Problems: Prime Minister Sanae Takaichi is closely monitoring the bond market as she attempts to chart a course for restoring growth in Japan. Her concern has intensified due to rising bond yields and a weakening yen, both driven by skepticism that her proposed $137 billion stimulus package will adequately boost growth without triggering inflation. This concern has prompted a renewed effort to cut government waste and support tight monetary policy. Should these initiatives prove successful, they could put downward pressure on the US dollar.

Canada Pushes Back: The Canadian government has served a default notice to Stellantis after the automaker announced its intention to move its manufacturing plant from Ontario to Illinois. This relocation may constitute a breach of the loan agreement under which Stellantis received forgivable financing to maintain operations in the region. Canada’s enforcement action may, in turn, provoke a US reaction as Washington seeks to remove barriers to its national reindustrialization agenda.

Block AI Chips: A day after Nvidia successfully lobbied to defeat a provision that would have required it to prioritize American firms for its chip sales, the Senate introduced a separate, bipartisan piece of legislation. This new bill proposes to halt export licenses for selling advanced chips to US adversaries China and Russia for a minimum of 30 months. This legislative action is a reminder that even as trade tensions between the US and China have cooled, there remains little tolerance for American chip companies aiding Beijing’s AI ambitions.

Macron and Xi Talk: French President Emmanuel Macron and Chinese President Xi Jinping met on Thursday to discuss ongoing relations between Europe and China, a talk held ahead of France taking over the G7 presidency in 2026. France reiterated its position that China needs to boost its investment in Europe. Meanwhile, Beijing stressed that France should not align with US efforts to contain China. Xi maintained that Europe could be included in its anticipated five-year plans, but the talks ultimately ended without a formal agreement.

Indo-Pacific Arms Race: Following White House approval, South Korea has decided to proceed with the development of its own nuclear-powered submarine. This military initiative is expected to strengthen South Korea’s ability to counter threats from North Korea. However, the move is also likely to heighten tensions with China and place pressure on Japan to develop similar capabilities. This pursuit of advanced military technology by South Korea underscores the growing importance of defense companies as the world continues to fragment into blocs.

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