by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today first discusses one way to understand the US’s new foreign policy now that we’ve had a year to observe it in practice, taking into account the administration’s new national security strategy and analysis of peak events such as the seizure of Venezuelan President Maduro. We next review several other international and US developments that could affect the financial markets today, including rising pushback to the Justice Department’s probe of Federal Reserve Chair Powell and a presidential social media post that may signal new federal regulation of electricity prices.

US Foreign Policy: More than a week has passed since the US seizure of Venezuelan President Maduro, and it may be useful to say some words about the US’s evolving new foreign policy. Coupled with the administration’s national security strategy and its other initiatives over the last year, the action in Venezuela suggests to us that the “spheres of influence” goal so many analysts are discussing may not be the most accurate. Rather, we wonder if “neo-colonialism” may be a better way of thinking about President Trump’s foreign policy and where it’s heading.

• First, it’s helpful to understand the terminology. We see colonialism as an economic and political relationship in which the mother country has some degree of control over foreign lands to use them as guaranteed markets and/or sources of raw materials and industrial inputs. People typically see spheres of influence as more tenuous control over a particular geographical area. Finally, imperialism is an even broader, stronger control over foreign countries through military, diplomatic, and economic power.
• Many observers, especially in weaker countries or former colonies, use “colonialism” as a pejorative term, but we don’t. We use the term only descriptively — to better understand the evolving system’s political, economic, and investment implications. Indeed, one could argue that foreign policy should be judged by whether it advances the interests of the country’s people, including its working class. Past colonial systems, such as that of the British, may well have been quite positive for their own people and working classes.
• Given the administration’s focus on economic and commercial interests, it’s possible to argue that it is seeking to build a new, US-centered, neo-colonial system established and maintained by hard power. In this system, more industrial production would happen within the US, but Washington would have some degree of explicit or implicit control over other countries to ensure they serve as valuable markets or as sources of raw materials or industrial and technological components.
• If this is true, administration officials seem to want the new US neo-colonial system to be centered on the Western Hemisphere, mostly because they prefer short, easily defensible supply lines. The problem is that there are many key minerals and industrial or technological inputs outside the Western Hemisphere. For example, many critical minerals are most available in Africa or the Asia-Pacific region. The most advanced computer chips are currently produced almost exclusively in Taiwan.
• The administration may hope to eventually source all key minerals and industrial inputs from the Americas, but for the time being, any evolving US neo-colonial system would have to be broader than that, extending out in the Pacific Ocean to places like Japan, South Korea, Taiwan, and the Philippines, and across the Atlantic to at least some countries in Europe, the Middle East, and Africa.
• How would this evolving system affect the global “bloc” system that we at Confluence have discussed so much in recent years? At first, the new US system may largely overlap the current US-led geopolitical and economic bloc. However, while the bloc system implies a certain static, stable grouping of countries, the evolving neo-colonial system could be more fluid. In fact, a new tension-filled “Great Game” may emerge, where China and other countries tussle with the US to bring key countries into their system.
• As the US works to draw these countries close as a source of demand and supply, Washington will likely push to ensure that their economic policies are aligned with those of the US. If this includes pressure for improved policies such as deregulation and fiscal stability, Washington’s embrace may signal improved growth and better stock market performance.
• Over time, however, the US embrace of countries further afield, with long supply lines to the US, may be abandoned. For instance, while the US currently may want to defend Taiwan to ensure access to its semiconductor supplies, Washington is trying to develop the US’s indigenous capacity for those goods. When and if that eventually happens, the US would have much less interest in supporting Taiwan. Similar logic could apply to countries such as Japan, South Korea, and much of Europe in the long term.
• We would caution that this is still not a definitive analysis. We continue to watch the administration’s approach and try to better understand where it is going. And importantly, we are still wrapping our head around the associated investment implications. Many of our current themes are likely to continue, such as our positive view on European defense stocks and precious metals. All the same, we suspect that our analysis will reveal some additional opportunities and risks going forward.

United States-Taiwan: The Wall Street Journal today reports that Washington and Taipei are nearing a trade deal in which the current 20% import tariff against Taiwan would be cut in return for Taiwan committing to more than $300 billion in investment and other spending in the US. That sum includes and expands on last year’s $165-billion investment commitment from Taiwan Semiconductor Manufacturing Company. Importantly, the expanded investment commitment would have TSMC building as many as a dozen new cutting-edge chip plants in Arizona.

• The new Arizona fabs would produce both logic chips, which are used for artificial intelligence, and packaging chips, which provide supporting functions.
• The deal underscores the US administration’s focus on building up domestic technology manufacturing. Tech now is clearly a favored sector in the US, which will likely support the prospects for tech stocks going forward. However, its favored status could make it more susceptible to government interference over time.
• By increasing and expanding the range of advanced semiconductor manufacturing in the US, the deal also would be consistent with the administration’s goal of shortening and securing key supply chains. Consistent with the discussion above, however, it could eventually reduce the US’s reliance on Taiwanese production and reduce the US’s security interests in Taiwan.

United States-Iran: To pressure Tehran to stop its violent repression against anti-government protestors, President Trump yesterday said he would immediately impose an additional 25% import tariff on any country doing business with Iran. Based on data from the first half of 2025, some 100 countries could be at risk of the added tariffs. However, the most exposed would likely be China, Turkey, Pakistan, and India, all of which could face a new round of trade disruptions and financial market volatility.

 US Monetary Policy: Several top Republicans in Congress have criticized the administration’s criminal investigation of Fed Chair Powell, with at least two Republicans in the Senate signaling that they would hold up the president’s next nominations to the central bank over the probe. The sudden pushback may force the administration to shelve its probe and simply wait until Powell’s term runs out in mid-May. Even then, however, we think the White House would continue to push the Fed to slash interest rates when a new chair is in place.

• JPMorgan Chase CEO Jamie Dimon this morning added his opinion, saying that “anything that chips away” at the central bank’s independence “is not a good idea.”
• Dimon also warned that political interference with the Fed would cause inflation and interest rates to rise, contrary to President Trump’s goal of lowering rates.

 US Critical Minerals Industry: Louisiana-based gallium producer Atlantic Alumina yesterday said the Pentagon has bought $150 million of preferred equity in the firm and will make further investments in the near future. The deal is the latest in a string of US government investments in firms producing minerals that are critical to advanced technology and defense goods. The aim is to break China’s near monopoly on producing many of the minerals — an aim that has boosted investor interest in critical minerals firms and other miners and processors.

US Housing Industry: New York Gov. Kathy Hochul today will reportedly propose exempting most new housing projects from the New York State Environmental Quality Review Act. If the reform is approved by state legislators, it would mark the latest state or local effort to make it faster and cheaper to build new housing supply by cutting regulations. If such state and local efforts hit critical mass, they could be positive for national homebuilders.

US Electricity Market: In a social media post last night, President Trump said he never wants “Americans to pay higher Electricity bills because of Data Centers.” Rather, he insisted that big tech companies building data centers “must ‘pay their own way.’” Given the president’s other proposed market interventions to address “affordability,” the statements may raise concerns that he will intervene in the electricity market to push down consumer bills ahead of the mid-term elections in November — a move that could roil technology and utility stocks.

European Union: New data from European trade body CLEPA shows auto parts manufacturers on the Continent eliminated over 100,000 jobs over 2024 and 2025, twice the total loss during the coronavirus pandemic. According to the organization, the losses reflect weak European auto demand and ultracompetitive pricing by Chinese auto exporters. The figures illustrate the dire straits faced by Europe’s auto sector and point to the possibility of further trade tensions between the EU and China.

United Kingdom: Air Chief Marshal Sir Richard Knighton, chief of the defense staff, told a parliamentary committee yesterday that the British armed forces are underfunded and that “We are not as ready as we need to be for the kind of full-scale conflict that we might face.” The statement shows how European countries probably will not be able to defend themselves against Russian threats in the near term, even if they want to rearm quickly. That suggests European defense firms will continue to see growing revenues, profits, and stock prices for years to come.

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