by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with key takeaways from Treasury Secretary Scott Bessent’s remarks at the Economic Club of New York. We then examine rising tensions between the US and its NATO allies and the implications for its strategic positioning against China. Next, we briefly cover the latest Fed stress test results, deepening US-Taiwan ties, and another strong earnings report from a major chipmaker. As always, we include a review of recent domestic and international economic data.

Bessent Speaks: During a speech to the Economic Club of New York, US Treasury Secretary Bessent offered additional insight into how the Trump administration intends to better align economic strategy with national security objectives. His remarks shed light on the motivations behind several recent policy initiatives and provide a glimpse of what may lie ahead. Overall, his comments underscore the administration’s broader goal of reshaping the economy to feature a greater role for government involvement.

• Bessent outlined five principles that define the White House’s economic agenda: building national capacity by strengthening US supply‑chain resilience, promoting trade reciprocity by ensuring that other countries treat US firms fairly, maintaining economic leadership by helping to shape global trade rules, sustaining financial leadership by protecting the US dollar’s reserve‑currency status, and fostering household prosperity by encouraging broader participation in the ongoing economic build‑out.
• His comments suggest a significant departure from the traditional US model, under which the US positioned itself as the hub of global trade and the primary provider of international security to reinforce its central role. Instead, the administration appears to be moving toward a more state‑centric, inward‑looking framework that prioritizes resilience over pure efficiency.
• While he emphasized the need for the US to become more self‑reliant, he also made clear that this does not imply a total retreat from global engagement. He noted that it would be unrealistic and unnecessary for the US to do everything from start to finish. However, he also indicated that certain strategic industries — such as critical minerals, pharmaceuticals, semiconductors, artificial intelligence, and quantum computing — will need a strong production base at home due to their strategic importance.
• As we have noted in previous reports, the United States appears to be shifting away from globalization while adopting a more interventionist economic posture. This transition is likely to reduce allocative efficiency and increase inflation volatility. In such an environment, commodities tend to outperform, as heightened competition for resources and supply chain frictions place upward pressure on prices and incentivize inventory accumulation.

NATO Fracturing: As the US-China rivalry intensifies, Washington is showing increasing signs of distrust toward its traditional allies. On Wednesday, President Trump criticized NATO members for what he described as a delayed response in supporting US efforts during the Iran conflict, speaking alongside NATO Secretary-General Mark Rutte. The remarks come amid persistently elevated geopolitical tensions, as China continues to expand its espionage activities and military preparedness in pursuit of its challenge to US global leadership.

• President Trump’s criticism comes ahead of next month’s NATO summit, where he has signaled a clear reluctance to attend, citing the alliance’s failure to provide meaningful support during the Iran war and its failure to adequately increase its defense spending. White House officials, such as Peter Hegseth, attending the summit are expected to use the platform to call out specific member states that have fallen short of their commitments as the administration looks to hold allies more accountable.
• As US-NATO tensions simmer, China is leveraging the distraction to fast-track its AI and defense modernization. Alibaba faces allegations from Anthropic of illicit model scraping, a cost-cutting shortcut to AI advancement. At the same time, the Chinese military has built mock US destroyers to test its anti-ship technology. Taken together, these moves reveal a deepening sense of urgency in Beijing as it races to erode America’s military edge.
• The rising competition with China will make it difficult for the US to completely abandon NATO. Even as relations between the US and its European allies grow strained, Washington will likely need to keep Europe within its sphere of influence in order to sustain its technological and military edge over Beijing. That said, the US may be able to leverage these very tensions to extract further concessions. We expect Europe to increase defense spending, not only on its own defense firms, but on US companies as well.

Fed Stress Tests: The Federal Reserve gave passing grades to the largest US banks following its annual stress test of their crisis readiness. According to the report, the banks would collectively lose $708 billion in a severe economic downturn yet would stay above regulatory capital requirements. While the results offer some reassurance that the banking system remains stable, they come at a time when capital rules have been loosened making the findings somewhat less meaningful.

Taiwan Flights: Taiwanese carrier EVA Air will begin direct flights to Washington, DC on Friday. The route is expected to facilitate greater access for Taiwanese officials to US policymakers, a development likely to draw scrutiny from Beijing. The move echoes past episodes of heightened tension, including former House Speaker Nancy Pelosi’s 2022 visit to Taiwan, which led to increased Chinese military intimidation of the sovereign island. As engagement between Washington and Taipei expands, friction with China is likely to intensify.

Chip Rally Lives On! Micron Technology exceeded sales expectations, helping to drive a broader rally in semiconductor stocks. The company expects fourth-quarter revenue to be above $50 billion, well ahead of the $43.2 billion consensus estimate. It also highlighted 16 strategic partnerships secured over the past three years, reinforcing visibility into sustained demand. The market’s reaction underscores the extent to which AI-linked equities are increasingly reliant on continued earnings strength to justify elevated valuations.

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