PESTLE & MORTAR 24 April 2025

#1

U.S. and China Edge Toward a New Cold War

The economic relationship that long acted as a stabilizing force between the United States and China has unraveled at an unprecedented pace, pushing the two powers into what increasingly resembles a new Cold War. What once would have taken years of negotiation has now unfolded in mere months, with both governments imposing sweeping trade barriers and launching retaliatory measures. President Trump’s administration has levied tariffs as high as 145% on Chinese goods, prompting Beijing to respond not only with counter-tariffs but also by signaling a shift toward non-economic forms of retaliation. These include potential exploitation of cyber vulnerabilities gathered through years of digital intrusions into U.S. infrastructure, as well as coercive tactics targeting America’s regional allies, particularly in the Indo-Pacific. A key factor compounding the crisis is the breakdown in direct communication. While Trump has signaled interest in resuming talks, China has thus far refused to engage through formal diplomatic channels, instead considering intermediaries such as former Singaporean Prime Minister Lee Hsien Loong or Saudi Crown Prince Mohammed bin Salman. As both sides double down, they are actively working to build competing economic and strategic blocs. The U.S. is pressuring dozens of countries to restrict trade and investment with China, while Xi Jinping is engaged in a charm offensive across Southeast Asia and Europe, seeking to deepen ties and portray China as a guardian of global trade norms. At the same time, Washington is preparing to escalate its technological containment strategy by potentially blacklisting not only Chinese firms but also their subsidiaries, an aggressive move that would significantly expand the scope of U.S. export controls. This deepening economic decoupling appears less like a policy lever and more like a structural shift in global relations. The implications of this geopolitical rupture are profound. Economic decoupling is no longer a theoretical risk but an emerging reality that will reshape global trade, investment, and supply chains for years to come. Military and cyber tensions, combined with the erosion of diplomatic norms, increase the likelihood of miscalculation and escalation. Meanwhile, most countries are seeking to hedge rather than align decisively with either Washington or Beijing, creating a fragmented international order defined more by power blocs than shared rules. Businesses, financial markets, and policymakers now face an extended period of strategic uncertainty, where neither cooperation nor competition follows predictable patterns and where economic warfare is highly likely become a permanent feature of the global landscape.

#2

Bonds and Stocks Facing Problems Simultaneously

Financial markets have entered a period of intense volatility amid President Trump’s aggressive and unpredictable trade policies, triggering fears that a traditional trade war could escalate into a broader and more damaging “capital war.” Market movements in April have signaled a deepening unease: bond yields have spiked, the dollar has weakened despite global uncertainty, and gold prices have reached all-time highs as investors search for safe havens. The sharp sell-off in U.S. Treasury bonds despite solid auction demand alongside the declining dollar and underperformance of typically defensive assets like equities and government bonds, suggests growing concerns about the long-term stability of the U.S. financial system. As such, capital outflows and reduced foreign appetite for U.S. assets are emerging as serious risks. Foreign investors, rattled by the administration’s transactional approach to trade and fiscal management, are reducing exposure to U.S. debt and equities. Japanese investors sold a record $17.5 billion in U.S. bonds in a single week, and large asset managers like Allianz and BlackRock are shifting allocations away from the U.S. toward Europe and other markets. At the same time, fears of rising budget deficits and political interference in monetary policy have investors betting on widening spreads between short- and long-term Treasury yields, reflecting concerns over inflation and fiscal sustainability. If this gradual erosion in foreign capital demand continues, it will likely drive up borrowing costs for U.S. households and businesses, diminish the effectiveness of Treasurys as hedging tools, and ultimately challenge America’s financial primacy. Stock markets have also responded with increasing pessimism. The Dow Jones Industrial Average has suffered one of its worst April performances since the Great Depression, and the S&P 500’s track record under Trump is now the weakest for any president this early into a term since 1928. Treasury Secretary Scott Bessent has attempted to downplay the disruption, framing it as a temporary consequence of leveraged trades unwinding and claiming the dollar’s reserve status remains intact, but former Fed officials and economists argue that these reactions indicate deeper structural concerns. The administration’s mixed messages on tariffs, its confrontational stance toward the Federal Reserve, and its willingness to tolerate a weaker dollar are reshaping the global perception of U.S. assets, not as safe havens, but as unstable and politically exposed. This perception risks setting off a long-term shift away from U.S.-centric financial benchmarks like the MSCI World Index and reducing global dependence on dollar-denominated assets.

#3

UK Develops Counter-Drone Swarm Tech

The UK Ministry of Defence has successfully completed the largest counter-drone swarm trial in its history, using a Radiofrequency Directed Energy Weapon (RF DEW) to neutralize multiple drones simultaneously. Developed by Thales UK under a government-funded initiative known as Team Hersa, the demonstrator uses high-frequency radio waves to disrupt or damage the internal electronics of drones, causing them to crash or malfunction. The trial involved the British Army defeating two drone swarms and over 100 targets in total. Notably, this marks the first operational use of such a system by UK forces. With an estimated cost of just £0.10 per "shot", RF DEW offers a highly cost-effective alternative or complement to traditional kinetic air defense systems like missiles. It is particularly suited to short-range defense (up to 1 km) and is effective even against drones that are resistant to traditional electronic jamming. The successful deployment of RF DEW technology marks a significant technological shift in the field of counter-drone defense. As drones and drone swarms become cheaper, faster, and more autonomous, traditional defenses are increasingly unsustainable for dealing with large-scale threats. RF DEW offers a scalable, low-cost solution for point defense of sensitive sites such as military installations, critical infrastructure, and public events. Its ability to engage multiple targets simultaneously makes it uniquely suited for urban environments and scenarios with low-cost, high-volume threats, a likely future battlefield condition. However, widespread deployment will require addressing technical limitations (e.g., range, power), legal frameworks (particularly around electromagnetic emissions), and export controls. As the UK leads development, it will credibly also position itself as a global supplier of counter-UAS technology, potentially shaping international norms and interoperability standards.

#4

Google Appeals Monopoly Case

On April 17, a U.S. federal judge ruled that Google had unlawfully maintained a monopoly in the digital advertising market, specifically within publisher ad servers and ad exchanges, tools that facilitate the buying and selling of online ads. The court found that Google engaged in anticompetitive practices to exclude rivals and control these critical layers of the ad tech stack, harming competition and distorting market access. However, the court declined to extend the ruling to include Google’s advertiser tools or its acquisitions of DoubleClick and AdMeld, finding those did not violate antitrust law. Google has announced it will appeal the adverse parts of the ruling. This ruling signals a significant evolution in how the United States is approaching monopoly enforcement, especially in digital markets. Historically, U.S. antitrust action has focused narrowly on consumer pricing. This case, however, follows a growing trend of structural scrutiny in digital ecosystems, even when end-user prices are not affected, showing that market structure, exclusionary conduct, and vertical integration are gaining traction as key metrics for determining anticompetitive behavior. The ruling builds on the Biden-era momentum to revive and modernize antitrust doctrine, particularly in the tech sector. Even though some aspects of the government’s claims were not upheld, the judgment reinforces that dominance in digital infrastructure, such as advertising exchanges or app stores, can be subject to liability under current law. It may embolden the Department of Justice and the Federal Trade Commission to pursue more targeted cases around platform control, self-preferencing, and bundling, even in the absence of new legislation. If the appeal is unsuccessful, this case will likely provide precedent for forced divestitures or functional separation in future actions, a remedy long considered politically ambitious but increasingly feasible in the current regulatory climate.

#5

EU Fines Apple and Meta

The European Union has fined Apple €500 million (approx. $570 million) and Meta €200 million for violations of the Digital Markets Act (DMA), the bloc’s flagship tech competition law intended to curb the market dominance of Big Tech. Apple’s fine focuses on its App Store rules, particularly its failure to allow developers to inform users of alternative payment options. Meta’s fine targets its advertising model, specifically how it requires users to accept personalized ads or pay a subscription. More consequential than the monetary penalties, however, are the cease-and-desist orders that require both companies to significantly alter core elements of their business models within 60 days or face steeper fines (up to 5% of daily revenue).These enforcement actions mark the EU’s first major use of the DMA and come amid ongoing U.S.-EU trade tensions, especially with President Trump, who has described such regulations as non-tariff barriers and threatened retaliatory tariffs. Trump’s administration has taken a more confrontational stance toward Europe’s digital rules, calling them “extortionate,” while lobbying efforts by Meta and other U.S. firms have urged Washington to push back. Although the European Commission denies any connection between its tech enforcement and broader trade diplomacy, the timing has added political sensitivity, especially during active negotiations with U.S. officials. For tech companies operating in the EU, these developments signal a new phase of regulatory assertiveness. Compliance with the Digital Markets Act will require firms to restructure app stores, revise ad-based revenue models, and relinquish tight control over user choice and data flows. For U.S.-EU relations, the rulings threaten to further strain transatlantic trade negotiations, especially if the Trump administration views these penalties as protectionist. The risk is a tit-for-tat escalation in which digital policy becomes entangled with broader trade disputes, weakening the prospect of a comprehensive trade deal and undermining cooperation on shared tech standards or data flows.

#6

Nigeria-South Africa Minerals Deal

Nigeria’s recent minerals deal with South Africa marks a significant step in its efforts to diversify away from oil, which currently accounts for about 90% of the country’s exports. The agreement aims to share technology and expertise to expand Nigeria’s underdeveloped mining sector, particularly in high-demand resources like gold, lithium, and iron ore, sectors that contribute less than 1% to Nigeria’s GDP. This pivot comes at a time of heightened global trade volatility caused by President Trump’s tariff war, which has negatively impacted agricultural exports like cocoa and contributed to a drop in global oil prices. That volatility has forced Nigerian officials to reassess fiscal planning, inject emergency funds into currency markets, and reevaluate their reliance on U.S. trade. Instead of prioritizing a bilateral deal with Washington, Nigeria is expanding ties with the United Kingdom, BRICS countries, and particularly other African nations. President Bola Tinubu’s recent pledge to remove tariffs on 90% of intra-African trade represents a major commitment to the African Continental Free Trade Area (AfCFTA), signaling a strategic shift toward regional integration and economic self-reliance. The implications for regional economics are substantial. First, Nigeria’s shift reinforces Africa’s growing momentum toward intra-continental trade, reducing dependence on external powers whose policies may be erratic or extractive. Second, the Nigeria–South Africa minerals deal positions both countries to take advantage of global demand for energy transition materials like lithium and cobalt, potentially spurring the growth of regional industrial ecosystems. Third, Nigeria’s move away from exclusive reliance on the U.S. reflects a broader recalibration in Africa’s foreign economic policy, elevating the role of emerging powers and neighboring states in trade and investment.

#7

Trump and Republicans’ Popularity in Decline

A new Reuters/Ipsos poll indicates a significant decline in public approval of President Donald Trump's economic management, with only 37% of Americans expressing approval as he approaches his 100th day in office. This marks a drop from 42% at the time of his inauguration and is notably lower than approval ratings during his first term. The downturn in approval is attributed to concerns over his aggressive economic policies, including the imposition of tariffs on major trading partners and attempts to influence the Federal Reserve, which have contributed to market instability and fears of a potential recession.  Despite these concerns, there is no clear indication that President Trump will alter his economic policies. His administration continues to advocate for protectionist measures and has not signaled a shift in strategy. While economic indicators and public opinion suggest increasing pressure, the administration's commitment to its current approach remains steadfast. Therefore, unless there is a significant change in economic conditions or political pressure, it is unlikely that President Trump will reverse course on his economic policies in the near term.

#8

Shipping Disrupted by Trade War

The escalating U.S.-China trade war, driven by President Trump’s imposition of steep tariffs, up to 145% on Chinese imports and retaliatory 125% tariffs from China, has caused serious disruptions to global shipping and supply chains. Major shipping companies, such as Hapag-Lloyd, report that approximately 30% of shipments from China to the United States have been canceled. This has led to a surge in “blank sailings” (canceled routes), a build-up of stranded empty containers, and congestion at U.S. ports, particularly in California. The impact has rippled through the logistics industry, with sectors like electronics and apparel seeing sharp declines in shipping orders. In response to these disruptions, many companies are redirecting manufacturing and shipping through Southeast Asian countries such as Vietnam and Thailand, seeking to insulate themselves from tariff risks and geopolitical volatility.

These developments have broader economic consequences. U.S. ports are experiencing reduced throughput, which threatens local jobs and port revenues, while shipping companies are absorbing significant logistical costs. Retailers are facing price increases and inventory delays, which are expected to be passed on to consumers. This contributes to inflationary pressures and may reduce consumer purchasing power. At the same time, international financial institutions, including the IMF, have warned that the trade war could contribute to a broader global economic slowdown. The shipping disruptions are also spilling over into Europe, where rerouted cargo has created bottlenecks and inefficiencies in major ports.