What you need to know

The overall economic picture remains confused, with the long-term impact of U.S. tariff policies unclear. Much of the impact is likely to emerge in the next two months as maritime trade responds to higher prices and the policy brinkmanship of the U.S. administration.

Leading figures in finance have been overwhelmingly negative on the impact of the Trump administration’s tariff policies. Yesterday, Ray Dalio, chief investment officer of Bridgewater Associates, the world’s largest hedge fund, published an article on X entitled "It's too late: the changes are coming." Dalio argued that while optimists hope tariff disputes between the United States and its trading partners will ease through negotiation, a growing number of businesses and policymakers now believe it is already too late. Exporters and importers are retreating from U.S.-linked trade, concluding that tariffs, supply chain disruptions, and geopolitical hostility will not be resolved soon. Firms engaged in U.S.-China commerce, in particular, are preparing for a future of massively reduced interdependence.

Dalio’s assessment reflects his view that the United States’ role as the world’s largest consumer of manufactured goods and the principal issuer of debt to finance its overconsumption is unsustainable. Assuming continued stable returns on U.S. debt, or business as usual, is increasingly unlikely, according to Dalio. Deep global trade and capital imbalances, exacerbated by deglobalization, are becoming untenable.

The euro, at $1.1376, is up 5% for April, on track for its largest monthly gain against the dollar in nearly three years. Meanwhile, the dollar’s 6.7% decline against the Swiss franc is its largest drop in a decade.

The domestic impact is likely to be felt soon. Imports have already dropped by about 35% overall, with a 42% drop in Chinese shipments, even before the major tariffs take effect.

Ships take about 30 days to reach the U.S. West Coast, with 40-45 days needed to reach ports on the East Coast. Hence, the effect of tariff policies on the import of manufactured goods is delayed. A sharper fall in imports is expected in the months ahead, threatening the U.S. transport sector, particularly trucking, and the availability of consumer goods, much of which are imported from China.

Still, the United States retains tremendous influence over the global economy. Although markets dislike volatility, decisions from Washington continue to exert a powerful effect. The Liberation Day tariffs, while opposed by nearly all economists, have demonstrated the centrality of the U.S. economy in global trade and finance. As an indication of geopolitical power, they have worked, even if the secondary effects on the economy and American relations with the rest of the world are clearly negative. There will soon also be negative impacts on U.S. consumers and workers who depend on trade.

Stocks and the dollar edged higher on Tuesday after the White House yesterday, under pressure from automakers, announced it would soften some automaker tariffs. Gold prices dipped slightly as easing trade tensions dulled demand for safe-haven assets, while investors awaited U.S. economic data for clues about the Federal Reserve’s next move. Spot gold fell 0.8% to $3,314.65 an ounce, while U.S. gold futures dropped 0.7% to $3,324.20—though gold prices remain at record levels. Brent crude slipped a further 1% to $65.21 a barrel.

The S&P 500 has recovered much of its early April losses after the tariff rollback announcements, but the dollar has merely stabilized without staging a major rebound.

It’s now the U.S. vs China, everyone else needs to pick a side

The House and Senate Armed Services Committees’ draft Reconciliation Legislation, released yesterday, marks a significant shift in U.S. military-industrial policy. If passed, it could represent the largest expansion of U.S. defense manufacturing capacity since the Second World War.

Among the Golden Dome allocations are $5.6 billion for space-based interceptors and $250 million for the development and testing of directed energy weapons. More broadly, the bill proposes $25 billion in direct investment aimed squarely at building tangible assets—new shipyard equipment, missile production lines, additive manufacturing facilities, depots, and the skilled-labor pipelines necessary to operate them.

Shipbuilding alone would undergo a hard reset. The legislation earmarks more than $6 billion for additive-wire shops, cold-spray repair technologies, new dry-docks, AI-driven process upgrades, and even a maritime “collaborative campus,” all intended to bring legacy yards into the 21st century. Another $10 billion is allocated to missile and munitions production, aiming to eliminate single-source chokepoints, from long-range anti-ship seekers to automated factories capable of producing munitions at scale.

A less conspicuous but consequential provision is a massive credit subsidy, authorizing up to $200 billion in loans and guarantees for industrial-base and critical-minerals projects for reshoring physical production. Defense manufacturing technology programs would receive a $400 million increase, with $250 million allocated to accelerated training initiatives.

Depots and shipyards would receive a further $3.75 billion for modernization—less headline-grabbing but strategically vital, as maintenance capacity offers compounding leverage. Additive manufacturing features prominently throughout the bill, with references to forward-deployed print cells in INDOPACOM, wire feedstock lines, and cold-spray refurbishment. The industrial base for one-way attack unmanned aerial systems would receive $4.5 billion.

The overall topline includes:

The $25 billion earmarked for Golden Dome includes roughly $15 billion for satellites, sensors, launch infrastructure, and interceptors, broken down as follows:

The funding runs through fiscal year 2029, with a halt on outlays after fiscal year 2034, compelling both the Pentagon and defense industry to act swiftly. The bill represents the clearest signal yet that the U.S. is moving decisively to revitalize its military-industrial base.

German President Frank-Walter Steinmeier said on Monday that NATO could count on Germany to step up its role in the alliance as the strategic situation in Europe grows more uncertain.

Germany, Europe’s largest economy, has approved plans for a massive increase in defense spending—a major shift for a country long committed to strict fiscal discipline.

The spending increase is based on a law that exempts defense and security expenditures from Germany’s debt rules, creating a €500 billion ($547 billion) infrastructure fund.

Friedrich Merz, who is set to be confirmed as Germany’s new chancellor, has driven the push for higher defense spending.

The move comes amid growing concerns about the future role of the U.S. in European security and the future of NATO. Steinmeier said, “A badly armed Germany is a greater threat to Europe than a strongly armed Germany.”

The rising Middle Powers: India, Türkiye, Vietnam, Indonesia, South Korea, Japan, the GCC nations

India’s Defense Ministry announced on Monday that it had signed an agreement with France to purchase 26 Rafale fighter jets for its navy at a cost of $7.4 billion, part of New Delhi’s drive to modernize its military. The Rafale jets, manufactured by Dassault Aviation, have air defense, reconnaissance, and strike capabilities. The deal builds upon a 2016 agreement under which India purchased 36 Rafale aircraft.

France is India’s second-largest defense supplier, and all jets under the new contract are expected to be delivered by 2030.

India is seeking to reduce its reliance on Russian-made equipment and to boost domestic weapons production.

Relations with Pakistan remain on the verge of war, after militants killed 26 tourists in Indian-controlled Kashmir last week, with New Delhi accusing Pakistan of involvement. India has previously responded to attacks in Kashmir with airstrikes on Pakistani territory.

Prime Minister Mark Carney and Canada’s Liberal Party have won the country’s federal election, securing a razor-thin minority government after a campaign dominated by U.S. President Donald Trump’s provocations and steep tariffs. Conservative leader Pierre Poilievre conceded defeat on Tuesday night. Carney, a former central banker who succeeded Justin Trudeau in March, galvanized public sentiment by positioning himself as a defender of Canadian sovereignty against Trump’s threats to annex Canada as the “51st state” and heavy-handed trade measures.

Despite having no prior political experience, Carney leveraged his reputation for economic stewardship—having guided Canada through the 2008 financial crisis and Britain through Brexit—to present himself as a centrist capable of navigating the economic turbulence created by the escalating trade war. Trump’s imposition of tariffs on Canadian steel, aluminum, cars, and pharmaceuticals has pushed Canada toward recession, a reality Carney has acknowledged while pledging to rebuild domestic industries and reduce reliance on the U.S.

Throughout the campaign, Carney emphasized national resilience, promising to “stand up for Canadian workers, businesses, history, values, and sovereignty.” His first overseas trip as prime minister was to Europe rather than Washington, symbolizing a deliberate strategic pivot. With Canada facing economic headwinds and geopolitical tensions, Carney has positioned himself as a steady leader ready to confront a period of profound uncertainty.

Most of Spain and Portugal were plunged into a power outage on Monday, lasting from midday until the evening, disrupting trains and traffic-light systems. By early Tuesday, electricity had been restored to most areas, but authorities have yet to specify the cause of the blackout. Spanish Prime Minister Pedro Sánchez said officials were still investigating. On Monday evening, Sánchez reported that a loss of 15GW of electricity generation—equivalent to 60% of national demand—occurred within five seconds at midday.

The instability caused the Spanish and French electricity interconnection through the Pyrenees mountain range to split, leading to the collapse of Spain’s system. Brief outages were also reported in southern France.

Some energy analysts have suggested that identifying the root cause could take several months.

Spain is one of Europe’s largest producers of renewable energy, and the outage has raised questions about the reliability of solar and wind power.

Authorities have not explicitly ruled out a cyberattack but have produced no evidence to support that theory. Sánchez spoke to NATO Secretary General Mark Rutte on Monday to discuss the incident.