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As the Federal Reserve leaves rates unchanged, there’s been a flurry of interrelated trade and geopolitics-related action out of the White House, with deals announced with South Korea and Pakistan, and tariffs on Brazil and India (at least partly because of their oil trade with Russia), and a heavy sanctions package against Iran-related oil traders. And Russia has launched a massive attack on Kyiv, in response to President Trump’s shortened timeline to get serious about peace talks with Ukraine. |
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Center of Gravity
What you need to know
Federal Reserve leaves interest rates unchanged amid rare dissent
The Federal Reserve announced that it would hold interest rates steady, leaving the federal funds rate between 4.25% and 4.50%. The decision reflects caution among policymakers as they assess the trajectory of inflation and economic growth.
Jerome Powell, the chair of the Fed, restated his commitment to sustainably bringing inflation down to the 2% target. He emphasized that any future adjustments to rates would depend on incoming data on employment, inflationary trends and overall economic conditions.
Markets reacted cautiously, interpreting the pause as evidence that the Fed is striving to strike a delicate balance between curbing inflation and avoiding overly aggressive tightening that could damage the economy. Analysts anticipate that the Fed will remain prudent in the coming months, basing future rate decisions primarily on inflation data and the resilience of the labor market, rather than political considerations.
The latest policy decision was reached by a vote of 9-2. This is the first time in more than 30 years that two Fed governors have formally dissented, highlighting growing disagreement among policymakers regarding the optimal course of monetary policy as the Fed feels the weight of pressure from the White House to reduce rates.
The Fed’s decision is likely to irritate President Donald Trump, who has publicly advocated for lower interest rates. Trump has repeatedly argued that reduced borrowing costs would boost economic growth and alleviate financial strain on American consumers and businesses.
The next Federal Reserve meeting is scheduled for September, when policymakers will reassess economic conditions and determine whether further changes to monetary policy are warranted.
Known Unknowns: The impact of U.S. tariffs on international trade & especially the U.S. bond market. Whether the U.S. and Iran will restart nuke talks. Relations of new Syrian government with Israel, international community & ability to maintain stability inside Syria. China’s triggers for military action against Taiwan. U.S. responses to China’s ‘grey zone’ warfare in the South China Sea and north Asia. Ukraine’s ability to withstand Russia’s war of attrition. The potential for the jihadist insurgency in Africa’s Sahel region to consolidate and spread.
U.S. Foreign & Trade Policy
America First
Trump announces trade deal with South Korea
President Donald Trump announced a trade agreement with South Korea, under which South Korea will invest $350bn in projects within the United States. These investments will be selected by Trump himself. Additionally, South Korea has committed to purchasing $100bn of American liquefied natural gas (LNG) and other energy products. The exact details for additional investments by South Korea will be disclosed within two weeks, during a planned bilateral meeting at the White House with the South Korean president, Lee Jae Myung.
Under the terms of the agreement, South Korea will fully open its markets to American products, including vehicles, agricultural goods and other items. A tariff rate of 15% will be applied to South Korean goods entering the U.S., while American exports to South Korea will be exempt from duties.
In summary:
15% tariffs imposed on South Korean goods exported to the U.S.
No tariffs imposed on U.S. goods exported to South Korea
South Korea to invest $350bn in the U.S.
South Korea to purchase $100bn of American LNG
Trump announces U.S.-Pakistan energy partnership
President Donald Trump yesterday announced the conclusion of a new agreement between the United States and Pakistan to jointly develop Pakistan’s substantial oil reserves. According to Trump, discussions are underway to select the American oil company that will spearhead the partnership.
Details, however, remain vague.
In a characteristically offhand remark, Trump suggested that, in time, Pakistan might even become an energy supplier to India, a geopolitical twist given the fraught relationship between the two South Asian neighbors which last led to conflict in May of this year.
U.S. sanctions Brazilian judge, imposes new tariffs on Brazil
The U.S. Department of the Treasury has sanctioned Alexandre de Moraes, a sitting justice on Brazil’s Supreme Federal Court, under the Global Magnitsky Act. The Treasury accuses de Moraes of weaponizing the judiciary to suppress dissent, detain critics without charge and censor speech, including beyond Brazil’s borders.
The allegations include ordering raids on political opponents, freezing assets, banning social media accounts (including some based in the U.S.) and conducting what the Treasury described as a “witch hunt” against both Brazilian and American citizens.
President Donald Trump also signed an executive order on Wednesday imposing a 50% tariff on Brazilian imports.
The measure exempts many of Brazil’s major exports to the U.S., including orange juice, Embraer aircraft, oil, coal, minerals, various chemicals and Brazil nuts. Coffee, however, is not exempt.
Trump ends de minimis exemption and imposes tariffs on copper products
President Donald Trump has imposed a 50% tariff on certain copper products and has formally ended the de minimis exemption for low-value imports.
The de minimis exemption had previously allowed goods valued under $800 to enter the United States without duties or taxes, streamlining small-package trade and bypassing formal customs procedures.
Trump has argued that the policy was being exploited to evade tariffs and to smuggle synthetic opioids into the U.S., harming both public health and domestic industries. He singled out Chinese firms such as Shein and Temu, accusing them of using the loophole to flood the American market with cheap goods, thereby undercutting local competitors.
Trump had already suspended the exemption for shipments from China and Hong Kong in May. Starting on 29 August, the exemption will be eliminated for imports from all other countries, subjecting such shipments to standard customs scrutiny and potential duties.
Trump imposes tariffs and penalties on India over ties with Russia
President Donald Trump announced that India will face a 25% tariff on its exports to the United States, along with an additional “penalty,” beginning on 1 August. The move comes in response to India’s continued purchase of Russian military equipment and energy, as well as its use of what Trump described as “strenuous and obnoxious” non-monetary trade barriers.
Trump justified the decision by citing long-standing concerns over India’s high tariff regime, which he claimed ranks among the highest in the world. He noted that trade between the two countries has remained limited, in part due to India’s protectionist practices. He also criticized India’s alignment with Russia, pointing out that it remains one of Moscow’s largest energy buyers, alongside China, at a time when “everyone wants Russia to stop the killing in Ukraine.”
In a sharply worded statement, Trump added that “India and Russia can take their dead economies down together, for all I care.”
The announcement came shortly after Russian President Vladimir Putin responded to Trump’s latest deadline for progress toward a peace agreement in Ukraine with a massive barrage of drone strikes targeting civilian infrastructure in Kyiv. Over 300 drones and at least eight missiles hit Kyiv overnight.
U.S. sanctions Iranian-Russian shipping network in largest crackdown since 2018
The United States has imposed sweeping sanctions on a sprawling shipping network accused of transporting oil, petroleum products and other cargo on behalf of Iran and Russia. The U.S. Department of the Treasury announced the measures on Tuesday, describing them as the most extensive Iran-related sanctions since 2018.
The sanctions target 115 individuals, entities and vessels linked to a maritime logistics empire controlled by Mohammad Hossein Shamkhani, the son of a senior political advisor to Iran’s Supreme Leader.
According to U.S. officials, the network plays a central role in moving sanctioned oil and other goods from Iran and Russia to buyers across the globe, generating tens of billions of dollars in revenue.
How much this is about pressure on Iran, and how much this is about pressure on Russia, is up for debate. But it will certainly hurt the economies of both countries, even as it may bring some upward pressure on oil prices.
The Middle East
Birth pangs in the birthplace of civilization
Canada to recognize State of Palestine at U.N. General Assembly
Following the lead of the United Kingdom and France, Canadian Prime Minister Mark Carney has announced that Canada will formally recognize the State of Palestine at the United Nations General Assembly. The move marks a historic shift in Canada’s foreign policy, aligning Ottawa more closely with a growing bloc of Western nations willing to unilaterally recognize Palestinian statehood without a final agreement with Israel.
The decision is expected to strain Ottawa’s relations with Israel, which has condemned similar recognitions by other Western allies in recent weeks. Israel’s ambassador to Canada called the move “deeply disappointing” and warned that it would embolden Hamas and undermine negotiations.
While Canada has historically supported Palestinian humanitarian aid and development, it had previously aligned more closely with the United States in opposing unilateral declarations of Palestinian statehood.
More than 140 countries now recognize Palestine as a state, though its status at the United Nations remains that of a non-member observer. Canada’s recognition may add momentum to broader efforts at the U.N. to upgrade Palestine’s legal and diplomatic standing.
Hezbollah member sentenced to death for killing of Irish UN peacekeeper
On Monday, a military tribunal in Beirut sentenced Mohammad Ayyad, a member of Hezbollah, to death for his role in the killing of Private Seán Rooney, a 24-year-old Irish soldier serving with the United Nations Interim Force in Lebanon (UNIFIL). Several other individuals received lesser sentences for their involvement in the ambush, which took place near the town of Al-Aqbiya in southern Lebanon in December 2022.
Ayyad was not present for the verdict and remains in hiding, making enforcement of the judgement problematic.
Private Rooney had been part of a UNIFIL convoy traveling through a Hezbollah-controlled area when their armored vehicle was ambushed. The attack resulted in Rooney’s death and injuries to three other Irish soldiers.
The verdict represents a rare instance in which Lebanon’s judiciary has taken on a case involving Hezbollah, a powerful militant and political organization deeply embedded in the country’s political, economic, and social fabric. The trial was closely watched by both Ireland and the United Nations, which called for accountability in the wake of the incident.
Whether the death sentence will be carried out remains uncertain, as not only is the individual in hiding, but Lebanon maintains a de facto moratorium on executions despite retaining the death penalty on the books. Nonetheless, the conviction marks a significant, if symbolic, statement by the judiciary against the impunity of armed groups in the country.
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