“Wall Street’s biggest banks reaped almost $37bn in trading revenues in the first quarter of the year — their best performance in more than a decade.” This is a reminder that, as the intermediaries with the ability to widen bid-offer spreads, these banks often benefit from financial volatility, provided markets don’t malfunction (as they did in 2008).
Dodd-Frank Act in the U.S. or EMIR in Europe are the regulatory backbone supported by Basel rules, CVA Risk, you name it! A bond vigilante is a bond market investor who protests against monetary or fiscal policies considered inflationary by selling bonds. I read a lot here on LinkedIn about the topic, but I very much do not think it makes sense. Fed clearly stated they are ready to push the button to buy US Government Bonds at large scale. Although the amounts of bonds owned e.g. by China sound large in total, you should have a close look on the data attached. And don’t forget, quantitative easing can mean buying unlimited - whatever it takes. Sounds more like EMIR Draghi, but is true for the U.S.A. as well. Bitcoin is not an alternative, since it is a Commodity, not a currency. Unlikely any bond vigilante is active to burn their cash for a small light. If you should not bet against the FED, you should not bet against FED and Trump. Should China, Japan, and the UK? Only 24% of the U.S. government Bonds are owned by foreign Investors.
China appointed a new top international trade negotiator on Wednesday amid tariff tensions with the U.S.
The government said that Li Chenggang has been appointed to replace Wang Shouwen, who participated in the trade negotiations for the 2020 trade deal between the China and the U.S.
The world’s two largest economies have been steadily increasing tariffs on each other’s goods since the U.S. raised tariffs on dozens of countries. China faces 145% taxes on exports to the U.S., while other countries were given a 90-day reprieve for most duties.
The latest government waste touted by billionaire Elon Musk’s cost-cutting Department of Government Efficiency is hundreds of millions of dollars in fraudulent unemployment claims it purportedly uncovered.
One problem: Federal investigators already found what appears to be the same fraud, years earlier and on a far greater scale.
In a post last week on X, the social media site Musk owns, DOGE announced “an initial survey of unemployment insurance claims since 2020” found 24,500 people over the age of 115 had claimed $59 million in benefits; 28,000 people between the ages of 1 and 5 collected $254 million; and 9,700 people with birthdates more than 15 years in the future garnered $69 million from the government.
The tweet drew a predictable party-line reaction of either skepticism or cheers, including from Musk himself, who said what his team found was “so crazy” he re-read it several times before it sank in.
Chavez-DeRemer’s recounting of the alleged fraud, including claims of benefits filed by unborn children, drew laughter in the Cabinet room and a reaction from Trump himself.
“Those numbers are really bad,” he said.
But Chavez-DeRemer needn’t look further than her own department’s Office of the Inspector General to find that such fraud had already been reported by the type of federal workers DOGE has demonized.
“They’re trying to spin this narrative of, ‘Oh, government is inefficient and government is stupid and they’re catching these things that the government didn’t catch,’” says Michele Evermore, who worked on unemployment issues at the U.S. Department of Labor during the administration of former President Joe Biden. “They’re finding fraud that was marked as fraud and saying they found out it was fraud.”
The Social Security Act of 1935 enshrined unemployment benefits in federal law but left it to individual states to set up systems to collect unemployment taxes, process applications and mete out support.
In regular times, state unemployment systems perform “very well, not so well, and terribly,” according to Stephen Wandner, an economist at the National Academy of Social Insurance who authored the book “Unemployment Insurance Reform: Fixing a Broken System.” With COVID slamming the economy and creating a flood of new claims that states couldn’t handle, Wandner says many more were “quite terrible.”
Trump signed the COVID unemployment relief into law on March 27, 2020, and from the very start, it became a magnet for fraud. In a memo to state officials about two weeks later, the Department of Labor warned that the expanded benefits had made unemployment programs “a target for fraud with significant numbers of imposter claims being filed with stolen or synthetic identities.”
That same memo offered an option for states trying to protect a person whose identity was stolen to fraudulently collect unemployment benefits. To preserve a record of the fraud but keep innocent people from being linked to it, states could create a “pseudo claim,” the memo advises.
Those “pseudo claims” led to records of toddlers and centenarians getting checks. The Labor Department’s inspector general tallied some 4,895 unemployment claims from people over the age of 100 between March 2020 and April 2022, but another departmental memo explained that the filings stemmed from states changing dates of birth to protect people whose identities were used.
“Many of the claims identified ... were not payments to individuals over 100 years of age, but rather ‘pseudo records’ of previously identified fraudulent claims,” the 2023 memo says.
A Labor Department spokeswoman did not respond to questions about Musk’s findings and DOGE gave no details on how it came to find the supposed fraud or whether it duplicates what was already found.
Though DOGE ostensibly looked at longer timeframe than federal investigators previously had, it tallied just $382 million in fake unemployment claims, a tiny fraction of what investigators were already aware.
“I don’t think it’s news to anyone,” says Amy Traub, an expert on unemployment at the National Employment Law Project. “It’s been widely reported. There’ve been multiple congressional hearings.”
That makes DOGE an imperfect messenger even when fraud has occurred, as with unemployment claims.
Jessica Reidl, a senior fellow at the conservative think tank The Manhattan Institute, is a fiscal conservative who so champions rooting out federal waste she has written 600 articles on the subject. Though she believes unemployment insurance fraud is rife, she has trouble accepting any findings from DOGE, which she says has acted ineffectively and possibly illegally.
“When DOGE says impossibly old dead people are collecting unemployment in huge numbers, I become skeptical,” Reidl says. “DOGE does not have a good track record in that area.”
Traub said the burst of pandemic-era unemployment fraud led states to implement new security measures. She questioned why Musk’s team was trumpeting old fraud as if it were new.
“Business leaders and economists are warning about a national recession, so it’s natural to think about unemployment,” says Traub. “It’s an attack on the image of a critically important program and perhaps an attempt to undermine public support for unemployment insurance when it couldn’t be more important.”
U.S. President Donald Trump's new tariffs could cost U.S. semiconductor equipment makers more than $1 billion a year, according to industry calculations discussed with officials and lawmakers in Washington last week, two sources familiar with the matter said.
Each of the three largest U.S. chip equipment makers - Applied Materials (AMAT.O), opens new tab, Lam Research and KLA (KLAC.O), opens new tab - may suffer a loss of roughly $350 million over a year related to the tariffs, the sources said. Smaller rivals such as Onto Innovation (ONTO.N), opens new tab may also face tens of millions of dollars in extra spending.
The potential billion-dollar cost to the chip equipment industry and talks between industry executives and U.S. officials over several days about those costs are reported here for the first time.
The companies build some of the world's most highly sought-after chipmaking equipment that can require thousands of specialized parts.
Chip equipment makers have already lost billions in revenue after former U.S. President Joe Biden implemented a series of export controls aimed at curbing the shipment of advanced semiconductor manufacturing equipment to Chinese entities.
The Trump administration has largely paused the reciprocal tariffs it announced in April. But to spur more U.S. manufacturing, it is weighing further duties on the chip industry and initiated a probe into their imports on Monday.
The estimated costs discussed last week in Washington include lost revenue, primarily for missed sales of less sophisticated equipment to overseas rivals, and the costs of finding and using alternative suppliers for the complex components of chipmaking tools. The estimate also includes tariff compliance costs, such as adding personnel to handle the complexities of following the rules.
Lawmakers and administration officials discussed the tariff costs with chip industry executives and officials from SEMI, an international trade group, as part of an ongoing dialogue.
Applied did not respond to a request for comment. KLA and Lam declined to comment.
The early, rough estimate of $350 million per company could change as the Trump administration's duties take effect. Quick calculations are hard to make because each chipmaking tool has multiple components, and the ultimate tariff regime is unclear.
The Biden administration cracked down on China's chip industry over three years to hobble its ability to produce cutting-edge chips used in artificial intelligence, military applications or other ways that could threaten U.S. national security.
The U.S. export controls have spurred China to invest in its domestic chip equipment industry.
Decoupling is no longer just a political slogan. For the past decade, American administrations have tempered their references to China as an adversary by also talking up how the Asian country could be a potential partner. That optimism is largely gone. President Donald Trump's punitive sweeping tariffs on U.S. imports of Chinese goods obliterates the "small yard, high fence" approach of his predecessors. That old stance saw the United States erect barriers around narrow areas of trade, particularly in sensitive high-technology industries, while seeking cooperation with the People’s Republic on others.
Not one to be bullied into negotiations with Washington that lack a clear goal, President Xi Jinping's China pledges to “fight to the end, opens new tab". It points to an acceleration of what has been a gradual decoupling of the world's two largest economies. To peer beyond the rhetoric, Reuters Breakingviews examined trajectory of the trade, financial, corporate, educational and geopolitical ties between the two largest economies. Many of the numbers suggest a sharp deterioration.
TRADE TUMULT
Start with the exchange of goods, the traditional bedrock of the Sino-American connection. While Trump's first trade war in 2018 failed to end U.S. dependence on Chinese manufacturing, the president's tariff increases this month brought the levies on most Chinese goods to at least 145%. This risks collapsing much of the pair’s bilateral trade worth $582 billion in 2024. The White House exempted smartphones, computers, and some other electronics, but it is also studying the national-security risks arising from these heavily China-reliant supply chains. That suggests sector-specific duties will soon come into force.
The bar chart shows China's share of US imports from Asia is shrinking
Meanwhile, Trump's levies on other countries, now capped at 10% until early July, jeopardise Chinese exports to third countries, like Vietnam, that ship goods to U.S. consumers. China’s share of U.S. imports fell 8 percentage points to 13.4% between 2017 and 2024, according to the U.S. Census Bureau, while it now only accounts for a third of American imports from Asia compared with half in 2018. But data from the UN Trade and Development shows its share of global merchandise exports rose from 12.7% to 14.2% over a similar period, suggesting possible rerouting of goods to the United States through other states. This figure could now start to reverse.
FRAYING FINANCE
The separation is picking up in the financial world, too. Though the stock of U.S. foreign direct investment (FDI) in China stood at $127 billion in 2023, the annual flow of funds is shrinking. China's FDI position in the United States, meanwhile, dropped to $44 billion in 2023, down 16% since 2019. And the annual flow of funds from the People’s Republic has been negative since 2020, implying that Chinese investors have been pulling money from American projects.
The chart shows position and flow of Chinese FDI into US and Us FDI into China
Western investors maintain a muted exposure to the world's second-largest economy. The average allocation of global equity funds to Chinese assets peaked at barely 3% in April 2015. As of February 2025, it was under 2%, data from fund-flow tracker EPFR shows, only slightly improved from a low in early 2024. If China stimulates its economy aggressively, these allocations could rise.
The area chart shows the trend of global funds allocation to Chinese assets. Global equity funds' average allocation to China assets peaked at 3.13% in April 2015
Elsewhere, the U.S. financial industry shows few obvious signs of pulling back: cross-border claims on Chinese residents by American banks stood at an all-time high of nearly $150 billion as of September, according to data from the Bank for International Settlements. However, Wall Street bosses have privately told Reuters Breakingviews that their exposure to China is easier to liquidate than it was in the past, suggesting they’re ready for a quick exit if necessary.
The line chart shows consolidated total claims of US banks in all currencies with residents of China on a guarantor basis.
Then there is China’s ownership of $1.1 trillion of U.S. Treasuries, as estimated by Brad Setser, senior fellow at the Council on Foreign Relations. This is perhaps the trickiest financial tie to unwind. The dollar holdings help Beijing to manage the yuan. It's not obvious what else China could buy if it sold the securities. And buying yuan-denominated assets with any proceeds would lead to an unwanted appreciation of China’s own currency at a time when Beijing is trying to steer the economy out of a debt-deflation spiral.
CAUTIOUS COMPANIES
Chinese companies have never had a huge local presence in the United States. But their assets in the country continue to plateau, Rhodium Group data shows. This trend will accelerate, especially if the United States succeeds in forcing China’s ByteDance to spin off the U.S. assets of viral-video app TikTok. Treasury Secretary Scott Bessent has also refused to rule out the possibility of delisting stocks. As of March, there were 286, opens new tab Chinese companies listed on U.S. exchanges, with a total market capitalisation of $1.1 trillion.
American firms have much more at stake in China, in revenue terms, but the dependence is reducing. Take Starbucks (SBUX.O), opens a new tab. The coffee chain had 7,594 open stores in the People’s Republic as of September 2024, 26% more than two years ago, but net revenue from China is just 8.3% of the global total, a reduction of 1 percentage point over the same period. New CEO Brian Niccol is looking for strategic partnerships in the Asian country. Similarly, Apple (AAPL.O), opens new tabs and Tesla (TSLA.O), opens new tabs and earns roughly a fifth of their net revenue from China, but both figures are slightly lower than they were two years ago.
The line chart shows Tesla and Apple's percentage value of sales in China
STUDENT EXCHANGE
The flow of people between two countries is often overlooked but can be a leading indicator of how a bilateral relationship will evolve. There were just 469 U.S. students studying in China for academic credit in the 2022-2023 year – close to the lowest level in over two decades, according to Open Doors, a body sponsored by the U.S. Department of State. That suggests America’s understanding of China will plunge in years to come.
The line chart shows the trend of US tudents studying in China, Hong Kong, Taiwan
While the allure of the United States endures for Chinese students, they’re now a smaller proportion of foreigners attending U.S. universities than Indians, who lead with a 29% share or 331,602 students. It complements the view in New Delhi that the South Asian nation could eventually be a top beneficiary of the U.S. trade war, thanks to its own high barriers to foreign investment from China.
The line chart shows % of US students studying in China.
TAIWAN TENSIONS
The issue of Taiwan often sets the tone for the U.S.-China relationship. The United States’ “One-China” policy acknowledges Beijing’s claims of sovereignty over Taiwan, a democratically governed island. Yet Washington may impose large-scale sanctions, or potentially even use force, if China invades.
Goldman Sachs’ Cross-Strait Risk Index counts the number of articles that mention geopolitical tension between Taiwan and mainland China. This has trended upwards since Trump's "Liberation Day" tariff announcement on April 2. There is heightened speculation that Washington’s trade war could evolve into a financial war and, eventually, a real conflict that would involve the island territory. Yet a market-based measure derived from Taiwanese equities suggests less cause for alarm so far.
A double line chart showing that the news-based measure of Taiwan risk has risen to historically high levels in recent months.
THE UPSHOT
The gradual deterioration of the Sino-American relationship is set to accelerate as Washington takes aim at its trade deficit and cites national security to examine supply chains that lead back to China. The data suggests that companies, financial institutions, and even university students were already doing their bit to speed decoupling. In that respect, Trump’s second China trade war is pushing on an open door.
China's first-quarter economic growth beat expectations, underpinned by solid consumption and industrial output even as policymakers brace for the impact of U.S. tariffs that analysts say pose the biggest risk to the Asian powerhouse in decades.
President Donald Trump has ratcheted up tariffs on Chinese goods to eye-watering levels, prompting Beijing to slap retaliatory duties on U.S. imports in an intensifying trade war between the world's two biggest economies that markets fear will lead to a global recession.
Data on Wednesday showed China's gross domestic product (GDP) grew 5.4% in the January-March quarter from a year earlier, unchanged from the fourth quarter, but beat analysts expectations in a Reuters poll for a rise of 5.1%.
The outlook is expected to dim, however, as Washington's tariff shock hits the crucial export engine, heaping pressure on Chinese leaders as they try to keep the world's second-largest economy on an even keel and prevent mass job losses.
Government stimulus boosted consumption and supported investment, said Xu Tianchen, senior economist at the Economist Intelligence Unit, calling the 5.4% pace "a very good start."
"In each of the past two years, China had a high-flying first quarter and an underwhelming second quarter," Xu said, adding that "a forceful and timely policy response" is needed given the additional pressure stemming from U.S. tariffs.
A string of recent data has pointed to an uneven economic recovery, with bank lending beating expectations and factory activity picking up speed. But higher unemployment and persistent deflationary pressures are fuelling concerns over weak demand.
Moreover, analysts say a surge in China's March exports - driven by factories rushing shipments to beat the latest Trump tariffs - will reverse sharply in the months ahead as the hefty U.S. levies take effect.
"UNPRECEDENTED" CHALLENGE
For 2025, the economy is expected to grow at a subdued 4.5% pace year-on-year, the Reuters poll showed, slowing from last year's 5.0 pace and falling short of the official target of around 5.0%. Many analysts have sharply slashed their GDP forecasts for this year.
UBS, which opens a new tab, has downgraded its forecast on China's 2025 growth to 3.4% from 4%, on the assumption that Sino-U.S. tariff hikes will remain in place and that Beijing will roll out additional stimulus.
"We think the tariff shock poses unprecedented challenges to China's exports and will set forth major adjustments in the domestic economy as well," analysts at UBS said in a note.
While several other countries have been swept up in U.S. tariffs, Trump has targeted China for the biggest levies.
Last week, Trump lifted duties on China to 145%, prompting Beijing to jack up levies on U.S. goods to 125% and dismissing U.S. trade actions as "a joke".
Every quarter, the economy expanded 1.2% in the first quarter, slowing from 1.6% in October-December.
Retail sales, a key gauge of consumption, rose 5.9% year-on-year in March after gaining 4.0% in January-February, while factory output growth quickened to 7.7% from 5.9% in the first two months. Both numbers topped analysts' forecasts.
The retail sales uptick was driven by sharp double-digit gains in home electronics and furniture sales, helped by the government's consumer goods trading scheme.
But China's property downturn remained a drag on overall growth.
Property investment fell 9.9% year-on-year in the first three months, extending the 9.8% drop in January-February. March new home prices were unchanged on month.
AMPLE ROOM FOR STIMULUS
Policymakers have repeatedly said the country has ample room and tools to bolster the economy, and Premier Li Qiang this month pledged to roll out more support measures.
Beijing has put boosting consumption as the top priority this year as they try to cushion the impact of the Trump administration's tariffs on its trade sector.
The Politburo, a top decision-making body of the ruling Communist Party, is expected to hold a meeting later this month to set its policy agenda for the coming months.
In March, China unveiled fiscal measures, including a rise in its annual budget deficit. Officials have flagged more fiscal and monetary stimulus to cope with rising headwinds. That followed a blitz of monetary easing steps late last year.
Earlier this month, Fitch downgraded China's sovereign credit rating, citing rapidly rising government debt and risks to public finances, suggesting a tricky balancing act for policymakers seeking to expand consumption to guard against a trade downturn.
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