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Macroscope
Trump-Xi summit puts US vulnerabilities on display
China weaponising rare earths turned the tables on Trump, showing how unprepared Western governments and firms were for a full trade war
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Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm.
When US President Donald Trump last met President Xi Jinping in Busan, South Korea, on October 30 last year, the US Federal Reserve had just embarked on a monetary easing cycle. At the end of 2025, bond investors were betting that the Fed would continue reducing interest rates this year.
Fast forward to today and the financial landscape is markedly different. While investors were still anticipating cuts in borrowing costs just before the war in Iran erupted at the end of February, they are now starting to price in an increase in interest rates by April 2027.
Even though the United States is a huge energy exporter, it is one of the economies that has experienced the sharpest rise in the price of petrol, diesel and jet fuel as the energy crisis deepens. A fully deregulated energy market has amplified the impact of the shock.
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Petrol prices have risen 50 per cent since the war began. This was the main reason headline inflation surged to 3.8 per cent in annualised terms last month, its highest level in three years. Prices are outstripping wages, contributing to the cost-of-living squeeze that has revealed the political costs of Trump’s military adventurism.
The hawkish repricing of expectations for US interest rates is part of a more consequential shift in the geopolitical and economic landscape since the last Trump-Xi summit. The fallout from the war in Iran has accentuated the importance of economic resilience, policy credibility and manufacturing competitiveness.
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Despite persistent concerns about China’s economy, particularly the weakness of domestic demand and the festering crisis in the housing market, the country’s relative strengths have taken on a new significance since Trump launched his tariff blitz in April last year.
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