Welcome to Trade Secrets, and another week of US-Iran stand-off while the energy shock rolls across the world economy: it’s already hitting Asia and now Europe is getting very seriously concerned — for which see the second item in the links section below. The pressures remain the same. Does the revenue shortfall force Iran to fold? Or does Trump blink because of the energy shock on the US? Where does that first hit? The situation looks pretty bad in California, which is isolated from the fuel pipelines in much of the US. Still, Trump is hardly going to care that his arch-enemy Democratic California governor Gavin Newsom has a fuel crisis to manage. Charted Waters, where we look at the data behind world trade, is on global demand for different types of oil product. The newsletter is skipping next week for a UK public holiday, back the week after.
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Beijing bullies
In last week’s column I looked at how foreign direct investment (FDI) has turned into one of the big controversies in globalisation. China, in particular, has expanded its outward investment in low- and middle-income economies, partly motivated by the need to offshore export-oriented production to get round US tariffs on exports directly from China. The EU is grappling with the idea of putting conditions on Chinese inward investment.
But in reality it’s a lot of geopolitical focus on quite a stagnant area. FDI overall has been pretty weak. The UN Council on Trade and Development (Unctad), who collect the data, say that once you’ve stripped out the misleading financial flows through offshore centres, real investment in 2025 was soft. Cross-border merger activity, greenfield projects and international project finance all fell.
The Rhodium Group consulting firm, which compiles data on Chinese investment, tells me that for all its political salience, Chinese investment in the EU (and the UK) has dropped off a cliff. Announced Chinese greenfield projects in the European economies fell from an annual average of €18bn in 2022-23 to an annual average of just €5.5bn in 2024-25. I guess that since Chinese companies have discovered that the tariff walls of Fortress Europe are pretty porous anyway, they might as well export to the EU and keep the jobs at home.
Accordingly, the tussle over geopoliticising international commerce is continuing in the areas of goods trade and technology transfer. China in recent years has perfected the art of signalling retaliation in advance. Xi Jinping did so by unveiling China’s rare earths export controls ahead of his meeting with Donald Trump last October, forcing the US into a retreat on its threatened tariffs. China has also massively increased its use of export controls more generally over the past few years.
Earlier this month, China bared its teeth by introducing a set of powerful measures to deter overseas companies from de-risking from China and retaliate against foreign governments for imposing sanctions and otherwise interfering with trade. The EU and US are used to being hegemons, or something close to it. With a trading and investment partner as large and well-organised as China they are discovering that their rivals have agency too.
And what does the US, China’s supposed rival for geoeconomic power, have to counter this? Last week the US and EU signed a memorandum of understanding on a partnership on critical minerals. But this initiative is moving painfully slowly: it’s an intention without a deadline and they already said they would do this in the so-called “Turnberry agreement” last summer.
The US trade representative Jamieson Greer also unhelpfully told America’s foreign policy allies that its strategy for a critical minerals alliance would come with a price tag for them. Given how unreliable Trump is, this makes said alliance an unappetising prospect. China’s critical minerals sales may come with coercion, but at least they come cheap. With Trump you pay more but still get economic nationalist caprice as well. It’s not a great sales pitch.
EV does it
OK, so the US is rapidly degrading its own capacity to be a global hegemon. It can’t count on geoeconomic alignment among traditional foreign policy allies, especially since they increasingly don’t consider themselves allies any more. Can it even push fellow USMCA members Canada and Mexico about? Does it even want to keep the child of Nafta going rather than just abandoning it?
The three-party agreement is due for a review by July 1 and the atmosphere is not congenial. As ever, it’s hard to tell whether this is the standard pre-negotiation bluster or something more serious. As ever, the usual stuff including Canada’s breathtakingly protectionist trade policy towards its dairy industry is being raised.
But there’s one thing worth noting. One of the selling points of Nafta/USMCA was always that it was a single market as well as a single production area. It’s easier to persuade Americans that importing cars and car parts from Mexico and Canada is OK if US autos also go the other way.
In everyone’s favourite geoeconomic flashpoint of electric vehicles, though, that’s no longer the case. These charts from a recent study by the American Action Forum on EVs and the USMCA negotiations are pretty dramatic.
Yes, of course US EV imports from Canada are likely to drop precipitously. As well as tariffs, Trump has taken away Joe Biden’s consumption-supporting subsidies under the Inflation Reduction Act (IRA).
But it’s also striking that US EV exports to Canada have already fallen and are likely to slide more in 2026. Some of that is a reduction in Canadian demand as the Mark Carney government scaled back consumption incentives. But it’s also the case that the US car industry has scaled down heavily its future EV expansion plans.
Carney’s decision to open a quota for Chinese EVs reflects the fact that, in this as in so many other areas, Canada is essentially a European country in North America. The Canadian PM is also talking about encouraging Chinese EV production in Canada, another European tactic. Trump blows hot and cold over Chinese EV investment in the US, but so far has yet to shift from the hostility to Chinese manufacturers he inherited from Joe Biden.
In other words, it’s not just competition over snaffling as much as possible of a North American supply chain that’s creating distance between the US and its USMCA partners. In the case of EVs, it’s simply that the US is detaching its market and floating off on its own.
Charted waters
Although LNG and (obviously) jet fuel are currently getting a lot of attention, gasoline (petrol) and diesel are globally the biggest categories of oil product.
Trade links
The US government has started to accept applications from companies for refunding the emergency tariffs declared unconstitutional by the US Supreme Court, though it will be weeks or months before the payments are actually made.
A fairly terrifying account of how the slow European pace of electrification will leave it dependent on US hydrocarbons.
The FT Unhedged newsletter reports the (alarmed) views of market participants at the recent commodities summit in Switzerland.
Ahead of his forthcoming book on the US currency, FT contributing editor Brendan Greeley argues that there is no such thing as the petrodollar.
The FT looks at whether the UK government is already too late to make a convincing pivot back towards the EU and undo some of Brexit.
Trade Secrets is edited by Jonathan Moules
