News of the week summary - 20/04/2025

Tech stocks plunge as tariff shock hits Nvidia

A sweeping selloff hit U.S. technology stocks this week, with chipmaker Nvidia at the center of the storm. The company revealed that new U.S. export restrictions on advanced semiconductors sold to China—especially its H20 chip used in artificial intelligence (AI)—would reduce its revenue by $5.5 billion. This announcement sent shockwaves through the entire semiconductor sector, triggering a broad market retreat.

The Philadelphia Semiconductor Index, a key benchmark tracking 30 major chipmakers, fell 3.7% in a single day, extending its losses for the year to over 22%. Nvidia alone dropped 7.6%, while peers such as Broadcom, Arm, and AMD also suffered sharp declines. The tech-heavy Nasdaq Composite fell 2%, and the S&P 500 lost 1.2%.

The catalyst for this downturn is the U.S. government’s increasingly aggressive stance on technology exports to China. Former President Trump’s “reciprocal” tariffs, intended to punish what he describes as unfair trade practices, have intensified, particularly targeting strategic sectors like semiconductors. These measures are part of a broader attempt to limit China’s access to cutting-edge AI technology, seen as critical for both economic and national security reasons.

AI restrictions are especially damaging for the tech sector because they limit access to one of the world’s largest markets just as companies ramp up investment in next-generation technologies. Export controls not only reduce near-term revenue from chip sales, they also raise uncertainty about global supply chains and future growth. When companies expect tariffs to make products more expensive, it dampens both consumer demand and corporate investment.

Markets reacted sharply. The dollar tumbled more than 8% year-to-date against other major currencies, as investors grew concerned that escalating trade tensions could tip the global economy into recession. The World Trade Organization added to the alarm, warning that North American exports could shrink by 13% this year due to these tariff regimes. It projected that the U.S., Canada, and Mexico would be the only regions experiencing both falling imports and exports, with global output at risk of declining by as much as 7%.

Despite this gloom, there were some signs of consumer resilience. U.S. retail sales rose 1.4% in March, driven primarily by a surge in auto purchases, the largest since January 2023. However, economists caution that this could reflect "panic buying" as households seek to front-load purchases before tariffs make goods more expensive. This behavior, if followed by a slump in confidence and spending, may foreshadow a slowdown in consumption later this year.

Meanwhile, gold prices surged past $3,300 per ounce, reflecting investors' flight to safety amid mounting geopolitical and economic uncertainty. With equity markets wobbling and fixed-income yields flat, gold is once again asserting itself as a hedge against inflation, volatility, and trade policy risk. 

North American exports set to drop 13%

The World Trade Organization (WTO) has issued a stark warning: North American exports are expected to drop nearly 13% this year as U.S. tariff policies disrupt global commerce. The projected 12.6% fall in exports, accompanied by a 9.6% decline in imports for the U.S.-Mexico-Canada Agreement (USMCA) bloc, reflects the deepening impact of Donald Trump’s trade agenda, even as Canada and Mexico have been partially shielded through exemptions.

This contraction stands in sharp contrast to earlier expectations of modest trade growth and highlights how quickly the global trade environment has shifted. At the heart of the issue is the U.S.-China decoupling, a deliberate reduction in trade and technological exchange between the world’s two largest economies. The WTO fears this could lead to a lasting fragmentation of global commerce, splitting the world into rival trade blocs and forcing smaller economies to choose sides.

The WTO’s Director-General, emphasized the long-term costs of such fragmentation. If retaliatory measures and tariff uncertainty persist beyond the summer, she warned that global GDP could shrink by 7% in the long run. That’s a substantial economic hit, reflecting how intertwined international trade and economic output have become.

Trump’s  “reciprocal” tariffs have raised duties on Chinese imports to levels as high as 145% in some cases. Although a temporary 90-day pause was announced, with some consumer electronics like smartphones exempted, the overall effect is still one of sharp trade suppression. The WTO estimates that if these tariffs return in full by July, global goods trade could contract by 0.8% this year. Additional retaliation from other countries could reduce trade by a further 0.7 percentage points.

Despite the criticism, the WTO chief acknowledged that the U.S. does have legitimate concerns, particularly regarding its trade deficit and the concentration of manufacturing in specific regions. For example, over 95% of semiconductor production is located in East Asia, while ten countries dominate 80% of global vaccine exports. This overreliance, she noted, undermines global resilience in times of crisis, such as during the pandemic or supply chain disruptions.

In essence, the tariff war and its fallout are not just reshaping trade flows—they're testing the foundations of globalization. As the U.S. pulls back from multilateralism and bilateral frictions intensify, the risk grows that the global economy could fracture into disconnected spheres of influence, with lasting consequences for growth, development, and economic cooperation.

France faces fiscal reckoning

France is on the brink of a financial reckoning, Prime Minister François Bayrou warned, as he called for sweeping reforms to rein in decades of overspending that have pushed the country’s public finances to the edge. Without swift and painful budgetary action, Bayrou cautioned, France risks entering a full-blown fiscal crisis that could jeopardize economic stability and political credibility.

In a stark press conference, Bayrou labeled the country’s chronic deficits “morally unacceptable” and “politically untenable,” urging the French public to confront the consequences of continued fiscal laxity. France’s interest payments are set to hit €62 billion this year—comparable to the combined budgets for defense and education, excluding pensions—and could climb to €100 billion by 2029 if borrowing continues unchecked.

Bayrou’s comments mark a decisive shift in tone from previous governments, and come amid a fragile political backdrop. President Emmanuel Macron’s centrist alliance, including Bayrou’s Democratic Movement (MoDem), lost its parliamentary majority following snap elections last summer. The fractured National Assembly now risks descending into gridlock, complicating efforts to pass the 2026 budget and inviting the specter of another no-confidence vote—a fate that already toppled Bayrou’s predecessor, Michel Barnier.

To meet its deficit target of 4.6% of GDP by end-2026 (down from 5.8% in 2024), the government must slash €40 billion from the budget. The near-term goal for 2025 is to bring the deficit to 5.4%. However, slowing economic growth—projected at just 0.7% this year—and rising unemployment are making the task harder. The Bank of France’s recent downgrade of growth expectations reflects broader European stagnation and fears of a global trade war, exacerbated by aggressive U.S. tariff policies under Donald Trump.

The proposed cost-cutting measures will likely spark public backlash. The government is targeting social spending—half of France’s public budget—by eliminating tax breaks for pensioners and healthcare, and curbing the escalating costs of medical leave. While the plan includes a new anti-tax-evasion mechanism for the wealthy, it stops short of restoring the wealth tax abolished in 2017. Additionally, a temporary tax on large companies will be phased out, signaling a politically sensitive balancing act.

Bayrou framed the reforms as essential not just for fiscal discipline, but for preserving France’s ability to invest in future priorities like defense and climate resilience. With geopolitical threats rising and Europe potentially facing reduced U.S. military support, Macron has called for increased defense spending, though Bayrou pledged to adhere only to the already approved increases through 2030.

The draft 2026 budget is now being fast-tracked, with a proposal expected by mid-July—months earlier than usual. That urgency underscores the stakes: if France fails to demonstrate budgetary credibility, credit rating downgrades and rising borrowing costs could follow, triggering a self-reinforcing debt spiral.

Fed’s warns sharp rate cuts may be needed 

A senior Federal Reserve official has warned that the U.S. central bank may need to cut interest rates aggressively if former President Donald Trump reimposes his recently suspended reciprocal tariffs.

Speaking yesterday, Fed Governor Christopher Waller said that should Trump follow through on the sweeping tariffs unveiled on April 2, which would raise the effective levy on imports to more than 25%, up from 3% in December, the Fed might be forced into a series of “bad news” rate cuts to soften the economic blow.

The comments reflect growing concern within the Fed about the economic drag from Trump’s trade agenda. Although Trump paused the tariffs for 90 days following market turmoil, Waller warned that reimposing them could cause GDP growth to “slow to a crawl” and push unemployment up from 4.2% to 5% next year. Despite a potential near-term spike in inflation to 5%, Waller believes those effects would be temporary, while the damage to jobs and output could persist longer.

Waller’s dovish stance marks a clear split within the Federal Open Market Committee (FOMC), where some members are focused on the inflationary risks of tariffs and argue against premature cuts. Yet Waller emphasized that while prices may jump briefly, the deeper risk lies in a trade-shock-induced slowdown that monetary policy must cushion.

The Fed has held rates steady at 4.25–4.5% in recent months amid mixed signals from the economy. But Trump’s trade agenda has increased volatility, forcing the central bank to walk a tightrope between fighting inflation and avoiding recession.

Waller’s warning aligns with public sentiment, as a new New York Fed survey showed that 44% of Americans now expect unemployment to rise in the next year — the highest level since the pandemic and a 10-point jump since Trump’s return to office.

China halts U.S. LNG imports

For over ten weeks, China has not received any shipments of liquefied natural gas (LNG) from the United States—a clear sign that trade tensions between the two nations have now extended into the energy sector. This stoppage follows China's imposition of a 15% tariff on American LNG in early February, which was quickly raised to 49%, making U.S. gas exports financially unviable for Chinese importers.

The last shipment of U.S. LNG to China arrived on February 6. A subsequent tanker destined for China was redirected to Bangladesh after failing to arrive before the tariff took effect. This freeze echoes a similar disruption during the Trump administration, but the consequences today may prove more enduring. Analysts suggest that Chinese buyers are unlikely to enter into new long-term contracts with U.S. LNG providers, even though several deals already exist, some stretching as far as 2049.

To understand the broader implications, it’s important to know what LNG is and why it matters. Liquefied natural gas is natural gas that has been cooled into liquid form to ease storage and transportation, especially over long distances. Countries like the U.S., which produce large amounts of natural gas, rely on LNG exports to monetize their energy output globally. Conversely, energy-hungry economies like China use LNG to diversify their energy supply and reduce dependence on coal.

This suspension of LNG trade is not just a bilateral issue, it has global consequences. U.S. LNG developers typically rely on long-term purchase agreements to finance massive infrastructure investments like export terminals. When these deals fall through or become politically risky, future development is put at stake. Moreover, China’s pivot toward Russia, a fellow geopolitical rival of the U.S., is significant. China is not just replacing U.S. LNG volumes; it is deepening its energy ties with Moscow, which is now its third-largest LNG supplier after Australia and Qatar.

This reorientation comes as Chinese companies like PetroChina and Sinopec, shift focus toward Russian gas, both through maritime LNG shipments and possibly through future pipeline infrastructure such as the Power of Siberia 2. In the short term, China appears able to weather the loss of American LNG, especially amid a slowdown in domestic economic growth that has dampened energy demand. But for the U.S., the longer-term concern lies in losing access to the world’s largest energy market, just as global competition for energy partnerships intensifies.