The LIT Sunday News

Trump Threatens Tariffs on Critical Minerals, Escalating U.S.–China Trade Conflict

Key Developments

President Donald Trump has signed an executive order directing the Commerce Department to investigate U.S. dependence on critical mineral imports. The move could lead to new tariffs on critical minerals, including rare earths, intensifying trade tensions with China and potentially opening a new front in the global trade war.

• The investigation is launched under Section 232 of the Trade Expansion Act of 1962, often used by Trump to justify tariffs on national security grounds

• The order seeks to boost domestic production and reduce reliance on imports, especially from “adversarial nations”

• China currently dominates global supply chains for many critical materials used in EV batteries, missiles, aerospace, and energy technologies

Strategic Context and Supply Chain Risk

The move follows China’s recent retaliatory steps, including:

• Export bans on heavy rare earths and magnets used in defense and robotics

• Previous bans on exports of gallium, germanium, antimony, and other strategic metals with military or technological relevance

• A 2023 ban on rare earth processing equipment, restricting U.S. and allied countries from developing independent processing capacity

The White House argues that such dependencies leave the U.S. vulnerable to “economic coercion”, and the administration may seek to stockpile seabed minerals from the Pacific as an alternative resource.

Economic and Industrial Implications

• A mineral trade war could have ripple effects across automotive, defense, aerospace, and tech sectors

• Any shortage or price spike would impact EV makers, battery producers, jet engine manufacturers, and defense contractors

• The order suggests that tariffs could replace reciprocal tariffs, meaning rates might be lowered or raised based on strategic needs

Analysts note that this move continues initiatives launched during the Biden administration, reflecting a bipartisan consensus on reducing U.S. dependence on China for critical materials.

China’s Broader Economic Retaliation Strategy

China has increasingly turned to export controls rather than reciprocal tariffs, expanding its ability to target foreign economies selectively. Since 2018, Beijing has sharpened its approach:

• Using critical mineral controls to punish nations aligning with U.S. tech restrictions

• Leveraging its dominant position to pressure countries like Japan, threatening to cut off graphite and semiconductor material exports

This evolving toolkit poses new challenges for U.S. trade and industrial policy as it seeks to diversify and secure critical supply chains.

TL;DR

Trump has ordered a probe that could lead to tariffs on critical minerals, escalating the trade war with China and targeting the resource base essential for EVs, missiles, and high-tech industries. The U.S. aims to cut foreign dependency and secure domestic supply, while China continues to weaponize its control over rare earth exports. Both economies are now locked in a strategic tug-of-war over the materials that power modern technology and defense systems.

Powell Signals Fed Will Wait on Rate Cuts Amid Inflation and Labor Market Concerns

Key Developments

Federal Reserve Chair Jerome Powell warned on Wednesday that the U.S. could face a “challenging scenario” where rising inflation coincides with a weakening labor market, complicating the central bank’s dual mandate. Speaking at the Economic Club of Chicago, Powell addressed concerns that President Trump’s recent tariff policies could significantly alter inflation and growth expectations.

• Powell emphasized that tariffs are likely to create at least temporary inflation, with the potential for more persistent price pressures

• He noted that economic growth forecasts are being revised down, but not yet signaling a recession

• The Fed is in no hurry to cut rates, and will wait for more clarity before adjusting its policy stance

Policy Stance and Inflation Concerns

Powell’s latest remarks reinforced the Fed’s hawkish tilt, underscoring a strong commitment to anchoring inflation expectations. He introduced a subtle shift in language, adding “for the time being” to his previous policy comments, indicating even greater caution.

• “Without price stability, we cannot achieve the long periods of strong labor-market conditions that benefit all Americans,” Powell said

• The Fed is opting for a wait-and-see approach, prioritizing clarity on how tariffs will impact inflation and demand

• Powell reaffirmed the Fed’s “obligation” to avoid letting the public expect prolonged inflation

Market and Economic Reactions

• Investors are increasingly skeptical that rate cuts will come soon, despite some derivatives pricing in four quarter-point cuts by year-end

• Powell’s remarks confirm that the Fed will make data-dependent decisions on a meeting-by-meeting basis

Strategic Context

Trump’s tariffs — more extensive than anticipated — are seen as contributing to stagflationary conditions, where economic growth slows while prices rise. This policy backdrop puts the Fed in a difficult position, as it must avoid premature easing while still responding to potential labor market deterioration.

• Powell and other officials are navigating an environment of deep policy uncertainty from the White House

• The Fed is balancing inflation control with economic resilience, hesitant to stimulate prematurely without a clearer picture of trade impacts

TL;DR

Fed Chair Jerome Powell warned of rising inflation alongside a weakening labor market, complicating the central bank’s rate decisions. In response to Trump’s unexpected tariff escalation, Powell signaled patience, saying the Fed will wait for more clarity before considering cuts. Markets fell on his remarks, and most Fed officials remain cautious, likely delaying rate reductions until later in the year unless labor conditions deteriorate sharply.

China Defies Trump Tariffs with Strong Q1 Growth, But Outlook Darkens

Key Developments

China’s economy grew 5.4% year-on-year in Q1 2025, beating analyst expectations and matching the previous quarter's pace, despite the first wave of U.S. tariffs imposed by President Donald Trump. The strong performance was largely attributed to frontloaded exports—manufacturers rushing shipments ahead of rising trade barriers.

• Growth exceeded the 5.1% consensus forecast and Beijing’s ambitious 5% annual target

• China has been relying on industrial output and exports to offset weak consumer demand

• The National Bureau of Statistics (NBS) acknowledged the "complex and severe" external environment and fragile domestic recovery

Trade War and Economic Tensions

China’s resilience comes amid a deepening U.S.–China trade conflict:

• Trump has imposed 145% cumulative tariffs on Chinese goods, with temporary exemptions for smartphones and electronics

• China has retaliated with 125% tariffs on U.S. imports

• Despite tariff pressure, exports surged 12.4% in March, while imports dropped 4.3%

Trump has insisted that “the ball is in China’s court” for initiating trade talks, while Beijing remains defiant. Chinese officials continue to signal a willingness to negotiate, but also stress national resilience and independence.

Economic Indicators and Market Reactions

While the headline GDP figures were strong, analysts warn the growth is unsustainable:

• Retail sales rose 5.9% YoY in March, beating forecasts but still reflecting weak household confidence

• Industrial production jumped 7.7%, suggesting a manufacturing-heavy recovery

• Hang Seng fell 1.9%, while the CSI 300 gained 0.3%, reflecting mixed investor sentiment

Economists see signs of frontloading distorting the data, warning of a potential Q2 slowdown as full U.S. tariffs take hold. Morgan Stanley cut its full-year China GDP forecast from 4.5% to 4.2%, while UBS sees only 3.4% growth and Goldman Sachs projects 4.0%.

Strategic Adjustments and Policy Moves

In a sign of preparation for legal complexities in trade negotiations, China appointed Li Chenggang, a WTO veteran with legal training, as its new top trade negotiator. Analysts interpret this as a tactical shift indicating China is ready to engage more deeply in rules-based dispute resolution.

• Beijing has committed to stimulus through a record budget deficit, signaling readiness to support growth

• Officials point to a “rich toolbox” to respond to shocks, referencing targeted monetary and fiscal measures

• China’s record $1tn trade surplus in 2024 gives it more leverage in the face of mounting external pressure

TL;DR

China posted robust 5.4% GDP growth in Q1 2025, largely driven by frontloaded exports ahead of Trump’s new tariffs. While the data exceeded expectations, economists warn the momentum may fade as U.S. levies take full effect. Beijing remains defiant but open to talks, appointing a legal-minded WTO official to lead trade negotiations. Meanwhile, China leans on manufacturing strength and policy stimulus to weather the storm, though a Q2 slowdown looms.

China Seeks Reset with EU Amid Escalating U.S. Trade War

Key Developments

China is actively pursuing a rapprochement with the European Union in response to the escalating trade conflict with the United States, marked by President Donald Trump’s sweeping tariffs of up to 145% on Chinese exports. Beijing views the EU as a potential substitute for the increasingly restricted U.S. market and has dispatched trade delegations across Europe in recent weeks to bolster commercial ties and attract investment.

• China is positioning the EU as an alternative export market amid retaliatory U.S. tariffs

• Chinese officials are pushing for “reset” trade relations, signaling openness to legal and economic dialogue

• Both sides have agreed to expand high-level negotiations, especially around levies on Chinese electric vehicles

Strategic Outreach and Shifting Trade Patterns

• Chinese President Xi Jinping has urged stronger EU-China coordination, branding U.S. policies as “unilateral bullying”

• Freight rate data suggests a shift in trade flows: rates to the U.S. fell 18%, while Mediterranean-bound shipping rose 15%

• Chinese companies are increasingly investing in European warehouse and factory space, according to property investors

In recent weeks, China has hosted or joined economic forums in Stockholm, Oslo, Hanover, London, and elsewhere, signaling a broad diplomatic and commercial effort to realign with the EU.

Political and Economic Hurdles

Despite the charm offensive, deep-rooted tensions remain:

• The EU is wary of China’s market barriers, industrial overcapacity, and support for Russia’s war in Ukraine

• Investigations into Huawei and a wave of cyberattacks have soured political relations

• The EU has launched trade defence probes into Chinese goods like EVs and plywood, while China retaliates with investigations into EU pork, dairy, and cognac

Moreover, Xi’s decision to skip a 50-year EU-China summit and attend Russia’s Victory Day parade adds to the diplomatic strain.

Economic Fragilities and Diverging Sentiment

• China's exports to the EU were more than twice its imports last year, leading to significant trade imbalances

• Weak Chinese domestic demand and deflationary pressures make the country less attractive for foreign investment

• A recent EU Chamber survey found 44% of companies were pessimistic about profits in China, and over a quarter doubted future growth potential there

Still, some large German corporates are lobbying Berlin to support closer economic ties with China, highlighting a divide between geopolitical caution and commercial pragmatism.

Prospects for EU-China Alignment

There is cautious optimism that mutual economic interests could encourage temporary alignment if U.S.–EU trade talks fail:

• EU Commission President Ursula von der Leyen has advocated for “predictability and stability” in the global economy

• Beijing is signaling willingness to address domestic consumption and soak up industrial overcapacity, a major EU complaint

• A fragile détente could emerge if the EU calculates that avoiding a two-front trade war is strategically preferable

However, analysts warn that structural distrust and strategic rivalry will likely limit the scope of any reset.

TL;DR

Facing U.S. tariffs, China is courting the EU to stabilize trade and offset lost American demand. While Beijing has stepped up diplomatic and commercial outreach, EU skepticism remains high due to trade imbalances, cybersecurity concerns, and China's Russia ties. Mutual interest in market stability could lead to closer coordination, but major political and economic hurdles stand in the way of a full reset.

Nvidia Faces $5.5bn Blow as Trump Bans AI Chip Exports to China

Key Developments

The Trump administration has imposed new restrictions on U.S. chip exports to China, forcing Nvidia to halt sales of its China-specific H20 AI chips and triggering a projected $5.5 billion hit to the company’s earnings. The U.S. Commerce Department confirmed that H20 and similar processors will now require export licenses — with no indication if any will be granted.

• Nvidia’s $5.5bn charge reflects inventory write-downs and purchase commitments

• The H20 chip had accounted for $12bn of Nvidia’s $17bn in China revenue

• U.S. officials framed the move as critical to “safeguarding national and economic security”

This represents a significant escalation in the ongoing U.S.–China technology and trade war, already inflamed by Trump’s 145% tariffs on Chinese goods and Beijing’s 125% retaliation.

Market Reaction and Industry Impact

• Nvidia shares fell 6%, dragging down the Nasdaq Composite by 1.7%

• ASML and AMD also dropped 5–6%, with AMD warning of up to $800mn in related charges

• Major Chinese AI players — Alibaba, Baidu, Tencent — all suffered losses on the Hong Kong stock exchange

• Morgan Stanley called the move “more abrupt than expected” and interpreted the writedown as a sign Nvidia doubts it will receive export licenses

The broader semiconductor sector is now facing renewed scrutiny. The White House also launched a national security probe into semiconductors, hinting at potential new tariffs on chips — even those manufactured abroad but sold into the U.S.

Strategic Context and Supply Chain Fallout

• The H20 chip was developed specifically to comply with Biden-era controls, making the new ban a sharp policy shift

• Customers outside China are unlikely to absorb excess H20 inventory, given its reduced power

• Nvidia's chips are fabricated in Taiwan, which could now face tariff risks when exporting to U.S. clients

Despite the setback, Nvidia reaffirmed its U.S. investment plans, including a $500bn infrastructure commitment over four years with partners like TSMC and Foxconn, signaling a shift to reduce geopolitical exposure.

China’s Response and Domestic Substitution Push

China has previously taken steps to limit reliance on foreign chips, promoting domestic firms like Huawei and implementing new energy efficiency regulations that could limit Nvidia chip use.

• Demand for H20s in China had remained strong due to lack of viable local alternatives

• But Beijing is accelerating efforts to localize AI infrastructure, potentially freezing out Nvidia through non-tariff measures

TL;DR

Nvidia is taking a $5.5bn hit after Trump’s administration banned AI chip exports to China, specifically targeting the H20 chip line. The move escalates U.S.–China tech tensions, hitting global chip stocks and raising supply chain concerns. With little hope of license approvals, Nvidia faces a major revenue loss, while China doubles down on domestic chip development and alternative sourcing. The semiconductor trade war is entering a more aggressive phase — and Nvidia is caught at the center.

ASML Misses Order Estimates as U.S. Tariff Uncertainty Rattles Chip Equipment Market

Key Developments

ASML, the Dutch tech group that supplies the world’s most advanced chipmaking machines, reported a €3.9bn net booking figure for Q1 2025 — nearly €1bn below market expectations — as CEO Christophe Fouquet pointed to heightened uncertainty following Donald Trump’s new tariffs on China and potential U.S. controls.

• ASML shares dropped 6.2% on the report, extending year-to-date losses to 16%

• Fouquet acknowledged that artificial intelligence (AI) demand remains robust, but macroeconomic conditions are now “more dynamic” and difficult to predict

• The company sold 73 lithography machines in the quarter, which are essential to customers like TSMC, Intel, and Samsung

Revenue Outlook and Forward Guidance

• Q1 revenue came in at €7.7bn, up 46% YoY, and in line with expectations

• ASML maintained its full-year 2025 revenue guidance of €30–35bn

• Q2 revenue is forecast at €7.2–7.7bn, slightly below analyst consensus of €7.8bn

Despite weaker orders this quarter, ASML reiterated its confidence in 2025 and 2026 as growth years, citing sustained investment cycles from major chipmakers and the AI-driven semiconductor boom.

Tariff Impact and Geopolitical Risk

• Fouquet emphasized that Trump’s tariff regime is creating operational ambiguity, especially around customer behavior and cross-border supply chains

• In the previous quarter, ASML’s bookings were unexpectedly high as customers pre-emptively ordered equipment ahead of anticipated U.S. restrictions

• The company’s exposure to both U.S. export controls and Chinese demand places it squarely in the middle of global trade tensions

While the U.S. has not yet directly targeted ASML with new restrictions, any future expansion of chip equipment export controls — especially affecting sales to Chinese fabs — could materially affect order flow.

Strategic Importance and Market Position

• ASML remains the sole global supplier of extreme ultraviolet (EUV) lithography machines — critical for manufacturing cutting-edge semiconductors

• Its tools are indispensable to Nvidia, Apple, and advanced AI chip manufacturing processes

• The long production and delivery timelines of ASML’s machines mean order volatility can mask underlying demand trends, but also makes the firm highly sensitive to short-term geopolitical shifts

TL;DR

ASML missed order expectations by nearly €1bn amid rising U.S.–China tariff uncertainty. While AI demand remains strong and revenue grew 46% YoY, the company flagged a “dynamic” environment shaped by Trump’s trade actions. Investors reacted negatively, sending shares down 6%, though ASML reiterated growth confidence for 2025–2026. As the leading chipmaking equipment provider, ASML sits at the crossroads of global semiconductor geopolitics — and rising trade barriers could cloud its future bookings.

LVMH Shares Slide as Q1 Sales Disappoint Amid Weak China Demand and U.S. Tariff Fears

Key Developments

Luxury giant LVMH reported weaker-than-expected Q1 2025 sales, sending its shares down 8% and dragging the broader luxury sector with it. The group’s fashion and leather goods division, home to Louis Vuitton and Dior, saw a 5% organic sales decline, sharply missing analyst expectations for a 1% increase.

• Group sales dropped 3% to €20.3bn, missing consensus for flat performance

• The downturn follows the announcement of Trump’s sweeping tariffs, which have sparked concerns across the luxury industry

• Sales in Asia ex-Japan fell 11%, with no improvement in China’s domestic demand, according to CFO Cécile Cabanis

• U.S. sales declined 3%, primarily due to weakness in the beauty segment (e.g., Sephora) and a 9% drop in wine and spirits

Sector Impact and Market Reaction

• Prada shares dropped 4.2%, Kering declined 2.2%, as LVMH became the first major luxury house to report since the new trade regime began

• Analysts flagged a “soft start” to 2025 (Bernstein), with expectations of a U.S. consumer rebound now severely dampened

• HSBC revised its 2025 luxury sector earnings forecast to 0% growth, down from 5%

• Bernstein now forecasts a 2% contraction across the luxury sector, also reversing prior 5% growth expectations

Geopolitical and Macroeconomic Pressures

• Trump’s tariffs are seen as a major headwind for discretionary spending, particularly in the U.S. and China — the two most vital luxury markets

• While wealthy consumers are more resilient to price hikes, consumer confidence is softening amid global economic instability

• China’s luxury demand remains subdued, with McKinsey estimating an 18–20% contraction in 2024

Though European sales rose 2%, other regions saw declines: Japan -1%, Asia ex-Japan -11%, U.S. -3%

Strategic Commentary

LVMH emphasized it remains “vigilant and confident”, but acknowledged the disrupted geopolitical environment. CFO Cabanis noted no signs of recovery in China, despite stimulus hopes, and flagged base effects and category-specific softness (e.g., beauty, spirits) in the U.S. market.

The results will likely pressure other luxury groups to temper expectations for 2025 as macroeconomic volatility and trade tensions weigh on both demand and sentiment.

TL;DR

LVMH’s Q1 results missed expectations, with a 5% drop in fashion and leather goods sales and broader weakness across China and the U.S., both hurt by tariffs and faltering demand. The stock fell 8%, pulling down peers like Prada and Kering. With China stagnant and U.S. growth hopes dimmed, analysts have slashed 2025 sector forecasts. Trump's tariffs are accelerating a luxury market slowdown just as it struggles to regain post-pandemic momentum.

Nato Acquires AI Battlefield Platform from Palantir to Boost Strategic Capabilities

Key Developments

Nato has purchased a next-generation AI-powered battlefield system from Palantir Technologies, marking a significant shift in how the alliance processes and responds to real-time military intelligence. The system, Maven Smart System (MSS Nato), is a tailored version of the U.S. Department of Defense’s Maven platform and will be operational within 30 days — a record pace for a Nato procurement.

• The system uses generative AI, machine learning, and large language models to support commanders with situational awareness and targeting

• Enables 20–50 soldiers to handle intelligence tasks that previously required hundreds or thousands

• Deal finalized in just six months, described as “one of the most expeditious” in Nato history

Strategic and Political Context

The acquisition comes amid escalating geopolitical tensions, with Trump threatening to reduce U.S. security commitments to Europe unless Nato allies increase defence spending. It also reflects Nato’s urgency to match China’s rapid advances in military AI.

• The system is seen as a response to China’s rising military tech capabilities

• Nato emphasized the contract as a symbol of strong U.S.-Europe technological partnership

• MSS Nato was procured at a time when France and other European states are developing domestic alternatives (e.g., France’s Artemis), though these are not yet competitive with Palantir’s offering

About Palantir and Maven

Palantir, chaired by Trump ally Peter Thiel, has long-standing ties with the Pentagon. Its AI systems have been widely used across U.S. military and intelligence operations, including in Ukraine, and it is a major recipient of U.S. defence contracts.

• Palantir has received $2.7bn+ in federal contracts since 2009, including $1.3bn+ from the DoD

• Its U.S. military version of Maven was renewed last year via a $99.8mn five-year deal

• The MSS platform is customizable, allowing integration of satellite data, sensor inputs, intelligence feeds, and software applications

Google previously withdrew from the original Project Maven in 2018 following employee backlash over AI’s role in warfare.

Operational Role and Capabilities

MSS Nato will bolster the alliance’s warfighting capacity by enabling faster, more accurate decision-making through automation and intelligence synthesis.

Key capabilities include:

• Battle space management and targeting

• Intelligence fusion from disparate data streams

• Operational planning acceleration

• Enhanced real-time situational awareness

General Markus Laubenthal of Nato’s Supreme Headquarters described the platform as central to making Nato more agile, adaptable, and responsive to modern threats.

TL;DR

Nato has acquired Palantir’s AI-powered MSS battlefield system in a fast-tracked deal to modernize military intelligence and decision-making. The system uses generative AI to dramatically reduce the manpower needed to process battlefield data and underscores Nato’s urgency to maintain technological superiority amid Trump-era uncertainty and China’s AI advances. The deal boosts Palantir’s defence presence in Europe and deepens U.S.-Nato tech integration at a critical geopolitical moment.

Pfizer Halts Development of Key Weight-Loss Drug After Safety Setback

Key Developments

Pfizer announced that it is terminating the development of its experimental oral weight-loss drug danuglipron following a case of potential drug-induced liver injury in a trial participant. This marks a significant blow to Pfizer’s attempt to enter the fast-growing obesity treatment market, which has been dominated by injectable drugs from Novo Nordisk and Eli Lilly.

• Danuglipron, a GLP-1 receptor agonist, had been viewed as a potential competitor in the emerging oral obesity drug market

• The liver injury was resolved after discontinuing the drug, but the company opted to cease development after reviewing clinical and regulatory feedback

• The decision comes as Pfizer continues to face pressure from activist investor Starboard Value, which has criticized its post-Covid strategy

Market and Competitive Impact

• Pfizer shares were flat following the announcement, but the stock is down more than 17% YTD

• The S&P 500 Pharmaceuticals Index is down 7% in 2025, reflecting sector-wide uncertainty

• Danuglipron’s failure leaves Pfizer well behind rivals: Eli Lilly’s Zepbound and Novo Nordisk’s Wegovy have already seen blockbuster success and are progressing toward oral formulations

• Analysts had estimated the obesity drug market could reach $100bn by 2030, driven by more convenient oral therapies

Pfizer now faces the challenge of rebuilding its metabolic disease pipeline amid falling Covid-related revenues and a need for new growth drivers.

Strategic and Investor Context

• Pfizer had hoped its GLP-1-based danuglipron pill would revitalize its pipeline and tap into post-pandemic demand shifts

• The company is under pressure from Starboard Value, which last year accused Pfizer of destroying $20bn in shareholder value

• CEO Albert Bourla has defended Pfizer’s pivot strategy, citing the $43bn acquisition of Seagen as a long-term value play

• Pfizer’s Q1 earnings report is due at the end of April, and analysts expect greater scrutiny of its R&D direction

BMO Capital’s Evan Seigerman called the program’s cancellation a major setback, stating that Pfizer’s “obesity program is back to the starting block.”

Broader Implications

• The termination of danuglipron reinforces safety concerns around oral GLP-1 drugs

• Pfizer maintains it will continue research in obesity and cardiometabolic diseases, calling them “critical areas of unmet medical need”

• The company must now recalibrate its R&D focus to compete in a landscape increasingly shaped by GLP-1 innovation and investor expectations of diversification beyond Covid-era products

TL;DR

Pfizer has scrapped its closely watched oral weight-loss drug danuglipron due to liver safety concerns, dealing a major setback to its entry into the booming obesity market. The move leaves it trailing rivals Eli Lilly and Novo Nordisk and reignites investor concerns about the company’s post-pandemic strategy. With Q1 earnings looming, Pfizer must now refocus its pipeline to regain investor confidence and chart a new path in obesity and metabolic care.