• Taiwan has held its first tabletop war game amid rising tensions with China.
• The exercise simulates military escalation and involves government and civil groups.
• Taiwan aims to train 50,000 volunteers for emergencies amid China's military drills.

Taiwan's Presidential Office held its first-ever tabletop war games on Thursday in a sign of heightened tensions with Beijing.

The exercise simulates a military escalation with China, which claims Taiwan as its territory. It took place at the island's Whole-of-Society Defense Resilience Committee meeting.

"The Taiwanese society must race against time to build capabilities that can counter threats of large-scale disasters and deter enemy aggression," Lai said at the opening of the event, without naming any country as an aggressor.

The three-hour wargame exercise involved central and local governments, as well as civil groups. It simulated various scenarios, including one in which self-governed Taiwan is "on the verge of conflict" and "high intensity" grey-zone warfare, Lai said.

Liu Shyh-fang, Taiwan's interior minister, said the island's government aims to train over 50,000 volunteers to respond to emergencies by next year. Authorities hope to involve a range of people, including taxi drivers and security guards, in the effort.

Taiwan's focus on emergency preparedness comes amid escalation with China in recent years. Beijing conducted two major exercises around Taiwan this year, in addition to other drills.

In October, China's military surrounded Taiwan during the "Joint Sword-2024B" exercise to show it could blockade key ports, execute strikes, and assault positions.

In May, China launched the "Joint Sword-2024A" exercise following the inauguration of Lai, whom Beijing has branded a separatist.

"The peace and stability in the first island chain is being collectively challenged by authoritarian states," Lai said, referring to an arc of archipelagos from Indonesia to Japan.

Taiwan's tensions with China are not just about the two sides.

Taiwan — a $775 billion economy with a population of about 23 million — is the world's semiconductor chip hub, so any national security development on the island has broader implications for the global economy.

Meanwhile, the US is obliged to ensure that Taiwan has the means to defend itself under the Taiwan Relations Act.

Just last week, the US State Department approved $295 million in arms sales to Taiwan. China said that it "strongly deplores and firmly opposes" the move.

Taiwanese President Lai has challenged the notion that mainland China is Taiwan's "motherland." In July, he said the government of Taiwan — whose official name is the Republic of China — is older than Beijing.

• Russian interest rates on deposits and loans have risen faster than its central bank's key rate.
• A central-bank official said lending might have slowed too quickly in the battle to lower inflation.
• Russia's central bank has kept its interest rate at 21% to avoid excessive cooling in its economy.

Russia's central bank has been hiking rates consistently in the second half of this year in an attempt to cool high inflation — but it may be running ahead of the curve.

Bank lending has slowed, but there's a risk that it's "faster than necessary" in the fight to bring down inflation to Russia's target rate, a central-bank official told Interfax on Tuesday.

Andrey Gangan, the director of the Central Bank of Russia's Monetary Policy Department, told the news agency that bank interest rates on deposits and loans were rising faster than the central bank's benchmark rate, slowing lending activity.

The development prompted the central bank to keep its benchmark interest rate at 21% on Friday. Analysts polled by Reuters had expected Russia's central bank to hike its key rate to 23%.

"Throughout December, we received increasing confirmation of tighter monetary conditions, culminating in Friday's decision," Gangan said.

Citing official data, Interfax reported that corporate bank lending grew 0.8% in November, down from 2.3% in October.

Lenders are planning to expand their loan portfolios at a lower level next year, Gangan said.

Putin called for a 'balanced' decision on interest rates

Gangan's comments followed speculation that Russia's central bank had been under pressure from President Vladimir Putin and the business community to hold back on rate hikes.

A day before the central bank's meeting, Putin called for a "balanced" decision about the interest rate.

Russia's top central banker, Elvira Nabiullina, said at a press conference following Friday's interest-rate announcement that she was worried about "excessive cooling" in the country's overheated economy.

Despite the slowdown in bank lending that prompted Russia's central bank to keep rates steady, inflation remains high, reflecting challenges in the country's sanctions-hit economy.

Russia's inflation rate hovered at about 8% in the year to November, compared with the target rate of about 4%, according to government figures.

Gangan told Interfax that full-year inflation was expected to be about 9.6% to 9.8%. Price raises are expected to peak in April 2025 before falling.

"The current price growth we are observing is the result of factors that have accumulated over most of this year," he said.

But the central bank still needs to keep rates steady this time so that the slowdown in bank lending — which leads to economic cooling — would not be "faster than necessary for bringing inflation back to the target," Gangan said.

• Russia's natural-gas transit deal with Ukraine is set to expire soon, which would cut billions in revenue.
• The deal's possible end affects European countries relying on Russian gas via Ukraine.
• Russia has shifted much of its energy exports to India and China amid Western sanctions.

Russia is set to lose yet another source of income for its war chest in days — and it's Ukraine calling the shots.

An agreement to let piped Russian natural gas transit via Ukraine to Europe is set to expire at the end of the year, depriving Moscow of billions of dollars in income for its wartime economy.

European countries receiving gas from the pipeline have voiced concerns about the end of the supply, but Ukrainian President Volodymyr Zelenskyy has repeatedly said that the five-year agreement will not be renewed.

Russia has meanwhile said it's ready to extend the agreement — though President Vladimir Putin said last week that it was "clear" there wouldn't be a new contract.

Still, the situation could change.

Zelenskyy said last week that Ukraine could consider continuing the arrangement if Russia doesn't receive payments for the fuel until the war ends.

On Monday, the Kremlin's spokesperson, Dmitry Peskov, said the gas transit was complicated.

"The situation here is very difficult, requiring greater attention," Peskov said, according to the TASS state news agency.

Russia is probably making $5 billion in gas sales via Ukraine this year

The end of the five-year transit deal would be a blow for Russia, which could make about $5 billion from gas sales via Ukraine this year alone, according to Reuters' calculations based on Moscow's gas price forecast.

It would also impact several European countries that still depend on Russia for gas, including Slovakia, the Czech Republic, and Austria. There are alternative energy sources and pipelines available, but they could be pricier.

Ukraine could lose hundreds of millions of dollars a year in transit fees — a Kyiv consulting firm told Bloomberg in September that this amounted to about $800 million.

But Ukraine's $800 million revenue from transit would just be a "paltry 0.5% of the country's annual GDP," analysts at the Center for European Policy Analysis, a think tank, wrote in a report last week.

They argued that it was "simply preposterous" to think that continuing the transit deal would offer Ukraine a security guarantee as Russia would want to preserve its gas flows to Europe.

This is because "Russia always put itself first," the analysts added.

Russia diverts energy flows away from Europe

The end of the Ukraine transit route for Russia's gas would put more pressure on Putin's wartime economy, which has plummeted because of sweeping Western sanctions targeting its massive oil and gas trade.

Energy accounts for about one-fifth of Russia's $2 trillion GDP. The country's energy revenue fell 24% last year on the back of sanctions and continues to be under pressure this year as Europe weans itself off Russian gas.

Russia once accounted for as much as 40% of Europe's gas market, but the EU has cut its reliance on the fuel since the Ukraine war.

In response, Russia has diversified its energy customer base, diverting most of its previously Europe-bound oil to India and China.

On Friday, the Russian energy giant Gazprom said in a Telegram post that it delivered a record amount of gas to China via an eastern Siberian pipeline. It didn't specify the volume of gas it delivered but said it was above its contractual obligations with the state-owned China National Petroleum Corporation.

• Russian President Vladimir Putin maintains alliances despite sanctions, keeping Russia's economy afloat.
• Countries like India and Vietnam balance relations with both Russia and the West.
• These alliances are crucial for Russia to navigate trade restrictions and economic challenges.

Russian President Vladimir Putin may be heavily sanctioned and running a country that faces sweeping trade restrictions, but he still has friends.

Russia's friends — or frenemies — aren't all pariah states or US rivals. Some of them, like India and Vietnam, have good relations with the West, too.

"Putin is eyeing strategic swing nations like India, which opposes China and trades with Russia," Sean McFate, a military strategist and author of "The New Rules of War," told Business Insider in September.

Moscow is also trying to emerge from diplomatic isolation, looking to forge strategic relationships beyond autocratic partners like China, North Korea, and Iran, he said.

Still, among the nations Putin has been cozying up to, some are more important to Russia because they keep trade humming.

These are five key countries for Russia's sanctions-skirting economy:

1. China

It's no secret that China and Russia have a special relationship.

Not only did Beijing and Moscow declare their "no limits" friendship in a joint statement on February 4, 2022, when Putin visited China for the Beijing Winter Olympics, but the Russian leader wasted no time buttering up China after his election victory in March this year.

China was the first country Putin visited after he was inaugurated for his fifth term as president.

As authoritarian regimes, Russia and China have close historical and political roots. Beijing's rivalry with the US and the West also plays right into Russia's script.

China has consistently ranked as one of Russia's most important trading partners since the mid-2000s.

Last year, China's trade with Russia jumped 26%, to a record $240 billion.

2. India

While China's ties with Russia are based on their antagonistic relationships with the West, Moscow's relationship with India is more nuanced.

New Delhi has been getting closer to the US in recent years. The world's largest democracy, India is a member of the Quadrilateral Security Dialogue, a security pact that includes the US, Japan, and Australia.

It's also a top supply chain hotspot alternative to China.

At the same time, India has become one of Russia's top trading partners after Moscow pivoted most trade away from Europe, following sweeping sanctions.

Russia's relationship with India goes back to the Cold War, and trade between the two countries has grown since Russia started the war in Ukraine. India is a major buyer of Russian oil and Russia is India's biggest arms supplier.

In June, Indian Prime Minister Narendra Modi visited Russia and met Putin, showing New Delhi isn't afraid to forge its own path in diplomacy.

3. Brazil

Russia and Brazil have what each other needs, making for a mutually beneficial relationship.

Russia exports oil and fertilizers to Brazil and Brazil exports agriculture products — including soybeans, coffee, and meat — to Russia.

In 2023, bilateral trade between Russia and Brazil reached $8.4 billion, off a record high of nearly $10 billion in 2022.

In recent years, Brazil has become important to Russia as part of the BRICS group, which Putin sees as a counterweight to the West-led world order.

Like Putin, Brazilian President Luiz Inacio Lula da Silva backs a multipolar world and has championed an alternative to the almighty US dollar in global trade and payments.

"Every night I ask myself why all countries have to base their trade on the dollar," the Brazilian leader said in April 2023.

4. Turkey

Putin and Turkish President Recep Tayyip Erdogan are both longtime strongmen leaders.

Russia is one of Turkey's top trading partners, so there are compelling reasons why Ankara would want to deepen ties with Russia.

Just half a year into Russia's invasion of Ukraine, Erdogan took up Putin's offer to create a "natural gas hub" as Europe weaned itself off natural gas imports from Russia.

Since the war's outset, Turkey — a NATO member — has been positioning itself as an intermediary between the West and Moscow, brokering grain export deals between Russia and Ukraine and offering to host peace talks between the two sides.

Turkey has also expressed interest in joining BRICS — which Russia is a member of — and has been given partner country status.

5. Kazakhstan

Former Soviet republics, Russia and Kazakhstan are close trade partners and their economic relationship has only deepened amid the Ukraine war.

In 2024, trade turnover between the two countries reached $27 billion — nearly 40% higher than the $19.7 billion in 2019.

Kazakhstan has come under scrutiny for its role as a key hub of goods to and from Russia, including parallel imports. The Kazakhstan government has been cracking down on such deals, but some trade persists.

In August, Serik Zhumangarin, Kazakhstan's deputy prime minister and its minister of trade and integration, told Bloomberg that some sanctions against Russia have affected the central Asian country's economy.

Kazakhstan "won't blindly follow the sanctions" if it means major local companies are affected, Zhumangarin said.

• Russia's central bank has kept the key interest rate at 21%, bucking expectations of a hike to 23%.
• Russia's top central banker said she is eyeing "excessive cooling" in the economy.
• Russia's high interest rates are impacting business investments and profits, business leaders complain.

Russia's economy has been running hot on wartime activities, prompting the country's central bank to hike rates up to 21% — but it's now worried about too much cooling.

Elvira Nabiullina, Russia's top central banker, expressed that concern on Friday when she kept the key interest rate unchanged. Analysts polled by Reuters had expected her to hike rates to 23%.

"Our politics is aimed at prevention of extreme scenarios, which means that we cannot let the economy overheat further," Nabiullina said at a press conference following the rates decision, according to TASS state news agency.

"It is necessary to make sure that overheating subsides. That said, it is necessary to avoid excessive cooling, which is why we keep a close eye on this," she said.

Nabiullina said the central bank kept the interest rate steady as monetary conditions have "tightened even more than was implied by the key rate increase" in October, when the bank raised the rate from 19% to 21%. Russia started the year with its benchmark interest rate at 16%.

"Consequently, lending growth notably slowed down in November," she said. "We will need some time to assess how steady this deceleration in lending is and how the economy is adjusting to the new conditions."

Russian business leaders complain about high interest rates

Nabiullina's comments came as Russia's inflation hovered around 8% in the year to November, compared to the target rate of about 4%. Staples, like the price of butter and potatoes, have shot up this year. But the central bank's three straight rate hikes since June may be working, the top central banker signaled.

"Tough monetary conditions have evolved in the economy, which are to provide for inflation slowdown in coming quarters," she said, per TASS.

Russian business leaders have been complaining about the central bank's high interest rates, which they say are stifling business activities.

Sergei Chemezov, the CEO of the defense conglomerate Rostec, said in October that record-high interest rates were "eating up" the profit from the company's orders.

"If we continue to work like this, then most of our enterprises will go bankrupt," Chemezov said.

Economic cracks in Russia

Even Russian President Vladimir Putin on Thursday acknowledged that his country's economy is not in a good place — and he blamed the central bank and federal government.

The Russian leader said that the central bank could have used instruments other than interest rates to cool the economy and that the federal government could have worked with economic stakeholders to improve supply.

"There are some issues here, namely inflation, a certain overheating of the economy, and the government and the central bank are already tasked with bringing the tempo down," Putin said during his marathon annual press conference.

Price rises had been an "unpleasant and bad" outcome, he said.

Given the sweeping sanctions against Russia's economy, Nabiullina faces a challenging job to keep Russia's seemingly resilient economy going.

Economic cracks are emerging as the Kremlin focuses on shoring up its defense industry for its war in Ukraine — but at the expense of other sectors, Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Center fellow wrote on Friday.

Prokopenko, a former Russian central bank official, wrote that growth momentum could stall next year, with social and fiscal challenges developing into crises around 2026.

• Russia may deploy its navy to protect its shadow fleet transporting sanctioned oil.
• The West has increased sanctions on Russia's oil industry and is zooming in on its shadow fleet.
• Russia's economy faces challenges like inflation, a weak ruble, and high interest rates.

Russia may ratchet up "risky and threatening behavior" against NATO countries, including by using the Russian navy to escort its shadow fleet through Danish waters, Denmark said on Wednesday.

The Danish Defense Intelligence Service made the assessment in its annual security outlook published on Wednesday.

"If this happens, it will increase the level of tension," said the Danish intelligence agency.

Denmark's assessment came as the West turns up sanctions against Russia's important oil industry, a key contributor to its war chest.

On Monday, the European Union sanctioned more Russian dark fleet vessels — designated as such because they dodge the G7's oil price cap by either submitting falsified financial statements or not having proper insurance coverage. A day later, the UK also broadened its sanctions against these vessels.

On Tuesday, a dozen Western countries, including Denmark, the UK, Germany, Finland, and Estonia, agreed to step up checks on the insurance coverage of suspected shadow tankers transporting Russian oil.

Russia's shadow fleet of mostly aging oil tankers grew after the G7 imposed an oil price cap on Russian oil in December 2022. The shadow fleet has helped Russia circumvent Western restrictions and allowed it to continue trading its oil at market prices, according to the EU.

Energy accounts for about one-fifth of Russia's GDP. The country's oil revenue fell 24% last year on the back of sanctions.

Oil revenues continue to be under pressure this year. Russia exported an average of 70,000 barrels of crude a day so far — 2% lower than the 2023 average, Bloomberg reported.

Russian economy under strain

The West's increasing pressure on Russia's energy trade is aimed at further straining the country's finances after nearly three years of war.

While Russia's economy has helped build strong financial buffers in the past years as war raged on, the economy faces "increasingly large unsustainable burdens," wrote Mark Sobel, the US chair of the Official Monetary and Financial Institutions Forum, a think tank, this week.

The energy giant's lucrative oil industry is also under pressure from global energy market dynamics, including an abundance of supply and slowing demand.

Russia faces numerous economic challenges, including soaring inflation, the plummeting ruble, record-high interest rates of 21%, and capital controls.

"Even if sanctions and blocked Russian assets are not going to bring Russia's economy to its knees in one fell swoop, they remain powerful leverage and can be used more forcefully in any agreement to end the fighting and secure Ukraine's future," wrote Sobel.

• Databricks is raising $10 billion, boosting its valuation to $62 billion.
• The funding round is led by Thrive Capital and includes major investors like Andreessen Horowitz.
• Databricks plans to invest in AI products, acquisitions, and international expansion.

Databricks is raising $10 billion in its latest funding round, bringing its valuation to $62 billion, the AI startup said on Tuesday.

The Series J funding is led by Thrive Capital and co-led by Andreessen Horowitz, DST Global, GIC, Insight Partners, and WCM Investment Management.

Other participants include existing backer Ontario Teachers' Pension Plan and new investors ICONIQ Growth, MGX, Sands Capital, and Wellington Management.

Ali Ghodsi, the CEO of Databricks, said in a statement that the funding round was "substantially oversubscribed." The company has already raised $8.6 billion of the $10 billion target.

"These are still the early days of AI," said Ghodsi, who co-founded the company in 2013.

Databricks intends to invest the capital in AI products, acquisitions, and international go-to-market expansion on the back of "increased momentum and accelerated growth.

It will also be used to let some employees cash out their shares and pay related taxes.

Databricks' new valuation marks a 44% increase from its valuation of $43 billion in September 2023, when it announced its Series I funding round.

The funding round came as San Francisco-based company's revenue grew over 60% year-over-year in the third quarter ended October 31. The company said it expects to cross $3 billion revenue run-rate and be free cash flow positive in the fourth quarter ending January 31. The cash-flow metric shows the company is bringing in more than it's spending, a key measure of profitability.

Databricks counts Jack Dorsey-led payments company Block, telco giant Comcast, EV maker Rivian, and oil major Shell among its 10,000 customers.

A valuation of $62 billion means Databricks trails behind only a few US companies' valuations, including SpaceX and Open AI, according to data from CB Insights.

Its largest publicly traded competitor, Snowflake, has a $57 billion market capitalization. The company's stock is 14% lower this year.

• Two Russian vessels were damaged during a heavy storm on Sunday, causing a massive oil spill.
• The tankers, both over 50 years old, carried nearly 9,000 metric tons of oil products.
• On Monday, the EU sanctioned 52 dark fleet ships.

A massive oil spill involving two Russian tankers is underscoring the dangers of the dark fleet of ships that's been boosting President Vladimir Putin's war chest.

On Sunday, the Volgoneft 212 and Volgoneft 239 vessels were damaged during a heavy storm, discharging 3,700 tons of low-grade fuel oil into the Kerch Strait between the Russian-occupied Crimean Peninsula and Russia.

Both ships are over 50 years old and were carrying nearly 9,000 metric tons of oil products in total, reported TASS state news agency.

One crewmember died, and 12 were rescued from the Volgoneft 212, which split in half. All 14 crew aboard the Volgoneft 239 were rescued.

Greenpeace Ukraine has warned of an "environmental catastrophe" in the Kerch Strait.

While the extent of damage depends on the product involved, the region already experienced "severe damage to the environment" in 2007 when 1,200 to 1,600 tons of oil was spilled," Greenpeace said.

Aging ships are transporting Russian energy

The problem is more than environmental.

The G7 imposed an oil price cap on Russian oil in December 2022, prompting Russia to grow its shadow network of mostly aging ships.

Using that shadow fleet of ships has helped Russia circumvent Western restrictions and allowed it to continue trading its oil at market prices, according to the European Union.

However, because many of those ships are old, they are also more prone to accidents. Should the ships not have adequate insurance, the burden of clean-up and salvage costs could fall on coastal countries.

Last month, 206 out of the 369 vessels that exported Russian crude oil and oil products were shadow tankers, according to the Finland-based Centre for Research on Energy and Clean Air, a think-tank.

About 30% of the shadow tankers carrying Russian oil were at least 20 years old, according to CREA. Major Western oil companies generally do not use ships above 15 years old.

Europe to step up checks on tanker insurance

The European Union is already cracking down on Russia's dark fleet.

On Monday, the EU sanctioned 52 dark fleet ships. That's in addition to the 27 ships it had previously sanctioned. These vessels will not be able to access EU ports and services.

"These ships have been found to be engaged in high-risk shipping practices when transporting Russian oil or petroleum products, in arms deliveries, grain theft, or supporting the Russian energy sector," the European Commission said in its announcement.

A group of European countries — including Denmark, Estonia, Norway, and Sweden — is also planning to increase checks on the insurance coverage of tankers carrying Russian oil, Bloomberg reported on Monday, citing people with knowledge of the matter.

Bloomberg's sources said they expect no consequences for ships that are short on their coverage in the immediate term, although the information collected could help with the crafting of such measures in the future.

• China's retail sales grew 3% on-year in November, missing expectations and showing weak demand.
• The property crisis and low consumer confidence are dragging down China's economic recovery.
• Stimulus measures and trade-in policies boosted appliance and car sales, but overall growth lags.

China has rolled out multiple rounds of stimulus measures to boost its economy this year, but consumers are still unsure about parting with their money.

In November, China's retail sales — a measure of consumption — grew 3% from a year ago, according to official data released on Monday. That's lower than a 4.8% expansion in October and a 4.6% rise that analysts polled by Reuters had expected.

The below-forecast retail figures reflect flagging consumer confidence in a month when retailers hold their biggest sale of the year: the Singles' Day shopping festival.

"This was the big disappointment of the month, as retail sales failed to build upon the momentum and came in well softer than both consensus and our forecasts," wrote Lynn Song, ING's chief economist for Greater China, in a note on Monday.

In its data release, China's statistics bureau described the country's domestic demand as "insufficient."

There were bright spots in November, with sales of household appliances growing 22% from a year ago and growth of car sales hitting a nine-month high of 6.6%, as the two categories were boosted by government trade-in programs.

However, overall discretionary spending was slow, with sales of cosmetics tanking 26% from a year ago. Sales of communications applications and gold and jewelry fell 7.7% and 5.9%, respectively.

Even the experiential "eat, drink, and play" sectors have started to fade after a solid outperformance for most of the year, Song wrote. Growth of sales in catering, alcohol and tobacco, and sports and recreation all slowed.

China is mired in an epic property crisis

China is grappling with a years-long property crisis. About 70% of China's wealth is parked in property, so the real-estate crisis is also damaging the consumer psyche.

China's leadership pledged after a meeting last week that it will boost consumption as a priority.

"With no convincing signs of a ground-up pick-up in consumption and confidence, Beijing is confronted by the risk of 'too little, too late' stimulus," wrote Vishnu Varathan, the head of macro research in Asia, excluding Japan, for Mizuho Securities.

China's retail sales data came about a month ahead of President-elect Donald Trump's inauguration. While on the campaign trail, Trump pledged to impose 60% tariffs on all Chinese goods. He has also threatened an additional 10% tariff on Chinese imports, citing the country's role in the fentanyl trade.

China's benchmark CSI300 was 0.4% lower at midday on Monday. Hong Kong's Hang Seng Index was 0.6% lower.

• A Chinese economist said China's official GDP figures may be higher than actual numbers.
• He said China's GDP is likely to grow between 3% and 4% in the next three to five years, but the official number is likely to remain at around 5%.
• China faces economic challenges including a real-estate crisis and high youth unemployment.

A prominent Chinese economist just said what many people suspected: China's official GDP numbers may not be accurate.

"We do not know the true number of China's real growth figure and maybe some other numbers," Gao Shanwen, the chief economist at SDIC Securities, said on Thursday.

Many people speculate that "after the pandemic, those numbers may not be so accurate," he said at an event hosted by the Peterson Institute for International Economics in Washington, DC. Gao previously advised the country's policymakers.

Gao said China's GDP probably averaged around 2% in the last two to three years even though the official number is "close to 5%," Gao said.

"If my speculation is correct, I think it might be more reasonable to expect a growth rate between 3% to 4% in the years to come, for the next three to five years," Gao said. "But we know, and I think, the official number will always be around 5%."

China reported 5.2% GDP growth last year and has a growth target of "around 5%" this year — which economists said is ambitious.

While there have been longstanding doubts over the veracity of China's GDP data, one economist explained to Business Insider in 2022 that the headline GDP figure is "systematically inflated" due to how it's calculated and that it's unlikely the central government in Beijing manipulates numbers.

Chinese youth are 'tightening their belts and eating noodles with the lights off'

Gao came under the spotlight recently for making comments at an investor conference about "lifeless" Chinese youths. Chinese censors have since taken the speech off the internet.

In the speech, Gao said his analysis of regional data showed that the younger the population of a province is, the slower its consumption growth.

China is now "full of vibrant old people, lifeless young people and middle-aged people in despair," Gao added.

"Young people are tightening their belts and eating noodles with the lights off," Gao said.

Gao's assessments of China's economy come as the country struggles to recover from pandemic lockdowns.

The world's second-largest economy is facing multiple issues, including a real-estate crisis, high youth unemployment, and deflation.

China's economy has been holding up this year thanks to robust exports — but the country's consumer demand has been dismal due to poor consumer confidence. Many people are trading down for cheaper purchases.

China's economy is still struggling to recover from the pandemic

On Thursday, Xinhua state news agency reported that top Chinese officials pledged to loosen monetary policy, increase the budget deficit, and issue more debt to boost consumption and maintain stable economic growth.

China's top leaders also pledged to "vigorously boost consumption" and domestic demand "on all fronts," per Xinhua, citing the two-day Central Economic Work Conference led by Chinese leader Xi Jinping this week.

China's new pledges and measures to shore up its flagging economy did not excite investors, especially since they were short on details, analysts said.

China's benchmark CSI300 Index was 1.8% lower at midday while Hong Kong's Hang Seng Index fell 1.7%.

"Due to the property meltdown, the fiscal crisis and worsening tensions with the US, China's economy is not in a normal downcycle, so it may take much more than a 'bazooka' stimulus package to truly reboot the economy," Nomura economists wrote in a note on Friday.

• China's exports grew 6.7% in November, hitting $312 billion, despite economic challenges.
• The growth reverses last year's decline, driven by strong global demand and frontloaded orders.
• Beijing is planning proactive fiscal policies amid tariff threats from President-elect Trump.

It's been a difficult year for China's economy, but the country is still expected to hit its GDP growth target, thanks to strong global demand for its exports.

In November, China's exports grew 6.7% from a year ago to $312 billion — the highest level since September 2022, per official data released on Tuesday.

Some of the exports in November could have been from US importers who were frontloading to avoid potential higher tariffs in President-elect Donald Trump's second term, BofA Securities analysts wrote on Tuesday. This activity could hold up in the near term, they added.

The robust November import adds to a 5.1% growth in exports through the first 10 months of this year and reversed a 4.6% decline in exports last year, presenting the "biggest upside surprise" for China's economy in 2024, wrote Lynn Song, the Greater China economist for ING, in a note last week.

However, given that China's exports in November were strong due to stockpiling, its upside could be short-lived — especially as global demand slows.

"We are likely going to see a payback of such frontloading in 2Q-3Q next year, aggravating the potential impact of tariff increases," wrote the BofA Securities analysts.

As it was, China's November imports — though robust — missed the 8.5% increase anticipated by economists in a Reuters poll. The growth was also lower than October's 12.7% rise.

And it could get worse for the world's second-largest economy amid US President-elect Donald Trump's tariff threats.

Trump has pledged to slap 60% tariffs on all imports from China and an additional 10% on China, citing its role in the fentanyl trade.

China's consumer demand also isn't holding up. Imports contracted 3.9% from a year ago, as Chinese people tighten their belts and trade down for cheaper purchases.

Beijing gets ready for Trump 2.0

Having dealt with Trump's first presidency — during which the US and China started its trade war — Beijing is getting ready for Trump 2.0.

The Chinese leadership is holding its Central Economic Work Conference this week.

The meeting comes just after a Politburo meeting on Monday, during which China's top leadership pledged "a more proactive fiscal policy and a moderately loose monetary policy" ahead, according to Xinhua state news agency.

Xinhua added that China will also step up "unconventional" counter-cyclical adjustments and boost domestic demand and consumption.

"The strong tone on policy stance suggests that Beijing is very determined to stabilize growth and will step up fiscal spending next year," wrote Ting Lu, Nomura's chief China economist, on Tuesday.

Markets viewed the Politburo's plans positively, with China's stocks and bonds rallying on Monday. Optimism faded on Tuesday, with markets relatively muted.

"We believe China is not in a typical downcycle, we think Beijing needs to do much more beyond increasing fiscal spending and printing money to achieve a real recovery," wrote Lu.

China has been pulling out moves to boost its flagging economy this year, including aggressive stimulus measures in late September that sent the stock market surging 8.5% in one day.

China's benchmark CSI300 and Hong Kong's Hang Seng Index are both about 20% higher this year to date but are far below their peaks in early 2021.

• US President-elect Donald Trump named David Perdue as the US ambassador to China.
• Perdue, a former senator and business executive, has extensive experience in Asia.
• Trump's nomination comes amid trade tensions with China. He has threatened elevated tariffs on Chinese goods.

US President-elect Donald Trump has picked former Sen. David Perdue as the US ambassador to China.

A business executive before he entered politics, Perdue has lived in Singapore and Hong Kong.

"He will be instrumental in implementing my strategy to maintain Peace in the region, and a productive working relationship with China's leaders," Trump wrote on Truth Social. highlighting Perdue's. experience with Asia and China and calling him a "loyal supporter and friend."

Perdue said he's "truly honored" to accept Trump's nomination.

"Having lived in Asia on two occasions, I understand the gravity of this responsibility and look forward to implementing President Trump's strategy to make the world safe again and to represent the United States' interests in China," Perdue wrote on X.

Trump's nomination of Perdue as ambassador to China comes at a time of tension between the world's two largest economies.

Trump, who takes office on January 20, has threatened 60% tariffs on all Chinese imports to the US on his campaign trail. Last month, Trump said he intended to impose an additional 10% tariff on Chinese goods due to China's role in the fentanyl trade.

Business and golf with Trump

Perdue served as a senator for Georgia from 2015 to 2021, during which time he was the only ex-Fortune 500 CEO serving in the Senate.

Like Trump, the Georgia native entered politics following decades in the business world. Perdue is also a keen golfer, which helped him bond with Trump.

Perdue said Trump often called him — at any hour — to strategize or brainstorm policy ideas.

"As a business guy, we have a point in commonality," Perdue told Business Insider in 2018. "Number one, all we want is results. He's not an ideologue. He has not been up here in the Washington bubble for all these years, fighting these partisan wars. He just wants to get results. I just want to get results."

Perdue lost the Senate runoff election to Jon Ossoff, a Democrat, in January 2021.

Even though Trump picked Perdue citing his experience with Asia, this same experience had also been under scrutiny in the past as it involved outsourcing.

"Yeah, I spent most of my career doing that," said Perdue, referring to his experience with outsourcing, in a July 2005 deposition during a company lawsuit, per Politico in a 2014 report.

During his tenure as senator, the Justice Department investigated him for insider trading, but no charges were filed.

Extensive business and retail experience

Perdue attended the Georgia Institute of Technology, where he graduated with a bachelor's degree in industrial engineering in 1972.

He also has a master's degree in operations research from the same university.

Perdue started his career at Kurt Salmon Associates, a consulting firm.

After that, he held several positions before his foray in Asia.

From 1991 to 1992, Perdue worked for the international apparel company Gitano in Singapore, and then for Sara Lee in Hong Kong.

Following these stints, Perdue held a number of high-level positions, including at Dallas-based Haggar Clothing, where he joined as a senior vice president of operations, and Reebok, where he joined as an SVP for its shoe business. He was Rebook's CEO by 2001.

In 2003, Perdue joined Dollar General, where he became CEO. Perdue was the first person outside the Turner family to run the discount chain.

Perdue grew Dollar General, adding over 2,000 stores to the chain. In 2007, the private equity firm KKR acquired it.

In 2014, Perdue launched his bid for Georgia's open Senate seat.

After losing in the Senate runoff election in 2021, Perdue set his sights on Georgia's governor race.

In 2022, Perdue lost the GOP's gubernatorial primary to Brian Kemp.

• Russian President Vladimir Putin has urged his government and central bank to curb Russia's 8% inflation rate.
• Russia's inflation target is 4%, with interest rates at a record high of 21%.
• The high interest rates are pressuring businesses and hurting the cash savings of ordinary people.

Russian President Vladimir Putin appears to be signaling to his government and the central bank to put aside their differences to tackle a critical problem for businesses and regular people alike: inflation.

Russia's inflation rate is 8% compared to a year ago, which Putin acknowledged was "a relatively high level."

"It is imperative to avoid any misalignment in key macroeconomic indicators and prevent sectoral imbalances, which undeniably includes the necessity of controlling inflation," the Russian leader said at an investment forum in Moscow on Wednesday.

Putin doubled down on "coordinated joint efforts" from the Russian government and the central bank to curb inflation, echoing comments he made in August.

"I would like to stress that this is not just a recommendation or a proposal — this is a guide to action, as I see it," he said on Wednesday, adding that the two groups are already coordinating.

Russia's inflation target is 4% and Putin said the country should increase the supply of goods and services to fight inflation, per TASS state news agency. Before the pandemic and war in Ukraine, the country's inflation rate — like that of many peers — was much lower, hitting 3% in December 2019.

Putin's comments come amid recent complaints from Russian business elites that they are sick of propping up the country's economy as interest rates soar to record levels in the country's wartime economy.

In October, Russia's central bank hiked its key interest rate to a high of 21% to tame prices, intensifying criticisms — from business leaders, lobby groups, and the government — against Russian central bank governor Elvira Nabiullina's policies.

Sergei Chemezov, the CEO of the defense conglomerate Rostec, said in October that record-high interest rates were "eating up" the profit from the company's orders.

"If we continue to work like this, then most of our enterprises will go bankrupt," Chemezov said.

One of Russia's top bankers told Reuters late last week that a high interest rate may not help much given high defense expenses and sanctions.

Price raises in Russia are making life very expensive — butter and potatoes cost substantially more than they did at the start of the year — and eating into people's savings.

The cash savings of Russians are now at all-time low of 15.9 trillion rubles, or $151.5 billion, due to high interest rates, VTB — Russia's second-largest lender — said on Wednesday. That figure does not include foreign currency holdings, which VTB estimates are about $94 billion.

Analysts polled by Reuters expect Russia's central bank to raise its key interest rate to 23% at its December 20 meeting. But Nabiullina said it was not predetermined, the news agency reported on Wednesday.

Nabiullina also pushed back on the notion that the central bank's tight monetary would spur a recession.

"Economists of the Central Bank believe the economic potential is on the rise and will continue growing in the next year," she said at Wednesday's forum in Moscow, per TASS.

"This is the result of large-scale investments in the upgrade of the economy during the last three years. If the potential is growing steadily, then this means also more space for demand growth," Nabiullina said.

• South Korea's president, Yoon Suk Yeol, declared martial law in a shock address on Tuesday.
• He expressed frustration with paralyzing opposition forces within the government.
• After hours of civil unrest, Yoon rescinded the order, but many are calling for his resignation.

In a stunning move that threw the nation into turmoil, South Korea's president, Yoon Suk Yeol, invoked martial law on Tuesday, only to reverse course six hours later.

The decree, which brought temporary military control and the suspension of civilian government activities and civil liberties, marked South Korea's first declaration of martial law since the country's democratization in 1987.

The last time that a South Korean leader declared martial law was in 1979, in the aftermath of the assassination of the president.

The resulting turmoil in this instance could be felt for some time.

Calls are growing for the president's resignation. All six opposition parties filed an impeachment motion on Wednesday, with a vote set for Friday or Saturday, according to the Yonhap news agency.

After Yoon ordered martial law, South Korea's parliament voted unanimously to block the decree, declaring the move invalid, but martial law remained in effect.

Yoon announced he would lift martial law and withdraw troops the following day. The Joint Chiefs of Staff then said that the deployed troops had returned to their original units. In the aftermath, Yoon's cabinet approved the reversal.

But the reversal of the order wasn't enough to stymie economic anxieties that arose out of the unrest. On Wednesday, South Korea's Kospi Index closed 1.4% lower. The won fell to its lowest level since October 2022 but trimmed losses in Asian hours.

Companies in the country, including South Korea's SK Group, a conglomerate of semiconductor and energy businesses, and Korean shipbuilder HD Hyundai, were hosting emergency executive meetings in the early morning hours on Wednesday, per Bloomberg.

"We are concerned that these events could impact South Korea's sovereign credit rating, although this is uncertain at this stage," wrote Min Joo Kan, ING Economics' senior economist in Seoul, in a research note.

The leader of Yoon's party said that the ruling party feels "deeply sorry to the public," adding that "the president must directly and thoroughly explain this tragic situation" and that those who called for martial law should be held accountable.

Yoon's entire cabinet and all of his aides have offered to resign, according to local reports.

Meanwhile, the country's largest labor union, the Korean Confederation of Trade Unions, is on indefinite strike, demanding Yoon's resignation, which could hurt production.

On Wednesday, thousands gathered for protest rallies across the country, including outside South Korea's national assembly.

Why did Yoon declare martial law?

Yoon indicated the move was necessary to counter North Korea, but the move appears to be at least partly political.

In a televised address, he spoke of "anti-state forces," saying martial law was necessary to eliminate them quickly and "normalize the country." He also criticized the country's opposition politicians, responding to a series of political setbacks that have frustrated his agenda.

Yoon has suffered from low approval ratings this year and has been described by critics as a "lame-duck president," as he holds the nation's highest office without having a majority in its legislature.

Yoon's conservative People Power Party lost a general election in April, in which the rival Democratic Party of Korea took 175 of the 300 seats in the National Assembly.

The opposition majority in parliament last week voted to cut almost $3 billion from Yoon's 2025 budget, undermining his plans. They have also tried to impeach three top prosecutors, The Associated Press reported.

Even as he reversed his martial law decision, Yoon continued to criticize those he saw as frustrating his agenda, requesting in a later address that the National Assembly "immediately stop its reckless actions that paralyze the functions of the state through repeated impeachment, legislative manipulation, and budget manipulation."

The decision to invoke martial law led to parliamentary activity being prohibited, according to the country's government-funded Yonhap news agency. Anyone who violated the rules could have been arrested without a warrant.

The outlet also said that media and publishers fell under the control of South Korea's military.

The provisions of martial law also allowed for the suspension of certain civil liberties.

What has been the political reaction?

Yoon's late-night announcement prompted protests outside parliament, with some trying to climb its walls. There was also intense criticism of Yoon for short-circuiting the country's democracy.

Han Dong-hoon, the leader of the ruling People Power Party, said imposing martial law was "wrong" and that he would "stop it with the people."

South Korea's main opposition leader, Lee Jae-myung, described the move as unconstitutional.

Yoon was already an unpopular leader in Korea. Gallup's latest poll, released last week, showed his approval rating falling to 19%, per a poll of 1,000 adults.

The unexpected declaration of martial law was also said to have caught the Biden administration by surprise.

South Korea is a key US ally in the Indo-Pacific region and is a base for roughly 28,500 American service members, as well as numerous civilian workers and dependents.

"We continue to expect political disagreements to be resolved peacefully and in accordance with the rule of law," US Secretary of State Antony Blinken said in a statement after the martial law was rescinded.

How has the economy been affected?

Markets reacted immediately to South Korea's political crisis, with US-listed Korean stocks and the South Korean won taking a hit in overnight trade.

While shares of Samsung Electronics, the country's largest company, dropped 3% before paring losses, South Korea's Kospi Index fell 2.2% and closed 1.4% lower on Wednesday.

South Korean authorities have rushed to reassure investors.

The country's finance ministry said on Wednesday it was standing ready to deploy all necessary measures to stabilize the financial markets.

"We will inject unlimited liquidity into stocks, bonds, short-term money market as well as forex market for the time being until they are fully normalised," the ministry said in a statement.

On Wednesday, Kim Byung-hwan, the chairman of South Korea's Financial Services Commission, said the government was ready to activate a $35.4 billion stock market stabilization fund immediately and take other measures to address market concerns if needed.

But Rhee Chang-yong, governor of the Bank of Korea, told Bloomberg TV on Wednesday evening local time that South Korea's financial markets were stabilizing quickly and that the impact on markets was short-lived.

He added that he believed South Korea's economic dynamics can be separated from its political dynamics.

Even so, a few hours later, the OECD lowered South Korea's 2025 growth economic outlook to 2.1%, from 2.2%.

One notable stock surge amid all the turmoil: Kakao, and subsidiaries Kakaopay and KakaoBank, were up on Wednesday. Billionaire founder Brian Kim was arrested in July on charges of manipulating a major K-pop agency deal last year.

• Putin has signed off on a record defense budget for 2025 amid the ongoing Ukraine war.
• Defense spending will rise to 13.5 trillion rubles, making up a third of the country's budget.
• Russia's economy faces inflation and ruble decline, despite military-driven activities.

Russian President Vladimir Putin has signed off a federal budget that will boost defense spending to a record level next year.

The budget for 2025 will take the amount allocated for national defense to 13.5 trillion rubles, or $126.8 billion — up from 10.8 trillion rubles in 2024.

This means defense will make up 32.5% of Russia's federal budget next year, up from 28.3% this year.

The budget was proposed in September and approved by Russian lawmakers over the last 10 days.

Russia's record budget for its war in Ukraine comes as the conflict heads into its fourth year next February.

Even though Western countries have unleashed a raft of sanctions against Russia over its invasion of Ukraine, Putin's regime is keeping Russia's economy afloat, with most activities driven by military activities.

However, Russia's economy is under pressure, with wartime activities driving the economy so hot that inflation has spiked. That prompted Russia's central bank to start hiking its key interest rate, now at a record high of 21%.

Last month, Russia's top central banker said the economy was at a "turning point," and that as inflation slows, she expects to cut the key interest rate.

Meanwhile, the ruble has sunk to 32-month lows, signaling that all is not well in the Russian economy. Putin has told his countrymen not to panic about the decline in the ruble.

Analysts at the Institute for the Study of War said on Sunday that the boost in Russia's defense spending doesn't necessarily mean that the country's military capabilities will increase because a significant amount of the budget will go toward benefits for soldiers, veterans, and their families.

"Russia's continued focus on defense spending is likely also affecting the effectiveness and sustainability of Russian social programs, which may affect the Kremlin's ability to sustain its war in Ukraine, given mounting pressures on the Russian economy and Putin's observed tendency to avoid risking his regime's stability," wrote the analysts in a note.

'An absolutely unusual situation'

A top Russian banker told Reuters late last week that the long-drawn war and the economic situation mean that Russia's economy is expected to slow next year.

"It is impossible for the economy to go through such events without consequences," Andrei Kostin, the CEO of VTB — Russia's second-largest bank by assets — told the news agency.

Despite this, Russia's economy is "healthy," he added.

Kostin said he expects Russia's GDP growth to slow to 1.9% in 2025 — still above the International Monetary Fund's forecast of 1.3%. The IMF expects Russia's economy to grow 3.6% in 2024.

Russia's economy ministry forecasts that the country's economy will grow by 3.9% this year and 2.5% next year.

"The war has been going on for almost three years, and a huge number of sanctions have been imposed. We are living in an absolutely unusual situation," Kostin told Reuters.

• On Monday, Donald Trump threatened more tariffs on China, blaming Beijing for fentanyl.
• China criticized Trump's tariff threats, calling them ineffective and unjustified.
• Global markets have reacted cautiously, with companies adjusting strategies amid higher trade tensions.

Post-election, Donald Trump is amplifying his threats to slap higher tariffs on imports into the US — and China is unsettled.

On Monday, the president-elect took aim at Canada, Mexico, and China on his Truth Social platform, saying he was planning sweeping tariffs on imports from the three countries.

In particular, Trump doubled down on China, saying he'd sign an executive order on his first day in office to impose an additional 10% tariff on imports from China.

The tariffs, Trump said, are because China is to blame for "the massive amounts of drugs, in particular Fentanyl, being sent into the United States."

Beijing hits back

China has already been the target of Trump's tariff threats in his campaign trail. The presidential-elect previously said he planned to impose 60% tariffs on Chinese goods, so his Monday post against the East Asian nation elicited a familiar response.

"China's position against unilateral tariff increases is consistent," He Yadong, a spokesperson for China's commerce ministry, said at a scheduled news briefing on Thursday. "Imposing arbitrary tariffs on trading partners will not solve America's own problems."

China's foreign ministry did not address Trump's tariff threat, but Beijing took major issue with Trump's comments that it isn't doing enough to stop the flow of drugs to the US.

"China is one of the world's toughest countries on counternarcotics both in terms of policy and its implementation," China's foreign affairs ministry said in a Thursday statement.

China's state media rallied around Beijing's official position.

"The excuse the president-elect has given to justify his threat of additional tariffs on imports from China is farfetched," wrote China Daily in a Tuesday editorial.

Markets are muted as investors wait and see

Global markets were jolted following Trump's post on Truth Social on Monday, but the effects have been felt mostly in foreign exchange. The Chinese yuan — alongside the Canadian dollar and the Mexican peso — lost ground against the greenback.

China's equities markets came under some pressure on Tuesday following Trump's post. But they have largely recovered as investors take a wait-and-see stance while assessing if Trump's comments were simply bluster that he's using to extract concessions.

"The equity market reaction has so far been very benign, we would argue likely on the back of the transactional interpretation," George Saravelos, the global cohead of foreign-exchange research at Deutsche Bank, wrote on Tuesday.

US and Chinese companies are on edge

The business world isn't so relaxed.

Some US companies are already thinking ahead, front-loading imports to the US to avoid higher tariffs, economists from Goldman Sachs wrote in a Tuesday analysis of earnings calls and media reports.

The CEO of Shenzhen Lingke Technology, a Chinese lighting manufacturing that produces in several countries including China and Thailand, told Nikkei Asia on Wednesday that US importers have placed larger-than-usual orders since Trump's election victory.

"The thinking is that American clients want to lock in as many profits as possible before a new round of tariffs kick in," Wu Zhiqiang, the company's CEO, told the media outlet.

To be sure, global firms and Chinese manufacturers have already been diversifying their operations to manage concentration risks following Trump's first term and the COVID-19 pandemic.

Larger companies, like Taiwan's Foxconn — a key supplier to Apple — have moved some production work to other emerging countries like India and Vietnam, so they may have some breathing space.

"Clients may decide to shift production locations, but looking at Foxconn's global footprint, we are ahead. As a result, the impact on us is likely smaller compared to our competitors," Young Liu, the chairman of Foxconn, told reporters in Taipei on Wednesday.

However, some smaller companies reliant on Chinese manufacturing and plants in China are uncertain about the future of their businesses, Al Jazeera reported in early November.

It doesn't help that China's domestic consumption and overall economy have been struggling to recover following the pandemic.

Against the backdrop of economic gloom and a potential escalation of trade tensions with the world's top economy, China's homegrown firms are expanding overseas, particularly in emerging markets like Southeast Asia and Africa, and in China's Belt and Road partner countries.

Macquarie analysts wrote on Monday that they expect a wave of Chinese investment into Southeast Asia, focused on consumer goods, logistics, and technology.

• Donald Trump announced sweeping tariffs on Mexico, Canada, and China, rattling global markets.
• The president-elect may be using threats as leverage to get other leaders to comply, analysts said.
• Analysts see more tariffs and uncertainty, and say companies and investors should plan accordingly.

President-elect Donald Trump has two months until he takes office, but he's already dishing out orders — and shaking financial markets.

On Monday, Trump took to his Truth Social platform to announce that he would sign an executive order on his first day in office to impose a 25% tariff on all goods from Mexico and Canada and an additional 10% tariff on imports from China.

"This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!" Trump wrote.

Economists and analysts are now bracing for more uncertainty as they await Trump's next moves. While Monday's tariffs announcement marked a new escalation, it's still unclear exactly when and how the incoming administration would enact these policies.

Trump jolted global markets, but the reaction was 'benign'

Trump's announcements surprised global markets, with the Canadian dollar and the Mexican peso losing ground against the US dollar.

On Tuesday, the Canadian dollar weakened by 0.8% against the greenback, while the Mexican peso fell as much as 2.7% versus the buck to a two-year low.

As for stocks, the iShares MSCI Mexico ETF dropped by as much as 3%, while the iShares MSCI Canada ETF fell by about 1%. Major Asian markets were about 1% lower on Tuesday and mixed on Wednesday.

The S&P 500 closed 0.6% higher at a record level on Tuesday, and the Dow Jones Industrial Average and Nasdaq Composite also gained. However, futures underlying the benchmark indexes were in the red on Wednesday.

"The equity market reaction has so far been very benign, we would argue likely on the back of the transactional interpretation," wrote George Saravelos, the global cohead of foreign exchange research at Deutsche Bank, on Tuesday.

Saravelos was referring to market chatter that Trump's tariff threats are simply leverage to get what he wants — because that was how he wielded them in his first term.

However, the relatively muted market reaction could herald more aggressive warnings from Trump.

"The first Trump administration showed that the more benign the market reaction, the greater the likelihood of further escalation," wrote Saravelos.

Canada, Mexico, and China are just the "opening move" in Trump's "global negotiating game" in his second term, Dave Townsend, a partner in the government solutions and investigations practice group at law firm Dorsey & Whitney, told Business Insider.

"There will be many more moves involving many countries, including retaliatory action against US exports to trading partners," he added.

Mexican President Claudia Sheinbaum signaled her country was ready to hit back. She said at a press conference on Tuesday that "one tariff will be followed by another, and so on, until we put joint ventures at risk."

Companies are front-loading ahead of higher tariffs

Trump is likely to take a far more protectionist approach regarding tariffs — one of the few stances the president-elect reliably adopts, wrote Nick Marro, the principal economist for Asia and global trade lead at the Economist Intelligence Unit.

"Trump changes his mind on many things, but tariffs — and tariffs on China, specifically — are one of the key areas of ideological consistency that we've seen from him over the past 10 years," he wrote.

Companies and investors should think about "how to prepare for the worst," Marro added.

Some companies are already thinking ahead and front-loading imports to the US to avoid potentially higher tariffs, wrote economists from Goldman Sachs in a Tuesday analysis of earnings calls and media reports.

"We see risks that the stockpiling boost to imports could be a bit larger and/or more prolonged given the sizable lead time between now and inauguration, particularly if the Trump administration follows precedent and exempts goods already in transit," they said.

Investors might be too blasé about how escalating tariffs could hurt their portfolios, Neil Wilson, chief market analyst at Finalto, wrote on Wednesday.

"I wonder if the market is a tad complacent about the nature of a trade war, but I do think it's going to be more heavily felt in the FX markets than in US equity indices," he said.

• Donald Trump said he would impose 25% tariffs on Canadian and Mexican exports to the US.
• The US is a big buyer of products from Canada and Mexico, particularly in the energy and auto sectors.
• Canadian energy exports to the US were worth $128 billion last year.

Donald Trump took aim Monday at three of America's biggest trading partners, announcing plans for tariffs on imports from China, Mexico, and Canada.

The US received 83% of Mexico's exports and 75% of Canada's exports last year, official data shows. Mexico sent $379 billion worth of exports to the US in the first nine months of this year, with Canadian exports topping $309 billion, the data shows.

Investors reacted to Trump's latest tariff threats by betting on the greenback and paring their exposure to vulnerable assets. The US dollar strengthened against both the Canadian dollar and the Mexican peso. US stocks broadly gained Tuesday while indexes in Europe and Asia retreated.

"Investors should prepare for immediate volatility in sectors such as automotive, technology, and agriculture — industries deeply intertwined with trade agreements and foreign markets," Nigel Green, the CEO of deVere Group, said in a Tuesday note.

Some commentators were skeptical whether the incoming president would enact the tariffs, suggesting he might be rattling his saber to secure better trade terms.

The tough talk might be a "negotiating tactic, a threat rather than a promise," Dan Coatsworth, an investment analyst at AJ Bell, said in a morning note. "That might still end up the case, but it's clear that the president-elect has no intention of backing down for now."

Even so, here are some Canadian and Mexican industries that could be affected by Trump's new tariffs.

Energy

Canada is the top supplier of crude oil to the US.

It sold mineral fuels, oils, and distillation products worth $128 billion to the US last year, which accounted for nearly one-third of its total exports to the country, Trading Economics data shows.

Tariffs stand to make energy products more expensive, raising overall inflation and eroding consumers' spending power.

Wilbur Ross, who served as commerce secretary in Trump's first administration, told CBC earlier this month he didn't expect Trump to tax Canadian energy imports.

"We import a lot of energy from Canada. I can't imagine that the president would want to tax that, because all it would do would be to raise our costs and not help anything with more American jobs," Ross said.

Several Toronto-listed energy stocks fell on Tuesday morning. Canadian Natural Resources slid 3%, Suncor Energy and Arc Resources slipped 2%, and Imperial Oil and Tourmaline Oil dipped 1%.

Autos

Both Canada and Mexico send a substantial number of vehicles to the US, with auto exports worth $58 billion and $112 billion, respectively, in 2022, per Trading Economics data.

Mexico is an auto powerhouse. The industry employs more than 1 million people there and has long attracted equipment and parts makers that serve it.

The country exported 255,910 cars in October to the US, a 7.5% increase from the previous year, per official data — just over three-quarters of Mexico's total auto exports.

Automakers with operations in Mexico include Toyota, Nissan, and Honda. Tesla announced plans in 2023 for a new factory south of the border that is now in limbo, and the tariffs could complicate matters for Elon Musk's company.

Tesla's Chinese rival BYD is also planning a factory in Mexico, but Mexican officials fear it could anger Trump, The Wall Street Journal reported Tuesday.

Auto stocks fell Tuesday with GM down 7%, Stellantis 5% lower, Honda down 3%, Ford and Volkswagen both shedding 2%, and Mercedes-Benz and BMW both off about 1%.

Machinery and more

Both Canada and Mexico count machinery as one of their largest export categories to the US. Canada exported $34 billion worth of "machinery, nuclear reactors, boilers" in 2023, while Mexico shipped goods worth $91 billion in that category the previous year, per Trading Economics.

Industrial and manufacturing stocks dropped on Tuesday with Carrier Global and Xylem down 3%, ASML and SPX Technologies down 2%, and nVent Electric and ESAB down 1%.

Beyond energy, vehicles, and machinery, Canada exports commodities, plastics, electronics, and other goods worth tens of billions of dollars to the US annually.

Mexico exports similar amounts of electrical and technical equipment, furniture, plastics, food, and beverages across its northern border.

• President-elect Donald Trump announced sweeping tariffs on imports from Canada, Mexico, and China.
• He said he planned to impose a 25% tariff on goods from Canada and Mexico.
• He also said he intended to impose an additional 10% tariff on Chinese goods.

President-elect Donald Trump's announcement of a slate of tariffs sparked a rally in the US dollar on Monday.

The US Dollar Index surged by over 1% following the announcement, while the Mexican peso and Canadian dollar weakened sharply amid tariff concerns.

In a pair of Truth Social posts on Monday, Trump said he planned to kick off his term on January 20 with executive orders "to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders."

"This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!" Trump wrote on Truth Social.

The threat of tariffs since Trump was elected has led to a rally in the US currency on the expectation that the Federal Reserve will have to keep rates higher to counter the inflationary effect of the tax on imports. Higher US rates, in turn, lead to a stronger greenback as foreign investors buy up dollars to invest in higher-yielding assets like Treasurys and other debt securities.

The dollar rally briefly reversed course on Monday as markets reacted to the nomination of Scott Bessent to lead the US Treasury Department, with the former hedge fund manager seen as a possible counter to some of Trump's more inflationary proposals. However, the US currency rallied again with the news of the President-elect's latest plans.

Rob Carnell, the Asia-Pacific head of research for ING bank, wrote on Tuesday that Trump's comments were likely to add volatility to the markets.

Trump's latest tariff threats signal how he'd approach relationships with various trade partners, rekindling memories of his first time in office.

"And so it starts," Catherine McKenna, Canada's former environment minister, posted on her BlueSky social-media account. She said the "amount of time and energy" the Canadian government spent on Trump's first administration was "bonkers."

A 25% tariff on Canadian imports to the US would be "devastating to workers and jobs in both Canada and the U.S.," Doug Ford, the premier of Ontario, wrote on X. "We need a Team Canada approach and response—and we need it now."

Trump added that he believed both countries had the "absolute right and power" to find ways to stop migrants from crossing into the US.

"We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!" Trump wrote.

Bill Ackman, a hedge fund manager who supported Trump, said the president-elect would use tariffs "as a weapon to achieve economic and political outcomes which are in the best interest of America."

"The 25% tariffs will not be implemented, or if implemented will be removed, once Mexico and Canada stop the flow of illegal immigrants and fentanyl," he wrote on X.

The federal government earned $74 billion from import duties in 2020, the last full year of Trump's first term, double the $37 billion collected in 2015, per congressional research.

More tariffs on China

In another Truth Social post on Monday, Trump also said he intended to slap China with an additional 10% import tariff — on top of any tariffs he was already planning to impose.

These tariffs, Trump said, are because China is to blame for "the massive amounts of drugs, in particular Fentanyl, being sent into the United States."

Asian markets fell, with the Nikkei 225 down 1.2% at 11:05 a.m. local time.

The US has long scrutinized China's role in the fentanyl supply chain and the ongoing opioid crisis. A 2020 Drug Enforcement Administration report, for one, identified China as a "primary source of fentanyl and fentanyl-related substances," which the DEA said came through the mail and commercial cargo.

In April, a congressional committee accused China of fueling the fentanyl crisis by helping to manufacture materials used in making the drug. Then, in August, the Chinese government said it was imposing new regulations on the manufacturing of these "precursor" chemicals.

Trump previously said he planned to impose 60% tariffs on Chinese goods. If Trump goes through with his earlier proposal, this additional 10% tariff would bring that percentage up to 70%.

It's unclear what China's response to this new era of Trump tariffs will be. But the last time Trump was president, his "America First" policies triggered a trade war with China. Now, economists say new rounds of tariffs could drive inflation, job losses — including in the US — and other economic issues.

Investors and companies alike are bracing for a raft of tariffs that Trump already has planned — and prices of goods are likely to go up.

Representatives for Trump and the foreign ministries of Canada, China, and Mexico didn't immediately respond to requests for comment.

Tariffs on both China and Mexico would hurt the US, an economist says

Canada, an energy giant, is the largest supplier of crude oil to the US.

In the past 12 months, Canada exported 173.6 billion Canadian dollars, or $123 billion, worth of energy products to the US, per Bloomberg calculations based on official data.

Energy, motor vehicles, and consumer goods to the US account for nearly 60% of all Canadian exports to the US, per Bloomberg.

Trump has cited different reasons to impose tariffs on China and Mexico, but the US could be hurt if both countries are targeted, an economist said on Monday.

Derek Scissors, a senior fellow at the American Enterprise Institute, a think tank, wrote that Mexico had already overtaken China as the top exporter to the US.

While there have been concerns that some Chinese firms are using Mexico to skirt US tariffs, "large-scale transshipment is a risk Mexico's unlikely to take" because it's incompatible with the spirit of the United States-Mexico-Canada Agreement and would raise the chances of Trump renegotiating the deal, Scissors wrote.

On Trump's beef with Mexico, Scissors wrote that there were two serious risks to retaliation against illegal migration with US tariffs: job losses in Mexico that would lead to even more migration and a reduction in the ability of US-based firms to replace goods from China.

He wrote that targeting Mexico and China together would "greatly increase" the inflation risks of Trump's previously promised tariffs.

• Chinese Xi Jinping was unusually candid with US President Biden in their last meeting as their countries' leaders.
• Xi outlined China's "red lines" for the US, including the country's rights to development.
• Beijing was setting ground rules for the incoming Trump administration and its China hawks.

Chinese leader Xi Jinping is gearing up for Trump 2.0 with some ground rules for the administration's China hawks.

Last weekend, Xi met US President Joe Biden at the 31st APEC Economic Leaders' Meeting in Lima, Peru. He told Washington not to cross "four red lines" — which analysts say is a clear message for the incoming Trump administration.

The four hot-button issues are Taiwan, democracy and human rights, China's path and system, and the country's rights to development.

"These are the most important guardrails and safety nets for China-US relations," Xi said, according to a readout from the Chinese foreign ministry.

Xi's explicit message is notable because it appears to be the first time these "red lines" were issued at the presidential level, said Igor Khrestin, a managing director of global policy at the George W. Bush Institute, a think tank.

"This is an attempt to 'set the floor' for US-China relations, in light of the uncertainly surrounding the second Trump Administration," Khrestin told Business Insider.

To be sure, it's not the first time Beijing has mentioned "red lines" in diplomatic settings and the four no-go zones are consistent with China's position on the issues. Foreign Minister Wang Yi has warned about not crossing Beijing's "red lines" in the past.

The remarks show Beijing is paying close attention to the nomination of China hawks in Trump's administration, including Florida Sen. Marco Rubio — who has been sanctioned by Beijing — to the position of Secretary of State.

Xi's language raised some eyebrows, with analysts calling it "harsh" and deeming China's foreign ministry readout "strikingly negative" in some sections.

As Jersey Lee, an international affairs analyst, wrote on the think tank Lowy Institute's website on Tuesday, Xi's sentence that the US "always says one thing but does another, it will be detrimental to its own image, and undermine trust between China and the United States," is "surprisingly frank."

Xi named Taiwan President William Lai

Of the four "red lines," Taiwan is the most sensitive issue between the two countries, as Xi has repeatedly said over the years.

Beijing claims Taiwan as its territory and has said recently that it will never commit to renouncing the use of force over the island. The area is strategically important to the US as a leader in semiconductor production and as a key security hub.

The sensitivity over Taiwan is even more apparent because last weekend was also the first time that Xi reportedly called Taiwanese president William Lai Ching-te of the Democratic Progressive Party — whom Beijing branded as a separatist — by name. Chinese leaders rarely mention Taiwanese leaders by name in public.

"If the US side cares about maintaining peace across the Taiwan Strait, it is crucial that it sees clearly the true nature of Lai Ching-te and the DPP authorities in seeking 'Taiwan independence,' handles the Taiwan question with extra prudence, unequivocally opposes 'Taiwan independence,' and supports China's peaceful reunification," according to Chinese ministry readout.

However, the White House's readout of the same meeting did not mention Lai. That prompted Tsai Ming-yen, the director of Taiwan's National Security Bureau, to question if China's state media and its foreign ministry were using cognitive warfare tactics.

Rockier times ahead of US and China

In 2018, Trump said he had an "incredible relationship" with Xi. But things could change dramatically with the President-elect calling for 60% tariffs.

Beijing seems to prefer a more conciliatory approach with Trump's new team in the short term to avoid dramatic developments, Khrestin said.

"Since the start of the full-scale invasion of Ukraine in February 2022, Xi Jinping has consolidated in his view that the United States and its allies have become intractable impediments to China's rightful rise as the dominant global power," Khrestin said.

Trump 2.0 doesn't change that long-term calculus, and the US-China relationship is likely to worsen in the long run because Beijing is inflexible in its "red lines," he added.