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Nicholas Spiro

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


Moreover, financial risks that have been exacerbated by the energy shock – especially in several Asian economies that are heavily reliant on imports of oil and gas from the Middle East – have come under scrutiny at a time when most leading central banks are under pressure to tighten policy.
The share of foreign participation in China’s domestic bond market is just 5 per cent, one of the lowest in Asia. “More modest foreign ownership of local assets enhances China’s financial resilience by limiting the potential risks from global capital outflows and cross-market contagion amid broad-based risk-off events,” JPMorgan said in a report.
These sources of resilience have played into a compelling narrative around China’s preparedness for external shocks, its leverage over the US and the gradual erosion of “US exceptionalism”, driven as much by Trump’s spectacular own goals as by the strength and appeal of other markets, particularly in North Asia.
The most consequential shift in the geopolitical landscape in the past year was Beijing’s weaponisation of rare earth elements – more than 85 per cent of which are refined in China and are used to make the high-performance magnets that power everything from weapons systems to iPhones – which forced Trump to back down after threatening a massive escalation of tariffs.


By putting in place export controls that capitalised on China’s heft in global supply chains, Beijing turned the tables on the Trump administration, revealing the strength of its economic warfare and showing how unprepared Western governments and companies were for a full-blown trade war. Xi’s drive for self-sufficiency has paid off handsomely.
The geopolitical leverage created by China’s dominance in rare earths fuelled the “Taco” trade, short for “Trump always chickens out”. It also exposed weaknesses in Trump’s policy agenda and underscored the legal and political constraints to presidential power.
The US Supreme Court’s decision in February to strike down the administration’s “Liberation Day” tariffs curtailed Trump’s ability to impose levies on a whim. At the same time, it also left many questions about the imposition of tariffs unanswered, accentuating the corrosive unpredictability that has undermined confidence in US assets and encouraged global investors to diversify their portfolios.
The biggest shift in markets in the past year has been the underperformance of US equities, especially this year. Since the start of 2026, the MSCI Emerging Markets Index has risen 21 per cent, compared with a 9 per cent increase for the S&P 500. At the heart of the sharp divergence is the much higher exposure of the South Korean and Taiwanese stock markets to technology hardware and semiconductors, the two sectors turbocharging the artificial intelligence-driven rally in global equities.

According to Morgan Stanley, Asia is “entering an industrial supercycle – the best since the mid-2000s”. Taiwan’s economy grew almost 13.7 per cent last quarter, powered by a 62 per cent rise in exports, a trend equally apparent in South Korea, whose stock market is up an eye-popping 86 per cent this year.
However, it is energy that has emerged as the key determinant of AI supremacy, especially when it comes to the buildout of data centres. Not only is electricity in China 30-60 per cent cheaper than in the US and Europe, there are no power supply constraints on building data centres.
The heads of several US tech companies, including Nvidia CEO Jensen Huang, who is accompanying Trump on his trip to Beijing, have warned that China’s competitive edge in power generation is putting US leadership in AI at risk.
The US remains the world’s undisputed financial hegemon, but its vulnerabilities have become more apparent since the Busan summit. As Trump and Xi meet again in Beijing, it is China’s resilience that is on full display.


Culinary diplomacy on the menu for Xi and Trump at the White House

China-US ‘new joint arrangement’, CEO arrivals: what you missed overnight from Xi-Trump summit

Pat on the back? Xi and Trump’s body language speaks volumes

Inside Melania Trump and Peng Liyuan’s visit to the Smithsonian’s Peacock Room

2026 Xi-Trump summits

Trump-Xi summit puts US vulnerabilities on display

Children greet Chinese President Xi Jinping (second right) and US President Donald Trump during a welcome ceremony at the Great Hall of the People in Beijing on May 14. Photo: Reuters

A currency trader poses for a photo in front of a screen showing the Korea Composite Stock Price Index at the foreign exchange dealing room of the Hana Bank headquarters in Seoul on May 12. Photo: AP

Trump’s ‘art of the deal’ playbook is failing as Beijing asserts itself

A US Air Force C-17 lands at Beijing Capital Airport on May 11, ahead of a visit by US President Donald Trump. Photo: AFP

US Treasury Secretary Scott Bessent attends a legislative hearing on the Trump administration’s 2027 budget on Capitol Hill in Washington on April 22. Photo: Reuters

Trump has few cards to play against Iran and in China

People walk past an anti-US billboard, depicting President Donald Trump and the Strait of Hormuz, in Tehran on May 11. Photo: West Asia News Agency via Reuters

US’ scientific self-harm will only help China

A researcher checks the control wiring at a laboratory in the Institute of Physics, Chinese Academy of Sciences, on January 21. Photo: Xinhua


Harvard branded merchandise is displayed in a store in Boston’s Cambridge neighbourhood, home to Harvard University on May 28, 2025, in Boston, Massachusetts. The Trump administration froze over US$2 billion in federal research funding for the university, a decision a court reversed. Photo: Getty Images via AFP

Opposing Taiwan independence is in America’s own interest

Illustration: Craig Stephens

China shouldn’t view a tired US as signifying a Europe ready to pivot

US President Donald Trump meets with German Chancellor Friedrich Merz in the Oval Office at the White House, on March 3. Photo: AP

This photo taken on September 19, 2025, shows a rare earth magnetic bar at magnetic plant in Narva, Estonia. Photo: Xinhua 

Philippine and US officials hold a ceremony in Manila to begin their Balikatan joint military exercise on April 20. Photo: Kyodo

Opinion

World Opinion

Economy

Global Economy

China weaponising rare earths turned the tables on Trump, showing how unprepared Western governments and firms were for a full trade war


China weaponising rare earths turned the tables on Trump, showing how unprepared Western governments and firms were for a full trade war.


Donald Trump’s China policy

US-China relations

US-China trade war

Macroscope

South Korea

Iran

United States

China

Taiwan

Xi Jinping

Jensen Huang

Donald Trump

Morgan Stanley

Nvidia

MSCI

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Trump-Xi summit puts US vulnerabilities on display

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}China weaponising rare earths turned the tables on Trump, showing how unprepared Western governments and firms were for a full trade war

China weaponising rare earths turned the tables on Trump, showing how unprepared Western governments and firms were for a full trade war