Dutch company ASML, one of Europe’s leading chip manufacturers, warned on Wednesday of the impact of U.S. President Donald Trump’s ongoing trade war amid disappointing financial results. “This dynamic is creating a new uncertainty,” said ASML CEO Christophe Fouquet in a video on the occasion of the company’s first-quarter earnings, where the company acknowledged there could be an impact on demand for its chip printing machines. ASML is key to Europe’s pitch to become technologically sovereign. It’s one of the few companies globally able to manufacture machines needed to print microchips, which are used in everything from smartphones to electric cars — a rare area where Europe has an edge in chipmaking over other regions. On Monday, the European Commission’s tech chief Henna Virkkunen visited ASML’s headquarters in the Netherlands. The EU executive is gearing up for a second major chipmaking support plan, which will focus on chips powerful enough to train artificial intelligence models. “Advanced microchips are the essential building blocks of AI systems,” Virkkunen said Monday. AI is currently “the driver of the market,” ASML’s Fouquet said Wednesday. Orders for ASML’s machines came in below analysts’ expectations. ASML’s share price was down roughly 5 percent in response to the disappointing results. ASML executives broke down several ways in which tariffs could impact the company: tariffs on entire machines shipped to the U.S., tariffs on parts and tools shipped to the U.S. for manufacturing, or retaliatory tariffs that other countries impose on the U.S. Semiconductors have so far been exempted from targeted U.S. tariffs, amid a wider 90-day pause. Machines to produce chips were not granted an exemption, which could lead to hefty additional costs for manufacturers if tariffs kick in given the price tag for machines runs to hundreds of millions.

BRUSSELS — The EU is pushing the Donald Trump administration to take the bloc’s offer to negotiate seriously on tariffs, after Trade Commissioner Maroš Šefčovič met top U.S. trade officials in Washington on Monday. In a written statement outlining the meeting, the European Commission’s trade spokesperson Olof Gill said “significant joint efforts” will be required during the 90-day period of suspended tariffs that will last until mid-July. “The EU is doing its part,” the statement said. “Now, it is necessary for the U.S. to define its position. As with every negotiation, this must be a two-way street / two-way engagement, with both sides bringing something to the table.” The statement echoes a complaint by Šefčovič a few weeks back that the Trump administration was failing to engage. Šefčovič met with Commerce Secretary Howard Lutnick, Trade Representative Jamieson Greer and several high-ranking officials from the U.S. Treasury Department. The meeting lasted several hours, the Commission said. The EU has paused its retaliation against Trump’s steel and aluminum tariffs, even though the U.S. kept in place a 10 percent universal tariff on all trading partners and 25 percent levies on cars, steel and aluminum. A higher 20 percent tariff that Trump imposed on the EU is suspended for 90 days. “The meeting yesterday covered a lot of ground, from tariffs to non-tariff barriers. It explored the scope for a fair and mutually beneficial deal,” Gill said. The talks went over the EU’s zero-for-zero proposal on industrial products, global overcapacity — a reference to Chinese subsidies — and “the resilience of our supply chains in semiconductors and pharmaceuticals.” The EU’s 27 top ambassadors will receive a briefing from the Commission later on Tuesday on the D.C. meeting. Meanwhile, the bloc’s executive will keep at it, including preparing for potential U.S. tariffs on semiconductors and pharmaceuticals. “The Commission also continues with our preparatory work on additional countermeasures, should the negotiations fail to result in a successful outcome,” Gill said.

President Donald Trump is preparing to instruct the Commerce Department to launch an investigation that could lead to new tariffs on semiconductor technology in order to protect national security, a White House official confirmed to POLITICO. The action sets the stage for more friction between the U.S. and major economies in East Asia, where the U.S. gets most of its chips, such as Taiwan, and would have sweeping implications for major U.S. technology companies that rely on chip imports. South Korea, Malaysia and Japan are also key players in the semiconductor supply chain, including in chip assembly, testing and production. China is the world’s largest semiconductor market in terms of consumption. The investigation will be launched under Section 232 of the Trade Expansion Act of 1962, which allows the president to restrict imports deemed a threat to national security, the official said, who was granted anonymity to discuss developing plans. The official added that the purpose of the investigation is to “revive U.S. manufacturing in critical technologies.” Commerce currently plans to allow a public comment period, they said. Those types of probes usually take up to 270 days to complete, although the White House has signaled the investigation could follow a faster timeline. Trump has already launched Section 232 investigations into the copper and timber industries over the past two months and used the findings of a Section 232 investigation from his first term to justify expanding steel and aluminum tariffs in March. The president has also said tariffs on semiconductors would start at around 25 percent and that those rates would climb “substantially higher” over the course of a year. Trump has mentioned sectoral tariffs could additionally be applied to more products including pharmaceuticals. The semiconductors probe could come days or weeks after some electronics imports were exempted from Trump’s so-called “reciprocal tariffs,” according to a U.S. Customs and Border Protection notice posted Friday. “This is not like a permanent sort of exemption,” Commerce Secretary Howard Lutnick said on ABC’s “This Week” on Sunday. New duties on semiconductors would only be the latest in a steady drumbeat of tariffs the president has imposed during the first months of his second term. The White House has already imposed 145 percent tariffs during Trump’s second term on China, in addition to existing tariffs on the country. While a universal 10 percent tariff on nearly all other countries remains in effect, higher tariffs could return if Trump is unable to make dozens of separate deals with countries within his self-imposed 90-day deadline. Sen. Elizabeth Warren (D-Mass.) panned Trump’s tariff strategy for a lack of coherent strategy on CNN’s “State of the Union.” “Investors will not invest in the United States when Donald Trump is playing red light, green light with tariffs,” Warren said.

President Donald Trump is exempting smartphones, some computers and more electronics from his global reciprocal tariffs after a tumultuous week in the markets due to the president’s global trade war. A guidance published by the U.S. Customs and Border Protection late Friday exempted these consumer electronics — many of which are manufactured in China — from Trump’s back-and-forth tariff escalation with China and the 10 percent global tariff. The machines used to make semiconductors will also be exempt. The White House and CPB did not immediately respond to requests for comment. Trump has, however, signaled that he is considering sectoral tariffs for some goods. The move could be a win for tech companies like Apple that were facing potential price hikes amid manufacturing costs that would skyrocket under Trump’s tariff plans. The exclusions come as Silicon Valley’s tech giants have cozied up to Trump, looking to make inroads with his administration.

Countries in the European Union are likely to face a flat, double-digit tariff on all goods as part of the “reciprocal” tariffs President Donald Trump has promised to unveil on April 2. The final tariff rate is still fluid, according to three diplomats, who were briefed on European trade chief Maroš Šefčovič’s Tuesday meeting with Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer, and were granted anonymity to share details of the private briefing. The tariffs are expected to kick in at midnight on April 3, the people were told. EU ambassadors to the U.S. were also told there is little they can do to avoid the tariffs going into force, which the Trump administration views as the beginning, not the end, of trade negotiations. European diplomats expect Trump’s April 2 announcement to focus on what the White House has dubbed reciprocal tariffs. According to two of the diplomats, those duties will take the form of a flat percentage for the EU, calculated based on the trade barriers the bloc imposes on U.S. exports, including tariffs on goods and other non-tariff barriers. And those two diplomats suggested the tariff rate applied to the EU could be as high as 20 or 25 percent. All of the tariffs would be additive, meaning they would come on top of tariffs levied on specific industries like steel and aluminum and the 25 percent tariff Trump has ordered on any country that purchases oil and gas from Venezuela, which includes Spain and the Netherlands. Trump has also promised separate tariffs on five industries: steel and aluminum, automobiles, lumber, semiconductors and pharmaceutical products. The White House has already imposed a 25 percent tariff on steel and aluminum and Trump plans to announce his tariff on automobiles Wednesday afternoon. The tariffs on the other industries could come later in April, as the administration focuses on reciprocal tariffs and the negotiations that ensue, the diplomats were told. “But it is not sure which of the big ones will be targeted at the EU,” one diplomat said. “Maybe they will give us the honor only with some of the sectors such as automotive.” Trump has been openly critical of the EU in recent weeks, after the 27 country bloc announced that it would respond to his steel and aluminum tariffs with its own tariffs on about $28 billion in U.S. goods. Trump has said the EU was created to “screw” the U.S. and has criticized their value-added tax, despite insistence from European countries — and even the U.S. Chamber of Commerce — that it’s evenly applied to sales in member countries and is not a trade barrier. “I think I’ve been very fair,” Trump told reporters Tuesday. “I’ve had, I have them set, but I think I’ve been very fair to countries that have really abused us economically for many, many decades.”

President Donald Trump indicated Monday that he could announce new tariffs on imported cars as soon as this week, as his administration works toward a larger “reciprocal tariff” package hitting a broad swath of countries on April 2. “We are going to be doing automobiles, which you’ve known about for a long time,” Trump told reporters at the White House. “We’ll be announcing that fairly soon, over the next few days probably. And then April 2 comes. That will be reciprocal tariffs.” Trump made similar remarks earlier Monday at a Cabinet meeting, saying he planned to announce car tariffs “very shortly” and then “we’ll be announcing pharmaceuticals at some point in the not too distant [future] because we have to have pharmaceuticals.” Trump made the comments a little more than one week before he plans to unveil a broad-based plan to impose reciprocal tariffs on major trading partners, such as China and the European Union, based on the trade barriers that other countries have on American exports. There is still confusion whether the April 2 announcement will include both the reciprocal tariffs and more-tailored “sectoral” tariffs to protect and develop certain key industrial sectors, like autos, pharmaceuticals and semiconductors. Asked to clarify that point Monday, Trump at first said the April 2 announcement would cover “everything.” But, he then added, “not all tariffs are included that day.” He also indicated that the new U.S. reciprocal tariffs may not perfectly match the level of trade barriers that the Trump administration believes American exporters face in a particular market. “We may take less than what they’re charging, because they’ve charged us so much, I don’t think they could take it. In other words, they’ve charged us so much that I’m embarrassed to charge them what they’ve charged us,” Trump said. The United States imported $471 billion worth of automotive products in 2024, including $214 million worth of passenger cars. Five countries — Mexico, Japan, South Korea, Canada and Germany — supplied most of the auto imports. The United States imported roughly $210 billion worth of pharmaceutical products and about $62 billion worth of semiconductors in 2024. A White House official, who was granted anonymity to discuss an issue still under consideration, said the timing of any sectoral tariffs was still under discussion. “Obviously POTUS has talked a lot about sectoral tariffs, but we may have sectoral tariffs on April 2 and we may not,” the White House official said. “No final decisions have been made yet on sectoral tariffs being tacked onto” the reciprocal tariffs being announced next week. Commerce Secretary Howard Lutnick said during a White House Cabinet meeting Monday that the Trump administration plans to launch the “External Revenue Service” on April 2 to handle the tariff revenue collections. That function is currently performed by U.S. Customs and Border Protection, but Trump has suggested creating the External Revenue Service to do it instead. In a wide-ranging trade executive order that Trump signed on Jan. 20, he directed Treasury Secretary Scott Bessent to study the issue in consultation with Lutnick and Department of Homeland Security Secretary Kristi Noem. CBP is currently housed in DHS but was located in the Treasury Department before the Sept. 11, 2001, attacks on the United States.

India and the European Union will push to finalize a free-trade agreement this year, European Commission President Ursula von der Leyen said on Friday.  In a keynote speech during her two-day visit to New Delhi, von der Leyen said a closer alliance with India would be “a cornerstone of Europe’s policy in the years and decades to come,” built on enhanced cooperation on trade, technology, security and defense. “A free trade agreement between the EU and India would be the largest deal of this kind anywhere in the world. I am well aware it will not be easy. But I also know that timing and determination counts, and that this partnership comes at the right moment for both of us,” von der Leyen said after talks with Indian Prime Minister Narendra Modi.  “This is why we have agreed with Prime Minister Modi to push to get it done during this year. And you can count on my full commitment to make sure we can deliver.” Von der Leyen is leading the new Commission’s first visit to India, as the EU seeks to keep New Delhi onside amid rising geopolitical tensions with the United States and China.  India and the EU resumed talks on a free trade agreement in 2021 after talks collapsed in 2013. While progress has been slow since then, both sides now appear determined to strengthen ties to counter America’s tariff threats and China’s assertive trade practices. Commission officials also joined their Indian counterparts for a second Trade and Technology Council on Friday, where they are expected to discuss cooperation on electric vehicle standards, artificial intelligence, semiconductors and telecommunications.

The European Union is prepared to talk with the United States about reducing its 10 percent tariff on cars as part of a broader negotiation aimed at avoiding a transatlantic trade war, a top European Union official said Wednesday. “This would be something we are ready to discuss,” EU Trade Commissioner Maroš Šefčovič said at an event hosted by the American Enterprise Institute, a center-right think tank based in Washington, D.C., just before he was scheduled to meet with top Trump administration officials. Šefčovič also said the EU is prepared to consider a much bigger deal with Trump that could potentially include tech regulatory issues and certain non-trade concerns, such as EU member states increasing their spending on defense. “I know that President Trump is a big dealmaker, and there was an idea to have a kind of impressive ‘Grand Bargain’ package. So let’s discuss all these things … because I am a true believer in the transatlantic relationship,” Šefčovič said. President Donald Trump frequently complains that the EU’s 10 percent tariff on passenger cars is much higher than the United States’ own 2.5 percent tariff. That’s one reason he is threatening to impose “reciprocal tariffs” on the EU as part of a broader U.S. action aimed at raising tariffs on countries around the world. Trump has also threatened additional tariffs on certain sectors such as autos, semiconductors and pharmaceuticals that could separately hit the EU. Šefčovič tried to counter Trump’s complaints Wednesday, arguing the EU is a largely open market, with average tariff rates on industrial goods that are about the same as the United States’. He also noted there are “peak” tariffs on both sides of the Atlantic, including the 25 percent tariff that the United States imposes on pickup trucks, which he suggested should be part of any tariff negotiations. The former Slovak diplomat also noted that while Trump focuses on the U.S. trade deficit in goods with the EU, which totaled $235.6 billion in 2024, the United States runs a trade surplus in services with the EU. When goods and services are combined, the U.S. trade deficit with the EU is only about $50 billion, which equals about 3 percent of $1.7 trillion in annual transatlantic trade. At the same time, Šefčovič vowed to retaliate if Trump makes good on his threats to impose sweeping tariffs. “To protect European interests, we will have no choice but to respond firmly and strictly but we do hope to avoid the scenario,” Šefčovič said. “That is why I’m here this week.” Meetings this week: Šefčovič said he planned to underscore the benefits of strong trade for businesses on both sides of the Atlantic when he meets with senior U.S officials. He is meeting Wednesday afternoon with Commerce Secretary Howard Lutnick, U.S. Trade Representative-nominee Jamieson Greer and Kevin Hassett, director of Trump’s National Economic Council. Šefčovič is also expected to meet with Sens. Mike Crapo (R-Idaho), chair of the Senate Finance Committee; and committee member Michael Bennet (D-Colo.). “The EU sees no justification for sudden unilateral tariff increases by the U.S. Our businesses rely on economic stability, predictability and certainty on both sides of the Atlantic,” he said, adding he hoped to come away from the meeting on Wednesday with a clearer idea of what the Trump administration would like to discuss. On the WTO: Šefčovič also called the World Trade Organization “very important” in his remarks, but added that the international body “has to adjust” to the 21st century, and account for new discussions including those around digital services. “What needs to be also very clearly addressed, is that the WTO mechanism is used by non-market economies,” he added, in a likely reference to countries like China that have powerful state-backed industries. “For this, I think it will be much better, much stronger, if we can do it together with the United States.”

Donald Trump launched a two-year trade war against China during his first term in the White House, and he’s poised to do it again. Even before being sworn in, Trump threatened China with 60 percent tariffs to cut its trade surplus, 10 percent tariffs if it didn’t halt fentanyl shipments and 100 percent tariffs if it tried to create a rival currency to the dollar. On his second day in office, he announced the first wave of tariffs would hit China on Feb. 1. Of course, this may be bluster or a negotiating tactic. But with Trump you never know, which makes his tariff threats that much more effective. During the first trade war, he deployed tariffs on a scale not seen since the 1930s to try to get China to bend to his will and China replied in kind. U.S. tariff rates on Chinese goods rose six-fold to 19.3 percent, while Chinese tariff rates on U.S. goods nearly tripled to 21.1 percent, all of which shook markets, hurt U.S. companies that depended on those imports and lifted inflation somewhat. The clash ended in an inconclusive Phase One trade deal, where China made some regulatory changes in agriculture and finance but didn’t come close to buying the vast amounts of U.S. goods it pledged to purchase. Trump wanted a Phase Two deal where China would agree to more dramatic changes. But whatever hope there was for that — and it was slight — died when the two nations locked down during the pandemic and accused each other of releasing the coronavirus. During the trade war, I was based in Washington for the Wall Street Journal. Along with my colleague Lingling Wei, then based in Beijing, we covered the confrontation intensively and wrote a book about it, “Superpower Showdown.” Here are the key dynamics that drove the last trade war and will shape the next one. Some of what lies ahead will play out differently than the last trade war, but some of the moves will come straight out of Trump and Xi’s earlier playbook. THE “GREAT MAN THEORY” WILL SHAPE THE JOUSTING It’s long been debated by historians: Does the man (or woman) make the moment or does the moment make the man? To Donald Trump, who has plastered his name on everything from skyscrapers to water bottles to a university, it’s no mystery. He sees international relations as a fight among powerful leaders, who he can move through flattery and threats. During the first trade war, Chinese President Xi Jinping got the full Trump treatment. Shortly after being inaugurated, Trump hosted Xi at his Mar-a-Lago estate where they talked for hours over meals. As the two ate chocolate cake, Trump launched 59 missiles at targets in Syria in retaliation for a gas attack there, a reminder to Xi of American power. At the same time, Trump gave strict instructions to his advisers not to single out China when it came to tariff strategy, and he would flatter Xi as a friend to try to make it easier for Xi to compromise. Trump’s advisers also listened to advice from Henry Kissinger about capitalizing on unpredictability. “Don’t make them not nervous because that could be a strategic advantage for President Trump,” Kissinger advised Trump’s son-in-law Jared Kushner. For Xi, a true-blue Marxist, it should have been a no-brainer that underlying economic forces mold leaders, not the opposite. But he also saw himself as someone who shapes history, or what he called his “China dream” of national rejuvenation. For decades the U.S. had helped realize that dream by opening its markets to Chinese goods, and he didn’t want to screw that up. “We have a thousand reasons to get the China-U.S. relationship right and not one reason to spoil it,” Xi told Trump during their Mar-a-Lago meeting. Eight years later, and the dynamics around each leader have shifted somewhat. Most notably, both are more entrenched now, with each having consolidated power. Unlike the 2016 election, Trump won the popular vote this time and is stocking his government with officials who understand how he operates. As a first move, Trump invited Xi to his inauguration, putting China’s leader in an impossible position. If Xi said yes, he looked weak; if he said no, he looked hostile. “It’s a classic move in how Trump deals with rivals,” says Matt Turpin, a China expert who served in Trump’s first National Security Council. Xi ultimately stayed home but sent his vice president in his stead. In Beijing, Xi has used an anti-corruption campaign to purge rivals and has stacked the ruling Politburo Standing Committee with his friends. In 2023, he started his third term as president, shattering a two-term custom. And when he looks for foreign leaders who can help realize his China dream, he turns now to Russia’s Vladimir Putin, who he has personally met more than 40 times. He’s less reliant on the U.S. Xi is also fond of a different adage these days about the U.S.: “The East is rising; the West is declining.” The bottom line is both Trump and Xi may be far less likely to back down now. THE REAL BATTLE IN THE TRADE WAR WILL BE OVER TECH Trump, as he likes to remind us, is a “tariff man.” It’s essential to his political identity and has been for decades. During his first administration, Trump’s main demand of China was to buy more American goods and reduce its then $375 billion trade surplus with the U.S. But his national security advisers actually focused much more on keeping the U.S. ahead of China technologically. The result was a mishmash of goals. State Department and National Security Council officials lobbied allied governments to reject Huawei Technologies Co. gear for their next-generation 5G telecom networks and pressed U.S. chipmakers to slash sales to China. For Trump, though, these tech goals were secondary to purchases. Trump intervened to stop the Commerce Department from crippling another big Chinese telecom company, ZTE Corp., through a ban on ZTE buying U.S.-made components. Saving ZTE could give him a bargaining chip to use in the trade talks, he figured. As for Huawei, Trump only approved the NSC’s hardline approach because he was angry at Xi for backing out of a preliminary trade deal a year later. “With Trump, it makes sense to seize on the low moments and come in with a stack of papers that advance your goals,” said a senior U.S. security official in the first administration. For Xi, technology was always the focus. Chinese negotiators regularly offered to buy more U.S. goods as Trump wanted. But China had grand technology plans, which it refused to change no matter the tariff hit. A 2015 Chinese report, called “Made in China 2025,” laid out Beijing’s strategy to become a leader in 10 important tech sectors. For that, China needed a trade deal that would assure continued access to U.S. technology. Xi also wanted to continue to wall off important domestic tech markets. Chinese negotiators, for instance, refused to lift restrictions on U.S. cloud computing, giving Alibaba and other Chinese firms a protected home base. Ahead of the next trade war, the technology battle has only intensified. Over time, the Trump administration began to block exports of advanced semiconductors and other leading-edge technology to China. The Biden administration expanded that effort and ended its tenure with a flurry of measures designed to keep China a step behind technologically. The administration also recruited allies to coordinate tactics. But it’s far from clear whether Trump’s buy-more focus has changed. Although his first administration had labeled Chinese-owned TikTok a security risk because user data could wind up in Beijing, he made an about-face during the 2024 campaign and issued an executive order on his first day in office to delay a ban on the social media platform. He also has talked of allowing Chinese EV companies to open factories in the U.S., despite a Biden proposal that could ban Chinese EVs because of data concerns similar to TikTok. For its part, China has sought to reduce its dependence on foreign technology by investing in advanced research and massive subsidies for tech industries. As a percentage of GDP, China spent 12 times as much as the U.S. on subsidies in 2019, estimated Scott Kennedy, a China scholar at the Center for Strategic and International Studies. In Trade War II, expect China to try to appease Trump with purchases — and for Trump’s advisers to try to keep him from settling for that. TRUMP AND XI HAVE DIFFERENT BOTTOM LINES Trump’s main goal is clear. He sees persistent trade surpluses with the U.S. as proof the U.S. is getting ripped off. Tariffs are his tool to reduce those surpluses, whether with China, Mexico, the European Union or India. In 2024 congressional testimony, Jamieson Greer, Trump’s new choice for U.S. Trade Representative, celebrated the Phase One deal by noting that the U.S. trade deficit with China in 2023 had fallen 25 percent from Trump’s first year in office. But, of course, he failed to mention that the United States’ overall trade deficit expanded by one-third during that time as other countries filled the gap left by China. For Xi, the bottom line is also simple: no fundamental changes in the Chinese economic system. Xi was willing to approve a Phase One agreement that left in place tariffs on three-quarters of everything China sold to the U.S. because the deal didn’t require China to scrap policies Xi believed made China richer. Those include massive subsidies, expansion of state-owned businesses and exports at prices that bankrupt foreign competitors. Trump’s target remains the trade deficit as he starts his second term. Along with 60 percent tariffs on China, he is proposing 10 percent or 20 percent tariffs on everyone else. He looks at tariffs as a kind of entry fee into the world’s largest consumer market, which he can waive if governments make concessions he wants. But there are splits among his advisers about how to translate his ideas into policy. Greer, the trade rep nominee, favors “strategic decoupling” from China which would include vastly increasing tariffs. Scott Bessent, Trump’s Treasury secretary nominee, has talked about a grand deal involving China and other trading partners he calls a “Mar-a-Lago accord.” Steve Bannon, Trump’s one-time chief adviser, is pushing a tougher version of the Phase One deal. And who knows what Tesla CEO Elon Musk, who has become a top Trump adviser, will be advising Trump, given his deep business ties in China. Trump hasn’t committed to any of these plans. His first batch of executive orders calls for a host of studies that will take months to complete and will surely become a way for advisers to promote different positions. “President Trump will work quickly to fix and restore an economy that puts American workers first by re-shoring American jobs,” says his press secretary, Karoline Leavitt. Make of that what you will. On the China side, Xi is more committed than ever to a state-led model of development that focuses on technology and exports. That makes him more vulnerable in a trade war because tariffs can hobble export-led growth. He has tried to insulate China from new U.S. tariffs by signing free-trade deals with Asian nations, but no market is large enough to replace the U.S. Ultimately, here we should expect a repeat of the last trade war: Trump’s advisers squabbling over the administration’s goals, while China remains steadfast in rejecting change. KEY GUARDRAILS MAY CONSTRAIN BOTH LEADERS During the trade war in Trump’s first term, both sides had guardrails that kept the battle from spinning out of control. For Trump, the stock market provided discipline. When markets continued to rise after the U.S. first imposed tariffs in July 2018, he took that as a vote of confidence. When they started to tank later in the year as companies worried about the impact of tariffs, National Economic Council Director Larry Kudlow went on Fox to reassure investors that the president “may perhaps” meet with Xi at a G-20 meeting in Buenos Aires in early December, hinting that might ease the trade war. After the two leaders met, Trump tweeted Dec. 4 that a deal could happen, but then he added this reminder: “But if not, remember I am a Tariff Man.” And with that tweet, the Dow Jones Industrial Average dropped 800 points, and the S&P fell 3.2 percent — the second biggest drop of the year. Shortly before the year came to a close, Trump looked to bump up the market by tweeting that he and Xi were again negotiating for a deal. On the next trading day, the Dow advanced 265 points. “What are the benchmarks for success of the presidency?” Trump’s first NEC director, Gary Cohn, asked in a radio interview in March 2019. “The stock market is the most obvious, most transparent, most-talked-about-by-the-president benchmark of success.” The Chinese government isn’t nearly as transparent as America’s but it’s possible to glean Xi’s guardrails from his actions. Throughout the trade war, Xi worried about frightening away the foreign investment crucial for Chinese growth. While he matched Trump tit-for-tat with tariffs, he never used all the muscle he could, such as blocking the sales and production in China of big-name American firms like Apple or General Motors. Fast forward to 2025, and the stock market remains pivotal to Trump; what’s changed, though, is the market is now much easier for China to influence. The top seven companies in the S&P 500 now account for 28 percent of the index’s weight, about twice as much as in 2017. A number of those firms, including Apple, Tesla and Nvidia, are deeply dependent on China for profits. “If China threatens a handful of very big American companies and the stock market falls, that would give Trump pause,” says Derek Scissors, a China analyst at the American Enterprise Institute. Still, taking such steps would be risky for Xi. In 2017, the Chinese economy was growing nearly 7 percent and foreign investment was increasing. Now China’s growth has fallen to less than 5 percent, its real estate sector has crashed, government debt is increasing and demand and supply are so out of whack that deflation threatens. Foreign investment fell to a 30-year low in 2023 and continued to decline the first half of 2024. The last thing Xi needs is to further frighten off foreign firms by ham-handed tactics. And his moves so far seem intended more for show than impact. He has sanctioned U.S. defense companies from doing business in China and moved to cut off mineral supplies needed to make computer chips and other cutting-edge technology. But military contractors hardly depend on China for sales or supplies, and U.S. tech companies generally don’t buy minerals directly from China. Rather, foreign electronics firms buy the stuff to turn into components they then sell to U.S. buyers. “Xi Jinping’s standing depends on how people feel about the economy,” says a U.S. business executive who frequently travels to China and who was granted anonymity to speak candidly. “In the same way the stock market is guardrail for Trump, the growth rate is guardrail for Xi.” It’s a reminder that even as both Trump and Xi are more emboldened than ever politically, the rules of the global economy don’t bend easily. The trade war is almost certainly coming. The question is how damaging will it be.

Two top European Union officials warned the United States government over its move to limit exports of microchips used in artificial intelligence, including to selected European countries. “It is also in the U.S. economic and security interest that the EU buys advanced AI chips from the [U.S.] without limitations,” the European Commission’s tech and security czar Henna Virkkunen and trade chief Maroš Šefčovič said in a statement late Monday. The Biden administration on Monday stepped up its efforts to block China’s access to the advanced computing power needed to train AI models out of concern the technology could be misused or end up in military systems. “It is essential that we do not offshore this critical technology and that the world’s AI runs on American rails,” the White House said in a statement. Under the measures, United States microchip sales to “18 key allies and partners” would be unrestricted. Nine EU countries are on that list: Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Spain and Sweden. But other European countries could see caps and limits on the number of AI chips they can buy. The EU relies heavily on AI chips from companies like Nvidia, the world’s leading chip designer. These tiny bits of technology power the boom in AI chatbots like ChatGPT as well as other cutting-edge AI tech, including some of the EU-funded supercomputers used to train AI models from researchers or startups. The top EU officials urged the U.S. to keep exports uncapped for affected EU countries. “We have already shared our concerns with the current U.S. administration and we are looking forward to engaging constructively with the next U.S. administration,” Virkkunen and Šefčovič said. The back-and-forth between EU and U.S. officials could further strain the fraught EU-U.S. tech relations. Top executives including Meta’s Mark Zuckerberg and Elon Musk, a close Trump ally, have stepped up their resistance to EU tech regulation.