By Elwin de Groot, head of macro strategy at Rabobank

<h2>Whatever...</h2>

US equity markets extended their losses yesterday as bond yields fell on the back of a decline in US regional bank shares. The S&amp;P index lost 0.6%, the yield on 10y UST’s dropped more than 5 basis points. The market had the finger pointed at the collapse of the subprime auto lender Tricolor Holdings, underscoring the increased sensitivity of the equity market at these elevated levels. Meanwhile, the IMF said it sees “significant downside risks” to global growth following the renewed tensions between the US and China. 
Bloomberg writes that Argentinians are dumping the peso, as they believe a devaluation is unavoidable. This potentially undermines the rescue package, including a $20bn swap line, put up by US Treasury Secretary Scott Bessent. Things likely got worse when, earlier this week, President Trump linked Argentinian leader Javier Milei’s success in the upcoming midterm elections to US support: “If he wins we’re staying with him, and if he doesn’t win we’re gone”, Trump said. That sounds more like a ‘whatever’ than a ‘whatever it takes’ US strategy …

French PM Lecornu can already buy himself an “I’m a survivor” t-shirt after surviving two confidence votes yesterday. Whether he survives the looming budget debate is another matter, as his fate now rests with MPs willing to back the budget. If the government sticks to its pledge not to invoke Article 49.3, a majority must actually vote for it.

Socialists leader Olivier Faure warned: “If parliament is not respected and the pension reform isn’t suspended, we would censure immediately.” Markets, meanwhile, are back at square one: the 10-year yield spread narrowed to 76bp from 86bp last week, and the CAC-40 erased October losses—though spreads remain wider than before Bayrou’s confidence vote announcement in August. MNI quoted EU officials saying the “New Fiscal Rules give Lecornu Budget leeway.” Where have we heard that before?

Macron and Lecornu have bought time, but France’s fiscal—and economic—challenges remain. 

Beyond Paris, the global stage looks increasingly like an “eat or be eaten” arena where statecraft tools dominate. Wielding such tools successfully, however, is reserved for the ‘happy few,’ requiring economic heft, financial reach, strategic commodities, a strong bureaucracy, political agility, and military muscle.

That explains why small but wealthy economies like Switzerland drew the short straw: since August 7, Swiss goods face a 39% tariff—except generic drugs and Ticino-refined gold. It explains why weaker economies, especially in Africa, struggle against dumping practices due to weak frameworks and enforcement. It explains why several Asian nations agreed to lower tariffs on U.S. goods in exchange for still-high U.S. tariffs. And even the economically large but politically and militarily weaker EU faces limits. Meanwhile, if you have the commodities, you call the shots: Qatar warned yesterday it may halt business with the EU—including LNG supplies—unless Brussels revises its corporate sustainability rules, Reuters <a href="https://public-eur.mkt.dynamics.com/api/orgs/285245b1-7c6f-ef11-a66d-000d3a4b6c6a/r/_SeoFzC4ykSIEir-N_kCAAEAAAA?msdynmkt_target=%7B%22TargetUrl%22%3A%22https%253A%252F%252Fwww.reuters.com%252Fbusiness%252Fenergy%252Fqatars-energy-minister-warns-eu-law-could-deter-business-europe-2025-10-16%252F%22%2C%22RedirectOptions%22%3A%7B%225%22%3Anull%2C%221%22%3Anull%2C%222%22%3A%7B%22utm_medium%22%3A%22email%22%2C%22utm_term%22%3A%22N%2FA%22%2C%22utm_source%22%3A%22dynamics-rr%22%2C%22utm_content%22%3A%22Email%20301%22%2C%22utm_campaign%22%3A%22SN%3A%20Email%20301%2000f411%22%7D%7D%7D&amp;msdynmkt_digest=aMldOQOS65ORZMo02MvHf2gRLqJAdrmjdJKbdWp%2BbN4%3D&amp;msdynmkt_secretVersion=7bb221762d0c46939816d3a5592b1359">reported</a>.

The US has demonstrated the clearest examples of applying such statecraft, as <a href="https://public-eur.mkt.dynamics.com/api/orgs/285245b1-7c6f-ef11-a66d-000d3a4b6c6a/r/_SeoFzC4ykSIEir-N_kCAAIAAAA?msdynmkt_target=%7B%22TargetUrl%22%3A%22https%253A%252F%252Fmedia.rabobank.com%252Fm%252F6df1934ac302225%252Foriginal%252FUS-Grand-Macro-Strategy-The-Trump-Plan.pdf%22%2C%22RedirectOptions%22%3A%7B%225%22%3Anull%2C%221%22%3Anull%2C%222%22%3A%7B%22utm_medium%22%3A%22email%22%2C%22utm_term%22%3A%22N%2FA%22%2C%22utm_source%22%3A%22dynamics-rr%22%2C%22utm_content%22%3A%22Email%20301%22%2C%22utm_campaign%22%3A%22SN%3A%20Email%20301%2000f411%22%7D%7D%7D&amp;msdynmkt_digest=qM078ToWAuFrhYoW31F%2FKesVMpY3ePw4alTr6a6pMWo%3D&amp;msdynmkt_secretVersion=7bb221762d0c46939816d3a5592b1359">highlighted</a> by our global strategist Michael Every. Presumably, also, because the US does hold the strongest cards (or at least thinks it holds them). This week and last, it was China’s turn to show it has such statecraft cards up its sleeve. It has introduced port fees for US ships (in response to the US port fees on Chinese built/operated ships coming into effect on 14 October) and underscored its dominance in critical raw materials, particularly rare earths, with a further tightening of its export controls regime.

Whether both players have a full grasp of their own and their opponent’s tools and power(s) remains an open question; uncertainty over that may actually be the strongest guardrail to prevent this power struggle from running completely out of control. That said, it’s even harder to see the spirit going back into the bottle. In other words, the world is changing more rapidly and profoundly than many would have imagined only a few months ago.

And the US keeps trying to drag its allies into its statecraft framework - “President Trump has instructed the ambassador and myself to tell our European allies that we would be in favour of whether you would call it a ‘Russian oil tariff’ on China or a ‘Ukrainian victory tariff’ on China,” Mr Bessent told reporters in Washington on Wednesday. “But our Ukrainian or European allies have to be willing to follow. We will respond if our European partners will join us.”

The strategy would introduce a 500 per cent levy on imports from China, with the money generated being used on weapons for Ukraine’s military. 500 is obviously Trump-style language, -and would effectively be counterproductive as it would halt most trade with tariff revenue close to nothing- but it does carry a serious undertone and the line of reasoning more fits ‘decoupling’ than ‘de-risking’.

For Europe de-coupling seems like no entry territory (unless China would truly block critical raw materials to European markets ?). It explains why Europe is often portrayed as the one being ‘squeezed’ in the middle. Whilst that remains a useful framing of the overall global picture, Europe is not standing still completely. The lack of key enabling factors such as military strength and political agility (read: unity) are visibly slowing things down, however.

For example, the EU has been slow with the implementation of its Competitiveness Compass agenda (a descendant from the 20204 Draghi and Letta reports); The ‘Draghi Observatory’ <a href="https://public-eur.mkt.dynamics.com/api/orgs/285245b1-7c6f-ef11-a66d-000d3a4b6c6a/r/_SeoFzC4ykSIEir-N_kCAAMAAAA?msdynmkt_target=%7B%22TargetUrl%22%3A%22https%253A%252F%252Fthinkepic.eu%252Fdraghi-observatory-implementation-index-only-1-in-10-measures-implemented%252F%22%2C%22RedirectOptions%22%3A%7B%225%22%3Anull%2C%221%22%3Anull%2C%222%22%3A%7B%22utm_medium%22%3A%22email%22%2C%22utm_term%22%3A%22N%2FA%22%2C%22utm_source%22%3A%22dynamics-rr%22%2C%22utm_content%22%3A%22Email%20301%22%2C%22utm_campaign%22%3A%22SN%3A%20Email%20301%2000f411%22%7D%7D%7D&amp;msdynmkt_digest=FZrm8sEPdrwdcaKpOAHXaZIT0luOmwqgkyLwvpjdwV8%3D&amp;msdynmkt_secretVersion=7bb221762d0c46939816d3a5592b1359">concluded</a> in September that out of 383 recommendations, only 11.2% have been fully delivered.

That said, the European Commission (EC) is intensifying trade defense measures, making 2025 a record year for anti-dumping tariffs and protectionist actions. On 7 October, it proposed a new steel safeguard regime to replace the current system in July 2026, cutting tariff-free import volumes by 47% and doubling out-of-quota tariffs to 50%, a move partly influenced by the recent US-EU framework agreement. The EC is also <a href="https://public-eur.mkt.dynamics.com/api/orgs/285245b1-7c6f-ef11-a66d-000d3a4b6c6a/r/_SeoFzC4ykSIEir-N_kCAAQAAAA?msdynmkt_target=%7B%22TargetUrl%22%3A%22https%253A%252F%252Fwww.reuters.com%252Fworld%252Fchina%252Feu-floats-conditions-such-tech-transfers-china-investments-2025-10-14%252F%22%2C%22RedirectOptions%22%3A%7B%225%22%3Anull%2C%221%22%3Anull%2C%222%22%3A%7B%22utm_medium%22%3A%22email%22%2C%22utm_term%22%3A%22N%2FA%22%2C%22utm_source%22%3A%22dynamics-rr%22%2C%22utm_content%22%3A%22Email%20301%22%2C%22utm_campaign%22%3A%22SN%3A%20Email%20301%2000f411%22%7D%7D%7D&amp;msdynmkt_digest=Hr1zVspP1lUOHpSnxq0nkyJEs1FWh09ECyR8G2%2B1W8U%3D&amp;msdynmkt_secretVersion=7bb221762d0c46939816d3a5592b1359">considering</a> pre-conditions for Chinese investments in Europe, such as mandatory technology transfers, signaling a strategic shift toward statecraft. Meanwhile, the EU announced it has achieved its €300 billion Global Gateway investment target two years early, focusing on sustainable infrastructure and strategic corridors, particularly in Africa, to rival China’s Belt and Road.

Energy independence remains a priority, with plans to ban Russian oil imports by early 2026 and gas by 2027, pending (final) parliamentary approval. At the Copenhagen summit (1–2 October), leaders debated strengthening EU defense capabilities, including a proposed “European Drone Wall,” though feasibility concerns persist. Discussions also revealed divisions over a €140 billion interest-free loan for Ukraine funded by frozen Russian assets, despite Germany softening its stance. A plan to “buy European” in public procurement - to boost domestic firms and counterbalance protectionist US trade policies as well as China’s weaponization of critical dependencies - is also in the works. But countries haggle about the definition of ‘European’. Overall, the EC’s actions underscore a more assertive and strategic EU posture globally, but it obviously cannot match the depth and speed of the US.

The EU yesterday unveiled a five-year defense <a href="https://public-eur.mkt.dynamics.com/api/orgs/285245b1-7c6f-ef11-a66d-000d3a4b6c6a/r/_SeoFzC4ykSIEir-N_kCAAUAAAA?msdynmkt_target=%7B%22TargetUrl%22%3A%22https%253A%252F%252Fdefence-industry-space.ec.europa.eu%252Fdocument%252Fdownload%252F9db42c04-15c2-42e1-8364-60afb0073e68_en%22%2C%22RedirectOptions%22%3A%7B%225%22%3Anull%2C%221%22%3Anull%2C%222%22%3A%7B%22utm_medium%22%3A%22email%22%2C%22utm_term%22%3A%22N%2FA%22%2C%22utm_source%22%3A%22dynamics-rr%22%2C%22utm_content%22%3A%22Email%20301%22%2C%22utm_campaign%22%3A%22SN%3A%20Email%20301%2000f411%22%7D%7D%7D&amp;msdynmkt_digest=F48xNcnIG58KsmVwdB6VonD7q%2FQ%2BZDbiptNK7pRue%2Fs%3D&amp;msdynmkt_secretVersion=7bb221762d0c46939816d3a5592b1359">roadmap</a> aimed at closing critical capability gaps and modernizing its security architecture.

The plan introduces four flagship initiatives:

<ol><li>the European Drone Defence Initiative (operational by end-2027),</li>
	<li>Eastern Flank Watch,</li>
	<li>European Air Shield, and</li>
	<li>European Space Shield.</li>
</ol>It calls for coordinated defense spending, joint coalitions, and a target of 40% joint procurement by 2027. Member States are urged to collectively address shortfalls by 2030, accelerating production and strengthening defense industries while maintaining support for Ukraine.

The roadmap signals concrete ambition beyond bureaucracy and is expected to feature prominently at next week’s Brussels summit. This looks set to be the key event to watch next week.

This week and last, it was China’s turn to show it has such statecraft cards up its sleeve...


"The World Is Changing More Rapidly Than Anyone Could Have Imagined A Few Months Ago"

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