American sports are a business

At the annual owners meeting in 2010, NFL commissioner Roger Goodell announced his long-term goal: for the league to generate $25bn in revenue by 2027. At the time the NFL was earning roughly $8bn a year, nothing to laugh at, especially with the US economy in the midst of the Great Recession, but this meant the NFL would have to triple its revenue in just under two decades.

How’s that looking so far?

In the NFL’s 2024 fiscal year, the NFL’s revenue totaled just north of $22bn well on its way to fulfilling Goodell’s promise.

How did this happen? In a word, television.

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On Friday February 1, 2013, just two days before the Baltimore Ravens topped the San Francisco 49ers in Super Bowl XLVII (a game most remembered as the one where the power went out), House of Cards was released on Netflix. With everything that has happened around that show in the years that followed it is easy to mock now, but at the time House of Cards was a revelation. Not only did it win critical praise, it also helped Netflix launch a brand new era of entertainment when the streamer elected to drop all 13 episodes in one fell swoop.

Suddenly, with the introduction of the binge model, the dawn of the streaming era was upon us. Back then cable subscriptions were growing increasingly expensive and a Netflix subscription was relatively cheap (a basic subscription did not cost more than $10/month until 2017), so audiences (led by the all-important 18-34 demographic) migrated from cable to streamers.

For advertisers accustomed to paying media companies for ad spots on linear cable, this was not good. And for media companies, who need money from advertisers to justify their share price, this was an even more worrying development.

As we all know, media companies spent the next decade in an arms race launching their own dedicated streaming service, putting up walls around their content libraries. But while these companies may have content in the archives and launch shows / movies to attract new paying customers, who can now stream whatever they like at their convenience, there is one thing that cannot be banked for later2:

Live sports

And there is no live sport that dominates America’s consciousness like the NFL. The NFL dominates US TV viewership charts like nothing else.3

Stretching scarcity for all its worth

To me, a millennial (born in ‘88) who began watching in the 90s, the NFL will always be synonymous with Sundays on Fox (for the NFC) and CBS (for the AFC) and Monday Night Football on ABC/ESPN. But over the past two decades, arguably no one has benefited from the proliferation of streaming services and the dislocation caused by moving away from cable quite like the NFL.

Goodell has the leveraged the league’s immense popularity and relative scarcity (after all, each team plays just 17 games a years) to deepen its historical relationships with ABC/ESPN, CBS, and Fox (for an ever-increasing amount of money) while expanding the league’s media partnerships to include Comcast (NBC/Peacock), Amazon (Prime), and Netflix.

This was most recently immortalized in 2021 when the league signed an 11-year, media-rights deal with ABC/ESPN, NBC, CBS, Fox and Amazon worth in excess of $100bn.4 This was a major step up in annual revenue for the NFL, which under its previous ESPN/CBS/Fox/NBC deals was earning ~$5.5bn a year. The NFL also began partnering with Netflix to offer exclusive broadcast rights for certain games.

Now, not only does the NFL dominate Sunday (CBS + Fox + NBC) and have a game on Monday (ABC/ESPN), but Goodell

• Made Thursday (Prime) night a permanent fixture,

• Scheduled more games outside the traditional Sunday afternoon windows, including for the upcoming season,

  • The first two games on Wednesday, Sep 9 (NBC) and Thursday, Sep 10 (Netflix, in Melbourne, Australia),

  • Three games on Christmas (a Friday, two on Netflix, one on Fox), plus

  • A game each on Thanksgiving Eve (Netflix) and Black Friday (Prime)

• Added a 17th regular season game (with active musings about an 18th),

• Expanded the playoffs, and

• Continues to introduce more international games to widen the league’s global footprint.

Meanwhile, in 2023 YouTube agreed to pay ~$2bn a season for the lucrative NFL Sunday Ticket package, providing out-of-market games for the rest of the decade. The streaming service recently announced sky-high prices for the 2026 season.

Put it all together, and the NFL earns around $12bn a year in media-rights deals with its broadcast partners (while also placing an ever-increasing cost and time burden on fans who want to watch the games). How does this compare to the other leagues? The National Basketball Association (NBA), the NFL’s closest competitor, also has an 11-year media-rights deal (with Amazon, NBC and Disney) that runs through the 2035-36 season.

The deal was signed in July 2024 and is worth $76bn or $6.9bn a year — a significant uplift from the previous deal worth $2.6bn/year. While not NFL numbers, that still represents a pretty good arrangement for NBA owners.

Spreading the wealth

The NFL operates under a revenue sharing model whereby all 32 teams receive an equal piece of the national revenue. And the vast majority of this national revenue comes the NFL’s media-rights deals. Unlike the other professional sports leagues where each team has a contract with local broadcasters, the NFL’s media contracts are for the entire league. It doesn’t matter if a team plays in a bunch of national primetime games or is relegated to the Sunday at 1pm Eastern window every week, all 32 teams receive the same pay-out from the league.

Under the current terms of NFL’s media-rights and league-wide sponsorship deals, that turns out to be ~$450mn a year.

For those keeping track, that is $450mn for simply showing up. A nice bit of change if you can get it.

Beyond this allocated national revenue, each team earns local revenue through activities like sponsorships, ticket sales, and concessions. But while NFL stadiums can house ~80,000 fans, each team only hosts eight or nine regular season games a year, so local revenue is not as valuable. That being said, NFL franchises know they have a rabid fanbase willing to shell out for games. Since 2015 the average cost of attending an NFL game has increased 72% (from $114 to $196), much of which is related to the cost of tickets (up 81% over the period).

As the only ‘publicly-owned’ NFL team, the Green Bay Packers produce annual financial statements that shed a bit of light on this national/local split. While local revenue has grown, national revenue has soared.

Put it all together, owning an NFL team represents about as sure-fire a way to make money as anything in the US today. And while the NFL is the big American sports league, both Major League Baseball (MLB) and the NBA earn well over $10bn a year with the National Hockey League (NHL) not far behind.

Some of this has redounded to the players, who are doing pretty well for themselves. Thirty years ago in 1996, the NFL salary cap was just shy of $41mn. Now as we enter the 2026 season, the cap is just over $300mn (for an annual growth rate of 6.89%).

The result? Team valuations 📈

But the real winners here are the NFL team owners, who have seen value of their teams surge.

Nothing quite reflects this as much as the Dallas Cowboys. Thanks to the star on the helmets and their dominant run of three Super Bowl titles in four years in the early 1990s, the Cowboys have a massive fan base that has had little to cheer about for 30 years.

Yet, despite their decades-long run of mediocrity, the team was recently valued at $15.5bn (per Sportico), $2.8bn more than the second-place Los Angeles Rams ($12.7bn). Quite the return on investment for owner Jerry Jones, who purchased the Cowboys in 1989 for $140mn (~$350mn in current dollars). And lest you think it is just the Cowboys, the least valuable franchise (the notoriously cheap Cincinnati Bengals) was valued at $7.4bn.

Overall, the value of an NFL franchise has increased 10x since 2006 — from ~$900mn to now $9.3bn per team.

As you can see above, it’s not just the NFL that has seen its teams explode in value. Across the three other major American professional sports, their values have increased 8x (MLB) to 17x (NBA). We will talk about the consequences of this tomorrow, when we dive into the emergence of private equity in sports ownership.

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The only thing that has come anywhere near the NFL train in recent years has been Trump, with the debates and coverage of the election election in 2024 hitting the top 10 most-watched US TV broadcasts.

Summary commentary: Despite devoting years as a bank official and private citizen to the climate crisis, Canadian prime minister Mark Carney has entered public office and completely shifted focus.

Indeed, at the end of June Carney was brutally honest when he communicated that Canada’s emissions would increase in the coming years, saying that “the certainties of the world of 2015 are long gone” and “the world hasn’t been this unstable geopolitically since the end of the Second World War.”

That may be true, but the fact that Carney the politician has committed so much to fossil fuels, despite his past support for climate action, demonstrates just how difficult the political economy of the energy transition is.

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Back in the fall of 2015, around the time when Obama and Xi were negotiating what became the Paris Climate Agreement, the head of the Bank of England gave a speech to insurers in London.

In the hallowed halls of the Lloyds of London, this banker warned that if the status quo continued, climate change would cause an economic disaster. “The challenges currently posed by climate change pale in significance with what might come. The far-sighted amongst you are anticipating broader global impacts on property, migration, and political stability, as well as food and water security. So why isn’t more being done to address it?”

That governor who made this now landmark address coined the “Tragedy of the Horizon?” Mark Carney, then the head of the Bank of England, now the current prime minister of Canada.

For the next decade, Carney was the global face of a certain type of climate action. A money-man through and through, after all he spent over a decade at Goldman Sachs and served on the boards of both the Bank of Canada (during the financial crisis) and the Bank of England (during Brexit and the early days of the pandemic), Carney became the UN special envoy for climate action and finance. In this role, he launched the Glasgow Financial Alliance for Net Zero (GFANZ) with the goal of mobilizing the financial strength of Wall Street and the City of London in the fight against climate change.

At the 2021 UN Climate Conference in Glasgow, over 450 financial institutions, controlling trillions of dollars in assets, joined GFANZ pledging that by 2050 all of their investments would be aligned with the goal of net zero. The rush to join GFANZ was surely aided by occuring at the precise moment when the global community was at peak post-pandemic enthusiasm for climate cooperation.

But then the moment passed. And in the years since, as inflation + Russia’s invasion of Ukraine in 2022 caused energy prices to soar and then Trump returned to the White House determined to undermine clean energy, much of this finance-led climate action across the US and Europe has gone the way of the dodo bird.

Once Carney took over in Ottawa last year though, there was hope he would turn Canada into a beacon of light against the dark cloud of the Trump administration’s total disregard for climate policy. After all, during his pivotal 2015 speech, Carney explicitly pointed out what was required for action. (PTO emphasis added)

Financial policymakers will not drive the transition to a low-carbon economy. It is not for a central banker to advocate for one policy response over another. That is for governments to decide.

His efforts to mobilize financial institutions may have failed, but now he was in government, and the belief was Carney could be the change he wanted to see. But unfortunately, things have not gone the way advocates have hoped.

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Carney abandons his climate ambitions

During his first 15 months in office, Carney has turned back the clock in Canada to focus more on fossil fuels as an engine of growth.

• Carbon tax: Struck down Canada’s carbon tax on consumers. For Carney, who has spent his life dedicated to the market, to scrap a carbon tax, the holy grail of market-based climate solutions, is a real gut-punch.

• EV mandate: Repealed an EV mandate (which would have required EVs to account for 20% of auto sales in Canada this year, and 100% by 2035) and replaced it with targeted credits to incentivize EV uptake. The government acknowledged that Canada’s EV adoption will slow as a result (goal now is for EVs to represent 75% of sales by 2035). At the provincial level, governments have also rolled-back EV rebates.

  

• Gas tax: Earlier this year, Carney suspended this tax through the summer to offset the price hikes caused by the Iran War. As it is, Canada has an exceedingly low gas tax which has reduced the economic rationale for purchasing an EV.

• Oil production: Has encouraged crude production by supporting a new oil pipeline from Alberta to British Columbia to export more oil to Asia (the hope in Canada is that they begin work in 2027 and the pipeline is up and running by 2035). As part of this agreement, the government also weakened Alberta’s industrial carbon price regulation. Interestingly though, Canadian fossil fuel companies have been a bit more circumspect when it comes to increasing production, worried about the shifting global trends away from fossil fuels and political uncertainty.

• Keystone Pipeline: In a similar vein, Canada and the US have discussed reviving the Keystone Pipeline.1 The pipeline has a long history: First proposed during the tail-end of the Bush administration, Obama rejected applications to build it. Trump then restarted operations in 2017 before Biden scuttled it in 2021 (much to the disappointment of then-Canada prime minister Justin Trudeau). If Keystone were to be fully operational, the province of Alberta could move an additional 800k b/d of oil down to US refineries, assuming the two nations are back on speaking terms.

• Project oversight: Approved government legislation that will speed up environmental reviews for projects considered in Canada’s “national interest.” While permitting reforms may be welcome, this particular move came much to the dismay of indigenous groups, which assert they have not been properly consulted or compensated for the loss of land and impact these projects have on their local communities. Environmental groups also decried the new rules, claiming the government pushed them through without any consideration of the wider impact on communities and wildlife.

All of these changes come at a time when Canada2 is dealing with the fallout from wildfires that have exploded to new heights — a phenomenon due, at least in part, to higher temperatures and drier seasons.

Unsurprisingly, this fossil fuel pivot has resulted in a slowdown in Canada’s emission journey.

To be fair to Carney, Canada had already been backsliding on its climate goals before he took over. Last year, the Canadian Climate Institute noted that emissions had stagnated in 2024 and that without real political change, Canada would miss its 2030 emissions reduction target.

Lest you think Canadians don’t care about climate change, recent polls show that over half of all Canadians are either ‘very’ or ‘extremely’ concerned about climate change. But of course, when asked if they are personally impacted, just 39% believe they will be among those most impacted, while over 80% believe future generations will bare the brunt of the damage.

Carney’s time in office is an example of just how difficult it is to expend political capital and real money on a problem when most constituents feel the greatest dangers are in the future, especially when you are dealing with a slowing economy (an economy has been committed to fossil fuels) in the present. Right now, with Canada’s economic problems front and center (even before the whole Trump debacle), Carney is doing what he can to stimulate the economy.

Could some of that come through clean energy investment? In a more encouraging sign, representative of an ‘everything-energy’ policy, last week (Aug 17) Carney announced what the Canadian government called the “largest clean energy investment in North American history” in the form of CAD $70bn for hydropower, onshore wind projects, and transmission lines to spread this clean electricity (some of it to the US).

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Hope you enjoyed this series on Canada, (or at least learned something). As a completely unrelated capper, enjoy this goal scored last weekend in the English Championship.

We are only one week into the season, but it is difficult to imagine someone scoring a more remarkable strike the rest of the campaign.

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Summary commentary: While spending decades focused on trade with the US, and concentrating investment on optimizing that relationship, Canada largely ignored internal trade barriers that have created a real problem for the wider economy.

How big a deal could reducing these trade barriers be? A recent IMF report suggests that removing intra-provincial trade barriers could push up Canada’s real GDP by 7% (~CAD $210bn). Another study from 2022 found that Canada’s economy could grow by 4.4-7.9% over the long-term if mutual recognition policies were adopted.

Even if the real economic impact is more muted (after all, eliminating all trade barriers is not seamless and infrastructure investments are notoriously expensive), this mindset of breaking down walls would be a step in the right direction, and a move to reduce dependence on international trade.

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On January 1, 1989, the US-Canada Free Trade Agreement went into effect. This agreement eliminated tariffs and most non-tariff trade barriers, bringing about a new era of neighborly relations and cross border trade. After a few years of successful implementing the deal, it was expanded to include Mexico. This revised edition, the North American Free Trade Agreement (NAFTA), was signed into law in December 1993 and created a continent-wide free trade zone.

NAFTA spent the next twenty years as a political football, debates raging on both sides of the aisle over the merits and demerits of the arrangement. Eventually Trump tore it up during his first term, though his negotiated replacement, the US-Mexico-Canada Agreement (USMCA), was essentially the same thing with new branding.

The legacy of this string of agreements is North American supply chains that transcend borders. For nearly 40 years, the US and Canada have traded with minimal fuss or red tape. Famously, individual auto parts cross borders multiple times to put together a single vehicle.

For the US, international trade is an important part of the economy, but not overwhelmingly so. The same cannot be said for Canada (or Mexico), where international trade represents well over 60% of GDP.

For Canada, international trade is a more important aspect of the economy than trade between provinces.

Part of this is a legacy of Canada’s resource wealth and what it trades with the US. As we have previously discussed, one of the most important Canadian exports to the US is crude oil (much of which is sent to US refineries where it is distilled into end-products like gasoline and diesel). Canadian exports to the US were pretty diverse in the early NAFTA years, dominated by machinery and manufactured goods. But fossil fuels slowly became more important.

With the US demanding more oil, and Canada possessing one of the largest oil reserves in the world, Canadian firms spent the 2000s and early 2010s investing in oil infrastructure.

Oil prices fell sharply during the financial crisis, but quickly recovered, giving Canadian firms plenty of runway to continue spending apace. But the music stopped at the end of 2014 when oil prices collapsed, thanks to a supply glut that came, at least in part, due to the US shale boom.

When oil prices dropped nearly 60% between June 2014 and January 2015, Canadian oil and gas capex came to a screeching halt.

And as the chart below demonstrates, with oil and gas investment down, business investment across Canada basically stopped growing.

To make matters worse, Canadian business investment has barely grown in the decade since. In the meantime, US business investment has soared. As you can probably guess, this is a legacy of where the US and Canada have historically targeted investment. One study by the Fraser Institute, a libertarian think tank, suggests that Canada’s investment in two key productive asset classes, Information and Communications Tech and Intellectual Property Products has been significantly lower than the US’s since 2000 (we’re talking 20-50% lower depending on the period).

In this way, Canada suffered from a variation of Dutch Disease in which a focus on one resource crowds out other investment.1 The result is an economy over reliant on one sector (in Canada’s case, fossil fuels), and if that sector slows, the ramifications will reverberate across the landscape.

The outperformance of Canada’s oil and gas sector in the 2000s and early 2010s was covering up for deeper structural issues in the Canadian economy. Between the fall in oil prices and lack of productive business investment, the gap in growth in GDP per capita between the US and Canada has grown cavernous.

To summarize: In putting so much emphasis on international trade and fossil fuel investment, Canada’s wider economy slowed.

On top of these problems, exacerbated now by Trump’s trade war, in an effort to protect jobs and boost local economies, Canadian provinces erected intra-provincial trade barriers that provided little wiggle-room for growth.

While some of Canada’s trade restrictions are natural (an IMF report from 2019 estimated that geography is responsible for 57% of Canada’s trade barriers), other more malleable problems are regulatory-based.

Intra-territorial trade barriers / red tape add costs and possibly restrict the sale of goods across provinces.

• A study from 2016 suggests that domestic trade barriers increase the price of Canadian goods and services by 7.8-14.5%.

• Another 2017 report by Statistics Canada (a government agency found that Canadian trade barriers amount to a nearly 7% tariff on domestic goods trade (a comparative model for the United States found there to be no internal trade costs).

• A more recent IMF study found that policy-related barriers were equivalent to a 9% tariff (notably, a lower rate than the 5.9% effective tariff rate Canada has been dealing with from Trump).

This has materialized in a few ways including:

• Credentialing details vary by province, which can make it difficult for workers to relocate.

  • For example, social workers moving to Ontario or podiatrists moving to Alberta must re-certify their professional license.

• Truck drivers encounter different rules and regulations that are often addressing real public policy concerns (e.g., heavier trucks beating up roadways) but nonetheless are an issue.

  • For example, the maximum weight for a trailer-truck carrying goods is 1,000kg less in Nova Scotia than in other provinces along the Atlantic coast which makes moving products that much more difficult.

• Cross-border mark-ups and taxes make goods more expensive (e.g., Canadian wine)

  • For example, a ban on direct-to-consumer shipments of alcohol across provinces.

  • In 2018, the Canadian Supreme Court upheld a fine imposed on a New Brunswick resident who had bought 14 cases of beer in neighboring Quebec and tried to bring back into New Brunswick, in excess of the carrying limits under New Brunswick law. As such, by ruling that economic activity cannot obstruct the regulatory requirements of the provincial governments the court essentially said there was no constitutional guarantee of free trade within Canada.

Put it all together, and its little wonder Canada trades more with the US than itself.

The provinces and federal government are trying to tackle the issues, though not necessarily in a consistent manner. Some examples include:

• Nova Scotia introduced the Free Trade and Mobility Within Canada Act which will remove intra-provincial trade barriers for provinces who pass similar legislation.

• Ontario announced new legislation that makes it easier to cross-certify workers from other provinces.

• One wider initiative is the Atlantic Physician Registry, which allows doctors to register in a central database and practice anywhere across the Atlantic provinces (New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island), though uptake has been slower than hoped.

Most importantly, at the federal level last November (2025) Ottawa announced the landmark Canadian Mutual Recognition Agreement, tearing down barriers for the sale of goods across the country (with notable exceptions like food and alcohol). The rule states that,

If a good may be lawfully sold in one province or territory, it may be sold across the country without having to meet additional testing, certification or other requirements – unless a government has identified a specific requirement it will retain.

This rule became effective in June (2026), with the government’s goal to also cover services by the end of the year.

One group, the Canadian Federation of Independent Business, releases an annual score card judging the provinces and federal government on their domestic cooperation. And in July, the group released its 2026 edition. There were high marks all around (except for the northern Nunavut territory) as it was agreed provinces were working to bring down barriers to improve cooperation and cross-jurisdictional recognition.

At the same time though, CFIB was quick to point out that much of the recent progress stems from commitments and intentions — close to 70% of Canadian small businesses surveyed noticed no significant change to business across territories, and 16% said it had gotten more difficult.

Last but not least, while the natural geographical issues of a land-mass stretching over 5,000km east-to-west are real, they can also be mitigated. Investment in high speed rail (the first of which, the Alto project, is connecting Toronto and Quebec) and better port infrastructure (such as upgrading the Port of Vancouver to facilitate more trade) can reduce the impact of these interprovincial barriers.2

These are the sort of big ticket investments that would cost a lot of money, probably run over budget, but — if actually completed — could really make a visible difference.

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Summary commentary: It feels noteworthy that the Global Times, a Chinese tabloid printed under the auspices of the Chinese Communist Party, posted an op-ed on Sunday labeling Canada prime minister Mark Carney’s response to Trump’s latest tariffs as a ‘Chinese-styled counterattack.’1

As the op-ed goes on to say, the only leaders that have consistently stood up to Trump are China’s president Xi Jinping and Carney. But while Xi can do so without having to worry about the political and economic ramifications of a trade war, the same cannot be said for Carney. The vast majority of Canadian trade is with the US, and a prolonged trade war would do tremendous damage to the Canadian economy. In one poll, nearly 40% of Canadians are concerned about the impact the trade war could have on their jobs.

It is telling that, despite being seemingly clear-eyed about the risks, Canadians continually backed Carney and his refusal to bend the knee. Survey after survey, poll after poll, show that Canadians stand behind Carney’s decision to stand up to Trump’s tariffs and the ridiculous talk of making Canada the 51st state.

This emphasis by Canadians on national sovereignty, on ensuring Canada has a voice and is not relegated to a status as a servile-state of the US is commendable. The people want a fighter, someone who isn’t going to bow down to a bully, and Mark Carney is doing that for Canada (and really, most democratically-elected leaders around the world).

This is a lesson a lot of institutions, governments, and politicians back in the US should take note of and internalize.

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Geographically speaking, Canada has a lot going for it.

• By total area, the second-largest country in the world (behind only Russia).

• The world’s longest coastline (by far) extending to three oceans.

• A bounty of natural resources ranging from oil and iron to copper and gold.

And for decades, it had a relatively accepting export market located directly to its south that was more than happy to pay for Canada’s manufactured goods.

Case in point: The United States purchases ~60% of its imported oil (~4mn barrels/day) from Canada, the fourth largest oil producer in the world.

But in the Donald Trump era, Canada is rethinking its whole approach. Yesterday we talked about prime minister Mark Carney’s outreach to the rest of the world, his attempt to build coalitions of middle powers that collaborate economically and militarily independent of the US and China.

Today, the focus is on the US-Canada relationship, and most prominently the return of Trump’s trade war.

Canadians have taken Trump’s (oft repeated) threat about making it the 51st state as a personal affront and responded with gusto. While one of the most noticeable reactions has been the reduced travel to the US, bans on certain US imports (e.g., American wine and liquor) have been so effective that one executive at the Oregon Winegrowers Association called it “the most catastrophic single year trade disruption in the history of US wine exports.”

In July, Trump had announced new tariffs on Canada but they did not go into effect for 30 days, giving time for the parties to negotiate. For Canada, the focus was on reducing or eliminating 50% tariffs on Canadian aluminum and steel and 25% on cars. On the other side, the US sought an end to Canada’s boycott of American alcohol.

Trade war, ad infinitum

And after weeks of negotiations, characterized by reported in-fighting within Trump’s team and calls for last-minute concessions which the Canadians called “unfair, uneconomic, and called into question the reliability of any deal,” talks ended on Friday night (Aug 21) without a deal. As Politico put it:

The result: A dramatic escalation into a trade war between two countries with deeply integrated supply chains, one that could threaten more than $1 trillion in North American trade and, with it, could continue to raise economic pressure ahead of U.S. congressional elections in November. A 50 percent tariff on $20 billion worth of Canadian goods kicked in on Saturday, Canadians have promised to respond in kind and Mexico, which does business with both, could be caught in the crosshairs.

Carney, who announced Canada was now “at war” with the US over trade, has said he will retaliate with dollar-for-dollar tariffs “to protest our workers and business.” On Saturday, he went on Canadian TV to address the nation.

“Last spring, I warned that America is trying to break us so that they can own us. And I promised: ‘That will never, ever happen.’ We are keeping that promise,” Mr. Carney said somberly, before reporters in Ottawa.

“Canada is becoming stronger and less dependent on America. We are already giving ourselves more than they can take away. And we are just getting started,” he added.

Trump’s trade representative Jamieson Greer claims the US offered “significant tariff reductions” on cars, aluminum, and steel, but Canada declined the deal. Carney said Canada initially accepted the US requests, but that negotiations got to a point where the US “asked too much and…offered too little.” Two of the stickiest points were

• A late request from the US to limit Canada’s ability to strike up trade deals with other countries. When set in conjunction with a point about the US having a right of first refusal on any Canadian critical mineral exports, this would essentially hand the US exclusive access to the Canadian market.

• Demands that Canada do away with requirements for French labels in Quebec, requirements in place to protect and promote French in the province. As Stephen Marche, a Canadian author and podcast host, put it in The New York Times yesterday, “French, in Canada, is not a business matter. Its place in our nation transcends absolutely any market-based consideration. It is not something that gets ‘put on the table.’”

Most of Trump’s previous one-time tariffs have been repudiated by the courts. This time around, Trump is invoking Section 338 of the little-used 1930 Smoot-Hawley Tariff Act. The rule states that the president is authorized to impose tariffs on countries that have discriminated against US commerce. Undoubtedly, this will be challenged in court this fall.

In addition, yesterday (Monday Aug 24) Trump took to Truth Social to announce 50% tariffs on “all Cars, Trucks…Automotive Parts, and Steel,” though pointedly not until “January First, 2027,” giving plenty of time for circumstances to change.

Canadians writ large are done with the US as an unstable partner…

A poll by the firm Angus Reid found that over 75% of Canadians believed Carney did the right thing in walking away from negotiations. This is a similar story to what the public has been saying for a while. A poll from early August noted a plurality of Canadians (36%) wanted prime minister Mark Carney to respond with counter-tariffs of his own, even if the result was higher prices for Canadians. Just 18% wanted to concede to Trump.

Another August poll found a majority of Canadians (54%) backed the ban on selling US alcohol, even if this resulted in an escalatory response. Just 19% supported lifting the restriction to help ease tensions.

…but severing ties with the US would be costly

Despite this widespread anti-American sentiment, for the past 18-months Canada has still largely played Trump’s game. And it’s fairly easy to see why: the US is Canada’s biggest trade partner by a country-mile.

Canada’s top exports are fossil fuel-related products and motor vehicles. 90% of Canada’s oil is exported to the Untied States while 90% of Canadian-made cars are exported to the United States.

Last year, in a bid to smooth the ground for trade negotiations, Carney cancelled a digital services tax after Trump threatened to pull out of US-Canada trade talks. The DST, first announced in 2020, would have taxed US firms like Amazon and Meta (in addition to local Canadian businesses) that earned over $20mn in revenue in Canada.

The new tariffs will certainly impact Americans, but the real pain will be felt by Canadians. And with these new tariffs throwing uncertainty and instability into the mixer, Canadian small businesses are worried about what comes next.

Could the two sides cooperate on critical minerals?

With Canada’s abundance of critical minerals and Trump’s purported goal of developing a critical mineral supply chain independent of China (which has a stranglehold on refining and processing), one might expect Trump to welcome a bit of cross-border collaboration.

And yet, while Canada’s critical mineral exports increased by 3% in 2025 (to nearly CAD $50bn), the value of Canada’s exports to the US actually fell (CAD $30.7bn to 28.8bn). This is a function of a few factors, including the wide breadth of demand for non-China-controlled critical minerals and a proliferation of projects around the globe that have sought American support.

In fact, one area Canada does have leverage over the US is potash, a fertilizer. Canada’s potash exports account for ~40% of global exports, and the US buys more than half of Canada’s production. As Trump’s ambassador to Canada, Pete Hoekstra, pointed out earlier this year, “when the president says we don’t need this from Canada, or there’s nothing we need. America has a tremendous amount of things where we have a need…we need potash.”

Point of note: Potash, along with energy and “certain goods, such as fish or critical minerals” are exempt from Trump’s tariffs.

But as the fall-out from the failed negotiations made clear, the US cannot simply dictate terms to Canada and expect a pliant response. In a normal world of neighborly relations, the US and Canada would work together to develop this value chain. Unfortunately, that world is dead and gone.

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1

Relatedly, while Canadians have grown increasingly negative on the US during the Trump era, Sino-Canadian relations have warmed up.

Note at the top: Our series on Middle Powers rolls along this week focusing on Canada, America’s hard-bitten neighbor to the north. Most of the research and writing was conducted last week, while the US and Canada were in the midst of trade negotiations. With talks falling through on Friday night, Trump imposed tariffs and Canadian prime minister Mark Carney proclaimed Canada was now “at war” with the US over trade.

The original plan for today was to post about Canada’s relationship with the US, and how Canadians want the government to respond to Trump. But with circumstances evolving, I decided to hold off on that for a day. Let’s let the dust settle a bit and assess how things look today (Monday Aug 24).

So instead, we begin the series with a look at how Mark Carney is positioning Canada with respect to the rest of the world.

Summary commentary: Within the global community, Canada’s prime minister Mark Carney is a realist. He understands the importance of international cooperation for economic and defense purposes and is pursuing alliances accordingly.

While much of his focus has been on Europe Carney has met with leaders around the world, putting in work to mend fences with two important potential export markets, India and China, where relations have been strained over the years. Carney’s successful de-escalation of tensions with the leaders of the two most populous countries is a clear statement of intent and move Canada away from relying so heavily on its fickle neighbor to the South.

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Carney and Europe

When Donald Trump returned to the White House in January 2025, we all knew things were going to be a bit nuts…but no one predicted just how crazy and farcical (if the resulting chaos did not impact literally billions of people around the world) the first year truly was.

In January, after almost exactly one year of Trump’s madness1, Canada’s prime minister Mark Carney got on stage in Davos at the annual World Economic Forum. A Goldman Sachs man, a former head of the Bank of England, and organizer of some of the biggest climate finance initiatives, Carney rode a major anti-Trump backlash to become Canada’s premier last year. And now after spending much of his adult life as the embodiment of globalization, here he was, about to make a speech that for the past eight-months has largely defined the current era.

In the face of Trump’s rhetoric about Canada becoming the 51st state and tariffs2, Carney’s Davos speech encouraged middle powers of the world unite, “because if we’re not at the table, we’re on the menu.”

Collective investments in resilience are cheaper than everyone building their own fortresses. Shared standards reduce fragmentations. Complementarities are positive sum. And the question for middle powers like Canada is not whether to adapt to the new reality – we must. The question is whether we adapt by simply building higher walls, or whether we can do something more ambitious.

Predictably, the speech was ridiculed by the Trump administration, but it galvanized the rest of the world, particularly Europe whose leaders hailed Carney as a champion of the international order, as an example of how one can stand up to Trump (even if they are generally less willing to say so in public). Carney has responded in kind.3

In May (2026) he travelled all the way to Armenia to make a brief appearance (just a few hours) as the first non-European leader to participate at a European Political Community Summit.4 While there, Carney gave another speech in which his soaring rhetoric, highlighted by statements like, “the international order will be rebuilt, but it will be rebuilt out of Europe,” was warmly received by Europe. As Antonio Costa (president of the European Council noted, Canada is a “like-minded country” sharing “a certain vision of the world.”

But its not just words and in-person events that have the two sides excited. Last year, Ottawa and Brussels agreed on a defense partnership. As part of this alliance, Carney joined the EU’s joint defense procurement project (Security Action for Europe, SAFE), which will allow Canadian businesses to sell defense equipment and munitions to European countries.5

Historically Canada procured 80% of its defense infrastructure from US firms but Canada is trying to break that dependence. This was evidenced recently by Ottawa’s decision to go with a European defense warning system (Saab’s GlobalEye) as opposed to the American alternative (Boeing’s Wedgetail). Meanwhile, negotiations are ongoing over Canada’s plan for fighter jets, and how to balance Lockheed Martin F-35s (from the US) and Saab’s Gripen-E fighters (from Europe).

Relatedly, as the Arctic warms, Canada is planning on by adding more infrastructure links to the Hudson Bay region which should help expedite trade between Europe and the central/western provinces like British Columbia and Alberta. Canada’s industry minister Melanie Joly also visited the Nordics last year in a bid to shore up diplomatic and military ties. Then in March Carney linked up with the five Nordics to sign a joint-defense agreement, highlighting the importance of Arctic security.

Critically for European defense, Carney has also been unwavering in his support for Ukraine. In July at the NATO summit in Turkey, Carney promised CAD $2.8bn of military assistance in the form of ammunition, armored vehicles and tech/engineering equipment.

Overall, how has Carney’s outreach gone? It’s gotten to the point that European ministers have publicly mused that maybe Canada should join the EU. While perhaps not very serious, these statements demonstrate the close ties Carney is fostering with European leaders

Carney’s outreach beyond Europe

In the wake of his infamous Davos speech, you might have thought Carney’s next trip would be to Europe. You would be mistaken.

Carney’s next international trip (March 2026) was a 10-day swing across India, Australia, and Japan. Together, these nations represent four quintessential middle powers, and this trip was a chance for Carney to demonstrate the power of his vision for the world. He addressed Australia’s Parliament and signed a new economic and security partnership with Japan’s prime minister Takaichi Sanae. But perhaps most notably, he met with India’s prime minister Narendra Modi to try and mend Canada-Indian ties.

Ottawa’s relationship with India had been strained ever since the Trudeau government asserted the assassination in 2023 of Hardeep Singh Nijjar, a Sikh activist living in Canada, was sanctioned by the Modi government. But in the year since Carney’s election, these tensions have eased as the two sides have sought to cooperate on issues like security and energy flows. Closer India-Canada ties could be mutually beneficial as India has not historically imported any crude oil or LNG from Canada (and instead has continued to rely on Russian exports to meet its energy needs).

During Carney’s trip to New Delhi, he and Modi inked a handful of deals including one worth nearly $2bn for Canada to supply India uranium for India’s civilian nuclear program through 2035. Significantly, the issue of Indian actions on Canadian soil did not come up during this visit.

Two other interactions that bare mention

On trade: In July, Carney became the first Canadian prime minister in 26 years to visit Saudi Arabia. While in the Kingdom, Carney met with Crown Prince Mohammed bin Salman (MbS) and signed over a dozen commercial agreements / MoUs across a variety of topics including mining of critical minerals and defense.

On defense: Carney’s diplomacy has attracted visits from foreign leaders including Ferdinand Marcos, the president of the Philippines, the first visit by a Philippine head of state to Canada in over a decade. The two agreed to cooperate on defense and security.

Energy trade

Last year, Canada sent its first tanker of LNG to Asia (South Korea), a major breakthrough for Ottawa and its ambition to diversify energy trade away from simply relying on the United States as the behemoth market. On a visit to India earlier this year, Canada’s energy minister Tim Hodgson noted the “strategic blunder” that has been Canada’s nearly wholesale dependence on the US market (Canada is the fourth largest oil producer in the world, and 90% goes to the US).

As part of this new diversification approach, Carney is promising to double Canada’s LNG production and increase exports to Asia and move away from just oil (the vast majority of which goes to the US).6 That being said, a lack of sufficient infrastructure means it will take time for this to blossom.7

Sino-Canadian relations

Last, but certainly not least, is Canada’s relationship with China.

Back in the late 2010s, this relationship was not in a great place. Near the end of 2018, a tit-for-tat escalatory spat began after Canada detained the CFO of Huawei at the behest of the US for violating US sanctions.8 China responded almost immediately by imprisoning two Canadians. These individuals were held until September 2021, nearly three years, when the two sides (+ the US) finally reached a diplomatic solution.

The relationship hit a low point a year later in 2022 when, at the G20 summit in Bali, China’s president Xi Jinping confronted Canada’s prime minister Justin Trudeau, accusing the then-Canadian premier of leaking details of a private conversation. This came just a few weeks after Trudeau had accused Beijing of undermining the democratic process and attempting to subvert Canada’s national elections. The Trudeau government had followed Biden’s lead and imposed 100% tariffs on Chinese EVs, a clear sign of the times.

But over the past 15 months or so, Carney has worked to patch things up. After all, China is Canada’s second largest trading partner (total goods trade was ~CAD $120bn in 2024), albeit dwarfed by Canada’s trade with the US (2025: total trade of ~USD $872bn). It would be irresponsible for Ottawa to completely abandon this relationship, no matter what Washington says and does.

Back in January he made the trek to Beijing where the sides reached a trade deal securing an export market for Canadian agricultural exports in exchange for Canada opening up to Chinese-made EVs. Notably at the time, Carney described the Sino-Canada trade relationship as “more predictable” than that between the US and Canada.

Finally, in an indication of how things have progressed, in May China’s foreign minister Wang Yi became the first Chinese foreign minister to visit Canada since June 2016. During his visit, Wang acknowledged the work Carney has done to mend the relationship.

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Immigration

Encounters at the Southwestern border (June 2026, released on July 6): 12,901

Encounters along the Northern land border (June 2026, released on July 6): 4,952

Source: US Customs Borders & Protection

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SCOTUS rulings

At the end of June, the Supreme Court announced a couple of rulings that have a material impact on American immigration enforcement. The decisions in both cases, ruled 6-3 along ideological lines (the six Republican-appointees vs the three Democratic-appointees), went toward the side of a more restrictive immigration policy.

Asylum claims at the border: The first, Noem v Al Otro Lado, ruled that the Department of Homeland Security (DHS) could refuse to admit non-citizens at the border without hearing asylum claims. Obama had established limits in 2016 to stem a surge of Haitian migrants before Trump expanded this policy during his first term. Biden reversed much of this during his first term.

Deportation protection: The second, Mullin v Doe & Trump v Miot, ruled that the Trump administration could rescind temporary protection status (TPS) for hundreds of thousands of Haitian and Syrian migrants.

TPS was created in 1990 during the Bush Sr. administration as a way to provide temporary status to people who arrived from countries deemed unsafe because of ongoing conflict or a natural disaster. To receive TPS the grantees, who typically receive 18-month protection that can be renewed as circumstances dictate, must not have a serious criminal record.

Haitian refugees were first granted TPS back in 2010 after a massive earthquake rocked the nation. More recently, rampant gang violence has further destabilized the country. Syrians were offered protection following the outbreak of civil war in 2011, which embroiled the country for well over a decade until the fall of Assad in late 2024.

Needless to say, despite uncertainty over how this ruling will be applied (e.g., the timing of the possible loss of work permits and any detention/deportation), the idea that hundreds of thousands of people who have been in the US for decades could suddenly be deported, sent a shock through the American body politic.

The human cost will be tremendous, nearly 350,000 Haitians across the country have lost TPS and are worried about what will happen next, and so is the economic. According to an analysis conducted at the Penn, around 70% of TPS holders participate in the US labor force, predominantly in health care and construction work.

What is interesting is that, thus far there hasn’t been much movement to enforce this decision, though how long that lasts when the administration is feeling pressure to act from the right remains to be seen.

Relatedly, ICE’s actions may have fallen out of the headlines, but they remain ever-present. After all, last month we had the murders of

1. Lorenzo Salgado Araujo in Houston, a 52 year-old Mexican who had been in the US for 35 years, shot by ICE during a traffic stop, and

2. 26-year-old Joan Sebastián Durán Guerrero, a Colombian with legal status and a work permit, in Maine.

At the start of the year, DHS announced it had hired over 12,000 new ICE officers and agents. But with the pressure on to fulfill Trump and Steven Miller’s outlandish deportation targets, it is unsurprising that DHS did not conduct the most thorough and diligent background checks when vetting these ICE recruits. This was exposed shortly after the murder of Duran Guerrero in Maine, when the AP reported how the ICE agent responsible, David Brouillette, “has a history of terrifying and violent behavior” who has “struggled with serious mental health issues since early childhood and never should have been given a badge and gun to patrol American streets, several of his close relatives told The Associated Press.”

We received another visual reminder that ICE is still active and dangerous earlier this week when a woman recorded video of ICE agents stopping her at a parking lot in Virginia. After the woman yelled at the agents, they surrounded her car to force her to stop. They came up to the window, masked up, and one pointed a gun at her.

One other immigration-related Supreme Court case did not go Trump’s way.

Birthright citizenship: The 14th Amendment in the Constitution guarantees citizenship to everyone “subject to the jurisdiction” of the United States (i.e. essentially everyone born in the States except for the children of foreign diplomats). It was ratified in 1868 shortly after the Civil War as a way to ensure the rights of formerly enslaved Black Americans. On his first day back in the Oval Office last year, one of Trump’s first actions was signing an executive order “Protecting the Meaning and Value of American Citizenship” declaring that kids born of mothers who are temporarily or illegally in the US are not citizens.

In Trump v Barbara, the court ruled in a 6-3 decision (three of the Republican appointees aligned with the three Democratic appointees) that Trump’s executive order limiting birthright citizenship was unconstitutional (though, notably, Justice Brett Kavanaugh dissented on the grounds that only Congress could limit birthright citizenship by enacting legislation).

Despite this judicial defeat, Trump is trying again. Earlier this month, he issued a new pair of executive orders designed to limit birthright citizenship. While part of the information included in the EOs simply reiterated the status quo (e.g., children of accredited foreign diplomats are not US citizens), they also stretched beyond this to exclude

• Foreign government employees (who are subject to American laws and do not enjoy diplomatic immunity),

• Alien enemies (those considered members of a designated Foreign Terrorist Organization or Specifically Designated Global Terrorist)

• Mothers who engage in birth tourism (pregnant women who travel to the US in order to give birth to confer American citizenship to their newborn). According to the CDC, tourist births represent less than 2% of the ~3.6mn children born in the US every year.

Undoubtedly, the legality of these EOs will be challenged and end up in front of the Supreme Court. Based on past precedent, SCOTUS should rule against, but the fact we are having the debate at all further pushes the Overton Window when it comes to American citizenship.

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Economic data

Core inflation

Consumer Price Index, all items (July 2026, released Aug 12): 3.4% 🟢

CPI, less food and energy (July 2026, released Aug 12): 2.5% 🟢

Source: Federal Reserve, St. Louis Fed & US Bureau of Labor Statistics

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Yesterday the US Bureau of Labor Statistics released the July inflation data which indicated consumer prices rose 0.1% in July and are up 3.4% year-over-year, a slight fall from the June reading of 3.5%. So-called ‘core’ inflation, stripping out volatile food and energy prices, was up 2.5% year-over-year (down from 2.6% in June).

One commodity not listed above that had quite the month? Lettuce, the price of which fell 16% last month over fears stemming from the cyclospora outbreak.

This announcement was consistent with expectations, leading to a relatively muted investor response and further solidifying the view that the Fed will keep interest rates steady at its next meeting in September (though there is still a firm belief that rates will rise in October or December).

That being said, we will get August’s inflation reading before this September confab (consumer price report on September 11 v FOMC meeting on Sep 15-16) and with things still unsettled in the Strait of Hormuz and Red Sea, anything is possible!

More broadly, thus far the global economy has been able to rework supply chains around the war in Iran to mitigate the inflationary impact (though we should never discount the real-life impact this has had). Across emerging markets this has been far less impactful, on a purely inflationary basis, than the post-pandemic + Russia-Ukraine war surge.

But if the Houthis close the Bab el-Mandeb, that could force shippers to pay higher fees to transport shipments further distances and make efforts that much more difficult.

One other global event worth watching is the rapidly strengthening ‘super El Niño’ event. The European Central Bank recently calculated that a strong El Niño historically hikes global food prices by 9% as crop failures are more common and fishing yields fall. While the World Bank is warning that food prices could rise, there is some optimism that the world is better prepared to withstand this sort of event thanks to massive stockpiles of key foodstuffs like rice and what.

But when you couple this with the uncertainty in the Middle East and the ongoing war in Ukraine, which have already impacted global fertilizer production, it is clear the system is being stretched.

Specific product inflation

Avg price of eggs (dozen, Grade A, Large) (July 2026, released Aug 12): $2.19 🔴

Avg price of ground beef (July 2026, released Aug 12): $6.89 🔴

Avg price of coffee, ground roast (July 2026, released Aug 12): $9.32 🟢

Sources: US Inflation Calculator (food inflation) & St. Louis Fed (price of eggs, beef and coffee)

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One additional story that bares mention comes to us courtesy of America’s egg producers.

Back in the spring of 2025, a group of US federal and state authorities filed a lawsuit against three Big Egg companies (Cal-Maine Foods, Versova, and Hickman’s Egg Ranch) alleging that between June’22 and Mar’25, these three worked together to artificially inflate the price of eggs.

As you can see in the chart above (dotted purple line), the price of eggs fell considerably between March and April 2025 after the news broke that the Department of Justice was conducting an initial investigation.

Prosecutors alleged that, while the avian flu that had worked its way through the chicken population had indeed impacted supply, Big Egg executives had secretly colluded to collectively exploit this shortage. As the Financial Times nicely lays out, the executives bid up the price to Urner Barry, a pricing service, causing prices to remain higher. All the while, the companies were telling shareholders the price hikes were due to the avian flu.

In September 2022, Cal-Maine told investors egg prices had risen because supply had tightened due to bird flu and customer demand. Its conventional egg-selling price had more than doubled from a year earlier.

A little more than two weeks later, according to prosecutors, a Cal-Maine executive texted the chief executive of rival Hickman’s Egg Ranch: “We are bidding up. Let’s hold it today.”

By mid-October, the complaint alleges, bids from Hickman’s and Cal-Maine accounted for more than half of all bids submitted through Egg Clearinghouse, an exchange used in the wholesale market. The bids succeeded in keeping prices from falling, with a Cal-Maine executive texting Hickman’s chief executive: “No change.”

In December 2022, as Cal-Maine reported record quarterly sales and net income, Miller said the market faced record prices for conventional eggs “primarily due to reduced supply” related to bird flu.

At the same time, the company acknowledged there had been no positive bird flu tests at any Cal-Maine-owned or contracted production facility. And on December 20, Hickman’s chief executive allegedly urged senior executives at rival producers to post “strong bids, early and often”.

Two months ago (June 2026), Big Egg agreed to settle the case. As part of the terms of the settlement, the companies agree to collectively donate more than 50mn eggs to food banks and non-profits1 and pay $3.3mn in damages to the states involved.

Despite this settlement, which is pending court approval, none of the companies have admitted any wrongdoing.

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Step back to 2022-24, a time when the US (and the rest of the world) was dealing with soaring inflation. And people did not like it at all!

Inflation isn’t the sole reason Trump was re-elected, but it tops any list…and the price of eggs was a big factor.

So the question must be asked: Is this act of collusion, which netted the family behind Cal-Maine over $320mn after they sold their controlling stake last year, why we are where we are today?

We’ll never know the answer, but it certainly makes one think about unintended consequences. At the very least, they owe the American public and the rest of the world a bit more than $3.3mn in damages.

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More tariffs!

Near the end of July, Trump announced a new wave of tariffs for 60 countries.

After the Supreme Court struck down most of Trump’s Liberation Day tariffs as unconstitutional, Trump’s trade team went back to the drawing board to find a different route through which it could ‘legally’ impose tariffs. This time, they came up with Section 301 of the Trade Act of 1974, arguing they could place tariffs of 10-12.5% on trading partners who failed to impose and enforce bans on goods made with forced labor. The tariffs cover the US’s 60 biggest trade partners, accounting for over 99% of imports — though as we noted yesterday there are myriad exemptions, all of which I’m sure are above board.

The Trump team claims these tariffs come after an investigation into forced labor practices, but considering Trump’s love of tariffs and lack of enforcement of America’s own forced labor policy, no one actually believes that. Unsurprisingly, most of America’s trade partners are peeved at Trump’s latest salvo in his unilateral trade war,1 but some of the loudest critics came from inside the US itself. Conscious of how unpopular Trump’s tariffs are, Democrat-led states are taking their cue from the public and going on offense. A group of more than 20 Democratic attorneys general filed suit against the Trump administration over this latest batch of tariffs, accusing the administration of conducting a sham investigation in order to levy illegal tariffs.

We also await the results of a separate government investigation into unfair trade practices “relating to structural excess capacity and production in manufacturing sectors.” Launched in March, this has the government looking into whether the economic practices of 16 trade partners, including the EU, and China, and Mexico (America’s three largest trade partners), caused the US to adjust its industrial policy to forego manufacturing.2

While it was always expected that Trump would try to rebuild his tariff wall, it is a pleasant surprise that his administration has issued refunds of ~$100bn related money collected stemming from the Liberation Day tariffs deemed unlawful by the Supreme Court. Importantly though, only the ‘importer of record’ can request a refund, which is causing problems for small businesses that do not directly import products but rather rely on other intermediaries. And obviously, none of the companies that have received tariff refunds are passing it on to one who ultimately paid for the tariff via higher prices, the American consumer.

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Industrial policy strategies

In a stark example of how diverging industrial policy is, the war in Iran is waking American auto-companies to the fact that they may have made strategic errors, with consumers currently pursuing hybrid vehicles, mostly from Asian producers. In the meantime, Chinese companies like BYD are racing ahead to design more advanced chips for autonomous driving and are making greater inroads in the European market. At the same time, European carmakers are facing what feels like an existential crisis with industrial titans like Volkswagen and BMW are warning of major job cuts in the not-too-distant future.

While Chinese cars themselves, facing tariffs of 100%, are effectively banned in the US, the Connected Vehicle Security Act, is moving through Congress right now that could eventually see the US ban vehicles that use hardware/software for communications from companies that are more than 15% owned by Chinese entities (or Russian, Iranian, and North Korean…but they are not as prevalent in the global market). Even if passed, the ban on selling vehicles in the US would not begin until 2032 (to give companies time to adjust their supply chains), so companies would have some time to adjust, but this would include cars by Volvo and Mercedes-Benz.

This is all a piece of the US’s general strategy which seems to be, invoke the guise of national security to justify a ban on anything and everything manufactured outside the US that could be considered advanced. This includes inverters (devices that facilitate electricity transmission along the electrical grid)3, and advanced robots (which are generating a ton of excitement in China) while also imposing tariffs on material used in solar panels (+ price floors for US manufacturers, in the hope of cultivating a robust US-based supply chain).

As the chart below details, China dominates the current solar market.

Relatedly, there was an interesting report from the IMF last month that discussed the use of subsidies across China, the US and Europe. While it is accepted that China doles out subsidies to help develop industries, the IMF noted that both the US and Europe do it as well. The difference is that Beijing is more strategic about it than Washington or Brussels, applying a more systemic approach to boost critical industries like clean tech and semiconductors. The US and Europe, on the other hand, have historically been more beholden to political interests and spends subsidies on industries like agriculture.

Whether the US and Europe can more efficiently deploy government support will go a long way toward determining what the world looks like in 20 years.

China continues to dominate global trade

Despite everything going on, China’s trade with the rest of the world remains robust. Monthly imports and exports (in dollar terms) have been growing at well over 20% year-over-year.

The export growth comes from increased global demand for tech products, including chips, lithium batteries and clean tech equipment. China’s import of crude oil increased in July after the price of oil dropped following the initial US-Iran Memorandum of Understanding.

Mexico’s increasing role in the US’s data center build-out

The US’s imports from Mexico have continued to climb, at least in part because Mexico is playing a roll in the US AI data center boom. Mexico is the second-largest provider of hardware for US data centers (behind only Taiwan).

Naturally, part of this stems from Taiwan developing a closer trade relationship with Mexico, a way to gain easier access to the US market with much lower operating costs than building out manufacturing facilities in the US (though companies like TSMC are still heavily investing in the US).

The numbers

Trade in goods with China

June 2026 trade balance (released on Aug 4): -$15,579mn, indicating the US imported more goods from China than exported.

Source: US Census Bureau

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Trade in goods with Mexico

June 2026 trade balance (released on Aug 4): -$21,342mn, indicating the US imported more goods from Mexico than exported.

Source: US Census Bureau

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Trade in goods with Canada

June 2026 trade balance (released on Aug 4): -$6,521mn, indicating the US imported more goods from Canada than exported.

Source: US Census Bureau

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Bitcoin (aka, corruption watch)

Monthly (June 1- Aug 10) return: -12.87% 🔴

2025 return: -6.28% 🔴

2026 YTD return: -26.93% 🔴

Post-election return: -7.88% 🔴

Source: Marketwatch

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It is a day that ends in ‘y,’ so Trump or someone around him is doing something for their financial benefit. Much of the focus has been on crypto and how wealthy individuals are using money to gain access to buy political influence and enrich themselves. At the end of July, there was a lengthy report in the Wall Street Journal detailing how Trump goes above and beyond to get companies and high net worth individuals to donate.

SoftBank donated $50 million toward Trump’s presidential library. Apple cut a check for around $25 million toward his White House ballroom project, while Microsoft gave around $10 million and Amazon chipped in around $5 million, according to people familiar with the contributions. Meta Platforms recently gave $10 million to a Trump-aligned political committee, people familiar said, on top of a multimillion donation to the ballroom and a prior $22 million payment to the planned presidential library.

Trump stands out for taking personal control of the fundraising, and no sitting American president has ever raised these amounts for his pet projects. At the same time, companies have paid new attention to the White House as Trump has gotten involved in regulatory decisions that once were made by independent agencies, dramatically shifting the balance of power across Washington.

Trump has been demanding large checks from companies for a range of political and legacy projects—telling executives and lobbyists that their companies should give $25 million or $50 million. He has sometimes offered donors special access.

No laws prohibit presidents from raising unlimited sums of money for nonprofits, like the ones used for the ballroom and his presidential library, his super PAC or political issue committees. For most of these types of transactions, public disclosure of donors isn’t required and reporting on spending is infrequent.

All told, the second-term president has raised more than $800 million since returning to office, according to an updated Wall Street Journal analysis.

Some of the money is earmarked for specific projects, including the White House ballroom and the Freedom 250 funds for the nation’s birthday celebrations, but Trump has floated using funds in other ways. The president, at the dinner thanking contributors to the ballroom project, said, “We’ll have money left over, and we’ll use that for something…maybe for the arch or something else that will come.”

To this end, it is unsurprising that, as The Washington Post reported, he is using the power of his office to hand out no-bid contracts worth hundreds of millions of dollars to rebuild the East Wing of the White House.

As the WSJ story notes, none of this is illegal, but it is instructive as to what Trump is focused on.

In the meantime, more people are showing up to emergency rooms uninsured, unable to afford coverage after the One Big Beautiful Bill Act — Trump’s signature legislative achievement — slashed funding for Obamacare. Additionally, more than 4.5mn people have lost SNAP food stamp coverage (11% of the previously covered population) because of rule changes made in the OBBBA.

Notably, in strategic sectors like critical minerals, which will be important to the US long after Trump is out of the White House, Trump’s family continues to benefit financially. At the end of June, The New York Times published a long read on an arrangement between the US and Kazakhstan which hands concessions to companies partially owned by Donald Trump Jr. and Eric Trump. In total, there are at least 14 companies working on critical minerals deals with the US government that are associated with the Trumps or Cantor Fitzgerald (the investment firm of Commerce Secretary Howard Lutnick, now run by his kids).

Put it all together, and it’s little wonder there are questions over why, when Trump announced his latest round of tariffs last month, certain products were exempt. Are diamonds a strategically important import for the US economy? Or is it possible that a diamond-encrusted gold ring, gifted to Trump for 250th anniversary by the Antwerp World Diamond Center, was a way to grease the wheels and secure an exemption?

There are a couple of other recent developments that merit consideration.

Personal financial activities

At the end of June, Trump filed his mandatory annual financial disclosure. The information was not surprising1, but the sheer scale of it all was nonetheless stunning.

Trump himself earned over a billion dollars selling cryptocurrencies and other memecoins, including more than $600mn alone from the sale of the $TRUMP memecoin.

The most revealing part was probably the stock transaction section. Trump declared over 22,000 stock trades in 2025, a ridiculous number of transactions for any single person, let alone someone who — as president of the United States — ostensibly has a lot on his plate.2

The latest move takes the cake

Last month, Trump Media & Technology Group (TMTG), the company behind Truth Social, announced a plan to launch Truth API (‘application programming interface’) in order to provide “real-time access to posts from the highest-ranking Truth Social accounts.”

Obviously, there is only one Truth Social account that anyone follows. Trump is constantly using his Truth Social feed to provide updates and announcements on everything from the Iran War and foreign policy to economic news and the government’s investment in certain companies.

This isn’t a product for a retail investor, or even most institutions. Rather, you have these algorithmically driven, high-frequency trading firms that conduct thousands of trades a day. These trading shops seek any advantage they can get on the market, even if it is by mere milliseconds. Knowing what Trump is going to say just before the rest of the market could theoretically be the golden goose.

So for a monthly fee of as much as $100k, high-frequency traders could have access to Trump’s words before the rest of the public. Wall Street has not been too keen on this, conscious of the risk that this might be insider trading.3 After all, the API is offering material information to people who buy the service before the rest of the world has access to the same information! As Bobby Allyn at NPR noted (PTO emphasis added):

So experts told me that is the definition of material nonpublic information, and one executive at a very large Wall Street firm told me, if this was any other administration, this would be considered criminal. And I put that to the Trump media spokesperson, and she said that is absurd.

After the service went live last week, The NYT reported that so far ten customers had signed up for what TMTG advertises as “a direct, licensed, real-time feed of [Truth Social’s] most market-moving Truths.”

Congress also may enact a law that bans social media companies from selling faster service…but I’ll believe this when I see it.

Finally, he isn’t just using the office for monetary benefits…

Last month, The NYT reported on the Trump administration’s decision to cancel Biden-era grants for clean energy projects in October 2025. How did the administration determine which projects to cancel? As the court-filed report reads (PTO emphasis added):

DOE accepts that the inclusion of grants in the October notice tranche was based solely on the political identity of the grant recipient’s state, i.e., whether the recipient’s location and/or place of performance was in a Blue State or a non-Blue State. DOE will not contend that it looked beyond the prime grantee(s) to consider the political identity or geographic distribution of downstream beneficiaries of the grant funds.

In official court documents, the Trump administration plainly stated that it canceled funding for projects “based solely” on the fact that they were located in states that voted for Kamala Harris in 2024. Grants for 284 projects were terminated, 283 of those grants were for states Harris won.

Relatedly, last month Politico reported how Trump overruled administration officials and regional FEMA offices to deny disaster aid for the states of Massachusetts, New Jersey, New York, and Rhode Island. These four Democratic-led states had requested a collective $227mn in aid following the massive snowstorms that hit earlier this year, after which FEMA had gone in and verified the requests were reasonable.

In the past when a state had requested aid and FEMA approved it, sign-off from the White House is perfunctory.

But now, it has been turned into a political weapon.

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Unemployment & labor force participation

Unemployment rate (July 2026, released on Aug 7): 4.1% 🟢

Labor force participation rate (July 2026, released on Aug 7): 61.4% 🔴

Source: St. Louis Fed (x2)

***********************************************************************

On Friday, the US economy was briefly stunned when the Bureau of Labor Statistics announced July numbers. Not only did the BLS report that non-farm US jobs were down 23,000 last month, but the numbers for May and June were also revised down, by a combined 103,000 jobs.1

This was quite a turn from pre-announcement expectations, which, according to Morningstar, were that the economy would add 100,000 jobs and unemployment would stay flat at 4.2%.

It is important to note the breakout of this job gain / loss. Last month, the private sector (led by health care and construction) actually added net 30,000 jobs, but government employment was down 53,000 positions — mainly attributable to the loss of 50,000 public sector education roles, the largest seasonally adjusted drop in July since at least 2015.2

Relatedly, the unemployment rate itself fell slightly (from 4.2% to 4.1%,) the lowest level since last June. In a vacuum, this is good news. However, this drop is largely because the US labor participation rate shrunk to 61.4% — the lowest rate since February 2021. The labor force shrank by 260,000 people last month and overall, 1.4mn workers have left the workforce in 2026 (due to a combination of an aging population and the government’s policy toward immigration).

Small businesses are looking for workers. According to the National Federation of Independent Business, 20% of small business owners plan on creating new jobs in the next three months, with hiring plans at their highest point since October 2022.

The problem though is the labor just isn’t there. 27% of small business owners said “labor quality or availability” was their biggest problem, up 8 pts from June.

Importantly, people in the workforce are not getting wage increases commensurate with inflation. Year-over-Year wage growth, at 3.2%, continued its downward fall and sits below inflation (which is currently 3.5%).

On a more positive note, after a big drop in June there was a slight uptick in participation rate for prime working age adults (currently at 83.4%)…

…though the unemployment rate for recent college graduates is trending in the wrong direction.

What does this mean going forward? Remember, just last week we were discussing higher inflation and how the Fed might need to raise rates to deal with it. But, high inflation and low job growth are a bad combination.

Investors have now flipped on the likelihood of a rate cut.

That being said, inflation has been the name of the economic game since the pandemic, and will likely be the critical factor in determining what the Fed does next month.3

All eyes will be on the latest inflation data, due out Wednesday (Aug 12).

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2

Employment in manufacturing inched up, but is still below 2023-2024 levels (let alone decades prior).

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10-year Treasury yield & 30-year fixed mortgage rate

10-year Treasury yield: 4.63% 🔴

Current 30-year fixed mortgage rate: 6.69% 🔴

Sources: St. Louis Fed and St. Louis Fed

***********************************************************************

Even before the Fed’s decision last week to hold interest rates steady, it had not been a great time for US Treasuries.

While Trump’s war with Iran has precipitated a slow and steady increase in borrowing costs, the idea of debt-fueled spending by governments (despite higher rates) is now seemingly engrained in America’s political economy.

Couple this with investors having more options than ever (the debt issued by Big Tech to finance their data center investments comes complete with high yields), and the bond market is demanding a pretty penny to scoop up Treasuries.

What does this have to do with the Japanese Yen? We’ll get that below…

What happened last week?

On Monday (Aug 3), Japan’s finance minister Katayama Satsuki confirmed that the US and Japan had collaborated to strengthen the weak Japanese Yen (in effect, buying up Yen to boost the value). In her statement, Katayama indicated the two governments would “not hesitate to conduct further joint intervention.”

A bit of background

Twenty-five years ago, the price for $1 fluctuated around ¥110. In the years following the Global Financial Crisis, the USD weakened to the point where $1 = ¥80. Between 2016 and 2020, the price was back to around ¥110.

But then the US was hit with post-pandemic inflation and interest rate hikes. Inflation also came to Japan, after decades of 0% inflation, but the Bank of Japan has been much more reticent to hike interest rates. Even as we sit here today, Japan’s short-term rate set by the BoJ sits at 1%, compared to ~3.63% in the US.

As a nation of small islands, Japan imports a lot of its commodities, most notably energy in the form of LNG and oil.1 Over the past five months, as the price of oil has gone up thanks to the Iran War, this has further stretched the JPY, and the BoJ has not followed by adjusting rates accordingly.

Additionally, Japanese prime minister Takaichi Sanae has an ambitious policy agenda that couples big spending with tax cuts. This fiscal policy means she will probably have to issue more debt, Japan’s Ministry of Finance recently projected that debt servicing costs will account for ~1/3rd of government spending in three years, which would increase borrowing costs and put pressure on the Yen.

Put it all together, and the USD has grown stronger than the JPY, by a lot. Prior to the joint-intervention last week, the exchange rate sat at just under ¥164/$1.

Why now?

The intervention helps stem the recent trend of extreme weakness in East Asian currencies. For a while now, American officials have complained about how East Asian currencies (JPY, Korean Won, Chinese RMB) are undervalued, which gives the countries an advantage in manufacturing trade. An undervalued currency (e.g., ¥160/$1 instead of ¥140/$1) makes Japanese exports cheaper and hands Japanese firms a leg up on the competition.

One explanation from US Treasury secretary Scott Bessent is that the yen is undervalued, and that the US was helping out a friend in a tough spot. Sure, but there is another angle to the story. Interestingly, the US sold Euros from its holding of international reserves to buy JPY, not USD.2

Additionally, the US opened up a repo facility the Bank of Japan can use in the future to temporarily borrow USD. Importantly, this means Japan can fortify its currency by borrowing USD and without selling Treasuries.

In normal circumstances, a government would sell some of its liquid assets in order to finance an acquisition of its local currency. And no asset is more liquid than US Treasuries. And with over $1tn in Treasuries, Japan is one the largest holders of US debt (though still fairly small in the grand scheme of America’s debt burden).

Japanese yields are high (2.8% on 10-year, 4% on 30-year), which has led some Japanese investors to repatriate capital back home. But what if this becomes a wider phenomenon? What if the Bank of Japan rapidly sells down Treasuries and Japanese investors turn more inward? This would put pressure on the US dollar and be a problem for a US which already has spiraling debt and is paying through the nose on the interest.

Will the intervention work?

As Robin Brooks, Chief Economist at Brookings, pointed out, this is the third time in 2026 that the authorities intervened to stymie the fall of the JPY (once in late Jan and again at the end of April). Both times, the Yen strengthened, but only temporarily.

Because of how this played out, some investors are speculating this is a continuation of the US leveraging its geo-economic power to prevent a possible run on the dollar. In this telling, Bessent utilized a less outwardly hostile move to achieve its objective (rather then say, threatening tariffs if Japan sold Treasuries).

One factor that could ease the strain would be a sustainable fall in oil prices, but that would require a true deal in Iran and, well, good luck with that.

But really it all depends on the Bank of Japan. Led by governor Ueda Kazuo, the BoJ held interest rates below 1% far longer than was prudent, wary about the potential downside impact on consumer demand. While the BoJ finally hiked rates to 1% in June, it kept them steady last month…right before the intervention took place.

Now though, this intervention has sent a ‘signaling effect’ that Japan and the BoJ are concerned about the FX rate and that future interest rate hikes are in the offing. The real test will come then next month at the next BoJ meeting (September 16). If the BoJ is committed to defending the JPY, it will raise rates.

One additional note: the carry trade factor

Because Japanese interest rates have been so small in recent years, one of the more en vogue hedge fund bets has been the carry trade. The basic structure goes something like this:

1. Borrow Japanese yen at low interest rates (~1%),

2. Convert the yen into USD (let’s say at ¥150/$1),

3. Invest the USD in US investment (in a standard S&P 500 index),

4. Let the investment appreciate (S&P is up ~12.6% this year),

5. Realize gain and sell the investment,

6. Convert part of investment back into yen (again, at $1/¥150) to pay off loan & interest.

This all works great, assuming the yen is stable. But if the yen suddenly strengthens, it now becomes more expensive to finance the carry trade as investors now have to convert more $$ to pay off their loan and any accrued interest. You may recall that almost exactly two years (Aug 5, 2025), investors had been trying to unwind their carry trades after a strengthening in the yen and the markets took a major tumble, including a 12% fall in the Japanese TOPIX index.

It’s difficult to quantify the size of the carry trade, but after Liberation Day introduced a whole new set of volatility into the equation, the carry trade has undoubtedly become less attractive.

Either way, this whole episode further demonstrates just how interconnected everything is within the global economy. One bump in one corner of the market can ripple across in unexpected ways.

Last, but certainly not least, what did Trump say about the whole thing?

“We have a good relationship with Japan…They have a weakening yen, and they wanted a little bit of help, and we’re always there for Japan. Japan’s been very good to us, with the exception, of course, of Pearl Harbor.”

He always has to get the little dig in.

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Federal Funds rate & inflation

Federal funds rate (Per most recent Federal Open Markets Committee meeting held on July 29): 3.63% 🟡

Consumer Price Index, all items (June 2026, released on July 14): 3.5% 🟢

CPI, less food and energy (June 2026, released on July 14): 2.6% 🟢

Source: Federal Reserve, St. Louis Fed & US Bureau of Labor Statistics

***********************************************************************

Inflation fell in June, at least in part because the Memorandum of Understanding had been agreed between the White House and Tehran and so the Iran war was in a bit of a holding pattern, bringing the price of oil down.1

With this in mind, the Fed met last Wed (July 29) and voted to hold rates steady, though three dissenters voted to raise interest rates (because, despite the fall, inflation remains above the Fed’s target of 2%).

This was more or less the expected outcome (investors had pegged the likelihood of a Fed rate hike at ~30%). But what really drew attention were the comments made by recently appointed Fed Chair Kevin Warsh at the subsequent press conference.

Since Trump originally nominated him as Fed Chair a few months back, Warsh has indicated he would prefer a less interventionist Fed and would no longer offer forward guidance to the markets.

And thus far, Warsh has stuck to the plan.

When he stepped up to the podium, Warsh made it clear the Fed was committed to bringing inflation down to 2%. “Where necessary and appropriate, we will not hesitate to act” to beat back inflation. But he didn’t elaborate on what conditions would elicit a Fed response, nor did he indicate how the Fed would act.

Rather, he focused his remarks on the market moves during the intervening period between Fed meetings. As Warsh explained “market attention centered on real data and real economic development” and “learning to play the ball, not the referee, and market prices will continue to respond in the direction and magnitude they see fit.”

To Fed watchers, Warsh’s implicit message was that markets should take the responsibility of controlling monetary policy from the Fed. Instead of the Fed intervening with monetary policy, Warsh sees it as an independent actor (a “referee”) above the fray that will only step in if absolutely necessary.

Per Goldman Sachs, since the previous Fed meeting in June, the combined effect of a slight increase in long-term bond yields coupled with other moves in the market (including a fall in the S&P) suggested rates had nominally hiked by 33 bps.

So in one sense, you could say markets responded to the conditions on their own without Fed intervention. Sure, but does that mean the Fed shouldn’t be responsible for actually dictating short-term monetary policy? Remember: the Fed sets the overnight lending rate, which most directly impacts short-term rates and then filters into the rest of the economy.

Warsh’s comments left investors and Fed watchers confused, uncertain about what lie ahead. As a result, the yield on short-term Treasuries (those US bonds most sensitive to monetary policy) slipped a bit as investors bet that in the near term interest rates will remain at their current level (even if inflation climbs).

At the same time, this uncertainty spooked bond investors and led to a wider sell-off with long-term rates increasing at their fastest pace since Trump’s Liberation Day tariffs shocked the world in April 2025. The yield on long-dated Treasuries (30-year) increased to its highest level in nearly 20 years.

As Torsten Slok, chief economist at Apollo, noted, it wasn’t so much the decision but rather the explanation (or lack thereof) that caused the bond sell-off.

Putting the fall in short-term yields and hike in long-term yields in perspective, check out the change in the yield curve (the difference in yields between the 30-Year and two-year Treasuries). After having fallen for a couple of weeks, the curve quickly spiked after Warsh’s press conference.

Of course, it shouldn’t be forgotten that Warsh was installed in this role by Donald Trump. Trump’s primary demand since becoming President has been that the Fed lower interest rates, not hike them. Could all of this be smoke and mirrors from Warsh to justify no rate hike and appease his ultimate boss? After all, sometimes the simplest explanation is correct. In comments at the White House after the decision Trump noted, “he’s a brilliant guy. I know he’d love to see lower interest ​rates, but he’s got a board, and it’s a political board, ​and they want to keep rates up. But we fight through ⁠rates.”

Regardless, by not providing a clear road map for how the Fed plans on bringing inflation down to 2%, Warsh has injected uncertainty into the market, priming investors for more volatility. In a vacuum this isn’t horrible, but getting it right in the sweet spot will not be easy. While the argument goes that too little volatility has had investors throwing caution to the wind, too much volatility will make investors cautious.

For the moment, Warsh seems committed to the bit. However, he needs to be careful. The sort of market jolt we saw suggests traders may be concerned about Warsh’s true intentions, and risks the Fed losing credibility. In that respect, it is not too surprising that in the days since this meeting, a number of voters have publicly indicated they would be happy to raise interest rates if inflation does not come back down.

But in keeping with the theme of the Fed taking a step back and providing less insight, Warsh has reportedly been considering reducing the frequency of meetings during which the Fed votes on interest rates. The Fed currently meets eight times / year, but the Banking Act of 1935 (which created the modern Fed) mandates the committee meet “at least four times each year.”

Erin Lockwood, a political economist at UC Irvine, put together a nice chart to note that Warsh shouldn’t get too cute with this though.

Under previous Fed chairs, we were in a ‘yes x yes’ world. Warsh has already changed to a ‘yes x no’ and is suggesting a ‘no x no’ approach in which the Fed turns into a “blackbox”(…not unlike some AI models!).

Interestingly though, traders currently project a Fed rate hike at the next meeting in September.

Is that simply wishful thinking? Warsh is next scheduled to talk later this month at the annual central bankers conference in Jackson Hole. Undoubtedly, investors will be parsing every word for clues as to what Warsh’s plan is going forward.

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Price of gas and US crude production

Average gallon of gas (Aug 5 2026, per AAA): $4.0801 🔴

US crude oil production (May 2026): 13.714mn barrels per day

Source: US Energy Information Administration

***********************************************************************

Five months in, we all know the general playbook for the war.

Step 1: The US and Iran exchange fire somewhere in the Gulf. Perhaps the US bombs an Iranian asset or Iran sends a missile at military base or an American ally’s oil/natural gas production facilities.

Step 2: In response, Trump ‘truths’ that he is going to bomb Iran back into the Stone Age. Importantly: always late on Friday or over the weekend when markets are idle.

Step 3: Before the weekend is over, Trump announces a pause in hostilities, promising a deal to reopen the Strait of Hormuz is imminent (per the FT, this has happened over a dozen times), a claim Iran either ignores or says Trump is making up.

Step 4: Markets open on Monday and operate as if none of this happened.

Currently, as per The New York Times:

Negotiations to reopen the Strait of Hormuz are making progress, American and Qatari officials said Tuesday, but a deal with Iran has yet to be announced that could pave the way to reviving a broader cease-fire with the United States.

Secretary of State Marco Rubio said there had been “progress in talks, but not finality yet.” Iran blockaded the Strait of Hormuz — a critical conduit for global oil and gas shipping — after the U.S.-Israeli assault began in late February, causing widespread economic shock.

In other words, not much has changed. There is talk of an Iran-Oman deal to reopen the Strait, with ships possibly being charged ‘service fees’ for safe passage, but nothing is definitive.

The fluctuations in the oil market

In mid-June, Trump and Iran reached a ‘Memorandum of Understanding’ that included a 60-day pause in fighting to allow for negotiations to take place. The price of oil immediately fell on the promise of ‘negotiations’ that could open the Strait.

But in mid-July the price reversed when it appeared war was spreading again. But then Trump declared another round of negotiations were ongoing and the price of crude has fallen in recent days because…traders are optimistic this time is different??

While some ships had been getting out of the Strait, we are still well-below pre-war levels (important to remember there may or may not be mines strewn across the Strait that, even if all parties came to an agreement, will slow passage).

And that’s before we even get to the possibility of a second-front in the war causing a whole new bucket of issues!

The Bab al-Mandab. The Houthis in Yemen, ostensible Iranian allies, stayed fairly quiet during the first few months of war before the MoU was signed. But things picked up in July, the Houthis attacking Saudi tankers and energy infrastructure close to the Bab al-Mandab Strait.

The Saudis, who typically export most of their oil through the Strait of Hormuz, had taken to using an East-west pipeline to divert millions of barrels toward the Red Sea to then transit through the Bab al-Mandab and out into the Indian Ocean.

But if the Houthis actively block the Bab al-Mandab, Saudi shipments would collapse. Sure, they could go north through the Suez Canal (though the Suez is shallower and can’t handle the same quantity of oil), but doing so extends the time it takes for a tanker to get to Asia by more than a month.

As it stands, Iran wants to charge fees for use of the Strait (a strategy the Houthis might like to try at the Bab el-Mandab). All the IRGC or Houthis need to do is send a missile every few days, a little reminder that it is still there, to cause ships to think twice about making the journey.

Make no mistake about it…

The price of oil might not have changed much but global oil markets are in a much more precariou state than back in late February when this whole thing kicked off.

The 🛢️ buffers have been used.

Around the world, governments tapped into their stockpile of crude and other products to ease the strain caused by the loss of oil coming from the Strait. Acting as a supplier of last resort to prevent prices at the pump from spiraling out of control, the US Strategic Petroleum Reserve, America’s oil reserve, has done its job.

But after using around 100mn barrels in five months, the US SPR is now down to a little over 300mn. Sounds like a lot, but industry analysts note the SPR requires ~200mn barrels to prevent damaging the infrastructure and disrupting the pipeline. In other words, the US has a lot less useable reserves.

Overall, rather than drawdown their reserves, countries need to replenish their stockpiles, an action that will undoubtedly stoke demand potentially increase prices. Additionally, US refineries have already been operating at capacity and prices at the pump remain elevated.

There comes a point when this excess inventory of oil is used up, and it appears we are inching closer to that cliffs-edge.

China’s 🇨🇳 role.

Like the rest of the world, China has reduced its import of crude oil in response to closure of the Strait. Imports fell ~1.3mn barrels/day in April and another 820k in May (taking a total pre-war flow of ~11.5mn b/d down to ~9mn b/d). In May, it began drawing on its massive oil reserve (which held over 1bn barrels).

After the MoU went into effect (and prices fell) Beijing upped its purchases from Gulf producers.

Russia 🇷🇺 ain’t pumping like it used to.

In a bid to hit the Kremlin where it hurts, Ukraine has targeted Russia’s energy infrastructure including the ten largest refineries. Last month, with Russian refineries able to process less crude than usual, Moscow banned diesel exports.

In a sign of how strained the Russian economy is, last week the Kremlin extended this ban through at least the end of January 2027. The loss of Russian diesel will likely be felt across markets.

Jet 🛩️ fuel.

Since rapidly surging when the war broke out, the price of jet fuel had slowly been coming down (at least partially because refineries across Europe pivoted operations to focus on it). That changed in July, and the price of jet fuel is now around 76% more expensive than it was a year ago at this time.

Europe’s 🇪🇺 natural gas levels.

Europe has been competing with Asia in the natural gas market, and natural gas is now at it is highest price point since the war began.

Europe typically uses the summer months to buy gas to use during the winter months. But more expensive gas right now, coupled with low storage levels, could be a problem later this year / early next.

Other ramifications

Back when the war seemed over in June, there was this idea floating in the ether that since the price at the pump was back down, the war didn’t cost much.

That sort of talk is for the birds.

Beyond populations around the world spending billions on energy, and the knock-on effect caused by shortages to fertilizer and other minerals, there are two points that bare mentioning.

No more precision ⚔️ missiles.

• According to CNN, the US has exhausted 80% of its interceptors used for missile defense.

• Reuters reports the US has used “virtually all” of its stockpile of long-range precision missiles

• An assessment published on July 27 by CSIS estimates the US used over 60% of its Patriot missiles and half of its THAAD interceptors during the first five months of fighting.

  

But much more importantly…

Thousands of people have died, and millions have been impacted by the energy shortages caused by this war.

In all the reporting and talk around this pointless, ill-conceived war, this fact always seems to get lost.

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Financial markets

S&P 500

Monthly (June 1- Aug 3) return: 0.27% 🟢

2025 return: 16.39% 🟢

2026 YTD return: 11.03% 🟢

Post-election return: 31.43% 🟢

Data source for all charts herein: Marketwatch

***********************************************************************

Despite a tough June, US markets ended the first half of 2026 on a relative high. Even through the famed Magnificent Seven tech stocks lost over $2.2bn in market value in June, Q2’26 was the best quarter for the blue chip S&P 500 and the tech-heavy NASDAQ since Q2’20 when stocks were recovering from the initial pandemic blues.

Things were a bit more touch and and go in July, when a lot of companies reported earnings for Q2. We’ll touch on some of these developments below but broadly speaking, American companies are doing pretty well at the moment. Indeed, per a Financial Times analysis of data from FactSet, close to 90% of the companies listed on the S&P 500 have beat their earnings forecasts. And, despite the headwinds of the Iran War, companies are growing at the fastest rate since 2021.

Part of this is run-off from the boom in AI-related capital expenditure. One example of this is banks, have capitalized on this moment to finance the investment drive and are seeing revenue soar.

Big Oil has also done well, thanks to surging gas prices caused by the war. Even Trump seems conscious of how this looks though, telling reporters on Monday, “They’re making too much money based on a shortage…I don’t like it.”

But despite this widespread profitability, investors showed signs of trepidation, largely due to the AI-trade.

There are a few issues coming to a head here. Is AI increasing workplace productivity? It’s probably too early to tell, though displacing incumbent technologies and processes is tricky. More importantly, right now the dominant issue is the cost of using these models. It is getting more expensive to deploy AI models built by the US firms (e.g., Open AI’s ChatGPT, Anthropic’s Claude). With costs per token climbing, some businesses are asking employees to scale back their use of AI, prioritizing value-add rather than simply ‘using AI for the sake of it.’

Consequentially, Chinese AI firms have been releasing new models (Moonshot’s Kimi K3, released in mid-July, being the latest to capture the spotlight). These models might not be as good as the best available Claude or ChatGPT models, but they are inching ever closer AND cost a lot less to use.1

Think of OpenAI and Anthropic like Uber, Netflix, or any other recent tech innovation. The product was originally offered to the consumer at a relative discount, an effort to gin up interest and accrue market share. During this phase, the company or its backers eat the cost with the understanding that this is all an investment toward long-term sustainable success. Once they have enough penetration and visibility in the market, shareholders start demanding the company turn a profit, and the price goes up.

For a company like Uber, with few alternatives, or Netflix that has ‘become TV,’ they can more or less get away with it. But if there are a dozen different AI models that all perform within relative parity of each other, you are going to use the one that costs less. AI models just become another commodity.

The commoditization of AI models might be good for the user, but would be bad news for the more expensive versions, which are under pressure to start monetizing all of their vast capital outlays from the past few quarters. And for investors in the US markets, that means the Big Tech firms.

The hyperscalers (Alphabet, Amazon, Meta, and Microsoft (+ Oracle)) have already spent over a trillion dollars on data centers in recent years.2 And with all of this spend, coupled with the recent announcements about Chinese models doing well, investors have been getting a wee-bit nervous. They want to see some return on investment in the form of revenue (preferably profit, of course). Investors saw some of that in Q2 earnings, with cloud-based revenue from Microsoft (Azure) and Amazon (Amazon Web Services) soaring.

But notably, the hyperscalers’ remaining performance obligation from customers (the revenue they expect to earn from contracts with customers) is currently over $2tn, mostly from OpenAI and Anthropic. If these two AI models don’t have the customer base, they won’t be able to generate the revenue to funnel back to the hyperscalers.

Of course, the same accusation about profitability could just as easily be lobbed at the Chinese firms, which are also not yet profitable. But will the CCP care as much about profitability as shareholders in Alphabet and Amazon?

Some misc. market musings:

AI hyperscalers (the Big Tech firms that have invested heavily in the AI boom)

Alphabet (aka Google) (YTD ⬆️ 19%) stands as the best performing hyperscaler of the moment, at least in part because it is more easily able to monetize its AI through embedding in Google search, but it skid last month when the company announced it had negative free cash flow in Q2 (-$5.9bn). Free cash flow (FCF) is a metric used to show how much cash a company has after expenses and capital expenditures. Last quarter marked the first time Alphabet’s FCF turned negative, a clear sign its AI-heavy spending is weighing on the business.

AI adjacents (tech firms whose fortunes are directly tied to AI):

TSMC (YTD ⬆️ 27%), after it announced a 77% increase in profits, said it would invest an additional $100bn in the US to expand chip production.

Nvidia (YTD ⬆️ 11%) meanwhile continues to enter into contracts that make investors nervous about possible circular financing arrangements. The latest came last month when the GPU chip company announced it was signing contracts worth up to $50bn at a data center in Texas, which operates with hundreds of thousands of Nvidia’s chips, to lease space to customers.

Memory chip makers (companies that supply DRAM memory chips essential to the tech build-out)

Just how ridiculous has their year been?

For the most recent quarterly earnings, fellow US firm Micron (YTD ⬆️ 191%) reported revenue of $41.5bn and net income of $28.2bn…compared to $9.3bn and $1.9bn, respectively, in the same period in 2025. Micron’s quarterly profit increased year-over-year by close to 15x! At one point in the last week of June, Micron’s share price was up over 300% in 2026.

It has not been all sunshine and rainbows though. Like the hyperscalers and AI-adjacents, the memory chip firms suffered in July over fears that the AI hype might be growing too hot.

Memory chip makers are also dealing with a more quotidian fear: supply shortages! Similar to other commodities, memory chips are known for going through boom-bust cycles. Recent reports suggest we’ll be short memory chips through at least the end of 2027.

To head this off, in June the two Korean giants (Samsung (YTD ⬆️ 99.75%) and SK Hynix (YTD ⬆️ 141%)) announced, in conjunction with the Korean government, plans to invest $600bn in additional chipmaking plants, but these will take years before they are operational. These plans will do little to address the current strains on supply, and might ultimately lead to future years of oversupply as demand slows. The oversupply/undersupply cycle will continue.

While it is clear that as the hyperscalers invest more in data centers we are in the midst of a massive run on chips, this is having a knock-on effect downstream. Consumer products that need memory chips are getting boxed out and companies (when they can get the chips) are forced to pay higher prices which feeds into the price charged to the consumer.

Case in point: Apple announced in June that it would increase the price of MacBooks and iPads by 20% to compensate for the rise in memory cost. The shortage in available DRAM memory chips has led Apple to explore linking up with China’s CXMT, much to the dismay of the Trump administration.

CXMT, China’s main producer of DRAM memory chips, went public last Monday (July 27) in Shanghai, and the market went rabid, surging over 400% in the company’s first day of trading (at one point, the company’s price-to-earnings ratio was over 1,600).

If these Korean firms lose market share and their pricing leverage to China’s CXMT, they could be stuck. It might not be an immediate problem, CXMT can’t produce at the same scale or quality as these firms (or Micron) yet, but history tells us that it may only be a matter of time before the Chinese firm catches up to the incumbent.

International markets (comparing the US’s performance to other global indices)

Korean 🇰🇷 Kopsi: Together, Samsung and SK Hynix, Korea’s two memory chip giants, represent over 50% of the market cap! And if you the fluctuations in US markets give you heart palpitations, the Korean Kopsi will give you a heart attack. Because the Korean market is dictated largely by investor sentiment in these two companies, investors spent June and July whipsawing through a series of ups-downs, which left some retail investors in Korea spooked.

Precious metals (gold and silver)

On the back of expectations for more persistent inflation, higher interest rates, and a stronger dollar (which gold is priced in), the precious medal has struggled since the war began. Indeed, Q2’26 was gold’s worst performing quarter in over a decade! It recovered a bit in July, but is still in the red for the year (and well below the S&P).

SpaceX (Elon Musk’s space exploration company that went public in June)

After starting out like a rocket ship headed straight for the moon, Musk’s loss-making space conglomerate has plunged back to the Earth in a major way (down 46% from its high on June 16).

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Commentary: As we have discussed, Vietnam needs both the US and China for its economic development to continue apace. Could (or perhaps, should) Vietnam source from outside of China or cultivate markets outside of the US? Sure. But that would disrupt the ongoing economic situation and potentially cause problems for To Lam and the VCP.

In the past few years we looked at various Gen Z-led protest movements that took place in 2024/25 in Bangladesh, Nepal, and Indonesia over the lack of economic opportunities. Last month, there was a similar Gen Z-led movement in India broke out which forced Indian prime minister Narendra Modi to fire a long-time government official.

Vietnam is a one-party state that has enjoyed a few decades of sustained growth. But with a history of corruption and the suppression of the press and activists, something akin to what happened in India happening in Vietnam can’t be ruled out — especially if the economy begins to falter.

To Lam: Vietnam’s powerful strongman

In April, Vietnam’s legislature (the National Assembly) unanimously confirmed To Lam to a five-year term as the nation’s president.

In and of itself, this might not mean all that much. But then you realize Lam is also the General-Secretary, a position he has held since August 2024, of the ruling Communist Party of Vietnam (VCP), the lone party in one-state Vietnam, and his current turn as president takes on additional weight.

As both the head of state and the general-secretary of the VCP, Lam holds two of the four ‘pillar’ positions in Vietnam’s governing Politburo.1 In a system designed to reduce the concentration of power and govern by consensus, To Lam is the first person to concurrently hold both positions. Effectively, he is the most power Vietnamese leader in decades.

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Blazing Furnace

Stepping back a few years, throughout the 2010s Vietnam was guided by Nguyen Phu Trong. Chief of the VCP for over a decade, Trong (68 when first elected general-secretary) set Vietnam on a stronger economic trajectory while popularizing the concept of bamboo diplomacy to work between the US and China. Domestically, Trong led a widespread crackdown on corruption, coined ‘blazing furnace,’ in which tens of thousands of people were investigated (in 2023 alone, over 24,000 people faced corruption-related charges).

The man tasked to lead Trong’s anti-corruption crackdown was the head of the Ministry of Public Security from 2016-2024: To Lam.

Blazing furnace had some success rooting out problems, but whether or not this campaign had the intended effect of removing corruption from the system though remains an open question — especially when you consider it consolidated more power into Trong’s hands and away from the wider Politburo and Communist Party apparatus. Vietnam is still perceived as a relatively corrupt place (Transparency International rates it 81st out of 182 nations).

Troublingly, rights groups note that in recent times the government has increasingly suppressed political speech and imprisoned activists. Reporters Without Borders currently rates Vietnam 174th out of 180 countries with regards to press freedom arguing the media is wholly state-captured (i.e. completely controlled by the VCP).

Lam takes charge

In March 2024, then-president Vo Van Thuong, who had only been in the job for a year, resigned because of corruption links (becoming the second president forced out in 14 months). A few months later in May, To Lam was named Thoung’s replacement. At the time Lam was still leading Vietnam’s anti-corruption force (including pushing out party rivals who might have challenged him for power), though notably he himself did not exactly have a squeaky-clean image.

Back in 2021, Lam drew a wave of criticism after he was filmed eating a gold-plated steak grilled by the celebrity chef Salt Bae. A little over a year after this incident, a Vietnamese activist was thrown in prison for creating a video in which he impersonates the chef, ostensibly as a way to mock To Lam.2 It might have been an embarrassing moment for Lam, but it did little to stymie is rise up the chain.

A few months later (July 2024) Trong, the most powerful Vietnamese leader in decades, died without a clear succession plan in place.3 This left a void an opportunistic politician such as To Lam could exploit. At the time, he was named the leader of the Communist Party though this was thought to be a temporary arrangement.

But instead Lam spent the next 18 months consolidating power and introducing initiatives in government designed to strengthen Vietnam’s place in the global economy (e.g., prioritizing tech and globalization, encouraging private investment).

Economic growth prospects

While the anti-corruption campaign might have rooted out some of the endemic problem, it had the unintended impact of making government officials hesitant about signing off on long-term projects, actively looking to avoid the risk and responsibility that came with decision-making over worries one wrong move might bounce-back on them. This limited Vietnam’s ability to maneuver domestically, though there are signs ministers who enjoy Lam’s backing are taking more chances at boosting economic growth (e.g., approving more projects).

As we have discussed, Vietnam relies heavily on FDI to sustain its growth, over half of Vietnam’s workers are employed in export industries. But economists worry that Vietnam relies too much on FDI, crowding out domestic innovation and small businesses. A World Bank report from May found that foreign-invested and global value chain-linked firms accounted for 73% of all exports. In the meantime, only 17% of small and informal companies that make up 98% of businesses actually export abroad.

Similarly, an OECD report from June details just how concentrated this has become.

Foreign multinational enterprises have played an outsized role in Viet Nam’s development. Although foreign firms represented less than 3% of formal enterprises between 2006 and 2023, they generated 27% of total revenues, 34% of wages and 29% formal employment, and accounted for 78% of manufacturing revenues and over 90% of manufacturing employment in 2023.

With so much of the economy tied to import/export, Vietnam is increasingly reliant on the whims of the big powers (e.g., Xi, Trump) who do not have the Vietnamese people’s best interests at heart.4

In recent years Vietnam has enjoyed a demographic dividend, with a large population of people in their prime-working-age, but that isn’t going to last forever. The population is quickly aging and there is a risk Vietnam gets old before it gets rich.

Put it all together, there are some concerns Vietnam might hit the middle-income trap. This entails a country which, after an extended period of sustained growth, reaches a point where it is caught betwixt and between the rich, advanced tech countries and poor, goods-producing countries with lower costs. Vietnam has taken advantage of its proximity to China and friendship with the US to rise up the economic league table, but for all the reasons noted above, it could be tougher sledding ahead.

Regardless, the government has consistently touted its goal of 10% annual growth, on the path to reaching ‘high-income’ status by 2045, even with the challenges presented by the Iran War.

And now that Lam has effective control, the bucks stops with him when it comes to Vietnam’s continued progress.

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Part of the problem is Vietnam (like most of ASEAN) has been getting swamped with Chinese goods exports, which has curtailed intra-ASEAN trade.

Summary commentary: Last April, Trump imposed his Liberation Day tariffs on the world, including handing Vietnam a rate of 46%, one of the highest for any trading partner.

While the Vietnamese government may have been tempted to throw its hands in the air, exasperated at the inexplicable nature of the charade, it understood how important the US market was to Vietnam’s continued growth and immediately began negotiating with the Trump team. This paid off a few months later when Vietnam became one of the first to secure a trade framework (20% on exports + 40% for trans-shipped goods), which quickly drew the ire of Beijing.

As discussed in our previous post, Vietnam sits betwixt and between the production behemoth of China and the consumer market monster that is the United States. While other countries economies have started to play in Vietnam’s sandbox, most notably South Korea, Hanoi’s economic prospects are largely tied to the two global superpowers.

So at the same time, shortly after Trump unleashed his Liberation Day tariffs, Vietnam welcomed a visit from China’s president Xi Jinping. In addition to signing dozens of cooperation agreements on topics ranging from technology to sports & culture, Xi emphasized the importance of working hand-in-hand to fight “unilateralism and bullying practices,” code for Trump’s tariff policies.

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Vietnam’s overarching foreign policy approach: bamboo diplomacy

Popularized by the powerful Nguyen Phu Trong, the general-secretary of the Communist Party of Vietnam (VCP) in the 2010s/early 2020s, bamboo diplomacy is the idea of having strong roots (core interests and principles), but flexible branches (pragmatic with the tactics and strategy used to achieve its goals). In the real world, Hanoi is committed to furthering economic growth and maintaining peaceful relations (the strong roots), and does what it must to stay in the good graces of Trump and Xi without antagonizing either side (the flexible branches).

Playing to Trump’s transactional nature: Even before Trump returned to office, in January 2025 a ‘Friends of Vietnam Summit’ took place at Mar-a-Lago, ostensibly designed to strengthen ties with Trump associates. At the time, the Vietnamese airline Vietjet agreed to spend billions on Boeing jets. This transaction did little to prevent Trump from unleashing his Liberation Day tariffs on Vietnam, but that almost certainly has more to do with Trump’s animus toward trade deficits and love of tariffs than it does Vietnam.

More recently, a local Vietnamese developer began work with the Trump Organization on an assortment of Vietnam-based projects, including hotels, golf courses, and real estate, worth billions of dollars. As part of this work, the Trump Organization has applied for five new trademarks in Vietnam. Meanwhile, a local government in Vietnam paid out ~$2mn last fall to move 145 families off the land where the Trump Organization projects are projected to be built (the first in a series of moves projected to impact over 4,000 homes).

Tech collaborations: Going against the advice of the US and EU, Hanoi awarded Chinese companies Huawei and ZTE contracts for 5G connectivity inside Vietnam. But in a clear sign of pragmatic realism, Hanoi is also working with the American firm Qualcomm on 5G and is an early partner in the company’s roll-out of 6G.

Global connections: Vietnam has worked closely with China on transportation infrastructure (e.g., high-speed rail network), announcing last year during Xi’s visit that the two would expedite the process of completing a group of China-Vietnam railways linking China’s landlocked southwest to the major Vietnamese port city of Haiphong.

For the US, Vietnam has also offered tax breaks to incentivize investment from American tech firms like Cadence, Marvell, and Synopsys to support processes like chip design and assembly, test, and packaging in Vietnam, diversifying the all-important AI supply chain.

Leader-to-leader interactions: In February To Lam, the General-Secretary of the VCP, attended the inaugural meeting of Trump’s Board of Peace (one of only three ASEAN members to join the group).

And then in April shortly after Lam was also officially named president, his first trip in his new role was to China where he met with Xi.

Bamboo diplomacy goes beyond working with the US and China

While China may be essential to Vietnam economically, people in Vietnam worry about Beijing militarily. And there are clearly questions over whether Trump would intervene in the region should something pop off (tariffs probably aren’t endearing him to the public either). According to a recent poll of ASEAN elite (academics, civil servants, government officials), two of the biggest geopolitical risks facing Vietnam are aggression in the South China Sea and US leadership under Trump.1

Vietnam’s defense policy is designed around the ‘Four Nos’: no military alliances, no bilateral alignment against another country, no foreign military bases on Vietnamese territory, and no use or threat of force in international relations. In lieu of firm commitments, Hanoi prefers flexibility, to work across alliances without playing favorites (similar to how it manages the US/China dynamic).

To this point, Vietnam is a staunch advocate of international coalitions, building consensus within groups. Hanoi is an active participant across an alphabet-soup of multilateral institutions (most importantly ASEAN, which it joined in 1995, and the UN) and has some form of strategic partnership with each of the major economic powers (US, China, EU).

This approach has allowed Vietnam to

• Develop closer defense ties with India, especially in defense.

• Upgrade defense ties with the Philippines.

• Strengthen ties with Japan.2 When Japanese prime minister Takaichi Sanae visited in May, the two nations exchanged six cooperation agreements on topics ranging from climate adaptation to AI to space exploration.

• Work closely with fellow ASEAN members on maritime security, espe3cially when it comes to ensuring freedom of movement across waters critical to international supply chains.

• Spearhead a years-long effort to strengthen the international regime against cybercrime. This process culminated in a Hanoi-hosted forum in December 2024 during which 72 countries signed a UN treaty on global cooperation to create a ‘safe, trustworthy and humane cyberspace.’

• In a clear sign of realpolitik, in the past few years Vietnam has bought weapons and defense systems from Russia, circumventing sanctions in the process.

  • At least one Vietnamese firm was sanctioned in December 2022, ostensibly for working with Russia in the war with Ukraine.

  • When Putin visited Vietnam in June 2024, his first official trip since November 20134, he brought along the head of Rosoboronexport, the Kremlin’s defense export company.

  • Last year, a Russian delegation attended 80th anniversary celebrations of Vietnam’s August Revolution and National Day in Hanoi.

From the outside, Hanoi is clearly working to form a coalition of friendly neighbors, preparing for a day when China possibly makes a move and the US does not act.

One final note

Over the years, China has constructed artificial islands in the South China Sea, just beyond Vietnam’s exclusive economic zone, ostensibly claiming international territory as its own. To counter this, Vietnam has embarked on its own island-building initiative nearby in the Spratly Islands.

In July 2016, a tribunal ruled for the Philippines in a case against China’s claim in the South China Sea. On the tenth anniversary earlier this month, the US, along with a group of like-minded allies (including, Australia, Canada, Japan, and the Philippines), released a statement commemorating this decision, reaffirming their ‘commitment to maintaining a free and open Indo-Pacific.’

In keeping with it’s four nos policy, Vietnam did not join this group. That being said, that same day Vietnam’s foreign ministry responded to a reporter’s comment by saying international law should be respected and Vietnam supported “the settlement of disputes concerning the interpretation or application” of the UN Convention on the Law of the Sea and said Hanoi was committed to resolving maritime disputes in a peaceful manner.

Vietnam aligned with the US-led statement, but, just like how it navigates the rest of its foreign policy, did so in its own individual manner.

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This same group was asked which country (the US or China) they would choose to align with if forced. The overall results in ASEAN were fairly close, 52% for China 48% for the US, essentially a flip from last year. But Vietnam’s result was a lot more interesting.

59% of Vietnamese — nearly 3 out of every 5 — preferred the US over China. Fairly strong toward the US, but a stark fall from last year when nearly 74% preferred the US.

Summary commentary: Vietnam has a growing economy dependent on the global markets (exports make up 88% of Vietnam’s GDP).

However, most of the materials that go into the production of exports Vietnam imports from China. At the same time, the US is the main export market for Vietnam’s goods.

Quite simply, Hanoi cannot afford to antagonize or get on the wrong-side of Beijing or Washington.

In this era of great power competition, that is quite the pickle!

Vietnam sits between two geopolitical titans

Over the course of a few short months in 2023, the leaders of the two most powerful countries in the world demonstrated the critical role this nation of 102mn plays in the global order.

After attending the G20 summit in India in September, US president Joe Biden made just one stop on his return to Washington: Vietnam. During a bilateral meeting in Hanoi, the US and Vietnam upgraded their relationship to a “comprehensive strategic partnership,” Vietnam’s highest form of bilateral ties previously reserved for just China, India, Russia, and South Korea.

Then in December, Chinese president Xi Jinping, embarking on only his fourth international trip of the year, made the short trek to Hanoi where he was feted with a formal state visit. During Xi’s visit, Vietnam became the 8th Association of Southeast Asian Nations (ASEAN) member to join China’s ‘community with a shared future,’ deepening this bilateral relationship.1

But it isn’t just that the US and China care about Vietnam. Hanoi can’t afford to lose either great power.

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A bit of history (abbreviated version)…

It wasn’t too long ago that Vietnam was emerging badly bruised from major domestic upheaval. In the years following the north-south civil war (the Vietnam War), the Vietnam Communist Party (VCP)-led government followed the lead of similar communist countries (Stalin-era Soviet Union and Mao-era China) and oriented the economy around agriculture and farming collectives. The results though, just like in Stalin’s USSR and Mao’s China, were a disaster. Throughout the 1980s, Vietnam was one of the poorest country in the world.

In 1986, after a fairly remarkable bit of self-reflection, Vietnam implemented Doi Moi (‘renovation’ or ‘renewal’) reforms. A complete 180 from the failed policies of the past, the government initiated a series of market reforms to transition away from the Soviet-style, centralized, agrarian economy toward a more open model focused on manufacturing and trade.

Signaling to the rest of the world Vietnam was open for business Hanoi embraced free trade, invited foreign investment (including offering corporate tax holidays for many international corporations), established rule of law measures to make investment worthwhile, and reduced import tariffs.2 The results speak for themselves. Since implementing Doi Moi reforms, Vietnam’s export-led economy has taken off.

In 2025 Vietnam exported $473bn worth of goods, making it the 18th largest exporter by value in the world (seventh largest in Asia). And while Vietnam’s export economy may have begun as one focused on simple manufacturing like clothing and textiles, it has moved well beyond that. Over $200bn of Vietnam’s exports last year were electronics, machinery, and telecom-related compared to just $65bn of textiles, garments, and footwear.

This is consistent with evidence collected by the World Bank indicating Vietnam has become a critical cog in global technology supply chains.

Indeed, Vietnam has quickly become an important component for the AI economy.3 On the back of demand for data center hardware and equipment, Vietnam’s AI-related exports have risen from 20% of GDP in 2023 to 32% last year.

So, despite spending years as one of the poorest nations on the planet, Vietnam has quickly grown at a pace faster than its peers...

…and lifted tens of millions out of extreme poverty.

On a per capita basis, Vietnam is still not as wealthy as most of its neighbors, but it is still quite the turnaround from where the country was 40 years ago.

The important role globalization has played in Vietnam

One of the critical factors that has helped Vietnam grow has been foreign direct investment (FDI), particularly in the past decade. Over the past few years, companies have committed billions of FDI into Vietnam. Even with the outbreak of the Iran War at the end of Feb, FDI increased in Q1’26 from Q1’25.

You may not remember now but back in 2018/19, Trump imposed tariffs on Chinese goods. And once Biden came in, his White House was not shy about maintaining pressure on Chinese products (though in a much softer voice).

As we all know, companies are forced to adjust their operations or pay tariffs. In response to the Trump 1.0 tariffs on China, many chose to relocate. And, attracted by Vietnam’s low-cost environment and its proximity to China (the two share a 1,300km-long land border), companies relocated production here as part of the so-called ‘China plus one’ strategy to ‘de-risk’ supply chains.

The result has been that, virtually across the board of products, America’s imports from Vietnam have compensated for the decline in imports from China. Overall, ~30% of Vietnam’s exports go to the United States, it’s largest export market by far.

But while American companies like Apple and Coca-Cola transitioned portions of their supply chains from China to Vietnam, this has primarily been an East Asia story.

And you’ll never guess which East Asian country has taken the most advantage of Vietnam as a manufacturing hub…China!

While Korea and Japan both have a larger presence historically and overall, China’s growth in recent years has been remarkable.

Last year, China was the second largest investor in Vietnam ($3.6bn) and has invested close to $20bn in greenfield (new) investments since 2018 (South Korea is the overall FDI champion since 2010). Meanwhile, the US has invested less than $5bn in greenfield investment.

So with this knowledge, it is probably unsurprising that Vietnam’s industrial manufacturing sector relies heavily on raw material imports from China.

Overall, Vietnam gets around 40% of its imports from China, making it far and a way Hanoi’s biggest supplier.4 The numbers from 2025 sum up the situation for Vietnam well: a massive surplus with the US, and a massive deficit with the Chinese.

This presents a dilemma for Hanoi. Beijing is investing heavily in Vietnam, and companies get much of their supplies from China. Eliminating this without having alternative suppliers would be brutal for the Vietnamese economy. At the same time, the US is the main export market and Hanoi can’t afford to go without this end-market.

So, how is Vietnam navigating this potential issue? It’s all about bamboo diplomacy. We’ll talk about this tomorrow.

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What adds to the intrigue is which companies are actually importing/exporting.

In the chart on the left, you can see that 44% of the exports from newer Chinese firms are going to the US, a much higher percentage than older Chinese firms or non-Chinese FDI firms (e.g., Korean, Japanese companies) in Vietnam. Meanwhile in the chart on the right, the new Chinese firms are getting 70% of their imports from China, far more than the non-Chinese FDI firms in Vietnam are getting.

Summary commentary: The UAE has been making big commitments in Africa, but it is artificial intelligence where the Emiratis are really putting up the cash. Thanks to Abu Dhabi’s recent decision to leave OPEC, the Emiratis could have more cash than ever to splash on energy and infrastructure.

And since the government is more monarchical than democratically-elected, the political leadership is not as threatened by a large-scale data center backlash as politicians across the US.

That is, if the ongoing war in Iran does not destroy the UAE’s historical position as a totem of globalization.

Establishing an economic presence in Africa

One of the major providers of foreign direct investment into Africa

In conjunction with the military power plays previously discussed, the UAE is staking a claim to economic opportunities in Africa. Between 2022 and 2023 alone, the Emirates pledged nearly $100bn of greenfield (i.e. new) investments, substantially more than China or the US invested in the continent during the same period.

While the chart above is just ‘announced’ funds and not yet real investment, a recent report found that between 2012 and 2022, the UAE did invest over $59bn in Africa, making it the fourth largest investor in Africa (behind China, the EU, and the US).

And investment is just the start of the relationship. The UAE has signed economic cooperation agreements with a countries like Ethiopia and the DRC to diversify trade. Bilateral trade with the continent has steadily grown to ~$100bn, a stark shift from the start of the century when there was hardly any trade between the two parties.

Much of this new investment is being directed toward renewable energy, either the infrastructure itself (like wind farms and battery systems) or the underlying critical minerals necessary to produce the component parts.

Meanwhile, Emirati logistics and trading firms like DP World and ADP Ports are securing access to more ports situated along the African coastline to help streamline trade, remove chokepoints / reliance on third parties, and establish a presence that can be difficult to dislodge.1

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But of course, this strategy of Emirati investment is not confined to Africa.

The UAE upset the apple cart this year when it announced in April it was leaving OPEC, the oil cartel that has used production quotas to control oil prices. The UAE’s reasons for doing so are both geopolitical and economic.

Geopolitically this decision is of a piece with their long gestating rivalry with the Saudis, the de facto head of OPEC. Economically, the world is moving toward a clean-tech future and the Emiratis don’t want to get stuck holding stranded assets with little value. From this perspective, better to drill now — without any mandated quota constraining output — and try to make as much money as possible while fossil fuels still undergird the global economy.

Thus far, the Emiratis have been partially vindicated in their approach. Despite the ongoing war in Iran, the UAE produced ~4mn barrels of crude oil per day in June (after a lean Mar-May). According to the IEA, this would be close to a record high for the Emirates which, prior to the war, produced ~3.4mn barrels/day.

Assuming the Emiratis are able to get this oil to market (read: the Strait of Hormuz is open), this excess oil production would be worth billions in incremental revenue. Additionally, Abu Dhabi National Oil Company (ADNOC), the Emirati state-owned energy group, has already announced plans to spend billions to boost domestic gas production.

DP World, one of the world’s biggest import/export businesses, also plans to build a new port near Al Fujayrah on the Gulf of Oman that would bypass the Strait of Hormuz (though ships docked there would still be vulnerable to missile / drones strikes).

Not only will these investments alleviate the inherent risk of transit through Hormuz (a risk we are all well acquainted with now), but investing in domestic natural gas production also supports the UAE’s next big economic focal point: Artificial Intelligence.

The evolving US/UAE relationship in the Artificial Intelligence (AI) era

In recent years, the UAE has looked to become integral to the American-led AI boom. These ambitions have found receptive audiences in Washington, though the why has shifted. What began as a Biden-era commitment to decouple Emirati-Chinese tech ties has turned into more of a financial arrangement during Trump’s term.

The Emiratis are partnering with major tech firms (e.g., Oracle, Nvidia, and OpenAI) to build Stargate UAE, intended to be one of the world’s largest data centers. To support this, when Trump was in the Emirates in May(2025), he announced a preliminary agreement permitting the Emiratis to purchase 500,000 Nvidia chips a year through 2027, with perhaps a hefty investment in the Trump family business on the side.2 Then in the fall (2025), Microsoft committed to spend over $15bn between 2023 and 2029 on AI in the UAE, with a focus on data centers.

Running these massive data centers requires an extensive, consistent power supply. By building out a localized natural gas environment, the Emiratis are trying to secure the required power and make the UAE an attractive data center hub. This is especially true at a moment when data centers are a political flashpoint in the US, something the Emiratis don’t have to worry as much about.3

To enable this development, the US Department of Commerce recently relaxed restrictions on Emirati access to American AI tech and infrastructure, including military equipment and satellite components. This decision was made despite explicit warnings from the Commerce Department’s non-political class that doing so could result in the technology ending up in the hands of America’s rivals, most notably China.

To this point, last fall (2025), the Financial Times published a story detailing how earlier this decade US intelligence had uncovered evidence of an Emirati AI firm (G42) providing the Chinese telecom firm Huawei with technology to help bolster China’s military capabilities. That being said, the company vowed to cut ties with China back in 2023, suggesting they might have turned over a new leaf in pursuit of American technology. And now, notably, G42 is the UAE’s sovereign AI company and with whom Microsoft is partnering to invest $15bn.

The act of sharing technology is not itself illegal, but it does suggest the Emiratis have been closer to China than most in the current administration would care to admit.

Looking at the trade data, it is easy to see why that is the case. When it comes to pure trade, China is the UAE’s most valuable partner. In 2024, bilateral trade between them was over $100bn, including Emirati imports from China of $84bn — nearly half of which is categorized as “electrical, electronic equipment” e.g., semiconductors. At the same time, China’s main import from the UAE is oil. Comparatively, bilateral trade between the UAE and US is relatively minor (just $30bn in 2025, a slight drop from ~$34bn in 2024).

Fallout from the Iran war

A nation of immigrants, only 11% of the UAE’s ~11.5mn residents are native Emiratis. This means that ~10mn people have migrated to the Emirates, largely for employment opportunities (though, unlike the picture you may have of highly-compensated white collar workers, this employment mix has historically varied dramatically by nationality).

Having a strong military, backed by the US, has been important to building a picture of the Emirates as a secure and stable professional environment. But already last year, there were growing murmurs about how Dubai could lose its place among the financial capitals. At the time though, the thinking was that oil-rich Abu Dhabi, home to the Emirates’ political power and light-touch, accessible regulators, or Riyadh with MBS’s ambitions to diversify the Saudi economy, were stepping on Dubai’s territory.

Of course, that was before the Iran war kicked off. Because of the UAE’s relationship with the US and Israel (see below), as well as geographic proximity, Iran has focused much of its response on the UAE. Now, concerns over safety and security have become an existential crisis in the Emirates.

Abraham Accords and Gaza

One final point that bares mentioning. In 2020, the UAE signed the Abraham Accords to normalize relations with Israel. The chief reason behind this pact was to bridge regional differences and isolate the country neither trusts, Iran.

While it did open up markets and allow greater movement between the nations, with hindsight, the Abraham Accords have inarguably been a failure. It did little to bring peace or help the Palestinians (indeed, part of the reason the Saudis have rejected the Accords has been the complete separation of the Palestinian issue from Israeli normalization) though Israel did provide advanced weapons systems to the UAE earlier this year to help fend off Iranian attacks.

Since Hamas’ attack on October 7, 2023 and the Israeli response, the UAE has provided at least $3bn of aid (food, medical, supplies) to Gaza, the most of any nation.

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Summary: Backed by a security relationship with the US, the United Arab Emirates (UAE) have spent years extending military influence across Africa.

While ostensibly targeted at Islamist extremists, the UAE’s actions have perpetuated conflict in the region, most notably in Sudan where clandestine support for the Rapid Support Forces has contributed to the ongoing genocide.

And yet, despite the US being the main security partner for the Emirates, providing everything from munitions to training, the UAE’s policies have largely avoided criticism from abroad.

A bit of background

The president and current leader of the United Arab Emirates (UAE) is Mohamed bin Zayed Al Nahyan (MBZ, 65 years-old). When the UAE was founded in 1971, MBZ’s father, Zayed bin Sultan Al Nahyan at the time the ruler of Abu Dhabi, was named the new nation’s first president. He ruled the Emirates for over three decades before dying in 2004, at which point MBZ’s brother Khalifa took over.

Khalifa’s reign was plagued by health issues, most debilitatingly a stroke in 2014, making MBZ the Emirati ruler in all but title. MBZ was formally elected president after Khalifa died in 2022 and has led the nation ever since.

MBZ, who in the 1970s attended military college in the UK before joining the Emirati air force, has spent five decades bolstering the Emirati military to take on two enemies: the Muslim Brotherhood (and Islamist extremist groups like ISIS and al-Shabaab more broadly) and Iran.

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Emirati military regional influence

To address these perceived threats, Emirati special forces have been active across Africa and the Middle East, engaging in some form of security cooperation arrangement (whether that be military equipment, financial or logistical) with over two dozen countries in the region. MBZ has also deployed money and weapons to create a network of proxy support. This has included purchasing US-manufactured military equipment (imports from the US were responsible for 64% of defense imports between 2016 and 2020) and subsequently providing these weapons to forces the US would never supply directly.

One instance of this in action that we have talked about was Yemen. The Emiratis were initially aligned with the Saudis in their conflict with the Houthis in the mid-2010s. However in recent years, the Emiratis have taken a more confrontational approach, turning the conflict into a proxy war in the ongoing Emirati/Saudi battle for regional influence (see link below).

Broadening the conversation, let’s step into Africa and look at the example of Libya. For years, the Emiratis have backed the Libyan warlord Khalifa Haftar, a former commander under Gaddafi, in his bid to depose the UN-backed government.

Libya and Haftar

Working with Egypt in 2014, just one year after MBZ provided billions to support the Egyptian military’s coup against Egypt’s Muslim Brotherhood-led government, the Emiratis helped Haftar take out Islamist militants linked to the Muslim Brotherhood based in western Libya. The Obama administration, at the time working with the UN to broker a peace inside Libya, was taken by surprise by these strikes.

In 2019 the UAE reportedly provided US-produced Javelin anti-tank missiles to Haftar’s forces in violation of the US sales agreement and a UN arms embargo. A US government report from 2020 suggested the Emiratis had provided financing to support the Wagner Group’s presence in Libya.1 Haftar also allowed Russia to deploy military assets in the area.

Today, thanks to material and logistical support from the Emiratis, Haftar controls much of eastern Libya, while a UN-backed government controls western Libya. Recent reporting suggests that Emirati-backed military training camps in Libya are used to train and supply the Rapid Support Forces (RSF), one of the sides in the ongoing war in Sudan.

Sudan

I have written extensively over the years about how the UN and other humanitarian groups claim the UAE is the chief sponsor (through weapons and support) of the Rapid Support Forces (RSF) in Sudan. For the past 3+ years, the RSF has been engaged in a fierce civil war in Sudan with the Sudanese Armed Forces (SAF) and stands accused of committing countless wartime atrocities (including genocide).

Beyond the standard economic rationale (i.e., the importance of Sudanese gold and infrastructure to UAE trade), MBZ views the Sudanese Armed Forces as an Islamist-led group. Backing the RSF and other paramilitary groups (like in Libya and Yemen) also fits in the Emirati logic of expanding regional influence. The UAE’s ally in the region, Egypt, has sided with the SAF, bombing RSF convoys between Sudan and Libya to disrupt supply chains. But rather than deter the Emiratis, they have simply rerouted operations through neighboring Chad and begun recruiting mercenaries from Colombia to fight alongside the RSF.

Quite simply, the US has historically been the UAE’s main military weapons supplier (more on this below), so it is very likely the US is somewhat complicit in the weapons given to the RSF.

And as one RSF defector recently noted, “If the RSF lost UAE support, if UAE stopped supporting them, the RSF won’t be able to fight in the field anymore, it will break apart.”

Yet despite the reporting, the horrors continue in Sudan.

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For the UAE, the US relationship has been one premised around security.

Nothing has helped further MBZ’s drive against non-state actors with ties to the Muslim Brotherhood or other Islamist groups than Abu Dhabi’s relationship with Washington.

The United States has sold the Emirati military arms/equipment, helped train intelligence operatives, and supported a nascent defense industry. According to data from the Stockholm International Peace Research Institute, the UAE is the fifth-biggest buyer of US weapons since 2010. Retired American military personnel have flocked to the UAE to provide advice and expertise (in exchange for a healthy payday).

The UAE hosts ~3,500 American troops at al-Dhafra air base, which acts as a deterrent to future regional aggression.

For years, this arrangement meant the Emiratis backed American-led efforts abroad. In 2014, the Emirati ambassador in D.C. noted to The Washington Post that the UAE had participated in every major US-led coalition since the Gulf War in 1991 — including the invasions of Afghanistan and Libya, the peace-keeping missions in Somalia and Kosovo, and the campaign against ISIS — except the 2003 invasion of Iraq.

But as the Emiratis have built a more robust security state, they have been less afraid to buck the US.

Early in the Ukraine war, the Emiratis held one of the rotating seats on the UN Security Council and initially abstained from a US-led resolution condemning Russia’s invasion, largely because the UAE wanted to diversify its geopolitical relationships at a time under Biden when they felt the US was pulling away from the region.

Around the same time, US intelligence was working on a report detailing how the UAE has secretly steered American foreign policy, most pointedly spending millions on lobbying, electoral campaigns, and donations to institutions like universities and think tanks. Of course, this probably wasn’t much of a surprise: even during Trump’s first term, there were reports that American foreign policy was being subtly nudged by the Emiratis.

Despite this evidence of foreign influence, MBZ visited the Biden White House in September 2024 for the first visit by an Emirati president since the nation was founded. During this trip, Congress formally named the UAE a “major defense partner” of the US, a designation only previously given to India, an explicit acknowledgment of the close ties between Washington and Abu Dhabi.2

Evading criticism

In addition to the foreign wars, the Emirati government has cracked down internally on political activists, including those who signed a petition in 2011 at the start of the Arab Spring requesting a real, democratically-elected representative body of government.

And yet despite these issues, the UAE hasn’t historically elicited the same scrutiny as its regional rival, Saudi Arabia.3 Undoubtedly, part of that stems from the fact that the Emirati government did not sanction the murder of a US-based journalist. But throughout the 2020s, the Emiratis have placed an emphasis on entertainment / cultural events to bolster their image. Some notable examples include,

• Hosting NBA preseason games in Abu Dhabi.

• Using Emirati sovereign wealth to purchase Manchester City in 2008 for £210mn and transform what had been a second tier English Premier League club into one of the most successful teams of the 21st century (Forbes currently values the club at £4.1bn…a nice return on investment).

• Plans to spend $1.7bn to build a Sphere entertainment complex in Abu Dhabi, the first such venue outside of the United States.

• The Emirati investment firm MGX owns 15% of TikTok.

• Last year, Disney announced it would build its next amusement park in Abu Dhabi (the company’s seventh park worldwide).

Not everyone though has been assuaged by Emirati efforts to whitewash their support for the RSF. Back in 2024, the rapper Macklemore cancelled a concert scheduled to take place in Dubai in, what he described as “solidarity with the people of Sudan and to boycott doing business in the UAE for the role they are playing in the ongoing genocide and humanitarian crisis.”

Over the past decade, the UAE has grown increasingly confident in its military prowess to stake out its own position of influence in the region. This has had clear negative downstream impacts, most readily captured in Sudan.

But, how are the Emiratis going beyond military power to stand out? We will explore this tomorrow in part II.

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The climate

Pre-World Cup concerns about the possibility of excessive heat / humidity during a New Jersey summer day gave way to worries about wildfire smoke possibly playing a factor today.

But in the end, FIFA is going to get the best of both worlds.

A stormy Saturday washed away much of the smoke (the AQI in Newark is ~80, compared to 170 from Wed-Fri) and humidity.

80 degrees, sunny, a light breeze. Gianni couldn’t have asked for much better weather.

Starting XIs

Spain 🇪🇸:

Unai Simon (29, Athletic)

Pedro Porro (26, Tottenham) - Pau Cubarsi (19, Barcelona) - Aymeric Laporte (32, Athletic) - Marc Cucurella (27, Real Madrid)

Rodri (30, Man City) - Fabian Ruiz (30, PSG)

Lamine Yamal (19, Barcelona) - Dani Olmo (28, Barcelona) - Alex Baena (24, Atletico Madrid)

Mikel Oyarzabal (29, Real Sociedad)

Spain’s starting XI is unchanged from the side that easily took down France in the semi-final.

Argentina 🇦🇷:

Emi Martinez (33, Aston Villa)

Gonzalo Montiel (29, River Plate) - Cristian Romero (28, Tottenham) - Lisandro Martinez (28, Man United) - Nicolas Tagliafico (33, Lyon)

Rodrigo de Paul (32, Inter Miami) - Enzo Fernandez (25, Chelsea) - Alexis Mac Allister (27, Liverpool) - Nicolas Gonzalez (28, Juventus)

Lionel Messi (39, Inter Miami) - Julian Alvarez (26, Atletico Madrid)

Manager Lionel Scaloni makes three changes from the XI that took down England.

• At right-back, Montiel comes in for Nahuel Molina (28, Atletico Madrid).

• On the right-side of the midfield, Messi’s Inter Miami teammate de Paul starts in place of Giuliano Simeone (23, Atletico Madrid).

• Winger Gonzales comes on for the more defensive Leandro Paredes (32, Boca Juniors).

Overall, the changes suggest a more direct, offensively-minded game plan than the one Scaloni deployed against England.

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In case you missed it….

On Saturday, England beat France 6-4 in Miami to secure third-place!

English winger Bukayo Saka scored a hat trick, making manager Thomas Tuchel’s decision to not play him in the semi-final against Argentina all the more baffling.

England’s star midfielder Jude Bellingham had the goal of the match to clinch it.

The real story coming out of this match is that French striker Kylian Mbappe scored twice, netting him 10 for the tournament and breaking his tie with Messi for the Golden Boot.

Mbappe’s two goals also put his total haul across all World Cups at 22 (in 22 matches played).

Messi starts the Final today with 8 goals in 2026 (and 21 across 33 World Cup matches total). Will he do enough to retake tie Mbappe, or possibly win the Golden Boot himself?

French attacker Michael Olise also registered two assists giving him seven for the World Cup, breaking Pele’s record for an individual tournament of six set at the 1970 World Cup.

Pre-match prediction

Spain win 2-1.

Match-day diary

Jennifer Hudson performs the Star Spangled Banner (I guess since the match is taking place in the US we need to do it…but it feels excessive).

Cameras pan to Trump, Melania, and Gianni in a box behind glass. I guess Mark Carney and Claudia Sheinbaum are there too, but for some reason the camera doesn’t show them…

Spanish legend Andres Iniesta and Argentine great Mario Kempes present the World Cup trophy, which emerges encased from a Louis Vuitton box..classic FIFA.

Tom Cruise in the house!

We really don’t need his little soliloquy on why the sport is great, but Cruise loves his stories!

It is 2:56 pm and the teams aren’t out yet…seems we will not hit are 3pm start time.

The Argentina squad belts out the national anthem, easily winning the pre-match battle with Spain.

Spain in red shirts, Argentina wearing their iconic sky blue and white stripe. Aesthetically pleasing.

3:06 pm - It may be six minutes late, but…HERE WE GO!

5 min: Olmo has a nice interaction with Lamine Yamal who gets the ball in the box (after a fortunate deflection) and takes a shot on goal. The ball deflects but Emi Martinez is there to save with his feet.

6 min: Messi is in behind but Unai Simon comes way off his line to beat Messi to the ball and prevent a very real goal-scoring opportunity for Argentina.

7 min: Argentina disrupting Spain’s possession style with some physical play, which the ref is largely allowing for the moment.

17 min: Lamine Yamal with an exquisite first touch on a long ball. Takes on Tagliafico before a low cross in is claimed by Emi Martinez.

John Strong just confused Matt Damon w/ Brad Pitt…someone has clearly not been paying attention to all of The Odyssey promos. For those interested, the movie made $125mn at the domestic box office this weekend, pretty remarkable for an R-rated movie based on an ancient poem.

25 min: Messi drops a bit deeper to grab the ball and Rodri pulls his shirt to prevent a break.

Drinks break!

28 min: Back under way with Argentina on the ball.

29 min: Tagliafico takes down Lamine Yamal who was looking to break…but no card.

It’s clear that Spain views the Pedro Porro / Lamine Yamal / Dani Olmo triumvirate as the best way to break down this Argentine defense.

31 min: An Argentina long ball intended for Alvarez is headed away by Cubarsi.

Argentina going for that direct line of attack, and hoping for the occasional Spanish lapse. Thus far though, Spain has been resolute.

33 min: Rodri takes down Mac Allister, who wins a free kick for Argentina in Spanish territory. De Paul and Messi debating who should send it into the box…

34 min: Messi takes short and Spain easily snuffs out the danger.

Spain and Argentina are both sponsored by Adidas. Pretty good tournament for the German apparel company.

39 min: Spain working the ball deeper into Argentine territory. Oyarzabal with a shot from the top of the box that is easily saved by Emi Martinez, but the Spanish threat is clear.

Right now, Argentina can’t do much of anything. But Messi and co. need but a ray of light to break through…

41 min: Yellow 🟨 for Lisandro Martinez who fouls Oyarzabal to prevent a Spanish break.

43 min: Cucurella tries one from outside the box and it rolls comfortably wide. Lisandro Martinez goes down and Emi Martinez immediately signals the Argentina bench. It appears Lisandro’s day is done.

44 min: Argentina 🇦🇷 substitution: The veteran center-back Nicolas Otamendi (38, River Plate) comes on for the injured Lisandro Martinez.

It will be interesting to see how he communicates with his center-back mate Romero and Emi Martinez…we saw France struggle with this against Spain in the semi-final when William Saliba got hurt early.

4 minutes of added time.

3:59 pm - HALF-TIME: SPAIN 🇪🇸 0 - ARGENTINA 🇦🇷 0

The match has gone about how you would have expected

• Spain controlling possession,

• Dogged Argentine defending,

• Messi with the occasional touch,

• Lamine Yamal with a few dribbles.

The match tracker is indicative of how this has gone

Eerily similar to Argentina’s match versus England. We’ll see how both sides come out after this extended half-time break…

Argentina 🇦🇷 makes its second sub. Paredes, who had started the past three matches, comes on for the largely ineffective Gonzalez.

4:23pm - THE SECOND HALF IS UNDERWAY!

Around a 26-minute break, so ~10 minutes longer than normal.

46 min: Argentina starts out sloppy. Baena pounces on an errant pass and shoots from 20-yards out right at Martinez, who makes his third save.

51 min: Argentina having a lot more of the ball in the early going.

52 min: The Argentina players flock around Rodri who went down after Paredes bumped him in the back. Paredes then shoves Olmo and gets a well-deserved yellow card 🟨.

Pointless from the Argentine who will now have to be careful for the next 40+ minutes.

55 min: Spain breaks and Oyarzabal has options. He is too slow to get the ball to Fabian Ruiz though and Otamendi breaks up the threat.

56 min: Olmo with a great run to the by-line and crosses into the box. Montiel gets there just ahead of Cucurella and the ball is out for a Spanish corner. Nothing coming from the corner.

58 min: Argentina 🇦🇷 substitution: Molina comes on for Montiel at right-back in another like-for-like switch.

62 min: Two Spain 🇪🇸 subs: Ferran Torres (26, Barcelona) and Pedri (23, Barcelona) in for Oyarzabal and Fabian Ruiz. Reasonable subs from de la Fuente.

64 min: Argentina is getting a bit more physical here as Pedri goes down. Dani Olmo with a shot from outside the box which Emi Martinez can’t field cleanly and the backspin causes the ball to go out for a corner.

65 min: Spain wins another corner and Argentina clears.

67 min: Another Spanish corner…Lamine Yamal evades two defenders and centers to Ferran Torres who rises up and heads the ball directly at Emi Martinez.

Drinks break!

Who will get the breakthrough???

This is the kind of match that Americans have been decrying for decades as ‘not entertaining.’ But the tension is palpable!

71 min: Argentina 🇦🇷 makes its final two substitutions: Giuliano Simeone and Facundo Medina (27, Marseille) for Romero (who seemed to go down injured immediately before the drinks break) and De Paul.

Argentina will not be able to make another sub unless the match heads to extra-time.

73 min: Tagliafico muscles Lamine Yamal off the ball. The Argentine has done a wonderful job limiting the Spanish wonder-kid.

75 min: Two Spanish 🇪🇸 subs: Super-sub Mikel Merino (30, Arsenal) and Nico Williams (24, Athletic Club) in for Olmo and Baena.

Will Merino do what he does best? Or will Argentina do what it does best (score a late winner)?

77 min: Pedri tries a shot from the top of the box with Julian Alvarez wrapped all over him. Martinez with the save.

Cubarsi hits a bullet from 25-yards out that Martinez saves. Spain pounces and wins a corner (which comes to nothing).

80 min:

Spain 🇪🇸: 10 shots, seven on target

Argentina 🇦🇷: zero shots.

A nice ball from Rodri breaks Argentina’s lines and Spain wins another corner. Nothing doing.

82 min: Enzo Fernandez 🇦🇷 is booked 🟨 for dissent.

88 min: Spain continues to pass around, trying to find a chink in the Argentine defense to no avail. Argentina meanwhile isn’t interested in playing possession and proceeds to boot long every chance it gets.

89 min: Rodri tries a speculative shot from 25-yards out, well over.

Four minutes of added time.

90+3 min: RED CARD 🟥 FOR ARGENTINA.

What a sequence!

Messi dribbles around near the top of the box looking for a shot, but Rodri makes a tackle to take the ball off him. Spain springs free, and Nico Williams takes a hard shot 20-yards out which Martinez parries back.

But then Enzo Fernandez goes flying into Cubarsi and is immediately called for a foul. It is a yellow card offense, his second of the day (🟨 🟨 = 🟥), and Enzo is OUT.

Argentina is down to 10-men. You can bet everything that they will be looking to take this penalties now.

90+7 min: Paredes hacks down Ferran Torres just outside the box, in a very dangerous position for Spain. Lamine Yamal and Pedro Porro stand over it.

Could this be the last touch of regulation?

90+8 min: Yamal sends it in and Martinez dives to make his tenth (and best) save of the match!

END OF REGULATION: SPAIN 🇪🇸 0 - ARGENTINA 🇦🇷 0

Spain has been the more dangerous side and is now a man up with 30 minutes to go. Have to imagine Argentina will be looking for penalties here. Of course, Argentina has spent much of this tournament playing extra-time so this won’t be too unusual for them.

We begin extra-time!

93 min: Martinez with his 11th save this time on a glanced header by Nico Williams off a Pedri cross.

96 min: Disallowed Spanish 🇪🇸 goal! Nico Williams has the ball in the back of Argentina’s net, but Merino is called for a foul in the build-up (he stepped on Otamendi’s foot).

Emi Martinez is down and needs a bit of treatment.

99 min: Two Spain 🇪🇸 subs: Defensive midfielder Martin Zubimendi (27, Arsenal) and center-back Eric Garcia (25, Barcelona) come on for Rodri and Laporte.

Both Spanish subs are making their first appearances in the World Cup. Talk about trial by fire!

102 min: Final Argentina 🇦🇷 sub: The center-back Marcos Senesi (29, Tottenham) is on for attacker Alvarez. Clearly, Argentina setting up shop, putting everyone but Messi behind the ball, and hoping for penalties.

103 min: Nico Williams with a dangerous cross in, Merino’s header is inches wide!

Three minutes of added time.

105+3 min: Things are getting a bit chippy here as Argentina keep the ball in their territory.

End of first-half of extra-time.

Spains has 19 shots…Argentina has none.

106 min: We begin the final fifteen more minutes of action.

106 min: GOAL FERRAN TORRES 🇪🇸! SPAIN 1 - ARGENTINA 0

IT HAS BEEN COMING!

Pedro Porro sends a cross into the box. Nico Williams heads the ball back from the byline to Ferran Torres who sends a rifle from the center of the box into the top of the net!

Argentina now has ~15 minutes, down a man, to get a goal. They may be down a man, but they still have Messi…

108 min: Argentina wins a free kick in Spain’s half, but nothing comes of it.

112 min: Alexis Mac Allister with a yellow 🟨 for a tackle on Merino.

113 min: Spain passing the ball around the pitch, playing keep-away.

114 min: Another disallowed Spanish 🇪🇸 goal! Lamine Yamal frees Ferran Torres with a thru-ball which Torres puts past Martinez, but the flag comes up for offside.

The VAR lines show that was super-duper tight!

115 min: Messi wins a corner, which he takes short. He gets the ball back and tries a looping cross/shot that lands on the top of the goal.

116 min: Nico Williams is free in the box with Torres close by. He must shoot or pass…but rather than attempt a low pass, he tries a clever flick that hits against his own foot and out for a goal kick.

It was like trying a behind the back pass in basketball when a simple bounce pass would have done the trick.

117 min: Messi hits a rocket right at Merino’s face. Merino goes down like a ton of bricks and the ref stops play.

120 min: Argentina wins a free-kick 40-yards out. Messi to send it in…he plays it short and gets to Simeone who sends a dangerous cross in. Cubarsi the first to it and sends it behind for an Argentina corner.

Five added minutes

120+2 min: Messi plays a dangerous corner but no one can get to it and Argentina is awarded another corner.

Messi put it in and Simeone is alone at the penalty spot. But he sends it over the bar!

Argentina has to go for it! This is madness!

120+5 min: Argentina win a free kick in their own half. A last chance for Argentina as Emi Martinez launches long…but Spain wins the header and…

END OF EXTRA-TIME: SPAIN 🇪🇸 1 - ARGENTINA 🇦🇷 0!

SPAIN ARE WORLD CHAMPIONS AGAIN!

It was not the most beautiful match ever. And I doubt many people outside of Spain will remember the details, but La Roja won’t care.

They are the deserved winners, not only for their performance today but for how they conducted themselves the entire tournament.

They were a complete, well-oiled machine that grew into the tournament, saving their best for their toughest opponents.

They showed off depth throughout. After all, it was substitute Mikel Merino who scored the late winners against Portugal and Belgium and then substitute Ferran Torres (assisted by another sub Nico Williams) who put home the goal today.

But more than anything, Spain dominated every match. Nothing speaks to this more than the fact that they allowed just one goal across the eight matches in the competition!

When you look at it from an xG perspective, in eight matches Spain had an xGA (expected goals allowed) of 2.2…that is incredible!

Not only did Spain shut down high-flying France in the semi-finals but they prevented veteran Argentina from every getting comfortable on the ball. Messi was largely invisible until the very end, and that is a testament to the cohesion and togetherness of this Spanish side.

The awards

Golden Ball (best player): Rodri (🇪🇸, defensive midfielder)

• Messi 🇦🇷 wins the Silver Ball, Mbappe 🇫🇷 the Bronze Ball

Golden Glove (best keeper): Unai Simon (🇪🇸, goalie)

Young Player of the Tournament: Pau Cubarsi (🇪🇸 center-back)

Golden Boot (most goals): Kylian Mbappe (🇫🇷, striker)

One final stat, courtesy of The Guardian: Only four players have won the World Cup (best international team), European Championship (best European team), Champions League/European Cup (best European club team), and Ballon d’Or (best player in the world):

• Germany’s Franz Beckenbauer,

• Germany’s Gerd Muller,

• France’s Zinedine Zidane, and now

• Spain’s Rodri.

And guess where the 2030 World Cup is taking place? Spain! (and Portugal and Morocco + three opening matches in Uruguay, Argentina, and Paraguay to celebrate the 100th anniversary of the first World Cup).

You think La Roja will be one of the favorites to defend their status as world champions on home soil?? After all, Lamine Yamal (and Pau Cubarsi) will be just 23 years old…

If you enjoyed this edition of Nuance Matters, consider letting me know by buying me a cup of coffee!

Buy me a flat white!

Cheers!

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