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Oscar Pulido: The geopolitical landscape in 2025 has seen significant shifts and developments. President Trump's second term has ushered in a new era of international relations characterized by bold policy changes and strategic maneuvers.

The implementation of new tariffs has reshaped global trade dynamics, raising concerns about broader economic implications. As we navigate these complex geopolitical changes, investors are asking how these developments will impact international trade, economic relations, and market stability.

Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.

Coming up on The Bid. We continue our market coverage following the latest geopolitical events and their impact on global markets. We're recording this episode on Monday, April 28th. I'm joined by Catherine Kress, head of geopolitical research and Strategy at BlackRock. Catherine will provide an update on the current status of tariffs globally.

We'll discuss the key developments investors should be watching and how they might impact international trade and economic relations. We'll also examine geopolitics in President Trump's first 100 days in office. Other major stories on the horizon and how they could evolve in ways that impact investors.

Catherine, thank you so much for joining us on The Bid.

Catherine Kress: It's great to be back.

Oscar Pulido: This is becoming a bit of a recurring segment on The Bid, which is to have you here to talk about the geopolitical landscape. And of course, geopolitical fragmentation is one of the mega forces that we talk about. That is this structural driver of return. And it feels like geopolitics have been almost the only thing we're talking about in 2025. 
We are recording this on Monday, April 28th. We're publishing it on Wednesday, April 30th, which marks a hundred days of the Trump administration. So, tell us a little bit more about what's happened in those first a hundred days and talk to us more about the geopolitical landscape from what you're seeing.

Catherine Kress: Well, thanks for having me back, Oscar. You know, right now the geopolitical landscape is unsettled. It's changed dramatically in recent years and even in just the last a hundred days.
We've spoken before about the sheer number of global shocks that we've seen over the last decade or so, including the trade disputes of 2018, which at the time represented the most significant protectionist steps the US had taken since the 1930s, the Covid Pandemic, which was the largest global health emergency, in a hundred years.

The inflation spike we saw in 2021, which the US hadn't seen anything like that in decades. And then last Russia's full scale invasion of Ukraine in 2022, which was the biggest security event to take place in Europe since World War ii. What's been striking amid these shocks is just how resilient markets and economies have been, despite the magnitude and just the scale and transformational nature of the shocks, investors and economies have found ways of adjusting to them. Now, however, we are facing another significant moment of change and uncertainty, and that's reflected in the U.S.'s shifting approach to the world.

For the last 80 years, the US has been central to the geopolitical landscape. It's been an economic stabilizer, a provider of global public goods with a new administration now in place, however, we are seeing a fundamentally different view and approach. President Trump has been in office for almost a hundred days as of this recording. And in that short period of time, he has taken dramatic steps to fundamentally reshape the US' relationships with the rest of the world- both economically and geopolitically. He has arguably taken more and more consequential steps than any US President since FDR. The changes we've seen as a consequence of US policy have been rapid, fundamental, and in some cases, irreversible. 2025 may prove to be a hinge point in history.

Now, if we think about the changes that we've seen, we can think about them in five broad buckets.

First, the world today has become more fragmented and unstable. You and I spoke around this time last year and we talked about the emergence of competing economic and geopolitical blocks in the world with it, with the US and its allies in Europe and Asia. On one side, Russia, China, Iran, North Korea, on the other; countries like India, Brazil, the multi-aligned nations somewhere in between. That system today is coming under pressure. Though China, Russia, Iran, and North Korea continue to cooperate and deepen their relationships, the multi-aligned countries remain firmly multi-aligned, the Transatlantic Alliance is showing signs of fray.

Second, the world today is more dangerous. We are seeing the largest number of violent conflicts worldwide since World War II. Now, there are some areas, for example, in the Middle East and in Ukraine where we may see some stability in the near term. But there are other areas, for example, in Asia where conflicts may be brewing. That increase in volatility is giving way to a rise in global defense spending. We've seen a sharp increase in global defense spending over the last few years.

Third, the world today is more competitive. We see this, especially in the case of the technology competition between the US and China, where there really is this epic zero-sum competition to seize the commanding heights of advanced technologies.

Fourth, the world is more protectionist. There's been a rewiring of globalization as countries and companies prioritize security and resilience over pure cost efficiency and market factors. Trade restrictions have increased exponentially over the last decade, and that's going to increase going forward.

And then last, the world today is more populist. We're seeing more anti-incumbent, anti-establishment forces on the rise. 2024 was a historic election year and a punishing one for incumbents. The Financial Times actually showed that every governing party across the developed economies lost vote share last year. That's the first time it's happened in more than 120 years.

So geopolitical fragmentation competition, rewiring of globalization. These trends are accelerating with profound implications for the economic and financial landscape.

Oscar Pulido: And it's interesting, as you went back through that list, I'm remembering all the different episodes that you've been on to talk about the multi-aligned countries, the competition and technology between the US and China. We had you on to talk about the elections, and so all of these things have created noise, but you also mentioned that markets have been resilient during this period. Not only very recently, but also when we went back over the last decade.

Having said that, we've seen a lot of market volatility recently with respect to tariffs, where are we now in terms of, more recent tariff news? What should we be watching and how does this impact, relations, globally across countries and for global economies?

Catherine Kress: You know, the US under President Trump is pursuing an entirely new approach to economic management based largely on tariffs. We've discussed before that President Trump sees tariffs as an all-purpose tool of economic and foreign policy. Since taking office, he's taken a set of steps that together reflect the most significant protectionist steps we've seen from the US in over a century.

In February, president Trump set in motion new tariffs covering half a trillion dollars of imports from Mexico, Canada, and China. In March, he doubled the tariff rate on China and imposed 25% tariffs on steel and aluminum imports. And then finally, earlier this month on Liberation Day, president Trump announced a 10% universal baseline tariff on most imports of the United States. As well as unique reciprocal tariff rates on some 60 countries with which the US has the largest trade deficits. He also imposed 25% tariffs on auto imports to the United States.

Now, as of this recording, the reciprocal rates for most countries have been paused for 90 days, and China faces a new tariff rate of at least 145% on goods coming to the U.S.. Though some goods face a rate closer to 200 or 300% reflecting previously imposed tariffs. The average effective tariff rate for the US has risen to more than 20% today, significantly higher than where it was just a few weeks ago. Uncertainty right now is high and going forward, there's four things I'm watching.

One is negotiations. The Trump administration has said that it intends to strike 90 trade deals in 90 days. This is an enormous challenge. What's more likely, and Treasury Secretary Scott Bessant has indicated this, is that the White House prioritizes the 14 largest economies that trade with the U.S., including countries like Japan, South Korea, and India. But negotiations with economies like the EU, China will be much more complicated and likely take longer.

Two, I'll be watching for potential sources of pressure. We're already seeing signs of pushback in the courts. In some states, for example, 12 State attorneys General filed a lawsuit last week against the Trump administration, as well as in Congress. And in each case, these different sources of pressure are specifically questioning the ability of the president to levy tariffs under emergency authorities.
It is also worth noting here, president Trump's approval rating. The real clear politics polling average as of this morning showed President Trump's approval rating at 45%, which is down from 50% in January. According to Gallup, president Trump is the only US president to have sub 50% average approval ratings during his first quarter in office. So we'll have to see if this functions as a source of constraint going forward.

Three, we're watching for more tariffs. President Trump has repeatedly indicated that he would impose tariffs on sectors like semiconductors, pharmaceuticals, copper, lumber. Indeed, there's investigations underway into these sectors. We also could see secondary tariffs on countries that are purchasing oil from the likes of Russia and Venezuela.

And four, I'm watching for the decoupling from China. The tariffs that the US and China have imposed on each other are well above levels that most economists say will crush trade between the two countries. We've effectively seen the world's two largest economies impose trade embargoes against each other almost overnight. The administration has acknowledged that these tariff levels are likely unsustainable. There have been reports that they may come down substantially, be phased in over time, move to a tiered system in which the highest rates are only applied to the most strategic goods.
There have also been exemptions on both sides. But it's hard to see either country right now acting unilaterally to meaningfully lower tariffs in the absence of some form of an agreement. So as analysts and investors, we should expect some high level of tariffs to stay in place on Chinese imports for an extended period of time.

You know, Oscar taking all of this together, we see these developments accelerating the rewiring of globalization. I noted previously that the level of trade restrictions in place today has increased exponentially over the last decade or so. That's going to increase not only in the wake of the US tariffs, but also as countries respond to China's continued exporting of its excess industrial capacity, as well as goods being diverted from the US in the wake of tariffs.

As the famous economist, Doug Irwin once said, Once trade barriers go up, they're very hard to bring down. So I think we should expect this protectionism theme to be with us for some time.

Oscar Pulido: You mentioned China as part of your discussion, and I think that you almost need a little bit of a handbook to keep track of everything that's going on across tariffs in terms of the goods that it applies to the reciprocal tariffs that are in place in certain countries, but maybe not others.

And when they go into effect. One thing that is clear that seems to rise above a lot of this noise is that the trade policy with China is, very aggressive. and so it has to have a meaningful impact when you have two large economies like that, operating with trade policies like this. So can you talk a little bit more about how does this impact the relationship between US and China going forward?

Catherine Kress: With China, the risk over time is that the trade conflict extends to something much bigger, more like a broader economic and financial conflict. Competition right now really remains the main frame for the US-China relationship. President Trump is surrounded by individuals who are committed to tariffs. They're committed to technology competition, support of Taiwan, the isolation of China. Tensions will increase as the trade conflict extends, the technology competition intensifies and volatility in the region grows. It's hard to imagine a comprehensive resolution right now. 
Now in the trade space, we're going to see tariffs on China continue, and the administration will use trade negotiations with other countries to pressure those partners from limiting their dealings with China in exchange for the US lowering tariffs. This is going to be a tough sell, including for many of the economies like in Southeast Asia, who are very dependent on the Chinese economy and Chinese trade.

In technology, export controls will continue and by mid-May, the Trump administration is going to have to decide what it wants to do with the previous administration's rule on AI diffusion, which was a broad set of steps intended to control who gets access to US semiconductors and under what terms.
And then in the financial space, the administration is contemplating steps to restrict the flow of capital, both inbound into the United States and outbound, the flow of American capital into China, including by harmonizing different US government sanctions lists and trade blacklists, prohibiting US pensions from investing in Chinese companies and potentially even delisting Chinese companies from US exchanges.

Now in each area, it's worth noting that US policy is not differentiating Hong Kong from mainland China.

The US and China are increasingly calling on other countries to choose sides, deepening the geopolitical fragmentation that we've spoken about. While the US is conducting trade negotiations to try to box out China, China is threatening countries that take steps that are seen as potentially damaging to the Chinese economy. Just the other week, Chinese president Xi Jinping took a neighborhood diplomacy tour in Southeast Asia and he called on countries to quote 'jointly oppose unilateral bullying.'

At the same time that US Defense Secretary Pete Hegseth, and Treasury Secretary Scott Bessent, traveled to Latin America warning of Chinese influence. The two sides are looking to build influence in their respective neighborhoods as part of their broader economic and geopolitical strategies. But here too, the risk is that this competition and influence building escalates into a broader confrontation and potential conflict, including in the South China Sea and Taiwan, where we've seen tensions pick up recently.

Key to watch going forward is any leader-to-leader dialogue, including between the two countries’ presidents, which could reflect some effort to bring down the temperature between the US and China.

Oscar Pulido: I think what you're pointing out is that, while the headlines are focused on the US and China and the trade policies between each other, there are secondary impacts, you mentioned Latin America, you mentioned countries in Southeast Asia, that are important trade partners of the US and China, and there's impact on those economies as well. Let's talk about another region of the world that seems to, also be feeling the impact of geopolitical fragmentation, which is Europe. in fact, the US and Europe, seem to have more tension these days than maybe we would've talked about a year ago. So tell us a little bit about what's going on there.

Catherine Kress: When it comes to Europe, we've seen a complete reset between the US and its allies. President Trump has a different conception of alliances than his predecessors did. He sees alliances as similar to an insurance policy something countries should have to pay for.

He's looking to reorder alliances based on a belief that allies have been receiving benefits like security that they should reimburse the United States for. This fundamental view has driven a complete reordering of the US Europe relationship as we've known it for 80 years. Just think about what's happened.

The US articulated that Europe would no longer be a primary security priority. It announced that it would seek to establish direct relations with Russia. The US jump started Ukraine Peace talks with Russia initially without the participation of the Ukrainians or the Europeans, and it's expressed support for a number of Russian positions in the negotiations.

And then most recently, the US moved forward with large scale tariffs against the EU, including specific sectors like steel, aluminum, and autos. This breach with Europe is a sharp departure in US policy. We are on the path of continued separation and difficult conversations on a range of issues including defense, trade, China, climate, technology. Europe is realizing it can no longer fully rely on the US and that it must urgently take steps to construct an independent defense facility as well as pursue an accelerated economic reform program. As European Commission President Ursula Von Der Leyen put it starkly in a recent interview, quote, 'the West, as we knew it no longer exists.'

In recognition of this, we've seen unprecedented action in Germany and at the European level as well. In a remarkably short period of time, decades of European policy has been overturned. There are even questions emerging around Europe's nuclear posture, including the possible extension of France's Nuclear Deterrent and Poland's newly stated ambitions to explore its own nuclear capabilities. These are historic changes. And while these changes have boosted European unity in the short term, and they provide a real set of opportunities, including in the defense space, the risk of longer term fragmentation and breakdown remains.

Oscar Pulido: Can we follow up on Ukraine specifically, which has been a source of tension between, the US and Europe. There, there was some belief that we were going to see, peace in the region earlier this year, that we were going to see an end to that conflict. Do you still, think that is a likely scenario here in the near term? Or what are you watching right now that gives you more optimism.

Catherine Kress: There's been a lot of movement on this, even in just the last two, three days. We saw a meeting between President Trump and President Zelensky at the Vatican in Rome over the course of the funeral for the late Pope Francis. Russia's invasion of Ukraine continues to reflect the largest, most dangerous military conflict in Europe since World War II.
US and Russian delegations began holding direct talks in January as I noted, for the first time since the invasion began. Those talks initially left out the Ukrainians and Europeans, though those two parties are now participating. Most recently the US put forward the outlines of a Land for Peace agreement, but a number of sticking points remain on all sides, including issues around Ukrainian territorial concessions, NATO membership for Ukraine as well as post-war security guarantees.

Our view is that a definitive, comprehensive deal will be difficult to reach in the near term, because of the competing aims of not only Russia and Ukraine, but also the US and Europeans, as well as ongoing conversations around the potential normalization of US relations.

Now the US is threatening to walk away if a deal can't be reached imminently. Secretary of State Marco Rubio stated this weekend that they will decide this week whether to continue pursuing a negotiated settlement or turn their attention to other matters. So the situation right now is very fraught. In the meantime, the conflict remains a devastating war of attrition between the two sides with an enormous humanitarian cost.

Oscar Pulido: And since we're talking about conflict, we should, note that we've also seen conflict in the Middle East that has been dragging on for some time. One of President Trump's first achievements, which actually happened before he took office was the support of a ceasefire agreement in Gaza. Talk to us a little bit about the status of the war in the Middle East and how are you thinking about the risk of escalation in the region more broadly?

Catherine Kress: So first on the war, it's true that President Trump supported the initial set of ceasefire agreements between Israel and Hamas, most prominently in Gaza, but we also had a ceasefire agreement with Hezbollah and Lebanon. Both of those ceasefires have since broken down. In Gaza, we've seen the resumption of Israel's air and ground campaign, and in Lebanon, Israel and Hezbollah have exchanged fire again.

It's also worth noting that the Yemen based Houthis have also resumed targeting Israeli and US assets, which has led to significant US retaliatory strikes. Iran and its proxies today are significantly diminished. Iran is weaker today than it's been in decades, so the key development to watch going forward is the negotiations between the US and Iran over a potential new nuclear deal.
The outcome here is quite binary. Either we get to a deal or we see military action. The two sides are not going to talk forever, so it's likely that we see one or the other of these outcomes this year.
Now in the deal scenario, a new nuclear agreement could lead to a de-escalation of tensions in the region and some removal of sanctions on Iran. In this scenario, we'd expect additional Iranian oil supply to come on the market, Adding to the large surplus is already expected this year and next further pushing down prices. In a no deal scenario, the scenario in which talks fail, president Trump has threatened military action. In this scenario, we'd expect attacks against Iranian nuclear and other infrastructure by Israel and the us, which could lead to all manner of retaliatory steps by Iran further impacting oil markets.

Now, President Trump has expressed his clear preference for a deal, and the mood music coming out of talks this past weekend were quite positive. There's going to be another round of talks next week. So these negotiations coupled with President Trump's visit to the region in mid-May are going to be key signposts for the outlook for the region going forward.

Oscar Pulido: I want to come back to something you said at the very beginning, which is how resilient markets have been, and just listening to all of the things that you've outlined - the protectionism, tariffs, geopolitical conflict in Ukraine, in the Middle East - if you're somebody, picking up a newspaper for people who still do that, and you read the headlines, it would be sort of a scary environment to think about investing, but again, markets have been resilient. What does this mean then, for an investor who's thinking about the geopolitical landscape? What are they supposed to be thinking about from a portfolio perspective?

Catherine Kress: Our view at the BlackRock Investment Institute is the U.S policy shifts that we’re seeing and the geopolitical dynamics underway are adding to the structural transformations that were already underway. We've argued for several years that mega forces like geopolitical fragmentation, like the rewiring of globalization are transforming the world. U.S. trade policy is adding this transformation. This isn’t a business cycle in our view, it's a long-term structural shift. That raises big questions around the trajectory for the global markets, particularly as long-term expectations are becoming more sensitive to short-term news. So, as investors, I think we need to constantly reassess the long-term trajectory, be dynamic with asset allocation as we learn about the future state, but importantly, invested through the uncertainty. As we've seen time the matters most.

Oscar Pulido: Stay invested has been a message that we've shared on recent episodes when we've delved deep into market volatility and seems to be a good message to take over the long term, but for sure, we will be having you back, Catherine, we're going to keep your chair nice and warm for when you return later this year to tell us more about what's going on in the geopolitical landscape. Thank you for visiting with us here on The Bid.

Catherine Kress: Thanks so much, Oscar.

Oscar Pulido: Thanks for listening to this episode of The Bid. Next week we'll be back to our regular schedule on Fridays, so be sure to tune in when we discuss capital markets and their importance to the global economy with Samara Cohen. And don't forget to subscribe to The Bid wherever you get your podcasts.

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