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Are the effects of geopolitical and tariff uncertainty on the economy still to come, or were they overestimated?

Uncertainty is usually the enemy of investment. This year not so much. Twin uncertainties about tariffs and whether President Trump will honor U.S. security guarantees have prompted governments and companies to pour money into defending themselves, helping stocks.

For now.

The biggest change is geopolitics. Doubt over Trump’s commitment to protecting Europe led the European Commission to permit extra borrowing for defense, with Germany adding 500 billion euros, equivalent to $588 billion, for infrastructure on top of boosting military spending by more than 1% of gross domestic product. Far from hurting stocks, investors were delighted that Europe in general and Germany in particular are pouring government money into the economy, and share prices soared in anticipation of fat profits ahead.

“We might look back and say the geopolitical uncertainty was what Europe really needed to get their act together,” said Vincenzo Vedda, chief investment officer at Germany’s DWS.

Markets are anticipating big improvements in Europe, led by defense stocks. The Stoxx aerospace and defense index has just had its best six months ever, leaping 54% in the first half of the year—and 74% in dollar terms.

In the U.S., meanwhile, the impact of tariffs was blunted or delayed, or both, as companies stocked up on imports before the extra taxes were imposed. As a result, inflation has been under control and close to target, coming in below forecasts in both April and May. After an initial nasty selloff when the biggest tariffs were announced, stocks have fully recovered, helped by Trump’s delay to most tariffs and a few trade deals.

The question for investors is whether the effects of geopolitical and tariff uncertainty on the economy are still to come, or were overestimated. Here are three possibilities:

Uncertainty came back down. Markets think they have the measure of Trump. Stocks have rallied in part because the big selloff forced Trump to delay most tariffs, and he retreated from punitive tariff levels on China after it withheld vital minerals.

Next week we get Trump’s self-imposed deadline for countries to do a deal or face the much higher so-called reciprocal tariff rate. So far only the U.K. and Vietnam have agreed to provisional deals, and both could still face new import charges on sectors including pharmaceuticals, copper, timber, aircraft and trucks where pre-tariff investigations are under way. Few believe he will simply reimpose crippling tariffs when, as seems likely, deals aren’t cut with every country in time.

Markets might, of course, be wrong. According to the daily trade-policy uncertainty index compiled by academics Scott Baker of Northwestern and Nick Bloom and Steven Davis of Stanford by analyzing newspaper articles, uncertainty remains extraordinarily high. Sure, it spiked higher in March and April, but on Wednesday it remained higher than at any time before Trump took office. It was its 16th-highest day since its 1985 start, with all previous 15 higher days being in the past four months.

Uncertainty did hurt, but showed up only in the dollar. Investors and governments outside the U.S. have been notably less keen on American assets both when stocks fell and when they rebounded, and the greenback had its worst first half since the Nixon devaluation of 1973 (though it has had worse six-month periods at other times of the year).

In dollar terms, foreign stocks beat U.S. stocks by the most in the first six months of a year since 1993. Still, if an effect of the geopolitical uncertainty is better policymaking and more growth in Europe, the higher global demand should help American companies too.

Uncertainty will hurt, in time. Faced with policy uncertainty, CEOs typically hold off making critical decisions, which should depress corporate investment.

“You cannot commit to long-term investment when the rules of the game are not clear,” said Claudio Irigoyen, head of global economics research at Bank of America. “[But] it’s going to take time to see it. We’re not seeing the effects of uncertainty on capex yet. We’re not seeing the effects of tariffs on inflation yet.”

Purchasing managers surveyed by the Institute for Supply Management, who are on the front line of tariff uncertainty, appear to agree. In the latest survey one called the situation “hellacious.” This comment attributed to a tech-sector executive was typical: “The erratic trade policy with on-again/off-again tariffs has led to price uncertainty for customers, who appear to be prepared to hold off large capital purchases until stability returns…Operations has planned additional weeks of downtime at multiple plants to accommodate reduced orders.”

The argument that tariffs mean higher prices and slower growth is virtually the same as it was in April, before the market went into rapid-recovery mode. It is easy to see why investors have tired of waiting for the bad news to appear in prices or profits.

Even if uncertainty does delay corporate decisions, the economic impact may be obscured by the boom in spending on data centers for artificial intelligence. That could take up the slack from delays or cuts to other long-term investment projects. Equally, delays to new projects as chief executives wait for policy clarity take time to show up, and while it might feel like an eternity to anyone whose job involves tariff rates, it is only five months since Trump took office.

The scale of uncertainty helps explain the stark divide between bulls and bears. Bulls look at how the economy’s been doing, and say all is good: Corporate investment is high (thank you, AI), spending is still decent, profits are great and growth looks OK.

Bears look at the effects of uncertainty in the confidence surveys and other “soft” data and fear that weak consumer and corporate sentiment will eventually show up in lower spending, profits and growth.

I suspect the tariff effects will come through into at least some inflationary pressure and weaker growth, and I’m less confident than investors are that Trump will fold whenever he faces tariff pushback. Most of all, with U.S. markets back at highs and again so highly valued, it feels like a decent time to take some money off the table. Uncertainty won’t be a good thing forever.

Billionaire investor offers no significant details but suggests key congressional races will be initial targets

Elon Musk, the billionaire investor who has clashed with Donald Trump after being one of the president’s closest allies in US business, said he had formed a new political party to fight the “one-party system” afflicting America.

Musk made the announcement on X, his social media platform, on Saturday, following the enactment on July 4 of Trump’s landmark domestic policy bill, which the head of Tesla and SpaceX has blasted for adding to America’s debt.

“When it comes to bankrupting our country with waste & graft, we live in a one-party system, not a democracy. Today, the America Party is formed to give you back your freedom,” Musk wrote.

Musk did not offer any significant details about the launch of his political venture, but suggested that it would initially at least target key congressional races. He did not indicate that he would be a candidate for political office.

“One way to execute on this would be to laser-focus on just 2 or 3 Senate seats and 8 to 10 House districts,” Musk wrote on X on Friday. “Given the razor-thin legislative margins, that would be enough to serve as the deciding vote on contentious laws, ensuring that they serve the true will of the people.”

Musk’s move to create a new US party comes after he burst on to the American political scene last summer as a top donor and adviser to Trump, helping fund the president’s winning 2024 campaign and organising get-out-the-vote operations in some battleground districts.

Musk then joined the Trump administration as a senior adviser to the president and the leading official in the so-called Department of Government Efficiency, which sought to find ways to save money in federal agencies.

But Musk fell out with Trump over the president’s “big, beautiful bill”, which extends sweeping tax cuts while only partially paying for them through new spending reductions, adding more than $3tn to the US debt over the next 10 years, according to a variety of independent projections.

“Anyone who campaigned on the PROMISE of REDUCING SPENDING, but continues to vote on the BIGGEST DEBT ceiling increase in HISTORY will see their face on this poster in the primary next year,” Musk wrote last week on X, showing an image of Pinocchio with the word “LIAR” written above his face.

Musk on Friday polled his audience on X to ask whether respondents wanted him to set up a new party, finding that 65.4 per cent wanted the “America Party” while 34.6 per cent were opposed to it.

But even though Musk would be able to deploy is own vast financial war chest to fund a new political party, such a venture would face huge obstacles in breaking through the grip on power in America held by Republicans and Democrats.

Efforts to create third parties in the US — most recently the “No Labels” movement that sought to offer an alternative to Trump and Joe Biden in the 2024 presidential election — have routinely failed.

Work on final assembly line has wound down after dearth of new orders for the combat aircraft

British production of the Eurofighter Typhoon combat aircraft has ground to a halt because of a dearth of new orders, sparking fears of a loss of critical aerospace industry skills in the UK.

The Typhoon has for decades been assembled at BAE Systems’ sprawling factory in Warton, Lancashire. Work on the final assembly line, however, has now wound down as the factory prepares to deliver the last Typhoon jet for Qatar under a £5bn order placed in 2017.

“There is one jet in the hangar but it is basically waiting for a few parts and to be painted,” said one union official. “As far as major assembly goes, it’s finished, it isn’t sustaining any workers.”

The UK government has not placed an order for new jets since 2009, while follow-on export orders from Saudi Arabia and Qatar have yet to be agreed.

If new orders are not secured soon, there could be a loss of important industrial skills needed to build the next generation of fighter aircraft via the UK’s role in the Global Combat Air Programme (GCAP).

Sharon Graham, general secretary at the Unite union, said workers at BAE and across the UK defence industry “will be asking how a government promising to turn defence spending into ‘British growth, British jobs, British skills, British innovation’ could let it happen”.

“I have repeatedly told government ministers how much is at risk in terms of jobs, skills, and national security if we stop assembling our own fighter planes,” she added.

The Typhoon is built by a pan-European consortium including BAE, Airbus and Leonardo, with each company building different parts for every aircraft. They also operate a final assembly line in each partner nation — when a partner nation orders jets, or leads on an export deal, it assembles the aircraft.

BAE is still building the front fuselages for the Typhoons ordered by other nations at its nearby Samlesbury site, but these are then sent to the continent for final assembly. 

The government’s recent decision to purchase US-made F-35A fighter jets rather than commit to a new order for the most advanced Typhoons has reignited debate over its defence priorities. Although the UK has committed to upgrading its current Typhoon aircraft, including with a new radar, it is the only nation in the consortium that has not placed an order for the latest model.

Andrew Snowden, Conservative MP for Fylde in Lancashire, warned last week that if the government “fails to confirm this order soon, we face the very real prospect of losing . . . a vital national capability, the ability to design, assemble and deliver world-class military aircraft independently”.

Defence Secretary John Healey last week refused to be drawn on whether it would place a new order but said the recent strategic defence review had confirmed the Typhoon’s importance, as well as a commitment to upgrades. 

Healey also told the defence select committee that Britain expects to purchase a new tranche of 27 F-35s to start arriving by the end of the decade, of which 15 would be aircraft carrier capable F-35Bs. Under the new plan announced last month, 12 would be F-35As, which are cheaper and also capable of carrying tactical nuclear bombs.  

Industry executives said talks on securing new export orders for Typhoons from Qatar, Saudi Arabia and Turkey were progressing.

Tim Robinson, editor of the Royal Aeronautical Society’s Aerospace magazine, said the break in “continuous combat aircraft assembly in the UK should hopefully just be a temporary blip between follow-on export orders for more Eurofighter and then GCAP”.

However, the “longer the gap, the more risk there is of a loss of key skills and critical experience that will be needed for next generation fighter aircraft”.

BAE said it was “experienced at responding to the changing demands of the Typhoon programme to ensure we retain our specialist skills”. 

The “strong level of interest, commitment and investment in the aircraft from current and potential customers gives us confidence that Typhoon production in the UK will take us into the next decade,” BAE added.

The MoD said the Typhon would remain the “backbone of the UK’s air defence until at least the 2040s”.

The UK, it added, was “leading export campaigns to other nations”. Future Typhoon “investment is subject to the Defence Investment Plan, which will be published later in the year”.

Government-backed study into high-speed project published as HS2 scheme is hit by delays and mounting costs

Sixteen years after Britain’s first high-speed rail service was launched, an official government review into the economic impact of HS1 on the south-east has concluded the £7.3bn scheme provided “poor value for money”.

The report, which was sat on by ministers for two years, comes at an awkward time for the government as it struggles to prevent further cost overruns and delays on the much larger HS2 scheme from London to Birmingham. 

HS1, which links London St Pancras International station with the Channel Tunnel and Kent, was opened in 2007 after receiving the go-ahead in 1991. It was sold at the time as a regeneration plan for the south-east, promising faster journey times and increased rail capacity.

“The starting point for a value for money assessment is that HS1 provides poor value for money,” said the government-commissioned report by Steer Consulting, an advisory group set up by Jim Steer.

Steer is an advocate for high-speed rail who helped spur the launch of the current HS2 railway project more than a decade ago.

The study said that international passenger numbers using HS1 were lower than forecast at the time the project was approved, and that it had failed to deliver the economic benefits to the region that were promised.

Although HS1 boosted population growth in Ashford and Canterbury, this was “largely associated with increased commuting to London”, said the report, which was released by the government in June.

The result was that “local economic indicators, such as GVA [gross value added] per capita, have not increased significantly compared with peer locations, which have not benefited from HS1”, it added.

The government is struggling with how to proceed with the new HS2 railway, which was originally intended to connect London with Europe and Scotland but has since been scaled back to run between the capital and Birmingham.

The cost has soared to at least £80bn, while there is still no plan for how to get trains into Euston station in central London despite demolition work starting on the site nearly a decade ago.

Transport secretary Heidi Alexander admitted last month that the project would be delayed by several more years. The government also revealed that HS2 may initially have to run at slower speeds than expected to prevent further delay to its opening.

Andrew Gilligan, a former Conservative transport adviser and head of transport at Policy Exchange think-tank, said: “This study, based on more than a decade of real-world evidence, disproves the overhyped claims about the economic benefits of high-speed rail.”

He added that HS1 was still “a much better project than HS2, costing two-thirds less per mile in real terms”. 

HS2 cost taxpayers £7.7bn in 2024, 57 per cent more than was spent on local public transport across the entire country last year, according to official figures. The line is now not expected to open until the mid- to late-2030s.

HS1 was sold in November 2010 to a consortium of private investors on a concession from the UK government to run the line for 30 years for £2.1bn. It is now owned by investors including HICL Infrastructure and Equitix.

Renamed London St Pancras Highspeed, it has recently offered financial incentives to operators to run services between London and mainland Europe. It aims to boost demand after its own study found that it could increase international passenger numbers from 1,800 an hour to nearly 5,000.

London St Pancras Highspeed said it had “announced an ambitious growth incentive scheme . . . which incentivises an increase in services, passengers and new destinations, and encourages greater use of existing stations domestically in the south-east”.

The Department for Transport said HS1 had successfully delivered on its objectives, more than doubling capacity for international rail services.

It added that the report had “methodological limitations”, such as not looking at regeneration impacts in London or wider, longer-term economic effects of the project.

Following Heathrow substation review, Prospect warns on investment across sector

One of Britain’s largest trade unions says electricity networks are failing to invest enough in maintenance, raising further doubts over the sector’s resilience following a damning report into a substation fire that led to the closure of Heathrow airport. 

Sue Ferns, senior deputy director-general of Prospect, said it had “repeatedly” raised questions with Ofgem, Britain’s energy regulator, over the resilience of the network and argued that the way the sector is regulated disincentivises prompt maintenance.

The union has thousands of members who work in Britain’s network businesses, which are a regulated monopoly split between five major companies: National Grid, SSE, Scottish Power, UK Power Networks and Berkshire Hathaway’s Northern Powergrid.

“Engineers working across the networks, they tell us that assets have not been renewed or improved over a very long period — that they absolutely see the need for maintenance but that work isn’t being prioritised,” she told the FT. 

An official review into the blaze at the National Grid substation in March found it was caused in part by failure to replace a part of a transformer that registered high moisture levels when last serviced in 2018. It also found that the fire suppression system in the substation was out of service.

Prospect said companies preferred to sweat existing assets rather than build new ones, and were not sufficiently maintaining their old infrastructure. 

In a submission to the official review into the fire, seen by the FT, the union added: “The consequences of this continued lack of investment are now becoming painfully clear. Not only has it slowed progress towards a cheaper, cleaner energy system [ . . . ] it has significantly reduced the resilience of the existing system.”

It blamed regulation, arguing that setting prices for five years incentivised short-term behaviour. It also said Ofgem often values efficiency and reducing costs ahead of maintenance work.

In response to Prospect, Ofgem said Britain had “one of the most reliable and efficient energy systems in the world,” adding: “However, there is no room for complacency, and we fund and incentivise licensees to ensure they maintain and invest in their networks to deliver the best possible service for consumers.”

It added: “We expect all networks to properly maintain their assets, and any that fail to deliver the required standards face the prospect of fines and other penalties.”

Prospect boss Ferns added that huge demand for new electricity connections for wind and solar farms had put extra pressure on the workforce. “There’s less and less workforce flexibility to do the maintenance task,” she added. 

In a review of the high voltage networks during 2023-2024, Ofgem said they had “fallen behind” goals for work on existing assets, and called for a “significant boost” in activity.

However, it added that all transmission operators reported “exceptionally strong levels of network reliability and surpassing their annual targets to minimise electricity loss [ . . . ] world-class levels of network reliability are being maintained.”

Performance was more mixed for the lower voltage distribution network operators. The sector “did not perform well” on customer interruptions, Ofgem said. Several networks missed targets on the score.

Distribution network owners also spent less on equipment replacement and refurbishment than they were allowed during the first year of the current price control period, owing to factors such as delays getting hold of equipment and workers. However, they were forecast to collectively overspend by the end of the period as projects catch up.

The report last week found that the transformer that first caught fire at the substation had last had “basic” maintenance in July 2018. It added that 87 per cent of transformers on National Grid’s high-voltage transmission network were within their normal maintenance cycle, above the company’s target of 85 per cent.

The Energy Networks Association trade group highlighted the sector’s record of “near 100 per cent reliability” and said the lower voltage distribution networks were investing around £20bn in this price control period between 2023 and 2028 in resilience and maintenance.

It added: “Network operators are clear that sustained investment is vital for the continued maintenance of the UK’s grid and to improve overall resilience.”

UK-listed engineering group subject to formal investigation as takeover talks languish

Red flags were raised over Wood Group’s financial statements as far back as 2017, according to corporate and regulatory records that indicate persistent questions over its accounting practices.

The London-listed company — which the UK’s financial markets regulator is now investigating as £242mn takeover talks languish — had to restate an income statement after being questioned over its 2022 annual report by the country’s accounting watchdog. It was the second time the Financial Reporting Council had found problems with Wood’s accounts.

The energy engineering company’s directors also criticised three separate internal audit reports covering certain business divisions in 2022 and 2023. 

One was an “unsatisfactory” audit into Wood’s projects division, its second-biggest by revenue. The unit is at the centre of a crisis after an independent review by Deloitte — prompted by conversations with Wood’s auditor KPMG — found “material weaknesses and failures” in its financial culture, including information being withheld from auditors. 

It marks the latest sign of trouble at Wood, which has had to suspend its shares while it restates accounts for 2023 and 2022 and prepares those for 2024, complicating a potential takeover by the United Arab Emirates-based Sidara.

Sidara declined to comment. It was still intent on seeing the deal “over the line”, according to one person close to the company.

“These issues complicate life for everyone involved, but the push continues,” the person said.

Wood has extended the deadline for Sidara to complete its offer several times, with the current target set for the end of July.

Before its slump, Wood had been a homegrown success story of the UK’s development of its North Sea resources. It had a market capitalisation of more than £5bn as recently as 2018 but has been struggling since a £2.2bn takeover of Amec Foster Wheeler in 2017 left it with high debts and legal liabilities. Its market cap fell to about £126mn before its shares were suspended on May 1.

The company announced on June 27 that it was being investigated by the Financial Conduct Authority, the UK’s financial regulator, following the Deloitte review. The FCA, which can impose swingeing fines, can investigate listed companies beyond the financial sector for the accuracy and timeliness of statements made to the market.

Separately, Wood’s finance chief Arvind Balan, who joined the company in April last year, resigned in February after admitting misstating his accounting qualifications.

The FRC can review a company’s reporting to the market if it feels that the published information does not comply with legislation. If it finds a problem, the regulator can then write to the group’s chair. 

In the case of Wood, the FRC reviewed its reporting three times, two of which led to such a “substantive” exchange of letters regarding Wood’s 2017 and 2022 accounts, according to the regulator’s website. 

Wood came under particular scrutiny from the FRC for not including $54.5mn of currency-related changes in its 2022 “statement of comprehensive income” despite the figure being included in a separate statement that tracks movements in shareholders’ equity.

Wood acknowledged the error and agreed to restate the statement of comprehensive income, the FRC’s summary said. It also promised to enhance its disclosures around so-called liquidated damages, in response to a separate FRC criticism the same year.

In its 2022 annual report, Wood said the change was “deemed not to be material by the directors”. No FRC summary is available for the exchange over the 2017 accounts.

The company’s own annual reports also reveal questions raised by its directors. 

The 2023 report details that the audit, risk and ethics committee held a review over an “unsatisfactory group audit and risk report”.

The 2022 annual report mentions the same committee held a “review with senior business leadership of an unsatisfactory audit report in the projects business unit and actions taken”, along with a similar issue in the consulting business unit.

Wood, the FRC and the FCA declined to comment.

Germany argues state aid will benefit Eurozone if bloc’s largest economy is revived

Germany is exploring ways to fund multibillion-euro subsidies for energy-intensive companies as part of Chancellor Friedrich Merz’s pledge to boost the competitiveness of the country’s heavy industries.

The measure is part of efforts to reduce electricity costs for industrial groups to revitalise the Eurozone’s largest economy after its longest postwar period of stagnation.

But the plan is at risk after promised electricity tax cuts for households were shelved because of budget constraints.

The financial concerns have created the first significant tensions within the ruling coalition between Merz’s CDU, its sister Bavarian party the CSU and the Social Democrats.

Last week, CSU party leader Markus Söder criticised finance minister and vice-chancellor Lars Klingbeil, who is also the co-leader of the SPD, for not delivering electricity tax cuts for consumers in his first budget. The measure would have cost about €5.4bn annually.

Notwithstanding those budgetary concerns, Katherina Reiche, the German economy minister, wants to expand the number of German companies eligible for electricity price subsidies from 350 to 2,200, according to people with knowledge of the plan.

The measure would fund up to half of companies’ electricity bills over three years and would cost the state about €4bn, according to preliminary estimates, they said.

The economics ministry expects the plan will comply with the EU’s new state aid framework, outlined last month, they said.

Reiche, a former energy executive from the CDU, pressed Brussels to allow greater state support for Germany’s heavy industries, arguing that the Eurozone would benefit if its largest economy started growing again.

Germany has endured higher energy costs in part because of its closure of nuclear energy and its decision to wean itself off cheap Russian gas after Moscow’s full-scale invasion of Ukraine in 2022.

The economy ministry said the scheme would aim to deliver “swift and reliable” support for the chemical, glass and plastics industries, which have “a far-reaching impact on other sectors through the value chains”.

“We are developing a viable concept that we will co-ordinate within the government and closely monitor in co-operation with the European Commission,” it said.

Last month, the Commission said it would permit member states to subsidise as much as half of industrial companies’ power costs to help them decarbonise. The decision was viewed by many in Brussels as a way to help Merz fulfil his campaign promise.

But a post-election spending spree has saddled Merz’s coalition with another problem: a potential breach of the EU’s fiscal rules. Berlin, which has loosened its constitutional borrowing limit to boost defence and infrastructure spending, will submit its expenditure plan this month for the next four years.

Long the guardian of EU’s fiscal discipline, Germany now predicts that its federal deficit will rise to €82bn this year, from €33bn last year. That is expected to widen to €126bn by 2029, according to the German finance ministry.

The planned reduced electricity price for industries has yet to be examined by the finance ministry, the people familiar with the matter said. If adopted, the EU Commission would have to formally approve the state aid.

‘Final step’ in resolving EV tariff dispute hinges on EU political will, CCTV says, as Xinhua calls diversion fears ‘grossly overstated’

China and the European Union have largely finalised the “technical” part of negotiations towards resolving their electric vehicle (EV) tariff dispute, with the deal now hinging on “political will” from the European side, according to Chinese state-affiliated media.

Yuyuan Tantian, a social media account linked to state broadcaster CCTV, reported on Friday night that the “technical negotiations” were essentially complete, with only the “final step” remaining. “The key now depends on whether the EU can demonstrate the necessary political will to push for a resolution of the issue,” it said.

Meanwhile, state news agency Xinhua in a commentary on Saturday dismissed claims of a new “China shock”, describing fears that Chinese exports deflected by US tariffs were flooding Europe as “grossly overstated”.

In April, China and the EU agreed to negotiate a “price undertaking” mechanism that would allow Chinese EV makers to avoid tariffs by adhering to minimum export prices. The dispute centres on EU tariffs of up to 45.3 per cent imposed last October on Chinese EVs, to counteract what Brussels sees as an unfair edge enjoyed by Chinese manufacturers due to huge state subsidies and lower production costs.

The reported progress in the talks comes ahead of a critical EU-China summit that is expected to primarily focus on trade issues. EU leaders led by European Commission President Ursula von der Leyen are expected to visit Beijing later this month as the two sides mark 50 years of diplomatic ties.

Over the past two years, the EU has persisted in challenging Beijing on trade issues, including subsidies, alleged dumping and other practices that “distort the market”, with numerous investigations either ongoing or at the planning stage.

Beijing, which has retaliated with its own trade measures, accuses the EU of protectionism and insists that any deal must respect World Trade Organization rules.

In the latest reciprocal action, China’s Ministry of Commerce on Friday imposed anti-dumping tariffs of up to 34.9 per cent for five years on European brandy – mainly from France.

But the ministry also said that major players in the cognac industry would be exempt from the duties taking effect on Saturday, provided they sold at a minimum price, which it did not disclose.

The move coincides with Foreign Minister Wang Yi’s European tour aimed at easing trade disputes, which saw him tell his German counterpart in Berlin on Thursday that rare earth exports should not strain China-EU relations.

Tensions have escalated in recent months over China’s curbs on rare earth elements and magnets – crucial to making smartphones and EVs – which have forced some European companies to halt manufacturing operations.

Wang emphasised on Thursday that controlling dual-use goods was a sovereign right and an international responsibility. He also mentioned China’s “fast track” process for European firms and recent approval of several export licences.

China’s commerce ministry said last week that it had accelerated reviews of rare earth export licence applications and already approved a number of them.

Wang’s comments in Berlin came after the EU urged China to ease export controls on seven rare earth minerals that had disrupted supply chains, especially in the auto industry.

Meeting Chinese Commerce Minister Wang Wentao in Paris last month, EU trade commissioner Maros Sefcovic said the issue was a “priority”. They also made “significant progress” over issues of export controls, market access and tariffs on Chinese-made EVs, Chinese state media reported.

In its commentary published on Saturday, Xinhua said EU fears of Chinese “trade diversion” due to US tariffs were “rooted not in economic reality but in political anxiety”.

Such a narrative “risks undermining one of the world’s most vital economic relationships,” it added.

The article cited trade data and think tanks to assert that China’s exports to the EU remained stable and were not significantly redirected from the US, with minimal sector overlap.

“If China were truly weaponising exports to circumvent US tariffs, the data would paint a starkly different picture. In reality, the EU’s alarm over trade diversion is grossly overstated,” it said.

China’s focus on domestic demand and economic reforms reduced the need for export diversion, the article emphasised, while urging the EU to deepen industrial cooperation and develop a long-standing, mutually beneficial bilateral relationship.

“As China and the EU mark the 50th anniversary of the establishment of diplomatic relations this year, it is worth remembering that decades of cooperation have made the two sides vital trade partners,” it said.

“By upholding multilateralism, defending fairness and justice, and resisting unilateral bullying, China and Europe can together meet global challenges, anchor globalisation amid turbulent times, and foster a more equitable and inclusive world.”