Mission Grey Daily Brief - May 31, 2025
Executive summary
The past 24 hours reveal a world balancing on the edge of shifting power dynamics, with global business and political risk at new highs. The ongoing stand-off between the US and China, deepening China-Russia ties, fresh escalation in the technological arms race, and legal whiplash around Trump’s tariff regime are all entwined in an environment that requires heightened vigilance for international businesses. Meanwhile, Russia's strategy in Ukraine, support from North Korea, and a shifting intelligence landscape underscore the risks of engaging in controversial jurisdictions. Business resilience is being tested as trade war uncertainty, European energy insecurity, and accelerating technological disruption continue to shape the global outlook.
Analysis
1. US-China Tensions and the Trade “Supercycle” Reignite Global Risk
The reactivation of sweeping tariffs under President Trump’s administration has thrown global business into disarray. A recent federal appeals court decision temporarily reinstated Trump’s tariffs, which had previously been deemed unconstitutional by a trade court. This legal limbo is contributing to dramatic market swings, raising costs, and causing companies to pause investment decisions. The International Monetary Fund (IMF) last month downgraded global growth by 0.5 percentage points to 2.8%, warning that the bounce—termed a “sugar rush” driven by stockpiling—could be short-lived as trade friction saps momentum later in the year. Japanese companies, for example, remain exposed due to the US representing 21 trillion yen (approximately $146 billion) in exports, with automobiles counting for 28% of the total. Meanwhile, global companies have reported $34 billion in costs directly attributed to the US trade war—costs that could balloon as tariff uncertainty persists [Global economy'...][BREAKING NEWS: ...][Economic Uncert...][Trump accuses C...][NexUZ-7].
Compounding these economic headwinds, President Trump has escalated rhetoric against Beijing, accusing China of "totally violating" the trade deal, and hinting at a doubling of tariffs on key imports. French President Emmanuel Macron, speaking at the Shangri-La Dialogue in Singapore, has underscored the risk these divisions pose to the global order, calling the US-China split "the main risk confronting the world" [Divisions betwe...].
2. China-Russia “No Limits” Friendship: A Unified Front Against the West
As Washington and Beijing butt heads, China and Russia have seized the moment to tighten their bilateral alignment. During high-profile talks in Moscow, Xi Jinping and Vladimir Putin signed documents to “deepen” what they term a “comprehensive strategic partnership for a new era.” Their joint statement, trumpeted by state media, positions their relationship as “the highest level in history,” aiming for even deeper cooperation in energy, technology, trade, and even satellite navigation [Xi and Putin ag...][China, Russia e...]. In many respects, this partnership is strategically designed to challenge the Western-led global order, with Putin boasting that “together, we defend the formation of a more just and democratic multipolar world order” [Xi and Putin ag...].
However, China faces a unique conundrum: while it seeks leverage over Moscow and sees economic gains from cementing Russia’s reliance, Trump’s push for a US-Russia “reverse Nixon”—cutting a deal on Ukraine with Moscow, sidelining Beijing—has left China scrambling to assert relevance. Recent US overtures to Russia have surprised and unsettled Chinese leaders, resulting in more aggressive diplomatic and economic moves to shore up ties with the EU and court international partnerships as insurance against strategic exclusion [What China fear...][China aims to i...].
3. Russia’s Escalating Hybrid Warfare and the Ukraine Front
On the ground, Russia’s war in Ukraine continues unabated, with Moscow suffering close to 1 million casualties and losing vast stores of hardware—an estimated 10,865 tanks and nearly 40,000 drones. Even as peace negotiations receive public lip service, evidence suggests the Kremlin continues to escalate, massing as many as 50,000 troops for new offensives in northeast Ukraine [Vladimir Putin'...]. North Korea’s support has become crucial: up to 11,000 North Korean troops are reportedly deployed in Russia, with millions of North Korean munitions and over 100 ballistic missiles delivered this year—grave violations of existing UN sanctions [‘Stabbed in the...][Russia and Nort...].
Russia’s response to Western efforts is increasingly subversive. Espionage campaigns, sabotage attempts, and cyber-attacks have intensified across Europe in what NATO officials now label the “largest counterintelligence operation since the Cold War.” Over 750 Russian diplomats have been expelled since 2022, and Russian military intelligence (GRU) units like 29155 and 54654 are aggressively ramping up sabotage operations. This comes as Russia adapts sanctions-busting strategies, maintaining a war chest largely thanks to oil revenues from Europe—Russia has outearned Ukraine threefold since the invasion, primarily from continued European gas and oil purchases [A 'reckless cam...][Russia won’t ag...].
4. The Global Technological Arms Race and Business Adaptation
The technological race—particularly in AI—has become a significant component of the geopolitical struggle. US and Chinese tech giants are now pressuring their respective governments for looser copyright and data regulations, citing the imperative to stay ahead of rivals. Meta’s recent launch of its Llama 4 open-source AI model signals a paradigm shift. Policymakers worry that the country dominating AI will accrue overwhelming economic, military, and cultural power. But the AI revolution is not innocent: deepfakes, digital scams, and regulatory gaps expose significant security and ethical risks, especially as authoritarian actors deploy technology for surveillance or disinformation [AI Radar: Geopo...]. As old supply chains reconfigure, US chip export restrictions are projected to cost tech behemoths like Nvidia up to $8 billion in quarterly sales, underscoring the heavy cost of compliance with the new global tech regime [RECENT GEOPOLIT...].
Conclusions
May 2025 stands out as a watershed moment, with the world entering what some strategists see as a “geopolitical risk supercycle.” The unprecedented legal and regulatory volatility, weaponization of trade, deepened authoritarian alignment, and escalation in hybrid conflict put extraordinary demands on international businesses.
For organizations seeking resilience, now is the moment to diversify supply chains, ramp up scenario planning, and re-examine exposure to jurisdictions with high risk of corruption, opaque governance, or flagrant human rights abuses. The risks of doing business in or with China and Russia have never been clearer. For those committed to the values of transparency, fair competition, and respect for human rights, the message is unequivocal: risk management is the cornerstone of sustainable international growth.
Questions remain: Can Europe and the US manage a united response to authoritarian assertiveness without succumbing to economic self-harm? Will global businesses seize the opportunity to shift toward more resilient, ethical, and diversified structures? As the multipolar world takes shape, who will write the rules—those who uphold them, or those who seek to bend them? The answers will determine not just market outcomes, but the fabric of the international system in the years ahead.
Further Reading:
Themes around the World:
New Foreign Investment Screening Regime
Japan launched a CFIUS-style investment screening mechanism on June 29 under revised FEFTA, coordinating cross-ministry reviews of foreign investments for security risks, particularly from China. Recent blocked deals signal heightened scrutiny for inbound M&A and acquisitions of strategic firms.
Monetary easing versus war inflation
The policy mix is in flux as inflation appears contained but conflict-related supply constraints remain. The policy rate has fallen from 4.5% to 3.75%, and pressure for faster cuts is rising, affecting borrowing costs, consumer demand, real estate, and corporate financing conditions.
Maritime Tensions Threaten Shipping Routes
China’s growing grey-zone maritime activity around Taiwan and the South China Sea is increasing operational uncertainty for shipping and insurers. Expanded patrols, vessel questioning and sovereignty enforcement raise the risk of rerouting, higher premiums, delays and contingency planning for regional supply chains.
Deepening China Economic Engagement
China remains Korea's top trading partner ($130B exports), with premier-level talks resuming after seven years to accelerate FTA phase-two negotiations and expand cooperation in semiconductors, AI and new energy, though creating strategic dependency amid US-China rivalry and Taiwan-contingency risks.
Digital Sovereignty and AI Acceleration
After US restricted Anthropic model access, France dropped Palantir for French ChapsVision, added €655m for AI, and backs Mistral's €3bn raise. With Europe hosting only ~5% of global compute, sovereignty is reshaping procurement and tech investment strategies.
Escalating Western Sanctions Regime
The EU extended sanctions for a full 12 months to July 2027 and is preparing a 21st package targeting up to 90 banks, crypto platforms, LNG vessels and shadow fleet. UK, US and Canada expanded lists, tightening compliance risks for firms trading with Russia.
US Export-Control Enforcement Slowdown
Washington delayed blacklisting DeepSeek, CXMT, and over 100 flagged Chinese firms despite interagency approval, to avoid escalating tensions. The pause since October weakens a key national-security tool, reflecting trade priorities overriding semiconductor and AI containment efforts.
US Trade Deficit and Negotiation Friction
Taiwan's US trade surplus surged to $71.5 billion in four months, becoming America's largest deficit source, over 90% from semiconductors. This raises pressure for more US investment, purchases, and market access, while a Reciprocal Trade Agreement and Section 301 probes remain unresolved.
Nordic deterrence coordination deepens
Coverage indicated Finland is coordinating more closely with Nordic peers on deterrence policy, while evaluating wider European nuclear arrangements. For companies, tighter Nordic security integration may support joint infrastructure and defense procurement, but also reinforce regional exposure to Russia-related tensions.
Water and Infrastructure Constraints
Advanced manufacturing expansion is increasing pressure on reservoirs, industrial land, grid capacity, and logistics. TSMC has warned about water supply after recent drought concerns, making infrastructure reliability a core consideration for investors, insurers, and supply-chain planners evaluating Taiwan exposure.
Strategic autonomy reshaping procurement
France is increasingly linking procurement to sovereignty, resilience, and reduced external dependence, especially in digital, defense, and critical infrastructure. International firms can still compete, but market access will increasingly depend on local hosting, partnerships, and trusted European supply chains.
Weakening Business Investment Climate
LVMH's Bernard Arnault publicly criticized fiscal measures deterring investment, reflecting broader concern. Startups at Station F fear the 2027 election and tighter immigration rules, while high labor costs and taxes weigh on France's attractiveness for foreign capital.
Deepening Saudi-China Strategic Alignment
Bilateral trade reached $107.5 billion in 2024, with China as Saudi Arabia's largest partner and top crude buyer. Riyadh's post-war hedging toward Beijing—spanning energy, technology, drones, and supply chains—reshapes investment flows and raises Western-alignment compliance considerations for firms.
Record Defense Spending and War Uncertainty
Ukraine will spend a record $98 billion (4.4 trillion hryvnia) on defense in 2026 amid renewed G7 diplomacy and tentative ceasefire talks, while ongoing fighting and war-risk insurance gaps continue deterring large-scale strategic investment.
Escalating Chinese Maritime Coercion
China keeps 5-6 warships continuously encircling Taiwan, with Coast Guard 'law-enforcement' patrols east of Taiwan intercepting merchant ships. Analysts warn of 'salami-slicing' toward a quasi-blockade, threatening shipping insurance costs, energy imports, and supply-chain continuity without open war.
US Tariff Uncertainty Reshaping Exports
Following US Supreme Court invalidation of reciprocal tariffs, Thailand faces a temporary 10% Section 122 levy expiring July 24 plus pending Section 301 probes on overcapacity and forced labor, creating significant uncertainty for export-oriented investors and supply chains.
Weak Domestic Demand Drags Growth
China’s weak consumption, property slump and low-yield environment continue to weigh on growth and pricing power. Businesses face softer demand, cautious household spending and persistent margin pressure, while policymakers prioritize financial stability and industrial policy over broad-based stimulus that would quickly revive consumption.
US Alliance Trust Erosion, China Warming
Lowy polling shows record-low 31% US trust and 51% prioritising China ties over Washington, though AUKUS support holds at 68%. This dual scepticism reshapes Australia's diplomatic posture, affecting trade diversification and strategic risk calculations for investors navigating US-China tensions.
Manufacturing Competitiveness Under Pressure
Thailand’s export base is under pressure from weaker competitiveness and rising import dependence. April’s trade deficit reached US$6.8 billion, the worst in 20 years, with analysts attributing 41% to fuel, 28% to China, and 26% to Taiwan-related imports.
Fragile US-Iran Ceasefire and Lebanon Risk
A US-brokered interim deal paused the 2026 Iran war, reopening the Strait of Hormuz, but Israel keeps operating in southern Lebanon. Continued strikes, a 60-day negotiation window, and Hormuz re-closure threats sustain energy-price volatility and regional supply-chain risk.
India trade deal implementation
The UK-India trade pact enters into force on 15 July, liberalising 99% of UK tariffs and 90% of Indian tariffs. It should boost bilateral trade by £25.5 billion annually, with direct implications for autos, whisky, textiles, professional mobility and sourcing decisions.
High Interest Rates Squeezing Business
The central bank holds rates at 14.25% amid 6% inflation, cutting only a quarter point despite pressure from business and Putin. Elevated borrowing costs constrain non-defense investment, rising bad loans (11-12%) threaten banks, and GDP growth is forecast at just 0.4-1%.
Third-Country Exposure Expands
Recent EU and UK sanctions increasingly target non-Russian entities in China, Türkiye, the UAE, Hong Kong, and elsewhere that support Russian trade and procurement. Multinationals therefore face broader secondary exposure across distributors, banks, logistics providers, and component suppliers.
RBA Rate Hikes Squeeze Borrowers
After three 2026 hikes lifting the cash rate to 4.35%, with core inflation at 3.6% above the 2-3% target, markets price another hike to a 15-year-high 4.6%, raising financing costs and squeezing leveraged businesses and households.
Agriculture Weakness and Climate Exposure
Agricultural stagnation, water stress and climate volatility are raising food-security and input risks for business. Pakistan now imports wheat, cotton, pulses and edible oil, while flood, heatwave and erratic monsoon risks threaten agro-processing supply chains, textile inputs and rural demand.
Warming China Trade Ties Amid Risks
Lowy polling shows 61% now view China as economic partner and 51% prioritise Beijing over Washington, as punitive tariffs ended under Albanese. China remains Australia's largest trading partner, though strategic mistrust and coercion risks persist for exporters.
USMCA Renegotiation Uncertainty
Virtual trilateral talks begin July 1 amid Trump's preference to let USMCA expire. Disputes over rules of origin (50% US content for autos), Section 232 metal tariffs, and Mexican constitutional energy/mining changes create North American supply-chain and investment uncertainty.
US Tariff Threat Targets Brazilian Exports
The USTR proposes up to 37.5% tariffs (25% Section 301 plus 12.5% forced-labor) on Brazilian goods, with a July 15 decision pending. Exemptions cover ~60% of exports, but specific sectors face severe disruption amid politically charged negotiations.
Rupiah Crisis and Capital Flight
The rupiah hit record lows beyond 18,000/USD (down ~8% in 2026), Jakarta's stock index fell over 40%, and foreign bond ownership dropped to 12.6%. Fitch and Moody's turned outlooks negative, sharply raising currency, financing, and import-cost risks.
Exports and Growth Reprice Taiwan
Strong AI-led exports are reshaping macro expectations, with Citi and UBS lifting 2026 GDP forecasts to 9.9%. Taiwan’s external position and current-account outlook support investment appeal, but raise concentration risk if global electronics demand or semiconductor cycles weaken suddenly.
Diplomatic Windfall From US-Iran Mediation
Pakistan's brokering of US-Iran peace elevated its standing with Washington, London, Gulf states, and Iran, potentially unlocking foreign investment, trade access, and regional integration—though analysts stress gains depend on structural reforms, not goodwill.
US Tariff Regime Favors Pakistan
Trump's Section 301 tariff overhaul positions Pakistan at a 10% rate versus India's 12.5%, granting competitive export advantage in the US market—stalling the India-US trade deal and enhancing Pakistan's textile and export attractiveness.
Escalating North Korea Military Threat
Pyongyang rejected denuclearization, designated Seoul its most hostile state, tested rockets capable of striking the Seoul metropolitan area, and expanded its navy with Russian assistance, heightening peninsula security risk for businesses in the densely industrialized capital region.
Fragile US-Iran Deal and Regional Conflict Risk
An interim US-Iran accord reopened the Strait of Hormuz but remains fragile amid renewed Israel-Hezbollah fighting and Iranian strikes on Gulf bases, threatening energy shipping, oil prices, and regional stability that underpin all business operations in Israel.
Agronegócio e meio ambiente
O agronegócio segue central para exportações, mas enfrenta maior escrutínio sobre desmatamento ilegal e trabalho forçado. Questões socioambientais já aparecem em disputas comerciais, elevando exigências de rastreabilidade, due diligence e governança para exportadores e investidores estrangeiros.
AI Chip Controls Tighten
Taipei is weighing broader export controls on advanced AI chips and servers to China, potentially criminalizing smuggling and extending restrictions beyond Huawei and SMIC. Firms face heavier compliance burdens, trade friction with Beijing, and possible rerouting of regional technology supply chains.