Macroeconomic Analysis: TACO Impact

[Market Information]

①Trump announced a cooperation framework with NATO regarding Greenland, retracting tariff threats against eight European countries and confirming no military seizure of the island. ②Precious metals plummeted following Trump’s announcement on Greenland, while US stocks, bonds, and the dollar strengthened. ③Sweden's largest pension fund has sold off the majority of its holdings in US Treasuries, with this sale amounting to approximately $7.7 to $8.8 billion. ④The European Parliament announced an indefinite freeze on the review of the EU-US trade agreement. ⑤Potential Greenland deal revealed: Small land concessions for US military base construction.

[Core Analysis and Transmission Logic]

The current macro environment exhibits core characteristics of a global geopolitical reshuffle alongside domestic structural divergence, with precise policy-driven stabilization efforts underway. The old global system led by the United States is accelerating toward a 'fractured' end, with multilateral order dysfunction and intensified major power competition becoming the norm. The dispute over Greenland has escalated tensions between the US and Europe, with the US imposing tariff threats on eight European countries. The EU responded with retaliatory lists and freezing trade agreements, highlighting a significant transatlantic trust rift. Sweden and Denmark's pension funds have begun divesting from US Treasuries, undermining their traditional safe-haven status, leading global financial markets into a risk-averse phase, with Japan’s market also affected. Against this backdrop, the Bank of Japan’s policy direction is under close scrutiny. It is expected to maintain existing interest rates at its latest meeting, continuing a hawkish tone, with Governor Ueda likely explaining that this move aims to assess the market impact of last year’s rate hike. Meanwhile, Iran remains a 'geopolitical black swan,' exacerbating regional uncertainty as middle powers adopt 'variable geometry' cooperation models, focusing on strengthening domestic capabilities to hedge risks.

Domestically, China’s economic performance in 2025 reflects a 'strong supply, stable external demand, weak domestic demand' divergence. High-end manufacturing and green transformation lead on the supply side, supported by the implementation of the China-US agreement and advantages in new momentum industrial chains driving export growth. Weak domestic demand remains a core challenge. As the first year of the '15th Five-Year Plan' in 2026, GDP growth is projected at 4.5%-5%, with boosting domestic demand seen as central to stabilizing growth. Recently, monetary and fiscal policies have shown efficient coordination, with targeted structural tools addressing key sectors. Marginal improvements are already visible in infrastructure and real estate starts.

Overall, geopolitics has rewritten the logic of global asset pricing, with risk aversion and diversified allocation dominating capital flows over the long term. US dollar assets remain pressured by America’s structural challenges, while middle powers’ united self-strengthening emerges as a crucial hedging path. China’s economy continues to play a 'stabilizing anchor' role, with strong supply-side competitiveness and resilient external demand providing foundational support. Precise policy synergy is tackling domestic demand shortfalls and may effectively hedge against external uncertainties, laying a solid foundation for the start of the '15th Five-Year Plan.'

Author: Zhou Ji, Senior Director of South China Research Institute Z0017101

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