Trade War, AI Bubble, and Political Rifts
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Trade War, AI Bubble, and Political Rifts
We are entering an era of "fractured prosperity": a period where nominal growth and market highs coexist with structural fragility.
Navigating Web3 tides with focused insightsBy: arndxt
Translated by: AididiaoJP, Foresight News
2025 is a turning point in the economic cycle.
The market is caught in a paradox.
Beneath the surface calm of soft-landing optimism, the global economy is quietly fracturing along the fault lines of trade policy, credit expansion, and technological overextension.
The next dislocation in the global economy will not stem from a single failure—neither tariffs nor AI debt—but from a feedback loop between policy, leverage, and belief.
We are witnessing the late stage of a supercycle where technology supports growth, fiscal populism replaces trade liberalism, and monetary trust is slowly eroding.
Prosperity has not ended, but it has begun to crack.
This week’s volatility is illustrative.
The VIX experienced its largest spike since April, driven by renewed U.S.-China tariff concerns, then retreated before the weekend after President Trump confirmed that the proposed 100% import tariffs would be "unsustainable." Equity markets breathed a sigh of relief; the S&P 500 stabilized. But this relief is superficial. The deeper narrative is one of exhausted policy tools and overstretched optimism.
The Illusion of Stability
The July U.S.-EU trade agreement was intended to anchor a fragile system.
Yet it is now unraveling under climate regulation disputes and American protectionism. Washington's demand for U.S. corporate exemptions from ESG and carbon disclosure rules highlights a growing ideological divide: European decarbonization versus American deregulation.
Meanwhile, China’s new restrictions on rare earth exports—including a ban on magnets containing trace metals sourced from China—expose strategic vulnerabilities in global supply chains. The U.S. response: threatening 100% tariffs on Chinese imports, a political gesture with global consequences. Though later retracted, it reminded markets that trade has become weaponized finance—leveraged less by economic rationality than by domestic sentiment.
The World Trade Organization warns of a sharp slowdown in merchandise trade by 2026, reflecting a reality: companies no longer invest in supply chains with confidence, but with contingency plans.
The AI Supercycle
Meanwhile, in the AI economy, a second narrative is unfolding—one more subtle, yet potentially more consequential.
We are moving from productive expansion into speculative finance, where “supplier financing surges and coverage thins.” Hyperscalers are now leveraging their balance sheets for expansion at a pace faster than revenue can justify—a classic late-cycle signal of euphoria.
This is nothing new. Of the 21 major investment booms since 1790, 18 ended in collapse, typically as financing quality deteriorated. Today’s AI capex frenzy resembles the late-1990s telecom bubble: real infrastructure gains entangled with credit-fueled speculation. Special-purpose vehicles, supplier financing, and structured debt—the same instruments that once inflated mortgage-backed securities—are returning, now cloaked in “computing capacity” and “GPU liquidity.”
The irony? The AI boom is productive—but unevenly distributed. Microsoft finances its expansion through traditional bonds, signaling confidence. CoreWeave uses special-purpose entities, signaling stress. Both are expanding, but one builds durable capacity; the other builds fragility.
Symptoms of Volatility
The surge in the VIX reflects deeper market unease: policy uncertainty, concentrated stock leadership, and underlying credit stress beneath the veneer of prosperous valuations.
When the Fed now signals rate cuts amid slowing growth, it is not stimulus—it is risk management. The two-year Treasury yield has fallen to its lowest level since 2022, telling us investors are pricing in a contraction of confidence, not just interest rates. Markets may still cheer every dovish turn, but each cut further erodes the illusion that growth is self-sustaining.
Synthesis: Trade, Technology, and Trust
The connecting thread between tariff politics and AI euphoria is trust—or more precisely, the erosion of trust.
Governments no longer trust trading partners.
Investors no longer trust policy consistency.
Companies no longer trust demand signals, so they overbuild.
Gold breaking $4,000 is less about inflation and more about this erosion of belief: in fiat systems, in globalization, in institutional coordination. It is a hedge—not against prices, but against policy entropy.
Path Ahead
We are entering a period of “fractured prosperity”—a time when nominal growth and market highs coexist with structural fragility:
AI investment drives GDP much like 19th-century railroads.
Protectionism stimulates local production while draining global liquidity.
Financial volatility swings between euphoria and policy panic.
At this stage, risks accumulate.
Every withdrawn tariff, every capex announcement, every rate cut prolongs the cycle—but compresses its eventual collapse. The question is not whether the AI or trade bubbles will burst, but how deeply intertwined they will have become when they do.
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