Unadorned Notes: May 5-9, 2025
Fed Holds Rates Amid Tariff Risks; AI Disrupts Google’s Dominance; China Export Surge Defies Tariffs; U.S.-UK Deal Targets China; India-Pakistan Clash Escalates Tensions
Economics, Finance, and Business
Jobless Claims Drop, Productivity Falls: Initial U.S. jobless claims fell by 13,000 to 228,000 for the week ending May 3, 2025, reversing a spring break-driven spike, indicating continued labor market resilience. However, first-quarter nonfarm productivity declined at an annualized rate of 0.8%, the first contraction since 2022, amid rising labor costs and weaker output due to tariff-related disruptions. Unit labor costs surged 5.7% quarter-on-quarter, while annual growth slowed to 1.3%, reflecting growing margin pressures on firms. Imports surged as businesses frontloaded shipments ahead of new tariffs, contributing to a 0.3% GDP contraction in Q1 and raising concerns about sustained economic weakness. Despite an unchanged unemployment rate at 4.2%, the median duration of joblessness increased, signaling mounting risks to hiring and broader economic growth.1
Fed Holds Rates Amid Tariff Risks: The Federal Reserve voted unanimously to keep interest rates steady, warning that sustained tariff increases could raise inflation, suppress growth, and increase unemployment. Fed Chair Jerome Powell emphasized a “wait and see” approach, citing economic uncertainty and low immediate costs to maintaining current policy. While inflation expectations remain anchored, Powell noted that reacting prematurely without clear data could backfire, especially given the lessons from prior policy missteps. Businesses face uncertainty from sharply increased tariffs—now as high as 145% on Chinese imports—leading to investment delays and declining cargo volumes. Despite first-quarter output contraction and trade disruptions, hard evidence of a broader downturn remains limited.2
QZ’s Comment: The “rising uncertainty” narrative is a signal that rate cuts are not far off. The Fed needs to make one last performative “hold” to show that it will not bow to political pressure. But as I have said many times, the idea that the Fed is above politics is just an illusion.
Bitcoin Surges Past $100,000: Bitcoin rose above $102,000 on Thursday, its highest level since January 2025, driven by improved market sentiment following a U.S.-UK trade deal announced by President Donald Trump. The cryptocurrency gained as much as 5% after Trump suggested more countries may pursue trade agreements with the United States. Coinbase’s $2.9 billion acquisition of crypto options platform Deribit further boosted optimism in the digital asset sector. Bitcoin has rebounded from an April low of $75,000, supported by growing institutional adoption and balance sheet allocations by companies. Analysts estimate that roughly 80 firms now hold about 3.4% of the total Bitcoin supply, contributing to a tighter market and year-to-date gains exceeding 8%.3
AI Disrupts Google’s Dominance: Apple executive Eddy Cue revealed a rare decline in Google search traffic over Safari, attributing it to increased usage of generative AI tools like ChatGPT and Perplexity. The disclosure triggered a $250 billion drop in Alphabet’s market capitalization, reflecting investor concerns over growing competition and the fragility of its search dominance. Google’s global search share has dipped below 90% for several consecutive months, a level not sustained in over a decade, even as it remains far ahead of rivals like Bing. The shift comes amid two ongoing federal antitrust cases seeking structural remedies against Google for maintaining monopoly power in search. Despite continued profitability, Alphabet’s valuation has fallen below the S&P 500 average, underscoring market unease over both regulatory threats and technological disruption.4
OpenAI Retains Nonprofit Governance: OpenAI has abandoned plans to place its business under a for-profit structure, opting instead to remain governed by its founding nonprofit board with fiduciary duty to humanity. The revised structure replaces its capped-profit subsidiary with a public-benefit corporation controlled by the nonprofit, preserving access to major investments including a $30 billion commitment from SoftBank. CEO Sam Altman and Board Chair Bret Taylor said the change simplifies governance and allows the nonprofit to deploy capital toward mission-aligned initiatives. The move follows legal opposition from co-founder Elon Musk, who argued the company was straying from its original purpose. Critics maintain the restructuring is superficial, though OpenAI asserts it will better align its financial and altruistic goals.5
China Export Surge Defies Tariffs: China’s exports rose 8.1% year-on-year in April 2025, exceeding expectations and underscoring Beijing’s resilience ahead of key trade negotiations with the United States. The increase was driven by strong shipments to Southeast Asia, which offset a 21% annual decline in trade with the U.S. and a 17.6% monthly drop in shipments to that market. China’s trade surplus with the U.S. stood at $20.46 billion, while total exports to countries along the Belt and Road Initiative and in the Middle East continued to grow. U.S. tariffs of up to 145% and China’s retaliatory 125% duties have prompted companies to reroute trade through alternative Asian markets. European officials raised concerns about China's growing trade surplus and uneven market access, intensifying scrutiny of its export practices.6
QZ’s Comment: The high export numbers are mainly due to low-value, low-tech goods in South-South trade, as well as domestic weakness in household consumption, employment, and services, showing China’s tactical adaptation and resilience in a collapsing globalization paradigm. The new regime is previewed in the U.S.-UK trade deal (see below), not in the retrospective Chinese data.
U.S. Politics, Policies, and Geopolitics
U.S.-UK Deal Targets China: The United Kingdom has agreed to meet stringent U.S. security requirements on steel and pharmaceutical supply chains in exchange for limited tariff relief, marking the first trade agreement under President Donald Trump’s new tariff regime. The deal, finalized in seven weeks, ties U.S. tariff reductions to compliance with Section 232 national security reviews and shared security objectives, with China identified as the implicit target. Trade experts view the agreement as a potential model for U.S. efforts to pressure allies to decouple sensitive industries from Chinese investment and inputs.7
Fentanyl Central to U.S.-China Trade Talks: China is sending Public Security Minister Wang Xiaohong to Switzerland for high-level trade negotiations with the U.S., highlighting the central role of fentanyl in ongoing bilateral tensions. Wang, a close aide to Chinese leader Xi Jinping, will join Vice Premier He Lifeng in talks with Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer. The Trump administration has linked fentanyl-related sanctions to trade measures, with current tariffs at 145% on Chinese goods and a proposed reduction to 80% contingent on Beijing’s cooperation. China has signaled willingness to address U.S. concerns over precursor chemical exports, viewing engagement on counternarcotics as a diplomatic offramp. While Swiss officials held parallel talks with China, fentanyl discussions were limited to U.S.-China negotiations.8
Trump Imposes Film Import Tariff: President Donald Trump announced a 100% tariff on all foreign-produced films entering the U.S., citing national security concerns and the need to revive domestic movie production. The policy, lacking implementation details, raised uncertainty over its application to streaming content and sparked concern among studios and international governments. Industry leaders warned that the measure could reduce global production volumes and provoke damaging retaliation against U.S. media exports. Foreign officials, particularly in the UK, Australia, and New Zealand, expressed alarm over potential job losses and economic impacts in their film sectors.9
Bessent Urges Debt Limit Hike: U.S. Treasury Secretary Scott Bessent warned Congress that the federal government could run out of cash by mid-July if the debt ceiling is not raised. In a letter to congressional leaders, Bessent emphasized the risks of a default, which he said would severely disrupt financial markets and undermine U.S. global leadership. The national debt has reached $36.2 trillion, exceeding the statutory $36.1 trillion limit set in January, prompting the Treasury to deploy temporary measures to avert a default. Congressional Republicans are advancing a fiscal package combining tax cuts, spending increases, and a $4 trillion debt ceiling hike, aiming for passage by July 4, 2025. Previous brinkmanship over the debt limit has unsettled markets and resulted in credit rating downgrades for U.S. government debt.10
Israel Sets Gaza Deadline: Israel’s Security Cabinet has approved a plan to reoccupy Gaza indefinitely if no ceasefire and hostage agreement is reached by May 15, timed with President Donald Trump’s visit to the Middle East. The operation, codenamed “Gideon’s Chariots”, would involve large-scale IDF deployment, destruction of remaining infrastructure, and mass displacement of nearly 2 million Palestinians to a designated humanitarian zone. Israel has signaled willingness to proceed without international aid support, despite widespread opposition from hostages’ families and the Israeli public. Hamas continues to demand a comprehensive ceasefire deal, while Israel seeks a limited agreement, and U.S. mediation has largely stalled amid shifting White House priorities. Trump has expressed concern for Gaza’s civilians but is not expected to visit Israel or prioritize the conflict during his trip.11
India-Pakistan Clash Escalates Tensions: India conducted missile and bomb strikes on targets in Pakistan and Pakistan-administered Kashmir, prompting Pakistan to claim the downing of five Indian fighter jets and dozens of drones. Pakistan’s military attributed the aircraft kills to its Chinese-built J-10C jets and likely use of long-range Chinese air-to-air missiles, marking a shift from previous reliance on U.S.-made systems. India, while not confirming any aircraft losses, acknowledged striking at least nine sites linked to alleged terrorist activity and released footage showing targeted precision strikes. The confrontation, marked by a wave of conflicting claims and disinformation, led to significant civilian casualties and damage to infrastructure in Pakistani territory. Stock markets reacted strongly, with gains in Chinese defense firms and a temporary drop in shares of France’s Dassault Aviation, as both countries brace for potential further escalation.12