China’s Record Surplus, Fed Independence Risks In Focus

China ended 2025 with a record external surplus even as its goods trade with the US weakened sharply. Beijing reported a record $1.18T surplus for 2025, underscoring how exporters rerouted sales after a year of shifting US tariffs. The headline contrast is stark: China’s December exports to the US fell 30% to $34.2B, yet overall exports still rose.

How did that happen. China diversified buyers and leaned harder into nearby supply chains. In December, exports to the EU and ASEAN rose 11.6% and 11.1%, as shipments to Vietnam jumped 20.5% and Thailand 20.7%, according to customs data. Over the full year, exports to Vietnam rose 22.4% to $198.1B, while exports to the US totaled $420B, down 20% from 2024.

The catalyst was US tariff escalation and de escalation across 2025, which pushed Chinese manufacturers to find new end markets and, in some cases, reconfigure routes. Yahoo Finance summarized that the US tariff path moved from an added 34% levy in April, briefly spiking to a 104% total duty, then down to a truce level before the average rate settled near 47% after an October deal. Meanwhile, China’s ports show the logistics machine stayed busy. Shanghai handled 55.1M TEUs in 2025, up 6.9%, while Ningbo Zhoushan topped 43M TEUs, up 9.4%, per port throughput figures.

For investors and operators, the near term impact is a two sided signal: US import exposure to China is cooling, but global competition from Chinese exports is intensifying. Expect more scrutiny of transshipment and more trade defenses across markets. Position around supply chain rerouting risk, not just US China headline tariffs.

US monetary policy just picked up a political risk premium, even if markets are not yet fully pricing it. Minneapolis Fed President Neel Kashkari argued the economy is best served by an independent Federal Reserve as scrutiny of the central bank rose ahead of a leadership transition. Kashkari rotates in as a voter on the Federal Open Market Committee this year, with the next decision due at the end of January.

The immediate catalyst is the clash between the Trump administration and the Fed over monetary policy and the optics of the Fed’s Washington renovations. The New York Times reported Kashkari said the administration’s actions were “really about monetary policy”, following Justice Department grand jury subpoenas served last week. Investors have so far been “sanguine,” but the risk is that perceived pressure on rate setting can push term premiums higher and complicate the Fed’s communication.

On the data and policy path, Kashkari sounded constructive on growth while still uncertain on the inflation glidepath. Reuters quoted him expecting inflation to head down, but not knowing whether it lands near 2.5% by year end or higher, while the fed funds target range remains 3.5% to 3.75% after last year’s easing cycle, per his remarks. He also emphasized the dual mandate tradeoff: cutting too aggressively could weaken the labor market, while staying restrictive too long risks prolonging above target inflation.

Likely next steps are about personnel and messaging. The White House is expected to name a Powell successor ahead of the chair’s term ending in May, and Kashkari framed the chair as one vote where “the best argument wins,” per the same Reuters report. Readers should watch whether political noise starts to move longer dated yields and inflation expectations, not just the next meeting decision.

Rate policy may still be a slow burn, but governance headlines can move fast. Treat Fed independence signals as a real input to risk positioning, especially in rates sensitive and duration heavy exposures.

The UK economy posted a cleaner end to 2025 than markets expected, easing fears that autumn weakness was turning into something more persistent. Office for National Statistics data showed GDP grew 0.3% in November after an October decline, beating the 0.1% consensus cited by economists polled by Reuters. The rebound comes as policymakers and businesses try to gauge how much runway the Bank of England has to keep cutting rates into 2026.

The composition matters for the “how.” Services rose 0.3% and production jumped 1.1%, while construction fell 1.3%, according to the ONS breakdown. CNBC also noted sterling was largely unchanged after the release, last around $1.3433, suggesting investors saw the surprise as helpful but not yet decisive for the broader rate path.

Why the bounce now. October’s weakness was tied in part to a Jaguar Land Rover cyberattack that hit production, plus pre Budget uncertainty. Bloomberg highlighted the industrial recovery after the cyberattack as a key driver of November’s pick up. That framing implies the November strength is partly normalization, not purely new demand, which is crucial for judging whether growth can sustain into Q1.

Next steps likely center on the BoE’s easing cadence and whether improving surveys translate into real activity. Deutsche Bank expects a stronger start to 2026 and sees 2026 growth slightly below 2025’s 1.1%, with quarterly growth around 0.35% quarter on quarter, per its comments. A stabilizing labor market would strengthen the case for continued cuts. Renewed weakness in construction and hiring would do the opposite.

Use this print as confirmation that the UK is not stalling, but also as a reminder to separate one off rebounds from trend growth. The next monthly GDP and labor market data will determine whether November was a blip or the start of a steadier 2026.

• China’s export pivot: watch whether new trade barriers emerge after the record surplus, especially in EVs, batteries, and solar supply chains.
• US China flows: monitor whether US import volumes keep sliding after the projected December cargo drop and what that means for inventory and freight pricing.
• Fed independence risk: track any escalation tied to the Fed investigation as a driver of long-end yields and volatility.
• BoE path: see if November’s 0.3% GDP rebound shows up in surveys, hiring, and retail, validating expectations for 2026 rate cuts.