The CRINKs

The CRINKs is an unofficial alliance of autocrats – China, Russia, Iran, and North Korea – that has been taking shape in recent years and has been operating to deadly effect in Ukraine.

There would appear to be no formal alliance, but the CRINK states provide support to each other through economic, military, and diplomatic resources.

Iran has provided Russia with countless numbers of Shahed-136 attack drones as well as Fateh-110 short-range ballistic missiles. It is also believed to have helped Russia build a massive drone factory in Tartarstan capable of manufacturing 6,000 drones a year. Meanwhile, North Korea has supplied ground troops for the war in Ukraine as well as sending vast quantities of artillery shells, short-range missiles, and anti-tank rockets. While China has not so far provided Russia with lethal weapons, it is thought to have supplied machine tools and microchips to support Russia’s war effort. China has also funded Putin by buying Russian oil and it is believed to account for half of the country’s exports. China also accounts for 90% of Iran’s oil exports!

The CRINKs alliance was very much on display in Red Square, Moscow, during the recent 80^th VE Day commemoration with Putin surrounded by leaders from Belarus and Venezuela but pride of place given to China’s President Xi Jinping. Putin also embraced the North Korean generals whose troops helped Russia take back territory in the Ukraine-held Kursk region. The VE Day military parade also included a contingent of Chinese troops and Iranian drones.

If the rise of the CRINKs was not worrying enough, it coincides with the potential weakening of NATO as Trump forces its European members to be more responsible for their own security. This is so the US can focus on China and the Pacific. However, the situation has been further clouded by Trump’s reciprocal tariff policy. US allies such as the UK, Australia, Canada, members of the EU, Japan and South Korea have all been targeted with tariffs. While the UK is the first to reach a framework deal, there is no guarantee that the others will. If tariffs hit their economies, then that suggests there might be greater pressure on defence budgets.

The US appears to be making headway with China on trade talks, while hopes of peace talks between Russia and Ukraine remain. However, it is alarming that the bad guys are growing closer, stronger, more intimidating as the good guys are in disarray.

 

What have we been watching?

 

The US equity market continued to rally, helped by Trump’s multi-billion Middle East business deals and the previous weekend’s trade agreement between the US and China. Both the US and China slashed their tariff rates by 115%, with the US rate on China cut from 145% to 30% and China’s rate on the US cut from 125% to 10%. The dramatic reduction in tariffs is only a temporary one for 90 days but as far as the US market is concerned, there’s now a belief that the worst of the trade war has passed and that the trend is now towards de-escalation. 

Trump’s dialling down of some of the more draconian tariffs placed on China should reduce the risk that the US economy slips into recession in 2025. While US recession risks are still ‘elevated,’ two leading US investment houses lowered the chances of recession to 35% and ‘below 50%.’ However, US bond yields have been climbing and the 30-year Treasury yield edged towards 5%. This is once again reaching the levels that triggered sensitivity from the Trump administration, albeit the recent rise in yields has been more orderly than it was in early April. Bond markets remain concerned about the large tax reconciliation bill currently working its way through the US Congress, and particularly the still-elevated budget deficits that are forecast in the near term. With US debt sustainability now more of a concern, bond markets were not helped by Moody’s joining, albeit belatedly, the two other global credit-rating agencies in downgrading the US credit rating from Aaa to Aa1 (stable outlook).

While markets may have lowered expectations of a US recession, they have also dialled back their US interest rate cut expectations. Trump’s policies are likely to keep inflation at uncomfortably high levels for the Fed. Markets now expect just two interest rate cuts of 0.25% by the Federal Reserve (Fed) in 2025. Much now rests on the impact of tariffs on US inflation. The US April inflation data was therefore something of a relief, coming in slightly lower than expected, even though the month included the reciprocal 10% baseline tariffs and the draconian tariffs on China. However, perhaps the April inflation data is still too early for the Liberation Day tariffs to show up in the aggregate numbers and may not start to be fully reflected in consumer prices until May or even June. US producer price inflation was also lower than expected and fell 0.5% during April.

Much also rests on what other trade deals are announced. Trump has already suggested that India has offered to drop all tariffs on goods imported from the US. However, not all trade negotiations may be plain sailing, as clearly Trump has a thing about the EU. Trump said the US-UK trade deal was only possible ‘because of Brexit.’ US Treasury Secretary Scott Bessant also said a deal with Europe ‘may be a bit slower because the EU has a collective action problem.’ EU officials have said they want a better deal than the UK, where the 10% baseline tariff was maintained. Trump announced that the US would be ‘sending out letters’ to 150 countries on its new tariff rates over the next two to three weeks. Over the weekend, US Treasury Secretary Scott Bessent said that those countries not negotiating in good faith will receive a letter with the rate announced on Liberation Day.  

       

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Meanwhile, preparations for a post-Brexit ‘reset’ of relations between the UK and EU were thrown into turmoil after the EU demanded further concessions from London over fishing rights and youth mobility. However, negotiators are believed to have reached a tentative agreement on defence, security, fisheries and youth mobility ahead of the EU-UK summit today.

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Geopolitical events remained in focus with Trump’s tour of the Middle East and Russia-Ukraine peace talks in Istanbul. Trump the showman, Trump the dealmaker, is back on the world stage! US equities were bolstered by several multi-billion-dollar defence announcements, as well as Boeing and AI chip deals with Saudi Arabia and the UAE. Trump also said that Iran must ‘permanently and verifiably cease’ its pursuit of nuclear weapons if it wants to strike a deal with the US. American media reports suggested that Iran is ready to sign an agreement with certain conditions. Trump said that Iran has ‘sort of’ agreed to the terms of a nuclear deal with the US.

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The focus then turned to Istanbul and peace talks between Russia and Ukraine. However, Putin did not attend. Trump told reporters, ‘Look, nothing is going to happen until Putin and I get together. Okay?’ The talks appeared to deliver very little, and a key question will be whether the US might join in announcing new sanctions against Russia. The EU is now looking to target Russia’s ‘shadow fleet’ of oil tankers, which are suspected of helping Russia evade sanctions.

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The UK’s economy grew by more than expected in the first quarter of 2025, expanding by 0.7%. Whilst throwing a lifeline to Chancellor Rachel Reeves, the data covers the period before Trump’s Liberation Day tariffs. Markets expect a second-quarter slowdown in UK GDP growth as fiscal and trade shocks hit the economy.   

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Brent oil edged back to $64 on hopes of a deal between the US and Iran.

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Finally, as well as reviewing the £20,000 cash ISA limit to encourage savers to invest in UK equities, the government has signed a new ‘Mansion House accord’ with 17 major pension funds to release up to £50bn with half to be allocated for UK assets. Will this include the pension fund of Westminster MPs? The Parliamentary Contributory Pension Fund was reported to have less than a 2% weighting in UK equities in 2024! Given Rachel Reeves is so keen to get UK cash ISA savers to invest in UK equities instead of holding cash, isn’t it time for MPs to put their pension pot where their mouth is?

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