China’s AI chip ‘Manhattan Project’

By Carmel Crimmins, Reuters Econ World podcast host

Hello there,

When it comes to U.S.-China rivalry, Beijing's upper hand in certain areas – critical minerals and clean energy – is well known. Advanced semiconductors – at the heart of a technological Cold War – is one area where China still lags the U.S. But a Reuters exclusive shows how a government initiative to achieve semiconductor self-sufficiency is bearing fruit. Chinese scientists have built a prototype of a machine capable of producing the cutting-edge chips that power artificial intelligence, smartphones and weapons central to Western military dominance.

China's chip leap forward is the sort of development that President Trump's industrial policy is designed to prevent. Indeed, for all the talk of economic decoupling and tariffs, Chinese consumer brands, such as Labubu-maker Pop Mart, are making deeper inroads into the American retail market. The counterintuitive trend, which started to emerge in 2023 after the COVID pandemic, accelerated this year as lethargic local spending prompted Chinese consumer companies to look abroad, initially in Southeast Asia.

President Trump is being told by allies to look more at kitchen-table issues rather than international conflicts, as next year's mid-term elections loom. He took to the airwaves on Wednesday evening to talk up his economic achievements and vow improvements in the coming year. He's going to need to deliver: a new Reuters/Ipsos poll shows just 33% of U.S. adults approve of how Trump has handled the economy.

Financial markets are anxiously awaiting Trump's pick to replace Jerome Powell as head of the Federal Reserve. Ahead of an interview for that job with Trump, Fed governor Christopher Waller said U.S. borrowing costs should be as much as a percentage point lower. Waller is the preferred candidate among corporate leaders to head the Fed but betting markets still put the two Kevins - Trump's economic adviser Kevin Hassett and former Fed governor Kevin Warsh - ahead of him.

Even with more interest rate cuts likely, the looming change at the top of the Fed is affecting U.S. Treasury bonds. Concerns that Hassett, the current frontrunner, would be more politically malleable, are unnerving investors. I get into that succession drama and what a divided Fed means for the U.S. and global economies in this week's Reuters Econ World podcast. Listen here.

For Europe next year, it's all about Germany. European stock markets have underperformed U.S. equities since the summer and need a German spending bonanza to get their edge back. The European Union's biggest economy has overhauled its fiscal rules to boost infrastructure and defence spending but it has been using some of that leeway on day-to-day spending rather than the kinds of additional infrastructure that would boost the economy and stock performance more durably.

Speaking of stock performance, favorable markets and looser antitrust scrutiny in the United States are expected to keep the mega deals coming next year. Fourth-quarter deal value is already the biggest on record for the Americas and some bankers say next year could even rival 2021, when near-zero rates and COVID stimulus drove M&A to over $6 trillion.

Could oil major BP feature in next year's expected M&A rush? Columnist Ron Bousso writes that the surprise appointment of Meg O'Neill as BP's first outsider CEO offers it three clear strategic choices for moving forward: build, buy or be bought.

Over the past few years, there has been much speculation that BP will be acquired by a bigger rival. Taking over the British energy major would be a hugely costly and complex transaction but with the industry's growing confidence that oil and gas demand will remain robust, consolidation has become more attractive, as it offers companies an opportunity to grow scale and reduce operational costs.

That's it from me and this newsletter in 2025. Thank you for all the great feedback over the year. I hope you all get a break over the holidays and will be back, raring to go, in 2026.

As always, I'd love to hear from you by hitting reply on this email or finding me on LinkedIn.   

The U.S. unemployment rate is 4.6% and steadily rising. Most Fed officials say uncertainty around the unemployment rate is high, with risks skewed to the upside, especially as slow hiring could quickly morph into outright firing.

"I used to never really think about who appointed who at the Fed and certainly didn't write it into my stories. But now I regularly  do point out that 'such and such a governor was appointed by Trump, or appointed by Biden' because it does seem to have some relevance."

Anne Saphir, Reuters Fed and economics reporter, on this week's Reuters Econ World podcast.

On this week's show, we discuss how President Trump's pressure campaign is shaking up the Federal Reserve. Listen here.

Econ World is sent weekly. Think your friend or colleague should know about us? Forward this newsletter to them. They can also sign up here.

Want to stop receiving this email? Unsubscribe here. To manage which newsletters you're signed up for, click here.

This email includes limited tracking for Reuters to understand whether you've engaged with its contents. For more information on how we process your personal information and your rights, please see our Privacy Statement.

Terms & Conditions