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Trump’s tariffs shake the markets while Musk takes control of US government spending, OpenAI respond͏‌  ͏‌  ͏‌  ͏‌  ͏‌  ͏‌ 
 
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February 3, 2025
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The World Today

  1. Markets down on tariffs
  2. DOGE takes spending reins
  3. Panama placates Trump…
  4. …as does Venezuela
  5. Netanyahu to meet Trump
  6. Europe defense talks
  7. Soccer’s Rwanda ties
  8. OpenAI’s DeepSeek move
  9. The growth of stablecoins
  10. AI-built ‘wonder material’

The London Review of Substacks, and recommending one of the ‘best releases in Korean cinema’ of 2024.

1

Trump tariffs trigger turmoil

Donald Trump.
Kevin Lamarque/Reuters

Stock markets tanked after US President Donald Trump ordered tariffs on Canada, China, and Mexico — and vowed the European Union would be next. Investors fled to haven assets, with the dollar surging and gold briefly hitting a record, while Asian and European stocks fell as traders digested what The Wall Street Journal called “the dumbest trade war in history” and what the Financial Times characterized as an “absurdity.” Trump acknowledged that Americans would feel “pain,” but insisted the measures would be worth it. In a sign of potential respite, the president said he would hold calls with Canada’s and Mexico’s leaders, though both, as well as Beijing and Brussels, have promised retaliatory tariffs.

For the latest on the Trump presidency, subscribe to Semafor’s daily US politics newsletter. →

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2

Musk’s DOGE takes control

Donald Trump and Elon Musk.
Brandon Bell/File Photo/Reuters

Elon Musk’s Department of Government Efficiency gained access to the US federal payment system, allowing him to monitor and potentially control government spending. President Donald Trump wants Musk and DOGE to slash outgoings, part of the new administration’s focus on austerity. Trump ordered, then rescinded, a freeze on much government spending in his first days, but The New York Times estimated that 8,000 government websites remain down, apparently because they contained language related to diversity initiatives. Musk’s political clout appears to be growing: Several major US companies have begun making or emphasizing links to him, the Financial Times noted: Visa is cutting a payments deal with X, while United Airlines is rushing to use Starlink for inflight WiFi.

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3

Panama vows distance from Beijing

A chart showing the top ten countries exporting goods across the Panama Canal in millions of tons.

Under pressure from the US, Panama’s president said he would review his country’s ties to Beijing. President Donald Trump has pledged to retake the Panama Canal — through which 40% of his country’s container traffic passes — over what he says is unfair treatment of US vessels and a deference to Chinese firms. Trump says Beijing controls the strategically important waterway, which Panamanian officials say is a gross mischaracterization: Two Hong Kong-based firms control ports close to the canal. President José Raúl Mulino insisted Panama would retain ownership of the canal, but conceded that his country would not renew its membership of Beijing’s Belt and Road Initiative. “We want to work with the US as we have always done,” Mulino said.

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4

Venezuela responds to Trump

A chart showing Venezuela’s net migration since 2013.

Venezuela freed several US prisoners and agreed to take in deported migrants after a visit to Caracas from an envoy of President Donald Trump. Venezuelan President Nicolás Maduro — on whom Washington placed a $25 million bounty last month — said the country had taken “the first steps” toward a new bilateral relationship with the US. Meanwhile, the White House announced Sunday that it would withdraw the temporary protected status of more than 300,000 Venezuelans living in the US, leaving them vulnerable to deportation in the coming months. Almost a quarter of Venezuela’s population has fled the country in recent years amid a severe economic recession and Maduro’s increased crackdown on dissent, with many fearing arrest if they return to their homeland.

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5

Netanyahu readies for Trump talks

Benjamin Netanyahu.
Craig Hudson/File Photo/Reuters

Israeli Prime Minister Benjamin Netanyahu’s talks with US President Donald Trump this week are set to focus on a fragile Gaza ceasefire that has significant regional ramifications. Trump and Netanyahu forged close ties in the former’s first term, and the US leader was a key force in pushing through the current truce. However, their interests do not neatly converge: Trump wants to see the ceasefire persist and eventually form the basis for a long-awaited normalization of ties between Israel and Saudi Arabia; Netanyahu, by contrast, is trying to hold together a domestic government beset by resignation threats by far-right members. Trump appears to have little sympathy: “Your coalition is your problem,” his Middle East envoy reportedly told Netanyahu.

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6

Europe mulls toughening defense

Chart showing defense spending as share of GDP in selected countries.

European leaders will seek to boost defense cooperation during talks in Brussels today, faced with an increasingly isolationist US and Ukraine’s mounting territorial losses. In particular, Politico said, they will discuss ramping up joint defense spending and Paris’ insistence that future military systems should be designed and made in Europe — both divisive issues within the bloc. Greece’s prime minister argued in the Financial Times that defense spending should be excluded from the EU’s rules limiting national budget deficits, pointing to the myriad bureaucratic challenges the bloc faces in strengthening its militaries. Ukraine’s battlefield losses underscore the urgency of the meeting, though there is one silver lining: The British prime minister’s attendance indicates EU ties with London are finally warming.

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7

Rwanda sports deal scrutiny

Rwandan President Paul Kagame.
Jean Bizimana/Reuters

The Democratic Republic of Congo called on European soccer giants to end their association with Rwanda over Kigali’s apparent backing of M23 rebels in the DRC. The Arsenal, Bayern Munich, and Paris Saint-Germain teams wear “Visit Rwanda” sponsorship logos, which a DRC minister said were “bloodstained”: She wrote to the teams’ owners saying Rwanda is in “de facto control of M23 operations” and alleging the sponsorship was funded by illegal mineral smuggling. Rwandan President Paul Kagame is keen on sports to raise the country’s profile: He wants to stage a Formula 1 race and the capital will host the cycling World Road Championships this year. But campaigners say the events help hide Rwanda’s “abysmal” rights record.

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Plug

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8

OpenAI responds to DeepSeek

OpenAI CEO Sam Altman.
Kim Kyung-Hoon/Reuters

OpenAI appears to be changing its strategy following DeepSeek’s unexpected rise. The Chinese firm’s cutting-edge artificial intelligence model uses only a fraction of the computing power of OpenAI’s ChatGPT and similar products, upending widespread assumptions about the technical and financial requirements of AI expansion. OpenAI on Monday announced that it was setting up a joint venture with Japan’s SoftBank, with the investment giant spending $3 billion a year to use OpenAI software. Meanwhile, the AI firm’s CEO Sam Altman said he was considering making his products open-source, like DeepSeek’s are, potentially meaning anyone could use and repurpose OpenAI’s models: Altman said on Reddit that OpenAI had been “on the wrong side of history” by keeping its source code private.

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9

Rise of stablecoins for cross-border cash

A chart showing select stablecoins by market cap

Stablecoins have become a crucial part of the global economy. Crypto has great potential for cross-border trade: People in developing markets with unreliable banks, poor financial infrastructure, or high tariffs can use it to buy goods from abroad. But crypto’s unpredictable value makes that difficult. Stablecoins, cryptocurrencies pegged to the value of traditional currencies such as the dollar, allow frictionless transactions without crypto’s usual instability. As a result, major companies, including SpaceX — whose Starlink satellite service is a key source of internet in developing countries — and financial services firm Stripe have begun using stablecoins for some cross-border transactions. The coins are now a $205 billion market, “driven by real-world utility, not speculation,” according to TechCrunch.

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10

AI used to make ‘wonder material’

University of Toronto Faculty of Applied Science and Engineering.
University of Toronto Faculty of Applied Science and Engineering. Wikimedia Commons.

Scientists used artificial intelligence to design a foam-like material that is as strong as steel but as light as polystyrene. Designers hope the “wonder material,” made of a microscopic lattice of carbon atoms in a precisely arranged pattern, could lead to “ultra-light weight components in… planes, helicopters, and spacecraft,” Live Science reported. While most people’s experience of AI is in using chatbots, similar tools are increasingly being deployed in science: Google DeepMind’s AlphaFold, which works out the 3D structure of proteins, has been cited in thousands of scientific papers, the same company’s TORAX AI can help control the plasma in a fusion reactor, and OpenAI on Sunday launched a new AI tool to support researchers.

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Flagging
  • Turkey’s foreign minister visits Doha for talks with his Qatari counterpart.
  • OPEC+ holds a joint ministerial meeting.
  • Hindu devotees mark Vasant Panchami, also known as Shreepanchami, a festival honoring the Hindu goddess Saraswati.
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LRS

Desperately seeking something

The news that DeepSeek, a Chinese artificial intelligence company, had released a cutting-edge AI that used a fraction of the hardware of ChatGPT and other large language models was met with some very strange reactions, argues the tech writer James O’Malley. “For some reason,” he says, “many people seemed to lose their minds.” A large number of commentators argued it meant Western AI companies had wasted money on computing power, data centers, and all the other infrastructure, when they could have just designed more efficient models.

It seems unlikely that the arrival of more efficient AIs means that available computing power “will go to waste,” he says. “More likely… we’ll see Jevons’ paradox kick in — the observation that often when the cost of resources falls, overall demand increases.” Cheaper AI will make many new uses of the technology more economical. Similarly, the falling price of computer chips didn’t mean people spent less on them: Instead, “today my lightbulbs have semiconductors inside them, and I occasionally have to install firmware updates [for] my doorbell.” The most probable outcome is that more efficient models will see the computing power used to make AIs even smarter.

Peace at what cost?

Before he became US president for the second time, Donald Trump promised he would bring peace to Ukraine. His accession has focused minds on the probability of a peace deal. One major question around any such deal, writes the war scholar Lawrence Freedman, will be how Ukraine’s security will be guaranteed. Kyiv has more reason than most to be skeptical of any such guarantee: In 1994, it gave up its old Soviet nuclear arsenal in return for an undertaking from the US, UK, and Russia that its “independence, sovereignty,” and existing borders be respected — but when Russia annexed Crimea in 2014, the others “did little other than complain.”

What more reliable measures can countries take to stop Russia from reneging on any deal? One possibility would be security guarantees along the lines of NATO’s mutual defense pact. Another would be a multinational peacekeeping force, as British Prime Minister Keir Starmer has hinted, or a “tripwire” in the form of a thin line of NATO troops which Russia would be forced to attack in any invasion, thus bringing the US’ allies into the fight. Whatever the model, it will likely involve European forces, Freedman writes, since Trump “has no intention of sending any additional US forces to Europe.”

Praise and blame

Joe Biden received lots of praise when he stepped down as Democratic nominee for the US presidency, and rightly so, says the politics writer Matt Yglesias: “Voluntarily relinquishing a claim to power is a big ask.” But, he says, it is time for Democrats to stop saying that — apart from that one noble act — Biden did a good job promoting the party’s interests. “Biden defined his entire post-2016 political comeback in terms of averting the Trumpian threat,” says Yglesias. “And he failed, catastrophically.” Trump not only won but “returned more powerful than before.”

For Yglesias, that is Biden’s fault: The former president and his inner circle deceived the public about his fitness, “not convincingly enough to persuade most Americans, but convincingly enough to persuade most Democrats.” They selected a vice president “they didn’t have confidence in as a party leader and whom they did not set up to succeed.” In the lame-duck period he pardoned his own family members and otherwise abused power, retroactively backing up conservative claims about corruption. Democrats must “admit what everyone knows: Biden fucked up, badly,” and in order to win again, the party should repudiate his legacy.

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Semafor Recommends

My Name Is Loh Kiwan. This movie about a North Korean defector who flees his home country and arrives in unfamiliar Belgium is “a fleeting view of refugee experiences, displacement, and alienation,” according to Rolling Stone India, as Loh deals with inner conflicts and anxiety as well as a lack of basic needs. With “well-knit storytelling and strong performances,” it’s one of “this year’s best releases in Korean cinema.” Watch My Name is Loh Kiwan on Netflix.

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Semafor Spotlight
Elizabeth Frantz/Reuters

President Donald Trump is taking the Republican Congress on an economic wild ride, Semafor’s Shelby Talcott and Burgess Everett report.

Some GOP lawmakers are hoping they can still head off the tariffs, and a few complained about the conflicting guidance on government money, but most said they’re feeling little heat for the president’s moves.

Not only is there little evidence that party legislators mind his muscular executive power, there’s plenty of signs that Trump-state Republicans are happy to take the ride with him.

For more on the early moves of the second Trump administration, subscribe to Semafor Principals. →

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