As the likelihood of a Trump victory in next week’s US election rises, the news has slowly started spreading to European stock markets. In particular, shares in companies that depend on exports are getting knocked back by “Trump trade”. No surprise there — Mr. Trump proposes steep tariffs on imports should he be elected once more, and export-dependent economies, most notably Germany, will take their impact on the chin.

To be sure, this may be a case in which it’s best to take Trump both seriously and literally. In a game of trade-negotiation chicken with most of its partners, the US will enjoy the upper hand. Given the comparative strength of the US economy, it can absorb a lot more of the pain of tariffs than those countries from which the former president will try to extract better trade terms.

While across-the-board tariffs of the sort he proposes would raise the US inflation rate and possibly reduce the economy’s long-term growth, the fact that the country’s running a large trade deficit with the rest of the world allows a lot of scope to substitute local production for imports. Politically, such action would go down well with his supporters, as it would create local manufacturing jobs — at least in the short term. Europe, in contrast, already suffering from the weak demand of a sluggish Chinese economy, can ill-afford such a fight.

However, the recent falls in European share prices may be an instance of that old market adage “sell the rumour, buy the news.” Already trading at a steep discount to their American counterparts, Europe’s major stock markets may be pricing in a worst-case scenario, and thereby setting themselves up for a rally after the result comes in. Besides, the outcome of the American election will not be the only bit of news which moves European markets next week. Events taking place on the other side of the world may matter just as much, and possibly even more.

On Monday, the Standing Committee of the National People’s Congress — China’s top law-making body — will gather in Beijing for its weeklong meeting. Economists are watching keenly to see if the government uses the occasion to announce any sort of fiscal stimulus to raise household consumption, something which has been hinted at but whose details have been left to the meeting. If the government delivers a surprise boost to demand, that will somewhat counter-balance the bad news of a Trump victory by providing some relief to European exporters.

In fact, were China to take such bold action at a time its manufacturers are outsourcing some production to countries in southeast Asia, Europe and South America, it could end up drawing its trading partners further into its orbit. A protectionist America could, in these circumstances, end up overplaying its hand.

For its part, outside Europe and with a newly-unfriendly US, Britain confronts an increasingly unfriendly environment. Trump was never going to do the sort of favours to the UK that the previous Tory government hoped he might, but he’ll be even less well-disposed to a Labour one — not least because his campaign has complained that Labour has been helping the Democrats.

Trump is a deal-maker, and Britain will have to bring offerings to the table if it hopes for any concessions in its future dealings with a Trump administration. Outside of Europe, it has little leverage to bring. It may have no choice but to draw closer to its European partners and seek some strength in numbers.

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John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).

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China is trying to catch up with America on artificial intelligence. The Wall Street Journal has reported that Zhipu AI — one of China’s six “AI tiger” LLMs — has released a new model that can rival leading US systems, including Anthropic’s Mythos, in cybersecurity tasks such as pinpointing security bugs. While this marks a milestone in China’s drive to catch up with Western AI capabilities, strong performance on a single benchmark does not mean it has taken the lead. Chinese models still lag behind their Western counterparts in broader capabilities, such as autonomous operation. Skepticism is therefore warranted before resorting to hysterical conclusions, but complacency about the geopolitical implications of China’s AI advances would be an even greater mistake.

On the infrastructure side, Chinese AI is still constrained by access to advanced chips, with American labs way ahead in computing capacity as well as investment. Analysis from earlier this year suggests that Chinese models are likely to be at least a few months behind those in the US. But they are still continuing to make progress, or that the geopolitical importance of AI will be decided only by whose LLM has ventured deeper into the technological frontier. The practical applications of AI, countries’ to capture foreign markets, and the application of AI into the real economy will matter just as much.

Here, China may hold an advantage. As with its dominance across many critical supply chains, Beijing may not need to produce the most advanced AI systems — only those that are affordable and widely deployable. In doing so, it could consolidate global influence by supplying functional, low-cost AI at scale.

Beijing seems to be pursuing exactly that path, developing an AI “open-source” strategy that offers affordable, widely available AI models for companies and individuals to use and modify as they wish. The production of the DeepSeek AI model, which matched the performance of Silicon Valley tools such as ChatGPT at a fraction of the cost for users, created goodwill among Chinese models with developers.

The four most popular models on OpenRouter, an AI hardware platform for developers, are now all Chinese. The goal for China is not only to win the frontier-model race, but to make its systems the default layer of AI adoption across industries and global markets. For most economies, the choice is increasingly between an affordable tool they can deploy now and a more robust one that may be out of reach.

And while the countries adopting Chinese models may be exposed to political pressure and cyber threats from Beijing, safer and more capable alternatives matter little if they are unaffordable. American AI companies are already under pressure to monetize products whose operating costs are rising. If Chinese open-source models become the cheap default for startups, universities, governments and businesses across the developing world, then America’s AI lead will be eroded from below.

Perhaps more concerning for America in the long run is how AI can give Chinese manufacturing even more strength, through the ongoing integration of AI as a general-purpose technology. China’s new Five-Year Plan mentioned AI more than 50 times and includes an “AI+” action plan aimed at spreading AI across the economy.

Beijing has been pioneering automation of its critical infrastructure for years, with promising recent results in increasing warplane production capacity. In that regard, China’s open-model strategy and manufacturing dominance will reinforce each other. Cheap, adaptable models accelerate deployment across the real economy while those deployments generate real-world data and use cases that can feed back into further model improvement.

The United States should not dismiss the importance of its lead in the AI race. That lead worries Beijing, not least because a more automated Chinese economy would also become more vulnerable to AI-generated cyber threats. But nor should Washington assume that China cannot catch up with American capabilities over time.

This AI competition represents part of a broader struggle over tech supply chains and geopolitical influence. Decisions over whether to adopt US or Chinese models could produce a more fragmented global reality, with different regions relying on different cloud providers, chips and security structures. The result will likely be a global economy which is divided into competing spheres, rather than one which produces a single winner.

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Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

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