The Horizon: Bloc Economics
Signals: week ending 28 February 2026 - the state of the campaign speech, EU greenlights Mercosur (provisionally), China shifts crude purchases, EV roll back, and AI drives EU productivity
Top Signal: Trump’s 2026 State of the Union Signals Terms of Election Fight
This week, President Donald Trump delivered the first State of the Union speech of his second term (the longest such address on record, running for nearly two hours), which could have been renamed the state of the election campaign, because in many respects the speech (and the response) signalled on what terms his party and their opponents intend to fight the mid-term elections later this year.
The president placed the economy and national confidence at the centre of his message. Right from the start, he sought to contrast what he sees as the early achievements of his administration with those of the previous Democratic administration (many of which were subsequently disputed by fact-checkers in mainstream media).
Here’s some of what he said:
“The Biden administration and its allies in Congress gave us the worst inflation in the history of our country. But in 12 months, my administration has driven core inflation down to the lowest level in more than five years. And in the last three months of 2025, it was down to 1.7 percent”
“The stock market is at 53 — all-time record highs since the election. Think of that. One year. Boosting pensions, 401(k)s and retirement accounts with millions and millions of Americans. They’re all gaining. Everybody’s up, way up.”
In addition to highlighting the recent stock market performance and consumer costs as an administration success, there was also an announcement of an expanded federal retirement savings program for workers without employer plans. He reiterated the use of tariffs as a tool for revenue and competitiveness (a policy many economists say is largely borne by U.S. importers and consumers) and also suggested that, at some point, he believed tariffs could even substantially replace income tax:
“And as time goes by, I believe the tariffs, paid for by foreign countries, will, like in the past, substantially replace the modern-day system of income tax, taking a great financial burden off the people that I love.”
He pressed for energy self-sufficiency through big technology and infrastructure investment, such as the obligation to provide for their own power needs. He also reminded his audience of the executive order he recently signed to ban large Wall Street investment firms from buying up, in the thousands, single-family homes. At times, the speech seemed designed for viral moments on social media; in a year that America celebrates her 250th birthday, the president declared:
“Our nation is back, bigger, better, richer and stronger than ever before.”
While the speech was dominated by domestic issues, the president did also signal that he would prefer a diplomatic solution to the ongoing situation with Iran:
“My preference — my preference is to solve this problem through diplomacy. But one thing is certain, I will never allow the world’s No. 1 sponsor of terror, which they are by far, to have a nuclear weapon, can’t let that happen.”
On the other side of the aisle, the House Democratic Minority Leader Hakeem Jeffries signalled how his party would approach the election, and the keyword here is affordability. He said afterwards on national television that:
“The President’s speech was riddled with dirty, rotten lies, including his unwillingness to confront the affordability crisis.”
His party was reportedly optimistic this week, as they now see a path back to power by also focusing on the economy, in particular on affordability (which Republicans have also focused on but blame on prior Democratic policies). As the former President Bill Clinton used to say, “It’s the economy, stupid”.
With the pace of change in Washington D.C. these days, the election seems like an age away, but the current Republican majority is tight, and there are only a few seats needed to flip the House in November. However, some amongst the Republicans have signalled concern that the message will not reach key swing voters. The Republican strategist Karl Rove wrote in a Wall Street Journal op-ed this week that the speech was too belligerent and sounded as out of touch, urging more empathy and economic focus to win over disenchanted independents. Transcript via NYT CNBC Hakeem Jeffries WSJ NBC News ABC News DW BBC News
Key Signals
EU Greenlights Provisional Implementation of Mercosur Trade Deal
This week, the European Commission President Ursula von der Leyen announced that the EU would proceed to provisionally implement the trade deal it signed in January (after 25 years of negotiations) with the South American Mercosur countries, despite the European Parliament previously voting to send the agreement to the European Court of Justice for review before voting on it (which could reportedly take up to two years). This significant agreement, which some have labelled as the “cows-for-cars accord”, creates a transatlantic free-trade area spanning more than 700 million people.
Here is some of what von der Leyen said this week on the decision:
“Mercosur is one of the most consequential trade agreements of the first half of this century. It is a platform for deep political engagement with partners who see the world as we do. And who believe in openness, partnership, and good faith. Partners who understand that open and rules-based trade delivers positive results for all”.
The announcement by the EU Commission this week follows news that both Argentina and Uruguay ratified the agreement on their side earlier this week. Brazil and Paraguay are expected to follow soon.
Following a lack of unity, the deal was approved by a qualified majority of member states earlier this year, with several countries, including France, Ireland, Poland, Austria, and Hungary, voting against it. To be implemented in full, it also needs approval in the European Parliament. Pushing it through on a provisional basis now could make it more difficult or easier (depending on which view you take) to get through the European Parliament later. Still, a provisional application is explicitly temporary under EU treaties.
This week’s decision to implement the agreement on a provisional basis is a clear signal that, in the Commission’s and Council’s current calculus, geoeconomic considerations such as first-mover advantage in this region prevail over other concerns. EU Commission Politico
China Shifts Crude Purchasing Patterns as OPEC+ Expected to Remain Cautious
China, the world’s largest crude importer, has reportedly adjusted its crude oil buying strategy by favouring discounted Russian and Gulf crudes (e.g., Urals and Saudi grades) while also cutting back on pricier Brent-linked West African imports, with February and March arrivals from Africa projected to be lower than late 2025 levels. Global benchmark Brent futures hit their highest level in nearly seven months this week, amid geopolitical tensions. Changes in Chinese import patterns signal a strategic decoupling from Western benchmarks and a change in freight flows and refinery margins, which in turn feed into wider global energy price dynamics that influence consumer and industrial cost bases.
Meanwhile, the OPEC+ coalition is expected to signal a cautious approach to output adjustments at its next meeting this weekend. Trading Economics Reuters Reuters +1
EV Pull Back Signals a Change of Pace in Energy Transition
This week, Stellantis, one of the world’s biggest car manufacturers, known for brands such as Peugeot, Fiat, Jeep, and Chrysler, among others, became the latest manufacturer to announce a major pullback from the drive towards all-electric car production following its announcement of an annual net loss of EUR22.3 billion. The loss was attributed primarily to a lack of sufficient customer demand for EVs and a changed marketplace, particularly in the US, where the Trump administration has cut subsidies for EVs and funding for charging infrastructure.
It is a strong signal from industry that prioritising climate change in this marketplace is bad for business. As part of its path to recovery, the company is betting on a reset based on hybrid and the return of several popular combustion-engine products (including diesel). WSJ Le Figaro
ECB Sees No AI-driven Job Losses, Yet
European Central Bank President Christine Lagarde told the European Parliament this week that AI has raised productivity in the EU, but there is no strong evidence yet of a wave of layoffs due to greater automation of labour, signalling a measured policy stance on labour automation. The ECB intends to continue monitoring labour‑market dynamics and productivity impacts while keeping inflation and macroeconomic stability central to its policy approach. Reuters Bloomberg
Strategy and Systems Insight
This week’s signals paint a picture of geoeconomic realignments and power moves that prioritise market access and cost competitiveness in the international system.
Until relatively recently, ideology played the dominant role in politics on both sides of the Atlantic; however, the trend so far this year can probably be best summed up by Bill Clinton’s observation from another era: “It’s the economy, stupid.” Still, we have come a long way from that era of economic globalisation; today, the priorities are more about creating bloc-based trade with reliable and like-minded partners.
Electioneering is already underway ahead of the US midterm elections, and it is becoming clear that the economy, national revival, and affordability will be dominant themes. The current direction of US economic and political policy is likely to keep benefiting investors in American markets for a while. But the tariff talk remains a risk concern for supply chains.
While the US looks set to continue on its protectionist America First path for at least the next while, the EU is moving in the opposite direction (in both a policy and geographical sense) with