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Jonathan Petersen, macro strategist at Variant Perception, offers his sharp take with Financial Sense when it comes to US-China trade frictions, Europe’s likely alignment with Washington, and the emerging markets poised to gain. Here’s what investors need to know.

US vs. China: A Messy Poker Game
 

Petersen doesn’t mince words about the trade war’s chaotic backdrop. “We’re flooded by uncertainty,” he told Financial Sense, pointing to the market’s wild ride since the Trump administration’s 125% tariffs on China sparked a sell-off. While markets have clawed back on hopes of negotiations, nothing’s set in stone.

Stepping back, Petersen sees tariffs as a fixture of Trump’s playbook, driven by structural imbalances—think of the US as the world’s consumer and China as its factory. With US growth outpacing Europe and China, “the US started with a great hand,” he said, likening the trade war to poker. But the administration’s sloppy rollout of tariffs on “Liberation Day” muddled the game.

China, meanwhile, is “dealt a very bad hand” with a shaky economy, but Petersen credits its centralized response. From propping up exporters to finding new buyers in Latin America and Europe, Beijing’s playing smart. Still, a “nightmare scenario” looms—millions of unsold inventories if US demand dries up. China’s trying to cushion the blow, but it’s tough when the US is still the single largest buyer of goods.

Europe’s Choice: Siding with the US
 

Petersen’s bold call? Europe will likely back the US over China in trade alliances. Why? It’s not just NATO and cultural ties, though those matter. Economically, China’s shifted from Europe’s customer to its rival, especially in autos. “The US accounts for triple the export share of China for Europe,” Petersen revealed, noting a post-COVID trend where China’s demand for European goods has waned. With geopolitical and economic factors aligning, “Europe will be forced to choose, and they’ll pick the US,” he predicted.

The upside? Europe could emerge stronger if it plays its cards right. Lower tariffs via US talks, German fiscal stimulus, and deregulation—think Mario Draghi’s September 2024 report—could position Europe to supply US buyers, filling China’s void. “There’s enough product overlap for Europe to step in,” Petersen said, aiding US re-industrialization. But political gridlock, from Germany’s tense elections to France’s budget fights, clouds the outlook. “Europe struggles to unite outside crises,” he cautioned.

India Shines, Southeast Asia Stumbles
 

Apple (AAPL) shifting iPhone production to India underscores China’s risks. Petersen backs Treasury Secretary Scott Bessent’s warning of millions of job losses in China, calling it “directionally spot on.” With Apple supporting millions of Chinese jobs, multinationals’ pivot could sting. Petersen’s export similarity analysis flags India as a top winner, with low ties to Chinese supply chains and goods ready to replace China’s US exports. “India stands out,” he said, alongside the UK, Poland, and Mexico.

Southeast Asia, however, faces headwinds. Countries like Vietnam and Malaysia, used by China for tariff-dodging transshipment, are too entwined with Beijing’s supply chains. Undervalued currencies and China’s regional clout complicate talks. “Negotiations will be trickier than with Europe or Latin America,” Petersen said.

India’s structural tailwinds—booming population, steady growth—make it a long-term bet. “Our indicators for India are holding up well,” Petersen said, citing a rare alignment of tactical, cyclical, and structural signals earlier this year. Indian equities, despite a sell-off, look promising, unlike China’s “trading market.” While Chinese stocks could spike on stimulus hopes by July’s Politburo meeting, “downside risks loom larger,” he warned.

Recession Watch: Slowdown, Not Collapse
 

Petersen’s recession indicators flash warnings: China’s above 50% odds, the US also elevated, and the Eurozone in the mid-teens. For the US, tariffs are a policy shock, akin to COVID lockdowns. “The economy was resilient before this,” he said, but consumer and business surveys scream recession. Hard data, like the Weekly Economic Index, holds firm, pointing to a slowdown over a crash.

Real-time metrics—OpenTable reservations, TSA checkpoints, Treasury tax data—show resilience, but Petersen’s watching jobless claims and layoffs closely. Ongoing de-escalation in the form of trade deals and greater policy certainty could ease risks. Without them, “recession odds climb,” he said.

Market Moves: Volatility, Energy, and Tech Surprises
 

US markets face “higher volatility” in 2025, Petersen warned, with his asset allocation engine neutral on stocks versus bonds. In a stagflationary world—sticky inflation, decent growth—he likes sector bets: overweight energy, underweight utilities, and TIPS over nominal bonds. Energy’s capital scarcity promises high returns, while utilities’ rate sensitivity drags. “Energy’s scored well for over a year,” he said.

Surprisingly, tech looks appealing, even the battered Mag 7. “They’re screening very well,” Petersen said, noting Amazon’s forward P/E dipping below Walmart’s.

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