This article is based on ideas originally published by VoxEU – Centre for Economic Policy Research (CEPR) and has been independently rewritten and extended by The Economy editorial team. While inspired by the original analysis, the content presented here reflects a broader interpretation and additional commentary. The views expressed do not necessarily represent those of VoxEU or CEPR.
This article was independently developed by The Economy editorial team and draws on original analysis published by East Asia Forum. The content has been substantially rewritten, expanded, and reframed for broader context and relevance. All views expressed are solely those of the author and do not represent the official position of East Asia Forum or its contributors.
This article is based on ideas originally published by VoxEU – Centre for Economic Policy Research (CEPR) and has been independently rewritten and extended by The Economy editorial team. While inspired by the original analysis, the content presented here reflects a broader interpretation and additional commentary. The views expressed do not necessarily represent those of VoxEU or CEPR.
This article is based on ideas originally published by VoxEU – Centre for Economic Policy Research (CEPR) and has been independently rewritten and extended by The Economy editorial team. While inspired by the original analysis, the content presented here reflects a broader interpretation and additional commentary. The views expressed do not necessarily represent those of VoxEU or CEPR.
This article was independently developed by The Economy editorial team and draws on original analysis published by East Asia Forum. The content has been substantially rewritten, expanded, and reframed for broader context and relevance. All views expressed are solely those of the author and do not represent the official position of East Asia Forum or its contributors.
This article is based on ideas originally published by VoxEU – Centre for Economic Policy Research (CEPR) and has been independently rewritten and extended by The Economy editorial team. While inspired by the original analysis, the content presented here reflects a broader interpretation and additional commentary. The views expressed do not necessarily represent those of VoxEU or CEPR.
Demands for increased defense contributions clash with tariff policies Subsidy rollbacks under the CHIPS Act benefit China Alienating allies deepens their economic ties with China
President Donald Trump’s “America First” foreign policy is drawing criticism for creating opportunities for China to expand its diplomatic influence. Key policies proposed for a second Trump administration are said to alienate allies and weaken the U.S.’s ability to counter China. Additionally, a lukewarm approach to the Russia-Ukraine war, withdrawal from international organizations, and reductions in foreign aid are reportedly undermining U.S. diplomatic credibility at a structural level.
On July 14 (local time), Democratic members of the U.S. Senate Foreign Relations Committee released a 91-page minority report titled “The Price of Retreat: America Cedes Global Leadership to China” on the committee’s website. Commissioned by Senator Jeanne Shaheen, the report draws on interviews with aid officials, experts, and foreign dignitaries.
The report evaluates the Trump administration’s foreign policy over the past six months, under the view that China has emerged as the most serious strategic challenge to the U.S. It notes that many of the tools previously used to counter China have been abandoned. For example, the CHIPS Act led to significant investments by close allies like South Korea and Taiwan, and repealing it would primarily benefit China.
The report also criticizes Trump’s significant cuts to foreign aid, including efforts to dismantle USAID. This, they argue, has left the U.S. with fewer options to compete with China, which is now the top aid donor in over 40 countries. While China spends billions annually on overseas propaganda and media control, Trump sought to eliminate U.S.-funded broadcasters like Voice of America (VOA) and Radio Free Asia (RFA).
Moreover, the report condemns the withdrawal from global organizations like the WHO as harmful to U.S. interests. It also raises concerns that Trump’s immigration and education policies are driving away top global talent. Senator Shaheen summarized:
“As Trump undermines alliances and dismantles U.S. diplomatic tools while cozying up to adversaries, China is expanding its influence and reshaping the world order in its favor.”
The report criticizes Trump’s aggressive tariff policies as a core agenda item that has not only caused major economic harm to the U.S. but also weakened longstanding alliances. It highlights how these tariffs are pushing traditional allies closer to China. The March 2025 economic and trade ministers’ meeting between Korea, China, and Japan—the first in five years—is cited as an example.
Trump’s announcement of a 25% reciprocal tariff on all Korean products from next month is believed to be driving Korea, China, and Japan closer together economically. The report also notes that such tariffs undercut Trump’s own demand for allies in the Indo-Pacific region to spend 5% of their GDP on defense. For instance, Korea allocated a supplementary budget of 12.2 trillion won (~$9 billion) in April 2025 to counteract the economic damage from U.S. tariffs—nearly 20% of its 2022 defense budget—thus limiting its defense spending capacity.
Trump recently sent letters to 23 trading partners, proposing blanket tariff rates ranging from 20% to 50%. Particularly, his decision to impose a 30% tariff on imports from the EU and Mexico has provoked strong reactions.
In response, the EU is not just diversifying trade routes but is also proposing an entirely new free trade system to rival the WTO, signaling a break from the U.S.-centered order. The New York Times reported that the EU is even considering trade structures that exclude both the U.S. and China. The EU is exploring joint tariff responses with countries like Canada and Japan, pushing forward with FTAs with Indonesia, and strengthening ties with CPTPP nations.
Latin American countries like Mexico and Brazil are also forging closer economic cooperation in reaction to Trump’s tariffs. Brazilian President Lula publicly expressed his desire to deepen economic ties with Mexico—a significant shift given their historically limited trade relationship.
Trump’s credibility has taken another hit over his handling of the Russia-Ukraine war. Despite declaring during the election that he could end the war in one day, six months into his term, there’s been no visible progress. His vacillating stance on ceasefire talks—pressuring Ukraine instead of Russia and sidelining European allies—has undermined his leadership.
Trump initially sided with Vladimir Putin, but Putin rejected Trump’s proposal for a “30-day full ceasefire” and instead offered only a “30-hour Easter truce,” embarrassing the U.S. president. Subsequent efforts to negotiate a settlement have stalled. In May, Trump sent special envoy Witkoff to Moscow, but the talks produced no breakthrough. Meanwhile, Russia has escalated its attacks.
In frustration, Trump pushed Ukraine to cede some territory to hasten peace, threatening to pull out of negotiations if they refused. He framed Russia’s decision not to occupy all of Ukraine as a “concession.”
As that tactic failed, Trump shifted to pressuring Russia. During a July 14 meeting with NATO Secretary-General Mark Rutte at the White House, he threatened new “second-tier” tariffs of up to 100% unless a ceasefire is reached within 50 days. He expressed disappointment in Putin, saying:
“Every time I have a great call with him, horrific bombings happen in Ukraine immediately afterward. After three or four times, you start to feel that talking is meaningless.”
However, foreign policy experts argue this ultimatum won’t have a meaningful impact and could allow Russia to buy time to consolidate territorial gains before negotiations.
Trump’s announcement to expand U.S. arms sales to Ukraine has also drawn criticism. He pledged to rapidly deploy billions in advanced weaponry to support Ukraine but now expects European allies to share the cost. This contrasts with past policies of providing aid for free and underscores Trump’s desire to avoid direct military involvement.
Germany expressed clear discomfort. Trump claimed Germany could quickly transfer 17 Patriot missile systems to Ukraine. In reality, Germany has already sent three to Ukraine, lent two to Poland, and says one more is tied up in training and maintenance. German Defense Minister Boris Pistorius clarified that only six units are operational, stating:
“We have no more Patriots to spare.”
U.S. federal regulators propose strict requirements on oversight and anti-money laundering Banks must strengthen technical capabilities and internal controls; third-party custody responsibility also addressed Growing expectations for accelerated institutional integration of the crypto market
U.S. federal regulatory agencies have issued new guidelines on cryptocurrency custody services provided by banks. These new guidelines target banks that are currently holding or considering holding crypto assets on behalf of customers. Industry experts interpret this as an end to the reputational risk factors imposed by the previous administration, which had discouraged banks from engaging in crypto custody. The announcement is seen as a significant step toward establishing an institutional foundation for U.S. banks to enter the custody market in earnest.
According to crypto-focused media outlet CoinDesk and other foreign sources on the 14th (local time), the Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) jointly issued a statement that clarifies key compliance, supervision, and Anti-Money Laundering (AML) requirements, presenting standards banks must meet when offering digital asset custody services. The guidelines emphasize the need to comply with existing regulatory and risk management practices, focusing particularly on “safekeeping” crypto assets on behalf of customers.
According to the statement, banks can provide crypto custody services as trustworthy custodians with legal obligations. Alternatively, they may provide such services through secure storage providers without custody responsibilities, depending on contractual and regulatory arrangements. Regulators clarified that if a bank holds cryptographic keys, it assumes full control and responsibility. Banks must ensure no one else, including the customer, can access the keys—this is the standard for what regulators call “True Control.” Key identified risks include loss of cryptographic keys, cybersecurity breaches, market volatility, and AML compliance requirements.
Banks are also required to establish robust internal controls and stay continuously informed of developments in the crypto custody industry. Before launching custody services, they must assess their technical readiness and regulatory compliance status, and ensure they have a strong operational framework, crypto-specialized personnel, and up-to-date technology.
The statement further stipulates that banks must comply with AML, Countering the Financing of Terrorism (CFT), and Office of Foreign Assets Control (OFAC) regulations. Accordingly, banks must verify customer identities and continuously monitor for suspicious activity. Since blockchain-based environments often lack transparent identity information, meeting regulatory requirements can be especially challenging. Authorities also require banks to operate dedicated audit programs. These audits should cover safekeeping operations, key management, and personnel qualifications. If internal expertise is lacking, banks may hire third-party auditors.
This guideline follows the U.S. government's earlier approval for commercial banks to enter the crypto business. In May, the OCC officially announced that U.S. banks could hold, buy, sell, or outsource crypto-related services at customer request. This provided a clear legal basis for banks to offer digital asset services.
As a result, national and federal savings banks in the U.S. can now buy/sell crypto assets and provide custody services based on client instructions. Related services such as trade execution, settlement, recordkeeping, valuation, and tax reporting are also permitted. The OCC acknowledged crypto custody as a modern extension of traditional bank custodial services and reaffirmed previous guidance.
Additionally, the OCC emphasized that when trust-based custodial services are offered, banks must comply with federal trust regulations (either Section 9 or 150) depending on their charter type. All crypto-related services must be performed in a safe, sound, and lawful manner, with the same standards applied to outsourced services. Legal ambiguity around whether banks could execute trades directly while holding customer assets has now been resolved.
The FDIC also announced that banks under its jurisdiction may enter the crypto business without prior approval. This enables over 5,000 U.S. banks to participate in digital asset-related ventures. In its Financial Institution Letter (FIL)-7-2025, the FDIC rescinded the prior pre-approval requirement, stating that banks may engage in crypto businesses if they maintain adequate risk controls. “Supervised institutions may engage in permissible activities involving crypto and digital assets and related technologies,” said the FDIC, “provided they are capable of managing the associated risks.”
This represents a reversal of the FDIC’s conservative stance since 2022. The agency has stated on its website that it directly supervises over 5,000 banks and savings institutions. FDIC Acting Chairman Travis Hill called the move “a turning point from the flawed approach of the past three years,” adding that the FDIC will continue to propose ways for banks to engage in crypto and blockchain activities while meeting safety and soundness standards.
Under the Biden administration, U.S. regulators had issued guidance that limited cooperation between banks and crypto firms. However, those restrictions have eased under President Donald Trump’s leadership. As a result, banks are now rushing to roll out crypto custody services—Deutsche Bank is a leading example.
Deutsche Bank plans to launch crypto custody services—including for Bitcoin—in 2026. The service is being developed in collaboration with the technical arm of Bitpanda, a crypto exchange based in Austria. It is also reported that Swiss fintech firm Taurus, supported by Deutsche Bank, will participate in the project. Deutsche Bank has been exploring entry into the crypto market since 2020, and the initiative is part of its strategy to expand its influence in the digital asset custody space.
In recent years, Deutsche Bank has shown increasing interest in crypto markets. Its Head of Digital Assets, Sabih Behzad, recently mentioned the possibility of entering the stablecoin market, saying the bank is evaluating issuing its own stablecoin or participating in related projects.
The bank is also reportedly assessing whether to develop tokenized deposit solutions for payments. At the end of last year, Deutsche Bank was said to be developing an Ethereum-based Layer 2 blockchain, using ZKsync technology. In 2023, the bank announced plans to offer crypto custody options in partnership with Taurus and applied for a digital asset custody license in Germany. In addition, as of June 2024, it has begun working with Bitpanda to improve crypto payment infrastructure.
This article was independently developed by The Economy editorial team and draws on original analysis published by East Asia Forum. The content has been substantially rewritten, expanded, and reframed for broader context and relevance. All views expressed are solely those of the author and do not represent the official position of East Asia Forum or its contributors.
This article is based on ideas originally published by VoxEU – Centre for Economic Policy Research (CEPR) and has been independently rewritten and extended by The Economy editorial team. While inspired by the original analysis, the content presented here reflects a broader interpretation and additional commentary. The views expressed do not necessarily represent those of VoxEU or CEPR.
