Three Things (4/23)

Built for Export, Bracing for Impact

China reported 5.4% GDP growth in the first quarter, with nearly 40% of that expansion fueled by net exports—a striking sign of how much the world’s second-largest economy is leaning on foreign demand to power its recovery. The country’s trade surplus with the U.S. alone reached $77 billion during the period, underscoring the critical role external markets continue to play in China’s growth engine. But that momentum may prove short-lived. With fresh tariffs from the U.S. and other partners now taking effect, analysts expect export strength to fade quickly. What initially appeared to be a robust first-quarter performance is increasingly being seen as vulnerable—driven more by outbound shipments than sustainable domestic demand.

This export-heavy rebound exposes a deeper structural imbalance in China’s growth model. While overseas demand helped stabilize the economy post-pandemic, the global backdrop has shifted—protectionism, re-shoring, and increasingly fragile supply chains are eroding the long-term viability of an export-led strategy. Although Beijing has long emphasized the need to rebalance toward domestic consumption, progress has lagged, and household confidence remains subdued. With the export tailwind losing force, China may now be compelled to accelerate that pivot. How successfully it can stimulate internal demand—without triggering instability in property markets, local debt, or capital flows—will be pivotal. The country’s ability to evolve from an export powerhouse to a consumption-driven economy may not just shape its future—it could reshape global growth dynamics as well.

Tariffs put the fizz back in U.S. soda production

As new tariffs hit aluminum cans and foreign-made beverages, America’s soda giants are being forced to adjust their playbooks—and Coca-Cola is emerging as the better-positioned player. PepsiCo, which spent years offshoring bottling to cut costs, is now reversing course, relocating production from Mexico to facilities in Georgia and New York. Adding to its challenges, Pepsi has long produced its concentrate in Ireland to benefit from lower corporate tax rates—a cost-saving strategy now vulnerable to tariff risk. Coca-Cola also operates in Ireland, but its core formula is still made in Atlanta and Puerto Rico, giving it a stronger domestic manufacturing base. On the packaging side, both brands face rising costs from the new 25% aluminum tariff. Coke’s leadership has already hinted at plans to shift away from aluminum if needed, while Pepsi’s Texas facility—one potential workaround—remains primarily focused on bottling and regional distribution.

The divergence between the two companies underscores how globalization-era strategies are being stress-tested in a new trade environment. While Pepsi’s centralized, efficiency-first model once offered margin benefits, it now exposes the company to multiple chokepoints—from cross-border bottling to offshore concentrate. Coca-Cola’s more distributed and domestic-first infrastructure, long seen as legacy, now looks prescient. And with Coca-Cola commanding roughly 48% of the global soda market compared to Pepsi’s 20.5%, the gap in operational resilience may widen the competitive divide even further. In a world where policy is reshaping supply chains and cost structures, local manufacturing isn’t just a patriotic bonus—it’s turning into a competitive moat. The brands may still be fighting for shelf space, but when it comes to resilience under pressure, Coke is playing the stronger hand.

Flight to elsewhere

The dollar has tumbled nearly 9% year-to-date—marking its worst start to a year on record and casting a long shadow over America’s role as the world’s financial anchor. In stark contrast, gold has shattered records at $3,500, and Bitcoin has roared past $90,000, as investors increasingly abandon traditional safe havens in favor of hard assets and decentralized stores of value. Behind the move: deepening unease over ballooning deficits, stalled tariff negotiations, and a policy environment marred by dysfunction and uncertainty. Foreign holdings of U.S. assets are declining at a notable pace, with capital increasingly flowing out of dollar-denominated markets as investors question Washington’s ability to navigate rising geopolitical and fiscal pressures.

What’s unfolding is more than a market rotation—it’s a reordering of the global financial hierarchy in real time. Investors aren’t just hedging risk; they’re actively retreating from U.S. institutions they once trusted to provide stability. As confidence drains from the dollar, capital is flowing toward systems perceived as apolitical, finite, and structurally detached from Washington’s gridlock. Record-breaking rallies in gold and Bitcoin reflect not only a hunger for inflation-resistant assets, but a broader repudiation of the U.S. as the default store of global trust. The dollar’s supremacy is no longer being taken for granted, and a new class of assets is rising to challenge its place at the center of global finance.