June 28 - 30, 2024

Here are our recommended reads from reports and articles we read in the last week. We hope you find these useful and that you have a relaxing weekend. And let us know if you or someone you know wants to be added to our distribution list.

The French Elections

Emmanuel Macron, destroyer of worlds UnHerd
Following the recent shock EU Parliamentary elections, Europe was further shocked by French President Emmanuel Macron’s almost instantaneous decision to call snap elections. In this fascinating and quite detailed report, Macron’s closest political allies and aides seem to be the most shocked of all. What drove Macron to make the decision? This report explains a lot about Macron’s thinking and vision going forward.
Tracking the French Election Polls and Vote Count Politico EU
Politico has set up a great site to allow anyone to track the latest news on the French legislative elections which begin this weekend.

Tensions in the South China Sea

High noon at Second Thomas Shoal The Australian Strategic Policy Institute
China has identified the beleaguered garrison at Second Thomas Shoal as a weak link among the South China Sea features physically occupied by the Philippines and, by extension, the US-Philippines alliance. While Manila has held its nerve against Beijing’s mounting pressure tactics and holds the moral high ground in the South China Sea, it’s not clear yet that it has a viable strategy to counter Beijing’s maritime juggernaut. China is obviously willing to escalate. As it does, the Philippines, in trying to hang on, will probably need military support from the United States, its treaty ally. Another violent incident could invoke the US obligation to defend the Philippines against armed attack.
Second Thomas Shoal Asia Maritime Transparency Initiative
What is the Second Thomas Shoal? Where is it? And why is China trying to claim it even though it belongs to the Philippines? This link explains it all via excellent satellite photographs and analysis.

Russia/Ukraine

How Russia Exports Ukrainian Grain As Its Own: An Investigation Radio Free Europe/Radio Liberty
Russian firms shipped tens of thousands of tons of wheat and peas out of occupied parts of Ukraine in 2023 to EU member Spain, NATO member Turkey, and Azerbaijan, the investigative unit of RFE/RL’s Ukrainian Service, Schemes, and its partners have found. Similar amounts of barley and corn reached Moscow allies Iran and Syria, which have an established track record of buying Ukrainian grain appropriated by Russia. In an investigation based on official Russian documents and other sources, At least 6.4 million tons of wheat alone were harvested from Russian-occupied Crimea and Russian-held parts of the Donetsk, Kherson, Luhansk, and Zaporizhzhya regions in 2023, according to satellite estimates by NASA’s Harvest program, which tracks food-security threats. SeaKrime, a nongovernmental Ukrainian project that tracks Russia’s illegal grain shipments from Ukraine, has reported that 2 million tons of that harvest were shipped abroad from Crimea’s ports.

Americas

The U.S. EXIM Bank in an Age of Great Power Competition Daniel Runde/Center for Strategic and International Studies
The U.S. Export-Import Bank (EXIM), the United States’ official export credit agency (ECA), is an independent, executive branch institution that supports U.S. businesses by financing the exports of goods and services. During the last 15 years, EXIM, once the global ECA gold standard, has been underutilized as it has struggled politically. Over this same period the global export credit landscape has evolved significantly, with governments around the globe using their ECAs more as instruments of industrial policy and to strategically boost their manufacturing competitiveness and strategic influence in critical emerging and frontier markets. Most notable in its ascendance as a global export credit player, the People’s Republic of China (PRC) has become a much bigger player in the space. At the same time, U.S. allies (and sometimes economic competitors) have also elevated their ECAs’ competitiveness and influence by offering more flexible terms and becoming more client-oriented compared to EXIM. As a result, EXIM not only has lost its global leadership position but is now at a significant competitive disadvantage compared to its competitors, including the PRC, in the ECA space. The U.S. EXIM bank will need a new slate of board members in January 2025, as three of the four current board members’ terms end January 20, 2025, and EXIM faces a reauthorization in 2026, offering an opportunity to rethink what tools and capabilities EXIM should have.
Mid-Year Update on Latin America’s Economies Americas Quarterly Podcast
World Bank Chief Economist for Latin America and the Caribbean William Maloney discusses the economic outlook for Latin America, including addressing the question of how much nearshoring is really happening.
The Future of U.S.–Mexico Relations The National Interest
Mexico voted overwhelmingly for Claudia Sheinbaum to become its next president. She won nearly 60 percent of the popular vote—6 percent more than the incumbent President Andres Manuel Lopez Obrador (AMLO) obtained in 2018. The political coalition led by the Morena Party secured commanding majorities in both houses of Congress and obtained victories in state elections across Mexico. With this impressive victory, however, come challenges that will send clear signals about how this new super-majority intends to govern Mexico and what kind of partner the United States can expect to deal with.

Middle East

Biden Faces a Hard Choice to Avert Israel’s Next War Hal Brands/American Enterprise Institute
Israel faces several grave decisions in the coming weeks — what to do in Gaza after the fighting in Rafah concludes, how to balance the campaign against Hamas with the quest to free the hostages, and whether to move decisively toward normalization with Saudi Arabia. But Israel’s most fateful choice is whether to pivot from one war against Hamas to another against Hezbollah. That simmering conflict is approaching a moment for decision. The best way for President Joe Biden to head off a devastating Israeli war with Hezbollah in Lebanon is to demonstrate that he will back Israel to the hilt.
Israel isn’t ending the war in Gaza – just turning its attention to Hezbollah Vox
Israeli Prime Minister Benjamin Netanyahu indicated in a television interview recently that he intends to move some of the country’s forces to the northern border to fight the Lebanon-based military group Hezbollah. Were it not for the war in Gaza, that conflict might have already been capturing the world’s attention. Israeli Defense Minister Yoav Gallant is also visiting Washington this week in part to discuss the implications of that escalation with US officials.
Iran’s New Nuclear Threat: How Tehran Has Weaponized Its Threshold Status Foreign Affairs
Tehran has long used threats of nuclear expansion to reduce international pressure. After Iran attacked Israel in April and the world awaited Israel’s response, Iran’s military commander in charge of Iran’s nuclear sites warned that if Israel attacked the sites, Tehran could revise its nuclear doctrine. This is a new and dangerous evolution in Iran’s strategy, which is to use the country’s enhanced ability to build a nuclear weapon as a deterrent. Iran has gradually acquired many of the key capabilities necessary to build a nuclear weapon, becoming a so-called threshold state. Iran can now, in a matter of days, produce enough highly enriched uranium to make a bomb. By highlighting its bomb-making potential and responding to specific provocations by threatening to take the final steps to build nuclear weapons, Tehran hopes it can prevent international sanctions and a strike against its nuclear program.

Geoeconomics

Can Trump replace income taxes with tariffs? Peterson Institute for International Economics
In the list of untested policy ideas from former President Donald Trump, scrapping the federal income tax and replacing it with revenues from sky-high tariffs on imports is one of the most harmful. Trump floated this fiscal swap when he met with Congressional Republicans last week, but it’s a deeply problematic idea for several reasons. For starters, it would cost jobs, ignite inflation, increase federal deficits, and cause a recession. It would also shift the tax burden away from the well-off, substantially increasing the tax burden on the poor and middle class.

Sovereign Haircuts: 200 Years of Creditors Losses Clemens M. Graf von Luckner, Josefin Meyer, Carmen M. Reinhart & Christoph Trebesch/National Bureau of Economic Research
Abstract: We study sovereign external debt crises over the past 200 years, with a focus on creditor losses, or “haircuts”. Our sample covers 327 sovereign debt restructurings with external private creditors over 205 default spells since 1815. Creditor losses vary widely (from none to 100%), but the statistical distribution has remained remarkably stable over two centuries, with an average haircut of around 45 percent. The data also reveal that “serial restructurings”, meaning two or more debt exchanges in the same default spell, are on the rise. To account for this trend toward serial renegotiation, we introduce the “Bulow-Rogoff haircut” - a cumulative measure that captures the combined creditor loss across all restructurings during a single debt crisis. Using this measure, we show that longer debt crises deliver larger haircuts and that interim restructurings provide limited debt relief. We further examine past predictors of the size of haircuts and identify “rules of thumb” applicable to future defaults. Poorer countries, first-time debt issuers, and those that borrowed heavily from external creditors all record significantly higher haircuts in case of a default. Geopolitical shocks - such as wars, revolutions, or the break-up of empires – deliver the deepest haircuts. Sovereign debt investment disasters are often linked to (geo-)political disasters.

Recommended Weekend Reads