Recommended Weekend Reads

Latin America Holds the Key to Critical Mineral Needs, What Does Secretary of State-Designate Marco Rubio Have to Say About Latin America? And Just How Successful Has China’s Belt & Road Been?

November 15 - 17, 2024

Latin America

• Latin America: The World’s Copper Stronghold   Center For Strategic and International Studies

  In this interactive report, CSIS points out that copper is vital to U.S. national, economic, and energy security. Everything—from clean energy technologies, electronics, and automotives to power transmission infrastructure, data centers, and defense systems—depends on copper.  However, the United States only mines 5 percent of the world’s copper.  Latin America, which cumulatively mines nearly half (46 percent) of the world’s raw copper—the largest share of any continent—holds significant potential as a sourcing partner. Chile and Peru have the two largest copper reserves globally. 

• What Marco Rubio Has Said About Latin America  Americas Quarterly

  President-elect Donald Trump has nominated Florida Senator Marco Rubio for Secretary of State, making him potentially the first Latino to hold the position. The three-term senator, a son of Cuban immigrants, was born in Miami and was highly influential on Latin America policy during Trump’s first administration.  That influence is now likely to grow. He has consistently spoken out against dictatorships in Venezuela, Cuba, and Nicaragua. He has also criticized some of Latin America’s leftist leaders for their positions on Venezuela and China’s presence in the region.  Here is a selection of some of Rubio’s recent statements on Latin America.

• Boosting US-Japan Cooperation with Latin America in Critical and Frontier Sectors   Wilson Center’s Latin America Program

  As they recover from the effects of the COVID-19 pandemic, Latin American and

  Caribbean countries are facing a pivotal moment in their economic development. Many Latin American governments are beset by longstanding and emerging challenges, caught between rival global powers and weighed down by a daunting infrastructure deficit, a growing digital divide, high debt, low growth, and the intensifying effects of a changing climate. Looking ahead, cooperation with key extrarational partners, especially those committed to strengthening governance and accountability, will be fundamental to economic growth and sustainable development.  In this context, the United States and Japan will be potentially decisive actors. Both have separately committed to advancing the region’s economic development and, importantly, to promoting transparency and good governance. Japanese finance and investment in the region have grown (see Figure 1) as part of the late Prime Minister Shinzo Abe’s “Juntos” policy, which promoted enhanced engagement across the region. At the same time, Japan has emphasized the links between democracy and development, what it calls the “two D’s.”

Africa

• Banking on the diaspora   OFIF

  As countries across Africa grapple with the challenge of mobilizing resources for critical development initiatives, an increasingly popular financial instrument has emerged as a promising solution – diaspora bonds. Designed to tap into the substantial savings and investment potential of citizens living abroad, these bonds offer governments, project sponsors and corporations an opportunity to diversify funding sources through what’s known as a ‘diasporic discount’, enabling domestic entities to borrow at below-market rates with extended maturities. The timing couldn’t be better. According to World Bank data, annual remittance inflows to Africa in 2023 amounted to $90.3bn, or approximately 259% of the continent’s gross domestic product. And this figure is expected to rise further in 2024. It is the second highest after Asia, where remittance inflows as a share of GDP come to 278%.  Channeling these flows through purpose-specific bonds serves a dual purpose: it deepens often underdeveloped financial markets while broadening the retail investor base.

China

• China’s Belt & Road Initiative: How Successful Has It Been?   Hinrich Foundation

  Assessing the success of BRI requires a comprehensive examination of its financial investments, opportunity costs, and role in augmenting China’s global influence. Over the past decade, China's substantial increase in overseas assets, coupled with significant expenditure on industrial subsidies, amounts to an estimated cost of roughly 1.5% of China’s gross domestic product (GDP) annually. When factoring in indirect financial costs, such as international subsidies and geopolitical tensions, this conservative estimate increases to approximately 1.7% of GDP.  Despite BRI's success in reshaping global trade dynamics and enhancing China's footprint in the global South, it has also triggered geopolitical pushback and skepticism from Western powers. The shifting attitudes toward China among Western elites, alongside China's continued economic reliance on democratic nations, cast doubt on the long-term efficacy of BRI in fulfilling China's strategic goals.

• The Belt and Road Isn’t Dead.  It’s Evolving    Foreign Policy

  Chinese President Xi Jinping visits Peru this week for the Asia-Pacific Economic Cooperation (APEC) summit, during which he will inaugurate the deep-water port of Chancay, about 45 miles north of Lima. It’s a $3.6 billion project—one of China’s largest infrastructure investments in the region in the past two decades.  It also may be one of the last of its kind.

• Beijing Has Already Prepared for Trump’s Return    Foreign Policy

  As U.S. President-elect Donald Trump prepares to return to the White House, global observers watch with a mix of nervousness and caution. Conversations with Chinese academics, economists, and policy insiders reveal a far more nuanced outlook as Beijing dissects the implications of a second Trump presidency. Trump’s 2016 victory caught Beijing off guard, triggering a scramble to recalibrate. But four years of navigating tariffs, tech restrictions, and trade tensions have given Chinese President Xi Jinping and his advisors a deeper understanding of the U.S. president’s playbook.

Recommended Weekend Reads

The 2nd Trump Presidency, Ukraine: What Happens Now?, And China’s Axis of Losers

November 8 - 10, 2024

 Please find below 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 2nd Trump Presidency

• The 2024 Election Results   Tiber Creek Group

  One of Washington’s leading government consulting firms offers a comprehensive and superb overview of the November 5th elections from the Presidential race to the Congressional elections, all the way down to state and local elections.

• Mandate for Leadership: The Conservative Promise   Project 2025/The Heritage Foundation

  Much criticized during the presidential campaigns, the Washington, D.C. based think tank the Heritage Foundation published a comprehensive, highly detailed set of policy recommendations for Donald Trump to consider. While Trump went on to repudiate his relationship with Project 2025, it will undoubtedly play a role in policy development in the new Trump Administration as well as with the newly elected Republican Senate majority and what appears to be a likely House Republican majority.

• Policy Issues  America First Policy Institute

  Established by a group of senior advisors to then-former President Donald Trump, the American First Policy Institute (AFPI) set out define policy positions for a future Trump Administration.  Like the Heritage Foundation’s Project 2025, their policy ideas will play a major role in policy development in the newly elected Trump Administration.

• Donald Trump just won the presidency. Our experts answer the big questions about what that means for America’s role in the world.   Atlantic Council

  When Donald Trump returns to the presidency on January 20, Trump’s inbox will be full of global challenges. How will he respond? And what will the consequences be? Below, our experts provide answers across twenty-four of the most significant policy matters awaiting the next administration.

• The 2024 Trump Campaign Policy Proposals: Budgetary, Economic and Distributional Effects   Penn Wharton Budget Model

  We project that conventionally estimated tax revenue falls by $5.8 trillion over the next 10 years, producing an equivalent amount of primary deficits. Accounting for economic feedback effects, primary deficits increase by $4.1 trillion over the same period.  While GDP increases during part of the first decade (2025 – 2034), GDP eventually falls relative to current law, falling by 0.4 percent in 2034 and by 2.1 percent in 30 years (year 2054). After initially increasing, capital investment and working hours eventually fall, leaving average wages unchanged in 2034 and lower by 1.7 percent in 2054.  Low, middle, and high-income households in 2026 and 2034 all fare better under the campaign proposals on a conventional basis. These conventional gains and losses do not include the additional debt burden on future generations who must finance almost the entirety of the tax decreases.

• What Does Donald Trump’s Win Mean For U.S. Foreign Policy?  National Security Journal

  It is time to discuss what a foreign policy under President-elect Donald Trump would mean. First, there are two blazing wars to settle that have no easy answers. Next is the Taiwan question and what to do with China overall. Then we have border security. Don’t forget North Korea, which is in bed with Russia and threatening to go to war with South Korea. There is also the problem of a nuclear-equipped Iran.

• How Europe Should Woo Trump  The Strategist/Australian Strategic Policy Institute

  Donald Trump’s re-election as US president is a shock to Europe, which is woefully unprepared. His promised protectionism threatens the European Union’s struggling export-led economies, and his transactional attitude toward NATO endangers Europe’s already feeble security. Ukraine could soon be sacrificed to Russia, and by emboldening nationalist fellow-travelers such as Hungarian Prime Minister Viktor Orban, Trump may cause EU unity to be further undermined from within.  Shell-shocked Europeans will be tempted to hunker down and hope that Trump does not make good on his most extreme policies: slapping blanket tariffs on European exports, abandoning Ukraine and quitting NATO. But this would be a catastrophic mistake. Europeans must swallow their pride and try to win Trump over.

Ukraine: What Happens Now?

• The Perfect Has Become the Enemy of the Good in Ukraine: Why Washington Must Redefine Its Objectives  Richard Haass/Foreign Affairs

  Most U.S. policymakers would probably define winning in Ukraine in a way similar to how Kyiv defines it, including in its most recent “victory plan”: ousting Russian troops from the entirety of Ukraine’s territory, Crimea included, and reestablishing control over its 1991 borders. There is good reason for adopting this definition. But Washington must grapple with the grim reality of the war and come to terms with a more plausible outcome. It should still define victory as Kyiv remaining sovereign and independent, free to join whatever alliances and associations it wants. But it should jettison the idea that, to win, Kyiv needs to liberate all its land. So as the United States and its allies continue to arm Ukraine, they must take the uncomfortable step of pushing Kyiv to negotiate with the Kremlin—and laying out a clear sense of how it should do so.  Such a pivot may be unpopular. It will take political courage to make, and it will require care to implement. But it is the only way to end the hostilities, preserve Ukraine as a truly independent country, enable it to rebuild, and avoid a dire outcome for both Ukraine and the world.

• What do North Korean Troop Deployments to Russia Mean for Geopolitics?   Brookings Institution

  In early October, Ukrainian intelligence reported that several thousand North Korean soldiers were undergoing training in Russia in preparation for deployment to the Ukrainian front line later this year. South Korea’s National Intelligence Service (NIS) later corroborated Ukraine’s assertions, sharing satellite images of Russian vessels transporting the first batch of 1,500 North Korean special forces to Russia’s Far East. On October 23, White House National Security Communications Advisor John Kirby confirmed the presence of at least 3,000 soldiers. The Pentagon now believes that 10,000 North Korean troops are in Russia with a contingent heading toward the Kursk region in western Russia to battle Ukrainian forces. The large deployment of North Korean troops in Russia represents a troubling new phase in the Russia-Ukraine war while carrying deeper implications for global politics. We address five key questions related to accelerating North Korea-Russia military cooperation.

• Crossing the Rubicon: DPRK Sends Troops to Russia   Center for Strategic and International Studies

  The U.S. government has confirmed and released evidence that North Korea (DPRK) sent troops to Russia. Speaking in Italy after a trip to Ukraine, U.S. secretary of defense Lloyd Austin called this development a “very, very serious issue” and warned of impacts not only in Europe but in the Indo-Pacific as well. While the U.S. government is still uncertain of the role the North Korean troops will play, Austin suggested that this is an indication that Vladimir Putin “may be even in more trouble than most people realize.”  But what is in it for North Korea?

China

• Xi Jinping’s Axis of Losers – The Right Way to Thwart the New Autocratic Convergence  Stephen Hadley/Foreign Affairs

  The United States is contending with the most challenging international environment it has faced since at least the Cold War and perhaps since World War II. One of the most disconcerting features of this environment is the burgeoning cooperation among China, Iran, North Korea, and Russia. Some policymakers and commentators see in this cooperation the beginnings of a twenty-first-century axis, one that, like the German-Italian-Japanese axis of the twentieth century, will plunge the world into a global war. Others foresee not World War III but a slew of separate conflicts scattered around the globe. Either way, the result is a world at war—the situation is that serious.  What should be done about this cooperation is another matter. Washington’s aim should be to make clear to Chinese President Xi Jinping how counterproductive and costly to Beijing’s interests these new relationships will turn out to be. That means effectively countering Iran, North Korea, and Russia in their own regions, thereby demonstrating to China that tethering itself to a bunch of losers is hardly a path to global influence.

• China’s long shadow over Asia’s critical minerals   Hinrich Foundation

  When it comes to securing supply for critical minerals it does not possess in sufficient quantities at home, China has been investing heavily overseas. In Southeast Asia, Beijing has invested about US$4 billion since 2012 in 12 projects, a lot of it concentrated in Indonesia, which exports 16% of the world’s nickel. From a long-term geopolitical, economic, and sustainability perspective, it is not in ASEAN’s interests to be drawn exclusively into one Great Power’s sphere of influence.

 Geoeconomics and Trade

• Did Tariffs make American Manufacturing Great?  New Evidence from the Gilded Age  Alexander Klein & Christopher Meissner/National Bureau of Economic Research

  We study the relationship between tariffs and labor productivity in US manufacturing between 1870 and 1909. Using highly dis-aggregated tariff data, state-industry data for the manufacturing sector, and an instrumental variable strategy, results show that tariffs reduced labor productivity. Tariffs also generally reduced the average size of establishments within an industry but raised output prices, value-added, gross output, employment, and the number of establishments. We also find evidence of heterogeneity in the association between tariffs and value added, gross output, employment, and establishments across groups of industries. We conclude that tariffs may have reduced labor productivity in manufacturing by weakening import competition and by inducing entry of smaller, less productive domestic firms. Our research also reveals that lobbying by powerful and productive industries may have been at play. The era’s high tariffs are unlikely to have helped the US become a globally competitive manufacturer. 

Recommended Weekend Reads

Entering the Age of Global Depopulation, The Surprising Resilience of Globalization, and How Brazil Could Become the Global Engine for Global Clean Energy Revolution

November 1 - 3, 2024

Global Demographics

• The Age of Depopulation: Surviving a World Gone Gray   Nicholas Eberstadt/Foreign Affairs

  Although few yet see it coming, humans are about to enter a new era of history. Call it “the age of depopulation.” For the first time since the Black Death in the 1300s, the planetary population will decline. But whereas the last implosion was caused by a deadly disease borne by fleas, the coming one will be entirely due to choices made by people.  With birthrates plummeting, more and more societies are heading into an era of pervasive and indefinite depopulation, one that will eventually encompass the whole planet. What lies ahead is a world made up of shrinking and aging societies. Net mortality—when a society experiences more deaths than births—will likewise become the new norm. Driven by an unrelenting collapse in fertility, family structures, and living arrangements heretofore imagined only in science fiction novels will become commonplace, unremarkable features of everyday life.
  

• To Combat Demographic Decline, Moscow Must Focus on Mortality Rather than Fertility   Jamestown Foundation

  Russia’s continuing population decline means it will soon not have enough people to run its economy and fight in its wars. Russian President Vladimir Putin is talking ever more about falling fertility rates but doing little to decrease the increasingly high mortality rates. Russia’s birthrate reflects underlying social changes, such as urbanization, and is at about the same level as other industrialized countries. Its mortality rate, however, is far higher, in part due to Russia’s failure to support the health of its citizens. Putin is loath to address the mortality rate, as it would be both expensive and require him to change his goals in Ukraine. As a result, Russia’s demographic decline and the restrictions it will impose are likely to last as long as he remains in power. 
  

Geoeconomics

• The Surprising Resilience of Globalization: An Examination of Claims of Economic Fragmentation   Brad Setser/Aspen Economic Strategy Group

  This paper evaluates the current landscape of global trade and financial flows and proposes a set of reforms to support healthier forms of integration. Setser finds that, despite the growing bipartisan skepticism about the value of liberal trade, global economic integration remains surprisingly resilient. In fact, Setser argues, the immediate risk facing the global economy is more accurately described as unhealthy integration than fragmentation. Setser identifies two unhealthy forms of globalization that have proven to be resilient – those driven by corporate tax avoidance strategies and persistent trade and payment imbalances with China – and offers three policy reforms to address these risks.
  

• Geopolitical fragmentation in global and euro area greenfield direct investment  The European Central Bank

  As companies and policymakers increasingly look at ways to reduce the vulnerability of their supply chains, understanding recent dynamics in greenfield investment is important as these may foreshadow a reconfiguration of global trade networks, the fragmentation of which could be particularly detrimental for the euro area. In the last decade, annual FDI outflows and inflows amounted to 1.4% and 0.6%, respectively, of euro area GDP and 1.0% and 1.2%, respectively, of global GDP excluding the euro area. The euro area is the largest source of outward greenfield FDI, accounting for 19% of global outflows in the last two years, followed by the United States, which accounted for 15%. Ex-ante, the effect of geopolitical fragmentation on the direction of FDI flows is ambiguous. On the one hand, firms and policymakers might look to friend-shore and/or near-shore production to make supply chains less vulnerable to geopolitical tensions or to safeguard their assets from potential future violations of property rights. On the other hand, firms might increase their investments in geopolitically distant countries, i.e., countries that take an observably different stance on foreign policy issues, if they think that future trade tensions might impede their access to local markets.

• The gradual decline in dollar dominance could quicken   OMIF

  The dollar’s share in world currency reserves could decline until 2050 to 40-45% from around 60% at present, under scenarios discussed by the OMFIF advisory council. The gradual fall, alongside an increase in the importance of the euro and the renminbi, is seen as a natural consequence of the gradual reduction in America’s relative importance in the world economy. Factors that could speed up the fall include more aggressive action by emerging market economies to promote the use of non-dollar currencies as well as persistent US budget and current account deficits, according to participants at the advisory council meeting on 15 October. Kamala Harris and Donald Trump, the contestants in the US presidential election on 5 November, show little readiness to take action on this issue. Concerns about the use of US power over the dollar system in sanctions against Russia and allies in the war with Ukraine could worsen, as well as worries about ballooning American deficits, depending on the next White House incumbent. These anxieties are also helping spur the latest spurt in the gold price.
  

• Not Picking Sides Is Paying Off For These Countries   Bloomberg

  Geopolitics is shaping the flow of trade and investment around the world in ways it hasn’t in decades, fueling talk of another Cold War. Sandwiched between a US-led Western Bloc and another dominated by Russia and China sit at least 101 nations that we’ve dubbed the “New Neutrals.”  Members of this informal group are betting they can attract investment from both blocs and benefit economically if they avoid picking sides. And there’s evidence that’s happening. More than 100 nations are embracing a new kind of geopolitical neutrality. For many, it’s working.

• Can BRICS Finally Take On the West?   Foreign Policy

  One of the more remarkable developments over the last 25 years is that an investment banker’s arbitrary acronym for a quartet of emerging market economies has become the rubric for rebellion. The BRICS countries—or BRICS+, since the original grouping of Brazil, Russia, India, China, and later South Africa has since further expanded to include four more members—are meeting this week for their headline summit in glitzy Kazan, Russia, on the banks of the Volga. On the agenda this year, the first full summit after the formal incorporation of Iran, Egypt, Ethiopia, and the United Arab Emirates into the bloc, will be the usual talk of creating a truly multipolar world order to challenge U.S. and Western hegemony. A big part of that, especially for sanctions-battered members such as Iran and Russia, will be efforts to come up with viable alternatives to the global dominance of the U.S. dollar.

Latin America

• The Past, Present and Future of Soy in South America   Americas Quarterly

  Over the past five decades, the continent has become a soy-growing behemoth, feeding much of the world.  But is the boom over?  And what does it mean for South America?
  

• What does the U.S. Election mean for Latin America?    Canning House

  Canning House is a UK-based think tank focused on Latin American.  In their new paper, they consider the potential impact of either leading candidate's victory on Latin America and how the region sees the contest for the White House.  This includes analysis covering: The Latino vote, The Border Czar story: success or failure?, Harris and Trump - global policy positions, The view from Mexico City, The Bolsonaro factor in Brasília, Outlook for the 'Northern Triangle', A tricky trio, How the rest of Latin America sees the race for the White House.
  

• Brazil’s Critical Minerals and the Global Clean Energy Revolution  the Wilson Center

  Brazil has all the elements for becoming an engine of the rapidly evolving global energy transformation. The country boasts some of the world’s largest deposits of critical minerals essential to make possible the transition from fossil fuels. Brazil is already an exporter of some of these minerals. But beyond exporting raw materials, the country is also looking to develop critical minerals value chains at home, leveraging its leadership in renewable energy. In the process, Brazil could emerge as a trailblazer in green technology and climate change solutions.

Recommended Weekend Reads

Our U.S. Election Special: Election Integrity, Who Your Neighbors Gave To, and How Economic Indicators Impact Votes. Plus, Why Europe is Unprepared to Defend Itself, and Mexico’s Economic Challenges

October 25 - 27, 2024

Please find below 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.

U.S. 2024 Elections

• “The Good, the Bad and the Ugly” of Election Integrity   The Hoover Institution Podcast

  Are battleground states better prepared this election cycle than in recent election cycles? Ben Ginsberg, the Hoover Institution’s Volker Distinguished Visiting Fellow and a preeminent authority on election law, examines whether battleground states are better prepared this election cycle than in recent election cycles. Ginsberg also explores possible legal challenges that might happen before, during, and after the vote count. 

• See How Your Neighborhood Is Giving to Trump and Harris  Washington Post

  Want to know which political campaigns your neighbor contributed to?  The Washington Post makes it easy: Enter your zip code and find out which campaign your neighbors gave money to!  In every state across the country, more people donated to Vice President Kamala Harris than to former President Donald Trump. Registered voters in the suburbs were about twice as likely to give to Harris as to Trump. A vast majority of Trump’s donors under 35 were men. And in the battleground state of Georgia, where Black voters make up one-third of the electorate, less than 4 percent of Trump donors were Black. Those are among the findings from a Washington Post analysis of online contributions to the Trump, Harris, and President Joe Biden campaigns, combined with voter registration data. There are outside groups that don’t have to disclose donors and that make up some of the spending for both Harris and Trump, so this is only a part of the funds backing the two candidates. The result is still a detailed snapshot, down to the Zip code level, of who clicked and tapped to send a few dollars to the leading candidates since Trump launched his campaign in November 2022.

•   How Do Electoral Votes, Presidential Approval, and Consumer Sentiment Respond to Economic Indicators?   National Bureau of Economic Research Working Paper/Robert J. Gordon

  Abstract: This paper studies the effect of economic indicators on the Michigan Consumer Sentiment Index, Presidential approval ratings, and Presidential election outcomes since 1956. How closely do the indicators predict sentiment, how well does sentiment predict approval, and what role does approval have in explaining election outcomes measured by electoral votes? How much of the variance of approval ratings depends on non-economic factors like the “honeymoon effect”? Is there a role for economic indicators in explaining election outcomes once the contribution of approval ratings is taken into account? Regression equations provide answers to these questions and allow new interpretations of political history. Equation residuals and the contributions of specific variables are graphically displayed, providing insights into time intervals when sentiment was above or below the prediction of economic indicators, when approval differed from its usual relation with sentiment and the indicators, and when and why the electoral vote totals in each election since 1956 exceeded or fell short of the predictions of the econometric equations.
  

• As the U.S. elections nears, Russia, Iran, and China Step Up Influence Efforts  Microsoft Threat Analysis Center

  With two weeks until Election Day 2024, the Microsoft Threat Analysis Center (MTAC) observes sustained influence efforts by Russia, Iran, and China aimed at undermining U.S. democratic processes. Since our last two reports, the U.S. government has taken many actions revealing cyber and influence activity from foreign adversaries related to election 2024. Most recently, that includes revealing malicious Iranian cyber actors’ sending of “stolen, non-public material from former President Trump’s campaign” to both individuals then associated with President Biden’s campaign and U.S. media organizations, and the indictment of three Iranian actors for the hack-and-leak operation targeting the Trump-Vance campaign. 

Africa

• How Can African Countries Participate in U.S. Clean Energy Supply Chains?  Carnegie Endowment for International Peace

  The combination of key mineral endowments in African countries and U.S. objectives to reorient clean energy supply chains away from competitors like China can serve as the foundation for a new economic and strategic relationship.

Europe

• Why Europe is Unprepared to Defend Itself   Bloomberg

  For decades, European NATO members curbed defense spending to fund other priorities. What remains, in the view of some US military experts, is a “Potemkin Army” that couldn’t stand up to an invader without American support.

• Is a UK rapprochement with the EU possible?  The Peterson Institute for International Economics

  A clear majority of Brits consider the decision to leave the EU a mistake. A You Gov poll from August this year shows 51 percent saying that the negatives of Brexit have outweighed the benefits; only 17 percent think the opposite.
  

• Macroeconomic implications of the recent surge of immigration to the EU   Francesca Caselli, Allan Gloe Dizioli, and Frederik Toscani/Center for Economic Policy Research

  This research piece discusses the macroeconomic implications of this immigration surge and suggests a positive effect on potential output in the range of 0.2-0.7% by 2030 for recipient countries. On the flip side, the large inflow had initial fiscal costs and likely led to some congestion for local public services, such as schooling. Future policy efforts should seek to continue to integrate immigrants into the Labour force while ensuring the supply of public services and amenities keeps up with the population increase.

Mexico 

• Forget the US Election, Mexico’s Real Economic Challenges Lie At Home   OMFIF

  As the world anxiously watches the unfolding US election, many analysts are speculating about its impact on Mexico’s economy. Will trade relations be upended? Will the peso come under pressure from political uncertainty? While these are valid concerns, the bigger story might not lie north of the border. Mexico’s real challenge stems from its domestic policies – a challenge that could shape the nation’s economic future more than any external events.

• A U.S. Reset with Mexico Is Still Possible  Shannon O’Neil/Foreign Affairs

  Mexican President Claudia Sheinbaum, who was inaugurated on October 1, has come into office with more political power than any Mexican leader since the country’s transition away from single-party rule in the 1990s.  She received a record 35.9 million votes—nearly 60 percent of those cast for the top office—and effectively controls a two-thirds supermajority in Congress. Her party, Morena, governs 22 of the country’s 31 states. Yet economic headwinds will temper this political gift, as expectations for fast and meaningful action on wage increases, a greener energy grid, expanded public benefits, and other issues will likely outpace Sheinbaum’s ability to deliver.  No matter who enters the White House in January, there is an opportunity—albeit a narrow one—for a reset with Mexico, one that could make both countries safer and more prosperous rather than beset with crises and consistently at odds with each other.

• How Does Debt Affect Ecuador-China Relations?   Latin American Advisors

  Ecuador’s minister of economy and finance, Juan Carlos Vega, met with his Chinese counterpart, Lan Fo’an, in Beijing on Sept. 23 for talks about bilateral cooperation and economic relations. The discussion included Ecuador’s debt to China, which is close to $3 billion, in addition to Ecuador’s energy problems, some of which stem from flaws in Chinese-built energy infrastructure projects that have come to light in recent years. How does Ecuador’s debt influence its relationship to China? How does it complicate President Daniel Noboa’s attempts to improve the country’s fiscal situation? What leverage does Ecuador have in pressing China to address the flaws in its energy infrastructure?

Recommended Weekend Reads

The Latin American Nations are Best Positioned for Nearshoring, How America’s Gender Gap is Reshaping the Election, and Macroeconomic Limits of China’s Africa Strategy

October 18 - 20, 2024

Please find below 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.

Americas

• Solving Latin America’s Food Paradox  Americas Quarterly

  Latin America has, in many ways, become the world’s breadbasket. Over the past two decades, the value of its agricultural exports rose a whopping 500% to $316 billion in 2022, the last full year data was available. No other region has a larger farming surplus. It is the source of more than 60% of the world’s soybean trade, almost half its corn, and more than a quarter of its beef. Three out of four avocados come from Latin America, as does much of the world’s coffee.  At the same time, about 28% of people in Latin America and the Caribbean suffer today from moderate or severe food insecurity, meaning they lack regular access to enough safe and nutritious food for normal health and development. That number is down from its peak during the COVID-19 pandemic but still six percentage points higher than in 2014, according to the United Nations Food and Agriculture Organization (FAO). That means an additional 48 million people are suffering from food insecurity compared to a decade ago. What can be done?

• China invites Colombia to Join the Belt and Road Initiative, “Exploring” Free Trade Agreement  South China Morning Post

  Colombia has confirmed formation of working group to discuss matter and hails ‘great potential’ to lure mainland investment, alarming US officials.

• Which Latin American Countries are Best Positioned for Nearshoring?   Brian Winter/Editor-in-Chief of Americas Quarterly

  Winter posted a fascinating tweet showing a chart prepared by former Chilean Finance Minister Felipe Larraín showing which countries in Latin America are best positioned for nearshoring.

The U.S. Elections

• The Politics of Progress and Privilege: How America’s Gender Gap Is Reshaping the 2024 Election  American Enterprises Institute’s Survey Center on American Life

  The United States is experiencing a tumultuous shift in how Americans recognize traditional gender hierarchies. Women still feel there is a significant need to address gender inequality, whereas many men are more ambiguous on the matter.  Gen Z is particularly sensitive to the reassessment of these norms, with young men and women increasingly stratified along party lines. Young women are more likely to support Democratic candidates, take liberal policy stances, and believe that a more concerted effort is needed to ensure equality between the sexes. Young men, comparatively, have sorted in the opposite manner.  With Gen Z increasingly at odds in their politics and social identities, the common ground between American men and women is diminishing rapidly.

China

• Renminbi dilemma for Chinese authorities  Mark Sobel/ OMFIF

  China’s economy is being rocked by enormous headwinds – excess leverage, local government debt, housing sector woes, de/disinflation, contracting manufacturing and weak service sector growth. The authorities have announced measures to reduce interest rates, spur housing and boost equity prices. However, the fiscal pronouncements made over the past weekend – though apparently not directly aimed at boosting consumption –were lacking in details, terms and amounts.  Together, these efforts, while helping to limit downside risks to the economy, are so far unlikely to restore confidence and significantly strengthen activity. Amid weak domestic demand and low confidence, how then might Chinese authorities view the renminbi?

• U.S. – China Relations for the 2030s: Toward a Realistic Scenario for Coexistence  Carnegie Endowment for International Peace

  It has become difficult to imagine how Washington and Beijing might turn their relationship, which is so crucial to the future of world order, toward calmer waters. If there is to be any hope of doing so, however, a group of some of the leading policy experts on US China relations offer, via individual essays, a realistic vision of what those calmer waters might look like.

• Value-added and Value Lost: The Macroeconomic Limits of China’s Africa Strategy  European Council on Foreign Relations

  China’s overcapacity has hit Europe’s economies hard, but it is also damaging Africa’s. With both continents suffering, Africa and Europe can make common cause in confronting this mutual challenge.

Geoeconomics

• Immigration and Macroeconomy After 2024  Stan Veuger/Wendy Edelberg/Cecilia Esterline/Tara Watson

  Few issues have dominated the US political debate in recent years like immigration. The starting point for our analysis is the creation of a “high immigration” and a “low immigration” scenario for each presidential candidate. These scenarios reflect a combination of the historical record under the Trump administration and the Biden-Harris administration, announced and inferred immigration policies, as well as our judgment of likely developments. They are constructed from the ground up, starting by predicting inflows from specific visa categories, border and parole policy, and entries without inspection. We also predict removals, reflecting both the candidates’ visions and logistical constraints as well as other factors that affect outflows. We provide two scenarios for each candidate given the considerable uncertainty about policy actions as well as responses by migrants.

• Challenging the deglobalization narrative: Global flows have remained resilient through successive shocks  Journal of International Business Policy

  Abstract: We challenge the popular narrative that the world has entered a period of deglobalization, arguing that deglobalization is still a risk rather than a current reality. Drawing upon the DHL Global Connectedness Index, we show that international flows have not decreased relative to domestic activity, there is not an ongoing shift from global to regional business, and geopolitically driven shifts in international flows still primarily involve countries at the center of present conflicts. We propose policy and research implications, warning that misperceptions of deglobalization could themselves contribute to costly reductions in international openness.

• The Great Transfer-mation: How American communities became reliant on income from government    Economic Innovation Group

  This interactive research report shows how transfers’ share of Americans’ total personal income has more than doubled over the past 50 years, from 8.2% in 1970 to 17.6% in 2022. They are the third largest source of Americans’ personal income, after income from work and investments. The average American received $11,500 in income from government transfers in 2022, compared to $40,500 in income derived from work and $12,900 from investments. Today, most U.S. counties depend on a level of government transfer income that was once reserved only for the most distressed places.

Recommended Weekend Reads

October 11 - 13, 2024

What to Watch For At The Upcoming BRICS+ Summit, China’s Dollar Dilemma, Time for A Containment Strategy for Venezuela, and How Protectionism is Failing as an Economic Strategy

Please find below our recommended reading from reports and articles we read 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 BRICS+ Upcoming Leadership Summit

• BRICS Expansion, the G20, and the Future of World Order Stewart Patrick/Carnegie Endowment for International Peace

  This month, Russian President Vladimir Putin will host the first-ever summit of BRICS+ from October 22 to 24 in the Tatarstan city of Kazan. There, the founding members of BRICS—Brazil, Russia, India, China, and South Africa—will formally welcome into their fold five new members: Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE). Putin has also invited more than two dozen other countries that have applied for or are considering membership in the expanding club. The gathering is meant to send an unmistakable signal: Despite the West’s best efforts to isolate it, Russia has many friends around the world.  But with the addition of new members in BRICS+, the group of emerging powers will be more globally representative­—but also face more internal divisions.
  

• Building BRICS: What Erdogan’s geopolitical gamble could mean for the West  European  Council on Foreign Relations

  Turkey’s President Recep Tayyip Erdogan has announced Turkey’s intention to apply for BRICS membership. If successful, it would be the bloc’s only NATO member – but the mere prospect of joining could open the door to Turkey’s re-engagement with the West.

• BRICS: Hub of Mulitvector Foreign Policy   Wilson Center’s Kennan Institute

  An extraordinary campaign is underway in Russia ahead of the BRICS summit, scheduled for October 22–-24 in Kazan. This event is positioned as a direct challenge to the West, with Putin aiming to showcase it as his coalition, an alliance containing more influential players than those aligned with Western powers. The Kremlin also emphasizes that the group includes some of the world’s most populous nations, branding it the “global majority.” There is additional intrigue surrounding the potential participation of UN Secretary-General António Guterres at the upcoming summit, as reported by the United Nations Information Center in Russia.

China

• China’s Dollar Dilemma  Carnegie Endowment for International Peace

  Increasingly intensifying U.S. economic sanctions targeting Russia’s financial system have deepened concerns in China over its extensive dollar asset holdings and the Chinese financial system’s reliance on dollars.

• Value-added and value lost: The macroeconomic limits of China’s Africa Strategy   European Council on Foreign Relations

  China’s overcapacity has hit Europe’s economies hard, but it is also damaging Africa’s. With both continents suffering, Africa and Europe can make common cause in confronting this mutual challenge.
  
  

Americas

• A Containment Strategy for Venezuela   Ryan Berg & Christopher Sabatini/Foreign Affairs

  A little more than two months after Venezuela’s presidential election, the regime of Nicolás Maduro has yet to release any evidence to support its claim to victory.  Instead, Caracas has brutally repressed its political opponents and civil society.  None of this comes as a surprise. What is surprising is the utter failure of international diplomacy to compel Maduro to negotiate with the opposition, despite credible evidence that he lost by a landslide. The international response to Maduro’s power grab has, thus far, been characterized by piecemeal expressions of concern by individual countries. This will not suffice.  Neither will the kind of broad sanctions that outside actors have relied on for a quarter century to try to dislodge a succession of abusive Venezuelan governments. It is time, instead, for a broad coalition—including Latin American countries, the United States, Canada, and the European Union—to adopt a much more coherent and well-coordinated long-term policy of constructive containment.

Russia

• The Russian War Economy’s Days Are Numbered  Anders Åslund/Project Syndicate

  With Vladimir Putin’s war of aggression in Ukraine approaching its third anniversary, the financial, technological, and demographic hurdles facing the Russian economy are more severe than is commonly understood. Contrary to what the Kremlin would like others to believe, time is not on Russia’s side.

US Economics & Trade

• A Simple Plan to Address Social Security Insolvency  AEI Economic Policy Working Paper

  The authors point out the Social Security’s Old Age and Survivors Insurance trust fund is projected to be exhausted in 2033. Without intervening legislative action, current law dictates that benefits at that time would need to be reduced by approximately 21 percent. It is commonly assumed that such benefit reductions must be made on an equal percentage basis for every retiree, a step that would double the elderly poverty rate and reduce total income for the median senior household by almost 14 percent.  However, when a federal program lacks sufficient funds, the executive branch in fact possesses considerable discretion to allocate those limited funds in a reasonable manner. This discretion would allow the President at the time of trust fund exhaustion to pay full Social Security benefits to those in greatest need. The authors present a framework in which monthly benefits in 2033 would be capped at $2,050 (in 2024 dollars), an amount that would provide full scheduled benefits for roughly half of retirees; benefit reductions for the remaining, higher-income, half of retirees would be progressive.  All this, they argue, will ensure the worst effects of Social Security insolvency can be prevented by executive action.
  

• Protectionism Is Failing and Wrongheaded: An Evaluation of the Post-2017 Shift Toward Trade Wars and Industrial Policy  Michael Strain/Aspen Economic Strategy Group

  The Trump–Pence and Biden–Harris administrations enthusiastically embraced protectionism. Each administration explicitly argued for a break from the bipartisan consensus of recent decades that has been generally supportive of free trade and of allowing markets to shape US industrial and employment composition. But the protectionism of the Trump and Biden administrations has not succeeded and likely will not succeed at meeting its goals: they have caused manufacturing employment to decline, not to increase; they have not reduced the overall trade deficit; they have not led to a substantial decoupling of the US and Chinese economies. More fundamentally, the goals that have not been met are wrongheaded: policymakers should not pay inordinate attention to manufacturing employment, and the trade deficit is a poor guide to economic policy. Finally, these wrongheaded goals often rest on fundamental economic misperceptions: free trade is not a policy to create jobs; it is a policy to increase productivity, wages, and consumption. The balance of the evidence suggests that free trade, including trade with China, has not reduced employment. Of course, trade has been disruptive. But populist policies adopted in response will hurt workers, not help them.

Recommended Weekend Reads

Latin America Struggles with Cheap Chinese EV Imports, the Very Slow German Military Modernization, and How Russia Creatively Gets Around Western Sanctions.

September 20 - 22, 2024

Latin America 

• Driving Change: How EVs Are Reshaping China’s Economic Relationship with Latin America  Center for Strategic and International Studies

  Countries in Latin America and the Caribbean (LAC) are navigating a new geopolitical moment. Some LAC countries are benefitting from increased access to low-cost, high-quality electric vehicles (EVs) and new investment throughout the value chain from China that can help meet governments’ climate and economic objectives. However, this comes with risks, as dependencies on Beijing may be exacerbated at a time when China’s economy is underperforming, and geopolitical competition with the United States is on the rise.

Turkey

• Closing the backdoor: The new TurkStream is here. Can the West stop it?    Politico EU

  The EU cannot look away as Gazprom tries to launder Russian gas exports via the new TurkStream pipeline. And fully decoupling from Russian energy now would show Europe still stands with Ukraine. What is TurkStream?  It is a new 570-mile gas twin-pipeline running under the Black Sea, linking Russia and Turkey which is expected to deliver 31.5 billion cubic meters of natural gas per year to Turkey.  However, According to Turkey’s Energy Minister, the state-owned gas monopoly BOTAŞ would now be able to export around 7 to 8 billion cubic meters (bcm) of natural gas through Bulgaria to Central Europe under a new brand called “Turkish Blend,” mixing gas from various sources.

• Turkey’s Strategic Autonomy in the Black Sea and the Eastern Mediterranean  Stiftung Wissenschaft und Politik

  In the Black Sea, Turkey has been able to engage in resource exploration and joint security arrangements with its neighbors. Ankara’s approach to the Black Sea demonstrates that with the right diplomatic efforts and mutual recognition of interests, regional cooperation is possible even in complex geopolitical environments. The contrast in Ankara’s positioning in the Black Sea and the Eastern Mediterranean highlights the potential for Turkey to participate in cooperative frameworks in the latter case, provided its concerns and interests are adequately addressed.

Europe 

• Fit for War In Decades: Europe’s and Germany’s Slow Rearmament vis-à-vis Russia  Kiel Institute for the World Economy

  This study documents Germany’s military procurement in a new Kiel Military Procurement Tracker and finds that Germany did not meaningfully increase procurement in the one-and-a-half years after February 2022 and only accelerated it in late 2023. Given Germany’s massive disarmament in the last decades and the current procurement speed, we find that for some key weapon systems, Germany will not attain 2004 levels of armament for about 100 years. When considering arms commitments to Ukraine, some German capacities are even falling. The new Tracker provides detailed information on quantities, value of the orders, predicted delivery dates, as well as the companies from which Germany procures. The situation of slow and insufficient procurement can and needs to be remedied.

• The End of the Zeitenwende: Reflections After Two Years of Action Group Zeitenwende  German Council on Foreign Relations

  “Zeitenwende” is German Chancellor Olaf Scholz’s national security and defense transformation, launched in 2023.  In a historic speech after the invasion of Ukraine by Russia, Scholz said the attack marked a “Zeitenwende” (a historic turning point) and Germany must rise to the challenge by undertaking five policies: 1) Support Ukraine in its fight for freedom, 2) Reducing German dependence on Russian energy while continuing to pursue climate goals, 3) Taking a tougher approach to Russia and addressing threats from authoritarian states, 4), Enhancing Germany’s role in strengthening the EU and NATO, and, 5) Ensuring that Germany could militarily defend itself.  In this paper, the author argues Zeitenwende has largely failed – an early assessment of what is likely to be a major policy issue as Germany heads toward national elections in 2025.

• While the US and China Decouple, the EU and China Deepen Trade Dependencies  Peterson Institute for International Economics

  Pandemic-era shortages and rising geopolitical tensions have fueled calls in recent years for the United States and the European Union to “decouple,” or at least greatly reduce their dependence on imports, from China. All three of the world's largest trading regions are pursuing policies to diversify the sources of their imports, both as a hedge against natural supply disruptions and to reduce vulnerability to economic coercion.  The United States has decreased its dependence on China for all types of imported manufactured goods since 2018, according to recently released 2023 customs data. The European Union and China, however, have maintained or increased their reliance on each other for almost all types of imported goods, creating the potential for future clashes between EU and US national security policies.

Russia’s Evasion of Sanctions

• What Wasn’t Sanctioned? Why Russia and the West Continued Trading amid the Russia-Ukraine War  American Enterprise Institute

  Russia and the West imposed tough economic sanctions on one another during the initial phase of the Russia-Ukraine war, hoping to change the other side’s political calculus.  Because the war has lasted longer than either party expected, both have come to tolerate substantial volumes of trade in many commodities, including gas, aluminum, titanium, and uranium, illustrating the constraints on each side’s willingness to incur costs. Both sides overestimated the sanctions’ impact on their adversaries’ decision-making around the war.

• The Indian Apartment Behind Russian Efforts to Break US Gas Sanctions   Bloomberg

  A network stretching from Dubai to China is involved in a multi-billion-dollar effort to ship gas from Russia's Arctic LNG facility. Bloomberg’s analysis of company data, satellite images and ship-tracking information shows the lengths to which Moscow appears to be willing to go to capture market share. In the short term it could provide some wartime profit, but the government’s ultimate goal is to triple LNG exports by 2030 as one of the pillars of any post-conflict economy — especially after losing Europe as its top pipeline gas customer.

• Gold Rush: How Russia is Using Gold in Wartime   Rand Corporation

  This report examines how Russia has been using gold since its invasion of Ukraine in 2022. It begins with an outline of Russia's pre-war gold policy and describes how it has changed since the start of the war. It provides a discussion of how the gold sector is financed, with attention on the role of Russia's banks and how its gold companies have responded to Western pressure and sanctions. It describes how Russia's gold producers are faring, both in terms of their wartime productivity and access to mining equipment. Additionally, it offers detail on how Russia is seeking to generate revenues from gold and develop its international gold trade. The report concludes with recommending avenues for further investigation.

 Geopolitics

• Four Geopolitical Disruptions and How to Exploit Them   Nadia Schadlow/Hudson Institute

  In this provocative policy memo, Schadlow, primary author of the 2017 National Security Strategy, writes that four emerging disruptions will demand the attention of whomever the American people choose as their president: 1) An authoritarian axis is rapidly coalescing around China, Russia, Iran, and North Korea, disrupting the belief that an international community has taken shape in the aftermath of the Cold War, 2) Climate alarmism and the prohibitively expensive green transition will give way to energy sobriety, which recognizes the need for abundant, reliable, and cheap power, 3) A new realism about trade will see beliefs about free trade cast aside in favor of addressing imbalanced trade and the mercantilist practices of countries like China, and, 4) The transformational potential of artificial intelligence which will affect individuals, societies, economies, and political systems in ways no one can foresee – indeed, it could be the most disruptive development of all.  Schadlow argues All four of these disruptions represent fault lines that have emerged from a shifting post–Cold War architecture. They are not only drivers of the breakdown of this architecture but also symptoms of its failures. Further, they are taking place against the backdrop of America’s relative decline as a world power. The way policymakers shape and respond to these disruptions will impact US power as well as the relative power of other states.

Recommended Weekend Reads

August 9 - 11, 2024

Please find below 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.

Geoeconomics

• The Case for a Carbon Tax: My Long Read Q&A with Kyle and Shuting Pomerleau  American Enterprise Institute’s Policial Economy Podcast

  The Biden administration has set ambitious goals to decrease US carbon emissions. Starting in 2022, the Inflation Reduction Act granted clean energy tax credits to businesses in hopes of encouraging a greener economy. Kyle and Shuting Pomerleau see a carbon tax as a superior approach. To offset any regressive effects, they propose a revenue swap, using the income from the tax to directly finance an expanded child tax credit.  The interview is with Shuting Pomerleau, who is the deputy director of climate policy at the Niskanen Center. Kyle Pomerleau is a senior fellow at AEI, where he studies federal tax policy.

• Pocketbook Politics: The Impact of Wealth on Political Preferences and Participation  Anton Brännlund,  David Cesarini,  Karl-Oskar Lindgren, Erik Lindqvist,  Sven Oskarsson  & Robert Östling/ National Bureau of Economic Research

  The rich tend to support policies favoring the affluent and are over-represented among both voters and legislators. This paper investigates whether these correlations reflect causal effects of wealth by leveraging random, positive wealth shocks in the form of lottery prizes. Compared to suitably matched controls, large-prize winners are no more likely to cast votes in national elections or run for political office. We also find no significant effects of parents’ lottery winnings on their children’s political participation. But winners of large lottery prizes become more negative toward taxes on wealth, real estate and inheritances. Although we do not detect any statistically significant effects on other political preferences, effects tend to go in the direction of a more right-wing political orientation. We find no evidence that lottery wealth changes moral values or strengthens beliefs in the importance of hard work for success in life.

• Is Greece’s Six-Day Work Week a Harbinger?  Pinelopi Koujianou Goldberg/Project Syndicate

  Greece’s surprising move back to a six-day work week in some sectors reflects a mix of evolving political sentiment and merciless arithmetic. To maintain their current quality of life, citizens across almost all high-income countries must either open their borders to new immigrants or work more.

China

• Is It Me or the Economic System? Changing Evaluations of Inequality in China Big Data China/CSIS

  Harvard Professor Ilaria Mazzocco and CSIS Scholar Scott Kennedy highlight new research on a significant shift in popular sentiment in China regarding the causes of economic inequality and assess implications for policymakers.

• China’s Real Economic Crisis – Why Beijing Won’t Give Up on a Failing Model Foreign Affairs

  The Chinese economy is stuck. Following Beijing’s decision, in late 2022, to abruptly end its draconian “zero COVID” policy, many observers assumed that China’s growth engine would rapidly reignite. After years of pandemic lockdowns that brought some economic sectors to a virtual halt, reopening the country was supposed to spark a major comeback. Instead, the recovery has faltered, with sluggish GDP performance, sagging consumer confidence, growing clashes with the West, and a collapse in property prices that has caused some of China’s largest companies to default. But there is a more enduring driver of the present stasis, one that runs deeper than Xi’s growing authoritarianism or the effects of a crashing property market: a decades-old economic strategy that privileges industrial production over all else, an approach that, over time, has resulted in enormous structural overcapacity. For years, Beijing’s industrial policies have led to overinvestment in production facilities in sectors from raw materials to emerging technologies such as batteries and robots, often saddling Chinese cities and firms with huge debt burdens in the process.

• No Quick Fixes: China’s Long-Term Consumption Growth   Rhodium Group

  Investment-led growth has peaked in China, as the financial system can no longer generate the same pace of credit expansion as in the past decade. With this source of growth drying up, household consumption growth will be the single most important determinant of China’s long-term economic trajectory and growth rate. In this report, the authors explain what is holding back household consumption in China, examine the policy debate over how to catalyze consumer spending, and offer a range of long-term forecasts for consumption growth.

Latin America

• Can Maduro Pull Off the Mother of All Electoral Frauds?   CSIS Americas Program/Ryan Berg

  Venezuela is now living in the post-electoral moment of one of the most brazen thefts in modern Latin American history. Fortunately, the Venezuelan opposition was well prepared for this. In a June 2023 event with CSIS, opposition leader María Corina Machado predicted that if there were elections in Venezuela, “there are only two outcomes: a landslide victory or an obscene fraud.” These words have proven prophetic in recent days, as both of these outcomes have transpired.  President Nicolás Maduro had telegraphed his intentions ahead of the vote by declaring that he would win “by hook or by crook” and recently warning that there would be a “bloodbath” in the country if he didn’t win.
  

• Twelve Graphs on Why Maduro Could “Win” by Stealing Venezuela’s Election   Cato Institute

  After the recent elections in Venezuela, President Nicholas Maduro claimed – without providing any evidence – that he had beaten opposition candidate Edmundo González by a margin of 51 to 44 percent.  But, as this report shows using stastitical analysis broken down into graphs, the fair calculations, of the results shows around 65 percent of Venezuelan voters rejected Maduro’s government at the polls. 

Russia

• Too Many Dead Soldiers to Count  Mediazona & BBC New Russia

  BBC News Russia have confirmed the deaths of 61,831 Russian soldiers in Ukraine by name, including over 2,000 confirmed in the last two weeks. In a Telegram post, Mediazona said it currently has a backlog of soldiers’ deaths to confirm: “The number of obituaries is rising so quickly that [we] can’t keep up.” (The journalists’ count only includes soldiers whose deaths can be verified from sources like obituaries and funeral announcements, so the real number of Russian soldiers killed is much higher. Last month, Meduza and Mediazona estimated it at 120,000.)
  

• 2024 Defense of Japan  Japanese Ministry of Defense

  In its annual risk assessment, the Japanese Defense Ministry writes that the world “is now facing the greatest trial since the end of World War II” and that Japan faces “a new era of crisis” with potential implications for the Indo-Pacific.  The report not only discusses ongoing tensions with China (which is identified as the gravest threat to Japan) and North Korea, but also Russia in a whole new way. The report castigated Russia, saying “This situation, in which a permanent member of the Security Council, which is supposed to take primary responsibility for maintaining international peace and security, openly engages in military actions challenging international law and the international order, claims innocent lives and repeatedly uses language and actions that can be interpreted as threats involving nuclear weapons, is unprecedented.”

European Union

• The Missing Strategy in Europe’s Chip Ambitions  Interface I

  European semiconductor technology suppliers hold market-leading—sometimes monopolistic—positions at various points in the global semiconductor value chain. Europe is home to competitive suppliers of semiconductor manufacturing equipment, chemicals, sensors, automotive chips, and power semiconductors, to name just a few. Because of the steep barriers to entry and close customer–supplier relationships, these are not easy markets to enter and successfully compete as a new company. The world depends on semiconductor technologies from European companies, and just as Europe depends on front- and back-end manufacturing in Asia, Asian fabrication plants (fabs) depend on manufacturing equipment and chemicals from European suppliers. Furthermore, manufacturers of electric vehicles all over the world depend on chips from Europe. The list goes on. Semiconductors are a strategic asset to Europe, one that provides geopolitical leverage—as other countries depend on access to our technology.

• Foreign Direct Investment and National Security: Perspectives from the EU and the US  Istituto Affair Internazionali

  Foreign direct investment (FDI) serves as a cornerstone of the global economy, driving economic growth and development across nations.  However, amidst rising geopolitical tensions and uncertainties, there is a discernible shift towards strengthening or establishing new frameworks for FDI screening.  This study looks at the similarities and differences between the US and EU in conducting such screening – and how the implications of these screenings may have implications that go beyond purely economic considerations, affecting transatlantic relations and the broader geopolitical landscape.

• How to Ensure Defense Capabilities for Europe? Economic and Fiscal Consequences Econopol

  Abstract: Russia’s invasion of Ukraine has raised the question of whether the issue of external border security and defense needs to be more closely integrated within the European Union. Many proposals are under discussion aimed at assigning the EU with tasks that are currently performed at national level. Most EU members have increased their defense spending in the past year or plan to do so soon. However, whether an EU defense union is politically achievable remains controversial. It entails additional costs and ‒ even more importantly ‒ the member states would have to give up some of their sovereignty. The project is linked to the plan to build a robust and efficient defense industry. This is because European arms production has so far suffered from national fragmentation and chronic underfunding. In this issue of EconPol Forum, our authors take a critical look at the needs of the common EU defense policy. They examine how it should be efficiently financed and coordinated at EU and national level. They also provide insights into the role of the European defense industry in a single market and its strengths and weaknesses in a global context. Furthermore, they shed light on the financing of R&D and technology through the EU’s coordinated defense policy and its expected impact on growth, productivity, and competitiveness.

Recommended Weekend Reads

July 26 -28, 2024

Please find below 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.

Latin America

• A Second Independence Day? Scenarios for Venezuela’s July 28 Election  Ryan Berg & Alexandra Winkler/Center for Strategic and International Studies

  Expectations for Venezuela’s upcoming elections on July 28 are astronomical. For many Venezuelans, the day represents something akin to a second independence day. Much is at stake: liberty, respect for fundamental human rights, economic and social prosperity, and the reunification of Venezuela’s many separated families, given that nearly 8 million have fled the Maduro regime’s authoritarian grip and unprecedented economic mismanagement.

• Meet the Candidates: Venezuela   Americas Quarterly

  Venezuela’s dictatorship is expected to hold a single-round election for president and vice president on July 28. Most observers do not expect the vote to be free or fair. The ruling PSUV party officially named President Nicolás Maduro as its candidate on January 25. After the nation’s Supreme Court barred leading opposition figure María Corina Machado from participating, Venezuela’s opposition coalition backed Edmundo González Urrutia as its candidate. We will occasionally update this page to reflect developments in the campaigns. AQ also asked a dozen nonpartisan experts on Venezuela to help us identify where each candidate stands on two spectrums: left versus right on economic matters and a more personalistic leadership style versus an emphasis on institutions. We’ve published the average response with a caveat: Platforms evolve, and so do candidates.

• What the U.S. Election Means for Latin America   Americas Quarterly

  Immigration, drug trafficking, nearshoring, and infrastructure investment are all important issues in this election—and they all touch on Latin America.  Former advisers from the Trump and Biden administrations write on the impact another term for their onetime boss would have on the region. 

Africa

• Who Speaks for Africa at COP?  Power and Politics at the UN Climate Negotiations   Carnegie Endowment for International Peace

  Although all of Africa contributes less than 4 percent to global greenhouse gases annually, many African countries are especially vulnerable to extreme weather events and are unable to adapt to long-term changes in the climate.1African countries experience an average of 5 to 15 percent GDP loss per year due to climate change.2 But when the countries who are party to the United Nations Framework Convention on Climate Change (UNFCCC) come together at their annual summit (the Conference of Parties, or COP) to discuss how to mitigate and adapt to the negative impacts of climate change, who speaks for the continent of Africa?

•   The Forgotten War in Congo   Foreign Affairs

  Last year, the conflict in the eastern Democratic Republic of the Congo turned 30. It is a grim milestone, and one that received almost no global attention. The silence isn’t a surprise. Since its inception, the war in Congo has excelled at evading international recognition. Few people noticed when the M23 Movement, the region’s biggest militia, rounded up and executed 171 civilians in November 2022. The world was quiet when Doctors Without Borders declared that they had treated 25,000 survivors of sexual violence in Congo last year. Almost no one outside Africa remembers that, in June, an armed Islamist group massacred 41 people in Congo’s northeast. Today, more than seven million Congolese are displaced, more than at any other time in history, and yet the war still barely features in global media. The New York Times has written 54 articles about Congo in the past twelve months, including ones on the environment and the country’s recent election. It has, by contrast, run 2,969 articles on Ukraine.

The Middle East

• In lawless Gaza, cigarette smuggling fuels attacks on aid trucks   Washington Post

  A black market for cigarettes is booming in the besieged Gaza Strip, a window into the lawlessness and desperation in the enclave nine months into Israel’s war against Hamas. The illicit cigarettes, one of Gaza’s last forms of currency, are hidden inside hollowed-out watermelons and boxes of diapers, smuggled on trucks through Israeli-controlled crossings, and sold for as much as $30 apiece.  Gangs lie in wait along the anarchic road in southern Gaza that runs through military zones, ransacking trucks in search of cigarettes, humanitarian officials say. Once cigarettes reach the open market, Hamas authorities try to take a cut of the sales through fines and extortion, according to traders and civilians. The black market is fueling attacks on humanitarian trucks, hampering desperately needed aid deliveries as relief officials warn of famine.

China 

• The Limits of the China Chip Ban    Foreign Affairs

  In 2022, the Biden administration rolled out export controls to prevent Beijing from obtaining advanced semiconductors and the equipment to produce them domestically. The stated objective of these restrictions was to deny China the cutting-edge AI capabilities it could use to modernize its nuclear and conventional weapons. However, these measures may also protect the United States’ technological and economic edge over China. Although leadership in AI is not officially stipulated as an aim of the restrictions, U.S. officials have regularly asserted that it is central to the country’s competitive economic advantage, which in turn advances its national security. However, the chip controls will probably fall short of achieving either outcome. They are unlikely to substantially slow Beijing’s military modernization, much of which can be accomplished using older legacy chips. Where cutting-edge AI chips are needed, the Chinese military can use previously imported chips, smuggled chips, and domestically designed and produced chips. By impeding China’s ability to develop and deploy AI throughout its economy, the export restrictions could slow China’s growth and curb its competitiveness, thereby helping the United States stay ahead.

• China’s Global Activity: Building Grabs the Spotlight from Owning  Derek Scissors - American Enterprise Institute

  China’s documented global investment shrank modestly in the first half of 2024. Auto and parts production led. However, the dollar value of construction activity surged year over year, topped by building power plants and refineries.  The Chinese Ministry of Commerce reports only good news for investment. Its post-COVID numbers are nearing the 2015–16 peak, which saw controversy around the world. There is no new controversy, suggesting investment is different now—likely stuck in offshore financial centers.  Chinese investment in the US was tiny in the first half of 2024. There are no equivalent figures for American investment in China and no sense of how much money supported Chinese technology or supply chains. Without this knowledge, the US cannot properly compete. 

Map & Chart of the Week

More Than 650,000 Russians have Emigrated Since the Start

of the Ukraine War. Did They Go?

The Bell, an independent Russian news outlet, conducted a study into the exodus of Russian’s following the invasion of Ukraine in February 2022.  According to their work, the Bell estimates a minimum of 650,000 people have left Russia – a number which is growing and creating a significant political and economic headache for the Kremlin and the Russian Central Bank as tensions in the labor market grow.

But where did all those Russians go?  Below is a map and chart breaking it all down.

Recommended Weekend Reads

July 12 - 14, 2024

Our apologies for the late delivery. We were traveling and had technical issues getting the Recommended Reads published. Here are our recommended reads from reports and articles we read 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.

China

• Ahead of the Third Plenum, Diverging Visions for China’s Private Sector  Christina Sadeler/Merics

  At the Third Plenum, a major policy meeting taking place this coming week, the Chinese Communist Party (CCP) will set China’s economic program for the next five years. The struggling private economy is an issue of concern, given its relevance for economic growth, tax revenues, and job creation.  Despite a series of policies and measures to support the private sector, steps taken so far have not been effective in rebuilding confidence.  Economic experts have diverging views on what the best measures for sustained growth are: One side points to stronger state guidance and collaboration between private and state-owned enterprises. The other calls for structural reforms for fair competition and a more predictable political and legal framework to revitalize entrepreneurial spirit.  Observers of the Plenum should pay close attention to what steps the party-state will take to rekindle trust in the private sector. The path ahead is crucial for China’s businesses and foreign companies doing business in and with China. 

• How Many People Are in China’s People's Liberation Army?    War on the Rocks

  The People’s Liberation Army is often described as “the largest military in the world.” But depending on who you ask and what you count, the details are murky and confusing. The deeper one dives into the numbers, the more complicated the picture gets, and the greater the differences between the Chinese and U.S. systems become. Though many recent reforms have surface aspects that appear to reflect U.S. structures, the new-look People’s Liberation Army does not mirror-image its American (or Russian) counterpart. Nor have its new organizations been tempered by combat.

• China’s Self-Imposed Isolation   Michael Shuman/The Atlantic

  In late June, a Chinese man stabbed a woman from Japan and her child at a bus stop for a Japanese school in the eastern city of Suzhou. Two weeks earlier, four foreign teachers from a U.S. college were attacked by a knife-wielding local as they strolled through a park in the northeastern town of Jilin. In a country where violence against foreigners has been practically unheard of in recent years, the assaults have led to some uncomfortable soul-searching among a shocked Chinese public. Are hard economic times fueling a dangerous spike in nationalism? some ask in online debates. Has the Chinese school system, with its focus on patriotism, fed people bad ideas? they wonder. Occasionally, a bold voice risks angering China’s censors by posing an even more sensitive possibility: Could the government be to blame?  That’s a salient question. Some dissonance has emerged in China’s mixed messaging and contradictory aims.

Post-Election France

• The French Left’s Pyrrhic Victory   Spiked

  There is something more than a little Pyrrhic about this semi-victory in France over the populist right. For a start, the far-right National Rally (RN) has still massively increased the number of seats it holds – by over 50 percent. It is easily the largest single political party in the French assembly. By contrast, Jean-Luc Mélenchon’s France Unbowed (LFI), the biggest party within the New Popular Front (NFP), has just 78 seats. Given the fragile nature of the coalitions now within the assembly, whatever government emerges after this weekend – Macron’s prime minister, Gabriel Attal, has already offered to step down – will struggle for coherence. Furthermore, while the RN may have lost the election, its raw vote share will give it plenty of encouragement ahead of the presidential elections in 2027. According to the latest figures, the RN received 37 percent (10 million) of all votes cast. That far outstrips the NFP’s 26 percent (seven million) and Ensemble’s 25 percent (6.5 million).
  

• How Le Pen’s Far Right Blew It  Politico EU

  Bad candidates, incompetence, and a fierce fightback by rivals denied the National R (RN) ally its election dream. The RN won’t come to power, its leader, Jordan Bardella, won’t be prime minister, and the party might not even end up as the main opposition in parliament. To cap it all, on Tuesday, Party chair Marine Le Pen was hit by a corruption investigation over allegations relating to her presidential campaign two years ago.

• How Macron Broke the French Political System  Philippe LeMoine/”Restoration” Substack

  French President Emmanuel Macron probably thought that, by calling snap parliamentary elections after his party was soundly defeated at the European elections and giving the parties only three weeks to prepare, the left would not have time to put together an electoral alliance and force them to present multiple candidates in most districts, so that left-wing candidates would only have been able to qualify for the second round in a handful of them. But, ironically, this strategy produced exactly the opposite result, precisely because left-wing leaders knew that they had no time. Unless they managed to make a deal they would be wiped out, so they decided to effectively tie their own hands by publicly announcing the day after Macron called elections that they had made a deal, even though at that point they had not agreed on anything. Paradoxically, if Macron had given them more time, they would have tried to work out the details first and there is a good chance they would have failed to strike a deal.

Africa

• Why Europe Needs Africa  Carnegie Endowment for International Peace

  In 2017, Africa’s population under twenty-five years old surpassed the total population of Europe. By 2050, Africa will have added 796 million people to the workforce, while Europe’s working-age population (aged sixteen to sixty-four) will decline by 156 million.  Europe is aging while Africa’s youth population booms.  This demographic transformation is perhaps the defining shift that could recast the fortunes of the two continents, which are separated, at the closest point between Morocco and Spain, by just 14 kilometers (less than 9 miles).  Labor shortages and pension costs are already impacting the credit ratings of European countries,3 while the massive demand for employment in the African continent will have significant implications—positive and negative—in terms of migration, stability, future market potential, and economic dynamism.

Geoeconomics

• Industrial Policy in the Global Semiconductor Sector  Pinelopi Goldberg/Reka Juhasz/Nathan Lane/Giulia Lo Forto/Jeff Thurk, National Bureau of Economic Research

  Abstract: The resurgence of subsidies and industrial policies has raised concerns about their potential inefficiency and alignment with multilateral principles. Critics warn that such policies may divert resources to less efficient firms and provoke retaliatory measures from other countries, leading to a wasteful "subsidy race." However, subsidies for sectors with inherent cross-border externalities can have positive global effects. This paper examines these issues within the semiconductor industry: a key driver of economic growth and innovation with potentially significant learning-by-doing and strategic importance due to its dual-use applications.  Our study aims to (1) document and quantify recent industrial policies in the global semiconductor sector, (2) explore the rationale behind these policies, and (3) evaluate their economic impacts, particularly their cross-border effects and compatibility with multilateral principles. We employ historical analysis, natural language processing, and a model-based approach to measure government support and its impacts. Our findings indicate that government support has been vital for the industry's growth, with subsidies being the primary form of support. They also highlight the importance of cross-border technology transfers through FDI, business and research collaborations, and technology licensing. China, despite significant subsidies, does not stand out as an outlier compared to other countries, given its market size. Preliminary model estimates indicate that while learning-by-doing exists, it is smaller than commonly believed, with significant international spillovers. These spillovers likely reflect cross-country technology transfers and the role of fabless clients in disseminating knowledge globally through their interactions with foundries. Such cross-border spillovers are not merely accidental but result from deliberate actions by market participants that cannot be taken for granted. Firms may choose to share knowledge across borders or restrict access to frontier technology, thereby excluding certain countries. Future research will use model estimates to simulate the quantitative implications of subsidies and to explore the dynamics of a ``subsidy race'' in the semiconductor industry.
  

• Does geopolitics now determine global trade?   Stewart Paterson,  Hinrich Foundation

  The increasingly popular thesis that the world is fragmenting into geopolitically defined blocs potentially ignores the very real aspirations of regional powers and the fact that not all neighborhoods are composed of like-minded or politically aligned countries. While US-China rivalry has resulted in a rapid decoupling of their economic engagement, it is far from clear that geopolitics is the key determinant of trade patterns beyond that.

• Partisan Politics and Annual Shareholder Meeting Formats  Yuanzhi Li & David Yermack, National Bureau of Economic Research

  Abstract: We study companies’ decisions about holding annual shareholder meetings online during the Covid pandemic and returning to classical in-person meetings post-pandemic. Among S&P 1500 companies, the frequency of virtual meetings shot up from less than 10 percent to more than 80 percent in the first year of the pandemic, with only gradual reversion to in-person meetings since then. Partisan politics has significant associations with these decisions. In-person meetings are more likely for companies that have Republican CEOs, and for companies with headquarters located in jurisdictions that vote Republican. Corporate democracy therefore seems to have been swept up by the tides of contemporary political feuds.