Recommended Weekend Reads

Why We Should Ignore Bilateral Trade Balances, Hutchison’s Sprawling Portfolio of Ports in Latin America, Seven Reasons Putin Doesn’t Want to End the Ukraine War, and Putting Economics Back into Geoeconomics

April 17 - 20, 2025

Spring is here, and it’s Easter Weekend.  Here are our latest recommended reads.  We hope you have a wonderful Easter and a relaxing weekend.  And please let us know if you or someone you know wants to be added to our distribution list. 

More on the Trade War

• Bilateral Trade Balances: Ignore Them   Center for Strategic and International Studies

  The Trump administration appears to have given up its fantastical effort to fully remake the international trade order. Although 10% tariffs versus almost everyone and 145% tariffs against China are still in place, the administration has for the time put aside the revolutionary notion of substituting reciprocal tariffs negotiated country-by-country with basing trade in commonly applied tariffs and making modest adjustments, lower or higher, in exceptional circumstances. That said, the administration is still absolutely fixated on bilateral trade deficits – that they inherently represent a deadweight loss (despite U.S. companies and households receiving goods and services in return) and that those countries with surpluses are by definition scofflaws who are guilty of stealing American manufacturing capabilities, jobs, and wealth. 

•  A Stab at China’s View of the “Trade War” Derek Scissors/American Enterprise Institute

  Rather than pretend the latest Trump administration spin on its latest walk-back is worth the time, it may be useful to assess the side that loves stability. China cares less about tariffs than it may seem. The key reason: Beijing’s prime goal isn’t prosperity, but leverage.   Many experts on trade and China have recently emerged. Some were previously experts on inflation, Ukraine, and Covid. The biggest error made by newcomers is believing Xi Jinping is interested in what foreign commentators think he should be interested in—economic growth, the welfare of households, stock prices, and supposedly high American tariffs. None are especially important for Xi and, therefore, for the PRC’s policy.  Economic growth is nice, it’s not close to paramount. China no longer needs fast growth to create jobs, with the labor force contracting since at least 2017. On official figures, growth is tenuously connected to job creation. This is another reason not to care much: Results will be whatever Beijing wants. China has offered decades of dubious economic statistics, eagerly repeated by many. It just happened again, with Q1 data not making arithmetic sense.
  

• Navigating tariffs with a geopolitical nerve center      McKinsey & Company

  Tariffs and trade controls are expanding rapidly around the world. Macroeconomic uncertainty is growing. Second-order effects of government actions are multiplying.  The first global economic shock since the COVID-19 pandemic has arrived.  While geopolitical tensions have been rising for several years, the recent wave of trade controls and reciprocal tariffs has come on quickly and intensely. Not since the 1930s has the world seen this level of tariff activity.

The Americas

• Surveying Hutchison’s Portfolio in Latin America: Strategic Vulnerability or Business as Usual?   Center for Strategic and International Studies

  China’s global network of ports has been the subject of growing anxiety among U.S. policymakers and defense analysts. Control over ports confers a host of benefits ranging from intelligence collection opportunities to access to favorable shipping lanes to even a limited power projection capability for the People’s Liberation Army Navy (PLAN).  At the center of this drama is Hong Kong-based CK Hutchison, a massive conglomerate that, through its subsidiary Hutchison Port Holdings, operates the ports of Balboa and Cristobal on the Pacific and Atlantic sides of the canal, respectively. On March 4, CK Hutchison made headlines when it announced a deal with U.S. private equity firm BlackRock to buy out its port holdings outside of mainland China and Hong Kong. If executed, the deal would transfer 43 different ports across 23 countries from Hutchison to BlackRock’s control. In the Western Hemisphere alone, Hutchison currently operates seven container terminals: two in Panama, four in Mexico, and one in the Bahamas. Several of these rank among the busiest ports in the Americas and are invaluable to maritime commerce in the region.
  

• Milei’s bold move: making Argentina’s economy normal      The Economist

  “Instead of talking about growth at Chinese rates, the world will soon be talking about growth at Argentine rates,” crowed Javier Milei on late-night television on April 11th. His economy minister had just outlined a $20 billion IMF program, a reduction in capital controls, and a shift to a more flexible exchange rate. He slashed spending immediately, pulling inflation sharply down. A deep recession is now giving way to strong growth. The rate of poverty, which rose to 53% of all Argentines in early 2024, has now fallen back to 38%, lower than it was when Mr. Milei took office. Now he is tackling the weakness in his reform program: capital controls and the overvalued peso. He has never been closer to transforming Argentina into a normal economy. But global economic chaos endangers his reforms, and politics could still trip him up.

Why Russia Might Reject A Peace Deal With Ukraine

• Seven Reasons Putin Doesn’t Want to End the War in Ukraine      Politico

  Noted Russian scholar Leon Aaron lays out seven reasons Russian President Vladimir Putin does not want to end the War on Ukraine: 1) the war provides a rationale for Putin’s dictatorship, 2) Putin likes the trappings of militarism, 3) Russia’s economy now is dependent on the war, 4), Ending wartime bonuses and other perks could cause social unrest, 5) Change is destabilizing in authoritarian regimes, 6), Putin is an opportunist and a risk taker – every new concession prompts more ultimatums by Putin, and 7) Putin needs victory, not peace.

• Russia’s Increasingly Bellicose Elite         Center for European Policy Analysis

  The economic, military, and cultural elites of wartime Russia are undergoing a transformation, and their influence on the country’s leadership does not augur a quick end to the fighting.  More people with an interest in continuing the war against Ukraine are joining Vladimir Putin’s entourage, making the Kremlin even less open to peace.

Understanding the New and Old Washington

• How to Make Friends and Influence POTUS     MIT Sloan Management Review

  The rules of corporate influence in Washington are changing dramatically. In President Donald Trump’s second term, power has shifted from Congress to the White House, turning lobbying into a personalized game of presidential access. At the same time, the use of AI tools is transforming lobbying efforts and posing ethical dilemmas. As the lobbying landscape shifts, executives must deal with the current situation with open eyes and a carefully considered strategy.
  

• A Historical and Geographical Look at Federal Employment Levels     Federal Reserve Bank of St. Louis

  It’s easy to interpret the increase in the budget deficit as meaning the government itself has gotten larger. In terms of its budget and subsequent debt, that is certainly true. But in terms of the number of government employees, this isn’t quite as obvious. In the first figure, we plot federal employment from 1939 through 2024.  Absent the immediate aftermath of World War II and the Korean War, there is a consistent rise in federal employment extending through the 1980s. At this point, federal employment began to decline but has largely been flat throughout much of the 2000s. Exceptions include the decennial census hirings, which lead to short-lived spikes, and a rise in federal employment starting in late 2022. Still, as a percentage of the U.S. labor force, the share of federal workers stood at around 1.8% at the end of 2024 versus 2.5% at the end of 1989.

Geoeconomics

• Putting Economics Back into Geoeconomics  Christopher Clayton/Mateio Maggiori/Jesse Schreger – National Bureau of Economic Research

  Geoeconomics is the use of a country’s economic strength to exert influence on foreign entities to achieve geopolitical or economic goals. We discuss how concepts of power in the political science and economics literature can be used to guide research on geoeconomics. Economic threats as a form of coercion have seen a recent resurgence. We show how different types of threats can be modeled using simple tools and discuss what channels their potential effectiveness is based on. We discuss important open questions for the future literature to pursue.

• Which Generation Spends More?     U.S. Bureau of Labor Statistics

  As it turns out, spending does differ along generational lines. In 2023 (the latest available data), those born between 1965 and 1980 spent the most, with annual household expenditures averaging $95,692. This generation was between the ages of 43 and 58 in that year and perhaps in one of the highest-earning periods of their working lives. By contrast, the lowest average expenditure was $49,206, spent by those born in in 1945 or earlier and likely retired.  Average annual expenditures for all households in 2023 were $77,280, a 5.9-percent increase from 2022. During the same period, the Consumer Price Index for All Urban Consumers rose 4.1 percent, and average income before taxes increased 8.3 percent.  These data are from the Consumer Expenditure Surveys program. For more information, please see the latest news release at “Consumer Expenditures – 2023,” as well as Consumer Expenditures data tables. Consumer expenditure data are averages for all consumer units (households). Consumer units consist of families, single persons living alone or sharing a household with others but who are financially independent, or two or more persons living together who share major expenses.

Recommended Weekend Reads

Special Focus on the Trump Trade Wars and Their Possible Impacts on Global and US Markets, And A Look At India’s Role in Europe and the World

April 11 - 13, 2025

This week, we take a special look this week at trade policy and the potential implications of President Trump’s recently announced (and subsequently suspended for 90 days) tariff regime.   We also found some fascinating reports on India and how it could prove to be a help to a rapidly aging Europe while it faces new opportunities and risks in its reponse to the global turbulance eminating from the global trade battles.

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. 

Trump’s Trade Wars: A Menu of Views and Possible Impacts

• The Evolution of Global Trade in 2024   Brad Setser/Council on Foreign Relations

  The U.S. trade data for 2024 makes clear that the U.S. trade deficit was expanding even before the threat of tariffs led to significant front-running. Strong import growth in the U.S. is the continuation of a trend that started in 2024, and with the dollar’s current strength, U.S. exports are not keeping pace.

• There’s a Method to Trump’s Tariff Madness     Jennifer Burns of the Hoover Institute/New York Times Guest Essay

  President Trump’s imposition of high tariffs on friend and foe alike has stunned the world and stumped economists. There is no economic rationale, experts say, for believing these tariffs will usher in a new era of American prosperity. But there is order amid the chaos, or at least a strategy behind it. Mr. Trump’s tariffs aren’t really about tariffs. They are the gambit in a more ambitious plan to smash the world’s economic and geopolitical order and replace it with something intended to better serve American interests.
  

• Nontariff Trade Barriers in the U.S. and EU    Federal Reserve Bank of St. Louis

  International trade is shaped not only by tariffs but also by a range of regulatory measures that affect market access. These nontariff measures (NTMs)—such as technical regulations, sanitary and phytosanitary requirements, and licensing rules—are often introduced to achieve public policy objectives like protecting health, safety and the environment.  But NTMs can also serve as trade policy tools, with some designed specifically to limit imports and support domestic industries. Since NTMs operate within complex legal and administrative frameworks, it is often difficult to distinguish between those primarily intended to regulate markets and those introduced deliberately to limit trade.  While much of the focus of trade tensions usually revolves around tariffs, nontariff trade barriers can significantly limit the extent of international trade across countries.  

• The Impact of Tariffs on the US Economy     Torsten Slok/Apollo Capital Management

  In one excellent chart, Apollo’s Chief Economist Torsten Slok shows his estimates of the impact on US GDP and inflation of tariffs and the decline in consumer sentiment and corporate sentiment.  Slok points out Whether we will have a recession or not depends on the duration of this shock. If these levels of tariffs stay in place for several months and other countries retaliate, it will cause a recession in the US and the rest of the world.

• The Economic Effects of President Trump’s Tariffs   Penn Wharton Budget Model

  According to the newly released Penn Wharton Budget Model report looking at President Trump’s proposed tariffs, many trade models fail to capture the full harm of tariffs.  They project Trump’s tariffs (April 8, 2025) would reduce GDP by about 8% and wages by 7%. A middle-income household faces a $58K lifetime loss. These losses are twice as large as a revenue-equivalent corporate tax increase from 21% to 36%, an otherwise highly distorting tax.
  

• The Fiscal, Economic, and Distributional Effects of All U.S. Tariffs Enacted in 2025 Through April 2       Yale Budget Lab

  The Budget Lab modeled the effect of both the April 2nd tariff announcement in isolation and all US tariffs implemented in 2025.  The price level from all 2025 tariffs rises by 2.3% in the short-run, the equivalent of an average per household consumer loss of $3,800 in 2024$. Annual losses for households at the bottom of the income distribution are $1,700.US real GDP growth is -0.5pp lower in 2025 from the April 2nd announcement and -0.9pp lower from all 2025 tariffs. The price level from all 2025 tariffs rises by 2.3% in the short-run. All 2025 tariffs together disproportionately affect clothing and textiles, with apparel prices rising 17% under all tariffs.

• President Trump’s Tariff Formula Makes No Economic Sense. It’s Also Based on an Error    Kevin Corinth & Stan Veuger/AEIdeas

  President Trump on Wednesday announced tariffs on practically every foreign country (and some non-countries), ranging from a 10 percent minimum all the way up to 50 percent.  President Trump described the tariffs as reciprocal, equal to half of the rate of tariffs and non-tariff trade barriers imposed by other countries. However, they are nothing of the sort. The tariff the United States is placing on other countries is equal to the US trade deficit divided by US imports from a given country, divided by two, or 10 percent, whichever rate is higher. So even if the United States has no trade deficit (or a trade surplus) with a country, they still receive a minimum tariff of 10 percent.  The formula for the tariffs, originally credited to the Council of Economic Advisers and published by the Office of the United States Trade Representative, does not make economic sense. The trade deficit with a given country is not determined only by tariffs and non-tariff trade barriers, but also by international capital flows, supply chains, comparative advantage, geography, etc.  

• The U.S. Trade Deficit: Myths and Realities  Brookings papers on Economic Activity

  Different policy directions could, in principle, deliver palpable effects on the trade balance and on manufacturing. One is to tax capital inflows, as suggested by Pettis. A capital inflow tax would weaken the dollar, taxing imports and subsidizing exports, and it would raise the domestic interest rate above foreign rates, encouraging saving while reducing investment. Along with concomitant effects on the liquidity of U.S. financial markets, the macro effects on saving and investment could be harmful to long-term growth, as well as contractionary in the short run. [Another] route would be a Fed cut in interest rates. Unless the U.S. economy moves into recession, a substantial interest rate cut now would be inflationary, not only undesirable in itself. It would also erode the extent to which the dollar’s nominal depreciation was a real depreciation. And without real depreciation, there would be no durable boost in the trade balance or manufacturing employment. A final option that would weaken the dollar, spur employment in tradable industries, and reduce the trade deficit is fiscal restraint. This would have the collateral benefit of mitigating the biggest risk on the U.S. external balance sheet.

• A Balance of Payments Primer, Part I: And why you shouldn’t panic over trade deficits and A Balance of Payments Primer, Part II: The Dollar and All That  Paul Krugman’s Substack

  Is the trade deficit a problem? In the first of two posts, Nobel Prize winning economist Paul Krugman points out that some economists argue that it is, that U.S. trade is distorted by the dollar’s role as the world’s principal reserve currency, which creates an artificial demand for US assets. As he wrote the other day, there’s no reason to believe that these arguments are actually affecting U.S. policy. To the extent that those promoting these views play a role in the Trump administration, it’s as beards — people who provide sophisticated-sounding intellectual cover for what Trump was going to do anyway.  He believe that these arguments are mostly wrong.  In his second post, Krugman argues the international monetary system inspires a lot of mysticism, because it sounds both mysterious and important. As a result, he says, it’s easy to get hung up about the dollar’s role in the world economy.  Elon Musk has issued dire warnings that the dollar may lose its reserve status, causing runaway inflation. And now there’s talk of a “Mar-a-Lago Accord”, based on the belief that US trade deficits reflect the special international role of the dollar, and that we can magically revive US manufacturing through financial engineering.
  

• Are individual investors becoming more sensative to market Stress?    Federal Reserve Bank of Boston

  Are individual investors becoming more likely to cash out during periods of stress? A new note from the Federal Reserve Bank of Boston finds that “retail,” or individual, everyday investors, in prime money market funds reacted with greater “sensitivity” following the COVID-19 financial crisis, compared to the 2008 Global Financial Crisis.  That means they were more likely to “run” on a fund – or quickly liquidate their investment for cash – in 2020 than in 2008. “Retail investors in prime money market funds may be getting increasingly more reactive, and that’s something we need to consider when we think about potential financial stability vulnerabilities,” said coauthor Kenechukwu Anadu, a vice president in the Boston Fed’s Supervision, Regulation & Credit department.

• Trump’s Soveriegn Wealth Fund Brings High Stakes and Serious Risks    Carnegie Endowment for International Peace

  SWFs have been around for more than a century, but they have grown dramatically in recent decades, from about $500 billion in assets in the 1990s to about $13.7 trillion overall today. SWFs have traditionally been set up by states rich in natural resources to manage their budgetary surplus, diversify their economies, and protect their wealth for future generations. The poster child is Norway’s $1.8 trillion SWF, established in 1990. It is the world’s largest SWF and now owns about 1.5 percent of all listed stocks worldwide. (Not all SWFs are funded with profits from natural resource exports; Singapore’s Temasek, South Korea’s Korea Investment Corporation, and the Türkiye Sovereign Fund were initiated from central bank reserves or given assets from state owned enterprises.). Trump’s move to create a SWF isn’t wholly out of precedent for the United States—at least twenty-three states run their own funds, totaling $332 billion in assets (according to the White House). Former president Joe Biden’s team, in fact, discussed establishing a national-level fund during his last year in office. Yet considering Trump’s aggressive dismantling of government oversight bodies, alongside well-established accusations that he has engaged in financial misdealing’s and corruption, his plan to build an American SWF carries substantial risks.

India’s Role in the Increasingly Turbulent World of Trade 

• India Sees Opportunity in Trump’s Global Turbulence   That Could Backfire   Emissary

  Trump’s return has altered the traditional direction of U.S. grand strategy in dramatic ways. His administration’s striking contempt for the liberal order is now clear, but it is also accompanied by atavistic attempts at territorial expansionism, the imposition of “reciprocal” tariffs on U.S. trading partners, and confrontations with many U.S. allies worldwide. In this environment, India has, first and foremost, sought to protect its past bilateral gains by seeking to mollify Trump through conciliatory public diplomacy. Prime Minister Narendra Modi and his senior aides rushed to Washington to meet the president in a highly choreographed display of bonhomie, attempting to reassure him that unlike many of his other national targets, India is neither a free-loading ally nor a foe and would be a valuable partner in his “Make America Great Again” efforts.

• India could help save an aging Europe   Politico EU

  As the continent tilts to the right and its politicians find it hard to explain an influx of refugees from war-torn countries, India is actively trying to present itself as a reasonable partner. That is why India is working out decades-long differences to finalize a Free Trade Agreement (FTA) with the EU – something they have been working at since 2007.

Recommended Weekend Reads

The War on Ukraine, Broader Implications of the Peace Talks, Argentina’s Big Challenge, and the Future of Europe’s Security

March 14 - 16, 2025

Russia’s War on Ukraine and The Implications of a Possible Cease Fire

• The Kremlin's Balancing Act     Foreign Policy Research Institute

  Following Russia’s invasion of Ukraine, the Russian government accelerated the preexisting trend of centralizing control over regional power and economic assets.  This study explains the shift of government control, highlights instances of pushback, and identifies limitations on the Kremlin's strategy going forward.  The Kremlin's centralization drive has manifested in several ways, including tightening control over regional and municipal political institutions, expanding financial control over regional budgets and policy priorities, nationalizing and indirectly mobilizing business assets, and introducing new priorities in personnel policy.  These changes have created winners and losers, resulting in friction and resistance from regional elites who perceive their interests and autonomy as threatened. The sustainability of the Kremlin's strategy is uncertain and risks intensifying tensions and worsening government instability.

• Lessons from Minsk II for the Ukraine peace talks   Brussels Signal

  The road to peace in Ukraine is extremely difficult and perhaps also very long, despite President Trump’s initial hopes. Even agreeing an initial ceasefire in Ukraine is a tall order, as this Tuesday’s Trump-Putin phone call attests. Nonetheless, negotiations will continue, particularly as all sides – Ukraine, Russia and the US – appear committed to achieving a full peace agreement rather than merely a Korean-style ceasefire.  Yet a full peace treaty is much more considerable undertaking, and these negotiations remain overshadowed by the failure of the Minsk II Agreement – a 2015 diplomatic effort that promised peace but ultimately collapsed. The lessons of Minsk II offer sobering insights into the obstacles facing any new settlement and the structural flaws that must be avoided if a sustainable resolution is to be achieved.

• Russia’s Peace Demands on Ukraine Have Not Budged     Council on Foreign Relations

  President Trump, in his recent address to Congress, said Russia has sent “strong signals that they are ready for peace.” Is that true? Not really. The Kremlin has not budged from its maximal demands for ending the conflict, which Russian President Vladimir Putin laid out last June and includes:

  • No NATO membership for Ukraine;

  • Ukraine’s recognition of Russia’s annexation of four Ukrainian provinces (even though Russia does not physically control all the territory of three of them);

  • Ukraine’s demilitarization and denazification (code for the installation of a pro-Russia puppet in Kyiv); and

  • the lifting of anti-Russia sanctions. 

  During a visit to the Defenders of the Fatherland Foundation, Putin doubled down on that position just last week, saying that Russia does not intend to make any compromises in peace negotiations. The Russian president sees no need to make any concessions. His armies are making grinding progress on the battlefield, albeit at a heavy cost in men and materiel. The Russian economy has proven resilient to Western sanctions, growing by more than 4 percent each of the past two years. Ukraine, meanwhile, is facing severe manpower shortages, and Western support is flagging.

• Turkey in a Trump-and-Putin World    Carnegie Endowment for International Peace

  The disruptions to the world order caused by Russia and the new U.S. administration complicate Turkey’s balancing act between Moscow and the West. But these shifts could offer Ankara a chance to shape the evolving security dynamics and contribute to Europe’s stability.  Yet Turkish President Recep Tayyip Erdoğan cracked down on Turkish opposition parties this past week, arresting dozens of politicians, fearful of losing power in the upcoming elections and exposing the fragility of his government.

•  A Blueprint for a European Defense Force    Strategic Europe

  As the U.S. commitment to Europe’s security wanes and Russia’s threat to the continent grows, the need for a European defense force is becoming more pressing than ever. By expanding existing frameworks and investing in Ukraine’s defense industry, Europe can begin to take charge of its own security.

The Tariff Wars

• The Incoherent Case for Tariffs   Chad Brown/Douglas Irwin – Foreign Affairs Magazine

  Less than two months into his second term, U.S. President Donald Trump has made good—with startling intensity—on his campaign promise to impose tariffs. On inauguration day, he issued the America First Trade Policy Memorandum to review U.S. trade policy with an eye toward a new tariff regime. Over the first two weeks of February, he set in motion new duties covering nearly half a trillion dollars of U.S. imports. On March 4, he doubled the size of his already significant February tariff increase on China. Over this period, he has also announced, suspended, announced again, and suspended again 25 percent tariffs on goods from Canada and Mexico. And his administration has pledged to impose reciprocal tariffs on April 2. The result has been uncertainty, chaos, and immediate retaliation from some of the United States’ biggest trade partners. All this economic upheaval raises a central question: Why is Trump so focused on tariffs? 

• Trump’s tariffs challenge India’s economic balance     The Australian Strategic Policy Institute

  US President Donald Trump’s tariff threats have dominated headlines in India in recent weeks. Earlier this month, Trump announced that his reciprocal tariffs—matching other countries’ tariffs on American goods—will go into effect on 2 April, causing Indian exporters to panic at the prospect of being embroiled in Trump’s escalating trade war. The economic impact on India, which runs a trade surplus with the US, could be significant. India exported goods worth nearly $74 billion to the US in 2024, and estimates suggest that Trump’s new tariffs could cost the country up to $7 billion annually.  But the implications could be much more far-reaching. One analysis estimates that India effectively imposes a 9.5 percent tariff on US goods, while US levies on Indian imports are only 3 percent. If Trump follows through on his pledge of full tariff reciprocity, that imbalance will vanish—along with the cost advantages many Indian exporters currently enjoy.

• Antitrust Fuels Trade Tensions    CEPA

  President Donald Trump’s tariff threats target “discrimination against American innovation,” and US legislators point to the EU’s Digital Markets Act as evidence – even as the US pursues its own tech antitrust cases.   The tensions underline a troubling reality: antitrust enforcement has become politicized, and as the Paris-based OECD Club of advanced democracies has long recognized, the politicization of antitrust enforcement makes markets less dynamic, less competitive, and less efficient, ultimately harming consumers. This outcome can be avoided if both European and American leaders depoliticize and focus enforcement on making markets work for consumers. 

• The Optimal Monetary Policy Response to Tariffs   Javier Bianchi & Louphou Coulibaly/NBER

  What is the optimal monetary policy response to tariffs? This paper explores this question within an open-economy New Keynesian model and shows that the optimal monetary policy response is expansionary, with inflation rising above and beyond the direct effects of tariffs. This result holds regardless of whether tariffs apply to consumption goods or intermediate inputs, whether the shock is temporary or permanent, and whether tariffs address other distortions.

Geoeconomics 

• Should Friday be the New Saturday? Hours Worked and Hours Wanted    National Bureau of Economic Research

  This paper investigates self-reported wedges between how much people work and how much they want to work at their current wage. More than two-thirds of full-time workers in German survey data are overworked—actual hours exceed desired hours. We combine this evidence with a simple labor supply model to assess the welfare consequences of tighter weekly hours limits via willingness-to-pay calculations. According to counterfactuals, the optimal length of the workweek in Germany is 37 hours. Introducing such a cap would raise welfare by .8-1.6% of GDP. The gains from a shortened workweek are largest for workers who are married, female, white collar, middle-aged, and high-income. An extended analysis integrates a non-constant wage-hours relationship, falling capital returns, and a shrinking tax base.

• Global Debt Report 2025   OECD

  Around 60% of the fixed-rate debt in the OECD that will mature by 2027 (approximately $9T) was issued in 2021 or earlier, before the recent tightening cycle, most likely at yields below current market rates. The weighted average YTM of the maturing debt in 2025-27 remains below 2% in all three years, [while] the average of the projected 10-year interest rate in OECD countries is expected to remain around 3.6% in 2025. The debt maturing in 2025-27 will, therefore, likely be refinanced at nearly twice the original rates. Increased borrowing needs and high borrowing costs have driven interest payments to a higher share of GDP in 2024, [contributing to] the first increase in the central government marketable debt-to-GDP ratio since 2020. The supply of bonds needing to be absorbed by the market accelerated as central banks continued to scale back their holdings. Four countries — France, Spain, the United Kingdom, and the United States — face heightened vulnerability, with the debt maturing by 2027 exceeding 15% of their current GDP and the average yield-to-maturity on debt issued in 2024 surpassing that of this maturing debt by over 1.5 percentage points.

Africa and Critical Minerals

• ·Zimbabwe’s lithium beneficiation policy: a catalyst for Vision 2030    ISS/Africa Futures

  As the global green energy transition gains momentum, lithium has emerged as the new gold, particularly in the automotive industry, due to its essential role in lithium-ion batteries. The demand for lithium continues to soar, and Zimbabwe stands at a competitive advantage as home to Africa’s largest lithium reserves and ranking among the world's top five in estimated deposits. If managed effectively, lithium beneficiation can drive Zimbabwe towards achieving its Vision 2030, transforming the country into an upper-middle-income economy. A fundamental aspect of this ambitious goal is attaining a GDP growth rate of 8–9% by 2030.

• Can the DRC Leverage U.S.-China Competition Over Critical Minerals for Peace?    Carnegie Endowment for International Peace

  The Democratic Republic of the Congo (DRC) is offering the United States access to its mineral resources in an effort to ensure peace and stability in the country. The offer, made against the backdrop of U.S.-China competition over critical minerals, is designed to motivate Washington to play a decisive role in the security crisis in the eastern DRC. Unlike in 2012, when then-president Barack Obama threw his weight into pressuring Rwanda to halt its support for the M23 (March 23) rebel movement, more recent U.S. administrations, past and current, have struggled to play a decisive role in the conflict raging in the eastern DRC, where the Congolese government is battling Rwandan-backed M23/AFC (Alliance Fleuve Congo) rebels.

Latin America 

• Chevron Out, Black Market In? The Fallout of U.S. Sanctions on Venezuela Oilprice.com

  On February 26, President Trump announced his intention to end General License 41, which allowed Chevron to operate in Venezuela despite sanctions. The U.S. Treasury’s Office of Foreign Assets Control (OFAC) had created a system to monitor at least part of Venezuela’s oil industry by waiving sanctions for certain American, European, and Indian companies but with strict limitations. Four corporations that were authorized by licenses or comfort letters—Chevron, Repsol, Maurel et Prom, and Eni—contributed to a production of 325,000 barrels per day (bpd) in January, to the country’s total of 1,068,000 bpd, according to PDVSA, the state-owned energy company. The big question now is will it spur a massive rise of black-market oil coming out of Venezuela?
  

•  A Key Pending Challenge for Milei’s Argentina   Americas Quarterly

  Argentine President Javier Milei campaigned on two key promises: To bring the country’s high and accelerating inflation to a halt by dollarizing the economy and closing down the Argentine central bank (BCRA) and to balance the budget by taking a chainsaw to wasteful government spending. Now, 15 months into his term in office, he has made heroic progress on the fiscal and inflation fronts. But by forsaking dollarization and keeping currency and capital controls in place, Milei has jeopardized his anti-inflationary program and discouraged a potential investment boom.

North Korea

• The North Korean tourist trap       The interpreter/Lowry Institute

  Having closed the country even more tightly during the Covid pandemic, last month, North Korea put out the welcome sign for a small group of foreign tourists from Australia, the United Kingdom, France, Germany, and Canada for the first time since 2020. Yet the gates slammed shut again last week when Pyongyang announced it would grant no new tourism visas. Visitors from Russia have been allowed in since February 2024, but Chinese nationals, once North Korea’s main source of foreign tourists, have still not returned. The abrupt closure raised eyebrows, considering that North Korea’s Kim Jong-un has invested in key tourism facilities in Mount Chilbo, Mount Paektu, Mount Kumgang, and the Wonsan-Kalma resort area in preparation for the post-lockdown rebound in foreign visitors.

Recommended Weekend Reads

How is Geopolitics Impacting Corporate Investments, Canada’s and Mexico’s Retaliation Options, US Support for NATO Staying Strong, and is China Headed to a Prolonged Recession?

Geopolitical Risk, Economic Statecraft, and Tariff Impacts

• How Firms’ Perceptions of Geopolitical Risk Affect Investment  Federal Reserve Bank of Boston

  This brief introduces a new index that measures US firms' perceptions of geopolitical risk based on earnings call transcripts. On average, US firms perceive that geopolitical risk has risen sharply in recent years. Perceptions that geopolitical risk is elevated can result in significant and persistent reductions in future investment, particularly for firms in industries that view geopolitical risk as especially high. Firms with low cash positions reduce future investment more than those with higher liquidity when they perceive that geopolitical risk is elevated.

• Economic Statecraft: The Need for an Integrated Approach  H.R. McMaster & Andrew Grotto/Hoover Institution

  The competition between democracies and authoritarian regimes will shape the future of global power. China and Russia, alongside North Korea and Iran, aim to weaken US influence. To prevail, the United States must integrate economic power into its strategy, counter unfair trade practices, and support key industries. This report urges President Trump to issue an executive order for a coordinated economic statecraft strategy and improved analytic capabilities to enhance decision making.

• A World Safe for Prosperity: How American Can Foster Economic Security Geoffrey Gertz & Emily Kilcrease/Foreign Affairs

  U.S. President Donald Trump jolted the global economy this past weekend when he announced sweeping tariffs on Canada, China, and Mexico, the United States’ three largest trading partners. Trump’s actions confirmed what his campaign rhetoric had led observers to believe: that tariffs, whether implemented or threatened, will be central to his foreign policy. Many of the United States’ closest trading partners also prioritize economic security. But today’s trade and investment agreements tend to relegate it to the periphery rather than treat it as central to economic relationships. This must change. Building on their existing commitments, the United States and its close partners should pursue a series of binding bilateral or regional economic security agreements that will nurture greater economic cooperation, as well as more effective coordination against outside rivals, particularly China.

• Canada and Mexico have retaliation options that shrink American take-home pay  Simon Evenett & Marc-Andreas Muendler/UC San Diego Globalization and Prosperity Lab

  Abstract: Trade conflict is costly to all parties. Canadian and Mexican trade retaliation can deny tariff-related wins for American workers. Blunt retaliation could go so far as to eliminate all the take-home pay gains in 40 U.S. states and make whatever gains occur elsewhere barely noticeable. Tariff-induced higher prices are a further drag on American families. Canada and Mexico would take a strong hit from blunt retaliation, but they can use smarter approaches and demonstrate the limits of America First Trade Policy for U.S. workers.

• Carrots, Sticks, and Sledgehammers: Trump’s Options for Reducing U.S. Oil Prices  Center for Strategic and International Studies

  Since his second term began on January 20, 2025, President Trump has clearly signaled a desire for lower oil prices. Executive orders, including “Unleashing American Energy,” as well as his remarks to the Davos World Economic Forum audience on January 23, outline Trump’s case for bringing down the price of oil. Apart from the obvious direct advantage of reducing costs for consumers and businesses, Trump has associated the benefits of lower energy prices with two strategic priorities: first, as an instrument for taming inflation. Trump believes that a lower energy price environment will pave the way for the Federal Reserve to reduce interest rates and stimulate economic activity. Second, Trump has asserted that lower oil prices will hasten an end to the war in Ukraine, ostensibly because Moscow would be deprived of oil export revenues sufficient to sustain its war effort. This reason, however, may have been superseded by recent events, including a February 12 phone call between Trump and Putin, a bilateral meeting of advisors in Riyadh on February 18, and Trump’s February 24 prediction that the war could end within a few weeks.

• Americans' Foreign Policy Priorities, NATO Support Unchanged  Gallup

  Americans’ U.S. foreign policy preferences at the start of Donald Trump's second term are largely the same as Gallup found when he took office in 2017. The public is united in thinking the nation's top priorities should be preventing terrorism, curtailing nuclear proliferation and securing energy supplies. Smaller majorities want the U.S. to pursue favorable trade deals and work with organizations like the United Nations to bring about global cooperation. Relatively few, on the other hand, rate promoting democracy or economic development in other countries as highly important, although there are sharp partisan differences in views on this group of goals. These findings are from Gallup’s annual World Affairs poll, conducted Feb. 3-16. In addition to measuring Americans’ preferred foreign policy goals for the first time in eight years, the poll finds widespread public support for the NATO alliance, unchanged from the prior reading in 2019.

Asian Trade & Economics

• Facilitating Confidence-Driven Trade in South Asia  Carnegie Endowment for International Peace

  Greater economic stability in South Asia hinges on the continued need for confidence-building measures (CBMs), which can help foster trust and create an environment conducive to long-term cooperation and growth. Positive examples of such efforts can be seen within the region. More than five decades after the 1971 war that led to the creation of an independent Bangladesh, the recent inauguration of a direct sea trade link between Karachi in Pakistan and Chittagong in Bangladesh marks a hopeful shift in South Asian diplomacy, demonstrating the potential for CBMs and international cooperation even after decades of discord.

• China is on course for a prolonged recession  The Strategist/Australian Strategic Policy Institute

  The risk of China spiraling into an unprecedentedly prolonged recession is increasing. Its economy is experiencing deflation, with the price level falling for a second consecutive year in 2024, according to recent data from the National Bureau of Statistics of China. It’s on track for the longest period of economy-wide price declines since the 1960s. Coupled with the collapse of the property sector, a looming trade war with the United States and demographic and debt overhang challenges, much of the Chinese public has lost confidence in the economy and its leadership. The country has the ingredients for a recession, and not a short one. It has spent too much on investment and needs to turn to consumption as a source of demand, but people are unwilling to spend. They have long had high savings rates, and now deflation is further discouraging spending. So do falling property values, ageing of the population and excessive corporate and government debt.

Recommended Weekend Read

The Long-Run Consequences of Sanctions on Russia, North Korea’s High Casualty Learning Curve, Economic Security and Industrial Policy, and Real-Life Grand Theft Auto

February 28 - March 2, 2025

The Ukraine War

• Long-Run Consequences of Sanctions on Russia  David Baqaee & Hannes Malmberg / National Bureau of Economic Research

  This paper examines the long-run economic consequences of Western sanctions on Russia. Using a new framework for balanced growth path analysis, we find that the long-run declines in consumption are significantly larger when capital stocks are allowed to adjust --- 1.4 times larger for Russia and 2.2 times larger for Eastern Europe. This is contrary to the common intuition that long-run effects should be milder due to greater adjustment opportunities. In our model, Russian long-run consumption falls by 8.5%, Eastern European consumption by 2%, and Western countries' consumption by 0.3% in response to sanctions. The model also reveals important distributional effects: as capital adjusts, Russian real wages fall more than rental prices in the long run. These findings show that accounting for capital adjustment is quantitatively important when analyzing trade sanctions.

• The Ukraine Reparation Loan Solution   Hugo Dixon & Lee Buchheit/American Enterprise Institute

  Vladimir Putin will not agree to a reasonable ceasefire with Ukraine so long as he believes he will win a war of attrition. Making sure that Ukraine has a war chest to outlast Russia is therefore key to getting it a good deal.  Given America’s unwillingness to continue funding Ukraine and Europe’s fiscal constraints, the best source of cash is Russia’s $300 billion in frozen assets, the lion’s share of which is in Europe. The “reparation loan” idea is an innovative way to mobilize these funds for Kyiv’s benefit without confiscating them. Europe, which balked at the reparation loan idea of outright seizure, is warming to the idea. If European governments back this plan, it will help get them a seat at the peace talks that Donald Trump has started.  Threatening to use the assets in this way will give Ukraine and its allies leverage in negotiations with Russia—and will be part of a back-up plan if Putin refuses a reasonable deal.

• North Korea’s Military Intervention in Kursk: A High Casualty Learning Curve   38 North

  On February 8, North Korea’s (Democratic People’s Republic of Korea or DPRK) Supreme Leader Kim Jong Un issued his strongest statement of support yet for Russia’s invasion of Ukraine.  While it appears as if North Korea is staying the course, its military performance thus far should give it room for pause. During the first three months after their arrival in October 2024, North Korea lost 40 percent of its 11,000-strong force contingent. An estimated 1,000 of those troops perished while 3,000 more were too severely injured to continue fighting.  North Korea’s heavy casualties can be attributed to their unfamiliarity with high-intensity frontline combat, technological shortcomings and morale crises. Despite this troika of countervailing forces, North Korea’s security partnership with Russia will likely continue to strengthen.

• The Maritime War in Ukraine: The Limits of Russian Sea Control?   The Hague Centre for Strategic Studies

  At the start of the Russian full-scale invasion of Ukraine in February 2022, the primary maritime basins of the war were under the firm grip of the advancing force. Throughout the previous decade, Russian authorities had sought to reaffirm the country’s sea control in the Black Sea and the Sea of Azov. But by November 2024, Ukrainian forces estimated Russian naval losses to include 28 warships and small boats, and one submarine.  How did this reversal of fortunes happen? Russia had overwhelming capabilities and was fighting against a country with virtually no navy to speak of. How did Russia lose the battle for sea control?

Geoeconomics

• Beyond the Data: China’s Economy with Leland Miller    China Considered Podcast with Elizabeth Economy

  In a wide-ranging conversation, Dr. Elizabeth Economy and Leland Miller talk about his experiences running China Beige Book, his insights on the Chinese economy, and conclude with a discussion about the Trump Administration’s trade policy.  Miller discusses the early skepticism surrounding the China Beige Book and the process of transforming it into a valuable tool that gathers data from across the Chinese economy while serving as an independent “check” to the Chinese government. He provides insight into the methodology used, from conducting thousands of surveys within China, to looking at labor, manufacturing, and market data which altogether provide a unique view of the Chinese economy and at times, run against the consensus. The two then transition to a conversation on the Trump Administration, having a nuanced discussion on how tariffs and a reshaping of US trade policy affect both the domestic and global economy.

• Economic Security and New Industrial Policy   Asian Economic Policy Review

  Abstract: The paper analyzes the emergence of Japan's economic security strategy to address the risks of weaponized interdependence in a context of heightened geopolitical tension. We detail the rapid institutionalization of economic security measures through the adoption of an Economic Security Promotion Act and ongoing reforms in areas such as foreign direct investment screening and export controls. We find, however, that Japan has made little headway in reducing its dependence on China for critical products, and export controls have had ambiguous trade effects. We discuss the role of the private sector in economic security and find significant divides by firm size on the uptake of new measures to address supply chain vulnerabilities and the protection of sensitive technologies. We examine the new industrial policy on semiconductors and point to the exigencies of success in fostering cutting-edge technologies. Our conclusion identifies policy challenges going forward and offers possible solutions.

• Is inflation still slowing? Early 2025 data pivotal to outlook   Federal Reserve Bank of Dallas

  January inflation data were stronger in 2023 and 2024 than forecasters expected, even after more encouraging results had been reported for the ends of 2022 and 2023. Rather than reflecting seasonal adjustment difficulties, this pattern may be caused by a large share of firms changing prices at the start of a new year.  If this is the case, first-quarter inflation data may exhibit greater persistence and sensitivity to swings in the business cycle. Whether early 2025 monthly inflation rates are similar to late 2024 or a repeat of the previous years’ surprises will be key to assessing the underlying momentum of inflation ahead

• An Evaluation of World Economic Outlook Forecasts: Any Evidence of Asymmetry?  International Monetary Fund

  Using a large cross-country dataset covering over 150 countries and more than 10 macroeconomic variables, this study examines the consistency of IMF World Economic Outlook (WEO) forecasts with the full information rational expectations (FIRE) hypothesis. Similar to Consensus Economics forecasts, WEO forecasts exhibit an overreaction to news. Our analysis reveals that this overreaction is asymmetric, with more measured response to bad news, bringing forecasts closer to the FIRE benchmark. Moreover, forecasts align more closely with FIRE hypothesis during economic downturns or when a country is part of an IMF program. Overreaction becomes more pronounced for macroeconomic variables with low persistence and for forecasts over longer horizons, consistent with recent theoretical models. We also develop a model to explain how state-dependent nature of attentiveness may drive this asymmetric overreaction.

•  The Impact of Generative AI on Work Productivity    Federal Reserve Bank of St. Louis Economy Blog

  Generative artificial intelligence (AI) has rapidly emerged as a potentially important workplace technology. In an earlier blog post, we discussed results from the first nationally representative U.S. survey of generative AI adoption, conducted in August 2024. We showed that 28% of all workers used generative AI at work to some degree. We ran our survey again in November 2024 and found that usage rates were fairly stable between August and November. In this blog post, we leverage a novel question in the November survey to provide an estimate of potential aggregate productivity gains from generative AI.

Americas 

• How Does Latin America and the Caribbean View the Ukraine Conflict After Three Years of War?  Ryan Berg/Center for Strategic and International Studies

  Three years into the full-scale war between Russia and Ukraine, the conflict appears at an inflection point. The new U.S. administration of President Donald Trump has pledged to end the fighting and take the first steps toward negotiations with Russia. U.S. allies in Europe and beyond have, in turn, found themselves taken by surprise and decried what they see as a U.S. posture that is overly favorable to Moscow and potentially disastrous for Kyiv. For countries in Latin America and the Caribbean (LAC), a region which has, with few exceptions, sought to avoid taking strong positions on the conflict, the prospect of a ceasefire or peace agreement raises new questions, as well as opportunities for the region to assert itself on the global stage if it can take them.

• With ELN Offensive, Colombia’s Security Crisis Has Come Roaring Back   World Politics Review

  Colombia now faces the worst security and humanitarian crisis it has seen in recent years, leading President Gustavo Petro to declare a state of emergency. Human rights organizations have raised concerns about the ELN’s conflation of civilians and EMB combatants. Indeed, it appears that the guerilla has especially targeted social activists and community leaders as well as those demobilized under the 2016 peace agreement. 
  

• IMF Loan to El Salvador Raises Transparency Concerns  Center for Strategic & International Studies

  In December 2024, El Salvador and the International Monetary Fund (IMF) reached a staff-level agreement for a $1.4 billion loan. The agreement, which outlines key policy commitments and structural reforms, remains subject to approval by the IMF Executive Board before the funds can be disbursed. However, concerns persist among civil society organizations and broader segments of the Salvadorean public that approval of an arrangement with the IMF could enable continued democratic backsliding and allow Nayib Bukele to further consolidate his authoritarian grip. The IMF Executive Board can help mitigate such concerns by enhancing transparency and accountability in the IMF-supported program. As a first step, including the following considerations into the IMF program would strengthen democratic norms and the rule of law in El Salvador, especially in the areas of governance and anti-corruption. Similarly, by improving consultation and encouraging communication with and the involvement of civil society actors, the IMF team, management, and the board would support broader public buy-in and strengthen program implementation.

Global Crime

• Grand Theft Auto: Real Life   Bloomberg/Business Week

  When a car is stolen in the US, there’s a good chance that the thief is a teenager, and that the vehicle will end up in western Africa.  Nowhere is international stolen-car traffic more robust than in the trade from the eastern US to ports in West Africa. With long-established routes hauling millions of shipping containers each month, car thieves have become bold in their efforts to slip stolen vehicles into this flow of legitimate commerce.  Used-car brokers in West Africa know what models their customers will snap up, so they call US-based thieves to beef up inventory of highly desirable models – send orders for what they want to the US.   All told, there were 1,020,729 car robberies in the US in 2023, the latest annual figure from the nonprofit National Insurance Crime Bureau.

Recommended Weekend Reads

What Canada’s Critical Mineral Supply Means to the U.S., The Economic Consequences of Dark Oil Shipping, What Does Trump’s Terror Designation for Drug Cartels Mean? and 8 Questions for BRICS Currency Advocates

February 21 - 23, 2025

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 – Canadian Critical Minerals Trade

• Mining for Defense: Unlocking the Potential for U.S. – Canada Collaboration on Critical Minerals  Christopher Hernandez-Roy/Henry Ziemer/Alejandra Toro - Center for Strategic and International Studies

  China’s near monopolistic control of many critical minerals, which are essential for both for consumer products and defense production, represents an unacceptable risk to the national security of the United States at a time of heightened geopolitical tension. Canada, which already supplies the United States with large quantities of certain essential metals, is well positioned as an alternative source for many of the critical minerals controlled by China, thus contributing to North American national and economic security. Bolstering cooperation on critical minerals for the defense industry furthermore offers a way for both countries to find common ground amid frustrations surrounding trade and security.

Implications of the U.S. Designation of Mexican Cartels as Terrorist Organizations

• Mexico Eyes Constitutional Reform after U.S. Terrorism Designations  Washington Post

  Mexican President Claudia Sheinbaum said her party has proposed reforms to the country’s constitution to better protect its sovereignty in response to the United States designating six Mexican organized-crime groups as foreign terrorist organizations.   The U.S. State Department on Thursday upgraded the designation of cartels including Mexico’s Sinaloa and Jalisco Nueva Generación, which together dominate fentanyl manufacturing and importation into the United States, according to the Drug Enforcement Administration. “This cannot be an opportunity for the United States to invade our sovereignty,” Sheinbaum said at a news conference Thursday, adding that Mexico would collaborate on combating organized crime but would not accept “subordination.” A “foreign terrorist organization” designation allows the State Department to deploy special sanctions and expands the U.S. government’s ability to prosecute people who provide support to the groups and to collect “military action intelligence,” according to a Wilson Center analysis.

• How Mexican cartels and Chinese criminal networks are moving 'cocaine of the sea' through Canadian ports  CBC

  Chinese organized crime networks and Mexican cartels are using Canadian ports to trade highly lucrative fish bladders for the precursor chemicals needed to produce fentanyl, according to a memo from the Canada Border Services Agency (CBSA).  It said organized criminal networks transport the fish — called totoaba — from the West Coast to China, while the chemical precursors to make toxic drugs are sent through Canadian ports. 

•   The New War on Drugs    Vanda Felab-Brown/Foreign Affairs

  Between January 20 and February 1, U.S. President Donald Trump signed several executive orders declaring national emergencies on the U.S. southern and northern borders, thanks, in part, to the “the sustained influx of illicit opioids and other drugs” into the United States. Citing the public health crisis created, in particular, by fentanyl—as well as concerns about undocumented migrants—he then imposed a 25 percent tariff on most imports from Canada and Mexico and a ten percent tariff on Chinese goods. Although Canada and Mexico managed to negotiate a monthlong postponement of their new tariffs, in early February the tariff on Chinese imports went into effect.  The threat to apply tariffs and FTO designations did create leverage to pressure the Mexican government to resurrect its own law enforcement efforts and collaborate more closely with U.S. law enforcement, two shifts that were sorely needed. But the actual implementation of the tariffs for a substantial time—and the application of the FTO designation—will harm the U.S.-Mexico relationship as well as the U.S. economy. Resorting to unilateral military strikes against the cartels would constitute a death blow to cooperative law enforcement efforts between the United States and Mexico.
  

• Latin American Organized Crime’s Real Target: Local Government   Americas Quarterly

  On February 1, President Trump accused Mexico’s government of maintaining an “intolerable alliance” with drug trafficking organizations – an allegation Mexican President Claudia Sheinbaum immediately dismissed as slanderous. But what should most worry Trump, Sheinbaum, and other regional leaders is crime’s growing influence at the local level—the product of crucial shifts over the past 15 years.  There is a long and growing list of Mexican governors and mayors convicted for organized crime ties. In the past decade, Mexico has imprisoned five former governors for connections to organized crime, while the U.S. has extradited two others. The list of former mayors jailed on charges of colluding with organized crime is even longer.  The focus on local political focus is turn have an increasingly deleterious impact on business and the overall economy.
  

• The Expansion and Diversification of Mexican Cartels: Dynamic New Actors and Markets  International Institute for Strategic Studies

  Latin America’s transnational criminal landscape is reconfiguring due to the accelerated internationalization and diversification of criminal organizations, which are able to control territory and project influence globally. Traditionally, cartels controlled limited territories and specialized on a single product, usually cocaine. The new criminal elites now traffic multiple products across extensive markets and regions.

 The Economic Impact of Russia’s War on Ukraine

• The (Un)Intended Consequences of Oil Sanctions Through the Dark Shipping of Sanctioned Oil   Jesús Fernández-Villaverde | Xiwen Bai | Yiliang Li | Le Xu | Francesco Zanetti/National Bureau of Economic Research

  Abstract:  We examine the rise of dark shipping—oil tankers disabling AIS transceivers to evade detection—amid Western sanctions on Iran, Syria, North Korea, Venezuela, and Russia. Using a machine learning-based ship clustering model, we track dark-shipped crude oil trade flows worldwide and detect unauthorized ship-to-ship transfers. From 2017 to 2023, dark ships transported an estimated 7.8 million metric tons of crude oil monthly—43% of global seaborne crude exports—with China absorbing 15%. These sanctioned flows offset recorded declines in global oil exports but create distinct economic shifts. The U.S., a net oil exporter, faces lower oil prices but benefits from cheaper Chinese imports, driving deflationary growth. The EU, a net importer, contends with rising energy costs yet gains from Chinese demand, fueling inflationary expansion. China, leveraging discounted oil, boosts industrial output, propagating global economic shocks. Our findings expose dark shipping’s central role in reshaping oil markets and macroeconomic dynamics. 

• Russia’s Wartime Economy Isn’t as Weak as it Looks    Royal United Services Institute for Defense and Security Studies

  Many analysts have seized on what appears to be a rare bright spot: Russia’s faltering ‘war economy’, which – according to some – is ‘Putin’s greatest weakness’.  An acute labor shortage, persistent and rising inflation caused by soaring military expenditure, and ever-tightening sanctions will – it is claimed – finally bring about an economic crisis that will force Moscow to abandon its maximalist aims in Ukraine and bring about an end to the war on terms more acceptable to Kyiv and its allies.   Sadly, these hopes are likely to prove misplaced. Russia’s economy has confounded expectations throughout the war and, despite suffering several complications, remains well-placed to support the Kremlin’s ambitions in Ukraine and beyond. 

• Addicted to War: Undermining Russia’s Economy   Center for European Policy Analysis

  Despite initial predictions that sanctions would cripple it, Russia’s economy has shown unexpected resilience, with a modest contraction in 2022 followed by growth in 2023 and 2024. Nonetheless, sanctions and the war itself have forced Russia’s economic policymakers into a series of Faustian bargains, all of which are undermining midterm economic viability.  Russia’s economic resilience has resulted from a combination of increased state spending, authoritarian “friend-shoring” of trade, and import substitution, which together have boosted consumption and investment and kept capital in the country.  The departure of more than 1,200 foreign companies, while reducing the options available to Russian consumers and damaging Russia’s image, has increased profits for Russian companies, bolstered demand for Russian-made goods, and given the regime a wellspring of capital to redistribute to politically loyal interests.  Russia’s economic growth is heavily tied to military spending, with investments tilted toward war-related industries, import substitution, and infrastructure projects to facilitate trade with China. In the absence of defense spending, Russia’s economy would likely stagnate.

Geoeconomics

• Shared BRICS Money: A Basket Currency or a Basket Case? 8 Questions for Proponents of a BRICS Common Currency   Gary Smith/OMFIF

  Many nations would like to reduce their dependence on the increasingly weaponized dollar, especially for dollar-denominated trade that does not pass through the US. The idea of a shared currency issued by the BRICS nations (Brazil, Russia, India, China, South Africa) made headlines in late 2024 ahead of their conference in Kazan, Russia.  Wanting to move away from the dollar is understandable, but making progress will be challenging. Here are eight questions for the proponents of a BRICS currency.

•   A Common BRICS Currency? Lessons from the Euro    The War Room/U.S. Army War College

  You might have seen recent proposals for the BRICS+ nations (Brazil, Russia, India, China, South Africa along with a few other recent additions) to create a common currency as an alternative to the dominant U.S. dollar. Proponents of this idea cite the creation of the Euro as proof of the idea's viability. Not so fast, Mark Duckenfield (the Dwight D. Eisenhower Chair of National Security and a Professor of International Economics in the Department of National Security and Strategy at the U.S. Army War College) explains. In his discussion of both cases, Duckenfield shows all that creating a currency to advance a geopolitical vision is easier said than done and requires several critical conditions that the BRICS lack.  

Recommended Weekend Reads

Focus On The Indo-Pacific During Trump 2.0, Looking at US Debt in the Face of the Pending Tax and Budget Reconciliation, and Measuring Geoeconomic Power

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 Indo-Pacific Region

• The Indo-Pacific: What You Need to Know Now    The Rand Corporation

  As the United States navigates a pivotal leadership transition, the Indo-Pacific region stands at the forefront of global strategic interests. The region is home to an uncertain mix of political disquiet, military peril, and economic potential, with issues like North Korea's nuclear ambitions, China's assertive territorial claims, and the delicate balance of power involving Taiwan shaping the narrative. All this makes the Indo-Pacific a crucial arena for U.S. foreign policy and the alliances and partnerships that will influence global trade and security frameworks moving forward.  We asked a team of RAND researchers – some of the very best experts in the field -  with deep expertise on the various countries that make up the Indo-Pacific to assess the issues, objectives, and outlook for the region at this critical moment.

• Howdy Modi under Trump II   The Interpreter (Lowry Institute/Australia)

  The trajectory of India-US relations is on the upswing. The first Trump administration further strengthened the strategic partnership with India, taking significant steps to enhance bilateral defence and security cooperation. One notable move was the renaming of the US Pacific Command (PACOM) to the Indo-Pacific Command (INDOPACOM), underscoring India’s growing strategic role in the region. The administration also approved the sale of Sea Guardian drones to India, making it the first non-NATO country to acquire these advanced systems – a landmark development in defence ties. Additionally, India was granted Strategic Trade Authorization Tier-1 (STA-1)status, allowing access to license-free military and dual-use technologies, a privilege extended to only a select group of US partners. 

• Can China Cross the Strait?    Council on Geostrategy’s China Observatory

  ‘Can does not mean will’ is a good starting point when discussing the future of cross-strait relations. It prevents a simplistically straight line being drawn between Xi Jinping’s call for his military to be ready to take Taiwan by 2027 and an invasion in two years’ time. A leader can wish to have an option without having a definite plan to pursue it. Moreover, even if Xi is confident he ‘can’, that is, have his troops physically land on and occupy Taiwan while defeating any American forces which may intervene, he will still need to ask himself: ‘at what cost?’ The answer to which will remain: ‘at a very high one’.  Still, ‘can’ is important. While Xi remains unconfident, Washington and Taipei can feel more assured that so long as they do not act in a way whereby Beijing can cry ‘provocation’, a crisis is unlikely. When he thinks the People’s Liberation Army (PLA) – the PRC’s armed forces – is ready, however, the risk of a premeditated attack increases. So where do we stand?

• Is the End of the Chinese Miracle the Start of More Trouble?    Peterson Institute for International Economics

  What will slower economic growth of China mean for the global economy and balance of power? How will US policy respond, and how should it respond? PIIE president Adam S. Posen delivered this presentation as part of the 2025 UC San Diego Economics Roundtable Lecture Series.  Additionally, you can read Posen’s accompanying PowerPoint presentation HERE.

• China’s Xi Is Building Economic Fortress Against U.S. Pressure   Wall Street Journal

  China is racing to make itself less reliant on the outside world’s products and technology—part of a yearslong effort by leader Xi Jinping to make China more self-sufficient and impervious to Western pressure as tensions with the U.S. rise. Beijing has poured hundreds of billions of dollars into favored industries, especially in high-end manufacturing, while exhorting business leaders to fall in line with the government’s priorities.  In many ways, the effort is succeeding.

The 2025 Budget and Tax Reconciliation Debate

• Assessing the Risks and Cost of the Rising US Federal Debt  Economic Studies at Brookings

  “A number of developments could set off a fiscal crisis. This study see four main sources of risk, not all of which are necessarily linked to the level and trajectory of the debt:

  • Demand or supply of Treasuries could abruptly shift for reasons unrelated to inflation or default risk such that interest rates spike, causing financial market disruptions that the Federal Reserve is unable or unwilling to mitigate.

  • Investors could come to believe that the U.S. Treasury might default on interest or principal payments because of political brinkmanship, and policymakers would be unable or unwilling to regain credibility.

  • The Federal Reserve could be perceived as abandoning its mandate to preserve price stability and instead allowing for hyperinflation.

  • The long-term fiscal outlook could deteriorate so significantly and so sharply that investors abruptly worry about some form of default, leading them to abandon Treasuries until policymakers take actions to rein in deficits.”

• US sovereign wealth fund debate: a solution in search of a problem?   OMFIF

  On 3 February, President Donald Trump signed an executive order directing Treasury Secretary Scott Bessent and Commerce Secretary-designate Howard Lutnick to develop a plan for a US sovereign wealth fund within 90 days. The idea is ambitious, but is it a good one? Would it even qualify as a SWF?  Globally, well-regarded SWFs have clear mandates and specific funding mechanisms. The US proposal, as presented, lacks these elements, making it an unusual potential entrant in the SWF landscape. Understanding this distinction is critical in evaluating its feasibility and implications.

• Trump Tax Priorities Total $5 to $11 Trillion   Committee for a Responsible Federal Budget

  In a closed-door meeting with House Leadership today, President Trump reportedly outlined his tax priorities. According to press reports, they included extending the expiring pieces of the 2017 Tax Cuts and Jobs Act (TCJA); expanding the State and Local Tax (SALT) deduction; enacting tax breaks for goods made in America; cutting taxes on income from tips, overtime pay, and Social Security benefits; and eliminating tax breaks for carried interest and stadium owners. Depending on the details of these proposals, our rough estimate is that a package of this nature would:

  o   Reduce revenue by $5.0 trillion to $11.2 trillion over ten years.

  o   Lower revenue by 1.3 to 3.0 percent of Gross Domestic Product (GDP).

  o   Boost debt to between 132 and 149 percent of GDP by 2035, if not offset, compared to nearly 100 percent today and 118 percent under current law.

  Such a package could also lead to significant income shifting and tax avoidance, weaken the Medicare and possibly Social Security trust funds, dramatically boost interest costs, and increase the risk of a debt spiral.

Americas

• Mexico Is Growing Old. Can It Build a Care System in Time?   Americas Quarterly

  Mexico will soon have to reckon with these kinds of challenges on a mass scale for one big reason: The country is growing old. Long able to trumpet having a large, young working population as a comparative advantage over its North American peers, Mexico’s median age will jump from 18 in 1987, when León left home, to 40 in 2050, per National Population Council projections. The country’s 60-year-long demographic dividend, the period when the working-age population outnumbers dependents, will come to an end in 2030—just as Claudia Sheinbaum’s presidency draws to a close.

• Will Designating Cartels as Terrorists Help Fight Them?   The Dialogue of the

  As one of his first actions just hours after taking office on Jan. 20, U.S. President Donald Trump signed an executive order to designate international drug cartels and other gangs as foreign terrorist organizations. What will the order practically mean for the fight against organized crime groups? How useful will it be? How effective will cooperation be between U.S. authorities and their counterparts in Mexico and elsewhere in Latin America? 

Africa

• The Six Areas in Trump’s Executive Orders that Countries in Africa and the Global South Should Pay Attention to    Carnegie Endowment for international Peace

  There are six key issues addressed by Trump’s initial executive orders (EOs) that low- and middle-income countries in Africa and the Global South should pay close attention to: foreign aid, reframing energy diplomacy, the Global Tax Deal and U.S. FDI, global trade relations, WHO and global health, and spillovers of adversarial relations with China. While the Trump administration continues to implement these EOs, and indeed, facing the prospect that many aspects will be challenged in the courts, these initial executive orders provide a sense of the overarching policy direction.

Geoeconomics

• Measuring Geoeocnomic Power: An Index for 41 Major Economies   Finish Institute for International Economics

  This Research Paper presents a set of methodologies and concepts for measuring the geoeconomic power of states – the potential to exert power over other states through economic means – and applies them to publicly available data covering 41 major economies from 2010 to 2022. This analysis leads to the development of a combined index of geoeconomic power, designed to reflect the supplier power of states in the areas of trade in goods, oil and oil products, and international finance. The main finding is that the United States is the world’s leading geoeconomic power, although it falls far short of being in a hegemonic position. Its lead over the second-largest geoeconomic power, the European Union, has grown in recent years. However, China’s geoeconomic power has expanded rapidly, almost matching that of the European Union in 2022. These recent shifts point to a more competitive and contested global order.

• The Evolution of Global FDI: Patterns of Investment in Tax Havens and China  Federal Reserve Bank of St. Louis

  Global foreign direct investment (FDI) has experienced remarkable growth over the past two decades. As the figure below shows, total global FDI liabilities1 have more than tripled, surging from about $21 trillion in 2006 to over $67 trillion by 2023.  We can observe two periods of rapid expansion: 2006 to 2015, during which FDI liabilities more than doubled from about $21 trillion to over $45 trillion, and 2015 to 2023, during which they reached over $67 trillion despite the global COVID-19 pandemic.

Recommended Weekend Reads

The Power Requirements for AI Growth in the U.S., The Future of the USMCA, How Vietnam is Being Impacted By U.S. – China Trade Tensions, and How Russia Sees Trump’s Bid to Buy Greenland

February 7 - 9, 2025

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.

Energy Requirements for Growing AI Capability

• AI’s Power Requirements Under Exponential Growth   Rand Corporation

  Larger training runs and widespread deployment of future artificial intelligence (AI) systems may demand a rapid scale-up of computational resources (compute) that require unprecedented amounts of power. In this report, the authors extrapolate two exponential trends in AI compute to estimate AI data center power demand and assess its geopolitical consequences. They find that globally, AI data centers could need ten gigawatts (GW) of additional power capacity in 2025, which is more than the total power capacity of the state of Utah. If exponential growth in chip supply continues, AI data centers will need 68 GW in total by 2027 — almost a doubling of global data center power requirements from 2022 and close to California's 2022 total power capacity of 86 GW. 

The Western Hemisphere

• The Future of the USMCA Peterson Institute for International Economics

  Since 2020, the last year of President Donald Trump’s first term in office, the often-quarrelsome trade relations among the three major countries of North America have been governed by the United States-Mexico-Canada trade agreement (USMCA). The pact must be renewed in 2026, but Trump has threatened withdrawing and imposing tariffs on Canada and Mexico, leaving the future of relations with two of the most important US trading partners uncertain. This guide explains why the agreement is under scrutiny, what’s at stake under different scenarios, and possible paths forward for negotiators if the current crisis is defused. This page will be updated as the trade deal is subjected to a new round of disputes and possible adjustments in President Trump’s second term.

• Sheinbaum Isn’t Tempering Her Ambitions for Mexico’s Economy   World Politics Review

  Last month, President Claudia Sheinbaum unveiled “Plan Mexico,” an economic and development roadmap that aims to boost the Mexican economy through new public and private investments in a range of sectors, and new development-friendly policies. Among its principal aims are to create 1.5 million jobs in advanced manufacturing, increase investment as a proportion of GDP by 4 percent and grow Mexico’s economy from the 13th largest in the world currently to 10th by 2030.  The plan is undoubtedly ambitious and comes at a time when the Mexican economy faces significant headwinds and uncertainty amid the threat of tariffs from the United States, as well as an overall deceleration of the economy, which grew at a modest pace of 1.8 percent in 2024, below the average of 2.4 percent for Latin America

• Canadian Tariffs Will Undermine U.S. Mineral Security    Center for Strategic and International Studies

  As the United States races to reduce its reliance on China for minerals vital for national, economic, and energy security, tariffs with Canada may drastically undermine these efforts. Canada is the biggest source of the United States mineral imports, providing key sources of uranium, aluminum, nickel, steel copper, and niobium. To put it into perspective, in 2023, Canada accounted for $47 billion of United States mineral imports. China followed with $28.3 billion. The consequences of tariffs would be particularly profound for the defense industry, nuclear energy, and heavy manufacturing. A 25 percent tariff on Canadian mineral imports could cost U.S. off-takers an additional $11.75 billion—a figure that would increase as base metal and uranium prices recover. Canada would likely adopt retaliatory tariffs, as they did when Trump imposed Section 232 tariffs on steel and aluminum imports from Canada in 2018 and 2020 (backing down both times). In 2023, the United States sent $30.7 billion in minerals to Canada. The retaliatory tariffs could lead Canadian firms to pay an estimated additional $7.6 billion in tariffs, encouraging them to turn to other import sources for off-take, further undermining U.S. firms.

• What Trump’s Trade War Would Mean, in Nine Charts   Council on Foreign Relations

  Although President Trump’s threated tariffs on Canada and Mexico have been delayed 30 days, what he has proposed could upend U.S. trade. These nine charts show what’s at stake, what comes next, and why it matters.

• Trump’s Greenland Play: The View From Moscow   The National Interest

  The Russia-U.S. relationship (or lack thereof) has long dominated Arctic geopolitics. Geography makes the two neighbors and stakeholders sharing the challenges of a warming region. President Trump’s enduring interest in acquiring Greenland injects further potential geostrategic challenges in the region’s icy arena. When the idea was floated during his initial term in office, the immediate response from Russian leadership, state-operated media, and the public was a flood of memes.  The second time around, however, Russia’s domestic discourse has a more strategic flavor. Discussions now appear to focus less on the “novelty” of such an acquisition and more on understanding the “objectives.” Three potential scenarios for U.S.-Greenland relations are being debated in Moscow in terms of the strategic implications for Russia.  

Indo-Pacific

• Factors Shaping the Future of China's Military    Rand Corporation

  China's population is declining, which will cause problems for China but not necessarily for the PLA. Fertility patterns in China are similar to those observed in other countries. This suggests that revoking the one-child policy will continue to have a smaller effect on population size than the Chinese government may have assumed, and that China's population will continue to shrink in the future. Despite this stark change, China's youth population will remain more than three times the size of the United States' youth population in the near term. China's current challenges include how to sustain economic growth as the economy matures and the population ages. Although demographic patterns in China are similar to those seen in other countries, comparisons should be made with caution; China's immense size means that small within-country changes could have large global impacts. The PLA's primary demographic challenge—which includes cultural, social, and political components—will be whether it can build and develop the type of military that Xi envisions.

• The Hoover Institution’s Survey of India      Hoover Institution/Stanford University

  In this comprehensive volume, the authors offer a panoramic and analytical overview of developments in multiple policy arenas in India over the past year while simultaneously providing appropriate historical context. The range of policy issues covered includes politics, demography, the economy, foreign policy, health, education, science, energy, and defense. For each chapter, specialists share historical background, the state of current policy choices, and likely future trends.

• China Teeters Ever Closer to a “Lost Decade”        Hinrich Foundation/Stewart Paterson

  Aggressive economic stimulus measures dished out by China’s financial regulators are doing little to revive a stagnating economy. The decline in the efficiency of Chinese investment has led to a capital stock that is now bloated relative to the returns that it generates, threatening a full-scale financial crisis. As Beijing tries to avoid a Japan-style ‘lost decade’ of growth, the government doesn't appear able to come up with new ideas to solve its conundrum.

• Trade Policy and Jobs in Vietnam: The Unintended Consequences of US-China Trade Tensions  International Monetary Fund

  “We use the US-China tariffs of 2018-19 as an exogenous shock to export opportunities in Vietnam to identify how trade policy affects job creation. Using a difference-in-differences framework, we first show that US tariffs on China increased the range of products exported by Vietnam to the US in the two years after the hikes. We then show using firm level data that this expansion in export opportunities led to job creation. Around 5% extra jobs were created in firms hit with average tariffs above 15%. Results point towards this effect being driven mostly by female employment.”

• China and the Future of Global Supply Chains     Rhodium Group

  In this study, the Rhodium Group reviews China’s role in four major sectors—apparel, consumer electronics, PV, and autos—over the past decade, then consider four plausible scenarios to 2030 and their implications for China’s future role in global trade and investment patterns.

Russia’s War on Ukraine 

• What the End of Ukraine Gas Transit Means for Kyiv, Moscow, and Europe   Carnegie Politika

  At 8 a.m. on January 1, 2025, the supply of Russian gas crossing the Ukrainian border on its way to Europe was turned off, ending a sixty-year era.  The response to the shutoff was notably calm considering that in 2009, a two-week halt in Russian gas supplies to Europe via Ukraine caused panic and a large-scale crisis. This time around, gas prices in Europe rose slightly, and only Moldova had real problems.  But what longer term does it mean for the EU, Ukraine, and Moscow?

Recommended Weekend Reads

U.S. – China Trade Policy in the New Trump Era, Why Governments Can’t Pay Their Way To Higher Birth Rates, Zambia’s Debt Turnaround, and How Water Security Is A Risk for A Quarter of the World’s 500 Largest Cities

January 31 - February 2, 2025

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. – China Relations in the Trump Era

• Advancing U.S.-China Coordination amid Strategic Competition  Ryan Hass, Ryan McEleveen, and Lily McElwee/Center for Strategic and International Studies

  Frictions between the United States and China are intensifying, yet even past geopolitical rivals found ways to collaborate on shared challenges where it squarely served national interests. In November 2022, the CSIS Freeman Chair in China Studies and the Brookings John L. Thornton China Center launched a project to explore safe and effective methods for collaboration among nonstate actors on key challenges facing both nations. The following brief distills takeaways from this work, which included historical case studies of collaboration during the Cold War, workshops with U.S. and PRC experts, and a track 2 dialogue on climate-smart agriculture designed to probe emerging findings.

• Meeting China’s Trade and Tech Challenge: How the US and Europe Can Come Together   Daniel S. Hamilton/Center for European Policy Analysis

  This series analyzes the impact of China’s rise on transatlantic ties and presents ideas about how to forge a constructive partnership to meet the China challenge. It is based on a yearlong series of CEPA-sponsored workshops of leading European and US experts that I chaired together with Lucinda Creighton under the Chatham House Rule. The basic question we addressed is whether Donald Trump’s new administration and Europe’s new leaders believe their own bilateral disputes are more or less important than the need to adopt joint or complementary approaches to China. Does the Trump administration believe it can and should fight predatory Chinese economic practices on its own, or forge a broad coalition of countries that could impose far greater costs on China than individual efforts? Are Europeans willing and able to bridge their own considerable differences over both China and Trump’s America to help lead such a coalition? 

• Can Trump Seize the Moment on China?    Ryan Hass/Brookings Institution

  The U.S.-China relationship President Donald J. Trump inherited is vastly different than the one he handed off to the Biden administration in 2021. China continues to expand its global influence and industrial output, but it also faces challenges at home from a softening economy and an increasingly sclerotic and centralized political decision-making process. Trump’s team holds a variety of viewpoints on how to maximize America’s leverage or even on what objectives America should pursue in its competition with China. Left unaddressed, this variance in views risks leading to policy incoherence. To overcome this risk, Trump will need to set a firm direction, identify specific objectives, and put his advisors on notice that they will pay a cost for actions that undermine his goals. Trump has an opportunity to craft a strong policy to move the U.S.-China relationship toward becoming fairer and more equitable. Whether he seizes this opportunity may depend upon the degree to which he acts with purpose, maintains focus, and imposes discipline over a sprawling set of actors within his administration who will implement America’s China strategy.

U.S. and Global Economics

• Dysfunction in Federal Budgeting: Structural Factors and Selected Reforms   James Capretta/American Enterprise Institute

  Abstract: Both major US political parties want to avoid the responsibility of reducing projected future budget deficits, which are expected to persist indefinitely. Having stronger leaders would help, but the primary causes of ongoing fiscal deterioration run deep and will not be easily addressed. Multiple federal laws govern budget decisions, but there is no regularized pathway for Congress and the president to agree on binding fiscal plans. Further, the budget is now dominated by benefits paid directly to individuals, which has changed the candidate-voter relationship. Finally, the United States’ unique approach to health care makes identifying bipartisan cost-saving reforms challenging. Policymakers must think strategically about changes that account for these structural factors. They should focus on the statutory facilitation of legislative-executive budgetary agreements, long-term fiscal stability rather than fleeting near-term objectives, automatic solvency adjustments in Social Security and Medicare, stronger price competition in health care, and sustained funding increases for critical military accounts.

• Sovereign Debt Restructuring with China at the Table: Forward Progress but Lost Decade Risk Remains   Gregory Makoff/Théo Maret/Logan Wright  Harvard Kennedy School Mossavar-Rahmani Center for Business and Government

  Sovereign debt restructuring deals have not been smooth sailing over the last few years. They have moved slowly, been marked by bickering between China and G7 stalwarts, and the outcomes have been inconsistent. Recent policy innovations, however, have successfully accelerated the pace at which deals are being completed — that’s the good news. The bad news is that China remains highly reluctant to grant permanent debt relief. Deals are coming faster, but debt relief may be insufficient to avoid repeat restructurings. This is deeply unfortunate in the post-Covid-19 context, with many lower income countries at or near debt distress.

• America First Trade Policy     The White House

  President Trump issued a memorandum on January 20th outlining his overall trade and global economic policy views and objectives.  Overall, the President states: “Americans benefit from and deserve an America First trade policy.  Therefore, I am establishing a robust and reinvigorated trade policy that promotes investment and productivity, enhances our Nation’s industrial and technological advantages, defends our economic and national security, and — above all — benefits American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.”

• The Baby Gap: Why Governments Can’t Pay Their Way to Higher Birth Rates   Financial Times

  The decline in fertility rates threatens to lead to deep economic malaise. Fewer babies and more older residents lead to a lower proportion of people of working age, denting tax revenues at the same time as costs associated with aging societies, such as state pensions and healthcare, increase. Without sufficient policy action, analysts at rating agency S&P Global estimated in 2023 that fiscal deficits would balloon by 2060 from a global average now of 2.4% of GDP to 9.1%. The global net government debt to GDP level would very nearly triple.

The Global Challenge to and Race for Access to Natural Resources

• From Water Supply Crises to Building Urban Water Security  Rand

  Secure, affordable, and equitably delivered high-quality water supplies are central to human health, well-being, and economic development—especially in urban areas. Despite efforts by many policymakers to invest in healthy ecosystems and responsible management practices, a quarter of the world’s 500 largest cities already experience water stress, affecting nearly 400 million people and $4.8 trillion in economic activity.  Because of varied combinations of climate change, population growth, overextraction of natural resources, and pollution, cities around the world have had to navigate severe water supply crises. Many cities have been to the brink—they have had to confront near-catastrophic risks to their water supplies.

Africa

• Zambia’s Debt Turnaround   Institute for Security Studies (South Africa)

  In November 2020, Zambia became the first African nation to default on its debt during the COVID-19 pandemic, a stark warning of the dangers of economic over-reliance on commodities like copper.  Zambia’s 2020 debt crisis resulted from years of structural weaknesses and external shocks. For decades, the country relied heavily on copper mining, a sector prone to global price fluctuations. While Zambia experienced a copper boom in the 1960s, later decades saw unstable prices that strongly disrupted its fiscal and trade balance. To diversify its economy, Zambia began investing in infrastructure in the late 2000s. Many of these initiatives were funded by external borrowing, including significant loans from Chinese lenders. These borrowing patterns contributed to rising debt levels and unsustainable interest payments, compounding Zambia’s fiscal challenges.Despite these setbacks, projections for 2025 are optimistic, with anticipated GDP growth rates ranging from 4.1% by the World Bank to 6.6% by Zambia’s Finance Minister.  However, long-term success depends on several key issues, including the need for economic diversification, improved governance and enhanced resilience to climate change. 

Recommended Weekend Reads

Buying Greenland and Growing Arctic Security Risks, US Industrial Policy Toward Semiconductors Is Winning, and Demographic Decline in the US and Around the World

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.

Buying Greenland & Increasing Arctic Security Risk

• Everything you need to know about Trump’s Greenland gambit Atlantic Council

  President-elect Trump is plotting an Arctic acquisition. As he prepares to take office on January 20, President-elect Donald Trump is already stirring up a transatlantic tempest with his overtures to acquire Greenland. Denmark has repeatedly said its strategically located island territory is not for sale, but Trump on Tuesday continued to push the issue—including threatening tariffs on Denmark. The icy dispute raises several burning questions. Atlantic Council experts have the answers.
  

• Why Donald Trump wants Greenland: The Arctic Island has long been vital to US Security and its importance is only increasing Financial Times

  When Trump first expressed interest in buying Greenland in 2019, he framed it as like “a large real estate deal” and emphasized the economic aspects of prising it away from Denmark. This time, his focus has changed. “We need Greenland for national security purposes,” he said on Tuesday, while mentioning the need to deter Russian and Chinese ships.

• China-Russia Relations in the Arctic: What the Northern Limits of Their Partnership? Rand Corporation

  To what extent might China and Russia form partnerships in the Arctic region, and what factors might limit the development of their relationship? Although the United States has had Russia as a maritime neighbor in the Arctic since 1867, the growing presence of China in the region as a Russian partner has led to a rare situation in which two competitive — and potentially hostile — states are in very close proximity to North America. In this paper, the authors evaluate Russia's and China's activities in the Arctic and these activities' implications for nations with Arctic interests. The authors consider China's decades-long interest in the Arctic, its growing and possible future economic activities, and the existing and proposed collaborations that Beijing has sought with Arctic countries to realize its goals.
  

• Arctic Shipping Sets New Records in 2024: 50 Percent Cargo Transit Increase over 2023 Carrying More than 40 Million Tons gCaptain.com

  Even in the face of widening Western sanctions, Russia managed to increase Arctic transit cargo by almost 50 percent over 2023. Its main Arctic shipping lane, the Northern Sea Route, recorded 97 transits carrying close to 3m tons of cargo; both figures surpassing previous highs. Total cargo volume along the route, including transits and traffic originating in Russia, stands at around 40m tons in 2024. Trade between Russia and China continues to dominate cargo flows, accounting for 2.9m tons or 95% of all transit traffic. Officials of the two countries met this week to discuss plans to further boost Arctic shipping.

• ‘Ice Sheet Conservation’ and International Discord: Governing (potential) Glacial Geoengineering in Antarctica International Affairs/Chatham House

  There is a growing chance of collapse of the West Antarctic Ice Sheet, one of the planetary climate tipping points at greatest risk of being crossed. Such a collapse would subject the world to an increase of several meters in average global sea-level rise over just a few centuries. In this context, there is an academic debate about the potential of supporting glacial stability through artificial infrastructures such as an undersea ‘curtain’. However, this ‘ice sheet conservation’ would come with significant yet unforeseeable technical and environmental risks. Moreover, in this debate, governance risks have been either neglected or understated. We argue that the proposed infrastructures could negatively implicate the ‘peaceful purposes only’ obligation enshrined in the Antarctic Treaty. By affecting contentious areas of Antarctic geopolitics, such as authority, sovereignty and security, there is a significant risk that the project would make the Antarctic ‘the scene or object of international discord’.

Industrial Policy & the Race for Semiconductor Dominance

• Industrial Policy through the CHIPS and Science Act: A Preliminary ReportPeterson Institute for International Economics

  The 2022 CHIPS and Science Act appears likely to sharply boost the production of advanced semiconductors in the US, reducing the risk of future shortages but leaving America reliant on imported chips. The jobs created will come at notable costs. Some of the key takeaways of the report include: An estimated 93,000 temporary construction jobs and 43,000 permanent jobs will be created, at an average subsidy cost of $185,000 per job, per year—about twice the average annual salary of US semiconductor employees. Lawmakers deliberating the act did not publicly consider alternative ways of spending $200 billion to ensure adequate chip supplies. Additional subsidies will probably be needed to achieve the goal of producing 20 percent of global leading-edge logic chips in the US by 2030.

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• America’s bet on industrial policy starts to pay off for semiconductors The Economist (January 9, 2025)

  In the final days of Joe Biden’s presidency, most parts of his administration are winding down. Not so the top brass in the Department of Commerce: on an almost daily basis, they are signing giant funding contracts with chipmakers, racing to dole out cash before Donald Trump enters the White House. When all is said and done, they will have awarded nearly $40bn to semiconductor makers in little more than a year—arguably the biggest single bet on industrial policy by the government in decades, and one that could end up as Mr. Biden’s most lasting economic legacy. The rush to disburse cash has invited questions about whether the funding commitments—the cornerstone of the chips and Science Act, passed in 2022—are at risk under Mr. Trump. On the campaign trail, he called chips a “bad” deal, saying the government could have just slapped tariffs on imported semiconductors. At the end of the day, Trump is unlikely to reverse the chip subsidies - but will he reinforce them?

• Rationales for Industrial Policy in the Semiconductor IndustryIntereconomics

  In recent years, private and public investments in the semiconductor industry have surged worldwide. In the European Union alone, a government subsidy package of €43 billion is under negotiation, while in the United States and East Asia, state support amounts to multiples of that figure. Economists view this subsidy race critically, as it could potentially lead to market distortions and inefficient allocations. In Germany, the substantial subsidies for new factories by Taiwan Semiconductor Manufacturing Company Limited (TSMC) and Intel are also the subjects of heated debate. Despite these concerns and the traditional reservations among economists against industrial policy in general, there are compelling reasons for pursuing such an industrial policy approach, particularly in the European semiconductor industry—provided the economic and political contexts are understood and the policy is well executed.

The Global Demographic Decline

• The Demographic Outlook: 2025 to 2055 Congressional Budget Office

  In CBO’s projections, the rate of population growth generally slows over the next 30 years, from an average of 0.4 percent a year between 2025 and 2035 to an average of 0.1 percent a year between 2036 and 2055. Net immigration becomes an increasingly important source of population growth. Without immigration, the population would shrink beginning in 2033, in part because fertility rates are projected to remain too low for a generation to replace itself.

• Comparing Life Expectancies Across the Pacific Rim Visual Capitalist/Hindrich Foundation

  Trade and economic growth have boosted life expectancy by improving access to healthcare and nutrition. Efficient resource allocation through trade improves living standards, and economic growth from trade raises income and tax revenues, enabling more government investment in public health and social programs. Based on the findings of the 2024 Hinrich-IMD Sustainable Trade Index, Visual Capitalist illustrates how major trading economies like Japan, Hong Kong, and Singapore enjoy higher living standards and longer lives.
  

• Dependency and depopulation? Confronting the consequences of a new demographic reality McKinsey Global Institute

  Falling fertility rates are propelling major economies toward population collapse in this century. Two-thirds of humanity lives in countries with fertility below the replacement rate of 2.1 children per family. By 2100, populations in some major economies will fall by 20 to 50 percent, based on UN projections. Consumers and workers will be older and increasingly in the developing world. Seniors will account for one-quarter of global consumption by 2050, double their share in 1997. Developing countries will provide a growing share of global labor supply and of consumption, making their productivity and prosperity vital for global growth.The current calculus of economies cannot support existing income and retirement norms—something must give. In first wave countries across advanced economies and China, GDP per capita growth could slow by 0.4 percent annually on average from 2023 to 2050, and up to 0.8 percent in some countries, unless productivity growth increases by two to four times or people work one to five hours more per week. Retirement systems might need to channel as much as 50 percent of labor income to fund a 1.5-time increase in the gap between the aggregate consumption and income of seniors. Later wave countries, take note.