Recommended Weekend Reads

China’s New Latin American Playbook, Russia’s Increasingly Desperate Search for Soldiers, Who Will Succeed Xi as China’s Next President?,  and Geopolitical Implications of the Race for 6G

October 17 - 19, 2025

Below are a number of reports and articles we read this past week and found particularly interesting.  Hopefully,  you will find them of interest and useful as well.  Have a great weekend.

Latin America

• China’s New Playbook for Latin America         Americas Quarterly

  China has entered a new phase in its engagement with Latin America.  It is one still characterized by extensive resource-seeking and market-seeking activity, features of the relationship for more than three decades now. As China invests and trades in Latin American raw materials and builds markets across the region for everything from its toys and textiles to ultra-high-voltage transmission lines and cloud services, overall trade continues to rise.  At the same time, the relationship is rapidly evolving toward a more targeted, strategic approach. For all the recent attention given to China’s signature Belt and Road Initiative (BRI) infrastructure projects, Latin America’s relative share of investments under the plan is falling for the third consecutive year. The region received a little more than 1% of Beijing’s global BRI construction spending and 0.4% of outbound investment in the first half of 2025. Growth in Chinese foreign direct investment (FDI) in the region is also slowing. Whether those trends hold remains to be seen. But the days of Beijing showering the region with loans and large-scale infrastructure projects may be over, or at least diminished, replaced by more deliberate engagement and a focus on specific sectors of Chinese interest, especially at the higher end of the value chain.
  

• How China’s Energy Investments Provide Durable Influence in South America  Henry Zeimer/Center for Strategic and International Studies

  China’s growing presence in South American energy generation and distribution has largely gone underreported, even as it risks placing critical infrastructure under foreign influence. Properly grasping the nature of this influence is of particular importance as the United States finds itself in the midst of a shift to a more competitive stance in its foreign policy approach in the Western Hemisphere.

• What Is Mexico’s Amparo Reform? Everything You Need to Know    Moments in Mexico

  Mexico’s democracy is again on the precipice of a key inflection point. This time, it entails the Sheinbaum administration’s efforts to reform the amparo, a tool of the Mexican legal system that grants individuals the right of redress in the case of constitutional and/or human rights violations. There is no direct counterpart to the Mexican amparo in the United States; however, its functions are roughly carried out through a combination of civil rights litigation, judicial review, injunctions, and the writ of habeas corpus. The amparo and associated processes are complex. This piece is intended to provide a cursory overview and highlight the changes that the Sheinbaum administration seeks to impose.

Russia

• Putin Seeks More Foreign Fighters Amid Mounting Russian Losses in Ukraine   Atlantic Council

  As Russia’s full-scale invasion of Ukraine approaches the four-year mark, Moscow is facing increasing difficulties replenishing the ranks of its invading army. With fewer Russians now prepared to volunteer, the Kremlin is seeking to recruit more foreign fighters to serve in Russian President Vladimir Putin’s colonial war. A number of recent media reports have highlighted the growing role of foreign nationals in the Russian military. In early October, an Indian citizen was captured by Ukrainian forces while fighting for Russia. The 22-year-old claimed to have been arrested in Russia while studying and pressured into signing a contract with the Russian army in order to secure his release from prison. After just two weeks of basic training, he was sent to the front lines of the war in Ukraine. Also in early October, the Los Angeles Times reported that Russia may have recruited tens of thousands of foreign fighters via social media, with many coming from disadvantaged countries across the Middle East, Africa, and East Asia. The article detailed how many of these recruits are allegedly enticed with offers of generous benefits including large salaries and Russian citizenship in exchange for military service in non-combat roles. In practice, however, most are soon sent straight into battle.

• The Shooting Party: Russia’s Evolving Threat Perceptions Since 2002    Center for Naval Analysis (CNA)

  In this paper, the authors examine how Russian military thinkers interpret and operationalize the threat perceptions defined by the country’s political leadership. Despite nearly four years of war in Ukraine, Russian security concerns regarding US military capabilities remain largely unchanged. Russian military thinkers continue to perceive US ballistic missile defense and Prompt Global Strike programs as the main threats to Russia’s security, believing these programs to be designed to degrade Russia’s retaliatory strike capabilities. The war in Ukraine has exposed gaps in Russia’s military capabilities, heightening Russian anxiety about the military contingents from the North Atlantic Treaty Organization (NATO) in the Baltic and Black Seas, particularly potential US deployments to Finland and Sweden. Viewing the substantial US and NATO military assistance to Ukraine as part of a broader strategy to weaken Russia, Russian military thinkers are particularly alarmed by Ukrainian offensive operations within Russian borders or those that target mainland Russia. Russian military thinkers believe that the United States and NATO are preparing for a long-term confrontation with Russia, which reinforces their views on the importance of maintaining and enhancing Russia’s strategic deterrence capabilities.

• ·Russia’s Crime-Terror Nexus: Criminality as a Tool of Hybrid Warfare in Europe    GLOBSEC/International Centre for Counter-Terrorism

  This report takes stock of Russian hybrid warfare in Europe in the context of its war of aggression against Ukraine. While doing so, it offers more than a catalogue of kinetic incidents attributed to Moscow. The report shows the extent to which criminality – whether through direct reliance on criminals to conduct attacks or through the “spook-gangster” nexus – constitutes a central pillar of Russia’s hybrid warfare. It opens with an overview of the phenomenon and traces Russia’s experience with hybrid tactics back to at least the 1920s. It then explores Moscow’s enduring use of criminality as a tool of domestic control and foreign policy, with particular emphasis on the post-2022 period.

China

• Xi Jinping's Successor and the Future of China    The Foreign Affairs  Interview Podcast

  When Xi Jinping took over the Chinese Communist Party in 2012, he began a new chapter in China’s history—one that would come to be defined above all by his grip on power. Xi overhauled not only the CCP but also China’s economy, military, and role in the world. Yet no matter how secure his power may be—and no matter his recent hot-mic musings about living to 150—what comes after Xi, and how it comes, is an increasingly central question in Chinese politics. As the political scientists Tyler Jost and Daniel Mattingly wrote recently in Foreign Affairs, “For any authoritarian regime, political succession is a moment of peril . . . and for all its strengths, the CCP is no exception.” And that’s not just a risk for the future. The uncertainty and the jockeying that the succession question spurs is already starting to shape China’s present. To Jost and Mattingly, there’s more at stake than just the matter of who will follow Xi. They note: “The drama created by a struggle over the succession . . . is unlikely to stay inside China’s borders.” They joined Deputy Editor Chloe Fox to discuss the nature of Xi’s rule, his attempt to define his legacy, and what that will mean for China in the coming months, years, and decades.
  

• Stabilizing the US–China Rivalry    Rand

  The geopolitical rivalry between the United States and China embodies risks of outright military conflict, economic warfare, and political subversion, as well as the danger that tensions between the world's two leading powers will destroy the potential for achieving a global consensus on such issues as climate and artificial intelligence. Moderating this rivalry, therefore, emerges as a critical goal, both for the United States and China and for the wider world. The authors of this report propose that, even in the context of intense competition, it might be possible to find limited mechanisms of stabilization across several specific issue areas. They offer specific recommendations both for general stabilization of the rivalry and for three issue areas: Taiwan, the South China Sea, and competition in science and technology.

Geoeconomics, Technology, Global Food Policy, and Dealing with Student Absenteeism

• 6G isn’t about speed. It’s about sovereignty    The Strategist

  The race to 6G isn’t just about bandwidth. It’s about control over spectrum, standards, supply chains, and the values underpinning tomorrow’s infrastructure. If 5G taught us anything, trust and interoperability need to be built in from the start.  The Indo-Pacific is already the world’s most contested connectivity environment. Through submarine cables, cloud platforms, and national 5G rollouts, governments are already making decisions that will shape how their citizens communicate, how their economies function, and who sets the rules. The shift to 6G only sharpens that contest.  Reporting from the Financial Times makes clear that China is moving fast. Beijing is systematically excluding European vendors from its domestic telecommunications networks. Ericsson and Nokia, already reduced to a 4 percent market share, now face opaque security reviews that stretch for months. The message is that foreign firms aren’t welcome, while domestic vendors are being positioned as the only trusted suppliers for national infrastructure. They are backed by policy, shielded from competition, and expected to dominate the market at home and abroad.
  

• Why Have Inflation Expectations Surged Recently? A Historical Perspective  Federal Reserve Bank of Boston

  Average near-term household inflation expectations in the Michigan Survey of Consumers have peaked higher than 8% four times in the past 60 years: twice in the 1970s, during the 2021-2022 post-pandemic inflation surge, and since spring 2025. Coincident sharp increases in gas and food prices, along with underlying broad-based inflation, explain a large share of the 2021-2022 spike in inflation expectations; those factors also accounted for about two-thirds of the 1973-1975 surge. The 1978-1980 increase in inflation expectations was much larger than the increase that rising prices usually would imply, consistent with the de-anchoring of inflation expectations at that time. Rising prices can barely explain the 2025 surge observed in the Michigan Survey of Consumers, which may signal that the risk of de-anchoring is larger than it was in the pre-pandemic period.
  

• Is the U.S. in an Above-Target Inflation Regime?    Federal Reserve Bank of St. Louis

  Since January 2012, the Federal Reserve has adopted an explicit target of 2% inflation, measured as the 12-month change in the personal consumption expenditures (PCE) price index.1 And yet, after several years of below-target inflation prior to the COVID-19 pandemic, inflation rose above 2% annually in March 2021 and has persisted above 2% ever since. According to the latest data available (August 2025), inflation remains significantly above target, at 2.7%. In previous blog posts, I have analyzed these dynamics and their likely origin. In this blog post, my analysis suggests that we may be in a persistent above-target inflation regime.
  

• The Challenge to Feed the World in the 21st Century: Useless, Harmful, and Helpful Policies  American Enterprise Institute

  Hunger, malnutrition, and food insecurity remain significant global problems, but instead of working toward solutions, Western governments are implementing policies guaranteed to reduce food production. Environmental benefits often attributed to policies that support biofuels, organic agriculture, land conservation programs, and similar strategies appear to be moderate or disappear once their impacts on the conversion of forested lands to agriculture are considered. The United Nations and the European Commission propose reducing food loss and waste and eating fewer animal products as strategies to combat food scarcity, but neither approach would likely be effective. To address world hunger, malnutrition, and food insecurity, the United States and other rich countries must stop enacting policies and supporting production practices that reduce agricultural yields, divert production from food to fuel, and encourage the conversion of forested lands to agricultural production across the world.

• Need Not Be a Surprise: Early-Warning Systems for Chronic Absenteeism     Nat Malkus/Sam Hollen – American Enterprise Institute

  The COVID-19 pandemic drove up chronic absenteeism in nearly every school and student demographic, making district leaders’ task of targeting resources difficult. Whom do you help when every student is a candidate? Existing work shows that it is possible to predict absenteeism in advance, but past approaches are largely proprietary or hard for district leaders to use. We present a series of early-warning systems, starting very simple and adding complexity, with district leaders’ needs and constraints in mind.

Recommended Weekend Reads

Listen to Venezuelan Opposition Leader Machado Learn She Has Won the Nobel Peace Prize, Preparing for Putin’s Death, How Ukraine has Crippled Russia’s Oil Lifeline, Where Could Reshoring Manufacturers Find Workers?

October 10 - 12, 2025

Each week, we gather up the best research and reports we have read in the past week and pass them on to you.  Below is this week’s curated collection.  We hope you find them interesting and informative, and that you have a great weekend.

Latin America

• Recording of the Nobel Prize Director calling Machado to inform her She has Won the Nobel Peace Prize    Twitter

  “Oh my God… I have no words.” Listen to the emotional moment this year’s laureate, Maria Corina Machado, leader of the Venezuelan democracy movement, finds out she has been awarded the Nobel Peace Prize. Kristian Berg Harpviken, Director of the Norwegian Nobel Institute, shared the news with her directly before it was announced to the world.

• Escalation Against the Maduro Regime in Venezuela: Puerto Rico’s Emerging Role in U.S. Power Projection   Center for Strategic & International Studies

  The United States is overseeing a seismic reordering of defense priorities and assets to the Western Hemisphere. At the time of this writing, four destroyers, one cruiser, one nuclear-powered attack submarine, one landing helicopter dock, two amphibious vessels, and one special operations platform, alongside a host of enablers and support vessels, are present in the Caribbean. In total, more than 10 percent of all deployed U.S. naval assets are currently located in the SOUTHCOM area of responsibility. These forces are more than a mere show of force; since the first warships entered the region in August, the U.S. military has conducted at least four lethal strikes against alleged drug trafficking boats in international waters, killing at least 21.  The next phase of operations could witness strikes within Venezuelan territorial waters or even on land. Reportedly, the Trump administration has already drawn up strike packages for such contingencies, which are currently being reviewed by the president. Meanwhile, President Donald Trump has notified Congress of his determination that the United States is involved in a “non-international armed conflict” against drug trafficking groups now designated as foreign terrorist organizations, suggesting that the tempo of operations will only increase in the coming weeks.

• Understanding Trump’s Shift on Brazil    Americas Quarterly

  Donald Trump’s Brazil strategy was not working. Instead of helping former President Jair Bolsonaro avoid prison or be allowed to run again in 2026, a barrage of U.S. tariffs and sanctions was having the opposite effect—hastening Bolsonaro’s conviction while boosting the popularity of his rival, President Luiz Inácio Lula da Silva. Brazil’s economy seemed to handle the strains surprisingly well, while a procession of business leaders to the White House in recent weeks warned of risks to U.S. inflation from coffee, beef, and other goods. So the U.S. president did what he has on other occasions: He listened. And then he changed course. Trump’s brief encounter with Lula at the United Nations, after which he proclaimed they had “excellent chemistry,” was not a chance meeting. And then they had a phone call. What comes next? 

Russia 

• Preparing for Putin’s Death     The Rand Corporation

  Vladimir Putin is the longest-serving Russian ruler since Joseph Stalin. He turns 73 on Oct. 7, old for a Russian, but even if he is fanatical about his health, he cannot continue indefinitely. It is essential to consider who might succeed him.  This is a challenging task—under Putin's rule, the Russian political system has, once again, become an authoritarian dictatorship bearing some of the features of a personality cult. Under these conditions, Putin has not, as far as we can tell, been publicly grooming a successor, presumably because his personal authority would begin to ebb to them, and because they would become a target for others who fear losing their influence.

• How Russia Recovered    Dara Massicot/Foreign Affairs

  The story of Russia’s invasion of Ukraine has been one of upset expectations and wild swings in performance. At the start of the war, most of NATO saw Russia as an unstoppable behemoth, poised to quickly defeat Ukraine. Instead, Russia’s forces were halted in their tracks and pushed back. Then, outside observers decided the Russian military was rotten, perhaps one counterattack away from collapse. That also proved incorrect—Ukrainian offensives failed, and Moscow resumed its slow advance. Now, plenty of people look beyond Russia to understand the state of the battlefield, blaming Kyiv’s troubles on insufficient external backing instead.  What many policymakers and strategists have missed is the extent to which Moscow has learned from its failures and adapted its strategy and approach to war, in Ukraine and beyond. Today, the military is institutionalizing its knowledge, realigning its defense manufacturers and research organizations to support wartime needs, and pairing tech startups with state resources.

• Ukraine’s Drone War Is Crippling Russia’s Oil Lifeline   National Security Journal

  Ukraine’s expanding long-range drone fleet has knocked nearly 40% of Russia’s oil refineries offline. According to an analysis by BeefeaterFella, with refined fuels yielding far higher margins than crude, Russia could be losing $3–6 billion annually in revenue, while shortages, rationing, and black markets spread at home.  Since January, 21 of Russia’s 38 major refineries have been struck, with successful Ukrainian attacks already 48% higher than in all of 2024, according to the BBC. The cascading effects are being felt far from the battlefield. Owners of small petrol stations in Siberia told Russian media they were forced to close due to supply shortfalls, with one manager in Novosibirsk comparing the crisis to the hyperinflation of post-Soviet Russia.

Trade, Tariffs, and Reshoring of Manufacturing

• Where Could Reshoring Manufacturers Find Workers?    Federal Reserve Bank of Cleveland

  The announcement of new tariffs this year has reignited the discussion of whether the United States can expand its manufacturing employment by millions of workers. Reversing decades of manufacturing job losses is one explicit goal of the new higher tariffs. This District Data Brief presents measures of employment and demographics as context around the current and potential employment in US manufacturing. Raising manufacturing employment by 4 to 6 million workers would constitute a large increase relative to current levels. However, an increase of this scale would not be large relative to the global growth of manufacturing employment in recent decades, the current US labor force size, or the number of US adults not engaged in high-paying work

• SORCE Insights: Tariff-Related Uncertainty and Pass-Through to Pricing   The Federal Reserve Bank of Cleveland

  In the Survey of Regional Conditions and Expectations (SORCE) fielded in June 2025, the Cleveland Fed asked respondents a set of special questions about the impact of tariffs and tariff-related uncertainty on costs, selling prices, staffing, and capital expenditure plans. Most respondents (64 percent) said that they were incurring costs caused by uncertainty over tariff rates, the direct expenses of paying tariffs, or both. Of these respondents, 68 percent expected to pass through at least some of those costs to their customers. About one in five firms said that they had scaled back plans to hire staff or make capital expenditures because of uncertainty over tariff rates.

• Who Will Pay for Tariffs? Businesses’ Expectations about Costs and Prices   Federal Reserve Bank of Boston

  Amid evolving global trade policy and rising tariff uncertainty, understanding how small and medium-sized businesses (SMBs) form expectations about future costs and adjust their pricing is critical for assessing how the recently imposed tariffs on US imports could impact consumer prices. To that end, this brief analyzes several waves of a survey of owners and other decision-makers at a nationally representative sample of US SMBs. It focuses on waves conducted during the period of December 2024 to August 2025. Key Takeaways from this paper include:

  • From December 2024 to April 2025, the share of SMBs expecting larger tariffs increased considerably; expectations about the size of future tariffs also increased over time. 

  • In the August 2025 survey wave, SMBs whose costs are affected by the new tariffs reported paying an average tariff rate in July 2025 (11.4%) that was nearly double the average rate they paid in January 2025 (6.5%). 

  • SMBs that believe the new tariffs will persist for a year or longer expect to pass through as much as three times more of their cost increases into consumer prices compared with SMBs that believe the new tariffs will be short-lived. 

  • A back-of-the-envelope calculation suggests a 0.75 percent near-term increase in core consumer prices stemming from recent tariff increases on directly imported consumer goods.

Recommended Weekend Reads

America’s Secret Weapon for its Critical Weapons Strategy, How China’s Economy is Weathering the Economic Storm, AI’s Exponential Growth is Not Impacting the Labor Market, and What Impact Pharma Tariffs Will Have on Healthcare Costs

October 3 - 5, 2025

Each week, we gather up the best research and reports we have read in the past week and pass them on to you.  Below is this week’s curated collection.  We hope you find them interesting and informative, and that you have a great weekend.

Updates on the Global Race for Critical Minerals

• The Secret Weapon in America’s Critical Minerals Strategy    Hudson Institute’s “First Breakfast”

  Since 1980, leaders in Washington have stressed the need to secure rare earth supply chains to achieve strategic independence from America’s adversaries.  In the coming weeks, Congress will decide on legislation reauthorizing the International Development Finance Corporation (DFC), the little-known agency established during the first Trump administration as a counterweight to China’s predatory investment practices under its Belt & Road Initiative. The DFC maintains a dual mandate to advance U.S. foreign policy and economic development by mobilizing the private sector abroad, injecting capital, and offering insurance to support projects that further U.S. strategic goals. Given the great demand for rare earths and their refined products here at home, the DFC presents an opportunity to work with our foreign partners and American businesses to bolster our supply chains abroad. This is not a new idea; the creators of the BUILD Act, which authorized the DFC, envisioned the agency investing in key industries like mining, energy, and logistics. Unfortunately, results in the mineral sector have fallen short of these aspirations. Since operations began in December 2019, the DFC has made nearly 650 investments, fewer than a dozen of which are in mining-related projects.

• Leveraging US-Africa critical mineral opportunities: Strategies for success   Brookings Institution

  The U.S. is highly dependent on imports of critical minerals, but existing supply chains are vulnerable, plagued with high geographic concentration, slow mine development, and under-researched reserves. The authors argue for why Africa is uniquely positioned to partner with the U.S. in a supply chain realignment, given the former’s significant reserves, existing mining and refining infrastructure, and business opportunities along development corridors. With other countries such as China, India, Saudi Arabia, and the European Union entering into the African critical minerals sector, the U.S. should not be left behind.  The authors provide actionable recommendations to both the U.S. and African countries for creating and growing a mutually beneficial critical minerals partnership.

Russia & China 

• Changing Course in a Storm: China’s Economy in the Trade War     China Leadership Monitor

  China is weathering deflation, a property-sector collapse, and renewed trade tensions with the United States through calculated restraint rather than panic. Exports remain resilient via market diversification and price cuts. Chinese leaders are deploying targeted fiscal interventions, pursuing supply-side reforms, and combating “involution”–destructive race-to-the-bottom competition eroding profits across industries. This strategic patience reveals Beijing’s fundamental gamble: accept short-term economic pain to build long-term technological dominance and self-sufficiency. The leadership believes that the emerging high-tech sectors will ultimately replace both lost export markets and the crumbling property engine. This is a high-stakes bet on China’s ability to transform its economic model under pressure.

• With Putin in Charge, Russia’s Vassalage to China Will Only Deepen     Carnegie Politika

  Moscow should be looking for ways to correct its course and restore balance in its foreign policy, instead of putting all its eggs in the China basket. But Putin is no pragmatic decision-maker, and the deepening vassalage to China is his own choice.

• Global FDI is uncoupling from China   Robin Brook’s Substack

  Brooks writes: “A few weeks ago, I wrote a post about how foreign investors have been putting less money to work in China, with non-resident flows into China a lot weaker since the invasion of Ukraine. Weaker foreign flows into China stand in contrast to flows to the rest of EM, where inflows have rebounded to very robust levels. This suggests that global markets - in the wake of the Ukraine invasion - are paying closer attention to geopolitical risks and are taking a more cautious approach to China.”

•  Don’t Overestimate the Autocratic Alliance     Foreign Affairs

  No moment captured the shifting global balance of power more vividly than when Chinese leader Xi Jinping, Russian President Vladimir Putin, and North Korean leader Kim Jong Un walked in lockstep on the red carpet at China’s military parade in early September. The three autocrats, despite a long history of mutual suspicion, projected a show of unity against Washington. The message behind the carefully managed scene was unmistakable: China is at the center of a rising anti-Western bloc, while the United States is adrift—divided at home, faltering abroad, and rebuffed by its rivals.   But beneath this show of solidarity, China, North Korea, and Russia remain uneasy partners. What the three countries have is a tactical alignment rooted not in trust or shared values but in overlapping grievances and necessity. History demonstrates that they are not natural allies. Each state remains wary of entrapment and is unwilling to subordinate its national interests to those of the others. And crucially, each still seeks something from the United States—leverage that Washington must wield wisely.

Geoeconomics

• Evaluating the Impact of AI on the Labor Market: Current State of Affairs    The Yale Budget Lab

  The Yale Budget Lab looks at how AI is impacting employment – specifically, whether it is causing an increase in unemployment.  Their report shows that overall, their metrics indicate that the broader labor market has not experienced a discernible disruption since ChatGPT’s release 33 months ago, undercutting fears that AI automation is currently eroding the demand for cognitive labor across the economy.
  

• The Geoeconomic Interconnectivity Index        Bertelsmann Stiftung/ECIPE

  In today’s European neighborhood, trade, investment, and economic policy have become deeply entangled with geopolitical competition — involving the EU, the United States, China, and Russia as leading geoeconomic actors. The Geoeconomic Interconnectivity Index brings together a wide range of indicators across trade, investment, and economic policy in an accessible, comparable format. Covering the years 2010 to 2023, it provides a clear picture of evolving patterns of economic engagement.  The Index is designed to support timely and informed debate on the EU’s external policies — offering insights that matter in a geoeconomic age.

• How Pharmaceutical Tariffs Will Affect US Health Care Costs       Alex Brill/AEI Economic Perspectives

  Tariffs on pharmaceuticals are under consideration following a Section 232 investigation into imports of medicines and active pharmaceutical ingredients (APIs). With US imports in 2024 totaling $210.8 billion in finished medicines and $36.2 billion in APIs, the threat of tariffs puts nearly $250 billion in trade at risk. Tariffs could raise list or net prices for pharmaceuticals, drive up insurance premiums, increase the risk of drug shortages, elevate costs for US producers using imported APIs, and reduce the competitiveness of US exports of finished drugs.

•  War, Geopolitics, Energy Crisis: How the Economy Evades Every Disaster   The Economist

  The world economy appears impressively and increasingly shock-absorbent. Supply chains in goods—widely believed to be a source of fragility—have shown themselves to be resilient. A more diverse supply of energy and a less fossil-fuel-intensive economy have reduced the impact of changes in the oil price. And across the world, economic policymaking has improved. According to the conventional narrative, the “great moderation”, a period of steady growth and predictable policymaking, ran from the late 1980s to the global financial crisis of 2007-09. But perhaps it did not die alongside Lehman Brothers.  This year, just 5% of countries are on track for a recession, according to IMF data—the least since 2007. Unemployment in the OECD club of rich countries is below 5% and close to a record low. In the first quarter of 2025, global corporate earnings rose by 7% year on year. Emerging markets, long prone to capital flight in times of trouble, now tend to avoid currency or debt crises (see chart 3). Consumers across the world, despite claiming to be down in the dumps, spend freely. On almost any measure, the economy is basically fine. 

Recommended Weekend Reads

The Geopolitics of Trump’s War on Drugs, America Loves Cocaine Again,  What is Stablecoin?, How Many Manufacturing Jobs Will Tariffs Create, and The Growing Link Between Marriage, Fertility, and Partisanship

September 26 - 28, 2025

Each week, we gather up the best research and reports we have read in the past week and pass them on to you.  Below is this week’s curated collection.  We hope you find them interesting and informative, and that you have a great weekend.

The Geopolitics of Trump‘s War on Drug Cartels 

• The Wrong Way to Fight the Cartels    Ryan Berg/Foreign Affairs

  Since returning to the White House, U.S. President Donald Trump has pledged to defeat the Western Hemisphere’s violent drug traffickers by any means necessary. In a March address to Congress, Trump declared, “The cartels are waging war in America, and it’s time for America to wage war on the cartels.”  Washington has left behind its traditional conception of the fight against transnational criminal organizations as a matter of law enforcement with its threats of “war” and consideration of military action against the cartels.  A militarized approach may be a politically attractive way for Trump to project strength. And indeed, the United States can, and should, draw on many valuable lessons from the last two decades of counterterrorism missions during the “war on terror” in its campaign against the cartels. But there is a more productive path forward than drastically shifting the rules of engagement with transnational criminal groups.

• The Geopolitics of Trump’s War on Drugs     Americas Quarterly

  Half a century after former U.S. President Richard Nixon launched the war on drugs, global cocaine output and consumption are at record highs. According to the UN’s latest drug report, cocaine production jumped roughly a third in 2023 to over 3,700 tons, with usage rising to an estimated 25 million people. Over the past decade, narcotics supply chains have diversified, and demand has hardly blinked.   President Donald Trump’s second term has repackaged the drug war with sharper geopolitical edges. While fentanyl from Chinese sources seemed to be the president’s main focus during his campaign, the more traditional target of cocaine has lately become more prominent. Washington has pledged to “disrupt the supply chain from tooth to tail” and to “partner with – or otherwise hold accountable” source countries, language mirrored in the U.S. Drug Enforcement Administration (DEA) National Drug Threat Assessment 2024. 

•  America Loves Cocaine Again—Mexico’s New Drug King Cashes In    The Wall Street Journal

  Cocaine sold in the U.S. is cheaper and as pure as ever for retail buyers. Consumption in the western U.S. has increased 154% since 2019 and is up 19% during the same period in the eastern part of the country, according to the drug-testing company Millennium Health. In contrast, fentanyl use in the U.S. began to drop in mid-2023 and has been declining since, according to data from the Centers for Disease Control and Prevention.  For new users, cocaine doesn’t carry the stigma of fentanyl addiction. Middle-class addicts and the tragic spectacle of homeless crack-cocaine users in the 1990s helped put a lid on America’s last cocaine epidemic.

Geoeconomics

• ‘Capital absorption’ is big in economic development. But what is it?   Federal Reserve Bank of Boston

  The term “capital absorption” is not well-known or easily understood. But it’s critical in the local economic development world, and I recently heard an analogy I think can help people understand it. Picture an irrigation system designed to direct the flow of money to the projects that need it most. Such a system frees communities from merely hoping that the unpredictable “rainfall” of funding falls in the right place. Instead, the system guarantees it gets there. That’s what capital absorption is. It’s coordination that helps local places absorb capital investments in the kinds of projects that can literally change what these places look like – things like child care centers, or housing, or downtown building renovations. Reliable systems are established and run by prepared partners to accept the funding when it appears and move it exactly where it’s needed, so the work can get done in ways that strengthen local economies.
  

• How Many Manufacturing Jobs Will Trump’s Tariffs Create? And at What Cost?    AEI Center for Technology, Science, Industry, and the State Project

  Secular decline in the share of manufacturing jobs in the labor force largely reflects the shift of consumer expenditures from goods to services. High tariffs cannot restore manufacturing jobs to the 27 percent share of the labor force experienced 60 years ago. Achieving Trump’s objective for eliminating the trade deficit in manufactures would require tariffs at least twice as high as those imposed through September 2025. The annual cost to American consumers of shifting each job from service employment to manufacturing employment through high tariffs exceeds $200,000.

•  What is a Stablecoin?      McKinsey & Company

  In the rapidly evolving world of digital assets, one innovation stands out for its potential to bring stability and reliability to the historically volatile blockchain-based currency market: the stablecoin. As the name suggests, a stablecoin is a type of digital currency designed to maintain a stable value. These digital currencies are pegged to a traditional fiat currency like the US dollar. Stablecoin use has increased significantly in recent years: In the past 18 months, the total market capitalization of stablecoins has more than doubled to $250 billion, from $120 billion, and industry forecasts expect it to reach up to $2 trillion by 2028. With major players like JPMorgan Chase experimenting with tokenized deposits and PayPal launching its own stablecoin, digital money is a major story in digital finance.  For individuals and organizations looking to capitalize on the benefits of blockchain-based transactions, what exactly is Stablecoin?

US Political & Social Trends

• The Growing Link Between Marriage, Fertility, And Partisanship   The Institute for Family Studies

  Conservative women born between 1975 and 1979—women who are finished having children—have a completed family size of 2.1, right at replacement. Moderate women in the same age group have 1.8 children, and liberal women just 1.5. Narrower gaps exist between conservatives born between 1985 and 1989, who have a completed fertility rate of 2.1, while moderates are at 1.9 and liberals 1.7. Conservative women born between 1995 and 1999 have, so far, only had 0.7 children, the same as moderates. Liberals in the same cohort average 0.4 so far. Differences between conservative and liberal women should not be overstated. Birthrates are lower for all groups when compared to the state of fertility before 1975. Marriage rates for all groups are lower, too. Yet the differences are large enough that the parties ultimately appeal to manifestly different constituencies.

•  It's Not Just You: Americans Are Still Not Hanging Out      Generation Tech

  The average American spent 38 minutes a day socializing in 2019 and 35 minutes in 2024. In 2024, for the first time, adults 50 and older spent (very slightly) more time socializing in person than teens and young adults. Young people’s social time is at an all-time low in the 21-year history of the survey. Fifteen- to 25-year-olds spend 26 fewer minutes a day socializing in person than they did in 2003. That’s three hours a week, 13 hours a month, and 158 hours a year less getting together with friends, having a face-to-face conversation, meeting for dinner, or chatting before seeing a movie together. No wonder so many more teens now describe themselves as lonely.

• Why do only humans weep? The evolutionary puzzle of crying     BigThink

  In an excerpt from Steven Pinker’s new book, When Everyone Knows That Everyone Knows…, Pinker explains that crying is not just an expression of sadness but an evolved signal of surrender, helplessness, and a plea for comfort. However, tears can also mark moments of joy, compassion, and awe, reflecting the emotional opposites of the things that make us laugh.  The unique human capacity to weep may have evolved to strengthen social bonds and generate common knowledge regarding our inner states.
  

• If I Work Harder, Will You Love Me?    Arthur Brooks/The Atlantic

  Between teaching Harvard MBA students and speaking to a lot of business audiences, I’m often interacting with successful people who work extremely long hours. It’s common for me to hear about 13-hour workdays and seven-day workweeks, with few or no vacations. What I see among many of those I encounter is workaholism, a pathology characterized by continuing to work during discretionary time, thinking about work all the time, and pursuing job tasks well beyond what’s required to meet any need. Workaholics feel a compulsion to work even when they are already earning plenty of money and despite getting minimal enjoyment from doing so.

Recommended Weekend Reads

Assessing the EU’s Defense Sector Build-Up, New Studies on the Economic Impact of Trump’s Tariffs, China’s “Anti-Involution” Campaign, and Russia’s Shrewd Focus on Africa 

September 19 - 21, 2025

Each week, we gather up the best research and reports we have read in the past week and pass them on to you.  Below is this week’s curated collection.  We hope you find them interesting and informative, and that you have a great weekend.

The Growth of the EU’s Defense Sector

• Progress and Shortfalls in Europe’s Defense: An Assessment    International Institute for Strategic Studies

  This IISS Strategic Dossier examines important capability areas that European allies need to address in order to reduce their vulnerabilities and overdependence on the US. The aim is to identify existing gaps and challenges but also note where progress has already been made towards a situation where adequate capabilities for the defense of Europe are provided by Europeans in a more autonomous way, while still working with partners and allies.

• Defense Expenditures of NATO Countries (2014 – 2025)        NATO

  NATO collects defense expenditure data from Allies and publishes it on a regular basis. Each Ally’s Ministry of Defence reports current and estimated future defense expenditure according to an agreed definition. The amounts represent payments by a national government that have been or will be made during the course of the fiscal year to meet the needs of its armed forces, those of Allies or of the Alliance. In the figures and tables that follow, NATO also uses economic and demographic information available from the Directorate-General for Economic and Financial Affairs of the European Commission (DG ECFIN), the International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD). In view of differences between these sources and national GDP forecasts, and also the definition of NATO defense expenditure and national definitions, the figures shown in this report may considerably diverge from those that are referenced by media, published by national authorities or given in national budgets. Equipment expenditure includes expenditure on major equipment as well as on research and development devoted to major equipment. Personnel expenditure includes pensions paid to retirees. The cut-off date for information used in this report was 3 June 2025. Figures for 2024 and 2025 are estimates.

• The EU’s Road to Economic Security De-Risking, Strategic Investments and Critical Partnerships   Italian Institute for International Political Studies

  The European Union has redefined its strategic priorities through three phases: the rise of geoeconomics, the structuring of de-risking, and its current testing in a shifting global context. Geoeconomics exposed the link between economy, security, and power, driven by US and Chinese strategies to weaponize industrial assets and by renewed geopolitical rivalry. Europe’s dependence on critical raw materials, especially Chinese rare earths, accelerated the push for strategic autonomy. Since 2021, with the European Economic Security Strategy, the Chips Act, and the Critical Raw Materials Act, Brussels has pursued de-risking as diversification rather than decoupling, focusing on semiconductors, green technologies, and critical minerals. Yet US, Japanese, and South Korean industrial policies show de-risking is a broader challenge. The EU must now deliver concrete results, combining competitiveness and resilience with multilateral cooperation. How can Europe secure adequate resources to meet these goals? And how can it balance industrial autonomy with global partnerships?

China’s Competitiveness Challenge

• China Wants to Integrate AI Into 90 Percent of Its Economy by 2030. It Won’t Work.   Carnegie Emissary

  Recently, Beijing debuted its latest strategy for winning the AI race. China’s powerful State Council laid out an ambitious vision to rapidly diffuse AI into six key areas, ranging from accelerating scientific research and development to improving governance capacity. The plan sets striking, concrete targets that include deploying a range of applications across 90 percent of wide swaths of its economy in just five years. China’s latest plan is part of a broader strategic bet. The PRC thinks it can integrate AI throughout its society to turbocharge its economy and secure AI leadership. It’s a playbook the country has used before. During the mid-2010s, China transformed its digital economy by diffusing internet applications throughout what Beijing calls the “real economy.”  But this time could be very different. Chinese leadership is confident in its AI development, but—perhaps counterintuitively—investors are not. China’s venture capital ecosystem is dry at this critical moment for AI, and as a result, Beijing’s aspirations are likely to fall short of the whole-of-society economic transformation the party wants. U.S. policymakers should mostly ignore China’s aspirational rhetoric and focus on what it can achieve in practice.  

• Involution and Industry Self-Discipline: Echoes from the Past    Center for Strategic and International Studies

  No doubt the word of the year in China is “involution.” The term in Chinese really did not exist prior to 2020, but its use has exploded since, particularly in 2025. When the Chinese term first emerged in popular culture in China a few years ago, the initial application was to Chinese students and young people trapped in highly competitive schools and jobs that brought little personal fulfillment, with immense efforts and sacrifices that to many seemed ultimately meaningless, a feeling made more acute by the arrival of the pandemic. This led many to respond by giving up on their ambitions and “lying flat”, which has also been a source of much social debate.   

  In 2025, involution now refers specifically to the widespread phenomenon of continued massive expansion of production in sector after sector, despite any semblance of sufficient domestic demand to absorb these goods. Chinese officialdom has vociferously rebutted charges by foreign governments that China has been suffering from “overcapacity.  As part of this retort, it has been argued that industrial policy and subsidies are not the source of China’s industrial strength, but rather high quality and competitiveness. As a result, governments around the world are wrong to impose any restrictions on Chinese exports.  But while China is rebuffing international charges of overcapacity, it has opened the doors to a domestic debate about involution and how to tackle it. Hence, the emergence of a highly public conversation about “anti-involution policy, a catch-phrase which has also spread like wildfire.

 Updates on Global Trade Wars

• Markets shrug off trade conflicts    Bank for International Settlements

  In a new study, BIS found that global financial markets maintained a risk-on tone during the review period, shrugging off concerns over mounting tariff and policy uncertainty. Despite short-lived bouts of volatility triggered by incoming data and political developments, market sentiment remained upbeat, defying mounting challenges, including unease over the longer-run fiscal outlook in several key jurisdictions. Short-term bonds priced in greater policy easing, but long-term yields stayed high and yield curves steepened at the very long end on fiscal and inflation concerns.  Emerging market assets saw gains, benefiting from the risk-on environment and the weakening of the US dollar.

• The Trump Shock That Wasn’t (At Least Not Yet)   Brad Setser/Council on Foreign Relations

  President Trump’s tariffs have been a profound shock to the global trade rules.  They have generated enormous volatility in measured trade flows. But so far the volatility has essentially come from pharmaceuticals and gold (including gold bars, or imports of “metal forms”). The impact of the tariffs core trade flows—and hence the global economy—has been modest, at least so far. 

• Tariffs, Manufacturing Employment, and Supply Chains    Joseph Steinberg/NBER

  Abstract: I use a dynamic general-equilibrium model with supply-chain adjustment frictions to study the effects of tariffs on manufacturing employment. The model has four distinct manufacturing sectors: upstream goods with high trade elasticities (“oil”); upstream goods with low trade elasticities (“steel”); downstream goods with high trade elasticities (“toys”); and downstream goods with low trade elasticities (“cars”). I find that tariffs can increase overall manufacturing employment in the long run, but are likely to reduce it in the short run, and cause more reallocation of workers across these individual sectors than overall employment growth.

Russian Foreign Policy 

• Russia is Shrewdly Playing the Long Game in Africa    War on the Rocks

  What if Moscow’s most dangerous moves right now aren’t in Europe, but along the Gulf of Guinea? With its resources sunk deep into Ukraine, the Russian military has weighed carefully whether and when to engage elsewhere, standing aside amid recent conflicts in the South Caucasus and Middle East. An exception to this pattern of inaction is in West Africa. After the failed mutiny of Wagner Group chief Yevgeny Prigozhin in June 2023, the Russian government established a new paramilitary group called Africa Corps, tethered closely to the military chain of command. The unit then progressively took over most of Wagner’s operations in Africa and expanded into Burkina Faso and Niger. It now seems to be eyeing a presence in Benin and Togo next. These activities suggest that Russia is seeking a West African foothold on which to build once an end to the war on Ukraine frees up additional conventional military forces. Russia may then try to further extend Africa Corps’ presence.

• The Scale of Russian Sabotage Operations Against Europe’s Critical Infrastructure    IISS

  Russia is waging an unconventional war on Europe. Through its campaign of sabotage, vandalism, espionage and covert action, Russia’s aim has been to destabilize European governments, undermine public support for Ukraine by imposing social and economic costs on Europe, and weaken the collective ability of NATO and the European Union to respond to Russian aggression. This unconventional war began to escalate in 2022 in parallel to Russia’s invasion of Ukraine. While Russia has so far failed to achieve its primary aim, European capitals have struggled to respond to Russian sabotage operations and have found it challenging to agree a unified response, coordinate action, develop effective deterrence measures and impose sufficient costs on the Kremlin. IISS has created the most comprehensive open-source database of suspected and confirmed Russian sabotage operations targeting Europe. The data reveals Russian sabotage has been aimed at Europe’s critical infrastructure, is decentralized and, despite European security and intelligence officials raising the alarm, is largely unaffected by NATO, EU and member state responses to date.

Recommended Weekend Reads

Are the CRINKs a Real Global Power Bloc Or Not? Taking a Deep Dive into the US-Japan Trade Deal, and the Projected Impact of Generative AI on Productivity Growth

September 12 - 14, 2025

Each week, we gather up the best research and reports we have read in the past week and pass them on to you.  Below is this week’s curated collection.  We hope you find them interesting and informative, and that you have a great weekend.

What’s Up with The CRINK’s?

• CRINK Economic Ties: Uneven Patterns of Collaboration   Center for Strategic and International Studies

  This brief explores the post-2022 economic ties among China, Russia, Iran, and North Korea—the so-called CRINK states. Historically, economic alignment among military allies has been uneven and has not necessarily indicated the formation of a cohesive bloc. The World War II–era Axis powers, for instance, had fragmented economic cooperation due to geographic distance, wartime needs, sanctions, mistrust, and a focus on self-sufficiency—factors that also constrain CRINK today. Still, signs, including rising trade in energy and dual-use technologies, point to growing economic coordination. Assessing these ties is difficult, however, due to limited or opaque data (especially from Iran and North Korea) and increased informal trade since Russia’s 2022 invasion of Ukraine. This brief draws from diverse international and industry-specific sources to fill data gaps. Findings show uneven patterns: China-Russia economic ties have grown, especially in energy and dual-use goods, but Chinese investment in Russia remains modest amid concerns over sanctions-related investment risks. Other CRINK members show far weaker economic coordination.
  

• Russia’s New Fear Factor   Foreign Affairs

  Among elites in Russia today, something dark is happening.  According to Novaya Gazeta, the independent Russian newspaper, there have been 56 deaths of successful businesspeople and officials under strange circumstances since February 2022. Many of them have fallen out of windows.  More and more, people who have loyally served Putin’s system are being persecuted, mainly on the grounds of corruption.  As the Putin regime turns on its own people, it, too, has begun to replace them with a new breed of loyalists, people whose primary qualifications are their apparent fealty to the leader, and sometimes their participation in the war. Still, Putin prefers experienced and talented technocrats for the most responsible positions, such as governors and ministers. After more than three and a half years of war and mounting economic challenges, Putin’s aim is not to fight corruption. His goal is to avoid internal threats. And to do that, he needs to turn the elites into a frightened and therefore controllable class.
  

• China’s Anti-Western Bloc? Not So Fast   Center For European Analysis

  The Shanghai Cooperation Organization (SCO) summit in Tianjin from August 31-September 1 was filled with carefully curated images of the post-Western world that China is working to construct.  For the men complaining that they, and their peoples, have been poorly rewarded by the global system, this was a big moment. Photographs captured China’s Xi Jinping, Russia’s Vladimir Putin, and India’s Narendra Modi in a huddle and holding hands. That in itself was enough to send a not-very-friendly message to the United States and its European and Asian allies.  But that snapshot failed to show intense competing agendas among these countries. For now, at least, it is premature to interpret it as either a significant challenge to the Western order or an alliance of authoritarian states. 

• Why India and China Remain Bitter Rivals    Shyam Saran/Time

  Shyam Saran is a former Foreign Secretary of India and the author of “How China Sees India and the World.”  In this essay, he argues that the visuals of exaggerated cordiality between Prime Minister Narendra Modi of India, President Vladimir Putin of Russia, and President Xi Jinping of China at the recently held Shanghai Cooperation Organization (SCO) summit on September 1 displayed China’s convening power. But the gathering of major non-Western leaders in Tianjin, a city in eastern China, didn’t do much to resolve the long-standing border dispute and ever-growing competition between India and China. 

Update on the Trade Wars

• Investing in Security and Success: Analysis of the US-Japan $550 Billion Strategic Investment Fund    The Hudson Institute

  The centerpiece of the recent trade agreement between the United States and Japan was Japan’s promise to invest $550 billion in a new fund that would help “rebuild and expand core American industries.” On September 4, the US and Japan signed a memorandum of understanding (MOU) that details the full scope of the investment framework, including:

  • Japan should allocate the $550 billion before President Donald Trump’s term ends on January 19, 2029.

  • Investments should go to key strategic sectors—semiconductors, pharmaceuticals, critical minerals, metals, shipbuilding, energy (including pipelines), artificial intelligence (AI), and quantum computing.

  • The president will create an investment committee to recommend and oversee investments. The US Secretary of Commerce will chair the investment committee and select its other members.

  • A consultation committee, with designees from both the United States and Japan, will advise an investment committee, which will then recommend projects. The consultation committee will also provide legal and strategic input to the investment committee.

  • The United States Investment Accelerator will execute, manage, and administer the investments. This office is based within the Department of Commerce, and the Secretary of Commerce has the power to appoint its executive director.

  • The US will create a special purpose vehicle (SPV) for each investment. The US or its designees will govern these investment SPVs.

  • With the president’s approval, the US will propose projects and their investment amounts for Japan to review. Japan will have about two months to respond and transfer the necessary funds—in US dollars—to the investment accelerator.

  • Japan has the right to decline to fund all or part of a project. But the US can then impose tariffs on Japanese imports in response.

  • Japan and the US will evenly split profits from the project until Japan recoups its investment. Afterward, profits will be disbursed at a ratio of 90 percent to the US and 10 percent to Japan.

  • The US government will try to arrange leases to federal land, access, water, power, and energy to investment projects, as well as organize offtake arrangements. The federal government will also expedite relevant regulatory processes.

  • When possible, Japanese firms will receive priority over comparable foreign firms to serve as vendors and suppliers for projects.

• A Guide to Trump’s Section 232 Tariffs, in Maps   Council on Foreign Relations

  Section 232 tariffs aim to protect U.S. national security. Created by the Trade Expansion Act of 1962, Section 232 empowers the president to charge duties pending the results of a Department of Commerce investigation into the imports’ effects on national security. The Donald Trump administration has already used this tool to raise levies on aluminum, cars and car parts, copper, and steel—and has launched Section 232 investigations into nine other types of products. These twelve graphics dive into each sector, laying out the scale of imports, their concentration by country, and the geopolitics of exporting nations, separating friends—NATO members, major non-NATO allies, and free trade agreement (FTA) partners—from potential foes.

Geoeconomics, Data Centers, and Power Generation

• Financial Bubbles Happen Less Often Than You Think   William Goetzman/Wall Street Journal

  Bubbles loom large in our historical understanding of the financial markets. They are memorable. They are colorful. They are scary. They raise questions about investor psychology and the madness of crowds. In good times, we worry if we’re going to be caught in the next big bubble. Looking at financial bubbles since 1790, however, we find that they are much rarer than their presence in the public imagination—and not necessarily purely negative. They sometimes set the stage for major changes in people’s worldviews, upending old ideas about the possibilities and limitations of business. Sometimes bubbles remake society itself, as all that investor money funds technological advances that change the world.

• The New Economic Nationalism: Industrial Policy and National Security in the United States, China, and the European Union    Geoforum

  Abstract: This paper examines the resurgence of industrial policy and national security strategy across the United States, China, and the European Union. We analyze how these major economic powers are implementing distinct approaches to industrial policy while pursuing similar objectives of technological leadership and national economic prosperity. The United States has adopted a hawkish stance with extensive trade policies and subsidies. China has pursued ambitious growth in a range of sectors through long-term planning and strong government control. The European Union has balanced autonomy with trade openness and somewhat less state intervention. Our comparative analysis reveals that while these policies may be successful in strengthening domestic economies, they collectively reshape the world economy in ways that may disadvantage other nations, especially in the global South. However, ‘connector’ countries in the global South are benefiting by forging strategic ties with several superpowers. Additionally, the rise of China gives hope for South-South development cooperation that upend existing imperial arrangements often characterized by North-South relations. We argue that the convergence of industrial policy and national security represents more than a temporary response to recent disruptions; it signals a fundamental shift in the world economy towards more economic nationalism.

• The Projected Impact of Generative AI on Future Productivity Growth   Penn Wharton Budget Model

  The Penn Wharton Budget Model (PWBM) team estimates that 40 percent of current GDP could be substantially affected by generative AI. Occupations around the 80th percentile of earnings are the most exposed, with around half of their work susceptible to automation by AI, on average. The highest-earning occupations are less exposed, and the lowest-earning occupations are the least exposed. 

  • AI’s boost to productivity growth is strongest in the early 2030s, with a peak annual contribution of 0.2 percentage points in 2032. After adoption saturates, growth reverts to trend. Because sectors that are more exposed to AI have faster trend TFP growth, sectoral shifts during the AI transition add a lasting 0.04 percentage point boost to aggregate growth. 

  • Compounded, TFP and GDP levels are 1.5% higher by 2035, nearly 3% by 2055, and 3.7% by 2075, meaning that AI leads to a permanent increase in the level of economic activity. 

  • Caution is required in interpreting these projections of AI’s impact, which are based on limited data on AI’s initial effects. Future data and developments in AI technology could lead to a significant change in these estimates.

  • In ongoing work, PWBM is estimating the impact of AI on the federal budget. In very preliminary analysis, we estimate that AI could reduce deficits by $400 billion over the ten-year budget window between 2026 and 2035.

• How Retainable are AI-Exposed Workers?     Federal Reserve Bank of New York

  Abstract:  We document the extent to which workers in AI-exposed occupations can successfully retrain for AI- intensive work. We assemble a new workforce development dataset spanning over 1.6 million job training participation spells from all U.S. Workforce Investment and Opportunity Act programs from 2012 to 2023, linked with occupational measures of AI exposure. Using earnings records observed before and after training, we compare high AI exposure trainees to a matched sample of similar workers who only received job search assistance. We find that the average earnings return to training among AI-exposed workers is high, around $1,470 per quarter. Low-exposure trainees capture higher returns, and trainees who target AI-intensive work face a 29 percent earnings return penalty relative to their high-exposure peers who pursue more general training. We estimate that between 25 and 40 percent of occupations are “AI retrainable” as measured by their workers receiving higher pay for moving to more AI-intensive occupations—a large magnitude given the relatively low-income sample of displaced workers. Positive earnings returns in all groups are driven by the most recent years when labor markets were tightest, suggesting training programs may have stronger signal value when firms reach deeper into the skill market.  

• Data Centers Make the Beige Book, Plus Power Problems    Paul Kedrosky Blog

  Recent reports from the Federal Reserve’s Beige Book and five regional Federal Reserve Banks point out that the explosion of data center construction is “causing a step increase in regional electricity loads” – meaning, power generation is the biggest constraint on continued data center capex at the current rate.

Recommended Weekend Reads

Is the US Going to be Hit With a New China Shock?, Looking at Russia’s Next Generation of Leaders, How the Global Economy Has Evaded Disaster, and Data Centers are Eating Capex

July 18 - 20, 2025

Below are a number of reports and articles we read this past week that we found particularly interesting.  Hopefully, you will find them of interest and useful as well.  Have a great weekend.

China 

• We Warned About the First China Shock. The Next One Will be Worse     David Autor/Gordon Hansen, New York Times

  Autor and Handson warn the US faces a second “China Shock” that tariffs are ill-equipped to counter. According to an Australian analysis, btw 2003 and 2007, the US led China in 60 of 64 cutting-edge sectors; by 2023, China led the US in 57 of the 64.  The world’s largest and most innovative producers of EVs (BYD), EV batteries (CATL), drones (DJI) and solar wafers (LONGi) are all Chinese start-ups, none more than 30 years old. They attained commanding technological and price leadership not because President Xi Jinping decreed it, but because they emerged triumphant from the economic Darwinism that is Chinese industrial policy. The rest of the world is ill-prepared to compete with these apex predators. When U.S. policymakers deride China’s industrial policy, they are imagining something akin to the lumbering takeoff of Airbus or the lights going out on Solyndra. They should instead be gazing up at the nimble swarms of DJI drones buzzing over Ukraine.

• Why China’s Should Revalue the Renminbi – And Why It Can’t Easily Do So     Michael Pettis/Carnegie China

  In a recent piece for the Financial Times, Gerard Lyons, a British economist who sits on the board of the Bank of China (UK), argued that China’s currency, the renminbi, is undervalued, and that by encouraging it to appreciate, China would help raise its international profile. While many analysts have made similar arguments, it is not at all clear that a rising renminbi would indeed increase its international role. There are nonetheless very good economic reasons for China to revalue its currency, along with reasons why a serious revaluation is likely to be difficult. With its persistent excess production and under-consumption, a revalued renminbi would help correct some of the deep structural distortions in the Chinese economy by shifting the distribution of total domestic income from businesses to households.

• Is China’s Military Ready for War?    M. Taylor Fravel/Foreign Affairs

  A new wave of purges has engulfed the senior leadership of China’s military, the People’s Liberation Army. Since the 20th National Party Congress in October 2022, more than 20 senior PLA officers from all four services—the army, navy, air force, and rocket force—have disappeared from public view or been removed from their posts. The absences of other generals have also been reported, which could foreshadow additional purges.   The fact that these high-profile purges are occurring now is not lost on outside observers. In 2027, the PLA will celebrate the 100th anniversary of its founding. It is also the year by which Xi expects China’s armed forces to have made significant strides in their modernization. Finally, the year is noteworthy because, according to former CIA Director Bill Burns, Xi has instructed the PLA to be “ready by 2027 to conduct a successful invasion” of Taiwan. Xi’s instructions do not indicate that China will in fact invade Taiwan that year, but, as Burns put it, they serve as “a reminder of the seriousness of his focus and his ambition.”  With such ambitious goals set for the PLA, the question then arises as to how this new wave of purges could affect the PLA’s readiness. 

• China’s Stealth Trade Surplus    Brad Setser/Council on Foreign Relations

  China’s trade surplus has soared in the last five years. That basic statement maps to a host of well-known and easily verified realities. China now runs, for example, a large trade surplus in autos, when it ran a deficit as recently as five years ago. Net vehicle exports will top 6 million vehicles this year, net passenger car exports will easily top 5 million cars. It dominates renewables manufacturing (so much so that President Trump decided to essentially give up and take the U.S. back to the age of fossil fuels). China's export volume growth has consistently exceeded global trade growth. Moreover, it maps to standard economic theory: a large real estate crisis typically leads countries to rely more on exports to make up for the fall in internal demand (ask the IMF…) yet that surplus often seems to disappear when it comes to the statistics on global imbalances.

Russia 

• The Next Generation: Russia’s Future Leaders     The Atlantic Council’s Eurasia Center

  President Vladimir Putin is initiating a generational shift in Russia’s leadership. According to Kremlin insiders, during his current presidential term, Putin plans to retire some of his most influential and longest-serving allies, many of whom are well into their seventies. Putin himself, at age seventy-two, has no intention of stepping down. He sees himself as entirely irreplaceable. But he is gradually replacing other key figures with members of a younger generation, as the older officials age, fall ill, and become less effective. This transition began last year.  It is hardly surprising that a significant portion of this new generation coming to power consists of the children of current top officials and Putin’s closest friends—or even his own relatives. In this sense, Russia increasingly resembles a feudal state, in which power is inherited at all levels. The children of the bureaucratic aristocracy are all, in one way or another, striving for government careers and positions of influence.  This report examines the rising generation of the Russian elite and what this shift means for Russia’s future. It is based on extensive interviews with dozens of current and former Russian officials who spoke on condition of anonymity in order to discuss the inner workings of the Kremlin power elite without fear of reprisals.

• China may not want Russia to lose – or to win – in Ukraine   Asia Times

  The South China Morning Post (SCMP) cited unnamed sources to report that Chinese Foreign Minister Wang Yi told his EU counterpart that China doesn’t want Russia to lose in Ukraine because the US’s whole focus might then shift to China.  His alleged remarks were spun by the mainstream media as an admission that China isn’t as neutral as it claims, just as they and their alternative media rivals suspected. Both now believe that China will help Russia achieve its maximum goals, but that’s likely not the case.

Geoeconomics

• War, geopolitics, energy crisis: how the economy evades every disaster  The Economist

  Although today’s dangers are not in the same league as World War II, they are significant. Pundits talk of a “polycrisis” running from the covid-19 pandemic, land war in Europe and the worst energy shock since the 1970s to stubborn inflation, banking scares, a Chinese property bust and trade war. One measure of global risk is 30% higher than its long-term average (see chart 1). Consumer-confidence surveys suggest that households are unusually pessimistic about the state of the economy, both in America and elsewhere (see chart 2). Geopolitical consultants are raking it in, as Wall Street banks fork out on analysts to pontificate about developments in the Donbas or a potential Chinese invasion of Taiwan.  The world economy appears impressively and increasingly shock-absorbent. Why?

• What Happens When Big Tech Goes Nuclear?   Jayita Sarkar/Time Magazine & The Carnegie Endowment for International Peace

  Silicon Valley firms are advocating for the U.S. to embark on a nuclear energy renaissance... The ethos of Big Tech to “move fast and break things” could spur unprecedented innovation in nuclear energy, especially through the construction of small modular reactors, microreactors, and even fusion.  But, just like Silicon Valley itself, which has historically flourished through the invisible hand of the state, the nuclear energy industry might also need increased guidance from the government in order to be safe, secure, and reliable.

• The global persistence of work from home    PNAS

  Abstract:  Work from home (WFH) surged worldwide during the COVID-19 pandemic, then partially receded as the pandemic subsided. Using our Global Survey of Working Arrangements covering dozens of countries, we find that average WFH rates among college-educated employees stabilized after 2022. The average number of WFH days per week is steady at roughly 1 d per week globally from 2023 through early 2025. Cross-country variation persists: WFH is about twice as common in advanced English-speaking economies as in much of Asia. These results show how the pandemic-driven shift to remote work has persisted and reached a new equilibrium, with implications for urban

• Honey, AI Capex is Eating the Economy     Paul Kedorsky’s Applied Complexity

  Looking at the boom in building data centers in the US (and elsewhere around the world), Kedorsky looks at how the spending compares.  Compare this to prior capex frenzies, like railroads or telecom. Peak railroad spending came in the 19th century, and peak telecom spending was around the 5G/fiber frenzy. It's not clear whether we're at peak yet or not, but ... we're up there. Capital expenditures on AI data centers are likely around 20% of the peak spending on railroads, as a percentage of GDP, and it is still rising quickly. And we've already passed the decades-ago peak in telecom spending during the dot-com bubble.

 The Future of Election Polling

• Are Betting Markets Better than Polling in Predicting Political Elections       Institute of National Security, Peabody College, Vanderbilt University

  In a new study conducted at Vanderbilt University, the prediction markets – and Polymarkets in particular -  outperformed traditional national and state-level polling during the 2024 election. According to Professor Brett Goldstein, who oversaw the study, “Our research reveals a fundamental shift in how we might assess and forecast elections.”

Recommended Weekend Reads

Looking at the Effects of Mexico’s Judicial Reform on FDI and USMCA, The Strait of Malacca Emerges as China’s Achilles Heel, Looking at Africa’s Financial Flows, and the Growth of Export Controls as a Strategic Weapon

July 11 - 13, 2025

Below are the reports and studies we found of particular interest this past week.  We wanted to share them with you in the hope they will be useful to you.  Please let us know if you have any questions.  We hope you have a wonderful weekend.

America

• No Checks on Power?  The Effects of Mexico’s Judicial Reform on Foreign Investment and the USMCA   Center for Strategic and International Studies

  On September 11, 2024, Mexico’s senate approved a sweeping constitutional reform meant to fundamentally reshape the country’s judicial system, principally by having all judges in the country be popularly elected to their positions. Its architect, former President Andrés Manuel López Obrador (AMLO), had spent his six-year term railing against the Mexican judiciary, asserting that the rot of corruption, nepotism, and abuse of power had spread to judges at all levels—federal, state, and local. The genesis of the reform is AMLO’s clashes with the judicial branch. Frustrated by the Supreme Court repeatedly striking down important aspects of his legislative agenda, AMLO came to believe that the Fourth Transformation, his ambitious project to end the “neoliberal era” in Mexico, would require far-reaching constitutional changes to be truly consolidated. During a recent CSIS Americas Program event on the immediate and long-term effects of the reform, panelists and legal experts noted that the constitutional amendment was a key piece in a larger political chessboard aimed at transforming Mexico into a more consolidated state under one-party rule, with potentially disastrous consequences for Mexico’s legal and economic future.

• Colombia Wages War on Cash With New Central Bank Payment Network   Bloomberg

  Colombia’s central bank needs to win over skeptics as it tries to modernize the financial system and reduce the nation’s heavy reliance on cash. While most Colombians now have access to financial products, adoption of digital payments lags emerging market peers such as Brazil due to high transaction costs and a lack of trust. The bank thinks it can fix these problems with the upcoming launch of Bre-B, its new payment infrastructure. Colombians are signing up for digital wallets and low-value deposit accounts at a rapid pace, but they’re still not using them much. As of 2024, about 70% of Colombian adults had at least one such account, and yet nearly 8 out of 10 transactions still take place in cash.

• What Passage of the “One Big Beautiful Bill” Means for US Energy and the Economy   The Rhodium Group

  The fiscal year 2025 budget reconciliation legislation, commonly called the “One Big Beautiful Bill” (OBBB) and signed into law by President Trump last week, will have meaningful reverberations across the US energy sector and economy. We estimate the law will increase national average household energy bills by $78-192 and increase total industrial energy expenditures by $7-11 billion in 2035. The OBBB will cut the build-out of new clean power generating capacity by 53-59% from 2025 through 2035. All told, the law puts more than half a trillion dollars of clean energy and transportation investment at risk of cancellation. It also puts new economic pressure on operating facilities that manufacture clean energy technology—tied to nearly $150 billion of investment—given greatly reduced domestic demand for these products. Though these figures represent substantial changes from the baseline, the impacts could be even more substantial depending on how executive actions shape the law’s implementation.

• ‘The president is pissed’: Trump's Brazil tariff threat is part of a bigger geopolitical dispute  Politico

• President Donald Trump is framing his threat to slap a bruising 50 percent tariff on Brazil as a quest for justice for his friend and ally, far-right former President Jair Bolsonaro. But it was his displeasure at a gathering of emerging market nations in Rio de Janeiro over the weekend that tipped the president over the edge, convincing him to send a letter laying out the new levies, according to four people familiar with the situation, granted anonymity to share details. The White House concluded that other methods of punishing Brazil for its perceived mistreatment of Bolsonaro and its alleged censorship on social media, like sanctions, would take too long or were too complex, according to two of the people.  But “BRICS tipped the scale,” said Mauricio Claver-Carone, a close ally of Secretary of State Marco Rubio and Trump’s former special envoy to Latin America.
  
  

  China

• The Malacca Dilemma: China’s Achilles’ Heel    Modern Diplomacy

  President Trump’s recent claims on the Panama Canal and the annexation of Greenland in the Arctic Circle have brought to the fore one of the most paramount notions of geopolitics: command of the sea. “Who rules the waves rules the world.”  For China, there is growing concern over a major maritime chokepoint of the Strait of Malacca. All of China’s energy sea lines of communication (SLOCs) converge through this strait. Each year, $3.5 trillion worth of trade—equivalent to one-third of global GDP—passes through the Strait of Malacca, including two-thirds of China’s total trade volume, over 83% of its oil imports, and approximately 16 mb/d of oil and 3.2 mb/d of LNG. Roughly 6.4 billion deadweight tons (dwt) of cargo pass through the strait annually, with about 10 vessels entering or exiting every hour. Most of these shipments consist of fossil fuels from the Middle East and Africa.

• Quest for Strategic Autonomy?  Europe Grapples with the US - China Rivalry    Mario Esteban, Miguel Otero-Iglesias, Cristina de Esperanza, eds., European Think Tank Network on China

  The intensifying rivalry between the US and China has reshaped Europe’s strategic calculations. Building on the 2020 European Think Tank Network on China (ETNC) report, which assessed Europe’s positioning in this context, this edition re-examines the geopolitical landscape in light of the Covid-19 pandemic, Russia’s war in Ukraine, and Donald Trump’s return to the White House. This report features 22 national chapters and one dedicated to the EU, analysing the evolution of Europe’s relations with Washington and Beijing, the range of approaches to dealing with the US-China rivalry, and how these are expected to evolve.

• China Wants 115,000 Nvidia Chips to Power Data Centers in the Desert   Bloomberg Technology

  A Bloomberg News analysis of investment approvals, tender documents and company filings shows that Chinese firms aim to install more than 115,000 Nvidia Corp. AI chips in some three dozen data centers across the country’s western deserts. Operators in Xinjiang intend to house the lion’s share of those processors in a single compound — which, if they can pull it off, could be used to train foundational large-language models like those of Chinese AI startup DeepSeek. The complex as envisioned would still be dwarfed by the scale of AI infrastructure in the US, but it would significantly boost China’s computing prowess as President Xi Jinping pushes for technological breakthroughs. Such a project also would raise serious concerns for officials in Washington, who restricted leading-edge Nvidia chip sales to China in 2022 over worries that advanced AI could give Beijing a military edge.
  
  

  Africa

• Financial Flows: Thematic Future    Institute for Security Studies (South Africa)/African Futures

  This theme on Africa’s financial flows explores the key inward monetary flows shaping Africa’s development, namely official development assistance (aid), foreign direct investment (FDI) and remittances, while also assessing the scale and impact of illicit financial flows. The analysis considers the size and impact of these flows at the regional and country levels. A Financial Flows scenario is modeled subsequently to assess the potential impact of ambitious increases in aid, FDI, remittances, and portfolio investments to Africa and a reduction in illicit financial flows.

Geoeconomics & Trade

• Modern Globalization and the Nation State – The Evolving International Political Economy   European Centre for International Political Economy

  Unresolved political economy contradictions are becoming more evident – between a national manufacturing narrative versus actual technology-led globalization, balancing open trade versus protection, old industries like steel against the new like AI, and whether governments or major corporates are primarily driving these developments. Leaders face the huge challenges to acknowledge today’s complex interdependent world, define essential national interests against special interest pleading, and work with others to deliver their objectives. Not doing so will only exacerbate uncertainty prevalent across countries.
  

• From National Security to Strategic Leverage   International Institute for Strategic Studies

  As export controls evolve from national security tools to instruments of strategic leverage, the US–China strategic competition is entering a new, more transactional phase. The recent tit-for-tat over chip-design software and rare earths reveals a shifting geopolitical battleground defined by chokepoints, coalition-building, and the race to reduce dependencies.

• Soft Landing or Stagnation? A Framework for Estimating the Probabilities of Macro Scenarios   Federal Reserve Board Economic Research

  Abstract: Amid ongoing trade policy shifts and geopolitical uncertainty, concerns about stagflation have reemerged as a key macroeconomic risk. This paper develops a probabilistic framework to estimate the likelihood of stagflation versus soft landing scenarios over a four-quarter horizon. Building on Bekaert, Engstrom, and Ermolov (2025), the model integrates survey forecasts, structural shock decomposition, and a non-Gaussian BEGE-GARCH approach to capture time-varying volatility and skewness. Results suggest that the probability of stagflation was elevated at around 30 percent in late 2022, while the chance of a soft landing was below 5 percent. As inflation moderated and growth remained strong through 2024, these probabilities reversed. However, by mid-2025, renewed tariff concerns drove stagflation risk back up and the probability of a soft landing lower. These shifts highlight the potential value of distributional forecasting for policymakers and market participants navigating uncertain macroeconomic conditions.

Recommended Weekend Reads

The Taliban Become Major Critical Minerals Dealers, How the Trump Tariffs Are Reshaping Latin America, A New US-Africa Blueprint To Counter China,  And Dollar Dominance After Liberation Day

July 4 - 6, 2025

Below are the reports and studies we found of particular interest this past week.  We wanted to share them with you in the hope they will be useful to you.  Please let us know if you have any questions. We hope you have a wonderful weekend. 

Critical Minerals

• Minerals for Recognition: The Taliban’s Shadow Diplomacy    Geopolitical Monitor

  Since the Taliban’s return to power, Afghanistan’s mineral and extractive industries have assumed growing strategic importance in the broader context of sustaining the country’s fragile economy. The abrupt loss of access to international financial assistance, the freezing of foreign-held assets, and the enforced curtailment of opium poppy cultivation have pushed the Taliban leadership to refocus on domestic resources, particularly the country’s vast mineral reserves. Yet, there is little indication that the Taliban intend to pursue full-scale exploitation or large-scale export of these resources in the immediate term. Rather, their approach appears deliberately cautious, treating Afghanistan’s natural wealth less as a means of short-term economic gain and more as a tool of political leverage and diplomatic bargaining on the international stage.

• Trans-Atlantic Critical Mineral Supply Chain Cooperation: How to Secure Critical Minerals, Battery and Military Supply Chains in the European Theatre     Instituto Affari Internazionali

  Abstract: The intensifying US-China competition has profound implications for critical mineral supply chains (CMSCs), affecting trade, export controls and market dynamics. US and European firms face difficulties competing with China’s dominant market position, which has led to shutdowns and restricted access to essential materials. China’s state-backed industrial policy, integration of the Communist Party into commercial operations and use of market power for geopolitical leverage have enabled it to control key mineral-technology value chains, complicating international cooperation and raising security concerns. The global push for decarbonization has increased civilian demand for critical minerals, particularly in new energy technologies, outpacing defense sector needs and limiting its influence in securing resources. In response, both the US and EU have developed strategies to mitigate vulnerabilities in their supply chains, recognizing the need for diversified control, crisis management mechanisms and enhanced cooperation. The war in Ukraine has further underscored the urgency of strengthening the defense industrial base, with case studies illustrating the material demands for military technologies such as FPV drones. Drawing on the experiences of South Korea and Japan, and fostering transatlantic cooperation through trade agreements and intelligence sharing, the US and Europe can build greater resilience against geopolitical disruptions and the concentrated, mercantilist nature of current CMSCs.

• Three U.S. Government Lists: Which Minerals Are the Most Critical?   CSIS Critical Minerals Security Program

  This interactive report reports on the existence of multiple, inconsistent lists of which minerals the US government considers most critical.  The net effect is unnecessary complexity and uncertainty, undermining efforts to encourage private investment across critical mineral supply chains both domestically and internationally. Critical minerals are defined as resources essential to national security and economic competitiveness. However, the U.S. government lacks a single unified list of these minerals. Instead, the Departments of Defense, Energy, and the Interior each maintain their own distinct lists based on factors such as supply chain vulnerabilities and the minerals’ importance to national security, economic resilience, and manufacturing. Among the 70 materials identified across these lists, only 13 are classified as critical by all three agencies.   These lists play a significant role in determining eligibility for federal funding and incentives, including Defense Production Act Title III grants, Inflation Reduction Act tax credits, and Export-Import Bank financing. Beyond funding implications, these lists send powerful signals to the private sector about which minerals are considered strategic priorities for U.S. investment. 

Geoeconomics

• Dollar Movements and Dollar Dominance in the Aftermath of Liberation Day   Steven Kamin/AEI Economics Working Paper

  Abstract: This paper provides econometric evidence in support of the view that following President Trump’s chaotic tariff announcements on Liberation Day, April 2, the dollar switched from being a safe-haven currency that appreciates in times of market volatility to a “risk-on” currency that moves inversely with volatility.  We estimate an equation for daily changes in the DXY dollar index, using as explanatory variables daily changes in US-foreign interest rate differentials and the VIX, a measure of market volatility.  We find a significant break in the relationship between the dollar and its primary determinants after Liberation Day, with the dollar falling below its predicted level.  More importantly, in the two months after Liberation Day, the sensitivity of the dollar to the VIX shifted from positive to negative, suggesting that global investors ceased to treat the dollar as a safe haven in times of stress.  Most recently, the dollar’s sensitivity to the VIX has retraced some of its earlier decline, but whether this signals a return of the dollar’s safe-haven status remains to be seen.

• A Trump Risk Premium in the Dollar     Robin Brooks Substack

  The standard rationale for why the Dollar has fallen so sharply - it’s down 11 percent so far this year - is that chaotic policy making by the Trump administration is causing a risk premium to build. Here’s the thing: there’s no empirical evidence that this is in fact what’s going on. Instead, the fall in the Dollar maps almost entirely into interest differentials. This means markets are trading a much more conventional view, which is that tariffs will drag down US growth, causing the Fed to be more dovish than other central banks. As I’ve noted previously, I disagree with this view. Even if there is a hit to growth, tariffs are inflationary for the US and deflationary for everyone else. That should keep the Fed more hawkish than its G10 peers, not more dovish.

• A New Impediment to Balance of Payments Adjustment: Underwater Bonds   Brad Setser/Council on Foreign Relations

  A few years back, Silicon Valley Bank (and a few other regional banks) got into trouble because they held too many long-dated government bonds. Government bonds are generally a safe investment; advanced economies that borrow in their own currencies don’t usually default on their own debt. But the market value of long-term bonds fluctuates with interest rates, and low-yielding bonds bought before COVID and during the first year of COVID fell in value when inflation took off and the Federal Reserve started raising interest rates.  A 10-year bond bought at par with a 2 percent coupon back in 2018 (or a coupon well below that in 2020) isn’t going to be worth its face value in the open market now. A coupon of 2 percent or so is just too low a rate on a bond that still has a few years to maturity. The same is true for long-term Agency bonds (the underlying mortgages now won’t be refinanced, so the long really is a long-term bond) and long-term corporate bonds. This, though, isn’t just a problem for U.S. regional banks.

Africa

• Critical Minerals, Fragile Peace: the DRC-Rwanda Deal and the Cost of Ignoring Root Causes   CSIS

  On Friday, June 27, in Washington, D.C., the foreign ministers of the Democratic Republic of the Congo (DRC) and Rwanda are set to sign the Critical Minerals for Security and Peace Deal, a United States–brokered agreement aimed at calming tensions in a region affected by violence and resource exploitation. This historic accord, which seeks to stabilize the eastern DRC, is the product of months of quiet diplomacy led by Massad Boulos, the U.S. special adviser for Africa. Its objective is to facilitate cooperation over the extraction and trade of rare earth minerals in exchange for security to offset China’s dominance in this sector. Initiated by Congolese President Félix Tshisekedi, this agreement comes amid renewed insecurity caused by the resurgence of the March 2 Movement (M23) militia, which since 2022 has seized significant territory in North and South Kivu provinces, including the strategic cities of Goma and Bukavu. These provinces are not only home to millions of civilians but also hold some of the world’s richest deposits of rare earth minerals—essential for everything from electric vehicles to smartphones. Despite the diplomatic celebrations, the deal raises questions. While mineral wealth is a driver of the conflict, it is not the root cause of the violence.

• A New US-Africa Blueprint for Trump Amid China’s Rise    Brookings

  While Africa has historically been sidelined in American foreign policy priorities, the continent is moving rapidly to the center of specific U.S. global priorities. Driven by demographic growth, critical mineral reserves, and expanding markets, Africa offers one of the clearest arenas where American interests and opportunities align. The Trump administration now faces a critical opportunity to craft a forward-looking strategy that delivers on its own foreign policy priorities: reclaiming leadership in global trade (prosperity), advancing American influence in a competitive world (power), strengthening regional and global stability (peace and security), and promoting core American ideals (principles). Given the scale of opportunity, this brief presents actionable recommendations on how the administration can act decisively across these four pillars and why doing so is both strategically sound and urgently needed.

• South Africa and Nigeria need divergent strategies for the informal sector   ISS/African Futures

  Nigeria and South Africa are Africa’s largest economies, and their future development has a significant impact on their sub-regions and the continent as a whole. The African Futures and Innovation team at the Institute for Security Studies (AFI-ISS) recently completed and presented an updated forecast for Nigeria to the office of the Vice President in Abuja, as well as presented an updated forecast for South Africa at a closed, expert meeting hosted by In Transformation and the Gordon Institute for Business Science.  In completing these forecasts, the team was struck by the evidence of lackluster development in Southern Africa compared to West Africa. As one metric of slow growth, Southern Africa registered the highest unemployment rate globally at 33.2% in 2024, using data from the International Labour Organization(ILO). Eswatini, South Africa, and Botswana rank 1st, 2nd and 5th in the world on unemployment rates. In South Africa, the previous systems of mining, education and business were premised on the extraction of maximum profits and burdened the country with huge inequalities. With poor-quality education and limited entrepreneurship, employment is particularly low, and inequality is exceptionally high. In fact, on both these counts, South Africa fares the worst globally. 

• Burkina Faso, the World's Disinformation Lab   Foreign Policy Research Institute

  Burkina Faso is many things. The country is considered to be the epicenter of global terrorism today. It is ranked number one on the Global Terrorism Index Scale (2024), marking the first time in the thirteen years since the database’s inception that Iraq or Afghanistan have not topped the index. The country has been rocked by jihadist attacks on major towns like Djibo, with jihadists using drones and anti-aircraft guns to fight off government forces.  However, the regime’s propaganda forces paint Burkina Faso in a very different light. All appears well in the digitally constructed alternate reality of President Ibrahim Traoré. In deepfake videos seen by millions worldwide, the country’s president is beloved by international stars such as Justin Bieber and Beyonce. Never mind that these stars have likely never heard of Burkina Faso, nor know anything about the country’s junta president. Traoré’s alternate reality represents an unsettling new world, one in which government-dominated social media attempts to balance the reality of societal collapse.

Americas

• How US Tariffs are Rewiring Latin American Trade   Americas Quarterly

  On April 2, the U.S. tore up the trade rulebook it helped create, as the White House implemented sweeping tariffs that redefined how the world’s largest economy does business. Nearly all countries now face a 10% tariff, and higher individualized rates of up to 50% were also imposed before the Trump administration issued a 90-day pause, set to expire on July 9. Latin America must now decide whether to double down on the current system, where the U.S. plays a dominant yet unpredictable role, or to embrace regional integration and economic diversification with Asia and Europe to hedge against future shocks. Depending on national policy responses and the evolution of bilateral trade negotiations, the aftermath of “Liberation Day” could open alternate pathways for economic growth, foreign direct investment (FDI) and trade.
  

• American Pride Slips to New Low    Gallup Polls

  A record-low 58% of U.S. adults say they are “extremely” (41%) or “very” (17%) proud to be an American, down nine percentage points from last year and five points below the prior low from 2020. The 41% who are “extremely proud” is not statistically different from prior lows of 38% in 2022 and 39% in 2023, indicating most of the change this year is attributable to a decline in the percentage who are “very proud.” 

Recommended Weekend Reading

Europe’s Seismic Defense and Economic Shifts, Looking at China’s Lock on Latin America’s Ports, the Struggle to Meet the Skyrocketing Energy Demands of US Data Centers, and the Geopolitics of AI

June 27 - 29, 2025

This past week, we found these reports and studies particularly interesting and useful and wanted to share them with you. Hopefully, you will find them useful as well.  Please let us know if you have any questions or if you or a colleague wish to be added to our email list.

The Rapidly Changing Defense and Economic Future of Europe 

• Is Germany Without Its Debt Brake on the Right Track?    International Economy Magazine

  Long before Germany’s decision to initiate an aggressive military buildup in response to the Trump administration’s new isolationist policies, a powerful chorus in Germany was heavily campaigning to loosen or reform the country’s debt brake, the so-called Schuldenbremse enshrined in the German constitution. Many policymakers envisioned an aggressive infrastructure buildup paid for with public spending financed by much higher public debt. Such a constitutional change had long been thought undoable. What will be the end result of a huge European debt expansion led by a Germany that now admits its military spending and spending on high-tech–related public infrastructure have been inadequate? What kind of pressure will the European Central Bank face? To answer these and many other questions, International Economy Magazine asked a group of experts (including yours’s truly) to offer their views.

• Trump’s European revolution        European Council on Foreign Relations

  New ECFR polling suggests that Donald Trump is transforming political and geopolitical identities not only in the US, but also in Europe.  Trump’s second presidency is recasting the European far-right as the continental vanguard of a transnational revolutionary project, and mainstream parties as the new European sovereigntists.  It is also transforming geopolitical attitudes and accelerating the shift from a European peace project to a war project.  Many Europeans support increased military spending, conscription, independent nuclear deterrents, and defending Ukraine even if the US abandons it.  However, they also doubt that Europe can achieve strategic autonomy fast enough and are therefore inclined to hedge. Conscription is less popular among the young; support for Ukraine may reflect reluctance to confront Russia directly; many hope America will return after Trump.

China

• No Safe Harbor: Evaluating the Risk of China’s Port Projects in Latin America and the Caribbean     Center for Strategic and International Studies

  In this groundbreaking interactive report, CSIS reports on how China is rapidly expanding its influence over maritime ports across Latin America and the Caribbean (LAC) – 37 in all.  By building, financing, and buying up key ports, Chinese firms have become deeply embedded in the physical infrastructure connecting the region’s dynamic maritime economy. While these investments bring commercial opportunity, they also open the door for Beijing to gain strategic leverage, collect sensitive data, and expand its geopolitical influence closer to U.S. shores. 

• How China Wins – Beijing’s Advantages in a Revisionist Order   Julian Gewirtz/Foreign Affairs

  In recent years, many analysts have hotly debated the scope and scale of the challenge that Beijing poses to the international order. This debate now finds itself in a peculiar moment, as Trump has made the United States appear as the more explicitly revisionist power, openly upending the international order it once championed. By withdrawing from UN bodies; placing tariffs on the entire world, including on U.S. allies; threatening to seize Canada and Greenland; and undermining collective principles of law and pluralism, the second Trump administration has given China unprecedented space to present itself as both a defender and a reformer of the existing order. That is allowing China to gain greater influence in existing institutions, exploit fear and uncertainty to pull long-standing U.S. partners closer to Beijing, and build its own alternative institutions and relationships even as it continues to flout international rules and norms. Trump and Xi are turning U.S.-Chinese competition into a story of two self-interested, domineering superpowers looking to squeeze countries around the world—and each other—for whatever they can get. This dramatic shift plays into China’s hands and undermines core U.S. strengths in the long-term competition over the future international order.

Challenges to the Global Energy Markets

• U.S. Power Struggle: How Data Centre Demand is Challenging the Electricity Market Model     Wood Mackenzie

  US utilities have been caught flat-footed as a surge in the development of power-hungry data centers and manufacturing facilities has packed load interconnection queues.  This has left the power sector with a demand growth dilemma. And the challenge has only intensified. There are substantial hurdles to meeting such gargantuan demand growth: procurement bottlenecks for critical supply-side equipment, the retirement of substantial amounts of coal-fired generation, tariff and energy policy changes that make renewables development more challenging, long lead times on new projects and the need for transmission upgrades.  In some cases, just a few major customers will soon account for as much utility infrastructure investment as all other customers put together, reshaping utilities’ risk profile. In a competitive power market, if data centers are added faster than new power plants can be brought online, it could threaten grid reliability and lead to power outages.  

• Assessing Emissions from LNG Supply and Abatement Options    International Energy Agency

  Around 550 billion cubic meters (bcm) of natural gas were exported as liquefied natural gas (LNG) in 2024, just under 15% of global natural gas consumption. A further 500 bcm of natural gas were transported through pipelines. Global LNG supply has grown faster than overall natural gas demand in recent years. This trend is set to continue with the arrival of nearly 300 bcm of new annual LNG supply capacity between 2025 and 2030.  The bottom line: LNG brings fewer Earth-warming emissions than coal, but that oft-debated comparison sets the bar way too low, the IEA argues. 

Geoeconomics

• How Do Central Banks Control Inflation?  A Guide for the Perplexed   Journal of Economic Literature

  Abstract: Central banks have a primary goal of price stability. They pursue it using tools that include the interest they pay on reserves, the size and the composition of their balance sheet, and the dividends they distribute to the fiscal authority. We describe the economic theories that justify the central bank’s ability to control inflation and discuss their relative effectiveness in light of the historical record. We present alternative approaches as consistent with each other, as opposed to conflicting ideological camps. While interest-rate setting may often be superior, having both a monetarist pillar and fiscal support is essential, and at times pegging the exchange rate or monetizing the debt is inevitable.

• The Sacrifice Trap of War       John Temming/Christopher Coyne – George Mason University/SSRN

  Abstract: This paper explores the political economy of the sacrifice trap of war--the conflict-related version of the sunk cost fallacy, where policymakers invest additional resources in failing wars because of prior sacrifices already made. Once the initial decision to engage in war is made, democratic leaders face strong incentives to signal success to citizens. These incentives stem from the need to maintain public support, preserve their reputation as effective leaders, and establish a positive legacy. However, policymakers do not bear war's full costs, instead shifting significant burdens onto others. This cost-shifting allows them to ignore sunk costs with minimal personal consequence, creating a negative political externality--the overproduction of war compared to situations where policymakers internalize the full costs of their actions. These dynamics, combined with policymakers' desire to maintain their identity as a strong and effective leader, explain how societies become mired in war's sacrifice trap. After exploring the sacrifice trap's theoretical foundations, we examine two historical cases--U.S. involvement in the Vietnam War (1955-1975) and in the Iraq War (2003-2011).

Artificial Intelligence, National Security & Geopolitics 

• On the Geopolitics of AGI        Geopolitics of AGI/Rand Corporation

  A decade ago, few believed that artificial general intelligence (AGI)—human-level or superhuman-level cognition across a wide variety of tasks—would emerge in our lifetime. Today, policymakers and executives worldwide are confronting the possibility that AI systems could soon match or exceed human performance in nearly all economically and militarily significant domains. Whether leading AI companies cross the unknown, potentially unknowable threshold to AGI today or tomorrow, we will live for the foreseeable future in a world where increasingly advanced AI underpins transformational changes to economies, militaries, and societies. Moreover, this prospect of technological change coincides with a period of profound shifts in geopolitics and global security, as the postwar consensus erodes and the international system is once again characterized by explicit great-power competition.

• Five Questions: Jim Mitre on Artificial General Intelligence and National Security   Rand Corporation

  A computer with human—or even superhuman—levels of intelligence remains, for now, a what-if. But AI labs around the world are racing to get there. U.S. leaders need to anticipate the day when that what-if becomes “What now?” A recent RAND paper lays out five hard national security problems that will become very real the moment an artificial general intelligence comes online. Researchers did not try to guess whether that might happen in a few years, in a few decades, or never. They made only one prediction: If we ever get to that point, the consequences will be so profound that the U.S. government needs to take steps now to be ready for them. RAND vice president and national security expert Jim Mitre wrote the paper with senior engineer Joel Predd.