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.

Recommended Weekend Reads

China’s Space Station “Guard Dogs,”  How China Gets Around US Tariffs, Why Canada May Be the Best Hope for Mineral Security, and How Smuggled US Fuel Funds Mexican Cartels

June 13 - 15, 2025

Below are some of the more intriguing analyses and insights we read this past week. We hope you find them useful.  Please let us know if you or someone you know wants to be added to our distribution list. 

China

• China is arming its space station with ‘guard dogs.’ They have good reason for it   Fast Company

  China is developing robotic guards for its Tiangong space station. Equipped with small thrusters, these AI-powered robotic beasts are being developed to intercept and physically shove suspicious objects away from their orbital outpost. It’s a deceptively simple but ingenious step towards active space defense in an increasingly militarized domain. Rather than firing directed energy weapons like lasers or projectiles, which will turn the potential invader into a cloud of deadly shrapnel flying at 21 times the speed of sound, the Chinese have thought of a very Zen “reed that bends in the wind” kind of approach. The bots will grapple a threatening object and lightly push it out of harm’s way. Elegant space jiu-jitsu rather than brute kickboxing.
  

• Axis, Rivalry, or Chaos?  The US-China-Russia Equation with Michael McFaul    China Considered Podcast

  China expert Dr. Elizabeth Economy and Michael McFaul, the former US Ambassador to Russia and currently a Stanford Univeristy professor,  sit down to discuss the relationship between the United States, China, and Russia, the history of US engagement with Russia, his experience as the United States Ambassador to Russia under President Barack Obama, and the increasing cooperation between China and Russia. McFaul begins by discussing early engagement with Russian President Dmitry Medvedev during the early Obama years, namely the signing of comprehensive multilateral sanctions with Iran, along with his role in crafting the Obama administration’s Russia policy. The two scholars then shift to a conversation about how Russia and China, namely Vladimir Putin and Xi Jinping, are attempting to reshape the international order, how the war in Ukraine has already changed this relationship, and whether a “reverse Kissinger” is possible from the perspective of the United States.
  

• Will China Force a Rethink of Biological Warfare?    War on the Rocks

  Is the Defense Department still preparing to fight biological warfare as if it’s 1970? When preparing for biological warfare, most nations picture scenarios in which an enemy openly sprays traditional agents over wide areas to kill their adversaries.  However, revolutionary capabilities in the life sciences and biotechnology have transformed the threat. China’s approach to warfare, combined with these emerging technologies, reveals new vulnerabilities among Western forces that, to date, have not been fully acknowledged.   Although Western attention has focused on the rapid expansion of China’s nuclear and conventional warfighting capabilities, one ought to expect equal analysis of China’s biological warfare potential. By examining China’s most recent efforts at biological research, this report puts forward that it has bypassed 20th-century Western concepts of biological warfare and has new capabilities that could be effective across the entire conflict spectrum. New approaches and new concepts will be necessary if the United States is to prepare itself for potentially new forms of biological warfare in the 21st century.
  

• How China Gets Around US Tariffs     Robin Brooks Substack

  Brooks, a Senior Fellow at the Brookings Institution in Washington and former Chief Economist at the Institute of International Finance, as well as former Chief FX Strategist at Goldman Sachs, details how China has circumvented US tariffs by transshipping goods to the US through various third countries. The charts below show China’s exports (black) and imports (blue) to and from various countries in Asia: Indonesia (top left), Malaysia (top right), Thailand (bottom left), and Vietnam (bottom right). In all cases, China’s exports in April 2025 - the month in which US tariffs on China briefly went to 150 percent - reached new all-time highs, while imports remained subdued. Much as in the case of Kyrgyzstan or Kazakhstan, it’s not like domestic demand in these places started to boom with the escalation of the US-China trade war. The opposite is the case. This is - in all likelihood - evidence of big transshipments that are seeking to circumvent US tariffs.

 The Americas

• ·Canada May Be the United States’ Best Hope for Minerals Security   Center for Strategic and International Studies

  China’s recent export controls, especially of rare earth elements (REEs), have left Western companies reeling, with some firms allegedly considering shifting elements of production back to China just for access to the minerals. Indeed, the need for these minerals is so urgent that they took center stage in the recent U.S.-China negotiations in London, held in an effort to ease the trade war between the two countries. While the preliminary agreement to come out of these talks offers some respite, the United States needs to find reliable sources of REEs, and Canada could emerge as an alternative supplier to complement U.S. efforts to get domestic REE production back on its feet. However, this will require both countries to admit they still need each other, amidst the tension generated by President Donald Trump’ tariffs and talk of annexing Canada.

• The Hole in Mexico’s Security Strategy    Will Freeman/Foreign Affairs

  The defining dilemma of Claudia Sheinbaum’s presidency may be whether she is willing to alter the status quo with the cartels, raise the costs of collusion, and protect those who stand up to the cartels, instead. Since taking office in October 2024, Sheinbaum has taken a harder line on organized crime, increasing seizures of drugs and guns and arrests of suspected cartel operators. In February, when the Trump administration threatened tariffs on Mexico if it didn’t stop the flow of fentanyl across the border, Sheinbaum doubled down on her efforts, and the number of seizures and arrests has since grown substantially. But with their political and judicial protection networks still intact, any criminal groups that are weakened by the president’s current strategy may simply be replaced by new ones. Criminal-political networks will continue dividing the country into private fiefdoms, with politics, justice, and the legal economy reduced to arenas of lawless competition. Deadly drugs and insecurity will continue flowing north.

• How smuggled US fuel funds Mexico’s cartels    Financial Times

  In this interactive report by the Financial Times, reporters and researchers have uncovered dozens of suspicious shipments to Mexico, with millions of barrels of fuel falsely declared as industrial lubricant and unloaded by hose to trucks.  It reflects the massive and sophisticated smuggling operations funding Mexico’s cartels. As many as one in four vehicles in the country could be running on contraband fuel.

• Mexico’s Historic 2025 Judicial Elections: Winners, Controversies, and Political Implications    Moments in Mexico Substack

  On June 1, Mexicans went to the polls to vote in the country’s first-ever judicial elections.  881 federal positions were up for election and nearly 3,400 candidates ran.  Turnout was a record low – just 13% - but for President Claudia Sheinbaum’s ruling left-wing Morena Party, it secured significant control over the Supreme Court, further consolidating its political power. This excellent SubStack breaks down the elections and likely implications.

• Once the World’s ‘Most Popular Politician,’ Lula Is Losing His Way in Brazil    Bloomberg

  Six months after emergency brain surgery and in his second stint as president, the 79-year-old Brazilian remains as energetic and ambitious as ever on the world stage. He met Emmanuel Macron in Paris last week, will host the BRICS summit of emerging market countries in July, and is putting on the United Nations’ annual climate conference in the Amazon rainforest later this year.   But if that bravado once helped make him a global superstar — “the most popular politician on Earth,” Barack Obama called him in 2009 — it is now masking an ugly truth: Back home in Brazil, Lula is falling apart.  Polls show his popularity is at the lowest level of his presidency and suggest he will lose to a right-wing challenger.

The Growing Marketplace for Critical Minerals

• Building a New Market to Counter Chinese Mineral Market Manipulation   Center for Strategic and International Studies

  With China recently imposing export restrictions on rare earth elements—leading to U.S. automakers to halt production due to supply shortages—one of the most urgent issues is how to establish reliable Western supplies of essential critical minerals. A major challenge to achieving mineral security is China’s manipulation of global markets, whereby Chinese companies flood the market with excess supply, driving prices down to levels that force mining operations in countries like the United States and Australia to shut down. The United States and its allies cannot afford to act in isolation. Unilateral efforts—whether through tariffs, subsidies, or investment restrictions—will remain insufficient given the relatively small market share of individual countries. Instead, building a unified anchor market that aligns the policies of like-minded nations is the only realistic path to confronting China’s dominance. By harmonizing tariffs, establishing collective quotas, and coordinating investment protections, the anchor market can shift leverage away from Beijing and toward a more resilient, rules-based minerals ecosystem.

• Much More Than Minerals: The US-Ukraine Minerals Agreement and its Geopolitical Implications    CEPS

  After months of tense negotiations, the US and Ukraine signed a minerals agreement in Washington D.C. on 30 April 2025. While centered on natural resources, it’s much more than a business deal on mining natural resources. The Agreement enshrines US support for peace, resilience, sovereignty and reconstruction in Ukraine.  This CEPS Explainer breaks down the Agreement’s core provisions, its implications for all the parties involved and the necessary conditions needed for it to succeed.

• From Extraction to Innovation: The EU and Taiwan in the Critical Minerals Value Chain   ChinaObservers

  As the European Union’s green transition gains momentum, ensuring the safe and sustainable supply of critical raw materials (CRMs) has become a strategic priority. Renewable energy and decarbonization technologies – such as electric vehicles, wind turbines, solar panels, and batteries – depend on critical minerals including lithium, cobalt, nickel, and different rare earth elements (REEs). The EU’s agenda, as outlined in the European Green Deal and the accompanying industrial policy, cannot be achieved without robust, dependable, and diversified mineral value chains.

Recommended Weekend Reads

Drilling Into The Macroeconomics of Tariff Shocks, The Potential of Seabed Mining, Iran’s Rapidly Shrinking Population, and Why Does Switzerland Have More Nuclear Bunkers Than Any Other Country?  

May 30 - June 1, 2025

Below is a collection of studies and articles that we found particularly interesting and likely to have an impact on markets and public policy.  We hope you find them useful and have a great weekend.

More Studies on the Economic Impact of Tariffs

• ·The Macroeconomics of Tariff Shocks    Adrien Auclert/Matthew Rognlie/Ludwig Straub  National Bureau of Economic Research

  Abstract: We study the short-run effects of import tariffs on GDP and the trade balance in an open-economy New Keynesian model with intermediate input trade. We find that temporary tariffs cause a recession whenever the import elasticity is below an openness-weighted average of the export elasticity and the intertemporal substitution elasticity. We argue this condition is likely satisfied in practice because durable goods generate great scope for intertemporal substitution, and because it is easier to lose competitiveness on the global market than to substitute between home and foreign goods. Unilateral tariffs do tend to improve the trade balance, but when other countries retaliate the trade balance worsens and the recession deepens. Considering the recessionary effect of tariffs dramatically brings down the optimal unilateral tariff level derived in standard trade theory.

• Trading Cases: Tariff Scenarios for Taxing Times   Wood Mackenzie

  The Trump administration’s ‘Liberation Day’ tariff announcement on 2 April was arguably the most pivotal moment for the world economy since China’s 2001 entry into the World Trade Organization. The White House’s numerous tariff-policy adjustments since early April have made understanding the impact and implications of the levies harder still. The potential for trade deals with major trading partners, further policy changes, and even a full U-turn in the US position add to the uncertainty.  The scale of the tariffs – be they already implemented or merely threatened – has far-reaching implications for the energy and natural resources sectors. The lower economic growth they entail will curb commodity demand, prices, and investment, while higher import prices will raise costs in sectors from battery storage to liquefied natural gas (LNG). Such uncertain times require planning for divergent outcomes. Wood Mackenzie has developed three distinct scenarios that consider the potential impacts on global GDP, industrial production, and supply, demand, and prices out to 2030 in four sectors: oil, gas and LNG, renewable power, and metals and mining.

• A Detailed Look at Trump’s Car Tariffs     Apricitas Economics Substack

  In any other administration, the announcement of 25% tariffs on cars & parts would be the single-largest economic story of the year—they currently hit more than $353B in US imports, having a larger economic effect than all of the tariffs implemented during Trump’s first term combined. These tariffs primarily affect imports from close American allies like the EU, Japan, & South Korea, who supply the majority of foreign-made cars to the United States. Yet the President won’t even spare the highly integrated North American supply chain, as tariffs currently apply to the non-US content in Mexican and Canadian-made vehicles.

• State of U.S. Tariffs s of May 29, 2025    The Budget Lab/Yale University

  This study estimated the effects of all remaining US tariffs and foreign retaliation implemented in 2025 through May 28, assuming all tariffs previously introduced under IEEPA authority are invalidated per the May 28 U.S. Court of International Trade Ruling, which leaves only tariffs introduced under Section 232 authority in place: tariffs on steel and aluminum as well as autos and auto parts. Consumers face an overall average effective tariff rate of 6.9%, the highest since 1969. The price level from all 2025 tariffs rises by 0.6% in the short-run, the equivalent of an average per household consumer loss of $950 in 2024$. Annual pre-substitution losses for households at the bottom of the income distribution are $800. The post-substitution price increase settles at the same 0.6%. The 2025 tariffs affect metals inputs and automobile prices primarily. The latter sees a 5% long-run price increase, the equivalent of an extra $2,400 on the cost of an average 2024 new car. US real GDP growth is -0.2pp lower from all 2025 tariffs. All tariffs to date in 2025 raise $686 billion over 2026-35, with $101 billion in negative dynamic revenue effects.

U.S.-Iran Nuclear Talks and Iran’s Disappearing Population

• What Would Russia Like From a New Iran Nuclear Deal?   Carnegie Politika

  U.S. President Donald Trump may have torn up the previous nuclear deal between the United States and Iran during his first term in office, but he now seems serious about signing a new one. Washington has not only held several rounds of talks with the Iranians but also dropped many of its demands.  That confronts Russia—which, united by a shared conflict with the West, has grown closer to Iran—with a dilemma: sabotage the negotiations in order to keep its ally isolated by sanctions, or try to become an important mediator in the agreement, as it was in the previous deal.

• Iran’s Seemingly Unstoppable Birth Slump   Middle East Forum Observer

  Despite exhortations from ruling clerisy to be fruitful, and pro-natal policies intended to prop up birth rates, fertility in Iran is slumping once again.  Earlier this month, the Tehran Times reported that annual births in Iran fell below the million mark. According to the Civil Registration Organization in charge of Iran’s vital statistics, just under 980,000 births were recorded between the Iranian calendar year coinciding with 21 March 2024 through 20 March 2025.  It has been a very long time since, so few babies were born in Iran. By the reckoning of the United Nations Population Division, we have to go back seventy years—to 1955—to find a year when Iranian annual birth totals were lower than today. The current birth level is less than half as high as it was forty years ago, in 1985.

The Changing Commercial and Security Aspects of Our Oceans

• The Potential Impact of Seabed Mining on Critical Mining on Critical Mineral Supply Chains and Geopolitics   Rand

  The potential emergence of a seabed mining industry has important ramifications for the diversification of critical mineral supply chains, revenues for developing nations with substantial terrestrial mining sectors, and global geopolitics. In this report, the authors present the results of a multi-pronged examination of each of these issues, exploring the likelihood and magnitude of their impacts to better inform planning and policymaking.  The authors found that the emergence of a seabed mining industry would introduce a new source of supply for critical minerals that are key elements for energy transition and defense technologies, and this would present several opportunities and challenges for the United States in terms of diversifying critical mineral supply chains away from China, cooperating with allies and partners, working with developing nations, and addressing environmental, regulatory, and security concerns. They offer several recommendations for the U.S. government to address these issues.
  

• The Transarctic Alliance is Key to U.S. National Security    Michael Sfraga/High North News

  Seven Arctic states are NATO allies (Canada, Finland, Denmark— by virtue of Greenland— Iceland, Norway, Sweden, and the US— by virtue of Alaska), and Arctic nations make up five of the sixteen founding NATO members.  Despite the current U.S. administration’s skepticism of the Alliance, it is in America’s best interest to reinforce and strengthen this strategic alignment. The Alliance is a bulwark against nations that seek to advance ideologies antithetical to democratic values and institutions, to use tools of national power to dismiss sovereign borders, to destabilize and invade neighboring countries, and to disrupt the international rules-based order.

• The bear beneath the ice: Russia’s ambitions in the Arctic   European Council on Foreign Relations

  Over the past decade, the Arctic has emerged as a strategic priority for Russia, second only to relations with post-Soviet countries, including Ukraine. Russia’s policy agenda in the Arctic is shaped by insecurities over its economic and military position in the region. This agenda forms a “policy iceberg”. The Kremlin’s massive economic investment is the visible tip; its attempts to create a northern sea trade route buoy at the waterline with both visible economic and murkier military aims; while its militarization in the Arctic is submerged from view—and the most threatening to Western interests. On the world stage, Russia’s Arctic policy is fragmented and tactical. It cherry-picks from international law, clumsily balances relations with big powers, and flirts with alternative Arctic institutions.  Europeans need to situate Russia’s growing ambitions in the region within Moscow’s broader strategic aims, especially in Ukraine, and respond by rethinking their Arctic policy through closer international engagement.

 Switzerland’s Nuclear Bunkers

• Why does Switzerland Have More Nuclear Bunkers Than Any Other Country?   The Guardian

  To the alternating fascination, bewilderment, and envy of its European neighbors, Switzerland, with a population of nearly 9 million, has more bunkers per capita than anywhere else in the world – enough to guarantee shelter space to every single resident in the event of a crisis. (Sweden and Finland are a close second, covering all major cities.)  But the question is, why?

Recommended Weekend Reads

The Fight Over Seabed Mining for Critical Minerals, China’s Vanishing Economic Numbers, What Happens When US Social Security Funds Run Out?  And The Remote Work Paradox

May 9 - 11, 2025

The Growing Fight Over Seabed Mining for Critical Minerals

• The Potential Impact of Seabed Mining on Critical Mineral Supply Chains and Global Geopolitics   Rand Corporation

  Seabed mining presents an opportunity for the United States and its allies to diversify critical mineral supply chains, bolstering critical mineral supply reliability and security; however, the U.S. government has yet to develop a clear vision for a potential role of the United States and its allies in an emerging seabed mining industry. The establishment of a seabed mining industry would have geopolitical implications, including shifts among relationships within the Indo-Pacific region, concerns related to regulatory monitoring and enforcement, new territorial disputes, increasing demand for maritime domain awareness and security, and new influences on commodity prices and security of supply.

• What to Know About the Signed U.S.–Ukraine Minerals Deal   Center for Strategic and International Studies

  On Wednesday, April 30, 2025, the United States and Ukraine signed a long-awaited deal to establish a joint investment fund for the reconstruction of Ukraine. The fund will be capitalized, in part, by revenues from future natural resource extraction. The newly signed agreement is a positive step in U.S.-Ukraine relations following contentious meetings between U.S. President Donald Trump and Ukrainian President Volodymyr Zelensky. While more favorable to Ukraine than earlier iterations, the deal’s effectiveness hinges on long-term peace and stable investment conditions. Key barriers include outdated geological surveys, degraded energy infrastructure, and unresolved security risks. The agreement reflects the Trump administration’s transactional approach to mineral diplomacy and may serve as a template for similar deals, such as the emerging U.S.–Democratic Republic of the Congo cooperation framework.

• Strategic Snapshot: Global Competition in Critical Minerals and Rare Earth Elements   Jamestown Foundation

  On May 1, Ukraine and the United States signed a long-anticipated minerals deal providing the United States with preferential rights to mineral extraction in Ukraine. The agreement creates a U.S.-controlled, jointly-managed investment fund that will receive revenues from new projects in critical minerals, oil, and natural gas.  The agreement comes as the global critical minerals market remains highly competitive, with the People’s Republic of China (PRC) and Russia currently leading in mineral processing infrastructure and capabilities. The International Energy Agency (IEA) projects that by 2030, nearly 50 percent of the market value from critical minerals refining will be concentrated in the PRC. IEA further assesses that by 2030, over 90 percent of battery-grade graphite and 77 percent of refined rare earths will originate from the PRC. In 2022, Russia was the source of 40 percent of global uranium enrichment. In 2024, approximately 35 percent of U.S. uranium imports (used for nuclear fuel) came from Russia.

• How to Advance U.S.-Africa Critical Minerals Partnerships in Mining and Geological Sciences    Carnegie Endowment for International Peace

  Critical minerals, such as nickel, graphite, manganese, cobalt, copper, and lithium, currently occupy a central role in global economic and geopolitical competition. Mineral-rich African countries arise as natural potential partners.  For the United States, both increasing the total volume of mineral supply and diversifying the sources of those minerals is imperative for economic and national security. Escalating export restrictions, including recently on gallium, germanium, and antimony, by China, which dominates the global supply of these commodities, only reinforce this imperative.  Correspondingly, the United States has framed the importance of augmenting its critical mineral supplies in terms of economic and security.  Much of the recent focus is aimed at increasing the U.S. domestic supply of these minerals, particularly through permitting reform, support for expanding domestic production, and developing refining and processing facilities. However, there is also a clear signal of interest in complementary international engagements to achieve mineral supply and energy security. These engagements flow in both directions. That is, the U.S. government views international partners not only as potential sources of mineral inputs but also as potential recipients of U.S. energy and related industries.

China

• How Bad Is China’s Economy? The Data Needed to Answer Is Vanishing   Wall Street Journal

  Not long ago, anyone could comb through a wide range of official data from China. Then it started to disappear.  Land sales measures, foreign investment data, and unemployment indicators have gone dark in recent years. Data on cremations and a business confidence index have been cut off. Even official soy sauce production reports are gone.  In all, Chinese officials have stopped publishing hundreds of data points once used by researchers and investors, according to a Wall Street Journal analysis. In most cases, Chinese authorities haven’t given any reason for ending or withholding data. But the missing numbers have come as the world’s second biggest economy has stumbled under the weight of excessive debt, a crumbling real-estate market, and other troubles, spurring heavy-handed efforts by authorities to control the narrative.

• Was Made in China 2025 Successful?     Camille Boullenois, Malcolm Black, and Daniel Rosen/Rhodium Group

  Chinese companies have made significant strides in closing the gap with foreign firms and advancing toward the technological frontier, with several sectors already demonstrating signs of parity or even leadership. China’s share of global patents has risen across most industries, with notable gains in electric vehicles, new materials, electronics, and robotics, where its share grew by more than 4 percentage points. In basic research, China’s output is equally remarkable, with its share of global top publications increasing by an average of 18 percentage points between 2015 and 2023. Despite this rapid progress, Chinese firms have yet to achieve parity in many MIC25 sectors, with 62% of foreign firms surveyed predicting that their Chinese competitors would catch up within 5 to 10 years. Key gaps remain in areas such as advanced semiconductors, where Chinese firms still lag significantly behind the global frontier.

• At the Doorstep: A Snapshot of New Activity at Cuban Spy Sites  Center for Strategic and International Studies

  In a new report from CSIS, commercially available satellite imagery shows new activity underway at a signals intelligence hub near Havana, Cuba.   The facilities – being built by China – include the construction of a large circularly disposed antenna array (CDAA) which can pinpoint the origin of incoming radio signals from as far as 8,000 miles away. This gives China significantly enhanced capacity to monitor and spy on air and maritime activity in and around the entire United States.

Geoeconomics

• Putting US Fiscal Policy on a Sustainable Patch   Karen Dynan & Douglas Elmendorf/National Bureau of Economic Research

  Abstract: Even allowing for substantial uncertainty regarding projections, current US fiscal policies are almost certainly unsustainable. Therefore, policymakers must decide when and in what ways to change policies. Changing policies sooner rather than later would put debt on a lower trajectory and thereby increase national savings and provide insurance against adverse developments by expanding fiscal space, protecting against a persistent shortfall in economic growth, and reducing the chance of a fiscal crisis. Yet, the probability of a near-term fiscal crisis is difficult to assess:  Yields on Treasury debt are within their range of the past few decades, which suggests that investors are not that worried about the fiscal outlook—but debt and deficits are at nearly unprecedented levels, and experience shows that investors’ confidence in a government’s fiscal management can deteriorate quickly.

• What Happens If Social Security Runs Out in 2035?   Tax Foundation Podcast

  What happens when the country’s most important retirement program runs out of money?  Social Security faces a funding crisis by 2035. We unpack how the system works, why it’s in trouble, and what fixes could keep it afloat.  Podcast host Kyle Hulehan and Tax Foundation Vice President of Federal Tax Policy Erica York are joined by Alex Durante, Senior Economist at the Tax Foundation. Together, they break down the trade-offs behind today’s biggest Social Security reform ideas.

• How Does the Federal Reserve Affect the Treasury Market?   Brookings Podcast on Economic Activity

  At around $900 billion in transactions daily, the market for U.S. Treasuries is massive, not only in terms of quantity but also in terms of importance to the U.S. and global economies. The Treasury market is tied to interest rates, the value of the dollar, and financial markets around the world. So when shocks hit the Treasury market, as they did during the COVID-19 crisis, the ripple effects can be global. In a new paper, “Treasury market dysfunction and the role of the central bank,” Anil K Kashyap, Jeremy C. Stein, Jonathan L. Wallen, and Joshua Younger explore how the Federal Reserve reacted to the 2020 Treasury disturbance and present a proposal for future action. On this episode of the Brookings Podcast on Economic Activity, Senior Fellow David Wessel is joined by Kashyap to discuss the findings as well as the relevance to recent Treasury market volatility. 

• The Remote Work Paradox: Higher Engagement, Lower Wellbeing    Gallup

  Globally, fully remote workers are the most likely to be engaged at work (31%), compared with hybrid (23%), on-site non-remote-capable (23%) and on-site remote-capable (19%). That’s according to the latest State of the Global Workplace report, which tracks how employees worldwide are doing in their work and lives.  However, they are less likely to be thriving in their lives overall (36%) than hybrid workers (42%) and on-site remote-capable workers (42%). Still, fully remote workers are more likely to be thriving than their fully on-site non-remote-capable counterparts (30%).  Fully remote employees are also more likely to report experiencing anger, sadness and loneliness than hybrid and on-site workers. They are more likely to report experiencing a lot of stress the previous day (45%) than on-site workers (39% for remote-capable, 38% for non-remote-capable), while having about the same stress level as hybrid workers (46%). These differences hold true even when accounting for income.

Recommended Weekend Reads

The Impact of Heightened US–China Tensions on the Treasury Market, How Do US Firms Deal With Foreign Industrial Policy?, and How Drug Cartels Took Over Social Media

Growing US-China Tensions

• How China is Quietly Diversifying from US Treasuries     Financial Times

  Earlier this year, a headline caught the eye of the senior officials at China’s foreign exchange regulator, who manage the country’s multitrillion-dollar reserves: the Trump administration had overhauled the boards of Fannie Mae and Freddie Mac. The officials responded swiftly, instructing a team at the State Administration of Foreign Exchange to kick off an evaluation of the potential investment implications of the shake-up. What intrigued the officials at Safe, according to people familiar with the matter, is that they saw mortgage-backed securities — which come with an implicit US government guarantee — or even equity stakes in Fannie and Freddie themselves, as possible alternatives to Treasuries… many [Chinese] advisers, scholars and academics are voicing concern. As “The safety of US Treasuries is no longer a given…”

• Will China Escalate?      Foreign Affairs

  In 2021, at the contentious first meeting between senior Chinese foreign policy officials and their counterparts in the Biden administration, Beijing’s top diplomat, Yang Jiechi, declared that the United States could no longer “speak with China from a position of strength.” In the four years since, Beijing has operated under the assumption that a profound shift in the balance of power between the two countries is underway. Chinese strategists perceive their country’s decades-long “strategic weakness” in its competition with the United States as coming to an end, driven by steady advances in China’s industrial, technological, and military capabilities and an increase in its international influence. This progress has ushered in what Beijing views as a “strategic stalemate” with the United States, in which both nations now wield comparable power. But despite the low immediate risk of conflict between the United States and China, the current stalemate may not prove durable. Over the next four years, the risk of a military crisis will likely rise as the two countries increasingly test each other’s resolve.
  

• Charting the End State for US Strategy Toward China   Collective Commentary/Foreign Policy Research Institute

  As trade tensions between the US and China grow and bring with them new levels of political and military tensions, a group of China experts at the FPRI offers perspectives on how Trump needs to formulate a China strategy and stop dealing with China tactically.

• China’s New Economic Weapons     Evan Medeiros & Andrew Polk/Washington Quarterly

  In the past decade, China’s use of economic coercion has become a common and well-studied feature of its economic statecraft.  For the most part, China has used conventional coercive tools such as stopping its purchasing of goods and services (e.g., commodities and tourism), withholding investments, restricting foreign companies’ operations in China, and “spontaneous” consumer boycotts, all as a means of imposing economic costs on others. China’s track record in altering other countries’ calculations has been decidedly mixed, and its actions have even generated some backlash by countries newly concerned about such predation.  However, since 2018, this pattern of behavior has been evolving. China’s economic statecraft—specifically its tools of coercion—has been expanding.

• DeepSeek’s release of an open-weight frontier AI model    International Institute for Strategic Studies

  The January 2025 release of a frontier reasoning large language model by the Chinese firm DeepSeek, nearly matching the performance of top American closed models at a fraction of the cost, has intensified the debate over the geopolitics of artificial intelligence. It appears that US export controls forced DeepSeek to seek optimizations regarding memory management and the use of synthetic data.

Americas

• After Canada’s Election:  An Energy Abundance Strategy for North America   Center for Strategic and International Studies

  One outcome from North America’s three recent elections is clear—a citizenry that is more “energy literate” when it comes to the importance of policymakers getting this critical issue right. Simply put, energy is the lifeblood of the North American economy.  While the North American relationship is certainly replete with challenges, there is an opportunity in the coming year to thread the needle and move towards an abundance strategy for the region’s energy sources. Notably, this could represent a rare moment of North American alignment on a critical issue for the region’s future.

• Argentina’s Realignment with the United States: Milei’s Reforms Gain Strategic Support   Center for Strategic and International Studies

  Argentina’s rapprochement to the United States under President Javier Milei is not just ideological—it is strategic. While pushing through painful economic reforms at home, Milei is aligning with Washington on multiple fronts: International Monetary Fund (IMF) negotiations, defense ties (NATO partnership bid and F-16 purchase), and personal diplomacy with U.S. President Donald Trump. U.S. Secretary of the Treasury Scott Bessent’s one-day stop in Buenos Aires—right as the new FX regime kicked in and amid Trump’s tariff rollout—was no coincidence. It signals that Argentina is being treated as the closest ally in South America, where U.S. influence is under pressure under China’s global rise.

• How Drug Cartels Took Over Social Media      The Atlantic

  Cartels are influencers now. They have converted their criminality into a commodity, broadcasting with impunity while law enforcement and social-media platforms struggle to rein them in. On TikTok, drug traffickers filmed themselves fleeing from customs agents in a high-speed boat chase, garnering millions of likes. Some content is less Miami Vice and more cottagecore: farmers harvesting poppy seeds, for instance. Keep scrolling and you might find henchmen bagging bales of $100 bills, tiger cubs lounging in trucks, and dogs trotting with decapitated heads in their mouths.

Global Markets and Economics

• U.S. Treasury Market Functioning from the GFC to the Pandemic    Federal Reserve Bank of New York

  Abstract: This article examines U.S. Treasury securities market functioning from the global financial crisis (GFC) through the Covid-19 pandemic given the ensuing market developments and associated policy responses. We describe the factors that have affected intermediaries, including regulatory changes, shifts in ownership patterns, and increased electronic trading. We also discuss their implications for market functioning in both normal times and times of stress. We find that alternative liquidity providers have stepped in as constraints on dealer liquidity provision have tightened, supporting liquidity during normal times, but with less clear effects at times of stress. We conclude with a brief discussion of more recent policy initiatives that are intended to promote market resilience.

• How Do U.S. Firms Withstand Foreign Industrial Policies?   Xiao Cen, Vyacheslav Fos, & Wei Jiang/National Bureau of Economic Research

  China’s industrial policies (“Five-Year Plans”) displace U.S. production/employment and heighten plant closures in the same industries as those targeted by the policies in China. The impact was not anticipated by the stock market, but U.S. companies in the "treated industries" suffer a valuation loss afterwards. Firms shift production to upstream or downstream industries, benefiting from the boost, or offshore to government-endorsed industries in China. Such within-firm adjustments offset the direct impact. U.S. firms are better able to withstand foreign government interventions provided that they enjoy flexibility, including preexisting business toeholds in the "beneficiary" industries, financial access, and labor fluidity.

• Stock Buybacks and Tax Neutrality: Should Congress Repeal the 1% Excise Tax on Buybacks?    Kyle Pomerleau & John Ricco/Tax Notes

  Lawmakers enacted a 1 percent excise tax on stock buybacks, in part to address concerns that buybacks were tax-favored relative to dividends and had a negative effect on corporate investment. The excise tax does reduce the tax differential between dividends and buybacks, but it does so at the cost of increasing the overall tax burden on saving and investment. Moreover, it introduces and increases existing distortions across types of taxpayers, legal forms of business organization, and forms of financing. Alternative reforms could similarly reduce or eliminate the distortion without introducing others, but they come with important trade-offs of their own.

Recommended Weekend Reads

Gauging China’s Economy in Uncertain Times, Assessing the Long-Term Effects of the Trade Wars, Artificial Intelligence and the Future of the US Electrical Grid, and the Race for Dominance in Nuclear Fusion

April 25 - 27, 2025

Please find below our list of studies and articles that we found particularly interesting this week and wanted to recommend to you.   We hope you find them interesting and useful, and that you have a great weekend.

The Future of China in the Face of the US Trade Wars

• The Once and Future China: How Will Change Come to Beijing?    Rana Mitter/Foreign Affairs

  If you dropped in to China at any point in its modern history and tried to project 20 years into the future, you would almost certainly end up getting it wrong. In 1900, no one serving in the late Qing dynasty expected that in 20 years the country would be a republic feuded over by warlords. In 1940, as a fractious China staggered in the face of a massive Japanese invasion, few would have imagined that by 1960, it would be a giant communist state about to split with the Soviet Union. In 2000, the United States helped China over the finish line in joining the World Trade Organization, ushering the country into the liberal capitalist trading system with much fanfare. By 2020, China and the United States were at loggerheads and in the midst of a trade war.  Where is China going to be 20 years from now?  Harvard Professor Rana Mitter does a deep dive, looking at various scenarios.

• Gauging the Strength of China’s Economy in Uncertain Times   Jeffrey B. Dawson & Hunter L. Clark/Liberty Street Economics blog (Federal Reserve Bank of New York)

  Amid increasing pressure on the Chinese economy from China’s trade conflict with the U.S., assessing the strength of the Chinese economy will be an important watch point. While China is likely to counter growth headwinds from the escalating trade tensions with additional policy stimulus, the country’s complex fiscal dynamics and the varying interpretations of the strength of its economic growth made judgments of the efficacy of China’s policy response challenging even in a more predictable environment. In this respect, we argue that aggregate credit is a simple and effective measure to gauge policy stimulus in China. At present, China’s “credit impulse”—the change in the flow of new aggregate credit to the economy relative to GDP—appears likely sufficient to allow it to muddle through with steady but not strong growth over the next year, despite the intensifying trade conflict.

•  How China-India Relations Will Shape Asia and the Global Order     Chatham House

  The China–US relationship is widely regarded as the defining geopolitical issue of the 21st century. But relations between China and India arguably hold greater long-term significance for the future of Asia and the global order. These two nations are the world’s most populous,together accounting for almost 40 per cent of the global population. China is the world’s second largest economy, with India currently the fifth largest – and soon to be the third largest. Yet, despite their rise having important consequences for the future of global governance, China–India relations are poorly understood outside of those countries.  This report delves into what is likely to happen.

Geoeconomics and Trade

• Long Run Effects of the Trade Wars   David Baqaee  & Hannes Malmberg/National Bureau of Economic Research Working Papers

  This short note shows that accounting for capital adjustment is critical when analyzing the long-run effects of trade wars on real wages and consumption. The reason is that trade wars increase the relative price between investment goods and labor by taxing imported investment goods and their inputs. This price shift depresses capital demand, shrinks the long-run capital stock, and pushes down consumption and real wages compared to scenarios when capital is fixed. We illustrate this mechanism by studying recent US tariffs using a dynamic quantitative trade model. When the capital stock is allowed to adjust, long-run consumption and wage responses are both larger and more negative. With capital adjustment, U.S. consumption can fall by 2.6%, compared to 0.6% when capital is held fixed, as in a static model. That is, capital stock adjustment emerges as a dominant driver of long-run outcomes, more important than the standard mechanisms from static trade models — terms-of-trade effects and mis- allocation of production across countries.

• G30 Spring Lecture 2025: "Commanding Heights: Central Banks at a Crossroads"   Kevin Warsh Lecture at the International Monetary Fund

  Kevin Warsh is widely seen as a leading candidate to replace Jay Powell as Chairman of the Federal Reserve Board.  Indeed, President Trump has cited Warsh as someone he is considering.  Warsh gave a lecture at the IMF this past week as part of the World Bank/IMF meetings in Washington.  You can read the remarks via the link in the title above or watch his remarks via this video link.

• Supply, Demand and the Post-Lockdown Inflation Surge   St Louis Federal Reserve Bank

  Only recently have economists started tracking category-level consumer inflation using their associated movements in quantities.  Adam Shapiro, an economist and vice president at the Federal Reserve Bank of San Francisco, Adam Shapiro, an economist and vice president at the Federal Reserve Bank of San Francisco, used the supply-demand framework described to classify inflation at the consumption-category level into supply- and demand-driven components.  In a recent working paper, St. Louis Federal Reserve Bank economists implemented an extension of Shapiro’s method, which distinguishes between the trend component of inflation and inflation attributable to supply and demand shocks. Their study generalizes his approach in a few ways, distinguishing between the current and past effects of those shocks. This allowed their study to parse the part of inflation that’s expected in the absence of supply- and demand-side “shocks” (the trend), as well as the parts of inflation explained by the ongoing expected effects of shocks in previous periods (past) versus shocks happening right now (current).

The Global Race for Energy Dominance

• AI and the Future of the U.S. Electric Grid    Rand

  Despite its age, the U.S. electric grid remains one of the great workhorses of modern life. Whether it can maintain that performance over the next few years may determine how well the U.S. competes in an AI-driven world.   AI is a big part of the challenge. Its vast data centers suck up energy like small cities. But a recent RAND study suggests AI could be a big part of the solution, too. There are risks here—some obvious, some not—and grid operators need to move with caution. But AI could usher in an energy future that is more resilient, more efficient, and more affordable for customers.  Companies working with AI have warned that they are already struggling to find the power they need. Keeping them on U.S. soil has become a national imperative, especially in light of the deepening competition with China. That means upgrading and modernizing the grid, much of which was built in the 1960s and ‘70s. 

• The cheapest way to supercharge America’s power grid   MIT Technology Review

  US electricity consumption is rising faster than it has in decades, thanks in part to the boom in datacenter development, the resurgence in manufacturing, and the increasing popularity of electric vehicles.  Accommodating that growth will require building all sorts of energy producing capacity (e.g., nuclear, hydropower, wind turbine, solar farms, etc.) faster than we ever have before—and expanding the network of wires needed to connect those facilities to the grid. But one major problem is that it’s expensive and slow to secure permits for new transmission lines and build them across the country. This challenge has created one of the biggest obstacles to getting more electricity generation online, reducing investment in new power plants and stranding others in years-long “interconnection queues” while they wait to join the grid.  Fortunately, there are some shortcuts that could expand the capacity of the existing system without requiring completely new infrastructure: a suite of hardware and software tools known as advanced transmission technologies (ATTs), which can increase both the capacity and the efficiency of the power sector.

• Grid Connection Barriers to New-Build Power Plants in the United States     Lawrence Livermore Laboratory

  The backlog of proposed power plants that have submitted grid connection requests (i.e., the interconnection queues) is larger than ever. As reported in our flagship Queued Up report, grid connection requests active at the end of 2023 were more than double the total installed capacity of the US power plant fleet (2,600 GW vs. 1,280 GW). Solar, battery storage, and wind energy account for 95% of all active capacity in the queues.  The unprecedented volume of requests in queues points to significant shifts in the generation mix of the US power system, but is also evidence of a significant structural and regulatory bottleneck for plants seeking grid connection. The amount of time spent in queues has increased by 70% over the last decade, and withdrawal rates remain high at 80%. Interconnection costs have risen and are highest for wind, solar, and battery storage projects.  To better understand the dynamics of interconnection and what solutions may be available, we compiled and analyzed two unique datasets for the first time, in “Grid connection barriers to renewable energy deployment in the United States,” in the journal Joule.

• The US Led on Nuclear Fusion for Decades.  Now China is in a Position to Win the Race   CNN

  US companies and industry experts are worried America is losing its decades-long lead in the race to master this near-limitless form of clean energy, as new fusion companies sprout across China, and Beijing outspends DC.  Nuclear fusion, the process that powers the sun and other stars, is painstakingly finicky to replicate on Earth. The prize of this energy is its sheer efficiency. A controlled fusion reaction releases around four million times more energy than burning coal, oil or gas, and four times more than fission, the kind of nuclear energy used today. It won’t be developed in time to fight climate change in this crucial decade, but it could be the solution to future warming. The Chinese government is pouring money into the venture, putting an estimated $1 billion to $1.5 billion annually into fusion, according to Jean Paul Allain, who leads the US Energy Department’s Office of Fusion Energy Sciences. In comparison, the Biden administration has spent around $800 million a year.

Recommended Weekend Reads

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

April 17 - 20, 2025

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

More on the Trade War

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

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

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

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

• Navigating tariffs with a geopolitical nerve center      McKinsey & Company

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

The Americas

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

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

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

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

Why Russia Might Reject A Peace Deal With Ukraine

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

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

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

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

Understanding the New and Old Washington

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

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

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

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

Geoeconomics

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

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

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

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

Recommended Weekend Reads

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

April 11 - 13, 2025

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

We hope you find these useful and that you have a relaxing weekend.   And let us know if you or someone you know wants to be added to our distribution list. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

India’s Role in the Increasingly Turbulent World of Trade 

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

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

• India could help save an aging Europe   Politico EU

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

Recommended Weekend Reads

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

March 14 - 16, 2025

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

• The Kremlin's Balancing Act     Foreign Policy Research Institute

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

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

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

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

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

  • No NATO membership for Ukraine;

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

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

  • the lifting of anti-Russia sanctions. 

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

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

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

•  A Blueprint for a European Defense Force    Strategic Europe

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

The Tariff Wars

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

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

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

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

• Antitrust Fuels Trade Tensions    CEPA

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

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

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

Geoeconomics 

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

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

• Global Debt Report 2025   OECD

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

Africa and Critical Minerals

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

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

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

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

Latin America 

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

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

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

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

North Korea

• The North Korean tourist trap       The interpreter/Lowry Institute

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