Fulcrum Perspectives
An interactive blog sharing the Fulcrum team's policy updates and analysis, as well as book recommendations, travel observations, and cultural experiences - all of which we hope will be of interest to you.
Recommended Weekend Reads
Big Changes Are Coming to Latin America, How Russia and China Evade Sanctions Together, and How Monetary Policy Impacts U.S. National Security
October 4 - 6, 2024
Please find below our recommended reading from reports and articles we read last week. We hope you find these useful and that you have a relaxing weekend. And let us know if you or someone you know wants to be added to our distribution list.
Americas
It isn’t only Sheinbaum. Meet the Women Who Run Mexico Washington Post
Mexico inaugurated its first female president on Tuesday, reaching the milestone before its northern neighbor. Even if the United States elects Kamala Harris as president in November, it will lag well behind this traditionally macho country on broader gender parity. The new president, Claudia Sheinbaum, will govern with a cabinet that is half female and a Congress evenly divided between men and women. Women head the Supreme Court and central bank and run top federal ministries. Mexico has become a global leader in gender parity thanks to aggressive laws establishing quotas for women in politics and government. They have had a dramatic impact. Mexico’s legislature ranks fourth in the world for female representation, while the United States is No. 70 — just behind Iraq — according to the Inter-Parliamentary Union.
Gabriel Boric’s Unlikely Legacy Americas Quarterly
Fresh off his 2021 primary victory, President Gabriel Boric famously predicted that “if Chile was the cradle of neoliberalism, it would also be its tomb.” Three years later, his ambition to remake Chile got buried instead. Now approaching his final year in office, the former student activist often sounds less like Marxist icon Salvador Allende and more like the traditional center-left politicians he once derided. He espouses growing the economic pie, vows “mano dura” against crime, and blasts Venezuela as a dictatorship. Has Boric genuinely moderated his convictions? Or, as his less scripted remarks suggest, is this the tactic of an agile young politician biding his time?
How are the United States and China Intersecting in Latin America? Brookings Institution
Strategic competition between the United States and China is impacting how the two countries relate to each other across the world, including in Latin America. How are the United States and China approaching Latin America and where do their interests intersect? What is the character of their interactions in the Western Hemisphere—rivalry, cooperation, or something in between? And finally, should competition with China be used to motivate American policymakers to devote more attention and resources to Latin America? In this written debate, the authors address the title question with essay-length opening statements. The statements are followed by an interactive series of exchanges between authors on each other’s arguments. The goal of this product is not to reach any conclusion on the question but to offer a rigorous examination of the choices and trade-offs that confront the United States in its competition with China.
Brazil’s Largest Mafia is Entering Politics. The Government Must Act New York Times
The city of São Paulo, Brazil, is about to elect its next mayor, but the talk of the town is about a party that’s not on the ballot on Sunday: The “party of crime,” or as it’s formally known, the First Capital Command (P.C.C.). Police officials recently claimed that the criminal group moved almost $1.5 billion through fintech companies, using some funds to finance candidates around São Paulo State. And one of the front-runners for São Paulo mayor, the far-right fitness coach and influencer Pablo Marçal, is running under a small political party whose president was caught on tape bragging about his P.C.C. ties earlier this year. (The party president has denied the audio is of him, but reporters from the newspaper Folha de S. Paulo say they confirmed its authenticity with six independent sources.)
How Organized Crime Threatens Latin America Journal of Democracy
Abstract: Organized crime has emerged as the most important security threat to democratic governance in Latin America. This essay explains why Latin American democracies have been able to curb other security threats (from the military, insurgents, and oligopolists) but are struggling to contain organized crime. Organized crime possesses power assets associated with traditional security threats (military capacity, territorial control, and access to markets). But it also operates innovatively: It infiltrates and coopts the state, which makes it difficult for presidents to rely on state institutions (such as the police, the army, the courts, and prisons) to act in a unified way to fight organized crime. To date, there are no successful cases of Latin American states truly defeating organized crime. But states have means of rendering organized crime less predatory and violent.
Geoeconomics
National Security Policy as Monetary Policy: Military Means to Counter Inflation The War Room (An Online journal of the U.S. Army War College)
Although the U.S. Federal Reserve System is the only federal entity with a legal mandate to set monetary policy and manage inflation, inflation impacts every department and agency. To endure and win conflicts of the future, U.S. national security requires monetary stability and economic resilience. The U.S. military must prepare to support civil authorities and deter foreign threats from stoking harmful inflation in the U.S. economy by disrupting supply chains. Temporary trade disruptions during the COVID-19 pandemic and the 2021 Colonial Pipeline ransomware attack contributed to the surge of inflation in the post-pandemic years. In January 2022, Chairman of the Federal Reserve Jerome Powell testified before Congress that the conventional monetary policy tools of the central bank were ineffective at countering inflation driven by supply-side shocks. Since 2023, however, U.S. and allied maritime security operations in the Red Sea and the Black Sea have contributed to lowered costs associated with threatened shipping lanes, despite not defeating the threats outright. Looking ahead, the U.S. military should prepare to manage and counter even worse supply-side inflationary shocks that might arise from competition or conflict with a great power adversary.
Trade Intervention for Freer Trade Carnegie Endowment for International Peace
By targeting specific trade violations rather than balanced flows, global trade policy has been focusing on the wrong outcome. New trade rules are needed to create an international trading system in which comparative advantage allocates production.
Growth and Productivity in the Americas AEI Economic Perspective
Across the Americas, low output and productivity growth are key policy challenges. Growth expectations for many countries have fallen in recent years, with Latin America and the Caribbean especially lagging behind emerging market peers. In many cases, total factor productivity growth has been negative for decades. This is due to several structural factors, including low overall investment, low educational attainment, high informality, and inadequate infrastructure. Going forward, “nearshoring,” digitalization, and the energy transition offer opportunities to renew growth. It will be incumbent on authorities to grasp these opportunities.
When Does Federal Debt Reach Unsustainable Levels? Penn Wharton Budget Model
The Penn Wharton Budget Model (PWBM) estimates that---even under myopic expectations---financial markets cannot sustain more than the next 20 years of accumulated deficits projected under current U.S. fiscal policy. Forward- looking financial markets are, therefore, effectively betting that future fiscal policy will provide substantial corrective measures ahead of time. If financial markets started to believe otherwise, debt dynamics would “unravel” and become unsustainable much sooner.
The Political Economy of Zero-Sum Thinking S. Nageeb Ali, Maximilian Mihm, and Lucas Siga
Abstract: This paper offers a strategic rationale for zero-sum thinking in elections. We show that asymmetric information and distributional considerations together make voters wary of policies supported by others. This force impels a majority of voters to support policies contrary to their preferences and information. Our analysis identifies and interprets a form of “adverse correlation” that is necessary and sufficient for zero-sum thinking to prevail in equilibrium.
Russia, China, and Sanctions
How Western Curbs on Russian Oil Revenue Benefit China Harvard Kennedy School/Belfer Center for Science and International Affairs
Since Russia’s Invasion of Ukraine in February 2022, the United States has worked closely with the European Union (EU) and other allied nations to impose wide-ranging economic sanctions on Russian government agencies and companies as well as on individual officials and business leaders. The results are mixed. Some policies have demonstrably constrained Russia’s resources, obstructed trade, slowed investment, and blunted not only innovation but also maintenance of Western equipment. Freezing over $300 billion in Russian assets has considerably reduced Moscow’s financial maneuvering room. Denying several major Russian banks access to the SWIFT network has complicated Russia’s effort to settle transactions, as have sanctions that limit Russia’s ability to use U.S. dollars and Euros.
Is a “Shadow Fleet” of Oil Tankers Really Circumventing the Russia Price Cap? Carnegie Politika
Russia has chosen to defy the price cap by sourcing tankers and auxiliary services outside of the Western coalition. These tankers, which supposedly knowingly operate in defiance of Western sanctions, have been nicknamed the “shadow fleet.” The prevailing assumption today is that most if not all of Russian oil transported by sea is being sold outside of the price cap regime. Some of it is still carried by vessels owned by shipowners and/or insured by insurers that are subject to the price cap coalition legislation. The article covers 2,849 oil tankers, of which 735 picked up at least one cargo in a Russian port this year and is based on data collected via the ships’ automatic identification systems, which can be accessed via many ship tracking services. The vessels carried an average of 48 million barrels of oil per day (the rest most likely traveled via pipelines to the refineries).
China is Ready for War – And Thanks to a Crumbling Defense Industrial Base America is Not Seth Jones/Foreign Affairs
Amid a growing bipartisan consensus that the United States needs to do more to contain China, much of the policy debate in Washington has focused on China’s economic and technological clout. Now, given China’s economic problems—high youth unemployment, a troubled real estate market, increased government debt, an aging society, and lower-than-expected growth—some scholars and policymakers hope that Beijing will be forced to constrain its defense spending. Others go so far as to say the Chinese military is overrated, contending that it will not challenge U.S. dominance any time soon. But these assessments fail to recognize how much China’s defense industrial base is growing. Despite the country’s current economic challenges, its defense spending is soaring, and its defense industry is on a wartime footing.
Recommended Weekend Reads
How Will the U.S. Election Impact the Rest of the World? The BRICS’ Growing Power and Influence and the Geopolitics of Port Security in the Americas
September 27 - 29, 2024
Please find below our recommended reads from reports and articles we read in the last week. We hope you find these useful and that you have a relaxing weekend. And let us know if you or someone you know wants to be added to our distribution list.
Geopolitics & the U.S. Elections
The Global Impact of the 2024 U.S. Presidential Elections Center for Strategic and International Studies
The audience for the U.S. presidential election is global and has a global impact. The election takes place at a moment when the demands of two wars in Europe and the Middle East, China’s assertiveness, and coalitions of autocratic leaders are putting unprecedented stress on the rules-based international order. These developments, as much as the election, are compelling changes in how global leaders look at their future with the United States regardless of signals of policy continuity or discontinuity from a Harris or Trump presidency. This report provides concise analysis and predictions covering the globe.
Why US-China ties will worsen regardless of the US vote Matt Gertken/Hinrich Foundation
BCA Research’s Chief Strategist Matt Gertken argues the upcoming US elections will not determine the course of US-China relations. Regardless of which party wins the elections, the superpower rivalry is set to deepen as national and economic security competition intensifies. Both Washington and Beijing are doubling down on antagonism, and trade ties will worsen in the foreseeable future.
The Growing Influence of the BRICS
BRICS Considering Petro-Yuan in next de-dollarization attempt OMFIF
Unlike the BRICS Summit in Johannesburg in 2023, which was waved off by Western observers as no real threat to the dollar, October’s summit in Kazan, Russia, is set to be ground-breaking for two reasons. First, there have been major changes since the last summit. BRICS – comprising Brazil, Russia, India, China, and South Africa – has been expanded by five important new members: Saudi Arabia, United Arab Emirates, Iran, Egypt and Ethiopia. Saudi Arabia, the world’s main supplier of petrol, has also joined Project mBridge, the Bank for International Settlements’ digital currency arrangement. The country has made comments about considering alternatives to the present dollar-based oil payments system and being open to using the Petro-Yuan for oil settlements. Second, there is Russia, a country at war with Ukraine and engaging in economic conflict against the whole Western alliance. It will use the Kazan summit as a means to push BRICS members to join this endeavor. Russia is planning a new denomination for oil, – the Petro-Yuan – its own mBridge system to pay for oil and even a common BRICS currency to reduce dependence on the dollar.
The Battle for the BRICS: Why the Future of the Bloc Will Shape Global Order Foreign Affairs
In late October, the group of countries known as the BRICS will convene in the Russian city of Kazan for its annual summit. The meeting is set to be a moment of triumph for its host, Russian President Vladimir Putin, who will preside over this gathering of an increasingly hefty bloc even as he prosecutes his brutal war in Ukraine. The group’s acronym comes from its first five members—Brazil, Russia, India, China, and South Africa—but it has now grown to include Egypt, Ethiopia, Iran, and the United Arab Emirates. Saudi Arabia also participates in the group’s activities, but it has not formally joined. Together, these ten countries represent 35.6 percent of global GDP in purchasing power parity terms (more than the G-7’s 30.3 percent) and 45 percent of the world’s population (the G-7 represents less than ten percent). In the coming years, BRICS is likely to expand further, with more than 40 countries expressing interest in joining, including emerging powers such as Indonesia.
As the United States and its allies are less able to unilaterally shape the global order, many countries are seeking to boost their own autonomy by courting alternative centers of power. Unable or unwilling to join the exclusive clubs of the United States and its junior partners, such as the G-7 or U.S.-led military blocs, and increasingly frustrated by the global financial institutions underpinned by the United States, such as the International Monetary Fund and the World Bank, these countries are keen to expand their options and establish ties with non-American initiatives and organizations. BRICS stands out among such initiatives as the most significant, relevant, and potentially influential.
Expansion of BRICS: A quest for greater global influence? European Parliament Think Tank
The official Think Tank of the European Parliament explains who the new members of the BRICS are and what this means. The BRICS decision to open the door to new members was taken at its Johannesburg summit in August 2023, sparking a debate about its growing international influence. According to estimates, BRICS+, as the organization has been informally called since its expansion, now accounts for 37.3 % of world GDP, or more than half as much as the EU (14.5 %). However, besides an increase in economic power the new members could bring potential conflicts (Saudi Arabia/Iran or Egypt/Ethiopia) into the group, making the reaching of consensus on common political positions more difficult. Since the new members would only contribute roughly 4 % to the group's cumulative GDP, the significance of the expansion should be seen beyond the purely economic effect, in the form of greater influence for the group and for developing countries as a whole within international organizations such as the United Nations, the World Trade Organization and the Bretton Woods institutions.
The Battle for the BRICS: Why the Future of the Bloc Will Shape Global Order Foreign Affairs
In late October, the group of countries known as the BRICS will convene in the Russian city of Kazan for its annual summit. The meeting is set to be a moment of triumph for its host, Russian President Vladimir Putin, who will preside over this gathering of an increasingly hefty bloc even as he prosecutes his brutal war in Ukraine. The group’s acronym comes from its first five members—Brazil, Russia, India, China, and South Africa—but it has now grown to include Egypt, Ethiopia, Iran, and the United Arab Emirates. Saudi Arabia also participates in the group’s activities, but it has not formally joined. Together, these ten countries represent 35.6 percent of global GDP in purchasing power parity terms (more than the G-7’s 30.3 percent) and 45 percent of the world’s population (the G-7 represents less than ten percent). In the coming years, BRICS is likely to expand further, with more than 40 countries expressing interest in joining, including emerging powers such as Indonesia.
Latin America
Claudia Sheinbaum and the Shadow of AMLO Americas Quarterly Podcast
Claudia Sheinbaum will take office as Mexico’s new president next week, on October 1, 2024. Often described as a technocrat, she also supports some of current President AMLO’s more controversial policies, such as the judicial reform that was just approved. In this episode, Vanessa Rubio, a professor at the London School of Economics and a former senator and deputy minister, shares what she expects from Sheinbaum’s government. Rubio argues her administration will take shape as a new blend—one that could be deemed “techno-populist.”
The Geopolitics of Port Security in the Americas Center for Strategic and International Studies Americas Program
“[T]he truth of the matter is that the People’s Republic of China is rapidly filling the vacuum created by the departure of American military forces from the isthmus [of Panama]. . . .Their presence adds to the danger of using the Colon Free Zone to purchase restricted technology with dual civilian-military use.” This sentiment would not seem out of place in a contemporary discussion of Chinese strategic advances in the Western Hemisphere. It is, in fact, more than two decades old, coming from the testimony of Dr. Tomas Cabal, then professor of business at the University of Panama, who appeared before the U.S. House Subcommittee on Domestic and International Monetary Policy on December 7, 1999.
Alternative Energy
New Battery Designs Could Lead to Gains in Power and Capacity The Economist
In their quest to build a better battery, researchers have blazed a trail through the elements of the periodic table. The earliest prototype cells ran on nickel and cadmium; successors have used everything from zinc and iron to sodium and lead. Instead of the other long-overshadowed components of cells. Those efforts are starting to pay off and several companies are looking to further radically improve the battery as we know it.
Recommended Weekend Reads
September 13 - 15, 2024
Geoeconomics
The Innovation Paradox MF Finance and Development Magazine
We've long assumed that investing more in research and development is a surefire way to spur innovation, increase productivity, and fuel job creation and economic growth. And yet, as the US dramatically expanded R&D spending over the past four decades, the opposite happened. Innovation, productivity gains, and economic expansion slowed. What went wrong?
High and Rising Institutional Concentration of Award-Winning Economists National Bureau of Economic Research/Richard Freeman, Danxia Xie, Hanzhe Zhang, Hanzhang Zhou
Abstract: We analyze the institutional clustering of award-winning researchers. We collect nearly 300,000 annual education and career affiliations of nearly 6,000 award-winning researchers across 18 major academic fields in the natural sciences, engineering, and social sciences. All fields, except for economics, exhibit a low and decreasing concentration, which suggests a trend toward decentralized knowledge production. Conversely, economics shows a high and rising concentration. We investigate potential reasons for this anomaly, including researcher mobility, reliance on physical assets, the age of fields, the role of prestige, and the influence of the United States in shaping disciplinary norms (Fulcrum Note: So, this proves economists do roam in packs? Hmmm…)
India
Can India Change Course? A Conversation with Pratap Bhanu Mehta Foreign Affairs Podcast
Pratap Bhanu Mehta, President of the Centre for Policy Research, is one of India’s wisest political observers—a great political theorist and writer as well as a fierce critic, and occasional target, of Modi and his policies. Foreign Affairs Senior Editor Kanishk Tharoor spoke with him on September 3 about what the election means for Indian democracy and where the country goes from here.
European Union
The Future of European Competitiveness: A Comprehensive Strategy for Europe Mario Draghi
Former European Central Bank President and former Italian Prime Minister was asked by EU President Ursula von der Leyen to conduct a comprehensive study on how the European Union could become more competitive with the US and China. This past week, Draghi published a 400-page comprehensive and wide-ranging report offering recommendations for ten main economic sectors. Overall, Draghi says the EU needs to invest between €750 - €850 billion per year – close to 5% of the bloc’s GDP – to stay competitive in the face of shrinking populations, the need to rapidly and massively ramp up combined defense capabilities, and offset the supply of previously cheap energy (mostly coming from Russia).
A World of Chips Acts: The Future of U.S.-EU Semiconductor Collaboration Center for Strategic and International Studies
The U.S. and the EU have each recently enacted legislation providing for an unprecedented volume of public investments in semiconductors, with the largest portion allocated to the establishment of new onshore chip production facilities. Substantial funds are also allocated to semiconductor research and development, supply chain security, and workforce expansion and training. These parallel initiatives have been prompted by an awareness in both regions of threats to economic and strategic security arising out of their dependency on foreign-made chips. The question posed by the enactment of the two Chips Acts is how such joint activities can be deepened, broadened, and leveraged by direct engagement between the United States, the European Union, and national authorities to address the vulnerabilities faced by both ecosystems.
The EU has a playbook to de-risk from China. Is it working? Brookings Institution
The European Union’s (EU) decision to raise its tariffs on Chinese electric vehicles (EVs) has prompted speculation about whether the EU and the United States could cooperatively “de-risk” from China. Much like the United States, the EU has developed a “de-risking” playbook with three goals: to protect its economy from outside encroachments, to promote its own competitiveness and resilience, and to partner with others to amplify its economy’s strengths and mitigate its vulnerabilities. In fact, the term “de-risking” was pioneered by European Commission President Ursula von der Leyen and later embraced by the Biden administration and all G7 leaders. But is it working?
China
China Decoupling Handbook: Where We Are, What To Do American Enterprise Institute/Derek Scissors
Scissors writes the case for a smaller US-China relationship keeps getting stronger, arguing that China under President Xi Jinping will not become a better partner. To achieve this decoupling, which is already underway, additional policies are needed around imports, exports (especially technology), inbound investment, outbound investment, and supply chains. In his “handbook,” Scissors details how best to carry out such policies in each area.
Why Catching Up to Starlink is a Priority for Beijing Carnegie Endowment for International Peace
China’s push to enter the satellite internet market shouldn’t come as a surprise. The Chinese Communist Party (CCP) has poured significant resources into closing the gap with America’s space-based technologies, and its efforts are starting to pay off. on August 9, a Long March 6A rocket blasted off from the Taiyuan Satellite Launch Center in the northern Chinese province of Shanxi. The rocket carried eighteen low-Earth orbit (LEO) satellites from the government-backed company Qianfan. State media hailed the launch as China’s answer to Starlink, the U.S.-based satellite internet pioneer, and the first step toward breaking America’s dominance in this market. Qianfan intends to grow its constellation to more than 600 satellites by the end of 2025 and to eventually place 14,000 satellites into orbit
Recommended Weekend Reads
August 16 - 18, 2024
Please find below our recommended reads from reports and articles we read in the last week. We hope you find these useful and that you have a relaxing weekend. And let us know if you or someone you know wants to be added to our distribution list.
Hacking, Deep Fakes, and the 2024 U.S. Elections
100 Days Until Election 2024 U.S. Director of National Intelligence
Already seeing the foreign governments attempting to meddle in the upcoming U.S. elections, The Office of the Director of National Intelligence (DNI) issued this unclassified memo explaining how the U.S. intelligence community is monitoring foreign actors trying to influence and disrupt the upcoming elections. Well worth the read to understand the threat at hand.
How Foreign Governments Sway Voters with Online Manipulation Scientific American
2024 is the year of elections, with more than half the world’s population heading to the polls to vote. More than 100 countries including India, Taiwan, the UK, France, Russia, Venezuela, and soon, the United States, have held are holding national elections. Most of the elections were free and fair, while others – such as Russia and Venezuela – were rigged, and opposition candidates either arrested or “disappeared.” But one constant in most of these elections has emerged: Foreign government efforts to interfere and either discourage voters or mislead them with disinformation. Scientific American Magazine did a deep dive into how malign foreign governments use social media and other mediums to achieve their goals.
Iran Steps into U.S. Election 2024 with Cyber-Enabled Influence Operations Campaign Microsoft On the Issues
Two weeks ago, news broke that the Trump campaign had been hacked, and the most likely culprit is Iran. How is this happening? In a new report from Microsoft details how foreign countries are seeking to negatively influence the 2024 US election. As the report details, these malign forces started off slowly in 2024 but have steadily picked up the pace over the last six months. Russia was primarily the initial operator, but more recently, Iran has picked up the pace. China is not far behind.
Source: Microsoft On the Issues
Iran using covert influence campaigns to undermine Trump's candidacy, U.S. intelligence says CNN
CNN reports how Iran is using covert social media activity and related influence operations in an effort to undercut the candidacy of former President Donald Trump, a US intelligence official said Monday in an updated assessment of threats to the November election.
China
China’s Imaginary Trade Data Brad Setser/Council on Foreign Relations “Follow the Money” Blog
Council on Foreign Relations Senior Fellow Brad Setser took a deep dive into the IMF’s latest assessment of China. In the appendix, he found something interesting: China has a new way of calculating its good trade balance - and that calculation is deeply misleading and helps to explain the apparent fall in the current account surplus. For example, Setser believes the new method understates the current account surplus by $300 billion as of the second quarter of 2024 and that the actual surplus is closer to $700 billion.
China’s Great Wall of Villages The New York Times
President Xi calls them “border guardians.” In this superb interactive report using satellite imagery, the New York Times reports on how the government built twelve new villages in frontier areas claimed by other countries in recent years, the New York Times reported based on satellite images. They are among more than fifty new villages in frontier areas, and while civilian in nature, they provide access points for China’s military. A spokesperson for the Chinese Embassy in Washington said regarding border issues, Beijing seeks “fair and reasonable solutions” through peaceful consultation.
Source: New York Times
Marijuana and Mexican cartels: Inside the stunning rise of Chinese money launderers NBC News
Over the past decade, Chinese organized crime groups in the U.S. quietly became the dominant money launderers for Mexican cartels. Then they used the profits to take over the illicit marijuana trade. Experts worry that the organizations that now dominate money laundering worldwide pose a potential national security threat to the U.S.
Geoeconomics
Don’t Believe the AI Hype Daron Acemoglu/Project Syndicate
Acemoglu, an MIT Economics Professor, writes that if you listen to tech industry leaders, business-sector forecasters, and much of the media, you may believe that recent advances in generative AI will soon bring extraordinary productivity benefits, revolutionizing life as we know it. Yet neither economic theory nor the data support such exuberant forecasts.
Has the Recession Started? Pascal Michaillat (UC Santa Cruz) and Emmanuel Saez (UC Berkeley)
Abstract: To answer this question, we develop a new Sahm-type recession indicator that combines vacancy and unemployment data. The indicator is the minimum of the Sahm indicator - the difference between the 3-month trailing average of the unemployment rate and its minimum over the past 12 months—and a similar indicator constructed with the vacancy rate—the difference between the 3-month trailing average of the vacancy rate and its maximum over the past 12 months. We then propose a two-sided recession rule: When our indicator reaches 0.3pp, a recession may have started; when the indicator reaches 0.8pp, a recession has started for sure. This new rule is triggered earlier than the Sahm rule: on average, it detects recessions 1.4 months after they have started, while the Sahm rule detects them 2.6 months after their start. The new rule also has a better historical track record: it perfectly identifies all recessions since 1930, while the Sahm rule breaks down before 1960. With July 2024 data, our indicator is at 0.5pp, so the probability that the US economy is now in recession is 40%. In fact, the recession may have started as early as March 2024.
Recommended Weekend Reads
August 2 - 4, 2024
Please find below our recommended reads from reports and articles we read in the last week. We hope you find these useful and that you have a relaxing weekend. And let us know if you or someone you know wants to be added to our distribution list.
China
How is China’s domestic situation evolving? Brooking Institution
There is a lot of discussion in Washington about China’s social and economic challenges and the potential implications of these challenges for Chinese society, governance, and foreign policy. In the following collection of short essays, Brookings scholars offer their different perspectives drawing on decades of experience living and working in China to answer the question, “How is China’s domestic situation evolving?” They cover everything from gender right to economic challenges to domestic tourism to education to political and military changes and challenges.
Why the China model is failing Australian Strategic Policy Institute
The authoritarian China model under President Xi Jinping’s leadership is facing increasing failure. Its most critical flaw lies in the unconstrained power of the ruling Chinese Communist Party (CCP), arbitrarily intervening in market and social activities for the interest of itself or its leaders without robust mechanisms for accountability and self-correction. The China model is thought to have contributed to the country’s ‘economic miracle’ in more than four decades to the early 2010s. From 1978 to 2012, the Chinese economy grew at an average annual rate of 9.4 percent, rising from low-income status to become the world’s second largest. For many developing countries, this growth symbolizes the success of the CCP’s authoritarianism, which they seek to emulate.
China’s updated playbook for reviving growth risks more tensions with the world Peterson Institute for International Economics
China’s most senior leadership concluded a major political meeting in July with a communiqué correctly identifying a “grave and complex international environment” and “arduous tasks” at home. But as expected, there was limited indication of new policy approaches to revive its slowing economy and recover from a real estate crisis. Nor did the meeting portend a serious effort to defuse growing backlash in the United States, the European Union, Indonesia, Brazil, and others against China’s economic playbook, which emphasizes increased investments in manufacturing for exports to boost its sluggish growth.
Why is It So Hard for China to Boost Domestic Demand? Carnegie Endowment for International Peace
As most analysts expected, the Chinese Communist Party’s Third Plenum communiqué, released July 18, was much vaguer on demand-side measures designed to boost the role of consumption in driving the Chinese economy than it was on supply-side measures. This was the case even though over the past five to ten years, a near unanimous consensus has developed among both Chinese and foreign economists that consumption’s very weak role in driving the economy is the main constraint to sustainable growth in China. Despite this consensus, Beijing has been unable to shift the economy away from its overreliance on investment—and, more recently, on its trade surplus—to maintain high growth rates. In early June, American economist Paul Krugman publicly worried in a Bloomberg interview that China’s leaders were “bizarrely unwilling” to use more government spending to support consumer demand instead of production
The Global Drug Trade
We bought everything needed to make $3 million of fentanyl. All it took was $3,600 and a web browser Reuters
In this fascinating interactive report, Reuters investigative reporters showed that at the tap of a buyer’s smartphone, Chinese chemical sellers will air-ship fentanyl ingredients door-to-door to North America. Reuters purchased enough to make 3 million pills. Such deals are astonishingly easy – and reveal how drug traffickers are eluding efforts to halt the deadly trade behind the fentanyl crisis.
Sky High: The Ensuing Narcotics Crisis in the Middle East and the Role of the Assad Regime Observatory of Political and Economic Networks
The staggering scale of recent narcotics seizures in the Middle East—and Arab Asia in particular—and their ties to state and non-state actors in Syria is drawing the world’s attention. The United Kingdom, the United States, and the European Union have begun sanctioning Syrian and Lebanese suppliers as part of their response, with US legislators awaiting a holistic government response. Some countries in the region have recently considered the once-unthinkable: normalizing relations with the Assad regime, partly in the hope of cooperating directly with Damascus to curb the supply.
This research documents the seizure over the last three years of over a billion pills of amphetamine-type drugs commonly known as ‘captagon’. It offers the most comprehensive attempt, to date, to understand the breadth and nature of the ongoing narcotics crisis and the networks sustaining much of their supply in Syria and to a lesser extent in Lebanon. While all drug types are observed, special attention is given to captagon. Researchers constructed two databases specifically for this project. The first documents 1,251 drug seizures originating, transiting through, or reaching their destination in Arab Asian countries between 2016 and 2022. The richness of the data enables identification of how seizures vary by drug type, amount, countries of origin, countries of transit, and geolocation of seizures over time. The second is a network database that maps actors involved in the supply of narcotics from Syria and Lebanon. It contains 712 nodes (441 individuals and 271 non-individuals) and a narrative detailing their roles and relationships within the network. The database, compiled from primary and secondary sources, is the most expansive documentation effort on the subject to date.
Economics/Trade/Foreign Direct Investment
The Bretton Woods Moment – and Its Necessary Replacement Carnegie Endowment Working Group for Reimaging Global Economic Governance
Despite a concatenation of shocks—a China shock in trade, the global (or North Atlantic) financial crisis, surges in migration, a global pandemic—the current architecture of global economic governance has persisted and demonstrated remarkable resilience and adaptability. Trade has not collapsed; financial integration recovered from the global financial crisis; the cross-border movement of people has resumed post-pandemic. The interwar decades of disintegration, nationalist isolation, and great power war have yet to be replicated. Rather than “deglobalization” or the collapse of the existing global order, institutions and integration appear to have reached a stable plateau. Nevertheless, this plateau risks further descent into disorder, albeit less from a concerted attack on that order than out of discontent with its failure to confront such urgent challenges as climate change effectively. Conflict over the current distribution of costs and benefits poses another threat to the status quo.
Low US Economic Confidence Steady Gallup
Gallup’s Economic Confidence Index registers -35 in July, stable compared with the past two months and consistent with the longer trend of negative public sentiment about the current and future American economy. Gallup’s Economic Confidence Index did show improvement between November and March, gaining 20 points, but since then has slid back to where it was in December 2023. During President Joe Biden’s term, confidence has slumped to as low as -58 in June 2022 amid soaring inflation, the worst reading since the Great Recession in 2008 and early 2009.
Trends in Competition in the United States: What Does the Evidence Show? Carl Shapiro & Ali Yurukoglu/National Bureau of Economic Research
Has the United States economy become less competitive in recent decades? One might think so based on a body of research that has rapidly become influential for antitrust policy. We explain that the empirical evidence relating to concentration trends, markup trends, and the effects of mergers does not actually show a widespread decline in competition. Nor does it provide a basis for dramatic changes in antitrust policy. To the contrary, in many respects the evidence indicates that the observed changes in many industries are likely to reflect competition in action. We highlight research that points to targeted interventions that can enable antitrust enforcement policy to better promote and protect competition. Throughout the paper, we identify open questions and opportunities for future research in the cross-industry evidence-at-scale paradigm, the industry-specific study paradigm, and their intersection.
Energy Policy
Taking Stock 2024: US Energy and Emissions Outlook Rhodium Group
Every year, Rhodium Group provides an independent projection of future US greenhouse gas (GHG) emissions under current policy and expectations for economic growth, future fossil fuel prices, and clean energy cost and performance trends. In the ten years since we released our first Taking Stock report, the US has made progress on a path to decarbonization. In 2023, US GHG emissions were 18% lower than they were in 2005. In addition, policies enacted at all levels of government have never been stronger for achieving even deeper cuts to emissions, including the passage of the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA), adoption of a suite of federal regulations aimed at driving down emissions, and ambitious state action. With all federal and state policies on the books as of June 2024, we estimate the US is on track to reduce its GHG emissions by 38-56% below 2005 levels in 2035, representing at least a doubling—and potentially as much as a four-times increase—from the pace of annual emissions abatement from 2005 to 2023. On the way to 2035, we find the US could reduce its emissions by 32-43% below 2005 levels in 2030. These emissions reductions under current policy are a measurable acceleration in mitigation even compared to our Taking Stock 2022 edition from just before the passage of the IRA, in which we found the US on track for a 24-35% reduction below 2005 levels in 2030. But they are not enough for the US to achieve its 2030 climate commitment under the Paris Agreement of a 50-52% reduction by 2030, or deep decarbonization by mid-century.
Great Power Arctic Strategy
The High North – Important or Overlooked? Janes Defense Group Podcast
In this podcast, James Rands, senior Balkans and military capabilities analyst at Janes, joins Harry Kemsley and Sean Corbett to provide a deeper understanding of the High North, Arctic region. With climate change likely to expose a northern sea route in the next decade or so and the potential abundance of natural resources, many countries will want to stake claim on this previously impenetrable region. Rands highlights the military capabilities required to operate in this challenging environment. They also discuss the important role open-source intelligence plays in providing early-warning indicators of activity and any escalation in tensions in what is likely to become a key global strategic area.
Arctic Strategy 2024 US Department of Defense
In a new report, the US Defense Department lays out a strategy to defend the Arctic. In the introductory memo, Secretary of Defense Lloyd Austin states: “The United States is an arctic nation, and the region is critical to the defense of our homeland, the protection of the US national sovereignty, and our defense treaty commitments. I am issuing this 2024 Arctic Strategy to guide the US Department of Defense in a concerted approach to preserve the Arctic as a stable region in which the US homeland remains secure and vital national interests are safeguarded.”
Recommended Weekend Reads
July 5 - 7. 2024
Here are our recommended reads from reports and articles we read in the last week. We hope you find these useful and that you have a relaxing weekend. And let us know if you or someone you know wants to be added to our distribution list.
U.S. Elections
Trade Isn’t Great Retail Politics for Either Party Kevin Nealer/Council on Foreign Relations
Since the United States trade imbalance flipped sharply negative in the mid-1970s and nose-dived in the Ronald Reagan years, both the Democratic and Republican parties have sought to weaponize trade as a political wedge issue. That approach has not worked for either of them. As a result, trade is unlikely to be a major theme in the 2024 election cycle. Broadly, Americans are now less supportive of the role of trade in the U.S. economy. But the picture gets muddled as you dig into those sentiments, with a bare majority believing trade does more good than harm. Support for trade has largely recovered from the historic low of the 2016 campaign levels, but a sharp partisan divide that reverses decades of preconceptions reveals Democrats are now more favorable to trade’s impacts than Republicans by a margin of nearly 2:1. Yet trade as an issue virtually never breaks into the top-ten list of voter concerns. Certainly, the term trade is often subsumed under broader economic concerns; voters rightly include trade neuralgia with macro-policy worries such as inflation and interest rates.
Tension in the Himalayas
Why do India and China Keep Fighting Over This Desolate Terrain? New York Times Magazine
The 2,100-mile border separating India and China passes through some of the world’s most inhospitable terrain. In the west, it runs along India’s Ladakh region at an altitude of 13,000 to 20,000 feet. During the months when the area isn’t covered in snow, the ground resembles a moonscape. The earth is sandy, strewn with rocks and pebbles; not a blade of grass grows anywhere; there are no visible signs of animal life. In winter, temperatures can drop to –40 degrees. The bleak conditions and barren vistas can induce despair in those who set foot on the land. “I’ve been to those places,” a former Indian diplomat who now works for an international Buddhist organization in Delhi told me. “When you visit, you tend to think, Who the hell even wants this area?”
Why the Himalayan Region is Integral to a Rules-Based Order in the Indo-Pacific The Diplomat
Chinese militarization and expansionism in the Himalayas remains a perennial concern not just for India but for the United States – and its Indo-Pacific allies and partners. China has been pursuing a “salami tactic” strategy with its neighboring states, including India and Bhutan, trying to rebrand the entire Himalayan region as “Xizang,” a Mandarin term for Tibet.
China
China’s Growing Risk Tolerance in Space: Peoples Liberation Army Perspectives and Escalation Dynamics Rand Corporation
Chinese leaders see themselves in competition with the United States to build military power in space. The multiplication of U.S. and Chinese capabilities could lead to unstable competition in space, raising the risk of rapid, and perhaps unintended, military escalation. This report surveys open-source literature across the Chinese defense enterprise to present a composite image of People’s Liberation Army (PLA) perspectives and key factors for U.S.-China crisis stability in space. It draws on authoritative Chinese writings to understand Chinese perceptions of threats from the United States by reviewing Chinese publications on U.S. intent and capabilities in space. The report additionally traces the evolution of PLA thinking on escalation dynamics in space over the past two decades. The report concludes with an assessment of the challenges facing U.S. officials looking to manage U.S.-China crisis dynamics in space.
National Perspectives on Europe’s De-Risking from China Metrics
The “de-risking” of relations with China has become an organizing principle for the European Union (EU) since it was first put forward by President of the European Commission Ursula von der Leyen in March 2023. This report of the European Think-tank Network on China (ETNC) analyses how 21 EU member states and the United Kingdom view de-risking from a national context. Each chapter is written by China experts who broadly set out to address the same set of questions with respect to their own country: What is the country’s standpoint on the EU’s approach to de-risking? Which China-related risks is that country most concerned about? Was the country’s standpoint on de-risking resulted in any concrete measures? How does that standpoint affect the country’s views on or approach to China?
Global Markets and Geoeconomics
Sovereign Wealth Funds: Corruption and Other Governance Risks Carnegie Endowment for International Peace
In the 1990s, SWFs held $500 billion in assets, but by 2020, they had more than $7.5 trillion in assets under management (AUM), equal to about 7 percent of the global AUM of $111.2 trillion. Globally, prior to 2010, there were only fifty-eight SWFs. Today, however, SWFs have become an increasingly fashionable type of state-owned entity to set up, and there are currently 118 operating or prospective SWFs. In the African continent alone, prior to 2000, there were only two SWFs. Since 2000, sixteen new SWFs have been set up. The report argues that what is particularly concerning about this dramatic growth is that SWFs have been established not just in countries with strong rule of law and civil liberty protections but also in countries marked by high corruption risks, insecurity, violence, and weak or absent rule of law.
The Eclipse of the Petrodollar Hippolyte Fofack/Project Syndicate
Much of the reporting earlier this month about the “non-renewal” of a decades-old “petrodollar agreement” between Saudi Arabia and the United States was riddled with inaccuracies and half-truths. Some outlets even went so far as to allege that Saudi Arabia would “stop using the US dollar for oil sales.” Still, despite these errors, and although the dollar remains dominant, the momentum for de-dollarization is building, reflecting broad geopolitical and macroeconomic shifts.
Top Dollar: Why the Dominance of America’s Currency is Harder Than Ever to Overturn Eswar Prasad/Foreign Affairs
The U.S. economy is no longer the colossus it once was. Its public debt is gargantuan and rising, and policymaking in Washington is erratic and unpredictable. Persistent threats of debt defaults undercut the perception that U.S. government bonds are safe. It would be no surprise, then, if the dollar were rapidly losing its power. But in fact the opposite is happening: the trends that would be expected to weaken the dollar, many of them driven by U.S. policy, are only strengthening its global dominance. The dollar remains on top in part because of the U.S. economy’s size and dynamism relative to other major economies. But more than that, although American institutions are fraying, those in other parts of the world are in no better shape, with populism and authoritarianism on the rise. Moreover, economic and geopolitical turmoil serves only to intensify the quest for safe investments, usually leading investors back to the dollar, which remains the most trusted currency. The United States financial markets are much larger than those of other countries, making dollar assets easier and cheaper to buy and sell.
Recommended Weekend Reads
June 7 - 9, 2024
Here are our recommended reads from reports and articles we read in the last week. With the EU elections now underway, we offer several resources to help understand how the elections work and what and who is trending. We hope you find all 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.
EU 2024 Elections
An American’s guide to the 2024 European election Politico EU
The EU elections have begun, choosing a new EU Parliament with more than 400 million Europeans eligible to vote. But, as Politico EU points out, the EU is complicated, and so they break it down for “our cousins across the Atlantic.”
European Elections 2024: All You Need to Know European Elections 2024 (European Parliament Official Site)
The EU Parliament offers this site to voters, giving them all the information, country by country, of who is running, which Parties are on the ballot, how the votes are tallied, and where they can find the election results.
Europe’s center-left struggles to hold back surge from the right BBC
Only four EU member states have center-left or left-wing parties in government, and recent performances at the ballot box have been poor. The omens for the coming days are not good. The EU’s center-left makes up the second-largest group in the outgoing European Parliament. Known as the Progressive Alliance of Socialists and Democrats (S&D), they are projected, at best, to cling on to their 139 seats in the 720-seat parliament. It is Europe's parties on the right that have the wind in their sails, and any success the center-left achieves is likely to be offset by losses elsewhere.
U.S. 2024 Elections
An Unsettled Electorate: How Uncertainty and Apathy Are Shaping the 2024 Election American Enterprise Institute’s Survey Center on American Life
With just under six months until the 2024 presidential election, a new survey of more than 6,500 adults finds considerable uncertainty among the American public, with few paying close attention to issues that may define the election. Americans are evenly divided between Donald Trump and Joe Biden. At this stage in the election cycle, neither candidate is particularly well-liked: Comparable numbers of Americans hold negative opinions of Trump or Biden as say they favor either candidate. Half of voters say things will get worse if either Biden or Trump wins reelection. Still, Americans tend to believe that the candidate options for the 2024 presidential election present an easy choice, though young voters, especially young women, are less certain. Optimism about the state of the country is in short supply. Americans are primarily pessimistic about the national economic outlook, their local economic outlook, and the American Dream as a whole. More than six in 10 (61 percent) Americans say the national economy is worsening. Half (49 percent) say their local economy is getting worse. Most Americans, including large percentages of young Americans, say the American Dream is not easy for people like them to achieve.
Cultural Issues and the 2024 Election Pew Research Center
The 2024 presidential campaign is taking place amid intense debates over topics such as immigration, growing racial and ethnic diversity in the United States, the changing American family, crime, and reproductive issues. These topics are sometimes grouped together as “culture war” or “woke” issues. On most—but not all—of these topics, voters who support President Joe Biden and former President Donald Trump have starkly different opinions. Yet, in many cases, Biden and Trump's supporters are themselves sharply divided.
Global Markets & Geoeconomics
BRICS and De-Dollarization, How Far Can It Go? Responsible Statecraft
Although much U.S. media attention was paid to the enhancement of military and political cooperation during the summit between Russian President Vladimir Putin and Chinese President Xi Jinping in Beijing earlier this month, financial issues also figured high on the agenda. The Russian delegation included Elvira Nabiullin, Governor of the Central Bank of Russia and she rarely travels with Putin abroad. As the current chair of the BRICS, Putin is pursuing a rather extensive agenda related to finance that includes enhancing the role of member countries in the international monetary and financial system and developing interbank cooperation and settlements in national currencies – and part of that is the possibly created a BRICS currency.
Risky Oil: It’s All in the Tails Christiane Baumeister, Florian Huber & Massimiliano Marcelino/National Bureau of Economic Research
The substantial fluctuations in oil prices in the wake of the COVID-19 pandemic and the Russian invasion of Ukraine have highlighted the importance of tail events in the global market for crude oil which call for careful risk assessment. In this paper we focus on forecasting tail risks in the oil market by setting up a general empirical framework that allows for flexible predictive distributions of oil prices that can depart from normality. This model, based on Bayesian additive regression trees, remains agnostic on the functional form of the conditional mean relations and assumes that the shocks are driven by a stochastic volatility model. We show that our nonparametric approach improves in terms of tail forecasts upon three competing models: quantile regressions commonly used for studying tail events, the Bayesian VAR with stochastic volatility, and the simple random walk. We illustrate the practical relevance of our new approach by tracking the evolution of predictive densities during three recent economic and geopolitical crisis episodes, by developing consumer and producer distress indices that signal the build-up of upside and downside price risk, and by conducting a risk scenario analysis for 2024.
The Simple Macroeconomics of AI Daron Acemoglu/National Bureau of Economic Research
This paper evaluates claims about large macroeconomic implications of new advances in AI. It starts from a task-based model of AI’s effects, working through automation and task complementarities. So long as AI’s microeconomic effects are driven by cost savings/productivity improvements at the task level, its macroeconomic consequences will be given by a version of Hulten’s theorem: GDP and aggregate productivity gains can be estimated by what fraction of tasks are impacted and average task-level cost savings. Using existing estimates on exposure to AI and productivity improvements at the task level, these macroeconomic effects appear nontrivial but modest—no more than a 0.66% increase in total factor productivity (TFP) over 10 years. The paper then argues that even these estimates could be exaggerated because early evidence is from easy-to-learn tasks, whereas some of the future effects will come from hard-to-learn tasks, where there are many context-dependent factors affecting decision-making and no objective outcome measures from which to learn successful performance.
China
How China Could Quarantine Taiwan Center for Strategic & International Studies
In this interactive report, CSIS China has significantly increased pressure on Taiwan in recent years. Its military ships and aircraft now operate around Taiwan on a near-daily basis, stoking fears that tensions could erupt into outright conflict. Much of the world’s attention has focused on the threat of a Chinese invasion, but Beijing has many options besides an invasion to coerce, punish, or annex Taiwan. One major step China could take is a “gray zone” quarantine led not by the military but by the coast guard and other law enforcement forces. Rather than sealing off the island, a quarantine would aim to demonstrate China’s ability to exert control over Taiwan.
How is China’s Economic Transition Affecting Its Relations with Africa? Carnegie Africa Program/Carnegie Endowment for International Peace
Amid increasing tensions with the United States and domestic pressures, China has been more motivated to reorient its economic and diplomatic relations with the Global South. China’s economic transition is already affecting its relations with Africa in several domains, including trade, investments, and people-to-people ties. The authors of this study provide insights into the implications of China’s economic transition for Africa, as well as the roles for third parties like the United States to shape how these changes unfold.
Russia/Ukraine
Russia’s Soaring Wartime Salaries Are Bolstering Working-Class Support for Putin Carnegie Politika
Many formerly badly paid Russian blue-collar workers have seen their salaries skyrocket since the full-scale invasion of Ukraine, far outpacing inflation. he reasons for rising incomes in Russia have been well documented: a labor shortage, hefty payments to soldiers and their families, and an unprecedented level of state spending that has obliged defense sector factories to work around the clock. However, whether standards of living have actually improved is open to debate, given the record military spending, high inflation, Western sanctions, and limits on hydrocarbon exports. The second trend is the booming gambling market. The income of legal bookmakers rose 40 percent in 2023, and active gamblers (those who bet at least once a week) numbered some 6.6 million people. In total, more than 15 million people gambled (about one in seven Russians over the age of 18) over the course of the year. At the same time, inflation means the size of the average bet is growing. Current trends have even led to calls to raise the legal limit on a single bet from 600,000 rubles to 1.4 million rubles.
The destruction of the dam at Ukraine’s Kakhovka Hydroelectric Power Plant on the morning of June 6, 2023, caused the flooding of about 80 towns and villages in the country’s Kherson and Mykolaiv regions. Kyiv and Moscow blamed each other for the collapse and the resulting humanitarian and environmental disaster (though the dam has been controlled by Russian forces since the start of the full-scale invasion). In addition to inundating communities downstream from the facility, the dam’s breach caused catastrophic shallowing further upstream, devastating communities in the Zaporizhzhia region that used to rely on fishing and river transport for their livelihoods. For Meduza, Ukrainian photographer Pavel Korchagin traveled to the region to capture the way its landscape has changed in the year since the dam burst.
Recommended Weekend Reads
May 24 - 27, 2024
Here are our recommended reads from reports and articles we read in the last week. We hope you find these useful and that you have a relaxing weekend. And let us know if you or someone you know wants to be added to our distribution list.
European Union Elections 2024
European Parliament Elections 2024: What Is at Stake? Intereconomics: Review of European Economic Policy/ZBW/CEPS
In June 2024, EU citizens will vote in the European Parliament elections – two years into Russia’s war in Ukraine and on European values, after the COVID-19 pandemic and the finalization of Brexit, and with the possibility of Donald Trump winning the US presidential election later this year. In a turbulent geopolitical environment, the European Parliament elections will reshape the political landscape in Brussels, where traditional parties are being challenged and an increasing tilt towards right-wing governance is unmistakable. The current European Commission has adopted several major legislative initiatives, but a new Commission may set new priorities and take a different political direction. In the lead-up to the elections, this Forum focuses on some of the issues that will take center stage for voters and define the next phase of European politics.
EU Election 2024: Complete Guide to News, Polls, and Key Players Politico EU
The 2024 European Parliamentary elections are going to be held from June 6 – 9. It is the first European Parliamentary election since Brexit (of which the UK’s previous seats were distributed to other countries)and will elect 720 members of the European Parliament to choose the European Commission President and help to decide the makeup of the European Commission going forward. This election is expected to be one of the more contentious as a number of far-right parties have emerged as ahead in polls. This site carries all the latest polls and analysis of what is going on election-wise.
Winds of Change: The EU’s green agenda after the European Parliament election European Council on Foreign Relations
The next European Commission and Parliament are likely to place security and competitiveness at the center of their quest for a more geopolitical Europe. With concerns about the costs of the green transition, growing trade tensions between the US and China, and uncertainty surrounding the outcome of the US presidential election and Russia’s war on Ukraine, the EU will probably find it much harder to make further progress on climate action over the next five years. These geopolitical developments – and the way the EU responds to them – will have far-reaching consequences for the EU’s trade and technology decisions, fossil fuel phase-out, and climate diplomacy. The case for climate action remains clear, including its role in European security and competitiveness. In this challenging context, climate progressives will have to deploy compelling narratives, strategic resourcing, and diplomatic engagement to advance the best possible climate agenda during the EU’s next institutional cycle.
The Front-Runners for the Next European Commission Politico EU
The European Commission’s top jobs will all soon be up for grabs again after next month’s European election. Which country will get the all-powerful trade commissioner job and oversee the EU’s impending trade war with China? Will the Poles secure a newly created defense portfolio to square up to their arch-rivals, the Russians? And who will get to police U.S. tech giants like Apple and Google as Europe’s next competition chief? Even before the June 6-9 election, maneuvering is underway to net the prize slots. Each of the EU’s 27 countries gets a commissioner job in the highly political post-election carve-up, but there’s a tooth-and-nail fight to determine who gets what. Trade and competition are the blue-ribbon portfolios with genuine power; those involving sport, education, and multilingualism are the kiss of death.
India
India’s Engagement with the Middle East Reflects New Delhi’s Changing Worldview War on the Rocks
In the early 1990s, India responded to the end of the Cold War with a new “Look East” policy, which it subsequently rebranded as “Act East” in 2014. Today, India has developed a “Think West” policy focused on what those in the West call the Middle East. So which way is India thinking, looking, and acting today?
Africa
Rethinking US Africa Policy Amid Changing Geopolitical Realities Texas National Security Review
Since 2020, Africa has seen more political unrest, violent extremism, and democratic reversals than any other region in the world. A wave of coups has washed across the Sahel and West Africa, leaving authoritarians in power in numerous countries. In addition, the continent has served as a stage for the escalating great-power competition between China, Russia, and the United States. U.S. engagement with Africa has long been deprioritized in Washington, with successive administrations devoting scant attention and resources to advancing democracy and resolving conflicts. Thus far, the Biden administration has maintained this pattern, which reflects the persistent tension between an interests-based and values-based U.S. foreign policy. Nevertheless, there are a few actions the United States can take to reinvigorate democracy and stabilize the region, such as emphasizing development and diplomacy over military responses and stepping up cooperation with allies and partners to reduce the influence of China and Russia.
Political Economy
Austerity, economic vulnerability, and populism American Journal of Political Science
Governments have repeatedly adjusted fiscal policy in recent decades. We examine the political effects of these adjustments in Europe since the 1990s using both district-level election outcomes and individual-level voting data. We expect austerity to increase populist votes, but only among economically vulnerable voters, who are hit the hardest by austerity. We identify economically vulnerable regions as those with a high share of low-skilled workers, workers in manufacturing, and in jobs with a high routine-task intensity. The
analysis of district-level elections demonstrates that austerity increases support for populist parties in economically vulnerable regions, but has little effect in less vulnerable regions. The individual-level analysis confirms these findings. Our results suggest that the success of populist parties hinges on the government’s failure to protect the losers of structural economic change. The economic origins of populism are thus not purely external; the populist backlash is triggered by internal factors, notably public policiesSocial Security’s Financial Reality is Worse Than Reported American Enterprise Institute
The Social Security Trustees recently released their annual Report on the projected finances of the program. The media, advocates, and the Commissioner himself trumpeted that the Report had good news: The program’s finances have improved over the prior year, the projected Trust Fund exhaustion date had moved out a year to 2035, and the automatic benefit cuts upon insolvency were smaller, 17 percent instead of the 20 percent estimated in the prior year’s Report. A closer look, however, reveals this optimism is misplaced. The report fails to accurately reflect long-term declines in fertility rates. When the trend toward lower fertility is incorporated accurately in future Reports, the picture of the program’s finances will look much worse, and therefore, the realistic cost of needed reforms will rise.
Consulting Firms Have Stumbled Into a Geopolitical Minefield Foreign Policy
Not so long ago, consultancies and other information brokers could work easily with different clients in different countries. Just as they talked to competing firms, they advised competing governments. But what may have seemed banal then may now be depicted as smoking gun evidence that companies are helping the enemy. For decades, business leaders assumed that globalization meant market expansion. Their big worry was gaining and keeping market share and competing with their rivals. Now, they are being thrown unprepared into a world where globalization means geopolitical risk—and information is the riskiest asset of all.
How Do US Firms Withstand Foreign Industrial Policies? 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" suffered a valuation loss afterward. 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.
Recommended Weekend Reads
March 15 - 17, 2024
Here are our recommended reads from reports and articles we read last week. We hope you find these useful and that you have a relaxing weekend. Also, let us know if you or someone you know wants to be added to our distribution list.
Americas
“Annual Threat Assessment of the U.S. Intelligence Community” Office of the Director of National Intelligence
The Director of National Intelligence (ODNI) released their annual global threat assessment. The report outlines how, in the coming year, the United States will face an increasingly fragile global order strained by accelerated strategic competition among major powers, more intense and unpredictable transnational challenges, and multiple regional conflicts. The report details the US Intelligence Communities unclassified assessment of China, Russia, Iran, and non-state actors and the risk they pose to the US.
“Redefining US Strategy with Latin American and the Caribbean for a New Era” Atlantic Council
The Atlantic Council launched this study because of the perception of waning US interest, and the rise of external influence necessitates a rejuvenation of and renewed focus on the region. The study focuses on what can be done in four areas: 1) economy, investment, and commerce, 2) energy security, 3) regional migration and security, and 4) democracy, institutions, and governance.
“How banking regulations affect US foreign policy” The Atlantic Council
Economics, finance, and national security overlap. Obvious areas of convergence include sanctions and trade policy. But the average US foreign policymaker is now also expected to develop at least rudimentary knowledge of critical minerals and what constitutes a reserve currency. Banking regulations may seem a step too far, but they must be added to the list because they, too, carry foreign policy implications.
The Puzzling Persistence of Financial Crises” National Bureau of Economic Research
The high social costs of financial crises imply that economists, policymakers, businesses, and households have a tremendous incentive to understand and try to prevent them. And yet, so far, we have failed to learn how to avoid them. In this article, we take a novel approach to studying financial crises. We first build ten case studies of financial crises that stretch over two millennia and then consider their salient points of differences and commonalities. We see this as the beginning of developing a useful taxonomy of crises – an understanding of the most important factors that reappear across the many examples, which also allows (as in any taxonomy) some examples to be more similar to each other than others. From the perspective of our review of the ten crises, we consider the question of why it has proven so difficult to learn from past crises to avoid future ones.
Driving Under the Influence of Allergies: The Effect of Seasonal Pollen on Traffic Fatalities National Bureau of Economic Research
Traffic fatalities are the leading cause of mortality in the United States despite being preventable. While several policies have been introduced to improve traffic safety, and their effects have been well documented, the role of transitory health shocks or situational factors in explaining variations in fatal traffic accidents has been understudied. Exploring daily variation in city-specific pollen counts, this study finds novel evidence that traffic fatalities increase on days in which the local pollen count is particularly high. We find that the effects are present in accidents involving private vehicles and occur most frequently on the weekends, suggesting potentially a missed opportunity to avoid these fatalities. We do not find similar effects for fleet vehicles. These findings remain robust to alternative specifications and alternative definitions of high pollen count. Taken together, this study finds evidence that a prevalent and transitory exogenous health shock, namely pollen allergies, increases traffic fatalities. Given our lack of evidence of avoidance, these effects are not mechanical and are likely driven by cognitive impairments that arise as a result of seasonal allergies.
European Union
“EU-US relations after the Inflation Reduction Act, and the challenges ahead” European Parliamentary Research Service
In this paper, Bruce Stokes, visiting senior fellow at the German Marshall Fund of the United States, and associate fellow at Chatham House, offers an overview of US-EU relations since the passage of the US Inflation Reduction Act of 2022. This paper is based on the author’s interviews with leading European and US experts and published analysis by major think tanks and journalists on both sides of the Atlantic. The paper discusses current efforts to manage longstanding pre-IRA disputes, the Trade and Technology Council, the US Chips and Science Act and the EU’s response, looming issues such as CBAM and critical minerals, and how politics in both the US and Europe may affect the handling of these issues.
“Opening Shots: What to Make of the European Defense Industrial Strategy” European Council on Foreign Relations
The European Commission’s new defense industrial strategy sets out to strengthen the EU’s defense industry through common and local procurements. But it will need both financial and political buy-in to succeed. Firstly, money matters. The €1.5 billion mobilized to establish the European Defense Industrial Policy (EDIP) between 2025 and 2027 represents a fraction of European spending (roughly 0.2 percent), which will make it difficult to shape the market. Significant additional money could only be allocated under the EU’s next multiannual financial framework in 2028.
Secondly, the commission needs to clarify the functioning of different financial tools, including the Fund to Accelerate Defense Supply Chain Transformation (FAST) to support small- and medium-sized enterprises; the Structure for European Armament Programme (SEAP), which bolsters cooperation in part through a VAT exemption; and the European Military Sales mechanism (which is apparently modeled on the US Foreign Military Sales tool, though focused on the availability of EU equipment).
Thirdly, as it grows, this effort needs to be well aligned with defense planning priorities, which are primarily defined at the national level or in NATO. This will require much closer NATO-EU engagement. Fourthly, member states, especially the larger ones, have traditionally been reluctant to Europeanize defense policies and could resist a perceived power grab by the commission. The EU will have to convince them – and their industries – of the added value of this approach, including, for some, the choice to buy European.
Finally, given the money initially allocated and the usual timeframe before implementation, EDIS and EDIP will not address the immediate requirements of Ukraine or short-term capability shortfalls.
NATO
NATO’s decision process has an Achilles’ heel By Eric S. Edelman, David Manning, and Franklin C. Miller The Atlantic Council
In Washington this July, the most successful political-military alliance in modern history will celebrate its seventy-fifth anniversary. Today, the Alliance stands as a barrier to Russian President Vladimir Putin’s ambition to recreate a “Russian world,” bringing Russophone citizens back into something like the borders of the Soviet Union by reabsorbing Ukraine and possibly Moldova and the Baltic states. The Russian autocrat’s invasion of Ukraine has strengthened the Alliance by adding two very capable members (Finland and now, finally, Sweden), and by strengthening the will of member states to stand together against Russian aggression. But the fact is the principle of consensus which holds the alliance together, except in the case of accession, is not enshrined or codified in any Alliance document. What worked for the Alliance earlier, when all of its members were like-minded states facing an overwhelming military challenge, and the memories of World War II were fresh in the minds of both the public and leaders, may not be fit for purpose today with a broader and much more diverse membership.
China
“Export controls: China’s long game to defend its tech advantage” Merics
Rather than abruptly pulling the plug on certain exports, Beijing is gradually sharpening an instrument to better control global tech supply chains and pursue a range of other goals. Chinese export controls came into focus in the summer of 2023 when the Ministry of Commerce (MOFCOM) announced new licensing requirements on the export of gallium and germanium, critical minerals in semiconductor manufacturing. Some saw this as a response to the Dutch government’s new export restrictions – under pressure from the US – on products made by ASML, a major supplier of chipmaking tools to China. And retaliation it was – just not in a simple, tit-for-tat manner, and likely not aimed at that target. If the past year is of any indication, it is plausible that these mineral controls – which do not constitute an export ban – were chiefly aimed at US companies. While germanium is used in fiber optics and solar panels, and gallium in consumer electronics and 5G telecommunications, both are key for the aerospace and defense industries. In 2023, the Chinese government added US defense contractors Lockheed Martin and Raytheon to its Unreliable Entities List – companies China marks for punitive action. It also deemed memory chips from US defense contractor Micron to pose a risk to its domestic critical information infrastructure.
“China’s Food Security: Key Challenges and Emerging Policy Responses” Center for Strategic & International Studies
Feeding China’s vast population is a priority issue for Beijing, given the historic ramifications of famines and food crises for social and regime stability. Yet the task is vast—China must feed nearly 20 percent of the global population but is home to under 10 percent of the world’s arable land—and the challenges to stable food supply are many. These include inefficient agricultural practices, supply chain bottlenecks, changing consumption habits, international trade dynamics, domestic environmental degradation, corruption and data misrepresentation, and a history of food safety scandals. Diagnosing a more contentious international environment, Xi Jinping has placed greater emphasis on agricultural self-sufficiency and diversified sourcing of critical inputs, foodstuffs, technology, and know-how. This brief explores key trends, challenges, and policy measures in China’s pursuit of food security. It is part of a joint CSIS-Brookings Institution project, Advancing Collaboration in an Era of Strategic Competition, which seeks to explore and expand the space for U.S.-China collaboration on matters of shared concern.
Russia
“All the autocrat’s men: the court politics of Putin’s inner circle” The Atlantic Council’s Eurasia Center
There will be very little suspense surrounding Russia’s presidential election this month. Vladimir Putin will certainly win a fifth term as Kremlin leader. This is because Russian elections are not elections. Instead, they are mobilization and legitimization rituals in which the results are preordained. And even such a shock as opposition leader Alexei Navalny’s death probably won’t change this.
However, the lack of suspense surrounding the result of the vote does not mean that it will not be meaningful. On the contrary, this ritual is a political watershed that will determine the landscape in Russia for years to come—and possibly what Russia will look like after Putin finally passes from the scene. That is because, in the absence of institutions, Russian politics are effectively court politics, dominated by the clan battles within the Kremlin leader’s inner circle. What is the state of the “Putin court?” And how has Russia’s war against Ukraine influenced the clan battles that define it? Why does the Kremlin seek to leverage traditional conservative values and the Russian Orthodox Church? This report is based on extensive interviews with dozens of current and former Russian officials who spoke on condition of anonymity to discuss the inner workings of the Kremlin power elite without fear of reprisals.
Statistics and Map of the Week
Which Chinese Local Governments Are Facing The
Most Severe Debt Obligations?
The Financial Times recently reported how officials from China’s most indebted provinces and cities were recently brought into meetings with state bankers in Beijing to attempt to accelerate the renegotiation of debt payments on billions of dollars in outstanding liabilities. Infrastructure spending drove up much of the local debt – much of it now unserviceable. And it is now a severe drag on China’s overall economy and threatening to add new pressure on the country’s effort to get its struggling economy back on track. Most of the provinces are on the outer rim of China and tend to be the poorest areas. It is estimated that 18 local governments have amassed as much as $13 trillion in debt, with a growing number of their public bonds coming due by the end of 2024.
Recommended Weekend Reads
December 22 - 24 2023
Here are our recommended reads from reports and articles we read in the last week. We hope you find these useful and that you have a relaxing weekend. And let us know if you or someone you know wants to be added to our distribution list.
We hope you have a Merry Christmas!
Global Perspectives
"“Is Geopolitical Risk Getting Worse?” Peterson Institute for International Economics
As 2023 draws to an end, major wars are raging in Europe and in the Middle East, between Russia and Ukraine and between Israel and Hamas. According to the Uppsala Conflict Data Program, there are more active armed conflicts involving sovereign states than ever since World War II. The same can be said of displaced persons. With tensions rising in the South China Sea, geopolitical risk seems higher than at any point in recent memory. Things, as they say, have been better. But are conditions worse, or at least riskier, than ever? The Geopolitical Risk Index (GPR), developed by Dario Caldara and Matteo Iacoviello to assess risk in broader historical perspective, suggests otherwise.
“Attitudes on an Interconnected World” Pew Research Center
How close do people feel to others around the world? How much do they want their countries involved in international affairs? How do people’s experiences with travel and feelings of international connectedness relate to their views about the world? These are among the questions Pew explored in a recent 24-nation survey. We found that while most respondents feel close to people in their countries and their local communities, they are more divided over how close they feel to others across the globe.
United States
“Other Countries’ Activities During the 2022 Election Cycle” Office of the Director of National Intelligence
The US intelligence community observed other countries engaging in efforts to either support or undermine specific US candidates during the 2022 elections. This NDI report relays how China, Iran, Russia, and Cuba were the leading agents perpetuating these efforts to undermine American democracy.
European Union/Critical Materials
“Critical Material: The EU’s and Chile’s New Relation in the Multipolar World” European Council on Foreign Relations
The EU’s relationship with Chile is a test case for the EU’s capacity to navigate the emerging “à la carte” multipolar order, in which countries pragmatically choose their partners depending on the issue at hand. Chile is the world’s largest producer of copper and the second largest producer of lithium, a domination that is set to last, given its proven reserves of both metals. From the vantage point of Europe, Chile could provide immense assistance in powering the green transition – literally, by supplying the materials to power the batteries that Europeans are relying on to digitize and electrify their economy. The EU already imports 80 percent of its lithium from Chile – a crucial dependency in the rapidly evolving world economy.
Israel/Gaza War
“Life in Israel After October 7 in 5 Charts” Gallup
Gallup surveyed Israelis between Oct. 17 and Dec. 3, just weeks after Hamas launched its attack on Israel on Oct. 7. As the war between Israel and Hamas continues, here are five key insights into public opinion in Israel. There were five key takeaways from the survey:
1. Israelis no longer support a two-state solution
2. Hopes for peace grow further out of reach
3. Negative emotions soar after the attack
4. Approval of US leadership reaches new high
5. Approval of Israel’s leadership remains flat
China
“Why are so many young Chinese depressed?” Australian Strategic Policy Institute
China’s high youth unemployment rate and increasingly disillusioned young people—many of whom are ‘giving up’ on work—have attracted much attention from global media outlets and Chinese policymakers. The standard narrative is to associate the problem with the country’s recent growth slowdown. In fact, the issue goes much deeper.
The rise of youth depression has been decades in the making and owes much to China’s rigid education system, past fertility policies, and tight migration restrictions. Chinese youth are burned out from spending their childhood and adolescence engaged in ceaseless, intense study. Attending a good university is seen as necessary for securing a good job, and for rural children, a university degree is the only path to legal residence in cities under the hukou registration system. In a city, the average household annual disposable income is US$6,446, which enables a middle-class lifestyle.
By contrast, in rural areas, an income averaging only US$2,533 means living in relative poverty. As if the pressure to get into a university wasn’t bad enough, the rigid structure of the school system makes matters worse. After nine years of compulsory schooling, children must pass an exam to enter an academic high school, and only 50% of them are allowed to pass. Teenagers who don’t make the cut attend vocational high school and are destined for low-paying jobs.
“Five big uncertainties facing the Chinese economy in 2024” Peterson Institute for International Economics
The Chinese economy’s rebound started slowly last spring, shaking off the effects of an estimated 1.41 million excess deaths from the pandemic and China’s zero-COVID policies. Today, although growth will likely meet the government’s 5 percent target for 2023, the Chinese economy remains troubled, plagued by flat private investment, flagging consumer confidence, and high youth unemployment. Falling prices and depressed business and consumer confidence are flashing warning signs about the year ahead. Here are five big uncertainties about Chinese economic performance and the government’s policy responses that will determine whether growth can be sustained in 2024.
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