Recommended Weekend Reads

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

November 15 - 17, 2024

Latin America

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

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

• What Marco Rubio Has Said About Latin America  Americas Quarterly

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

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

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

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

Africa

• Banking on the diaspora   OFIF

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

China

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

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

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

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

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

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

Recommended Weekend Reads

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

October 18 - 20, 2024

Please find below our recommended reads from reports and articles we read in the last week.  We hope you find these useful and that you have a relaxing weekend.   And let us know if you or someone you know wants to be added to our distribution list.

Americas

• Solving Latin America’s Food Paradox  Americas Quarterly

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

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

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

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

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

The U.S. Elections

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

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

China

• Renminbi dilemma for Chinese authorities  Mark Sobel/ OMFIF

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

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

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

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

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

Geoeconomics

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

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

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

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

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

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

Recommended Weekend Reads

October 11 - 13, 2024

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

Please find below our recommended reading from reports and articles we read last week. We hope you find these useful and that you have a relaxing weekend. And let us know if you or someone you know wants to be added to our distribution list.

The BRICS+ Upcoming Leadership Summit

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

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

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

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

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

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

China

• China’s Dollar Dilemma  Carnegie Endowment for International Peace

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

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

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

Americas

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

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

Russia

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

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

US Economics & Trade

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

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

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

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

Recommended Weekend Reads

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

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

September 20 - 22, 2024

Latin America 

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

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

Turkey

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

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

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

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

Europe 

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

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

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

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

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

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

Russia’s Evasion of Sanctions

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

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

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

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

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

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

 Geopolitics

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

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

Recommended Weekend Reads

Mexico's Judicial Reform Risk, Bad Best on "Peak China," and Germany's Economic Challenge

September 6 - 8, 2024

Latin America

• AMLO’s Plan C and the North American Bloc, If We Can Keep It   Center for Strategic and International Studies

  As Mexico’s president, Andrés Manuel López Obrador (AMLO) begins his final month in office, he has started a farewell tour of the country and launched his last crusade to cement his legacy. Driven by a mélange of revenge and a sense of unfinished business, the president has pushed a series of constitutional reforms introduced in early 2024 as a sweeping package referred to as “Plan C.” (Plans A and B failed to pass in Mexico’s Congress or were ruled unconstitutional by the courts.) Among other things at stake are the independence of Mexico’s regulatory bodies, Mexico’s electoral agency (which serves as an exemplar in Latin America), and the independence of Mexico’s judicial branch. Thus, it is not hyperbole to say that Mexico’s ability to continue playing a starring role as a strategic partner in economic security initiatives and near-shoring could evaporate in the wake of Plan C’s passage.

• Electing Top Judges Has Been A Disaster in Bolivia  The Economist

  Bolivia is the only country in the world that elects its top judges. Mexico may soon join the club. Yet Bolivia’s experience has been disastrous. The courts have become a prize to control, the opposite of being a neutral arbiter.  President Luis Arce, who took office in 2020, and a former president, Evo Morales, both want to be the ruling party’s candidate in the presidential election next year. They know the courts may ultimately decide who it will be. That has set off a fierce fight to control them. Last year, the opposition accused Mr. Arce’s government of torpedoing judicial elections that should have happened in 2023 so as to maintain its influence in the courts. The battle poisoned Bolivian politics so badly that it opened the door to a coup attempt by power-hungry soldiers.
  

• What Happens When Half a Million People Abandon Their City  New York Times

  It was once a thriving metropolis in the heart of Venezuela’s oil country.  About a quarter of the residents (eight million people) of Maracaibo, Venezuela’s second-largest city, have moved away — and more are expected to soon follow.  The reason? Political repression at the hands of President Nicolás Maduro and economic destruction from Maduro’s reign of power.
  

• 2024 Venezuela Election Protests: Harsher Repression at Home and More Global Reach Than in 2019  ACLED

  One month after the 28 July presidential elections, Venezuelans demonstrated at home and abroad to demand electoral authorities publish the election tally sheets among wide-spread evidence of massive election fraud.  Just as in 2019 following the last elections which saw wide-spread fraud, Venezuelans have protested against President Nicholás Maduro’s fraud. Inside Venezuela, at least 22 protesters have been killed, mostly by pro-government militias, and over 2,400 people arrested during anti-government demonstrations since the election results were announced. Outside Venezuela, ACLED records almost nine times more demonstrations supporting the opposition and rejecting the election results than in 2019. This reflects both the number of Venezuelans who have fled the country, which has more than doubled since then, and stronger support for an opposition that has shown greater unity and organization.

China

• Organizing American Policy Around “Peak China” is a Bad Bet  Ryan Hass/China Leadership Monitor

  Our friend and colleague, Ryan Hass, writes how China’s leaders confront mounting internal and external headwinds to their country’s continuing rise.  At home, Beijing’s economic engine is sputtering. Abroad, countries are pushing back against Chinese attempts to export its way to economic growth.  On the security front, countries are banding together to guard against China’s expansion in military capabilities. This confluence of challenges has caused some American analysts to declare the end of China’s rise and warn that Beijing could lash out militarily before it begins its downturn in national power. China’s leaders explicitly reject suggestions that the country’s best days are behind it. They believe China’s path to greater global influence is widening as America’s dominance in the international system wanes. It would be a mistake to organize American policy around “peak China” theory. The United States and China are locked in a long-term competition for global influence. This competition ultimately will turn on national performance. That is where America’s policy focus must reside for the United States to preserve its privileged position in the world.

Global Trade

• Trade Wars, Tech Rivalry and Geopolitical Tensions   Federal Reserve Bank of St. Louis “On the Economy” Blog

  In the last decade, escalating trade wars, technological rivalry and growing geopolitical tensions have shaped the global economic landscape. The U.S.-China trade dispute, concerns over technological supremacy and shifting alliances have dominated headlines and policy discussions, emphasizing the importance of geopolitical alliance in an increasingly volatile global economy.  The authors offer three key figures using 2015 data to shed light on the relationship between geopolitical distance and international trade patterns before the recent escalation of global economic tensions.  They also offer some interesting insights into the role of tax have countries and the relevance of geopolitical distance growing in global technology trade.
  
  

Africa and the Race for Control of Critical Minerals

• Maximizing the Benefits of the Renewed Global Interest in Africa’s Strategic Minerals   Carnegie Endowment

  Negotiations between African governments and foreign investors are often characterized by the various skills, technical capacities, and information asymmetries that shape the balance of power and influence outcomes. The dynamics of these negotiations—in pursuing extractive and infrastructure projects, in particular—merit a special focus, as agreements to carry them out often bind African countries for several decades. Africa is home to a substantial share of the world’s reserves of mineral resources needed for the clean energy transition and could therefore be the main theater for the global race among China, the United States, European countries, Persian Gulf countries, and others to secure access. The International Energy Agency estimates that manufacturers of clean energy technologies will need forty times more lithium, twenty-five times more graphite, and about twenty times more nickel and cobalt in 2040 than in 2020.

Europe

• Germany’s Growth Model is Broken   Mark Sobel/Taylor Pearce – OMFIF

  The German economy, Europe’s largest, has stagnated since the end of the pandemic. Recent data hardly give rise to optimism about its near-term prospects and the stagnation has reinforced malaise among German society – especially in the economically weaker former German Democratic Republic states, as evidenced by 1 September elections in Thuringia and Saxony. Debates are now swirling, even if improbable, about whether the current governing coalition can remain intact through its term. But the economy’s roadblocks are far more than cyclical. They are deep-seated and structural and were manifesting themselves even prior to Covid-19. Is Germany becoming once again the ‘sick man of Europe’?

• Germany and Europe Can Boost Security by Reforming Capital Markets  German Council on Foreign Affairs

  Poorly developed capital markets in Germany and across the European Union (EU) hurt European security. Reforming them can foster economic dynamism, reduce harmful dependencies, and enhance Europe’s military edge. If German and EU politicians took a strategic view, they would clearly see the need to overcome fragmentation in the financial sector, increase risk appetite, incentivize private investment in innovation, and optimize regulation to meet economic and security needs.

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 26 -28, 2024

Please find below our recommended reads from reports and articles we read in the last week. We hope you find these useful and that you have a relaxing weekend.   And let us know if you or someone you know wants to be added to our distribution list.

Latin America

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

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

• Meet the Candidates: Venezuela   Americas Quarterly

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

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

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

Africa

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

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

•   The Forgotten War in Congo   Foreign Affairs

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

The Middle East

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

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

China 

• The Limits of the China Chip Ban    Foreign Affairs

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

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

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

Map & Chart of the Week

More Than 650,000 Russians have Emigrated Since the Start

of the Ukraine War. Did They Go?

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

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

Recommended Weekend Reads

July 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 28 - 30, 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.

The French Elections

• Emmanuel Macron, destroyer of worlds   UnHerd

  Following the recent shock EU Parliamentary elections, Europe was further shocked by French President Emmanuel Macron’s almost instantaneous decision to call snap elections. In this fascinating and quite detailed report, Macron’s closest political allies and aides seem to be the most shocked of all. What drove Macron to make the decision? This report explains a lot about Macron’s thinking and vision going forward.

• Tracking the French Election Polls and Vote Count   Politico EU

  Politico has set up a great site to allow anyone to track the latest news on the French legislative elections which begin this weekend.

Tensions in the South China Sea

• High noon at Second Thomas Shoal   The Australian Strategic Policy Institute

  China has identified the beleaguered garrison at Second Thomas Shoal as a weak link among the South China Sea features physically occupied by the Philippines and, by extension, the US-Philippines alliance.  While Manila has held its nerve against Beijing’s mounting pressure tactics and holds the moral high ground in the South China Sea, it’s not clear yet that it has a viable strategy to counter Beijing’s maritime juggernaut.  China is obviously willing to escalate. As it does, the Philippines, in trying to hang on, will probably need military support from the United States, its treaty ally. Another violent incident could invoke the US obligation to defend the Philippines against armed attack.

• Second Thomas Shoal   Asia Maritime Transparency Initiative

  What is the Second Thomas Shoal?  Where is it?  And why is China trying to claim it even though it belongs to the Philippines?  This link explains it all via excellent satellite photographs and analysis.

Russia/Ukraine

• How Russia Exports Ukrainian Grain As Its Own: An Investigation    Radio Free Europe/Radio Liberty

  Russian firms shipped tens of thousands of tons of wheat and peas out of occupied parts of Ukraine in 2023 to EU member Spain, NATO member Turkey, and Azerbaijan, the investigative unit of RFE/RL’s Ukrainian Service, Schemes, and its partners have found.  Similar amounts of barley and corn reached Moscow allies Iran and Syria, which have an established track record of buying Ukrainian grain appropriated by Russia.  In an investigation based on official Russian documents and other sources, At least 6.4 million tons of wheat alone were harvested from Russian-occupied Crimea and Russian-held parts of the Donetsk, Kherson, Luhansk, and Zaporizhzhya regions in 2023, according to satellite estimates by NASA’s Harvest program, which tracks food-security threats. SeaKrime, a nongovernmental Ukrainian project that tracks Russia’s illegal grain shipments from Ukraine, has reported that 2 million tons of that harvest were shipped abroad from Crimea’s ports.

Americas

• The U.S. EXIM Bank in an Age of Great Power Competition    Daniel Runde/Center for Strategic and International Studies

  The U.S. Export-Import Bank (EXIM), the United States’ official export credit agency (ECA), is an independent, executive branch institution that supports U.S. businesses by financing the exports of goods and services.  During the last 15 years, EXIM, once the global ECA gold standard, has been underutilized as it has struggled politically.  Over this same period the global export credit landscape has evolved significantly, with governments around the globe using their ECAs more as instruments of industrial policy and to strategically boost their manufacturing competitiveness and strategic influence in critical emerging and frontier markets. Most notable in its ascendance as a global export credit player, the People’s Republic of China (PRC) has become a much bigger player in the space. At the same time, U.S. allies (and sometimes economic competitors) have also elevated their ECAs’ competitiveness and influence by offering more flexible terms and becoming more client-oriented compared to EXIM. As a result, EXIM not only has lost its global leadership position but is now at a significant competitive disadvantage compared to its competitors, including the PRC, in the ECA space. The U.S. EXIM bank will need a new slate of board members in January 2025, as three of the four current board members’ terms end January 20, 2025, and EXIM faces a reauthorization in 2026, offering an opportunity to rethink what tools and capabilities EXIM should have.

• Mid-Year Update on Latin America’s Economies   Americas Quarterly Podcast

  World Bank Chief Economist for Latin America and the Caribbean William Maloney discusses the economic outlook for Latin America, including addressing the question of how much nearshoring is really happening.
  

• The Future of U.S.–Mexico Relations    The National Interest

  Mexico voted overwhelmingly for Claudia Sheinbaum to become its next president. She won nearly 60 percent of the popular vote—6 percent more than the incumbent President Andres Manuel Lopez Obrador (AMLO) obtained in 2018. The political coalition led by the Morena Party secured commanding majorities in both houses of Congress and obtained victories in state elections across Mexico.  With this impressive victory, however, come challenges that will send clear signals about how this new super-majority intends to govern Mexico and what kind of partner the United States can expect to deal with.

Middle East

• Biden Faces a Hard Choice to Avert Israel’s Next War   Hal Brands/American Enterprise Institute

  Israel faces several grave decisions in the coming weeks — what to do in Gaza after the fighting in Rafah concludes, how to balance the campaign against Hamas with the quest to free the hostages, and whether to move decisively toward normalization with Saudi Arabia. But Israel’s most fateful choice is whether to pivot from one war against Hamas to another against Hezbollah. That simmering conflict is approaching a moment for decision. The best way for President Joe Biden to head off a devastating Israeli war with Hezbollah in Lebanon is to demonstrate that he will back Israel to the hilt.

• Israel isn’t ending the war in Gaza – just turning its attention to Hezbollah   Vox

  Israeli Prime Minister Benjamin Netanyahu indicated in a television interview recently that he intends to move some of the country’s forces to the northern border to fight the Lebanon-based military group Hezbollah. Were it not for the war in Gaza, that conflict might have already been capturing the world’s attention. Israeli Defense Minister Yoav Gallant is also visiting Washington this week in part to discuss the implications of that escalation with US officials.

• Iran’s New Nuclear Threat: How Tehran Has Weaponized Its Threshold Status   Foreign Affairs

  Tehran has long used threats of nuclear expansion to reduce international pressure.  After Iran attacked Israel in April and the world awaited Israel’s response, Iran’s military commander in charge of Iran’s nuclear sites warned that if Israel attacked the sites, Tehran could revise its nuclear doctrine.  This is a new and dangerous evolution in Iran’s strategy, which is to use the country’s enhanced ability to build a nuclear weapon as a deterrent. Iran has gradually acquired many of the key capabilities necessary to build a nuclear weapon, becoming a so-called threshold state. Iran can now, in a matter of days, produce enough highly enriched uranium to make a bomb. By highlighting its bomb-making potential and responding to specific provocations by threatening to take the final steps to build nuclear weapons, Tehran hopes it can prevent international sanctions and a strike against its nuclear program.

Geoeconomics

• Can Trump replace income taxes with tariffs?   Peterson Institute for International Economics

  In the list of untested policy ideas from former President Donald Trump, scrapping the federal income tax and replacing it with revenues from sky-high tariffs on imports is one of the most harmful.  Trump floated this fiscal swap when he met with Congressional Republicans last week, but it’s a deeply problematic idea for several reasons. For starters, it would cost jobs, ignite inflation, increase federal deficits, and cause a recession. It would also shift the tax burden away from the well-off, substantially increasing the tax burden on the poor and middle class.

• Sovereign Haircuts: 200 Years of Creditors Losses   Clemens M. Graf von Luckner, Josefin Meyer, Carmen M. Reinhart & Christoph Trebesch/National Bureau of Economic Research

  Abstract: We study sovereign external debt crises over the past 200 years, with a focus on creditor losses, or “haircuts”. Our sample covers 327 sovereign debt restructurings with external private creditors over 205 default spells since 1815. Creditor losses vary widely (from none to 100%), but the statistical distribution has remained remarkably stable over two centuries, with an average haircut of around 45 percent. The data also reveal that “serial restructurings”, meaning two or more debt exchanges in the same default spell, are on the rise. To account for this trend toward serial renegotiation, we introduce the “Bulow-Rogoff haircut” - a cumulative measure that captures the combined creditor loss across all restructurings during a single debt crisis. Using this measure, we show that longer debt crises deliver larger haircuts and that interim restructurings provide limited debt relief. We further examine past predictors of the size of haircuts and identify “rules of thumb” applicable to future defaults. Poorer countries, first-time debt issuers, and those that borrowed heavily from external creditors all record significantly higher haircuts in case of a default. Geopolitical shocks - such as wars, revolutions, or the break-up of empires – deliver the deepest haircuts. Sovereign debt investment disasters are often linked to (geo-)political disasters.