Recommended Weekend Reads

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

April 11 - 13, 2025

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

India’s Role in the Increasingly Turbulent World of Trade 

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

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

• India could help save an aging Europe   Politico EU

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

Recommended Weekend Reads

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

Geopolitical Risk, Economic Statecraft, and Tariff Impacts

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

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

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

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

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

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

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

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

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

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

• Americans' Foreign Policy Priorities, NATO Support Unchanged  Gallup

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

Asian Trade & Economics

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

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

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

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

Recommended Weekend Reads

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

February 21 - 23, 2025

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

U.S – Canadian Critical Minerals Trade

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

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

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

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

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

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

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

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

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

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

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

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

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

 The Economic Impact of Russia’s War on Ukraine

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

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

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

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

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

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

Geoeconomics

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

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

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

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

Recommended Weekend Reads

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

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

The Indo-Pacific Region

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

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

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

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

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

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

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

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

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

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

The 2025 Budget and Tax Reconciliation Debate

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Americas

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

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

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

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

Africa

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

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

Geoeconomics

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

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

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

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

Recommended Weekend Reads

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

January 31 - February 2, 2025

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

U.S. – China Relations in the Trump Era

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

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

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

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

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

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

U.S. and Global Economics

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

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

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

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

• America First Trade Policy     The White House

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

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

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

The Global Challenge to and Race for Access to Natural Resources

• From Water Supply Crises to Building Urban Water Security  Rand

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

Africa

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

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

Recommended Weekend Reads

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

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

Buying Greenland & Increasing Arctic Security Risk

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

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

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

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

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

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

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

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

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

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

Industrial Policy & the Race for Semiconductor Dominance

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

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

  Share

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

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

• Rationales for Industrial Policy in the Semiconductor IndustryIntereconomics

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

The Global Demographic Decline

• The Demographic Outlook: 2025 to 2055 Congressional Budget Office

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

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

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

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

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

Recommended Weekend Reads

Trump’s Major Focus on Latin America, Trudeau Resigns – Now What?,  Agriculture Is A Major Factor For Ukraine Peace, Africa Needs A Payments Union, and The Evolution of Remote Working

January 10 - 12, 2025

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

The Americas 

• This Administration is Shaping Up to Be Latin America-First    Ryan Berg/Foreign Policy

  One of former U.S. President Ronald Reagan’s most lasting slogans of governance is that “personnel is policy.” Judged using Reagan’s mantra, it appears as though the incoming Trump team could be rightly described as the United States’ first Latin America-focused administration in at least a century—and perhaps ever.
  

• Eric Farnsworth on Canadian Prime Minister Justin Trudeau's Resignation  Americas Society/Council of the Americas

  On January 6, Canadian Prime Minister Justin Trudeau announced he would be resigning from his role after nearly a decade in leadership. The decision was announced ahead of planned October elections for this year and days before U.S. President-elect Donald Trump, who has threatened to annex Canada and place 25 percent tariffs on its exports, takes office. Trudeau’s resignation triggered the shutdown of Canada’s Parliament until March 24.  “Canadian politics will be fairly chaotic over this year, 2025,” explained Eric Farnsworth, vice president of AS/COA and head of the Washington office. “You could have as many as three prime ministers in the country in a period of nine or 10 months. You have a scenario where Canada itself lacks the firepower to really push back against the United States.” Farnsworth discusses what to expect from Trudeau’s resignation, the state of the opposition, and Canada’s place in the Western Hemisphere.
  

• How COVID Changed Latin America   Oliver Kaplan, Michale Albertus, Diana Senior-Angula, and Gustavo Flores-Macías/Journal of Democracy

  Abstract: Covid-19 was a pressure test for democracy in Latin America. The pandemic hit the region harder than any other in the world, particularly in terms of covid death rates and rising poverty. The pandemic also created opportunities to consolidate and abuse power, resulting in selective human rights repression, power grabs, militarization, and corruption. However, the effects were not uniformly negative. The pandemic also prompted renewed economic crisis management, social mobilization, and local checks to central power. Drawing on the experiences of countries such as Brazil, Colombia, Costa Rica, El Salvador, Mexico, and Peru, this essay illustrates that although the pandemic strained democratic politics, good pandemic management may have stemmed democratic decay. New forms of mobilization and policy implementation emerged, as well as new openings for political challengers that will shape the coming decade of governance in the region.

Russia’s War on Ukraine

• Farming Frontlines: How Food and Agriculture Will Impact Negotiations in Ukraine  Center for Strategic and International Studies Futures Lab Audio Brief

  Russia’s recent attacks on Greater Odesa port infrastructure and foreign-flagged grain-carrying vessels in the Black Sea marked the most intense attacks on Ukraine’s agricultural infrastructure in over a year. Four of the ships hit in October were carrying agricultural commodities, including vegetable oil for the UN World Food Programme in Gaza, as well as corn and grain shipments for Egypt, Italy, and Southern Africa, according to statements by the Ukrainian and UK governments. As widely reported by CSIS and others, Ukraine’s agriculture sector has been a major front in Russia’s war in Ukraine since February 2022. With the September and October 2024 attacks, Russia continues its system-wide attacks on Ukraine’s agriculture infrastructure, negatively affecting Ukraine’s agricultural production and exports and thereby undercutting a major source of Ukraine’s export revenue.
  

• How Suicide Drones Transformed the Front Lines in Ukraine   New York Times Magazine

  Outnumbered and desperate, the nation began hacking cheap consumer drones with explosives — bringing a brutal new form of violence to 21st-century warfare.

China

• Charting China’s Export Controls: Predicting Impacts on Critical U.S. Supply Chains  The National Bureau of Asian Research

  The PRC’s export control regime has grown and formalized in recent years in response to an increasingly active and complex landscape of U.S. and allied export controls. The PRC’s system of export controls has historically been piecemeal, and its administration poorly understood. Recent formalization of the system beginning in 2020 and escalating in 2023 is consistent with the PRC’s increased exercise of lawfare and demonstrates greater regulatory capabilities. PRC authorities are able to weaponize supply chains by targeting specific critical minerals under new export controls. 

• What Gold’s Crazy Run Says About China  Bloomberg YouTube Channel

  Gold prices have been on a rampage, hitting record after record. While driven in part by geopolitical tensions, economic uncertainty and the prospect of lower US interest rates, unrelenting demand from China has also played a big part.
  

• Measuring China’s Manufacturing Might  Center for Strategic and International Studies

  China’s manufacturing sector has been pivotal to the country’s rapid economic rise. Yet China’s industrial might has become a source of friction as the United States, Europe, and other economies seek to defend and nurture their own manufacturing sectors. In the face of mounting geopolitical tensions, Chinese leader Xi Jinping is doubling down with repeated calls for China to become a “manufacturing power” (制造强国) and lead the world in producing high-value, high-technology goods. This ChinaPower tracker examines these dynamics through 10 charts, visualizing the rise of China’s manufacturing sector and Beijing’s efforts to cement its industrial superpower status for future decades.
  

• China – North Korea Evolving Relations: A Conversation with Dr. Feng Zhang  China Power Podcast

  In this episode of the ChinaPower Podcast, Dr. Feng Zhang joins us to discuss China-North Korea relations in light of the growing Russia-North Korea relationship and the deployment of North Korean troops to support Russia. Dr. Zhang discusses how the China-North Korea relationship has suffered in recent years, in part due to China joining UN sanctions against North Korea in 2016, the COVID-19 pandemic, and North Korea’s involvement in Russia’s war against Ukraine. Dr. Zhang explains that China has a waning influence over North Korea, evidenced most strongly through the recent further alignment between Pyongyang and Moscow. 

Geoeconomics and Demographics

• The Evolution of Remote Work Across Industries: From Potential to Practice   Federal Reserve Bank of St. Louis

  As the St. Louis Fed has reported before, work from home (WFH) rose rapidly in the U.S. following the onset of the COVID-19 pandemic. Although WFH rates are down from their pandemic peak, they have stabilized well above prepandemic levels. For example, the share of those working from home all workdays rose from 7% just before the pandemic to 32% in May 2020 and has remained at about 12% since 2022. This raises the questions: Why are some workers continuing to work from home when they did not before the pandemic? And why have others resumed commuting even though they worked from home during the pandemic? In this blog post, we focus on one key factor in understanding WFH variation across workers: the industry in which they are employed.  Industries matter because job tasks vary widely across them, and some tasks are much easier to perform remotely than others. This variation in WFH feasibility, or potential, plays a crucial role in determining how much industries were able to pivot to remote work both during and after the height of the pandemic.

•   World Depopulation: Prospects and Implications   Nicholas Eberstadt/AEI Foreign & Defense Working Paper

  Abstract: Though few yet see it coming, a momentous turning point for humanity is looming immediately ahead. We are about to enter a new age of human history. Call it the epoch of the “population implosion”. Because it is arriving quietly, without fanfare—almost on tiptoes—it is catching us by surprise. The world population explosion is almost over. With birth rates plummeting and sub-replacement fertility taking hold around the world, we are heading into an era of pervasive and indefinite de-population: starting already—and not just with countries, but entire geographic regions—eventually encompassing the planet as a whole. There is no avoiding the great depopulations that lie ahead—they are already “baked into the cake”, fused into the foundations of societies all around the world by birth choices today’s parents have already made. The only question is how soon and how fast these coming depopulations transform life as we know it.

• Are Big Cities Important for Economic Growth?   Mathew Turner & David N. Weil/NBER

  Abstract: Cities are often described as engines of economic growth. We assess this statement quantitatively. We focus on two mechanisms: a static agglomeration effect that makes production in bigger cities more efficient, and a dynamic effect whereby urban scale impacts the productivity of invention, which in turn determines the speed of technological progress for the country as a whole. Using estimates of these effects from the literature and MSA-level patent and population data since 1900, we ask how much lower US output would be in 2010 if city size had been limited to one million or one hundred thousand starting in 1900. These effects are small. If city sizes had been limited to one million people since 1900, output in 2010 would have been only 8% lower than its observed value.

Africa

• The Case for an African Payments Union:  Lessons from the European Experience  Carnegie Endowment for International Peace

  The realities of the global financial system make it nigh impossible for African governments to deliver employment and growth amid social and political instability and when financing is needed to transition away from fossil fuels.

Recommended Weekend Reads

20 Trends to Watch in 2025 and 9 U.S. Political Issues that Bit the Dust in 2024, What Do Chinese Citizens Think of the Communist Party? And The U.S. Assessment of China’s Military

December 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.

 We hope you have a wonderful New Year and our warmest best wishes for a joyful and prosperous 2025!

Global Trends& Events to Watch in 2025

• 20 Gallup Trends to Watch in 2025   Gallup

  Next month’s transfer of power in the U.S. could reshape American views on politics, the economy and societal issues. Generational shifts and technology are also driving change. Gallup lays out 20 trends they are tracking 2025 to see how Americans react to the new political landscape and how society continues to evolve.
  

• The Real Stakes of the AI Race: What America, China, and Middle East Powers Stand to Gain and Lose   Reva Goujon/Foreign Affairs

  A sense that global technology competition is becoming a zero-sum game, and that the remainder of the twenty-first century will be made in the winner’s image, pervades in Washington, Beijing, and boardrooms worldwide. This angst feeds ambitious industrial policies, precautionary regulations, and multibillion-dollar investments. Yet even as governments and private industry race for supremacy in artificial intelligence, none of them possess a clear vision of what “winning” looks like or what geopolitical returns their investments will yield.
  

• Global Summits to Watch in 2025: Priorities for a Splintering World   Council of Councils

  Global summits give leaders an opportunity to come together to advance solutions and prepare responses, but can they keep up with the pace at which the world’s most urgent problems are intensifying?  Here is a list of the most anticipated summits set for 2025, where newly elected leaders, increased participation from the Global South and emerging powers, and reframed conversations could help answer that question.
  

• 9 Political Issues That Bit the Dust This Year   Politico Magazine

  The end-of-year obituary packages are publishing — remembering the people who shaped our world in ways large and small.  Politico decided to do something a little bit different. This year, we asked POLITICO reporters to tell us: What are the trends in politics that died in 2024 — or that are at least heading into obsolescence?

  China

• Do Chinese Citizens Conceal Opposition to the CCP in Surveys?  Evidence from Two Experiments  The China Quarterly/Cambridge University Press

  There has been a number of questions about the support among average Chinese citizens for the ruling Chinese Communist Party.  In this research paper, it is noted that most public opinion research in China uses direct questions to measure support for the Chinese Communist Party (CCP) and government policies. These direct-question surveys routinely find that over 90 percent of Chinese citizens support the government. From this, scholars conclude that the CCP enjoys genuine legitimacy.  However, the researchers who conducted this study found from two survey experiments in contemporary China that make clear that citizens conceal their opposition to the CCP for fear of repression. When respondents are asked in the form of list experiments, which confer a greater sense of anonymity, CCP support hovers between 50 percent and 70 percent. This represents an upper bound, however, since list experiments may not fully mitigate incentives for preference falsification. The list experiments also suggest that fear of government repression discourages some 40 percent of Chinese citizens from participating in anti-regime protests. Most broadly, this paper suggests that scholars should stop using direct question surveys to measure political opinions in China.

• Military and Security Developments Involving the People’s Republic of China 2024  U.S. Department of Defense Annual Report to Congress

  The Defense Department’s annual report charts the course of the PRC’s national, economic, and military strategy and offers insight into the People’s Liberation Army’s (PLA) strategy, current capabilities, and activities, as well as its future modernization goals.  In 2023, the PRC continued its efforts to form the PLA into an increasingly capable instrument of national power. Throughout the year, the PLA adopted more coercive actions in the Indo-Pacific region while accelerating its development of capabilities and concepts to strengthen the PRC’s ability to “fight and win wars” against a “strong enemy,” counter an intervention by a third party in a conflict along the PRC’s periphery, and project power globally. Working-level and senior-level military-to-military channels of communication resumed following President Biden and PRC leader Xi Jinping meeting in November 2023. This report illustrates the importance of meeting the pacing challenge presented by the PRC’s increasingly capable military.
  

• China Ousts Two Military Lawmakers as Xi’s Defense Purge Widens   Bloomberg

  China abruptly ousted two military lawmakers from its national parliament without explanation, as a purge of key personnel in the upper echelons of the nation’s defense establishment shows no sign of easing. Xi, China’s most powerful leader since Mao Zedong, has been intensifying his grip on the military. He ordered a reorganization of the armed forces this year, replacing the Strategic Support Force created in 2015 with three new branches. He also held the first military-political work conference since 2014, a conclave he previously used to assert his authority over the PLA. 

• The China-Russia relationship and threats to vital US interests  Brookings Institution

  This piece is part of a series titled “The future of U.S.-China policy: Recommendations for the incoming administration” from Brookings’ John L. Thornton China Center. Four leading scholars of Chinese and Russian foreign policy look at the growing alignment between the People’s Republic of China and the Russian Federation – an alliance that has significant implications for vital U.S. interests and the interests of U.S. allies and partners. Animated by shared grievances against the configuration of the international order and mutual concerns about perceived external threats, principally from the United States, the Sino-Russian partnership has deepened over the last decade across the military, economic, and diplomatic domains. Beijing and Moscow’s strategic alignment will pose a significant test for the incoming Trump administration.

Americas

• A Journey Through The World’s Newest Narco-State: Drugs Transformed Ecuador from a Latin American Success Story into a War Zone  1843 Magazine

  Over the past ten years, cocaine has transformed Ecuador from one of South America’s most stable nations – with safer streets and higher living standards than many of its neighbors – into the most dangerous country on the continent. More than 8,000 murders were recorded last year. Victims are wide-ranging: ten volleyball players, nine shrimp fishermen, six mayors, five tourists, two state prosecutors, a presidential candidate and the leader of a political party are among those shot or assassinated since 2023. The industrial city of Durán – where much of the governing apparatus has been hijacked by mobsters – has a good claim to being the murder capital of the world; on average, someone is killed there every 19 hours.

Europe

• Offensive Strategy: the EU’s Economic Security  Carl Bildt/European Council on Foreign Relations

  ‘Economic security’ has become a Brussels buzzword in recent years, shaped by a blend of pressure from Washington and Brussels’ own protectionist instincts. In sports, playing defense rarely wins championships. The economic security agenda is defensive; it might slow the decline, but it will not reverse it. What Europe needs is a bold, offensive strategy.

Podcast Recommendation of the Week

• China Considered  Hosted by Elizabeth Economy, the Hoover Institution

  Elizabeth Economy is arguably one of the finest China scholars out there.  She now hosts a podcast sponsored by the Hoover Institution at Stanford University. that features in-depth conversations with leading political figures, scholars, and activists from around the world. The series explores the ideas, events, and forces shaping China’s future and its global relationships, offering high-level expertise, clear-eyed analysis, and valuable insights to demystify China’s evolving dynamics and what they may mean for ordinary citizens and key decision-makers across societies, governments, and the private sector.

Recommended Weekend Reads

What The Trump Tariffs May Mean for Latin America, Why Syria Matters So Much to Russia, China’s Irreversible Demographic Crisis, and Why Javier Milei Has Surprised Almost Everyone

December 6 - 8, 2024

Latin America

• ·What Would Trump’s Tariff Proposals Mean for U.S. Trade With Latin America? Americas Society

  President-elect Trump’s proposed tariffs could mean big changes for industries in and outside the United States, North America's supply chains, and U.S. trade partners in Latin America. The United States has six free trade agreements in effect with 11 Latin American countries. The region is home to some of the country’s largest sources of imports, including its biggest trade partner, Mexico. These potential trade barriers could become a sticking point when it comes to the scheduled 2026 review of the United States-Mexico-Canada Agreement (USMCA). What could these tariffs mean for the United States’ trade partners in Latin America?

• Ending the Strategic Vacuum: A U.S. Strategy for China in Latin America Center for Strategic & International Studies

  The alarm bells are ringing in Latin America. Chinese president Xi Jinping’s recent visit to Latin America caps off a decade of remarkable advances for China in the United States’ shared neighborhood. Both Xi and President Biden attended the Asia-Pacific Economic Cooperation (APEC) forum in Lima, Peru. Both then traveled to Brazil for the G20 Summit meeting. The public imagery of the two meetings said a lot about China’s advance in Latin America with little to no U.S. pushback.

• The Price of Neglecting Latin America: Guns, Drugs, and Migration have Destabilized the Region – and Fed Dysfunction in Washington Foreign Affairs

  Backlash to the post-2020 spike in undocumented immigration from Latin America weighed strongly in Donald Trump’s favor. He made “closing the border” and the “largest deportation program in American history” centerpieces of his campaign, and voters rewarded him for it. Immigration turned out Trump’s base and was neck and neck with inflation in pushing swing voters to cast their ballots for him. But mass migration to the United States would not exist in its post-2020 proportions if Latin America’s economically diversified crime groups, and the states with which they have fused, were not pushing millions of people to flee north.

• Javier Milei Has Surprised Almost Everybody Americas Quarterly

  Milei’s successes were undeniable. He had beaten the budget into submission, slayed inflation, and did so without igniting social unrest or setting off a paralyzing brawl with organized labor. Inflation, driven by overspending and the wild printing of pesos, had dropped from 25% a month in December to below 3% per month today. The government now spends less than it takes in from taxes. “Country risk,” a measure of bond prices, is at a five-year low, meaning investors are confident they will be repaid. Milei’s radical economic policies hardly cost him public support. In his inaugural address, he warned that “there is no alternative to shock” and a year later, most Argentines apparently agree. In the November Poliarquía survey, Milei registered a 56% approval rating, the exact level of support he attracted in the election. Consumer confidence is rising. There have been several national strikes by confederations of labor unions and two multitudinous protests against spending cuts at public universities. But generally, Argentines are calmly sipping mate.

• State capacity, mining and community relations in Peru Chatham House

  With its rich reserves of copper, Peru is poised to play a key role in global supply chains for projects to reduce carbon emissions and enable the transition to a green economy. However, the polarized nature of Peruvian politics is a significant obstacle to realizing this potential. Political instability and the steady turnover of ministers and civil servants in relevant ministries over recent years have affected the capacity of the Peruvian state to promote an inclusive national vision for its mining industry. At the same time, fragmentation among political parties has hampered the capacity of the political system to represent consistent and coherent policy interests.

Syria and the Greater Middle East

• Why Syria Matters to the Kremlin The Atlantic

  As consuming as the war in Ukraine has been for Russia, the Kremlin does not see it as superseding its Middle East ambitions. That’s because Syria is not just a military outpost. It is a cornerstone of Russia’s claim to great-power status, a theater where it can demonstrate its diplomatic reach and its counternarrative to Western interventionism. This explains why Russia continues to invest in Syria even as it fights a costly war in Ukraine. Moscow may adjust its tactics, but abandoning Syria would mean surrendering something far more precious than territory: Russia’s hard-won position as an indispensable power broker in the Middle East.

China’s Demographic Crisis

• ·Is China’s population crisis irreversible? South China Morning Post

  In a new six-part series, the Post examines how China’s marriage and fertility rates remain on a downward trajectory, fueling a demographic crisis that threatens the nation’s economic and social stability. In this six-part series, we examine the far-reaching consequences of a shrinking and ageing population, from the rise of a “companionship economy” to the challenges faced by the “one-child generation” and the economic risks associated with losing the demographic dividend.
  

• Xi Jinping Doesn’t Have an Answer for China’s Demographic Crisis Foreign Policy

  Chinese President Xi Jinping’s recent article in Qiushi, the Communist Party’s flagship journal for outlining core ideology and policy, frames China’s demographic challenges as a strategic opportunity. It offers Xi’s most detailed vision yet for addressing the country’s aging population: shifting from a labor-intensive, population-driven economy to one powered by innovation, education, and productivity. Yet beneath the lofty rhetoric lies a familiar and contentious concept: renkou suzhi, or “population quality.” On the surface, it advocates for cultivating a healthier, better-educated, and more skilled population. But its implications run deeper—and are more divisive. Historically, suzhi has been used to draw lines between urban elites and rural or migrant populations, carrying connotations of class bias and, at times, embracing eugenicist thinking. Implicit in calls for a “high-quality population” is the judgment of a “low-quality” counterpart, reinforcing societal divides in a way that is rarely acknowledged outright.

Geo-economics, AI, and Trade Policy

• The Rapid Adoption of Generative AI Alexander Bick, Adam Blandin & David J. Deming/National Bureau of Economic Research

  Generative Artificial Intelligence (AI) is a potentially important new technology, but its impact on the economy depends on the speed and intensity of adoption. This paper reports results from the first nationally representative U.S. survey of generative AI adoption at work and at home. In August 2024, 39 percent of the U.S. population age 18-64 used generative AI. More than 24 percent of workers used it at least once in the week prior to being surveyed, and nearly one in nine used it every workday. Historical data on usage and mass-market product launches suggest that U.S. adoption of generative AI has been faster than adoption of the personal computer and the internet.

• Semiconductors and Modern Industrial Policy Chad Brown & Dan Wang/American Economic Association

  Abstract: Semiconductors have emerged as a headline in the resurgence of modern industrial policy. This paper explores the political economic history of the sector, the changing nature of the semiconductor supply chain, and the new sources of concern that have motivated the most recent turn to government intervention. It also explores details of that turn to industrial policy by the United States, China, Japan, Europe, South Korea, and Taiwan. Modern industrial policy for semiconductors has included not only subsidies for manufacturing, but also new import tariffs, export controls, f

Recommended Weekend Reads

The 2nd Trump Presidency, Ukraine: What Happens Now?, And China’s Axis of Losers

November 8 - 10, 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.

The 2nd Trump Presidency

• The 2024 Election Results   Tiber Creek Group

  One of Washington’s leading government consulting firms offers a comprehensive and superb overview of the November 5th elections from the Presidential race to the Congressional elections, all the way down to state and local elections.

• Mandate for Leadership: The Conservative Promise   Project 2025/The Heritage Foundation

  Much criticized during the presidential campaigns, the Washington, D.C. based think tank the Heritage Foundation published a comprehensive, highly detailed set of policy recommendations for Donald Trump to consider. While Trump went on to repudiate his relationship with Project 2025, it will undoubtedly play a role in policy development in the new Trump Administration as well as with the newly elected Republican Senate majority and what appears to be a likely House Republican majority.

• Policy Issues  America First Policy Institute

  Established by a group of senior advisors to then-former President Donald Trump, the American First Policy Institute (AFPI) set out define policy positions for a future Trump Administration.  Like the Heritage Foundation’s Project 2025, their policy ideas will play a major role in policy development in the newly elected Trump Administration.

• Donald Trump just won the presidency. Our experts answer the big questions about what that means for America’s role in the world.   Atlantic Council

  When Donald Trump returns to the presidency on January 20, Trump’s inbox will be full of global challenges. How will he respond? And what will the consequences be? Below, our experts provide answers across twenty-four of the most significant policy matters awaiting the next administration.

• The 2024 Trump Campaign Policy Proposals: Budgetary, Economic and Distributional Effects   Penn Wharton Budget Model

  We project that conventionally estimated tax revenue falls by $5.8 trillion over the next 10 years, producing an equivalent amount of primary deficits. Accounting for economic feedback effects, primary deficits increase by $4.1 trillion over the same period.  While GDP increases during part of the first decade (2025 – 2034), GDP eventually falls relative to current law, falling by 0.4 percent in 2034 and by 2.1 percent in 30 years (year 2054). After initially increasing, capital investment and working hours eventually fall, leaving average wages unchanged in 2034 and lower by 1.7 percent in 2054.  Low, middle, and high-income households in 2026 and 2034 all fare better under the campaign proposals on a conventional basis. These conventional gains and losses do not include the additional debt burden on future generations who must finance almost the entirety of the tax decreases.

• What Does Donald Trump’s Win Mean For U.S. Foreign Policy?  National Security Journal

  It is time to discuss what a foreign policy under President-elect Donald Trump would mean. First, there are two blazing wars to settle that have no easy answers. Next is the Taiwan question and what to do with China overall. Then we have border security. Don’t forget North Korea, which is in bed with Russia and threatening to go to war with South Korea. There is also the problem of a nuclear-equipped Iran.

• How Europe Should Woo Trump  The Strategist/Australian Strategic Policy Institute

  Donald Trump’s re-election as US president is a shock to Europe, which is woefully unprepared. His promised protectionism threatens the European Union’s struggling export-led economies, and his transactional attitude toward NATO endangers Europe’s already feeble security. Ukraine could soon be sacrificed to Russia, and by emboldening nationalist fellow-travelers such as Hungarian Prime Minister Viktor Orban, Trump may cause EU unity to be further undermined from within.  Shell-shocked Europeans will be tempted to hunker down and hope that Trump does not make good on his most extreme policies: slapping blanket tariffs on European exports, abandoning Ukraine and quitting NATO. But this would be a catastrophic mistake. Europeans must swallow their pride and try to win Trump over.

Ukraine: What Happens Now?

• The Perfect Has Become the Enemy of the Good in Ukraine: Why Washington Must Redefine Its Objectives  Richard Haass/Foreign Affairs

  Most U.S. policymakers would probably define winning in Ukraine in a way similar to how Kyiv defines it, including in its most recent “victory plan”: ousting Russian troops from the entirety of Ukraine’s territory, Crimea included, and reestablishing control over its 1991 borders. There is good reason for adopting this definition. But Washington must grapple with the grim reality of the war and come to terms with a more plausible outcome. It should still define victory as Kyiv remaining sovereign and independent, free to join whatever alliances and associations it wants. But it should jettison the idea that, to win, Kyiv needs to liberate all its land. So as the United States and its allies continue to arm Ukraine, they must take the uncomfortable step of pushing Kyiv to negotiate with the Kremlin—and laying out a clear sense of how it should do so.  Such a pivot may be unpopular. It will take political courage to make, and it will require care to implement. But it is the only way to end the hostilities, preserve Ukraine as a truly independent country, enable it to rebuild, and avoid a dire outcome for both Ukraine and the world.

• What do North Korean Troop Deployments to Russia Mean for Geopolitics?   Brookings Institution

  In early October, Ukrainian intelligence reported that several thousand North Korean soldiers were undergoing training in Russia in preparation for deployment to the Ukrainian front line later this year. South Korea’s National Intelligence Service (NIS) later corroborated Ukraine’s assertions, sharing satellite images of Russian vessels transporting the first batch of 1,500 North Korean special forces to Russia’s Far East. On October 23, White House National Security Communications Advisor John Kirby confirmed the presence of at least 3,000 soldiers. The Pentagon now believes that 10,000 North Korean troops are in Russia with a contingent heading toward the Kursk region in western Russia to battle Ukrainian forces. The large deployment of North Korean troops in Russia represents a troubling new phase in the Russia-Ukraine war while carrying deeper implications for global politics. We address five key questions related to accelerating North Korea-Russia military cooperation.

• Crossing the Rubicon: DPRK Sends Troops to Russia   Center for Strategic and International Studies

  The U.S. government has confirmed and released evidence that North Korea (DPRK) sent troops to Russia. Speaking in Italy after a trip to Ukraine, U.S. secretary of defense Lloyd Austin called this development a “very, very serious issue” and warned of impacts not only in Europe but in the Indo-Pacific as well. While the U.S. government is still uncertain of the role the North Korean troops will play, Austin suggested that this is an indication that Vladimir Putin “may be even in more trouble than most people realize.”  But what is in it for North Korea?

China

• Xi Jinping’s Axis of Losers – The Right Way to Thwart the New Autocratic Convergence  Stephen Hadley/Foreign Affairs

  The United States is contending with the most challenging international environment it has faced since at least the Cold War and perhaps since World War II. One of the most disconcerting features of this environment is the burgeoning cooperation among China, Iran, North Korea, and Russia. Some policymakers and commentators see in this cooperation the beginnings of a twenty-first-century axis, one that, like the German-Italian-Japanese axis of the twentieth century, will plunge the world into a global war. Others foresee not World War III but a slew of separate conflicts scattered around the globe. Either way, the result is a world at war—the situation is that serious.  What should be done about this cooperation is another matter. Washington’s aim should be to make clear to Chinese President Xi Jinping how counterproductive and costly to Beijing’s interests these new relationships will turn out to be. That means effectively countering Iran, North Korea, and Russia in their own regions, thereby demonstrating to China that tethering itself to a bunch of losers is hardly a path to global influence.

• China’s long shadow over Asia’s critical minerals   Hinrich Foundation

  When it comes to securing supply for critical minerals it does not possess in sufficient quantities at home, China has been investing heavily overseas. In Southeast Asia, Beijing has invested about US$4 billion since 2012 in 12 projects, a lot of it concentrated in Indonesia, which exports 16% of the world’s nickel. From a long-term geopolitical, economic, and sustainability perspective, it is not in ASEAN’s interests to be drawn exclusively into one Great Power’s sphere of influence.

 Geoeconomics and Trade

• Did Tariffs make American Manufacturing Great?  New Evidence from the Gilded Age  Alexander Klein & Christopher Meissner/National Bureau of Economic Research

  We study the relationship between tariffs and labor productivity in US manufacturing between 1870 and 1909. Using highly dis-aggregated tariff data, state-industry data for the manufacturing sector, and an instrumental variable strategy, results show that tariffs reduced labor productivity. Tariffs also generally reduced the average size of establishments within an industry but raised output prices, value-added, gross output, employment, and the number of establishments. We also find evidence of heterogeneity in the association between tariffs and value added, gross output, employment, and establishments across groups of industries. We conclude that tariffs may have reduced labor productivity in manufacturing by weakening import competition and by inducing entry of smaller, less productive domestic firms. Our research also reveals that lobbying by powerful and productive industries may have been at play. The era’s high tariffs are unlikely to have helped the US become a globally competitive manufacturer.