Fulcrum Perspectives
An interactive blog sharing the Fulcrum team's policy updates and analysis, as well as book recommendations, travel observations, and cultural experiences - all of which we hope will be of interest to you.
Recommended Weekend Reads
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
How Much Will GLP-1s Disrupt the Economy?; The Impact of Trump’s Trade Policy on Exchange Rates; and China, India, and the US in 2025
January 3 - 5, 2025
Please find 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 Economics of GLP-1s and Aging
Ozempic economics: how GLP-1s will disrupt the economy in 2025 Catherine Rampell/Washington Post
A new technology is disrupting the economy. Even experts don’t entirely understand how it works, its full range of uses and what its unintended consequences could be. No, it’s not artificial intelligence; I’m talking about weight-loss drugs. With adult obesity rates falling last year for the first time in more than a decade, drugs such as Ozempic and Zepbound are already reshaping Americans’ waistlines. Now, they’re poised to reshape the entire economy, too. As of May, roughly 1 in 8 American adults had tried GLP-1 receptor agonists (GLP-1s for short). This percentage has almost certainly grown since then, as telehealth companies, “medi-spas” and compounding pharmacies have aggressively marketed GLP-1 prescriptions. We’re only just beginning to learn the full universe of effects for this class of drugs. Originally developed to treat Type 2 diabetes, GLP-1s were soon discovered to be effective in treating obesity and managing weight loss. Now there’s an ever-growing list of other potential uses (on- and off-label), including for treating heart disease, sleep apnea, Alzheimer’s, substance abuse and maybe even gambling addiction.
Will weight-loss drugs lead to upheaval in the sugar market? While many traders have brushed off concerns, the potential impact is clear Financial Times
The health risks of too much sugar have been made clear, but the billion-dollar global market to supply it is thriving. Sales of sweet treats remain strong, and waistlines keep expanding. Could weight-loss drugs now succeed where governments, scientists and doctors have failed: crushing demand for sugar? So-called glucagon-like peptide-1 receptor agonists (GLP-1s) contained in such drugs as Wegovy, Mounjaro and Ozempic curb users’ appetites and are being hailed as game changers for tackling obesity and potentially a range of other conditions, from diabetes to addiction. They could also lead to an upheaval in sugar markets.
The No-Hunger Games: How GLP-1 Medication Adoption is Changing Consumer Food Purchases Sylvia Hrstakeva/Jura Liakonyte, & Leo Feler, Cornell College of Business Research Paper
Abstract: We examine how consumers modify their food purchasing behavior after adopting appetite-suppressing GLP-1 receptor agonists, such as Ozempic and Wegovy. Utilizing a unique dataset linking survey responses on medication adoption and timing with transaction data from a representative U.S. household panel, we document the prevalence, motivations, and demographic patterns of GLP-1 adoption, including off-label use. Households with at least one GLP-1 user reduce grocery spending by approximately 6% within six months of adoption, with higher-income households reducing spending by nearly 9%. These reductions are driven by significantly larger decreases in purchases of calorie-dense, processed items, including a 11% decline in savory snacks. In contrast, we observe directional increases in nutrient-dense purchases, such as yogurt and fresh produce. We also examine food-away-from-home spending at limited-service establishments, such as fast-food chains and coffee shops, finding reductions at breakfast and especially during dinner times. Our findings highlight the potential for GLP-1 medications to significantly reshape consumer food demand, a trend with increasingly important implications for the food industry as adoption continues to grow.
On the Limits of Chronological Age Rainer Kotschy/David E. Brown/Andrew Scott – National Bureau of Economic Research
Abstract: Analysis of population aging is typically framed in terms of chronological age. However, chronological age itself is not necessarily deeply informative about the aging process. This paper reviews literature and conducts empirical analyses aimed at investigating whether chronological age is a reliable proxy for physiological functioning when used in models of economic behavior and outcomes. We show that chronological age is an unreliable proxy for physiological functioning due to appreciable differences in how aging unfolds across people, health domains, and over time. We further demonstrate that chronological age either fails to predict economic variables when used in lieu of physiological functioning, or that it predicts additional effects on economic behavior and outcomes that are largely unrelated to physiological aging. Continued reliance on chronological age as a proxy for physiological functioning might impede the ability of societies to fully harness the benefits of increasing longevity.
Trump’s Trade Policy and Exchange Rates
Tariffs and Exchange Rates (and Stephen Miran) Stan Veuger/American Enterprise Institute
In a recent policy paper, Stephen Miran – who was recently nominated by President-elect Trump to serve as Chairman of the Council of Economic Advisors – discussed at some length the incidence of tariffs. Miran’s objective is to convince readers that tariffs are not as harmful as is often argued. He argues that to fully understand the impact of a tariff on domestic consumers, we cannot limit ourselves to an analysis of what happens to domestic prices. We also need to consider what happens to the exchange rate. Veuger argues that this needs to be considered in more concrete terms, using as a scenario the US imposing a 50% tariff on washing machines from Europe. It has become common for commentators to suggest, Veuger argues, that this will mean US importers will pay 50% more for washing machines, and this price increase is passed on to US consumers. How does the analysis change if the euro depreciates by 5% as a result of the tariff, because demand for imports from Europe has gone down? Assuming euro-denominated prices do not change, US importers will now pay 45% more for washing machines, not 50%. But the currency depreciation affects all imports, so US importers will now pay 5% less for bananas. Veuger says this has (at least) five implications which he goes through in his commentary.
Currency Wars and Trade Kris James Mitchener & Kirste Wandschneider/National Bureau of Economic Research
The Great Depression is the canonical case of a widespread currency war, with more than 70 countries devaluing their currencies relative to gold between 1929 and 1936. What were the currency war’s effects on trade flows? We use newly-compiled, high-frequency bilateral trade data and gravity models that account for when and whether trade partners had devalued to identify the effects of the currency war on global trade. Our empirical estimates show that a country’s trade was reduced by more than 21% following devaluation. This negative and statistically significant decline in trade suggests that the currency war destroyed the trade-enhancing benefits of the global monetary standard, ending regime coordination and increasing trade costs.
China, India, and the U.S in 2025
After the Fall: China’s Economy in 2025 The Rhodium Group
China’s 2024 claim that GDP growth was on track to meet high targets was impossible to reconcile with increasingly frantic efforts to prop up a flagging economy all year long. Collapsing property construction slowed growth to a crawl in 2022 and 2023, and in 2024 the spillover from real estate sidelined local government investment and consumption as well. By our estimates, China’s GDP growth in 2024 improved modestly to around 2.4% to 2.8%, well below than official claims of nearly 5%. If it stimulates domestic demand with some urgency and ramps up debt, we think China could get to 3-4.5% growth in 2025, reaching the high end of that range only if everything falls in Beijing’s favor. But that is the very top of—or above—the potential growth ceiling until Beijing fixes long-festering structural problems.
The US And China In Indian Grand Strategy Tanvi Madan/ India’s World Indian policymakers have recognized that China and the U.S. are among the most—if not the most—consequential countries for India’s interests. They have thought about how China (the near behemoth) and the U.S. (the far behemoth) could and would affect, in both, positive or negative ways, India’s quest for security, prosperity, status and autonomy. The roles Indian leaders have envisioned for Beijing and for Washington in their strategy have neither been static nor de-linked from each other. The roles China and the U.S. have ended up playing have depended on several factors, including the dynamics between them that affected their view of India. That, in turn, has shaped New Delhi’s options as it sought to achieve its objectives.
The Challenges Behind China’s Global South Policies Carnegie Endowment for International Peace
At the G20 Summit in Rio de Janeiro, Brazil, China unveiled eight initiatives to support the Global South, including advancing technology connectivity and cooperating on poverty reduction, food security, and climate change. China’s initiatives came as no surprise. As its tensions with the Global North intensify—particularly in areas of economic competition, technological rivalry, and security issues such as the Russia-Ukraine war—the Global South, with approximately 85 percent of the world’s population, assumes great significance in China’s foreign policy. Facing a weak domestic market, increasing trade restrictions from the West, and growing tensions with the United States, China seeks to mobilize support from the Global South to counterbalance the West in economic, security, and ideological challenges. However, China’s Global South policy is increasingly confronted by its limits in trade and investment and its self-deceiving security-nexus approach.
Americans foresee a somewhat challenging year ahead for the country, based on their predictions for various aspects of U.S. affairs and daily life. Majorities of U.S. adults think 2025 will be a year of political conflict, economic difficulty, international discord, increasing power for China and Russia, and a rising federal budget deficit. However, there is at least some optimism for 2025, as 66% of U.S. adults expect gains in the stock market, 54% think there will be increasing or full employment, and 52% predict reasonable price growth. Meanwhile, Americans are essentially tied in their projections for what 2025 will hold when it comes to the United States’ power in the world, the number of labor strikes, taxes and crime rates.
Recommended Weekend Reads
Germany’s Century-Long Re-Armament Challenge, How the EU Needs to Deal With Industrial Policy, Looking at Argentina President Milei’s Economic First Year, and The Return of Economic Statecraft
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 joyful Christmas and a happy Hanukkah! We’ll be back next Friday with our next set of recommended weekend reads.
The Future of Europe
Fit for War in Decades: Europe’s and Germany’s Slow Rearmament vis-a-vis Russia Kiel Institute for the World Economy
War is back in Europe, and as it becomes long-lasting, the question of armament gains central importance. This report finds that Russian military-industrial capacities have been rising strongly in the last two years, well beyond the levels of Russian material losses in Ukraine. Meanwhile, the build-up of German capacities is progressing slowly. We document Germany’s military procurement in a new Kiel Military Procurement Tracker and find that Germany did not meaningfully increase procurement in the one-and-a-half years after February 2022 and only accelerated it in late 2023. Given Germany’s massive disarmament in the last decades and the current procurement speed, we find that for some key weapon systems, Germany will not attain 2004 levels of armament for about 100 years. When taking into account arms commitments to Ukraine, some German capacities are even falling.
Industrial Policy in Europe: A Single Market Perspective International Monetary Fund Working Papers
European countries are increasingly turning to industrial policy to address the challenge of geopolitical fragmentation, enhance productivity, and accelerate the green transition. Well-targeted industrial policy has the potential to correct market failures and support production efficiency by exploiting scale effects and internalizing knowledge externalities. But even the most carefully designed unilateral industrial policies risk generating negative production externalities in other countries, and, under certain conditions, may not even be welfare-enhancing for the implementing country. The reason is that negative externalities of unilateral industrial policy can drive European and international production patterns away from underlying comparative advantages, create regional or global over-supply, and result in changes in terms of trade that reduce domestic welfare. This suggests significant benefits from coordination. Structural modeling and case studies show that a coordinated approach within the European Union and with international trading partners on a narrowly defined and carefully designed set of industrial policies could unlock untapped benefits. Closer European integration would facilitate the adjustment of firms and workers to coordinated and well-targeted industrial policies and amplify their benefits.
The Americas
Milei's Economics: The First Year and the Challenges Ahead Santiago Afonso & Sebastian Galiani/SSRN
President Javier Milei's first year in office rightly prioritized two fundamental issues: chronic fiscal deficits and economic regulations driven by rent-seeking groups. While achieving the most aggressive fiscal consolidations on record, the administration has heavily relied on inflation-driven cuts to social spending and public investment rather than on structural reforms. Despite a significant deregulation effort, limited congressional support has hindered more comprehensive reforms. Although President Milei remains strongly committed to the program implemented, the sustainability of these measures remains uncertain. As the administration approaches the 2025 midterm elections, its ability to maintain public support while managing potential currency pressures will be crucial for implementing deeper structural changes and avoiding the fate of previous reform attempts.
Latin America and the Caribbean in 2025: Ten Predictions to Shape the Year Ahead Atlantic Council
2024 was a transformative year for Latin America and the Caribbean. Elections brought some surprises, but the region also bucked the global trend as continuity was the theme. But what might be in store for Latin America and the Caribbean in 2025? How might the incoming Trump administration engage with the region? Can economies across the hemisphere grow beyond current predictions? How will leaders address security challenges? Might new tech hubs emerge? The Atlantic Council offers a fun quiz where you can see their predictions for 2025 and see if you agree.
Why a Normalization Strategy With Venezuela Is Not Viable Americas Quarterly
In less than a month, Nicolás Maduro is set to begin a third term as Venezuela’s president, even though vote tallies demonstrate that opposition candidate Edmundo González won the election by a landslide. Although the whole international community has an important role in holding Maduro and his elite accountable and supporting the Venezuelan people, all eyes point toward one country: the U.S. The return of Donald Trump to the presidency has triggered expectations of a return to the “maximum pressure” strategy of his first term. In contrast, many recent commentaries warned about the grave consequences of a return to that policy, suggesting instead a continuation of the sanction-easing measures taken under the Biden administration. But neither a return to 2019 nor normalizing relations with Maduro will create favorable conditions for a democratic transformation in Venezuela, especially considering the strong grassroots movement that coalesced to back González. New circumstances demand a new strategy.
Geopolitical Strategy and Economic Statecraft
The Price of American Retreat: Why Washington Must Reject Isolationism and Embrace Primacy Senator Mitch McConnell (R-KY)/Foreign Affairs
When he begins his second term as president, Donald Trump will inherit a world far more hostile to U.S. interests than the one he left behind four years ago. China has intensified its efforts to expand its military, political, and economic influence worldwide. Russia is fighting a brutal and unjustified war in Ukraine. Iran remains undeterred in its campaign to destroy Israel, dominate the Middle East, and develop a nuclear weapons capability. And these three U.S. adversaries, along with North Korea, are now working together more closely than ever to undermine the U.S.-led order that has underpinned Western peace and prosperity for nearly a century. Trump would be wise to build his foreign policy on the enduring cornerstone of U.S. leadership: hard power.
Economic Statecraft is Back. Here’s Why It Matters Bain Capital Group
As geopolitical tensions rise and multilateralism declines, nations are increasingly using trade and economic policies to advance foreign policy goals, complicating the global business landscape. Nations are negotiating a tapestry of new rules among smaller groups of allies, implementing sanctions and restrictions that impact firms around the world, scrutinizing inbound and outbound investments, and taking more extreme trade measures against geopolitical rivals. Winning in this new business environment has come to mean taking advantage of, defending against, or working around new rules and regulations. Yet most companies are only able to react to change. Companies need strong in-house capabilities to monitor developing geopolitical risks, understand the implications for their businesses and supply chains, and better prepare for whatever comes next.
Economics
Federal Reserve Structure, Economic Ideas, and Banking Policy During the “Quiet Period” in Banking Michael Bordo & Edward Prescott/National Bureau of Economic Research
Abstract: We evaluate the decentralized structure of the Federal Reserve System as a mechanism for generating and processing new ideas on banking policy in the 1950s and 1960s. We document that demand for research and analysis was driven by banking industry developments and legal changes that required the Federal Reserve and other banking regulatory agencies to develop guidelines for bank mergers. In response to these developments, the Board and the Reserve Banks hired industrial organization economists and young economists out of graduate school who brought in the leading theory of industrial organization at the time, which was the structure, conduct, and performance (SCP) paradigm. This flow of ideas into the Federal Reserve from academia paralleled the flow that was going on in monetary policy and macroeconomics at the time and contributed to the increased professionalization of research at the Federal Reserve. We document how several Reserve Banks, particularly Boston and Chicago, innovated by creating dissertation support programs, collecting specialized data, and creating the Bank Structure Conference, which became the clearinghouse for academic work on bank structure and later for bank risk and financial stability. We interpret these examples as illustrating an advantage that a decentralized central bank has in the production of knowledge.
Political Power and Market Power Bo Cowgill, Andrea Prat & Tommaso Valletti / National Bureau of Economic Research
Abstract: Brandeis (1914) hypothesized that firms with market power will also attempt to gain political power. To explore this hypothesis empirically, we combine data on mergers with data on lobbying expenditures and campaign contributions in the US from 1999 to 2017. We pursue two distinct empirical approaches: a panel event study and a differential exposure design. Both approaches indicate that mergers are followed by large and persistent increases in lobbying activity, both by individual firms and by industry trade associations. There is also weaker evidence for an association of mergers with campaign contributions (PACs). We also find that mergers impact the extensive margin of political activity, for example, by impacting companies’ choice to establish their first in-house lobbying teams and/or first corporate PAC. We interpret these results within an oligopoly model augmented with endogenous regulation and lobbying.
Gambling Away Stability: Sports Betting Impact on Vulnerable Households Scott Baker/Justin Balthrop/Mark Johnson/Jason Kotter/Kevin Pisciott for the National Bureau of Economic Research
We estimate the causal effect of online sports betting on households' investment, spending, and debt management decisions using household transaction data and a staggered difference-in-differences framework. Following legalization, sports betting spreads quickly, with both the number of participants and the frequency of bets increasing over time. This increase does not displace other gambling or consumption but significantly reduces savings, as risky bets crowd out positive expected value investments. These effects concentrate among financially constrained households as credit card debt increases, available credit decreases, and overdraft frequency rises. Our findings highlight the potential adverse effects of online sports betting on vulnerable households.
View of U.S. Healthcare Quality Declines to 24-Year Low Gallup
Americans' positive rating of the quality of healthcare in the U.S. is now at its lowest point in Gallup’s trend dating back to 2001. The current 44% of U.S. adults who say the quality of healthcare is excellent (11%) or good (33%) is down by a total of 10 percentage points since 2020 after steadily eroding each year. Between 2001 and 2020, majorities ranging from 52% to 62% rated U.S. healthcare quality positively; now, 54% say it is only fair (38%) or poor (16%). As has been the case throughout the 24-year trend, Americans rate healthcare coverage in the U.S. even more negatively than they rate quality. Just 28% say coverage is excellent or good, four points lower than the average since 2001 and well below the 41% high point in 2012.
Recommended Weekend Reads
Implications for the Middle East Post-Assad, Latin America is About to Become a Major Priority for Trump, Where is India Going? And The Looming U.S. Tax & Budget Battle
December 13 - 15, 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.
Post-Assad Syria and Implications for the Rest of the Middle East
Khamenei Loses Everything Eliot Cohen/The Atlantic
When Hamas’s Yahya Sinwar launched Operation Al-Aqsa Flood against Israel on October 7, 2023, he intended to deal a decisive blow against a powerful nation-state—and he succeeded. But the state his attack has devastated turned out not to be Israel, but Iran, his key sponsor.
In Post-Assad Middle East, Iran’s Loss Is Turkey’s Gain Foreign Policy
The cataclysmic events of the last few weeks in Lebanon and Syria—from Israel’s decimation of Hezbollah to the fall of the Assad regime—have opened a new chapter for the Middle East. The hope may be that the collapse of Iran’s so-called axis of resistance in the Levant augurs a period of peace and stability in the region. The more likely outcome, however, is an intensification of regional competition to fill the vacuum left by the diminishment of Iran and its allies. The collapse of Hezbollah changed the balance of power between Iran and Israel, and the fall of Bashar al-Assad has further weakened Iran. However, the broader consequence is a change in the balance of power between Turkey and everyone else.
Lines on a 1916 map may not keep Syria together Australian Strategic Policy Institute
Hayat Tahrir, al-Sham (HTS) has just taken Damascus. However, the capture of Damascus will be just the beginning to a massive change in the balance of power in the Middle East and perhaps the world. The boundaries of Syria were set following the collapse of the Ottoman Empire - lines on the map drawn Mark Sykes and Georges Picot in a secret agreement in 1916, known as the Picot-Sykes Agreement. Like many European borders drawn before and after the First World War, lines on maps did not match the population already present.
What's next for Syria's devastated economy? Deutsche Welle
Syria's economy was worth $67.5 billion (€63.9 billion) in 2011 — the same year that large-scale protests broke out against President Bashar Assad's regime, which sparked a rebel insurgency that escalated into a full-blown civil war. The country was placed 68th among 196 countries in global GDP rankings, comparable to Paraguay and Slovenia. By last year, the economy had fallen to 129 in the league table, having shrunk by 85% to just $9 billion, according to World Bank estimates. That put the country on par with the likes of Chad and the Palestinian Territories. Almost 14 years of conflict, international sanctions and the exodus of 4.82 million people — more than a fifth of the country's population — has taken its toll on what was already one of the poorest nations in the Middle East.
Latin America
Latin America Is About to Become a Priority for U.S. Foreign Policy Foreign Policy
Donald Trump’s second presidency seems destined to focus more attention on Latin America than any U.S. administration in perhaps 30 years, including the incoming president’s first term. The reason is straightforward: Trump’s top domestic priorities of cracking down on unauthorized immigration, stopping the smuggling of fentanyl and other illicit drugs, and reducing the influx of Chinese goods into the United States all depend heavily on policy toward Latin America.
Political Risk and Resource Nationalism in Latin American Mining and Minerals Baker Institute for Public Policy
South American economies now figure prominently in yet a new round of natural resource pursuits, focusing attention on minerals to support technologies bundled into the “energy transition” notion, a shift from fossil fuels with broad decarbonization and “net zero” imperatives. A question is whether a better job can be done to realize and distribute economic benefits from businesses that will continue to be characterized by sharp commodity cycles and robust international competition. The energy transition paradigm differs from past cycles in that governments and industry are under extreme pressure to demonstrate that mining and processing can also be decarbonized. Taken all together, the energy transition minerals “rush” appears to be creating expectations that could increase political and country risk factors across the region, invoking “resource nationalism” tendencies. How resource nationalism risks are defined, how these risk factors materialize, and how they might manifest across countries distinctive in traditions and languages will drive future results. These questions are the main focus of our paper.
Javier Milei’s Argentina in 6 Charts Gallup
At the one-year mark of Javier Milei’s presidency, Gallup data show that his “shock treatment” appears to be working in terms of public opinion. Argentines feel more optimistic about the economy and more confident under Milei’s government. However, many long-standing challenges remain, and people continue to struggle to meet basic needs and have a dim view of the current job market.
What is the future of democracy in Colombia? Analysis of the Tensions Between the Branches of Power Colombia Risk Analysis
Colombia is no exception to a global context marked by a significant decline in confidence in democracy and its institutions. President Gustavo Petro, through a confrontational and alarmist narrative, has further strained the system of checks and balances. While his rhetoric aims to mobilize a social base to support his transformative political agenda, it has also generated uncertainty about institutional stability and democratic equilibrium, impacting public perception of the political system’s functionality. In this context, and with an eye toward 2026, the potential rise of new populist leaders presents an additional challenge. Such leaders often advocate for reforms that weaken institutions by diminishing their independence or capacity for action.
India
India Will Carve Its Own Path Foreign Affairs
For more than a decade, the United States’ Asia policy has been consumed with one issue: the rise of China. But China is not the only rising power in Asia. The continent is also home to India: another nuclear-armed country with a huge population, army, and economy. And like China, India has a regional reputation for hegemonic behavior. Yet the United States hardly considers the possibility that India might pose a challenge of its own. Instead, American officials have reached out to India as a partner and encouraged its rise, hoping New Delhi will amass enough power to counterbalance Beijing. They seem to want India to become a regional power, perhaps even something akin to a “third pole” in the global order. American officials should consider a more complex strategy. Should India acquire the heft to become, as U.S. officials hope, a true counterbalance to China, it will likely also consider itself a counterbalance to the United States. In short, a tripolar world, with India as the third pole, will not strengthen Washington’s or Beijing’s hand. Instead, it will produce a more unstable global dynamic.
Where’s the Indian Economy Headed? Dereck Scissors/American Enterprise Institute
Optimism inside and outside India over the country’s economic performance is overdone. Recent quarters of fast official gross domestic product growth were accompanied by weak international competitiveness, fiscal irresponsibility, and low employment quality. For the longer term, India’s performance is decent but far from transformative. Talk of becoming rich by mid-century clashes with being by far the poorest among large economies and catching up much slower than is possible. The central question is why this is so. India claims a young labor force will carry it to preeminence. The labor force isn’t utilized properly, with tens of millions stuck on farms because laws discourage hiring and agricultural efficiency. This depresses export gains and investor interest. India’s demographic window is not indefinite, and its leaders are fiddling.
The Coming Battle Over U.S. Tax and Budget Policy
CBO’s Analysis Shows Importance of Fiscally-Sustainable Tax Reform Kyle Pomerleau/American Enterprise Institute
Last week, the Congressional Budget Office (CBO) released a new macroeconomic analysis of how the expiration of the Tax Cuts and Jobs Act (TCJA)’s individual provisions impacts their baseline. They found that the expiration would result in economic output to rise in the United States by the end of the next decade. This implies that if lawmakers were to extend these expiring provisions, it would be a negative for the US economy in the long run. This analysis highlights how important it is for lawmakers to approach TCJA as an opportunity to reform the tax code in a fiscally sustainable manner.
Principles-Based Illustrative Reforms of Federal Tax and Spending Programs Penn Wharton Budget Model
Expanding federal debt presents an opportunity to rethink U.S. federal fiscal policy while growing the economy and enhancing social insurance. This study offer illustrative fundamental reforms of federal tax and spending programs consistent with standard design principles that have emerged over time in the field of public economics. Specifically, the study analyze 13 major tax and spending reforms that include a full accounting of their budgetary and economic interactions, arguably one of the most ambitious computational public finance experiments performed to date. Over the next 30 years, relative to current law, these reforms: (i) reduce federal budget deficits by 38 percent; (ii) grow the capital stock by 31 percent, GDP by 21 percent, and wages by almost 7 percent; (iii) reduce health insurance premiums by 27 percent; (iv) produce almost universal health insurance enrollment along with improvements in average health and productivity; (v) reduce old-age poverty; and (vi) reduce carbon emissions, relative to current law. These changes improve the welfare of many current and all future generations, especially future lower-income households who gain the equivalent of $300,000 in lifetime value from the reforms.
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
China’s Economic Spillovers to Emerging Markets, Does the U.S. Really Face an “Axis” of Enemies”? And the Growing Asymmetric Threat to Undersea Communication Cables
November 29 - December 1, 2024
Geoeconomics
China’s Financial Spillovers to Emerging Markets Banco de España
This paper analyzes the financial spillovers of shocks originating in China to emerging markets. Using a high-frequency identification strategy based on sign and narrative restrictions, we find that equity markets react strongly and persistently to Chinese macroeconomic shocks, while monetary policy shocks have limited or no spillovers. The impact is particularly strong in Latin American equity markets, with the likely channel being the effect of shocks in China on international commodity prices. These effects extend to various financial variables, such as sovereign and corporate spreads and exchange rates, suggesting that macroeconomic shocks in China may have implications for economic cycles and financial stability in emerging markets.
The Puzzle of Multinationals’ Profits: Why Tax Havens Yield Higher Returns Federal Reserve Bank of St. Louis On the Economy Blog
A striking pattern emerges when examining the returns that U.S. multinational companies generate on the assets they invest across different countries: Investments in tax havens consistently yield returns of 8% to 17%, while investments in other G7 economies (Canada, France, Germany, Italy, Japan and the U.K.) yield more modest returns of 4% to 9%. This remarkable difference raises a question about the nature of multinationals’ profit patterns.
Federal Reserve Independence and Congressional Intent: A Reappraisal of Marriner Eccles’ Role in the Reformulation of the Fed in 1935 Gary Richardson & David W. Wilcox/National Bureau of Economic Research
Congressional intent concerning the independence of the Federal Reserve matters because it protects the public from the politicization of monetary policy. Attempts to subordinate monetary policy to the President could easily end up in front of the Supreme Court. The outcome of such a case would depend, importantly, on the historical record. Understanding what Congress intended when it designed the decision-making structure of the Fed requires a clear understanding Marriner Eccles’ proposal for the structure of monetary policymaking in Title II of the Banking Act of 1935 and the Congressional response. Eccles' proposal vested monetary policymaking in a body beholden to the President. Eccles argued that leaders of the Fed should serve at the discretion of the President and implement the President's monetary program. The Senate and House rejected Eccles' proposal and explicitly designed the Fed's leadership structure to limit politicians'—particularly the President's—influence on monetary policymaking.
Ending Bailouts, At Last John Cochrane & Amit Seru/Hoover Institution
In 2008, we had a financial crisis. Our government responded once again with bailouts. Bailouts keep existing business going, and most of all protect creditors from losses. The instruments vary, including direct creditor guarantees like deposit insurance, mergers of failing companies with sound ones sweetened with government money or government purchases of bad assets, or government purchases, guarantees, and other efforts to prop up security prices and thereby cover up losses. Since actual or promised (contingent) resources flow from taxpayers to financial market participants, we include all of these interventions as “bailouts.”
The Threat of Asymmetric Attacks on Undersea Cables
Safeguarding Subsea Cables: Protecting Cyber Infrastructure Amid Great Power Competition Daniel Runde/ Center for Strategic and International Studies
Subsea cables are critical for nearly all aspects of commerce and business connectivity. For example, one major international bank moves an average of $3.9 trillion through these cable systems every workday. Cables are the backbone of global telecommunications and the internet, given that user data (e.g., e-mail, cloud drives, and application data) are often stored in data centers around the world. This infrastructure effectively facilitates daily personal use of the Internet and broader societal functions. In addition, sensitive government communications also rely extensively on subsea infrastructure. Western defense and intelligence officials are increasingly concerned about Russia’s threats to disrupt and destroy the cables. What can be done?
Understanding and Managing Global Catastrophic Risk Rand
In response to a request from the U.S. Department of Homeland Security (DHS)—specifically, FEMA—for support in meeting the requirements of the Congressionally mandated Global Catastrophic Risk Management Act (GCRMA)assessment requirement, RAND researchers developed a risk summary for each of the hazards and threats noted in the law. What are those hazards and threats? asteroid and comet impacts, super-volcanoes, severe pandemics, rapid and severe climate change, nuclear conflict, and AI.
The United States and the “Axis” of Its Enemies: Myths vs. Reality Eugene Rumer/Carnegie Endowment for International Peace
Since launching its all-out assault on Ukraine, Russia has drawn closer to China, Iran, and North Korea. But have they really formed an “axis?” Their interests have aligned but not merged. It makes little sense and can be even counterproductive to treat these four countries, each guided by its own vision, as a unified coalition.
China
The Clandestine Oil Shipping Hub Funneling Iranian Crude to China Bloomberg
Bloomberg has written a fantastic interactive report on how a burgeoning group of “dark fleet” vessels are operating with impunity on the edge of major maritime thoroughfares. And in these ships, hundreds of millions of barrels of sanctioned oil is being moved by Iran and China – with tremendous risk to the environment.
Recommended Weekend Reads
Latin America Holds the Key to Critical Mineral Needs, What Does Secretary of State-Designate Marco Rubio Have to Say About Latin America? And Just How Successful Has China’s Belt & Road Been?
November 15 - 17, 2024
Latin America
Latin America: The World’s Copper Stronghold Center For Strategic and International Studies
In this interactive report, CSIS points out that copper is vital to U.S. national, economic, and energy security. Everything—from clean energy technologies, electronics, and automotives to power transmission infrastructure, data centers, and defense systems—depends on copper. However, the United States only mines 5 percent of the world’s copper. Latin America, which cumulatively mines nearly half (46 percent) of the world’s raw copper—the largest share of any continent—holds significant potential as a sourcing partner. Chile and Peru have the two largest copper reserves globally.
What Marco Rubio Has Said About Latin America Americas Quarterly
President-elect Donald Trump has nominated Florida Senator Marco Rubio for Secretary of State, making him potentially the first Latino to hold the position. The three-term senator, a son of Cuban immigrants, was born in Miami and was highly influential on Latin America policy during Trump’s first administration. That influence is now likely to grow. He has consistently spoken out against dictatorships in Venezuela, Cuba, and Nicaragua. He has also criticized some of Latin America’s leftist leaders for their positions on Venezuela and China’s presence in the region. Here is a selection of some of Rubio’s recent statements on Latin America.
Boosting US-Japan Cooperation with Latin America in Critical and Frontier Sectors Wilson Center’s Latin America Program
As they recover from the effects of the COVID-19 pandemic, Latin American and
Caribbean countries are facing a pivotal moment in their economic development. Many Latin American governments are beset by longstanding and emerging challenges, caught between rival global powers and weighed down by a daunting infrastructure deficit, a growing digital divide, high debt, low growth, and the intensifying effects of a changing climate. Looking ahead, cooperation with key extrarational partners, especially those committed to strengthening governance and accountability, will be fundamental to economic growth and sustainable development. In this context, the United States and Japan will be potentially decisive actors. Both have separately committed to advancing the region’s economic development and, importantly, to promoting transparency and good governance. Japanese finance and investment in the region have grown (see Figure 1) as part of the late Prime Minister Shinzo Abe’s “Juntos” policy, which promoted enhanced engagement across the region. At the same time, Japan has emphasized the links between democracy and development, what it calls the “two D’s.”
Africa
As countries across Africa grapple with the challenge of mobilizing resources for critical development initiatives, an increasingly popular financial instrument has emerged as a promising solution – diaspora bonds. Designed to tap into the substantial savings and investment potential of citizens living abroad, these bonds offer governments, project sponsors and corporations an opportunity to diversify funding sources through what’s known as a ‘diasporic discount’, enabling domestic entities to borrow at below-market rates with extended maturities. The timing couldn’t be better. According to World Bank data, annual remittance inflows to Africa in 2023 amounted to $90.3bn, or approximately 259% of the continent’s gross domestic product. And this figure is expected to rise further in 2024. It is the second highest after Asia, where remittance inflows as a share of GDP come to 278%. Channeling these flows through purpose-specific bonds serves a dual purpose: it deepens often underdeveloped financial markets while broadening the retail investor base.
China
China’s Belt & Road Initiative: How Successful Has It Been? Hinrich Foundation
Assessing the success of BRI requires a comprehensive examination of its financial investments, opportunity costs, and role in augmenting China’s global influence. Over the past decade, China's substantial increase in overseas assets, coupled with significant expenditure on industrial subsidies, amounts to an estimated cost of roughly 1.5% of China’s gross domestic product (GDP) annually. When factoring in indirect financial costs, such as international subsidies and geopolitical tensions, this conservative estimate increases to approximately 1.7% of GDP. Despite BRI's success in reshaping global trade dynamics and enhancing China's footprint in the global South, it has also triggered geopolitical pushback and skepticism from Western powers. The shifting attitudes toward China among Western elites, alongside China's continued economic reliance on democratic nations, cast doubt on the long-term efficacy of BRI in fulfilling China's strategic goals.
The Belt and Road Isn’t Dead. It’s Evolving Foreign Policy
Chinese President Xi Jinping visits Peru this week for the Asia-Pacific Economic Cooperation (APEC) summit, during which he will inaugurate the deep-water port of Chancay, about 45 miles north of Lima. It’s a $3.6 billion project—one of China’s largest infrastructure investments in the region in the past two decades. It also may be one of the last of its kind.
Beijing Has Already Prepared for Trump’s Return Foreign Policy
As U.S. President-elect Donald Trump prepares to return to the White House, global observers watch with a mix of nervousness and caution. Conversations with Chinese academics, economists, and policy insiders reveal a far more nuanced outlook as Beijing dissects the implications of a second Trump presidency. Trump’s 2016 victory caught Beijing off guard, triggering a scramble to recalibrate. But four years of navigating tariffs, tech restrictions, and trade tensions have given Chinese President Xi Jinping and his advisors a deeper understanding of the U.S. president’s playbook.
Recommended Weekend Reads
The 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.
Recommended Weekend Reads
Entering the Age of Global Depopulation, The Surprising Resilience of Globalization, and How Brazil Could Become the Global Engine for Global Clean Energy Revolution
November 1 - 3, 2024
Global Demographics
The Age of Depopulation: Surviving a World Gone Gray Nicholas Eberstadt/Foreign Affairs
Although few yet see it coming, humans are about to enter a new era of history. Call it “the age of depopulation.” For the first time since the Black Death in the 1300s, the planetary population will decline. But whereas the last implosion was caused by a deadly disease borne by fleas, the coming one will be entirely due to choices made by people. With birthrates plummeting, more and more societies are heading into an era of pervasive and indefinite depopulation, one that will eventually encompass the whole planet. What lies ahead is a world made up of shrinking and aging societies. Net mortality—when a society experiences more deaths than births—will likewise become the new norm. Driven by an unrelenting collapse in fertility, family structures, and living arrangements heretofore imagined only in science fiction novels will become commonplace, unremarkable features of everyday life.
To Combat Demographic Decline, Moscow Must Focus on Mortality Rather than Fertility Jamestown Foundation
Russia’s continuing population decline means it will soon not have enough people to run its economy and fight in its wars. Russian President Vladimir Putin is talking ever more about falling fertility rates but doing little to decrease the increasingly high mortality rates. Russia’s birthrate reflects underlying social changes, such as urbanization, and is at about the same level as other industrialized countries. Its mortality rate, however, is far higher, in part due to Russia’s failure to support the health of its citizens. Putin is loath to address the mortality rate, as it would be both expensive and require him to change his goals in Ukraine. As a result, Russia’s demographic decline and the restrictions it will impose are likely to last as long as he remains in power.
Geoeconomics
The Surprising Resilience of Globalization: An Examination of Claims of Economic Fragmentation Brad Setser/Aspen Economic Strategy Group
This paper evaluates the current landscape of global trade and financial flows and proposes a set of reforms to support healthier forms of integration. Setser finds that, despite the growing bipartisan skepticism about the value of liberal trade, global economic integration remains surprisingly resilient. In fact, Setser argues, the immediate risk facing the global economy is more accurately described as unhealthy integration than fragmentation. Setser identifies two unhealthy forms of globalization that have proven to be resilient – those driven by corporate tax avoidance strategies and persistent trade and payment imbalances with China – and offers three policy reforms to address these risks.
Geopolitical fragmentation in global and euro area greenfield direct investment The European Central Bank
As companies and policymakers increasingly look at ways to reduce the vulnerability of their supply chains, understanding recent dynamics in greenfield investment is important as these may foreshadow a reconfiguration of global trade networks, the fragmentation of which could be particularly detrimental for the euro area. In the last decade, annual FDI outflows and inflows amounted to 1.4% and 0.6%, respectively, of euro area GDP and 1.0% and 1.2%, respectively, of global GDP excluding the euro area. The euro area is the largest source of outward greenfield FDI, accounting for 19% of global outflows in the last two years, followed by the United States, which accounted for 15%. Ex-ante, the effect of geopolitical fragmentation on the direction of FDI flows is ambiguous. On the one hand, firms and policymakers might look to friend-shore and/or near-shore production to make supply chains less vulnerable to geopolitical tensions or to safeguard their assets from potential future violations of property rights. On the other hand, firms might increase their investments in geopolitically distant countries, i.e., countries that take an observably different stance on foreign policy issues, if they think that future trade tensions might impede their access to local markets.
The gradual decline in dollar dominance could quicken OMIF
The dollar’s share in world currency reserves could decline until 2050 to 40-45% from around 60% at present, under scenarios discussed by the OMFIF advisory council. The gradual fall, alongside an increase in the importance of the euro and the renminbi, is seen as a natural consequence of the gradual reduction in America’s relative importance in the world economy. Factors that could speed up the fall include more aggressive action by emerging market economies to promote the use of non-dollar currencies as well as persistent US budget and current account deficits, according to participants at the advisory council meeting on 15 October. Kamala Harris and Donald Trump, the contestants in the US presidential election on 5 November, show little readiness to take action on this issue. Concerns about the use of US power over the dollar system in sanctions against Russia and allies in the war with Ukraine could worsen, as well as worries about ballooning American deficits, depending on the next White House incumbent. These anxieties are also helping spur the latest spurt in the gold price.
Not Picking Sides Is Paying Off For These Countries Bloomberg
Geopolitics is shaping the flow of trade and investment around the world in ways it hasn’t in decades, fueling talk of another Cold War. Sandwiched between a US-led Western Bloc and another dominated by Russia and China sit at least 101 nations that we’ve dubbed the “New Neutrals.” Members of this informal group are betting they can attract investment from both blocs and benefit economically if they avoid picking sides. And there’s evidence that’s happening. More than 100 nations are embracing a new kind of geopolitical neutrality. For many, it’s working.
Can BRICS Finally Take On the West? Foreign Policy
One of the more remarkable developments over the last 25 years is that an investment banker’s arbitrary acronym for a quartet of emerging market economies has become the rubric for rebellion. The BRICS countries—or BRICS+, since the original grouping of Brazil, Russia, India, China, and later South Africa has since further expanded to include four more members—are meeting this week for their headline summit in glitzy Kazan, Russia, on the banks of the Volga. On the agenda this year, the first full summit after the formal incorporation of Iran, Egypt, Ethiopia, and the United Arab Emirates into the bloc, will be the usual talk of creating a truly multipolar world order to challenge U.S. and Western hegemony. A big part of that, especially for sanctions-battered members such as Iran and Russia, will be efforts to come up with viable alternatives to the global dominance of the U.S. dollar.
Latin America
The Past, Present and Future of Soy in South America Americas Quarterly
Over the past five decades, the continent has become a soy-growing behemoth, feeding much of the world. But is the boom over? And what does it mean for South America?
What does the U.S. Election mean for Latin America? Canning House
Canning House is a UK-based think tank focused on Latin American. In their new paper, they consider the potential impact of either leading candidate's victory on Latin America and how the region sees the contest for the White House. This includes analysis covering: The Latino vote, The Border Czar story: success or failure?, Harris and Trump - global policy positions, The view from Mexico City, The Bolsonaro factor in Brasília, Outlook for the 'Northern Triangle', A tricky trio, How the rest of Latin America sees the race for the White House.
Brazil’s Critical Minerals and the Global Clean Energy Revolution the Wilson Center
Brazil has all the elements for becoming an engine of the rapidly evolving global energy transformation. The country boasts some of the world’s largest deposits of critical minerals essential to make possible the transition from fossil fuels. Brazil is already an exporter of some of these minerals. But beyond exporting raw materials, the country is also looking to develop critical minerals value chains at home, leveraging its leadership in renewable energy. In the process, Brazil could emerge as a trailblazer in green technology and climate change solutions.
Recommended Weekend Reads
Our U.S. Election Special: Election Integrity, Who Your Neighbors Gave To, and How Economic Indicators Impact Votes. Plus, Why Europe is Unprepared to Defend Itself, and Mexico’s Economic Challenges
October 25 - 27, 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.
U.S. 2024 Elections
“The Good, the Bad and the Ugly” of Election Integrity The Hoover Institution Podcast
Are battleground states better prepared this election cycle than in recent election cycles? Ben Ginsberg, the Hoover Institution’s Volker Distinguished Visiting Fellow and a preeminent authority on election law, examines whether battleground states are better prepared this election cycle than in recent election cycles. Ginsberg also explores possible legal challenges that might happen before, during, and after the vote count.
See How Your Neighborhood Is Giving to Trump and Harris Washington Post
Want to know which political campaigns your neighbor contributed to? The Washington Post makes it easy: Enter your zip code and find out which campaign your neighbors gave money to! In every state across the country, more people donated to Vice President Kamala Harris than to former President Donald Trump. Registered voters in the suburbs were about twice as likely to give to Harris as to Trump. A vast majority of Trump’s donors under 35 were men. And in the battleground state of Georgia, where Black voters make up one-third of the electorate, less than 4 percent of Trump donors were Black. Those are among the findings from a Washington Post analysis of online contributions to the Trump, Harris, and President Joe Biden campaigns, combined with voter registration data. There are outside groups that don’t have to disclose donors and that make up some of the spending for both Harris and Trump, so this is only a part of the funds backing the two candidates. The result is still a detailed snapshot, down to the Zip code level, of who clicked and tapped to send a few dollars to the leading candidates since Trump launched his campaign in November 2022.
How Do Electoral Votes, Presidential Approval, and Consumer Sentiment Respond to Economic Indicators? National Bureau of Economic Research Working Paper/Robert J. Gordon
Abstract: This paper studies the effect of economic indicators on the Michigan Consumer Sentiment Index, Presidential approval ratings, and Presidential election outcomes since 1956. How closely do the indicators predict sentiment, how well does sentiment predict approval, and what role does approval have in explaining election outcomes measured by electoral votes? How much of the variance of approval ratings depends on non-economic factors like the “honeymoon effect”? Is there a role for economic indicators in explaining election outcomes once the contribution of approval ratings is taken into account? Regression equations provide answers to these questions and allow new interpretations of political history. Equation residuals and the contributions of specific variables are graphically displayed, providing insights into time intervals when sentiment was above or below the prediction of economic indicators, when approval differed from its usual relation with sentiment and the indicators, and when and why the electoral vote totals in each election since 1956 exceeded or fell short of the predictions of the econometric equations.
As the U.S. elections nears, Russia, Iran, and China Step Up Influence Efforts Microsoft Threat Analysis Center
With two weeks until Election Day 2024, the Microsoft Threat Analysis Center (MTAC) observes sustained influence efforts by Russia, Iran, and China aimed at undermining U.S. democratic processes. Since our last two reports, the U.S. government has taken many actions revealing cyber and influence activity from foreign adversaries related to election 2024. Most recently, that includes revealing malicious Iranian cyber actors’ sending of “stolen, non-public material from former President Trump’s campaign” to both individuals then associated with President Biden’s campaign and U.S. media organizations, and the indictment of three Iranian actors for the hack-and-leak operation targeting the Trump-Vance campaign.
Africa
How Can African Countries Participate in U.S. Clean Energy Supply Chains? Carnegie Endowment for International Peace
The combination of key mineral endowments in African countries and U.S. objectives to reorient clean energy supply chains away from competitors like China can serve as the foundation for a new economic and strategic relationship.
Europe
Why Europe is Unprepared to Defend Itself Bloomberg
For decades, European NATO members curbed defense spending to fund other priorities. What remains, in the view of some US military experts, is a “Potemkin Army” that couldn’t stand up to an invader without American support.
Is a UK rapprochement with the EU possible? The Peterson Institute for International Economics
A clear majority of Brits consider the decision to leave the EU a mistake. A You Gov poll from August this year shows 51 percent saying that the negatives of Brexit have outweighed the benefits; only 17 percent think the opposite.
Macroeconomic implications of the recent surge of immigration to the EU Francesca Caselli, Allan Gloe Dizioli, and Frederik Toscani/Center for Economic Policy Research
This research piece discusses the macroeconomic implications of this immigration surge and suggests a positive effect on potential output in the range of 0.2-0.7% by 2030 for recipient countries. On the flip side, the large inflow had initial fiscal costs and likely led to some congestion for local public services, such as schooling. Future policy efforts should seek to continue to integrate immigrants into the Labour force while ensuring the supply of public services and amenities keeps up with the population increase.
Mexico
Forget the US Election, Mexico’s Real Economic Challenges Lie At Home OMFIF
As the world anxiously watches the unfolding US election, many analysts are speculating about its impact on Mexico’s economy. Will trade relations be upended? Will the peso come under pressure from political uncertainty? While these are valid concerns, the bigger story might not lie north of the border. Mexico’s real challenge stems from its domestic policies – a challenge that could shape the nation’s economic future more than any external events.
A U.S. Reset with Mexico Is Still Possible Shannon O’Neil/Foreign Affairs
Mexican President Claudia Sheinbaum, who was inaugurated on October 1, has come into office with more political power than any Mexican leader since the country’s transition away from single-party rule in the 1990s. She received a record 35.9 million votes—nearly 60 percent of those cast for the top office—and effectively controls a two-thirds supermajority in Congress. Her party, Morena, governs 22 of the country’s 31 states. Yet economic headwinds will temper this political gift, as expectations for fast and meaningful action on wage increases, a greener energy grid, expanded public benefits, and other issues will likely outpace Sheinbaum’s ability to deliver. No matter who enters the White House in January, there is an opportunity—albeit a narrow one—for a reset with Mexico, one that could make both countries safer and more prosperous rather than beset with crises and consistently at odds with each other.
How Does Debt Affect Ecuador-China Relations? Latin American Advisors
Ecuador’s minister of economy and finance, Juan Carlos Vega, met with his Chinese counterpart, Lan Fo’an, in Beijing on Sept. 23 for talks about bilateral cooperation and economic relations. The discussion included Ecuador’s debt to China, which is close to $3 billion, in addition to Ecuador’s energy problems, some of which stem from flaws in Chinese-built energy infrastructure projects that have come to light in recent years. How does Ecuador’s debt influence its relationship to China? How does it complicate President Daniel Noboa’s attempts to improve the country’s fiscal situation? What leverage does Ecuador have in pressing China to address the flaws in its energy infrastructure?
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