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
The Power Requirements for AI Growth in the U.S., The Future of the USMCA, How Vietnam is Being Impacted By U.S. – China Trade Tensions, and How Russia Sees Trump’s Bid to Buy Greenland
February 7 - 9, 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.
Energy Requirements for Growing AI Capability
AI’s Power Requirements Under Exponential Growth Rand Corporation
Larger training runs and widespread deployment of future artificial intelligence (AI) systems may demand a rapid scale-up of computational resources (compute) that require unprecedented amounts of power. In this report, the authors extrapolate two exponential trends in AI compute to estimate AI data center power demand and assess its geopolitical consequences. They find that globally, AI data centers could need ten gigawatts (GW) of additional power capacity in 2025, which is more than the total power capacity of the state of Utah. If exponential growth in chip supply continues, AI data centers will need 68 GW in total by 2027 — almost a doubling of global data center power requirements from 2022 and close to California's 2022 total power capacity of 86 GW.
The Western Hemisphere
The Future of the USMCA Peterson Institute for International Economics
Since 2020, the last year of President Donald Trump’s first term in office, the often-quarrelsome trade relations among the three major countries of North America have been governed by the United States-Mexico-Canada trade agreement (USMCA). The pact must be renewed in 2026, but Trump has threatened withdrawing and imposing tariffs on Canada and Mexico, leaving the future of relations with two of the most important US trading partners uncertain. This guide explains why the agreement is under scrutiny, what’s at stake under different scenarios, and possible paths forward for negotiators if the current crisis is defused. This page will be updated as the trade deal is subjected to a new round of disputes and possible adjustments in President Trump’s second term.
Sheinbaum Isn’t Tempering Her Ambitions for Mexico’s Economy World Politics Review
Last month, President Claudia Sheinbaum unveiled “Plan Mexico,” an economic and development roadmap that aims to boost the Mexican economy through new public and private investments in a range of sectors, and new development-friendly policies. Among its principal aims are to create 1.5 million jobs in advanced manufacturing, increase investment as a proportion of GDP by 4 percent and grow Mexico’s economy from the 13th largest in the world currently to 10th by 2030. The plan is undoubtedly ambitious and comes at a time when the Mexican economy faces significant headwinds and uncertainty amid the threat of tariffs from the United States, as well as an overall deceleration of the economy, which grew at a modest pace of 1.8 percent in 2024, below the average of 2.4 percent for Latin America
Canadian Tariffs Will Undermine U.S. Mineral Security Center for Strategic and International Studies
As the United States races to reduce its reliance on China for minerals vital for national, economic, and energy security, tariffs with Canada may drastically undermine these efforts. Canada is the biggest source of the United States mineral imports, providing key sources of uranium, aluminum, nickel, steel copper, and niobium. To put it into perspective, in 2023, Canada accounted for $47 billion of United States mineral imports. China followed with $28.3 billion. The consequences of tariffs would be particularly profound for the defense industry, nuclear energy, and heavy manufacturing. A 25 percent tariff on Canadian mineral imports could cost U.S. off-takers an additional $11.75 billion—a figure that would increase as base metal and uranium prices recover. Canada would likely adopt retaliatory tariffs, as they did when Trump imposed Section 232 tariffs on steel and aluminum imports from Canada in 2018 and 2020 (backing down both times). In 2023, the United States sent $30.7 billion in minerals to Canada. The retaliatory tariffs could lead Canadian firms to pay an estimated additional $7.6 billion in tariffs, encouraging them to turn to other import sources for off-take, further undermining U.S. firms.
What Trump’s Trade War Would Mean, in Nine Charts Council on Foreign Relations
Although President Trump’s threated tariffs on Canada and Mexico have been delayed 30 days, what he has proposed could upend U.S. trade. These nine charts show what’s at stake, what comes next, and why it matters.
Trump’s Greenland Play: The View From Moscow The National Interest
The Russia-U.S. relationship (or lack thereof) has long dominated Arctic geopolitics. Geography makes the two neighbors and stakeholders sharing the challenges of a warming region. President Trump’s enduring interest in acquiring Greenland injects further potential geostrategic challenges in the region’s icy arena. When the idea was floated during his initial term in office, the immediate response from Russian leadership, state-operated media, and the public was a flood of memes. The second time around, however, Russia’s domestic discourse has a more strategic flavor. Discussions now appear to focus less on the “novelty” of such an acquisition and more on understanding the “objectives.” Three potential scenarios for U.S.-Greenland relations are being debated in Moscow in terms of the strategic implications for Russia.
Indo-Pacific
Factors Shaping the Future of China's Military Rand Corporation
China's population is declining, which will cause problems for China but not necessarily for the PLA. Fertility patterns in China are similar to those observed in other countries. This suggests that revoking the one-child policy will continue to have a smaller effect on population size than the Chinese government may have assumed, and that China's population will continue to shrink in the future. Despite this stark change, China's youth population will remain more than three times the size of the United States' youth population in the near term. China's current challenges include how to sustain economic growth as the economy matures and the population ages. Although demographic patterns in China are similar to those seen in other countries, comparisons should be made with caution; China's immense size means that small within-country changes could have large global impacts. The PLA's primary demographic challenge—which includes cultural, social, and political components—will be whether it can build and develop the type of military that Xi envisions.
The Hoover Institution’s Survey of India Hoover Institution/Stanford University
In this comprehensive volume, the authors offer a panoramic and analytical overview of developments in multiple policy arenas in India over the past year while simultaneously providing appropriate historical context. The range of policy issues covered includes politics, demography, the economy, foreign policy, health, education, science, energy, and defense. For each chapter, specialists share historical background, the state of current policy choices, and likely future trends.
China Teeters Ever Closer to a “Lost Decade” Hinrich Foundation/Stewart Paterson
Aggressive economic stimulus measures dished out by China’s financial regulators are doing little to revive a stagnating economy. The decline in the efficiency of Chinese investment has led to a capital stock that is now bloated relative to the returns that it generates, threatening a full-scale financial crisis. As Beijing tries to avoid a Japan-style ‘lost decade’ of growth, the government doesn't appear able to come up with new ideas to solve its conundrum.
Trade Policy and Jobs in Vietnam: The Unintended Consequences of US-China Trade Tensions International Monetary Fund
“We use the US-China tariffs of 2018-19 as an exogenous shock to export opportunities in Vietnam to identify how trade policy affects job creation. Using a difference-in-differences framework, we first show that US tariffs on China increased the range of products exported by Vietnam to the US in the two years after the hikes. We then show using firm level data that this expansion in export opportunities led to job creation. Around 5% extra jobs were created in firms hit with average tariffs above 15%. Results point towards this effect being driven mostly by female employment.”
China and the Future of Global Supply Chains Rhodium Group
In this study, the Rhodium Group reviews China’s role in four major sectors—apparel, consumer electronics, PV, and autos—over the past decade, then consider four plausible scenarios to 2030 and their implications for China’s future role in global trade and investment patterns.
Russia’s War on Ukraine
What the End of Ukraine Gas Transit Means for Kyiv, Moscow, and Europe Carnegie Politika
At 8 a.m. on January 1, 2025, the supply of Russian gas crossing the Ukrainian border on its way to Europe was turned off, ending a sixty-year era. The response to the shutoff was notably calm considering that in 2009, a two-week halt in Russian gas supplies to Europe via Ukraine caused panic and a large-scale crisis. This time around, gas prices in Europe rose slightly, and only Moldova had real problems. But what longer term does it mean for the EU, Ukraine, and Moscow?
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.
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.
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
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.
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