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

Why Trump Is Focused on the Panama Canal, America’s Data Center Hotspots, How Iran Lost Before It Lost, The Four Main Groups Opposing Xi Jinping, and Should We Believe the Economic Data?

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

Americas

• Panama: From Zoned Out to Strategic Opportunity   Ryan Berg/Center for Strategic and International Studies

  Since his election in November 2024, President Donald Trump has staked out strong positions on the importance of the Western Hemisphere to the United States’ national security interests. A secure, prosperous, and free Western Hemisphere underpins U.S. geopolitical and economic success. Panama is the most strategically significant geography in the Western Hemisphere. With 40 percent of U.S. container traffic passing through the Panama Canal, it rightfully drew President Trump’s attention. Trump has highlighted concerns about the status quo regarding the disposition of the canal, its operation, and People’s Republic of China (PRC)–owned ports dominating the approaches. This commentary will not relitigate the merits of the 1977 Carter-Torrijos treaty, sovereignty, or transit rates but rather highlight the strategic importance of Panama, legitimate concerns over Beijing-owned ports, and the need for sustained diplomatic engagement and U.S. private sector investment.

• Trump’s Panama Canal threat revives memories of 1989 US invasion  Financial Times

  With US President Donald Trump this week threatening to “take back” the Panama Canal, residents who survived the battles 35 years ago are angry that they are once again at the whim of their country’s main ally. “The invasion overthrew the military dictatorship of General Manuel Noriega, who was captured, flown to the US and jailed on drug trafficking charges. Panama has been a democracy and staunch US ally ever since.

• Will Trump Focus on the Western Hemisphere?    The Net Assessment Podcast

  The hosts get together to talk about the second Trump administration’s agenda in the Western Hemisphere. What interests does the United States have in Latin America? Should the United States be pushing back on China’s activities in the region? If so, what carrots and sticks can the United States offer countries there? And will the administration officials eager to focus on the region be able to sustain that focus, when so many other parts of the world are competing for U.S. attention?

• It’s Time for a U.S.-Greenland Free Association Agreement  Kaush Arha/Alexander Gray/Tom Dans  National Interest

  American security interests and Greenland’s economic aspirations necessitate an institutional partnership between the two. Greenland, an autonomous territory of Denmark, is part of North America in terms of aspiration and geography. It is high time Greenland’s position in North American orbit was cemented. As the world’s largest island atop the North Atlantic, it is an indispensable U.S. ally in the most proximate theatre between the United States and its NATO allies and the Russia-China authoritarian advance. American investments and markets are essential catalysts to turbocharge Greenland’s economic growth and prosperity and ensure its continued alignment with NATO as its place within the Kingdom of Denmark evolves in the years ahead.  It is time for a US-Greenland Free Association.

• America’s data center job hot spots   Axios

  President Trump has announced his support for Stargate, a massive $500 billion AI infrastructure project which, when you break it down, it all about building more data centers.  But where are the data center job hotspots in America?  Axios breaks it all down.

Middle East

• How Iran Lost Before It Lost: The Roll Back of Its Gray Zone Strategy  War on the Rocks

  “Today, you can get in a car in Tehran and get out in the Dahia, Beirut.” Five years and two months after Gen. Qasem Soleimani made this statement, the Islamic Republic of Iran is in retreat. Iran’s air and ground lines of supply to Lebanon now go through Sunni-dominated Syria, where the Assad regime recently crumbled. Even if Iran could more easily get to Lebanon, Hizballah is the weakest it has been in over a generation, having been relentlessly battered by Israel. In the words of one high-ranking commander in Iran’s Revolutionary Guard Corps: “We lost, we badly lost.”  Iran’s ability to deter and wage war in recent decades was largely through gray zone methods. And the structures, resources, and allies that allowed it to do this are now in tatters. But the erosion of Iran’s gray zone strategy was already happening when Assad was still in power and Hizballah loomed over Israel as a fearsome threat. Iran’s economic dysfunction and political disarray prevented it from building and sustaining resilience. This analysis highlights how Iran’s economic malfeasance, fueled by internal divisions among government stakeholders, has undermined its geopolitical ambitions and prevented it from converting regional influence into sustainable economic leverage, marking a potential turning point in its regional strategies.

  Indo-Pacific

• 2025 could be the tipping point for India’s economic aspirations  OMFIF

  Amid the multiple global shifts taking place today, India stands at a critical juncture. The world’s most populous democracy faces a turbulent landscape of geopolitical rivalries, technological shifts and the urgency of climate action. The question remains: will global economic forces propel India toward leadership, or will they impede its ascent?

• The Four Main Groups Challenging Xi Jinping   The Jamestown Foundation

  Chinese President Xi Jinping faces challenges to his authority from four main groups: 1) retired party elders such as Li Ruihuan and Wen Jiabao; 2) princelings, especially those based overseas; 3) military leaders, such as Zhang Youxia; and 4) parts of the middle and entrepreneurial classes who are voicing their discontent.  Xi is unlikely to be overthrown or face a coup, but his ability to force through his agenda may be reduced.  Indicators that Xi is embattled include his absence from chairing two recent high-level meetings, references to “collective leadership” the PLA Daily newspaper, and an adjustment to PRC diplomacy to a more conciliatory approach, especially toward the United States.  This apparent reduction in power could be a result of the country’s bleak economic situation, which Xi’s policies from last year have not resolved.

• China's Economic, Scientific, and Information Activities in the Arctic  Rand Corporation

  How might China's scientific, information, and commercial activities in the Arctic contribute to the country's broader security goals by enabling the collection of intelligence, allowing access to critical infrastructure, or providing other types of military advantages? China's activities in the Arctic have increased, and China's overall approach to strategic competition, which fuses the public with the private and the civilian sphere with the military, has heightened U.S. concerns that China might be on its way to becoming a security and military actor in the Arctic and that Russia is enabling this pathway. In this report, the authors present an analysis of China's economic, scientific, and information activities in the Arctic and call special attention to the intelligence collection and military risks that they might present, including the threat signals for these risks. The authors explore five categories of activities: natural resource exploitation, knowledge development, access to infrastructure, data transmission, and public diplomacy.

• From Fast Lane to Gridlock: Have Chinese Car Exports Peaked?   Rhodium Group

  China’s auto industry has been a success story in recent years, with car exports emerging as a bright spot in an otherwise slowing economy. Between 2021 and 2024, the number of cars shipped from China surged by 300%, propelling China past Japan to become the world’s largest car exporter by units. However, this rapid growth now faces significant challenges. Trade barriers and outright bans in major markets like the US threaten to stall export momentum. Slumping export growth will put pressure on Chinese automakers, potentially leading to industry consolidation. But incumbent carmakers shouldn’t celebrate too much—even with slower export growth, Chinese carmakers are transforming into formidable global competitors in the auto market.

Geoeconomics

• How German Industry Can Survive the Second China Shock   Sander Tordoir/Brad Setser  Centre for European Reform

  Industrial production in the EU’s largest economy has been declining for over five years, a source of profound angst in a country where manufacturing contributes around 5.5 million jobs and 20 percent of gross domestic product (GDP). Germany is starting to realize that China’s new automotive, clean technology and civil aviation industrial base directly competes with Germany’s manufacturing foundation. China’s macroeconomic imbalances now directly infringe on German industrial interests. Germany, with its low debt levels and endangered industrial base, has both the policy space to act and the most to lose if it does not. But it cannot act alone against the new Exportweltmeister. As Henry Kissinger once quipped, Germany is “too big for Europe and too small for the world.”

• Use of Artificial Intelligence and Productivity: Evidence from Firm and Worker Surveys   RIETI Discussion Paper Series

  Abstract: With the rapid diffusion of artificial intelligence (AI), its effects on economic growth and the labor market have attracted the attention of researchers. However, the lack of statistical data on the use of AI has restricted empirical research. Based on original surveys, this study provides an overview of the use of AI and other automation technologies in Japan, the characteristics of firms and workers who use AI, and their views on the impact of AI. According to the results, first, the number of firms using AI is increasing rapidly and firms with a larger share of highly educated workers have a greater tendency to use AI. Robot-using firms are also increasing, but the relationship between their use and workers’ education is weakly negative, suggesting that the impact on the labor market is different for each technology. Second, AI-using firms have higher productivity, wages, and medium-term growth expectations. Third, AI-using firms expect that while it will increase productivity and wages, it may decrease their employment. Fourth, at the worker level, more-educated workers are more likely to use AI, suggesting that AI and education are complementary. Currently, AI may favor high-skill workers in the labor market. Fifth, workers who use AI evaluate their work productivity to have increased by approximately 20% on average, suggesting that AI could potentially have a fairly large productivity enhancing effect.

• Should We Believe the Economic Data or Americans “Lyin” Eyes?  The Answer is Yes  Scott Winship/American Enterprise Institute Center on Opportunity and Social Mobility

  Many Americans are convinced the economy is ailing and that life is financially tougher today than a decade—or a generation—ago. Social media posts wax nostalgic for a long-lost era when all single breadwinners allegedly could afford a home and two cars for a family of four. Everyone seemingly knows someone who did everything they were supposed to do but is now stuck with six figures of student loan debt and a string of gig economy jobs. So, are Americans “right to believe their lyin’ eyes,” as Cass claimed in a recent op-ed titled, “Three Cheers for Economic Pessimism”? This formulation begs the question of whether American beliefs about the economy conflict with objective measures. Cass and the declensionists are no more reliable guides to those beliefs than accurate interpreters of economic data. What Americans tell surveyors is consistent with the objective data, for the most part. There has been no long-term decline in economic conditions.

• The Upcoming Trump Tariffs: What Americans Expect and How They Are Responding  Olivier Coibion/Yuriy Gorodnichieknko, Michael Weber

  Abstract: In a recent survey, we asked Americans to tell us about what they thought would happen under Trump’s tariff policies and how this might affect their decisions. The results point toward widespread anticipation of tariffs being imposed on our trading partners, especially China, with significant expected passthrough into the prices of both imported and domestically produced goods and a general acknowledgment that American consumers will bear an important share of the cost of tariffs. In response to higher future tariffs, many Americans, and particularly Democrats, report that they would increase their purchases of foreign goods in anticipation of the upcoming tariffs and higher prices, while simultaneously trying to save more in the face of higher uncertainty about future policies. Managers’ report that their firms would become more likely to raise prices, change their mix of products and seek out alternative suppliers as the rise in tariffs approaches.

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 Predict Challenges in 2025, With a Few Bright Spots: Political conflict, economic difficulty, global discord, growing deficit expected  Gallup

  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

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

• Banking on the diaspora   OFIF

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

China

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

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

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

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

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

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

Recommended Weekend Reads

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

October 18 - 20, 2024

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

Americas

• Solving Latin America’s Food Paradox  Americas Quarterly

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

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

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

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

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

The U.S. Elections

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

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

China

• Renminbi dilemma for Chinese authorities  Mark Sobel/ OMFIF

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

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

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

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

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

Geoeconomics

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

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

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

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

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

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

Recommended Weekend Reads

October 11 - 13, 2024

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

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

The BRICS+ Upcoming Leadership Summit

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

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

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

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

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

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

China

• China’s Dollar Dilemma  Carnegie Endowment for International Peace

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

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

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

Americas

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

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

Russia

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

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

US Economics & Trade

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

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

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

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

Recommended Weekend Reads

Big Changes Are Coming to Latin America, How Russia and China Evade Sanctions Together, and How Monetary Policy Impacts U.S. National Security

October 4 - 6, 2024

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

Americas

• It isn’t only Sheinbaum.  Meet the Women Who Run Mexico  Washington Post

  Mexico inaugurated its first female president on Tuesday, reaching the milestone before its northern neighbor. Even if the United States elects Kamala Harris as president in November, it will lag well behind this traditionally macho country on broader gender parity. The new president, Claudia Sheinbaum, will govern with a cabinet that is half female and a Congress evenly divided between men and women. Women head the Supreme Court and central bank and run top federal ministries. Mexico has become a global leader in gender parity thanks to aggressive laws establishing quotas for women in politics and government. They have had a dramatic impact. Mexico’s legislature ranks fourth in the world for female representation, while the United States is No. 70 — just behind Iraq — according to the Inter-Parliamentary Union.

• Gabriel Boric’s Unlikely Legacy   Americas Quarterly

  Fresh off his 2021 primary victory, President Gabriel Boric famously predicted that “if Chile was the cradle of neoliberalism, it would also be its tomb.” Three years later, his ambition to remake Chile got buried instead. Now approaching his final year in office, the former student activist often sounds less like Marxist icon Salvador Allende and more like the traditional center-left politicians he once derided. He espouses growing the economic pie, vows “mano dura” against crime, and blasts Venezuela as a dictatorship. Has Boric genuinely moderated his convictions? Or, as his less scripted remarks suggest, is this the tactic of an agile young politician biding his time? 

• How are the United States and China Intersecting in Latin America?   Brookings Institution

  Strategic competition between the United States and China is impacting how the two countries relate to each other across the world, including in Latin America. How are the United States and China approaching Latin America and where do their interests intersect? What is the character of their interactions in the Western Hemisphere—rivalry, cooperation, or something in between? And finally, should competition with China be used to motivate American policymakers to devote more attention and resources to Latin America?  In this written debate, the authors address the title question with essay-length opening statements. The statements are followed by an interactive series of exchanges between authors on each other’s arguments. The goal of this product is not to reach any conclusion on the question but to offer a rigorous examination of the choices and trade-offs that confront the United States in its competition with China.

• Brazil’s Largest Mafia is Entering Politics. The Government Must Act  New York Times

  The city of São Paulo, Brazil, is about to elect its next mayor, but the talk of the town is about a party that’s not on the ballot on Sunday: The “party of crime,” or as it’s formally known, the First Capital Command (P.C.C.). Police officials recently claimed that the criminal group moved almost $1.5 billion through fintech companies, using some funds to finance candidates around São Paulo State. And one of the front-runners for São Paulo mayor, the far-right fitness coach and influencer Pablo Marçal, is running under a small political party whose president was caught on tape bragging about his P.C.C. ties earlier this year. (The party president has denied the audio is of him, but reporters from the newspaper Folha de S. Paulo say they confirmed its authenticity with six independent sources.)

• How Organized Crime Threatens Latin America   Journal of Democracy

  Abstract: Organized crime has emerged as the most important security threat to democratic governance in Latin America. This essay explains why Latin American democracies have been able to curb other security threats (from the military, insurgents, and oligopolists) but are struggling to contain organized crime. Organized crime possesses power assets associated with traditional security threats (military capacity, territorial control, and access to markets). But it also operates innovatively: It infiltrates and coopts the state, which makes it difficult for presidents to rely on state institutions (such as the police, the army, the courts, and prisons) to act in a unified way to fight organized crime. To date, there are no successful cases of Latin American states truly defeating organized crime. But states have means of rendering organized crime less predatory and violent.

Geoeconomics 

• National Security Policy as Monetary Policy: Military Means to Counter Inflation   The War Room (An Online journal of the U.S. Army War College)

  Although the U.S. Federal Reserve System is the only federal entity with a legal mandate to set monetary policy and manage inflation, inflation impacts every department and agency. To endure and win conflicts of the future, U.S. national security requires monetary stability and economic resilience. The U.S. military must prepare to support civil authorities and deter foreign threats from stoking harmful inflation in the U.S. economy by disrupting supply chains. Temporary trade disruptions during the COVID-19 pandemic and the 2021 Colonial Pipeline ransomware attack contributed to the surge of inflation in the post-pandemic years.  In January 2022, Chairman of the Federal Reserve Jerome Powell testified before Congress that the conventional monetary policy tools of the central bank were ineffective at countering inflation driven by supply-side shocks. Since 2023, however, U.S. and allied maritime security operations in the Red Sea and the Black Sea have contributed to lowered costs associated with threatened shipping lanes, despite not defeating the threats outright. Looking ahead, the U.S. military should prepare to manage and counter even worse supply-side inflationary shocks that might arise from competition or conflict with a great power adversary.

• Trade Intervention for Freer Trade   Carnegie Endowment for International Peace

  By targeting specific trade violations rather than balanced flows, global trade policy has been focusing on the wrong outcome. New trade rules are needed to create an international trading system in which comparative advantage allocates production.

• Growth and Productivity in the Americas   AEI Economic Perspective

  Across the Americas, low output and productivity growth are key policy challenges. Growth expectations for many countries have fallen in recent years, with Latin America and the Caribbean especially lagging behind emerging market peers. In many cases, total factor productivity growth has been negative for decades. This is due to several structural factors, including low overall investment, low educational attainment, high informality, and inadequate infrastructure. Going forward, “nearshoring,” digitalization, and the energy transition offer opportunities to renew growth. It will be incumbent on authorities to grasp these opportunities.

• When Does Federal Debt Reach Unsustainable Levels?  Penn Wharton Budget Model

  The Penn Wharton Budget Model (PWBM) estimates that---even under myopic expectations---financial markets cannot sustain more than the next 20 years of accumulated deficits projected under current U.S. fiscal policy. Forward- looking financial markets are, therefore, effectively betting that future fiscal policy will provide substantial corrective measures ahead of time. If financial markets started to believe otherwise, debt dynamics would “unravel” and become unsustainable much sooner.

• The Political Economy of Zero-Sum Thinking  S. Nageeb Ali, Maximilian Mihm, and Lucas Siga

  Abstract: This paper offers a strategic rationale for zero-sum thinking in elections. We show that asymmetric information and distributional considerations together make voters wary of policies supported by others. This force impels a majority of voters to support policies contrary to their preferences and information. Our analysis identifies and interprets a form of “adverse correlation” that is necessary and sufficient for zero-sum thinking to prevail in equilibrium.

Russia, China, and Sanctions

• How Western Curbs on Russian Oil Revenue Benefit China  Harvard Kennedy School/Belfer Center for Science and International Affairs

  Since Russia’s Invasion of Ukraine in February 2022, the United States has worked closely with the European Union (EU) and other allied nations to impose wide-ranging economic sanctions on Russian government agencies and companies as well as on individual officials and business leaders. The results are mixed.  Some policies have demonstrably constrained Russia’s resources, obstructed trade, slowed investment, and blunted not only innovation but also maintenance of Western equipment. Freezing over $300 billion in Russian assets has considerably reduced Moscow’s financial maneuvering room. Denying several major Russian banks access to the SWIFT network has complicated Russia’s effort to settle transactions, as have sanctions that limit Russia’s ability to use U.S. dollars and Euros.

• Is a “Shadow Fleet” of Oil Tankers Really Circumventing the Russia Price Cap?  Carnegie Politika

  Russia has chosen to defy the price cap by sourcing tankers and auxiliary services outside of the Western coalition. These tankers, which supposedly knowingly operate in defiance of Western sanctions, have been nicknamed the “shadow fleet.” The prevailing assumption today is that most if not all of Russian oil transported by sea is being sold outside of the price cap regime. Some of it is still carried by vessels owned by shipowners and/or insured by insurers that are subject to the price cap coalition legislation.  The article covers 2,849 oil tankers, of which 735 picked up at least one cargo in a Russian port this year and is based on data collected via the ships’ automatic identification systems, which can be accessed via many ship tracking services. The vessels carried an average of 48 million barrels of oil per day (the rest most likely traveled via pipelines to the refineries). 

• China is Ready for War – And Thanks to a Crumbling Defense Industrial Base America is Not  Seth Jones/Foreign Affairs

  Amid a growing bipartisan consensus that the United States needs to do more to contain China, much of the policy debate in Washington has focused on China’s economic and technological clout. Now, given China’s economic problems—high youth unemployment, a troubled real estate market, increased government debt, an aging society, and lower-than-expected growth—some scholars and policymakers hope that Beijing will be forced to constrain its defense spending. Others go so far as to say the Chinese military is overrated, contending that it will not challenge U.S. dominance any time soon.  But these assessments fail to recognize how much China’s defense industrial base is growing. Despite the country’s current economic challenges, its defense spending is soaring, and its defense industry is on a wartime footing.