Recommended Weekend Reads

Is the US Going to be Hit With a New China Shock?, Looking at Russia’s Next Generation of Leaders, How the Global Economy Has Evaded Disaster, and Data Centers are Eating Capex

July 18 - 20, 2025

Below are a number of reports and articles we read this past week that we found particularly interesting.  Hopefully, you will find them of interest and useful as well.  Have a great weekend.

China 

• We Warned About the First China Shock. The Next One Will be Worse     David Autor/Gordon Hansen, New York Times

  Autor and Handson warn the US faces a second “China Shock” that tariffs are ill-equipped to counter. According to an Australian analysis, btw 2003 and 2007, the US led China in 60 of 64 cutting-edge sectors; by 2023, China led the US in 57 of the 64.  The world’s largest and most innovative producers of EVs (BYD), EV batteries (CATL), drones (DJI) and solar wafers (LONGi) are all Chinese start-ups, none more than 30 years old. They attained commanding technological and price leadership not because President Xi Jinping decreed it, but because they emerged triumphant from the economic Darwinism that is Chinese industrial policy. The rest of the world is ill-prepared to compete with these apex predators. When U.S. policymakers deride China’s industrial policy, they are imagining something akin to the lumbering takeoff of Airbus or the lights going out on Solyndra. They should instead be gazing up at the nimble swarms of DJI drones buzzing over Ukraine.

• Why China’s Should Revalue the Renminbi – And Why It Can’t Easily Do So     Michael Pettis/Carnegie China

  In a recent piece for the Financial Times, Gerard Lyons, a British economist who sits on the board of the Bank of China (UK), argued that China’s currency, the renminbi, is undervalued, and that by encouraging it to appreciate, China would help raise its international profile. While many analysts have made similar arguments, it is not at all clear that a rising renminbi would indeed increase its international role. There are nonetheless very good economic reasons for China to revalue its currency, along with reasons why a serious revaluation is likely to be difficult. With its persistent excess production and under-consumption, a revalued renminbi would help correct some of the deep structural distortions in the Chinese economy by shifting the distribution of total domestic income from businesses to households.

• Is China’s Military Ready for War?    M. Taylor Fravel/Foreign Affairs

  A new wave of purges has engulfed the senior leadership of China’s military, the People’s Liberation Army. Since the 20th National Party Congress in October 2022, more than 20 senior PLA officers from all four services—the army, navy, air force, and rocket force—have disappeared from public view or been removed from their posts. The absences of other generals have also been reported, which could foreshadow additional purges.   The fact that these high-profile purges are occurring now is not lost on outside observers. In 2027, the PLA will celebrate the 100th anniversary of its founding. It is also the year by which Xi expects China’s armed forces to have made significant strides in their modernization. Finally, the year is noteworthy because, according to former CIA Director Bill Burns, Xi has instructed the PLA to be “ready by 2027 to conduct a successful invasion” of Taiwan. Xi’s instructions do not indicate that China will in fact invade Taiwan that year, but, as Burns put it, they serve as “a reminder of the seriousness of his focus and his ambition.”  With such ambitious goals set for the PLA, the question then arises as to how this new wave of purges could affect the PLA’s readiness. 

• China’s Stealth Trade Surplus    Brad Setser/Council on Foreign Relations

  China’s trade surplus has soared in the last five years. That basic statement maps to a host of well-known and easily verified realities. China now runs, for example, a large trade surplus in autos, when it ran a deficit as recently as five years ago. Net vehicle exports will top 6 million vehicles this year, net passenger car exports will easily top 5 million cars. It dominates renewables manufacturing (so much so that President Trump decided to essentially give up and take the U.S. back to the age of fossil fuels). China's export volume growth has consistently exceeded global trade growth. Moreover, it maps to standard economic theory: a large real estate crisis typically leads countries to rely more on exports to make up for the fall in internal demand (ask the IMF…) yet that surplus often seems to disappear when it comes to the statistics on global imbalances.

Russia 

• The Next Generation: Russia’s Future Leaders     The Atlantic Council’s Eurasia Center

  President Vladimir Putin is initiating a generational shift in Russia’s leadership. According to Kremlin insiders, during his current presidential term, Putin plans to retire some of his most influential and longest-serving allies, many of whom are well into their seventies. Putin himself, at age seventy-two, has no intention of stepping down. He sees himself as entirely irreplaceable. But he is gradually replacing other key figures with members of a younger generation, as the older officials age, fall ill, and become less effective. This transition began last year.  It is hardly surprising that a significant portion of this new generation coming to power consists of the children of current top officials and Putin’s closest friends—or even his own relatives. In this sense, Russia increasingly resembles a feudal state, in which power is inherited at all levels. The children of the bureaucratic aristocracy are all, in one way or another, striving for government careers and positions of influence.  This report examines the rising generation of the Russian elite and what this shift means for Russia’s future. It is based on extensive interviews with dozens of current and former Russian officials who spoke on condition of anonymity in order to discuss the inner workings of the Kremlin power elite without fear of reprisals.

• China may not want Russia to lose – or to win – in Ukraine   Asia Times

  The South China Morning Post (SCMP) cited unnamed sources to report that Chinese Foreign Minister Wang Yi told his EU counterpart that China doesn’t want Russia to lose in Ukraine because the US’s whole focus might then shift to China.  His alleged remarks were spun by the mainstream media as an admission that China isn’t as neutral as it claims, just as they and their alternative media rivals suspected. Both now believe that China will help Russia achieve its maximum goals, but that’s likely not the case.

Geoeconomics

• War, geopolitics, energy crisis: how the economy evades every disaster  The Economist

  Although today’s dangers are not in the same league as World War II, they are significant. Pundits talk of a “polycrisis” running from the covid-19 pandemic, land war in Europe and the worst energy shock since the 1970s to stubborn inflation, banking scares, a Chinese property bust and trade war. One measure of global risk is 30% higher than its long-term average (see chart 1). Consumer-confidence surveys suggest that households are unusually pessimistic about the state of the economy, both in America and elsewhere (see chart 2). Geopolitical consultants are raking it in, as Wall Street banks fork out on analysts to pontificate about developments in the Donbas or a potential Chinese invasion of Taiwan.  The world economy appears impressively and increasingly shock-absorbent. Why?

• What Happens When Big Tech Goes Nuclear?   Jayita Sarkar/Time Magazine & The Carnegie Endowment for International Peace

  Silicon Valley firms are advocating for the U.S. to embark on a nuclear energy renaissance... The ethos of Big Tech to “move fast and break things” could spur unprecedented innovation in nuclear energy, especially through the construction of small modular reactors, microreactors, and even fusion.  But, just like Silicon Valley itself, which has historically flourished through the invisible hand of the state, the nuclear energy industry might also need increased guidance from the government in order to be safe, secure, and reliable.

• The global persistence of work from home    PNAS

  Abstract:  Work from home (WFH) surged worldwide during the COVID-19 pandemic, then partially receded as the pandemic subsided. Using our Global Survey of Working Arrangements covering dozens of countries, we find that average WFH rates among college-educated employees stabilized after 2022. The average number of WFH days per week is steady at roughly 1 d per week globally from 2023 through early 2025. Cross-country variation persists: WFH is about twice as common in advanced English-speaking economies as in much of Asia. These results show how the pandemic-driven shift to remote work has persisted and reached a new equilibrium, with implications for urban

• Honey, AI Capex is Eating the Economy     Paul Kedorsky’s Applied Complexity

  Looking at the boom in building data centers in the US (and elsewhere around the world), Kedorsky looks at how the spending compares.  Compare this to prior capex frenzies, like railroads or telecom. Peak railroad spending came in the 19th century, and peak telecom spending was around the 5G/fiber frenzy. It's not clear whether we're at peak yet or not, but ... we're up there. Capital expenditures on AI data centers are likely around 20% of the peak spending on railroads, as a percentage of GDP, and it is still rising quickly. And we've already passed the decades-ago peak in telecom spending during the dot-com bubble.

 The Future of Election Polling

• Are Betting Markets Better than Polling in Predicting Political Elections       Institute of National Security, Peabody College, Vanderbilt University

  In a new study conducted at Vanderbilt University, the prediction markets – and Polymarkets in particular -  outperformed traditional national and state-level polling during the 2024 election. According to Professor Brett Goldstein, who oversaw the study, “Our research reveals a fundamental shift in how we might assess and forecast elections.”

Recommended Weekend Reads

Looking at the Effects of Mexico’s Judicial Reform on FDI and USMCA, The Strait of Malacca Emerges as China’s Achilles Heel, Looking at Africa’s Financial Flows, and the Growth of Export Controls as a Strategic Weapon

July 11 - 13, 2025

Below are the reports and studies we found of particular interest this past week.  We wanted to share them with you in the hope they will be useful to you.  Please let us know if you have any questions.  We hope you have a wonderful weekend.

America

• No Checks on Power?  The Effects of Mexico’s Judicial Reform on Foreign Investment and the USMCA   Center for Strategic and International Studies

  On September 11, 2024, Mexico’s senate approved a sweeping constitutional reform meant to fundamentally reshape the country’s judicial system, principally by having all judges in the country be popularly elected to their positions. Its architect, former President Andrés Manuel López Obrador (AMLO), had spent his six-year term railing against the Mexican judiciary, asserting that the rot of corruption, nepotism, and abuse of power had spread to judges at all levels—federal, state, and local. The genesis of the reform is AMLO’s clashes with the judicial branch. Frustrated by the Supreme Court repeatedly striking down important aspects of his legislative agenda, AMLO came to believe that the Fourth Transformation, his ambitious project to end the “neoliberal era” in Mexico, would require far-reaching constitutional changes to be truly consolidated. During a recent CSIS Americas Program event on the immediate and long-term effects of the reform, panelists and legal experts noted that the constitutional amendment was a key piece in a larger political chessboard aimed at transforming Mexico into a more consolidated state under one-party rule, with potentially disastrous consequences for Mexico’s legal and economic future.

• Colombia Wages War on Cash With New Central Bank Payment Network   Bloomberg

  Colombia’s central bank needs to win over skeptics as it tries to modernize the financial system and reduce the nation’s heavy reliance on cash. While most Colombians now have access to financial products, adoption of digital payments lags emerging market peers such as Brazil due to high transaction costs and a lack of trust. The bank thinks it can fix these problems with the upcoming launch of Bre-B, its new payment infrastructure. Colombians are signing up for digital wallets and low-value deposit accounts at a rapid pace, but they’re still not using them much. As of 2024, about 70% of Colombian adults had at least one such account, and yet nearly 8 out of 10 transactions still take place in cash.

• What Passage of the “One Big Beautiful Bill” Means for US Energy and the Economy   The Rhodium Group

  The fiscal year 2025 budget reconciliation legislation, commonly called the “One Big Beautiful Bill” (OBBB) and signed into law by President Trump last week, will have meaningful reverberations across the US energy sector and economy. We estimate the law will increase national average household energy bills by $78-192 and increase total industrial energy expenditures by $7-11 billion in 2035. The OBBB will cut the build-out of new clean power generating capacity by 53-59% from 2025 through 2035. All told, the law puts more than half a trillion dollars of clean energy and transportation investment at risk of cancellation. It also puts new economic pressure on operating facilities that manufacture clean energy technology—tied to nearly $150 billion of investment—given greatly reduced domestic demand for these products. Though these figures represent substantial changes from the baseline, the impacts could be even more substantial depending on how executive actions shape the law’s implementation.

• ‘The president is pissed’: Trump's Brazil tariff threat is part of a bigger geopolitical dispute  Politico

• President Donald Trump is framing his threat to slap a bruising 50 percent tariff on Brazil as a quest for justice for his friend and ally, far-right former President Jair Bolsonaro. But it was his displeasure at a gathering of emerging market nations in Rio de Janeiro over the weekend that tipped the president over the edge, convincing him to send a letter laying out the new levies, according to four people familiar with the situation, granted anonymity to share details. The White House concluded that other methods of punishing Brazil for its perceived mistreatment of Bolsonaro and its alleged censorship on social media, like sanctions, would take too long or were too complex, according to two of the people.  But “BRICS tipped the scale,” said Mauricio Claver-Carone, a close ally of Secretary of State Marco Rubio and Trump’s former special envoy to Latin America.
  
  

  China

• The Malacca Dilemma: China’s Achilles’ Heel    Modern Diplomacy

  President Trump’s recent claims on the Panama Canal and the annexation of Greenland in the Arctic Circle have brought to the fore one of the most paramount notions of geopolitics: command of the sea. “Who rules the waves rules the world.”  For China, there is growing concern over a major maritime chokepoint of the Strait of Malacca. All of China’s energy sea lines of communication (SLOCs) converge through this strait. Each year, $3.5 trillion worth of trade—equivalent to one-third of global GDP—passes through the Strait of Malacca, including two-thirds of China’s total trade volume, over 83% of its oil imports, and approximately 16 mb/d of oil and 3.2 mb/d of LNG. Roughly 6.4 billion deadweight tons (dwt) of cargo pass through the strait annually, with about 10 vessels entering or exiting every hour. Most of these shipments consist of fossil fuels from the Middle East and Africa.

• Quest for Strategic Autonomy?  Europe Grapples with the US - China Rivalry    Mario Esteban, Miguel Otero-Iglesias, Cristina de Esperanza, eds., European Think Tank Network on China

  The intensifying rivalry between the US and China has reshaped Europe’s strategic calculations. Building on the 2020 European Think Tank Network on China (ETNC) report, which assessed Europe’s positioning in this context, this edition re-examines the geopolitical landscape in light of the Covid-19 pandemic, Russia’s war in Ukraine, and Donald Trump’s return to the White House. This report features 22 national chapters and one dedicated to the EU, analysing the evolution of Europe’s relations with Washington and Beijing, the range of approaches to dealing with the US-China rivalry, and how these are expected to evolve.

• China Wants 115,000 Nvidia Chips to Power Data Centers in the Desert   Bloomberg Technology

  A Bloomberg News analysis of investment approvals, tender documents and company filings shows that Chinese firms aim to install more than 115,000 Nvidia Corp. AI chips in some three dozen data centers across the country’s western deserts. Operators in Xinjiang intend to house the lion’s share of those processors in a single compound — which, if they can pull it off, could be used to train foundational large-language models like those of Chinese AI startup DeepSeek. The complex as envisioned would still be dwarfed by the scale of AI infrastructure in the US, but it would significantly boost China’s computing prowess as President Xi Jinping pushes for technological breakthroughs. Such a project also would raise serious concerns for officials in Washington, who restricted leading-edge Nvidia chip sales to China in 2022 over worries that advanced AI could give Beijing a military edge.
  
  

  Africa

• Financial Flows: Thematic Future    Institute for Security Studies (South Africa)/African Futures

  This theme on Africa’s financial flows explores the key inward monetary flows shaping Africa’s development, namely official development assistance (aid), foreign direct investment (FDI) and remittances, while also assessing the scale and impact of illicit financial flows. The analysis considers the size and impact of these flows at the regional and country levels. A Financial Flows scenario is modeled subsequently to assess the potential impact of ambitious increases in aid, FDI, remittances, and portfolio investments to Africa and a reduction in illicit financial flows.

Geoeconomics & Trade

• Modern Globalization and the Nation State – The Evolving International Political Economy   European Centre for International Political Economy

  Unresolved political economy contradictions are becoming more evident – between a national manufacturing narrative versus actual technology-led globalization, balancing open trade versus protection, old industries like steel against the new like AI, and whether governments or major corporates are primarily driving these developments. Leaders face the huge challenges to acknowledge today’s complex interdependent world, define essential national interests against special interest pleading, and work with others to deliver their objectives. Not doing so will only exacerbate uncertainty prevalent across countries.
  

• From National Security to Strategic Leverage   International Institute for Strategic Studies

  As export controls evolve from national security tools to instruments of strategic leverage, the US–China strategic competition is entering a new, more transactional phase. The recent tit-for-tat over chip-design software and rare earths reveals a shifting geopolitical battleground defined by chokepoints, coalition-building, and the race to reduce dependencies.

• Soft Landing or Stagnation? A Framework for Estimating the Probabilities of Macro Scenarios   Federal Reserve Board Economic Research

  Abstract: Amid ongoing trade policy shifts and geopolitical uncertainty, concerns about stagflation have reemerged as a key macroeconomic risk. This paper develops a probabilistic framework to estimate the likelihood of stagflation versus soft landing scenarios over a four-quarter horizon. Building on Bekaert, Engstrom, and Ermolov (2025), the model integrates survey forecasts, structural shock decomposition, and a non-Gaussian BEGE-GARCH approach to capture time-varying volatility and skewness. Results suggest that the probability of stagflation was elevated at around 30 percent in late 2022, while the chance of a soft landing was below 5 percent. As inflation moderated and growth remained strong through 2024, these probabilities reversed. However, by mid-2025, renewed tariff concerns drove stagflation risk back up and the probability of a soft landing lower. These shifts highlight the potential value of distributional forecasting for policymakers and market participants navigating uncertain macroeconomic conditions.

Recommended Weekend Reads

The Taliban Become Major Critical Minerals Dealers, How the Trump Tariffs Are Reshaping Latin America, A New US-Africa Blueprint To Counter China,  And Dollar Dominance After Liberation Day

July 4 - 6, 2025

Below are the reports and studies we found of particular interest this past week.  We wanted to share them with you in the hope they will be useful to you.  Please let us know if you have any questions. We hope you have a wonderful weekend. 

Critical Minerals

• Minerals for Recognition: The Taliban’s Shadow Diplomacy    Geopolitical Monitor

  Since the Taliban’s return to power, Afghanistan’s mineral and extractive industries have assumed growing strategic importance in the broader context of sustaining the country’s fragile economy. The abrupt loss of access to international financial assistance, the freezing of foreign-held assets, and the enforced curtailment of opium poppy cultivation have pushed the Taliban leadership to refocus on domestic resources, particularly the country’s vast mineral reserves. Yet, there is little indication that the Taliban intend to pursue full-scale exploitation or large-scale export of these resources in the immediate term. Rather, their approach appears deliberately cautious, treating Afghanistan’s natural wealth less as a means of short-term economic gain and more as a tool of political leverage and diplomatic bargaining on the international stage.

• Trans-Atlantic Critical Mineral Supply Chain Cooperation: How to Secure Critical Minerals, Battery and Military Supply Chains in the European Theatre     Instituto Affari Internazionali

  Abstract: The intensifying US-China competition has profound implications for critical mineral supply chains (CMSCs), affecting trade, export controls and market dynamics. US and European firms face difficulties competing with China’s dominant market position, which has led to shutdowns and restricted access to essential materials. China’s state-backed industrial policy, integration of the Communist Party into commercial operations and use of market power for geopolitical leverage have enabled it to control key mineral-technology value chains, complicating international cooperation and raising security concerns. The global push for decarbonization has increased civilian demand for critical minerals, particularly in new energy technologies, outpacing defense sector needs and limiting its influence in securing resources. In response, both the US and EU have developed strategies to mitigate vulnerabilities in their supply chains, recognizing the need for diversified control, crisis management mechanisms and enhanced cooperation. The war in Ukraine has further underscored the urgency of strengthening the defense industrial base, with case studies illustrating the material demands for military technologies such as FPV drones. Drawing on the experiences of South Korea and Japan, and fostering transatlantic cooperation through trade agreements and intelligence sharing, the US and Europe can build greater resilience against geopolitical disruptions and the concentrated, mercantilist nature of current CMSCs.

• Three U.S. Government Lists: Which Minerals Are the Most Critical?   CSIS Critical Minerals Security Program

  This interactive report reports on the existence of multiple, inconsistent lists of which minerals the US government considers most critical.  The net effect is unnecessary complexity and uncertainty, undermining efforts to encourage private investment across critical mineral supply chains both domestically and internationally. Critical minerals are defined as resources essential to national security and economic competitiveness. However, the U.S. government lacks a single unified list of these minerals. Instead, the Departments of Defense, Energy, and the Interior each maintain their own distinct lists based on factors such as supply chain vulnerabilities and the minerals’ importance to national security, economic resilience, and manufacturing. Among the 70 materials identified across these lists, only 13 are classified as critical by all three agencies.   These lists play a significant role in determining eligibility for federal funding and incentives, including Defense Production Act Title III grants, Inflation Reduction Act tax credits, and Export-Import Bank financing. Beyond funding implications, these lists send powerful signals to the private sector about which minerals are considered strategic priorities for U.S. investment. 

Geoeconomics

• Dollar Movements and Dollar Dominance in the Aftermath of Liberation Day   Steven Kamin/AEI Economics Working Paper

  Abstract: This paper provides econometric evidence in support of the view that following President Trump’s chaotic tariff announcements on Liberation Day, April 2, the dollar switched from being a safe-haven currency that appreciates in times of market volatility to a “risk-on” currency that moves inversely with volatility.  We estimate an equation for daily changes in the DXY dollar index, using as explanatory variables daily changes in US-foreign interest rate differentials and the VIX, a measure of market volatility.  We find a significant break in the relationship between the dollar and its primary determinants after Liberation Day, with the dollar falling below its predicted level.  More importantly, in the two months after Liberation Day, the sensitivity of the dollar to the VIX shifted from positive to negative, suggesting that global investors ceased to treat the dollar as a safe haven in times of stress.  Most recently, the dollar’s sensitivity to the VIX has retraced some of its earlier decline, but whether this signals a return of the dollar’s safe-haven status remains to be seen.

• A Trump Risk Premium in the Dollar     Robin Brooks Substack

  The standard rationale for why the Dollar has fallen so sharply - it’s down 11 percent so far this year - is that chaotic policy making by the Trump administration is causing a risk premium to build. Here’s the thing: there’s no empirical evidence that this is in fact what’s going on. Instead, the fall in the Dollar maps almost entirely into interest differentials. This means markets are trading a much more conventional view, which is that tariffs will drag down US growth, causing the Fed to be more dovish than other central banks. As I’ve noted previously, I disagree with this view. Even if there is a hit to growth, tariffs are inflationary for the US and deflationary for everyone else. That should keep the Fed more hawkish than its G10 peers, not more dovish.

• A New Impediment to Balance of Payments Adjustment: Underwater Bonds   Brad Setser/Council on Foreign Relations

  A few years back, Silicon Valley Bank (and a few other regional banks) got into trouble because they held too many long-dated government bonds. Government bonds are generally a safe investment; advanced economies that borrow in their own currencies don’t usually default on their own debt. But the market value of long-term bonds fluctuates with interest rates, and low-yielding bonds bought before COVID and during the first year of COVID fell in value when inflation took off and the Federal Reserve started raising interest rates.  A 10-year bond bought at par with a 2 percent coupon back in 2018 (or a coupon well below that in 2020) isn’t going to be worth its face value in the open market now. A coupon of 2 percent or so is just too low a rate on a bond that still has a few years to maturity. The same is true for long-term Agency bonds (the underlying mortgages now won’t be refinanced, so the long really is a long-term bond) and long-term corporate bonds. This, though, isn’t just a problem for U.S. regional banks.

Africa

• Critical Minerals, Fragile Peace: the DRC-Rwanda Deal and the Cost of Ignoring Root Causes   CSIS

  On Friday, June 27, in Washington, D.C., the foreign ministers of the Democratic Republic of the Congo (DRC) and Rwanda are set to sign the Critical Minerals for Security and Peace Deal, a United States–brokered agreement aimed at calming tensions in a region affected by violence and resource exploitation. This historic accord, which seeks to stabilize the eastern DRC, is the product of months of quiet diplomacy led by Massad Boulos, the U.S. special adviser for Africa. Its objective is to facilitate cooperation over the extraction and trade of rare earth minerals in exchange for security to offset China’s dominance in this sector. Initiated by Congolese President Félix Tshisekedi, this agreement comes amid renewed insecurity caused by the resurgence of the March 2 Movement (M23) militia, which since 2022 has seized significant territory in North and South Kivu provinces, including the strategic cities of Goma and Bukavu. These provinces are not only home to millions of civilians but also hold some of the world’s richest deposits of rare earth minerals—essential for everything from electric vehicles to smartphones. Despite the diplomatic celebrations, the deal raises questions. While mineral wealth is a driver of the conflict, it is not the root cause of the violence.

• A New US-Africa Blueprint for Trump Amid China’s Rise    Brookings

  While Africa has historically been sidelined in American foreign policy priorities, the continent is moving rapidly to the center of specific U.S. global priorities. Driven by demographic growth, critical mineral reserves, and expanding markets, Africa offers one of the clearest arenas where American interests and opportunities align. The Trump administration now faces a critical opportunity to craft a forward-looking strategy that delivers on its own foreign policy priorities: reclaiming leadership in global trade (prosperity), advancing American influence in a competitive world (power), strengthening regional and global stability (peace and security), and promoting core American ideals (principles). Given the scale of opportunity, this brief presents actionable recommendations on how the administration can act decisively across these four pillars and why doing so is both strategically sound and urgently needed.

• South Africa and Nigeria need divergent strategies for the informal sector   ISS/African Futures

  Nigeria and South Africa are Africa’s largest economies, and their future development has a significant impact on their sub-regions and the continent as a whole. The African Futures and Innovation team at the Institute for Security Studies (AFI-ISS) recently completed and presented an updated forecast for Nigeria to the office of the Vice President in Abuja, as well as presented an updated forecast for South Africa at a closed, expert meeting hosted by In Transformation and the Gordon Institute for Business Science.  In completing these forecasts, the team was struck by the evidence of lackluster development in Southern Africa compared to West Africa. As one metric of slow growth, Southern Africa registered the highest unemployment rate globally at 33.2% in 2024, using data from the International Labour Organization(ILO). Eswatini, South Africa, and Botswana rank 1st, 2nd and 5th in the world on unemployment rates. In South Africa, the previous systems of mining, education and business were premised on the extraction of maximum profits and burdened the country with huge inequalities. With poor-quality education and limited entrepreneurship, employment is particularly low, and inequality is exceptionally high. In fact, on both these counts, South Africa fares the worst globally. 

• Burkina Faso, the World's Disinformation Lab   Foreign Policy Research Institute

  Burkina Faso is many things. The country is considered to be the epicenter of global terrorism today. It is ranked number one on the Global Terrorism Index Scale (2024), marking the first time in the thirteen years since the database’s inception that Iraq or Afghanistan have not topped the index. The country has been rocked by jihadist attacks on major towns like Djibo, with jihadists using drones and anti-aircraft guns to fight off government forces.  However, the regime’s propaganda forces paint Burkina Faso in a very different light. All appears well in the digitally constructed alternate reality of President Ibrahim Traoré. In deepfake videos seen by millions worldwide, the country’s president is beloved by international stars such as Justin Bieber and Beyonce. Never mind that these stars have likely never heard of Burkina Faso, nor know anything about the country’s junta president. Traoré’s alternate reality represents an unsettling new world, one in which government-dominated social media attempts to balance the reality of societal collapse.

Americas

• How US Tariffs are Rewiring Latin American Trade   Americas Quarterly

  On April 2, the U.S. tore up the trade rulebook it helped create, as the White House implemented sweeping tariffs that redefined how the world’s largest economy does business. Nearly all countries now face a 10% tariff, and higher individualized rates of up to 50% were also imposed before the Trump administration issued a 90-day pause, set to expire on July 9. Latin America must now decide whether to double down on the current system, where the U.S. plays a dominant yet unpredictable role, or to embrace regional integration and economic diversification with Asia and Europe to hedge against future shocks. Depending on national policy responses and the evolution of bilateral trade negotiations, the aftermath of “Liberation Day” could open alternate pathways for economic growth, foreign direct investment (FDI) and trade.
  

• American Pride Slips to New Low    Gallup Polls

  A record-low 58% of U.S. adults say they are “extremely” (41%) or “very” (17%) proud to be an American, down nine percentage points from last year and five points below the prior low from 2020. The 41% who are “extremely proud” is not statistically different from prior lows of 38% in 2022 and 39% in 2023, indicating most of the change this year is attributable to a decline in the percentage who are “very proud.” 

Recommended Weekend Reading

Europe’s Seismic Defense and Economic Shifts, Looking at China’s Lock on Latin America’s Ports, the Struggle to Meet the Skyrocketing Energy Demands of US Data Centers, and the Geopolitics of AI

June 27 - 29, 2025

This past week, we found these reports and studies particularly interesting and useful and wanted to share them with you. Hopefully, you will find them useful as well.  Please let us know if you have any questions or if you or a colleague wish to be added to our email list.

The Rapidly Changing Defense and Economic Future of Europe 

• Is Germany Without Its Debt Brake on the Right Track?    International Economy Magazine

  Long before Germany’s decision to initiate an aggressive military buildup in response to the Trump administration’s new isolationist policies, a powerful chorus in Germany was heavily campaigning to loosen or reform the country’s debt brake, the so-called Schuldenbremse enshrined in the German constitution. Many policymakers envisioned an aggressive infrastructure buildup paid for with public spending financed by much higher public debt. Such a constitutional change had long been thought undoable. What will be the end result of a huge European debt expansion led by a Germany that now admits its military spending and spending on high-tech–related public infrastructure have been inadequate? What kind of pressure will the European Central Bank face? To answer these and many other questions, International Economy Magazine asked a group of experts (including yours’s truly) to offer their views.

• Trump’s European revolution        European Council on Foreign Relations

  New ECFR polling suggests that Donald Trump is transforming political and geopolitical identities not only in the US, but also in Europe.  Trump’s second presidency is recasting the European far-right as the continental vanguard of a transnational revolutionary project, and mainstream parties as the new European sovereigntists.  It is also transforming geopolitical attitudes and accelerating the shift from a European peace project to a war project.  Many Europeans support increased military spending, conscription, independent nuclear deterrents, and defending Ukraine even if the US abandons it.  However, they also doubt that Europe can achieve strategic autonomy fast enough and are therefore inclined to hedge. Conscription is less popular among the young; support for Ukraine may reflect reluctance to confront Russia directly; many hope America will return after Trump.

China

• No Safe Harbor: Evaluating the Risk of China’s Port Projects in Latin America and the Caribbean     Center for Strategic and International Studies

  In this groundbreaking interactive report, CSIS reports on how China is rapidly expanding its influence over maritime ports across Latin America and the Caribbean (LAC) – 37 in all.  By building, financing, and buying up key ports, Chinese firms have become deeply embedded in the physical infrastructure connecting the region’s dynamic maritime economy. While these investments bring commercial opportunity, they also open the door for Beijing to gain strategic leverage, collect sensitive data, and expand its geopolitical influence closer to U.S. shores. 

• How China Wins – Beijing’s Advantages in a Revisionist Order   Julian Gewirtz/Foreign Affairs

  In recent years, many analysts have hotly debated the scope and scale of the challenge that Beijing poses to the international order. This debate now finds itself in a peculiar moment, as Trump has made the United States appear as the more explicitly revisionist power, openly upending the international order it once championed. By withdrawing from UN bodies; placing tariffs on the entire world, including on U.S. allies; threatening to seize Canada and Greenland; and undermining collective principles of law and pluralism, the second Trump administration has given China unprecedented space to present itself as both a defender and a reformer of the existing order. That is allowing China to gain greater influence in existing institutions, exploit fear and uncertainty to pull long-standing U.S. partners closer to Beijing, and build its own alternative institutions and relationships even as it continues to flout international rules and norms. Trump and Xi are turning U.S.-Chinese competition into a story of two self-interested, domineering superpowers looking to squeeze countries around the world—and each other—for whatever they can get. This dramatic shift plays into China’s hands and undermines core U.S. strengths in the long-term competition over the future international order.

Challenges to the Global Energy Markets

• U.S. Power Struggle: How Data Centre Demand is Challenging the Electricity Market Model     Wood Mackenzie

  US utilities have been caught flat-footed as a surge in the development of power-hungry data centers and manufacturing facilities has packed load interconnection queues.  This has left the power sector with a demand growth dilemma. And the challenge has only intensified. There are substantial hurdles to meeting such gargantuan demand growth: procurement bottlenecks for critical supply-side equipment, the retirement of substantial amounts of coal-fired generation, tariff and energy policy changes that make renewables development more challenging, long lead times on new projects and the need for transmission upgrades.  In some cases, just a few major customers will soon account for as much utility infrastructure investment as all other customers put together, reshaping utilities’ risk profile. In a competitive power market, if data centers are added faster than new power plants can be brought online, it could threaten grid reliability and lead to power outages.  

• Assessing Emissions from LNG Supply and Abatement Options    International Energy Agency

  Around 550 billion cubic meters (bcm) of natural gas were exported as liquefied natural gas (LNG) in 2024, just under 15% of global natural gas consumption. A further 500 bcm of natural gas were transported through pipelines. Global LNG supply has grown faster than overall natural gas demand in recent years. This trend is set to continue with the arrival of nearly 300 bcm of new annual LNG supply capacity between 2025 and 2030.  The bottom line: LNG brings fewer Earth-warming emissions than coal, but that oft-debated comparison sets the bar way too low, the IEA argues. 

Geoeconomics

• How Do Central Banks Control Inflation?  A Guide for the Perplexed   Journal of Economic Literature

  Abstract: Central banks have a primary goal of price stability. They pursue it using tools that include the interest they pay on reserves, the size and the composition of their balance sheet, and the dividends they distribute to the fiscal authority. We describe the economic theories that justify the central bank’s ability to control inflation and discuss their relative effectiveness in light of the historical record. We present alternative approaches as consistent with each other, as opposed to conflicting ideological camps. While interest-rate setting may often be superior, having both a monetarist pillar and fiscal support is essential, and at times pegging the exchange rate or monetizing the debt is inevitable.

• The Sacrifice Trap of War       John Temming/Christopher Coyne – George Mason University/SSRN

  Abstract: This paper explores the political economy of the sacrifice trap of war--the conflict-related version of the sunk cost fallacy, where policymakers invest additional resources in failing wars because of prior sacrifices already made. Once the initial decision to engage in war is made, democratic leaders face strong incentives to signal success to citizens. These incentives stem from the need to maintain public support, preserve their reputation as effective leaders, and establish a positive legacy. However, policymakers do not bear war's full costs, instead shifting significant burdens onto others. This cost-shifting allows them to ignore sunk costs with minimal personal consequence, creating a negative political externality--the overproduction of war compared to situations where policymakers internalize the full costs of their actions. These dynamics, combined with policymakers' desire to maintain their identity as a strong and effective leader, explain how societies become mired in war's sacrifice trap. After exploring the sacrifice trap's theoretical foundations, we examine two historical cases--U.S. involvement in the Vietnam War (1955-1975) and in the Iraq War (2003-2011).

Artificial Intelligence, National Security & Geopolitics 

• On the Geopolitics of AGI        Geopolitics of AGI/Rand Corporation

  A decade ago, few believed that artificial general intelligence (AGI)—human-level or superhuman-level cognition across a wide variety of tasks—would emerge in our lifetime. Today, policymakers and executives worldwide are confronting the possibility that AI systems could soon match or exceed human performance in nearly all economically and militarily significant domains. Whether leading AI companies cross the unknown, potentially unknowable threshold to AGI today or tomorrow, we will live for the foreseeable future in a world where increasingly advanced AI underpins transformational changes to economies, militaries, and societies. Moreover, this prospect of technological change coincides with a period of profound shifts in geopolitics and global security, as the postwar consensus erodes and the international system is once again characterized by explicit great-power competition.

• Five Questions: Jim Mitre on Artificial General Intelligence and National Security   Rand Corporation

  A computer with human—or even superhuman—levels of intelligence remains, for now, a what-if. But AI labs around the world are racing to get there. U.S. leaders need to anticipate the day when that what-if becomes “What now?” A recent RAND paper lays out five hard national security problems that will become very real the moment an artificial general intelligence comes online. Researchers did not try to guess whether that might happen in a few years, in a few decades, or never. They made only one prediction: If we ever get to that point, the consequences will be so profound that the U.S. government needs to take steps now to be ready for them. RAND vice president and national security expert Jim Mitre wrote the paper with senior engineer Joel Predd.

Recommended Weekend Reads

China’s Space Station “Guard Dogs,”  How China Gets Around US Tariffs, Why Canada May Be the Best Hope for Mineral Security, and How Smuggled US Fuel Funds Mexican Cartels

June 13 - 15, 2025

Below are some of the more intriguing analyses and insights we read this past week. We hope you find them useful.  Please let us know if you or someone you know wants to be added to our distribution list. 

China

• China is arming its space station with ‘guard dogs.’ They have good reason for it   Fast Company

  China is developing robotic guards for its Tiangong space station. Equipped with small thrusters, these AI-powered robotic beasts are being developed to intercept and physically shove suspicious objects away from their orbital outpost. It’s a deceptively simple but ingenious step towards active space defense in an increasingly militarized domain. Rather than firing directed energy weapons like lasers or projectiles, which will turn the potential invader into a cloud of deadly shrapnel flying at 21 times the speed of sound, the Chinese have thought of a very Zen “reed that bends in the wind” kind of approach. The bots will grapple a threatening object and lightly push it out of harm’s way. Elegant space jiu-jitsu rather than brute kickboxing.
  

• Axis, Rivalry, or Chaos?  The US-China-Russia Equation with Michael McFaul    China Considered Podcast

  China expert Dr. Elizabeth Economy and Michael McFaul, the former US Ambassador to Russia and currently a Stanford Univeristy professor,  sit down to discuss the relationship between the United States, China, and Russia, the history of US engagement with Russia, his experience as the United States Ambassador to Russia under President Barack Obama, and the increasing cooperation between China and Russia. McFaul begins by discussing early engagement with Russian President Dmitry Medvedev during the early Obama years, namely the signing of comprehensive multilateral sanctions with Iran, along with his role in crafting the Obama administration’s Russia policy. The two scholars then shift to a conversation about how Russia and China, namely Vladimir Putin and Xi Jinping, are attempting to reshape the international order, how the war in Ukraine has already changed this relationship, and whether a “reverse Kissinger” is possible from the perspective of the United States.
  

• Will China Force a Rethink of Biological Warfare?    War on the Rocks

  Is the Defense Department still preparing to fight biological warfare as if it’s 1970? When preparing for biological warfare, most nations picture scenarios in which an enemy openly sprays traditional agents over wide areas to kill their adversaries.  However, revolutionary capabilities in the life sciences and biotechnology have transformed the threat. China’s approach to warfare, combined with these emerging technologies, reveals new vulnerabilities among Western forces that, to date, have not been fully acknowledged.   Although Western attention has focused on the rapid expansion of China’s nuclear and conventional warfighting capabilities, one ought to expect equal analysis of China’s biological warfare potential. By examining China’s most recent efforts at biological research, this report puts forward that it has bypassed 20th-century Western concepts of biological warfare and has new capabilities that could be effective across the entire conflict spectrum. New approaches and new concepts will be necessary if the United States is to prepare itself for potentially new forms of biological warfare in the 21st century.
  

• How China Gets Around US Tariffs     Robin Brooks Substack

  Brooks, a Senior Fellow at the Brookings Institution in Washington and former Chief Economist at the Institute of International Finance, as well as former Chief FX Strategist at Goldman Sachs, details how China has circumvented US tariffs by transshipping goods to the US through various third countries. The charts below show China’s exports (black) and imports (blue) to and from various countries in Asia: Indonesia (top left), Malaysia (top right), Thailand (bottom left), and Vietnam (bottom right). In all cases, China’s exports in April 2025 - the month in which US tariffs on China briefly went to 150 percent - reached new all-time highs, while imports remained subdued. Much as in the case of Kyrgyzstan or Kazakhstan, it’s not like domestic demand in these places started to boom with the escalation of the US-China trade war. The opposite is the case. This is - in all likelihood - evidence of big transshipments that are seeking to circumvent US tariffs.

 The Americas

• ·Canada May Be the United States’ Best Hope for Minerals Security   Center for Strategic and International Studies

  China’s recent export controls, especially of rare earth elements (REEs), have left Western companies reeling, with some firms allegedly considering shifting elements of production back to China just for access to the minerals. Indeed, the need for these minerals is so urgent that they took center stage in the recent U.S.-China negotiations in London, held in an effort to ease the trade war between the two countries. While the preliminary agreement to come out of these talks offers some respite, the United States needs to find reliable sources of REEs, and Canada could emerge as an alternative supplier to complement U.S. efforts to get domestic REE production back on its feet. However, this will require both countries to admit they still need each other, amidst the tension generated by President Donald Trump’ tariffs and talk of annexing Canada.

• The Hole in Mexico’s Security Strategy    Will Freeman/Foreign Affairs

  The defining dilemma of Claudia Sheinbaum’s presidency may be whether she is willing to alter the status quo with the cartels, raise the costs of collusion, and protect those who stand up to the cartels, instead. Since taking office in October 2024, Sheinbaum has taken a harder line on organized crime, increasing seizures of drugs and guns and arrests of suspected cartel operators. In February, when the Trump administration threatened tariffs on Mexico if it didn’t stop the flow of fentanyl across the border, Sheinbaum doubled down on her efforts, and the number of seizures and arrests has since grown substantially. But with their political and judicial protection networks still intact, any criminal groups that are weakened by the president’s current strategy may simply be replaced by new ones. Criminal-political networks will continue dividing the country into private fiefdoms, with politics, justice, and the legal economy reduced to arenas of lawless competition. Deadly drugs and insecurity will continue flowing north.

• How smuggled US fuel funds Mexico’s cartels    Financial Times

  In this interactive report by the Financial Times, reporters and researchers have uncovered dozens of suspicious shipments to Mexico, with millions of barrels of fuel falsely declared as industrial lubricant and unloaded by hose to trucks.  It reflects the massive and sophisticated smuggling operations funding Mexico’s cartels. As many as one in four vehicles in the country could be running on contraband fuel.

• Mexico’s Historic 2025 Judicial Elections: Winners, Controversies, and Political Implications    Moments in Mexico Substack

  On June 1, Mexicans went to the polls to vote in the country’s first-ever judicial elections.  881 federal positions were up for election and nearly 3,400 candidates ran.  Turnout was a record low – just 13% - but for President Claudia Sheinbaum’s ruling left-wing Morena Party, it secured significant control over the Supreme Court, further consolidating its political power. This excellent SubStack breaks down the elections and likely implications.

• Once the World’s ‘Most Popular Politician,’ Lula Is Losing His Way in Brazil    Bloomberg

  Six months after emergency brain surgery and in his second stint as president, the 79-year-old Brazilian remains as energetic and ambitious as ever on the world stage. He met Emmanuel Macron in Paris last week, will host the BRICS summit of emerging market countries in July, and is putting on the United Nations’ annual climate conference in the Amazon rainforest later this year.   But if that bravado once helped make him a global superstar — “the most popular politician on Earth,” Barack Obama called him in 2009 — it is now masking an ugly truth: Back home in Brazil, Lula is falling apart.  Polls show his popularity is at the lowest level of his presidency and suggest he will lose to a right-wing challenger.

The Growing Marketplace for Critical Minerals

• Building a New Market to Counter Chinese Mineral Market Manipulation   Center for Strategic and International Studies

  With China recently imposing export restrictions on rare earth elements—leading to U.S. automakers to halt production due to supply shortages—one of the most urgent issues is how to establish reliable Western supplies of essential critical minerals. A major challenge to achieving mineral security is China’s manipulation of global markets, whereby Chinese companies flood the market with excess supply, driving prices down to levels that force mining operations in countries like the United States and Australia to shut down. The United States and its allies cannot afford to act in isolation. Unilateral efforts—whether through tariffs, subsidies, or investment restrictions—will remain insufficient given the relatively small market share of individual countries. Instead, building a unified anchor market that aligns the policies of like-minded nations is the only realistic path to confronting China’s dominance. By harmonizing tariffs, establishing collective quotas, and coordinating investment protections, the anchor market can shift leverage away from Beijing and toward a more resilient, rules-based minerals ecosystem.

• Much More Than Minerals: The US-Ukraine Minerals Agreement and its Geopolitical Implications    CEPS

  After months of tense negotiations, the US and Ukraine signed a minerals agreement in Washington D.C. on 30 April 2025. While centered on natural resources, it’s much more than a business deal on mining natural resources. The Agreement enshrines US support for peace, resilience, sovereignty and reconstruction in Ukraine.  This CEPS Explainer breaks down the Agreement’s core provisions, its implications for all the parties involved and the necessary conditions needed for it to succeed.

• From Extraction to Innovation: The EU and Taiwan in the Critical Minerals Value Chain   ChinaObservers

  As the European Union’s green transition gains momentum, ensuring the safe and sustainable supply of critical raw materials (CRMs) has become a strategic priority. Renewable energy and decarbonization technologies – such as electric vehicles, wind turbines, solar panels, and batteries – depend on critical minerals including lithium, cobalt, nickel, and different rare earth elements (REEs). The EU’s agenda, as outlined in the European Green Deal and the accompanying industrial policy, cannot be achieved without robust, dependable, and diversified mineral value chains.

Recommended Weekend Reads

Drilling Into The Macroeconomics of Tariff Shocks, The Potential of Seabed Mining, Iran’s Rapidly Shrinking Population, and Why Does Switzerland Have More Nuclear Bunkers Than Any Other Country?  

May 30 - June 1, 2025

Below is a collection of studies and articles that we found particularly interesting and likely to have an impact on markets and public policy.  We hope you find them useful and have a great weekend.

More Studies on the Economic Impact of Tariffs

• ·The Macroeconomics of Tariff Shocks    Adrien Auclert/Matthew Rognlie/Ludwig Straub  National Bureau of Economic Research

  Abstract: We study the short-run effects of import tariffs on GDP and the trade balance in an open-economy New Keynesian model with intermediate input trade. We find that temporary tariffs cause a recession whenever the import elasticity is below an openness-weighted average of the export elasticity and the intertemporal substitution elasticity. We argue this condition is likely satisfied in practice because durable goods generate great scope for intertemporal substitution, and because it is easier to lose competitiveness on the global market than to substitute between home and foreign goods. Unilateral tariffs do tend to improve the trade balance, but when other countries retaliate the trade balance worsens and the recession deepens. Considering the recessionary effect of tariffs dramatically brings down the optimal unilateral tariff level derived in standard trade theory.

• Trading Cases: Tariff Scenarios for Taxing Times   Wood Mackenzie

  The Trump administration’s ‘Liberation Day’ tariff announcement on 2 April was arguably the most pivotal moment for the world economy since China’s 2001 entry into the World Trade Organization. The White House’s numerous tariff-policy adjustments since early April have made understanding the impact and implications of the levies harder still. The potential for trade deals with major trading partners, further policy changes, and even a full U-turn in the US position add to the uncertainty.  The scale of the tariffs – be they already implemented or merely threatened – has far-reaching implications for the energy and natural resources sectors. The lower economic growth they entail will curb commodity demand, prices, and investment, while higher import prices will raise costs in sectors from battery storage to liquefied natural gas (LNG). Such uncertain times require planning for divergent outcomes. Wood Mackenzie has developed three distinct scenarios that consider the potential impacts on global GDP, industrial production, and supply, demand, and prices out to 2030 in four sectors: oil, gas and LNG, renewable power, and metals and mining.

• A Detailed Look at Trump’s Car Tariffs     Apricitas Economics Substack

  In any other administration, the announcement of 25% tariffs on cars & parts would be the single-largest economic story of the year—they currently hit more than $353B in US imports, having a larger economic effect than all of the tariffs implemented during Trump’s first term combined. These tariffs primarily affect imports from close American allies like the EU, Japan, & South Korea, who supply the majority of foreign-made cars to the United States. Yet the President won’t even spare the highly integrated North American supply chain, as tariffs currently apply to the non-US content in Mexican and Canadian-made vehicles.

• State of U.S. Tariffs s of May 29, 2025    The Budget Lab/Yale University

  This study estimated the effects of all remaining US tariffs and foreign retaliation implemented in 2025 through May 28, assuming all tariffs previously introduced under IEEPA authority are invalidated per the May 28 U.S. Court of International Trade Ruling, which leaves only tariffs introduced under Section 232 authority in place: tariffs on steel and aluminum as well as autos and auto parts. Consumers face an overall average effective tariff rate of 6.9%, the highest since 1969. The price level from all 2025 tariffs rises by 0.6% in the short-run, the equivalent of an average per household consumer loss of $950 in 2024$. Annual pre-substitution losses for households at the bottom of the income distribution are $800. The post-substitution price increase settles at the same 0.6%. The 2025 tariffs affect metals inputs and automobile prices primarily. The latter sees a 5% long-run price increase, the equivalent of an extra $2,400 on the cost of an average 2024 new car. US real GDP growth is -0.2pp lower from all 2025 tariffs. All tariffs to date in 2025 raise $686 billion over 2026-35, with $101 billion in negative dynamic revenue effects.

U.S.-Iran Nuclear Talks and Iran’s Disappearing Population

• What Would Russia Like From a New Iran Nuclear Deal?   Carnegie Politika

  U.S. President Donald Trump may have torn up the previous nuclear deal between the United States and Iran during his first term in office, but he now seems serious about signing a new one. Washington has not only held several rounds of talks with the Iranians but also dropped many of its demands.  That confronts Russia—which, united by a shared conflict with the West, has grown closer to Iran—with a dilemma: sabotage the negotiations in order to keep its ally isolated by sanctions, or try to become an important mediator in the agreement, as it was in the previous deal.

• Iran’s Seemingly Unstoppable Birth Slump   Middle East Forum Observer

  Despite exhortations from ruling clerisy to be fruitful, and pro-natal policies intended to prop up birth rates, fertility in Iran is slumping once again.  Earlier this month, the Tehran Times reported that annual births in Iran fell below the million mark. According to the Civil Registration Organization in charge of Iran’s vital statistics, just under 980,000 births were recorded between the Iranian calendar year coinciding with 21 March 2024 through 20 March 2025.  It has been a very long time since, so few babies were born in Iran. By the reckoning of the United Nations Population Division, we have to go back seventy years—to 1955—to find a year when Iranian annual birth totals were lower than today. The current birth level is less than half as high as it was forty years ago, in 1985.

The Changing Commercial and Security Aspects of Our Oceans

• The Potential Impact of Seabed Mining on Critical Mining on Critical Mineral Supply Chains and Geopolitics   Rand

  The potential emergence of a seabed mining industry has important ramifications for the diversification of critical mineral supply chains, revenues for developing nations with substantial terrestrial mining sectors, and global geopolitics. In this report, the authors present the results of a multi-pronged examination of each of these issues, exploring the likelihood and magnitude of their impacts to better inform planning and policymaking.  The authors found that the emergence of a seabed mining industry would introduce a new source of supply for critical minerals that are key elements for energy transition and defense technologies, and this would present several opportunities and challenges for the United States in terms of diversifying critical mineral supply chains away from China, cooperating with allies and partners, working with developing nations, and addressing environmental, regulatory, and security concerns. They offer several recommendations for the U.S. government to address these issues.
  

• The Transarctic Alliance is Key to U.S. National Security    Michael Sfraga/High North News

  Seven Arctic states are NATO allies (Canada, Finland, Denmark— by virtue of Greenland— Iceland, Norway, Sweden, and the US— by virtue of Alaska), and Arctic nations make up five of the sixteen founding NATO members.  Despite the current U.S. administration’s skepticism of the Alliance, it is in America’s best interest to reinforce and strengthen this strategic alignment. The Alliance is a bulwark against nations that seek to advance ideologies antithetical to democratic values and institutions, to use tools of national power to dismiss sovereign borders, to destabilize and invade neighboring countries, and to disrupt the international rules-based order.

• The bear beneath the ice: Russia’s ambitions in the Arctic   European Council on Foreign Relations

  Over the past decade, the Arctic has emerged as a strategic priority for Russia, second only to relations with post-Soviet countries, including Ukraine. Russia’s policy agenda in the Arctic is shaped by insecurities over its economic and military position in the region. This agenda forms a “policy iceberg”. The Kremlin’s massive economic investment is the visible tip; its attempts to create a northern sea trade route buoy at the waterline with both visible economic and murkier military aims; while its militarization in the Arctic is submerged from view—and the most threatening to Western interests. On the world stage, Russia’s Arctic policy is fragmented and tactical. It cherry-picks from international law, clumsily balances relations with big powers, and flirts with alternative Arctic institutions.  Europeans need to situate Russia’s growing ambitions in the region within Moscow’s broader strategic aims, especially in Ukraine, and respond by rethinking their Arctic policy through closer international engagement.

 Switzerland’s Nuclear Bunkers

• Why does Switzerland Have More Nuclear Bunkers Than Any Other Country?   The Guardian

  To the alternating fascination, bewilderment, and envy of its European neighbors, Switzerland, with a population of nearly 9 million, has more bunkers per capita than anywhere else in the world – enough to guarantee shelter space to every single resident in the event of a crisis. (Sweden and Finland are a close second, covering all major cities.)  But the question is, why?

Recommended Weekend Reads

The Fight Over Seabed Mining for Critical Minerals, China’s Vanishing Economic Numbers, What Happens When US Social Security Funds Run Out?  And The Remote Work Paradox

May 9 - 11, 2025

The Growing Fight Over Seabed Mining for Critical Minerals

• The Potential Impact of Seabed Mining on Critical Mineral Supply Chains and Global Geopolitics   Rand Corporation

  Seabed mining presents an opportunity for the United States and its allies to diversify critical mineral supply chains, bolstering critical mineral supply reliability and security; however, the U.S. government has yet to develop a clear vision for a potential role of the United States and its allies in an emerging seabed mining industry. The establishment of a seabed mining industry would have geopolitical implications, including shifts among relationships within the Indo-Pacific region, concerns related to regulatory monitoring and enforcement, new territorial disputes, increasing demand for maritime domain awareness and security, and new influences on commodity prices and security of supply.

• What to Know About the Signed U.S.–Ukraine Minerals Deal   Center for Strategic and International Studies

  On Wednesday, April 30, 2025, the United States and Ukraine signed a long-awaited deal to establish a joint investment fund for the reconstruction of Ukraine. The fund will be capitalized, in part, by revenues from future natural resource extraction. The newly signed agreement is a positive step in U.S.-Ukraine relations following contentious meetings between U.S. President Donald Trump and Ukrainian President Volodymyr Zelensky. While more favorable to Ukraine than earlier iterations, the deal’s effectiveness hinges on long-term peace and stable investment conditions. Key barriers include outdated geological surveys, degraded energy infrastructure, and unresolved security risks. The agreement reflects the Trump administration’s transactional approach to mineral diplomacy and may serve as a template for similar deals, such as the emerging U.S.–Democratic Republic of the Congo cooperation framework.

• Strategic Snapshot: Global Competition in Critical Minerals and Rare Earth Elements   Jamestown Foundation

  On May 1, Ukraine and the United States signed a long-anticipated minerals deal providing the United States with preferential rights to mineral extraction in Ukraine. The agreement creates a U.S.-controlled, jointly-managed investment fund that will receive revenues from new projects in critical minerals, oil, and natural gas.  The agreement comes as the global critical minerals market remains highly competitive, with the People’s Republic of China (PRC) and Russia currently leading in mineral processing infrastructure and capabilities. The International Energy Agency (IEA) projects that by 2030, nearly 50 percent of the market value from critical minerals refining will be concentrated in the PRC. IEA further assesses that by 2030, over 90 percent of battery-grade graphite and 77 percent of refined rare earths will originate from the PRC. In 2022, Russia was the source of 40 percent of global uranium enrichment. In 2024, approximately 35 percent of U.S. uranium imports (used for nuclear fuel) came from Russia.

• How to Advance U.S.-Africa Critical Minerals Partnerships in Mining and Geological Sciences    Carnegie Endowment for International Peace

  Critical minerals, such as nickel, graphite, manganese, cobalt, copper, and lithium, currently occupy a central role in global economic and geopolitical competition. Mineral-rich African countries arise as natural potential partners.  For the United States, both increasing the total volume of mineral supply and diversifying the sources of those minerals is imperative for economic and national security. Escalating export restrictions, including recently on gallium, germanium, and antimony, by China, which dominates the global supply of these commodities, only reinforce this imperative.  Correspondingly, the United States has framed the importance of augmenting its critical mineral supplies in terms of economic and security.  Much of the recent focus is aimed at increasing the U.S. domestic supply of these minerals, particularly through permitting reform, support for expanding domestic production, and developing refining and processing facilities. However, there is also a clear signal of interest in complementary international engagements to achieve mineral supply and energy security. These engagements flow in both directions. That is, the U.S. government views international partners not only as potential sources of mineral inputs but also as potential recipients of U.S. energy and related industries.

China

• How Bad Is China’s Economy? The Data Needed to Answer Is Vanishing   Wall Street Journal

  Not long ago, anyone could comb through a wide range of official data from China. Then it started to disappear.  Land sales measures, foreign investment data, and unemployment indicators have gone dark in recent years. Data on cremations and a business confidence index have been cut off. Even official soy sauce production reports are gone.  In all, Chinese officials have stopped publishing hundreds of data points once used by researchers and investors, according to a Wall Street Journal analysis. In most cases, Chinese authorities haven’t given any reason for ending or withholding data. But the missing numbers have come as the world’s second biggest economy has stumbled under the weight of excessive debt, a crumbling real-estate market, and other troubles, spurring heavy-handed efforts by authorities to control the narrative.

• Was Made in China 2025 Successful?     Camille Boullenois, Malcolm Black, and Daniel Rosen/Rhodium Group

  Chinese companies have made significant strides in closing the gap with foreign firms and advancing toward the technological frontier, with several sectors already demonstrating signs of parity or even leadership. China’s share of global patents has risen across most industries, with notable gains in electric vehicles, new materials, electronics, and robotics, where its share grew by more than 4 percentage points. In basic research, China’s output is equally remarkable, with its share of global top publications increasing by an average of 18 percentage points between 2015 and 2023. Despite this rapid progress, Chinese firms have yet to achieve parity in many MIC25 sectors, with 62% of foreign firms surveyed predicting that their Chinese competitors would catch up within 5 to 10 years. Key gaps remain in areas such as advanced semiconductors, where Chinese firms still lag significantly behind the global frontier.

• At the Doorstep: A Snapshot of New Activity at Cuban Spy Sites  Center for Strategic and International Studies

  In a new report from CSIS, commercially available satellite imagery shows new activity underway at a signals intelligence hub near Havana, Cuba.   The facilities – being built by China – include the construction of a large circularly disposed antenna array (CDAA) which can pinpoint the origin of incoming radio signals from as far as 8,000 miles away. This gives China significantly enhanced capacity to monitor and spy on air and maritime activity in and around the entire United States.

Geoeconomics

• Putting US Fiscal Policy on a Sustainable Patch   Karen Dynan & Douglas Elmendorf/National Bureau of Economic Research

  Abstract: Even allowing for substantial uncertainty regarding projections, current US fiscal policies are almost certainly unsustainable. Therefore, policymakers must decide when and in what ways to change policies. Changing policies sooner rather than later would put debt on a lower trajectory and thereby increase national savings and provide insurance against adverse developments by expanding fiscal space, protecting against a persistent shortfall in economic growth, and reducing the chance of a fiscal crisis. Yet, the probability of a near-term fiscal crisis is difficult to assess:  Yields on Treasury debt are within their range of the past few decades, which suggests that investors are not that worried about the fiscal outlook—but debt and deficits are at nearly unprecedented levels, and experience shows that investors’ confidence in a government’s fiscal management can deteriorate quickly.

• What Happens If Social Security Runs Out in 2035?   Tax Foundation Podcast

  What happens when the country’s most important retirement program runs out of money?  Social Security faces a funding crisis by 2035. We unpack how the system works, why it’s in trouble, and what fixes could keep it afloat.  Podcast host Kyle Hulehan and Tax Foundation Vice President of Federal Tax Policy Erica York are joined by Alex Durante, Senior Economist at the Tax Foundation. Together, they break down the trade-offs behind today’s biggest Social Security reform ideas.

• How Does the Federal Reserve Affect the Treasury Market?   Brookings Podcast on Economic Activity

  At around $900 billion in transactions daily, the market for U.S. Treasuries is massive, not only in terms of quantity but also in terms of importance to the U.S. and global economies. The Treasury market is tied to interest rates, the value of the dollar, and financial markets around the world. So when shocks hit the Treasury market, as they did during the COVID-19 crisis, the ripple effects can be global. In a new paper, “Treasury market dysfunction and the role of the central bank,” Anil K Kashyap, Jeremy C. Stein, Jonathan L. Wallen, and Joshua Younger explore how the Federal Reserve reacted to the 2020 Treasury disturbance and present a proposal for future action. On this episode of the Brookings Podcast on Economic Activity, Senior Fellow David Wessel is joined by Kashyap to discuss the findings as well as the relevance to recent Treasury market volatility. 

• The Remote Work Paradox: Higher Engagement, Lower Wellbeing    Gallup

  Globally, fully remote workers are the most likely to be engaged at work (31%), compared with hybrid (23%), on-site non-remote-capable (23%) and on-site remote-capable (19%). That’s according to the latest State of the Global Workplace report, which tracks how employees worldwide are doing in their work and lives.  However, they are less likely to be thriving in their lives overall (36%) than hybrid workers (42%) and on-site remote-capable workers (42%). Still, fully remote workers are more likely to be thriving than their fully on-site non-remote-capable counterparts (30%).  Fully remote employees are also more likely to report experiencing anger, sadness and loneliness than hybrid and on-site workers. They are more likely to report experiencing a lot of stress the previous day (45%) than on-site workers (39% for remote-capable, 38% for non-remote-capable), while having about the same stress level as hybrid workers (46%). These differences hold true even when accounting for income.

Recommended Weekend Reads

The Impact of Heightened US–China Tensions on the Treasury Market, How Do US Firms Deal With Foreign Industrial Policy?, and How Drug Cartels Took Over Social Media

Growing US-China Tensions

• How China is Quietly Diversifying from US Treasuries     Financial Times

  Earlier this year, a headline caught the eye of the senior officials at China’s foreign exchange regulator, who manage the country’s multitrillion-dollar reserves: the Trump administration had overhauled the boards of Fannie Mae and Freddie Mac. The officials responded swiftly, instructing a team at the State Administration of Foreign Exchange to kick off an evaluation of the potential investment implications of the shake-up. What intrigued the officials at Safe, according to people familiar with the matter, is that they saw mortgage-backed securities — which come with an implicit US government guarantee — or even equity stakes in Fannie and Freddie themselves, as possible alternatives to Treasuries… many [Chinese] advisers, scholars and academics are voicing concern. As “The safety of US Treasuries is no longer a given…”

• Will China Escalate?      Foreign Affairs

  In 2021, at the contentious first meeting between senior Chinese foreign policy officials and their counterparts in the Biden administration, Beijing’s top diplomat, Yang Jiechi, declared that the United States could no longer “speak with China from a position of strength.” In the four years since, Beijing has operated under the assumption that a profound shift in the balance of power between the two countries is underway. Chinese strategists perceive their country’s decades-long “strategic weakness” in its competition with the United States as coming to an end, driven by steady advances in China’s industrial, technological, and military capabilities and an increase in its international influence. This progress has ushered in what Beijing views as a “strategic stalemate” with the United States, in which both nations now wield comparable power. But despite the low immediate risk of conflict between the United States and China, the current stalemate may not prove durable. Over the next four years, the risk of a military crisis will likely rise as the two countries increasingly test each other’s resolve.
  

• Charting the End State for US Strategy Toward China   Collective Commentary/Foreign Policy Research Institute

  As trade tensions between the US and China grow and bring with them new levels of political and military tensions, a group of China experts at the FPRI offers perspectives on how Trump needs to formulate a China strategy and stop dealing with China tactically.

• China’s New Economic Weapons     Evan Medeiros & Andrew Polk/Washington Quarterly

  In the past decade, China’s use of economic coercion has become a common and well-studied feature of its economic statecraft.  For the most part, China has used conventional coercive tools such as stopping its purchasing of goods and services (e.g., commodities and tourism), withholding investments, restricting foreign companies’ operations in China, and “spontaneous” consumer boycotts, all as a means of imposing economic costs on others. China’s track record in altering other countries’ calculations has been decidedly mixed, and its actions have even generated some backlash by countries newly concerned about such predation.  However, since 2018, this pattern of behavior has been evolving. China’s economic statecraft—specifically its tools of coercion—has been expanding.

• DeepSeek’s release of an open-weight frontier AI model    International Institute for Strategic Studies

  The January 2025 release of a frontier reasoning large language model by the Chinese firm DeepSeek, nearly matching the performance of top American closed models at a fraction of the cost, has intensified the debate over the geopolitics of artificial intelligence. It appears that US export controls forced DeepSeek to seek optimizations regarding memory management and the use of synthetic data.

Americas

• After Canada’s Election:  An Energy Abundance Strategy for North America   Center for Strategic and International Studies

  One outcome from North America’s three recent elections is clear—a citizenry that is more “energy literate” when it comes to the importance of policymakers getting this critical issue right. Simply put, energy is the lifeblood of the North American economy.  While the North American relationship is certainly replete with challenges, there is an opportunity in the coming year to thread the needle and move towards an abundance strategy for the region’s energy sources. Notably, this could represent a rare moment of North American alignment on a critical issue for the region’s future.

• Argentina’s Realignment with the United States: Milei’s Reforms Gain Strategic Support   Center for Strategic and International Studies

  Argentina’s rapprochement to the United States under President Javier Milei is not just ideological—it is strategic. While pushing through painful economic reforms at home, Milei is aligning with Washington on multiple fronts: International Monetary Fund (IMF) negotiations, defense ties (NATO partnership bid and F-16 purchase), and personal diplomacy with U.S. President Donald Trump. U.S. Secretary of the Treasury Scott Bessent’s one-day stop in Buenos Aires—right as the new FX regime kicked in and amid Trump’s tariff rollout—was no coincidence. It signals that Argentina is being treated as the closest ally in South America, where U.S. influence is under pressure under China’s global rise.

• How Drug Cartels Took Over Social Media      The Atlantic

  Cartels are influencers now. They have converted their criminality into a commodity, broadcasting with impunity while law enforcement and social-media platforms struggle to rein them in. On TikTok, drug traffickers filmed themselves fleeing from customs agents in a high-speed boat chase, garnering millions of likes. Some content is less Miami Vice and more cottagecore: farmers harvesting poppy seeds, for instance. Keep scrolling and you might find henchmen bagging bales of $100 bills, tiger cubs lounging in trucks, and dogs trotting with decapitated heads in their mouths.

Global Markets and Economics

• U.S. Treasury Market Functioning from the GFC to the Pandemic    Federal Reserve Bank of New York

  Abstract: This article examines U.S. Treasury securities market functioning from the global financial crisis (GFC) through the Covid-19 pandemic given the ensuing market developments and associated policy responses. We describe the factors that have affected intermediaries, including regulatory changes, shifts in ownership patterns, and increased electronic trading. We also discuss their implications for market functioning in both normal times and times of stress. We find that alternative liquidity providers have stepped in as constraints on dealer liquidity provision have tightened, supporting liquidity during normal times, but with less clear effects at times of stress. We conclude with a brief discussion of more recent policy initiatives that are intended to promote market resilience.

• How Do U.S. Firms Withstand Foreign Industrial Policies?   Xiao Cen, Vyacheslav Fos, & Wei Jiang/National Bureau of Economic Research

  China’s industrial policies (“Five-Year Plans”) displace U.S. production/employment and heighten plant closures in the same industries as those targeted by the policies in China. The impact was not anticipated by the stock market, but U.S. companies in the "treated industries" suffer a valuation loss afterwards. Firms shift production to upstream or downstream industries, benefiting from the boost, or offshore to government-endorsed industries in China. Such within-firm adjustments offset the direct impact. U.S. firms are better able to withstand foreign government interventions provided that they enjoy flexibility, including preexisting business toeholds in the "beneficiary" industries, financial access, and labor fluidity.

• Stock Buybacks and Tax Neutrality: Should Congress Repeal the 1% Excise Tax on Buybacks?    Kyle Pomerleau & John Ricco/Tax Notes

  Lawmakers enacted a 1 percent excise tax on stock buybacks, in part to address concerns that buybacks were tax-favored relative to dividends and had a negative effect on corporate investment. The excise tax does reduce the tax differential between dividends and buybacks, but it does so at the cost of increasing the overall tax burden on saving and investment. Moreover, it introduces and increases existing distortions across types of taxpayers, legal forms of business organization, and forms of financing. Alternative reforms could similarly reduce or eliminate the distortion without introducing others, but they come with important trade-offs of their own.

Recommended Weekend Reads

Gauging China’s Economy in Uncertain Times, Assessing the Long-Term Effects of the Trade Wars, Artificial Intelligence and the Future of the US Electrical Grid, and the Race for Dominance in Nuclear Fusion

April 25 - 27, 2025

Please find below our list of studies and articles that we found particularly interesting this week and wanted to recommend to you.   We hope you find them interesting and useful, and that you have a great weekend.

The Future of China in the Face of the US Trade Wars

• The Once and Future China: How Will Change Come to Beijing?    Rana Mitter/Foreign Affairs

  If you dropped in to China at any point in its modern history and tried to project 20 years into the future, you would almost certainly end up getting it wrong. In 1900, no one serving in the late Qing dynasty expected that in 20 years the country would be a republic feuded over by warlords. In 1940, as a fractious China staggered in the face of a massive Japanese invasion, few would have imagined that by 1960, it would be a giant communist state about to split with the Soviet Union. In 2000, the United States helped China over the finish line in joining the World Trade Organization, ushering the country into the liberal capitalist trading system with much fanfare. By 2020, China and the United States were at loggerheads and in the midst of a trade war.  Where is China going to be 20 years from now?  Harvard Professor Rana Mitter does a deep dive, looking at various scenarios.

• Gauging the Strength of China’s Economy in Uncertain Times   Jeffrey B. Dawson & Hunter L. Clark/Liberty Street Economics blog (Federal Reserve Bank of New York)

  Amid increasing pressure on the Chinese economy from China’s trade conflict with the U.S., assessing the strength of the Chinese economy will be an important watch point. While China is likely to counter growth headwinds from the escalating trade tensions with additional policy stimulus, the country’s complex fiscal dynamics and the varying interpretations of the strength of its economic growth made judgments of the efficacy of China’s policy response challenging even in a more predictable environment. In this respect, we argue that aggregate credit is a simple and effective measure to gauge policy stimulus in China. At present, China’s “credit impulse”—the change in the flow of new aggregate credit to the economy relative to GDP—appears likely sufficient to allow it to muddle through with steady but not strong growth over the next year, despite the intensifying trade conflict.

•  How China-India Relations Will Shape Asia and the Global Order     Chatham House

  The China–US relationship is widely regarded as the defining geopolitical issue of the 21st century. But relations between China and India arguably hold greater long-term significance for the future of Asia and the global order. These two nations are the world’s most populous,together accounting for almost 40 per cent of the global population. China is the world’s second largest economy, with India currently the fifth largest – and soon to be the third largest. Yet, despite their rise having important consequences for the future of global governance, China–India relations are poorly understood outside of those countries.  This report delves into what is likely to happen.

Geoeconomics and Trade

• Long Run Effects of the Trade Wars   David Baqaee  & Hannes Malmberg/National Bureau of Economic Research Working Papers

  This short note shows that accounting for capital adjustment is critical when analyzing the long-run effects of trade wars on real wages and consumption. The reason is that trade wars increase the relative price between investment goods and labor by taxing imported investment goods and their inputs. This price shift depresses capital demand, shrinks the long-run capital stock, and pushes down consumption and real wages compared to scenarios when capital is fixed. We illustrate this mechanism by studying recent US tariffs using a dynamic quantitative trade model. When the capital stock is allowed to adjust, long-run consumption and wage responses are both larger and more negative. With capital adjustment, U.S. consumption can fall by 2.6%, compared to 0.6% when capital is held fixed, as in a static model. That is, capital stock adjustment emerges as a dominant driver of long-run outcomes, more important than the standard mechanisms from static trade models — terms-of-trade effects and mis- allocation of production across countries.

• G30 Spring Lecture 2025: "Commanding Heights: Central Banks at a Crossroads"   Kevin Warsh Lecture at the International Monetary Fund

  Kevin Warsh is widely seen as a leading candidate to replace Jay Powell as Chairman of the Federal Reserve Board.  Indeed, President Trump has cited Warsh as someone he is considering.  Warsh gave a lecture at the IMF this past week as part of the World Bank/IMF meetings in Washington.  You can read the remarks via the link in the title above or watch his remarks via this video link.

• Supply, Demand and the Post-Lockdown Inflation Surge   St Louis Federal Reserve Bank

  Only recently have economists started tracking category-level consumer inflation using their associated movements in quantities.  Adam Shapiro, an economist and vice president at the Federal Reserve Bank of San Francisco, Adam Shapiro, an economist and vice president at the Federal Reserve Bank of San Francisco, used the supply-demand framework described to classify inflation at the consumption-category level into supply- and demand-driven components.  In a recent working paper, St. Louis Federal Reserve Bank economists implemented an extension of Shapiro’s method, which distinguishes between the trend component of inflation and inflation attributable to supply and demand shocks. Their study generalizes his approach in a few ways, distinguishing between the current and past effects of those shocks. This allowed their study to parse the part of inflation that’s expected in the absence of supply- and demand-side “shocks” (the trend), as well as the parts of inflation explained by the ongoing expected effects of shocks in previous periods (past) versus shocks happening right now (current).

The Global Race for Energy Dominance

• AI and the Future of the U.S. Electric Grid    Rand

  Despite its age, the U.S. electric grid remains one of the great workhorses of modern life. Whether it can maintain that performance over the next few years may determine how well the U.S. competes in an AI-driven world.   AI is a big part of the challenge. Its vast data centers suck up energy like small cities. But a recent RAND study suggests AI could be a big part of the solution, too. There are risks here—some obvious, some not—and grid operators need to move with caution. But AI could usher in an energy future that is more resilient, more efficient, and more affordable for customers.  Companies working with AI have warned that they are already struggling to find the power they need. Keeping them on U.S. soil has become a national imperative, especially in light of the deepening competition with China. That means upgrading and modernizing the grid, much of which was built in the 1960s and ‘70s. 

• The cheapest way to supercharge America’s power grid   MIT Technology Review

  US electricity consumption is rising faster than it has in decades, thanks in part to the boom in datacenter development, the resurgence in manufacturing, and the increasing popularity of electric vehicles.  Accommodating that growth will require building all sorts of energy producing capacity (e.g., nuclear, hydropower, wind turbine, solar farms, etc.) faster than we ever have before—and expanding the network of wires needed to connect those facilities to the grid. But one major problem is that it’s expensive and slow to secure permits for new transmission lines and build them across the country. This challenge has created one of the biggest obstacles to getting more electricity generation online, reducing investment in new power plants and stranding others in years-long “interconnection queues” while they wait to join the grid.  Fortunately, there are some shortcuts that could expand the capacity of the existing system without requiring completely new infrastructure: a suite of hardware and software tools known as advanced transmission technologies (ATTs), which can increase both the capacity and the efficiency of the power sector.

• Grid Connection Barriers to New-Build Power Plants in the United States     Lawrence Livermore Laboratory

  The backlog of proposed power plants that have submitted grid connection requests (i.e., the interconnection queues) is larger than ever. As reported in our flagship Queued Up report, grid connection requests active at the end of 2023 were more than double the total installed capacity of the US power plant fleet (2,600 GW vs. 1,280 GW). Solar, battery storage, and wind energy account for 95% of all active capacity in the queues.  The unprecedented volume of requests in queues points to significant shifts in the generation mix of the US power system, but is also evidence of a significant structural and regulatory bottleneck for plants seeking grid connection. The amount of time spent in queues has increased by 70% over the last decade, and withdrawal rates remain high at 80%. Interconnection costs have risen and are highest for wind, solar, and battery storage projects.  To better understand the dynamics of interconnection and what solutions may be available, we compiled and analyzed two unique datasets for the first time, in “Grid connection barriers to renewable energy deployment in the United States,” in the journal Joule.

• The US Led on Nuclear Fusion for Decades.  Now China is in a Position to Win the Race   CNN

  US companies and industry experts are worried America is losing its decades-long lead in the race to master this near-limitless form of clean energy, as new fusion companies sprout across China, and Beijing outspends DC.  Nuclear fusion, the process that powers the sun and other stars, is painstakingly finicky to replicate on Earth. The prize of this energy is its sheer efficiency. A controlled fusion reaction releases around four million times more energy than burning coal, oil or gas, and four times more than fission, the kind of nuclear energy used today. It won’t be developed in time to fight climate change in this crucial decade, but it could be the solution to future warming. The Chinese government is pouring money into the venture, putting an estimated $1 billion to $1.5 billion annually into fusion, according to Jean Paul Allain, who leads the US Energy Department’s Office of Fusion Energy Sciences. In comparison, the Biden administration has spent around $800 million a year.

Recommended Weekend Reads

Why We Should Ignore Bilateral Trade Balances, Hutchison’s Sprawling Portfolio of Ports in Latin America, Seven Reasons Putin Doesn’t Want to End the Ukraine War, and Putting Economics Back into Geoeconomics

April 17 - 20, 2025

Spring is here, and it’s Easter Weekend.  Here are our latest recommended reads.  We hope you have a wonderful Easter and a relaxing weekend.  And please let us know if you or someone you know wants to be added to our distribution list. 

More on the Trade War

• Bilateral Trade Balances: Ignore Them   Center for Strategic and International Studies

  The Trump administration appears to have given up its fantastical effort to fully remake the international trade order. Although 10% tariffs versus almost everyone and 145% tariffs against China are still in place, the administration has for the time put aside the revolutionary notion of substituting reciprocal tariffs negotiated country-by-country with basing trade in commonly applied tariffs and making modest adjustments, lower or higher, in exceptional circumstances. That said, the administration is still absolutely fixated on bilateral trade deficits – that they inherently represent a deadweight loss (despite U.S. companies and households receiving goods and services in return) and that those countries with surpluses are by definition scofflaws who are guilty of stealing American manufacturing capabilities, jobs, and wealth. 

•  A Stab at China’s View of the “Trade War” Derek Scissors/American Enterprise Institute

  Rather than pretend the latest Trump administration spin on its latest walk-back is worth the time, it may be useful to assess the side that loves stability. China cares less about tariffs than it may seem. The key reason: Beijing’s prime goal isn’t prosperity, but leverage.   Many experts on trade and China have recently emerged. Some were previously experts on inflation, Ukraine, and Covid. The biggest error made by newcomers is believing Xi Jinping is interested in what foreign commentators think he should be interested in—economic growth, the welfare of households, stock prices, and supposedly high American tariffs. None are especially important for Xi and, therefore, for the PRC’s policy.  Economic growth is nice, it’s not close to paramount. China no longer needs fast growth to create jobs, with the labor force contracting since at least 2017. On official figures, growth is tenuously connected to job creation. This is another reason not to care much: Results will be whatever Beijing wants. China has offered decades of dubious economic statistics, eagerly repeated by many. It just happened again, with Q1 data not making arithmetic sense.
  

• Navigating tariffs with a geopolitical nerve center      McKinsey & Company

  Tariffs and trade controls are expanding rapidly around the world. Macroeconomic uncertainty is growing. Second-order effects of government actions are multiplying.  The first global economic shock since the COVID-19 pandemic has arrived.  While geopolitical tensions have been rising for several years, the recent wave of trade controls and reciprocal tariffs has come on quickly and intensely. Not since the 1930s has the world seen this level of tariff activity.

The Americas

• Surveying Hutchison’s Portfolio in Latin America: Strategic Vulnerability or Business as Usual?   Center for Strategic and International Studies

  China’s global network of ports has been the subject of growing anxiety among U.S. policymakers and defense analysts. Control over ports confers a host of benefits ranging from intelligence collection opportunities to access to favorable shipping lanes to even a limited power projection capability for the People’s Liberation Army Navy (PLAN).  At the center of this drama is Hong Kong-based CK Hutchison, a massive conglomerate that, through its subsidiary Hutchison Port Holdings, operates the ports of Balboa and Cristobal on the Pacific and Atlantic sides of the canal, respectively. On March 4, CK Hutchison made headlines when it announced a deal with U.S. private equity firm BlackRock to buy out its port holdings outside of mainland China and Hong Kong. If executed, the deal would transfer 43 different ports across 23 countries from Hutchison to BlackRock’s control. In the Western Hemisphere alone, Hutchison currently operates seven container terminals: two in Panama, four in Mexico, and one in the Bahamas. Several of these rank among the busiest ports in the Americas and are invaluable to maritime commerce in the region.
  

• Milei’s bold move: making Argentina’s economy normal      The Economist

  “Instead of talking about growth at Chinese rates, the world will soon be talking about growth at Argentine rates,” crowed Javier Milei on late-night television on April 11th. His economy minister had just outlined a $20 billion IMF program, a reduction in capital controls, and a shift to a more flexible exchange rate. He slashed spending immediately, pulling inflation sharply down. A deep recession is now giving way to strong growth. The rate of poverty, which rose to 53% of all Argentines in early 2024, has now fallen back to 38%, lower than it was when Mr. Milei took office. Now he is tackling the weakness in his reform program: capital controls and the overvalued peso. He has never been closer to transforming Argentina into a normal economy. But global economic chaos endangers his reforms, and politics could still trip him up.

Why Russia Might Reject A Peace Deal With Ukraine

• Seven Reasons Putin Doesn’t Want to End the War in Ukraine      Politico

  Noted Russian scholar Leon Aaron lays out seven reasons Russian President Vladimir Putin does not want to end the War on Ukraine: 1) the war provides a rationale for Putin’s dictatorship, 2) Putin likes the trappings of militarism, 3) Russia’s economy now is dependent on the war, 4), Ending wartime bonuses and other perks could cause social unrest, 5) Change is destabilizing in authoritarian regimes, 6), Putin is an opportunist and a risk taker – every new concession prompts more ultimatums by Putin, and 7) Putin needs victory, not peace.

• Russia’s Increasingly Bellicose Elite         Center for European Policy Analysis

  The economic, military, and cultural elites of wartime Russia are undergoing a transformation, and their influence on the country’s leadership does not augur a quick end to the fighting.  More people with an interest in continuing the war against Ukraine are joining Vladimir Putin’s entourage, making the Kremlin even less open to peace.

Understanding the New and Old Washington

• How to Make Friends and Influence POTUS     MIT Sloan Management Review

  The rules of corporate influence in Washington are changing dramatically. In President Donald Trump’s second term, power has shifted from Congress to the White House, turning lobbying into a personalized game of presidential access. At the same time, the use of AI tools is transforming lobbying efforts and posing ethical dilemmas. As the lobbying landscape shifts, executives must deal with the current situation with open eyes and a carefully considered strategy.
  

• A Historical and Geographical Look at Federal Employment Levels     Federal Reserve Bank of St. Louis

  It’s easy to interpret the increase in the budget deficit as meaning the government itself has gotten larger. In terms of its budget and subsequent debt, that is certainly true. But in terms of the number of government employees, this isn’t quite as obvious. In the first figure, we plot federal employment from 1939 through 2024.  Absent the immediate aftermath of World War II and the Korean War, there is a consistent rise in federal employment extending through the 1980s. At this point, federal employment began to decline but has largely been flat throughout much of the 2000s. Exceptions include the decennial census hirings, which lead to short-lived spikes, and a rise in federal employment starting in late 2022. Still, as a percentage of the U.S. labor force, the share of federal workers stood at around 1.8% at the end of 2024 versus 2.5% at the end of 1989.

Geoeconomics

• Putting Economics Back into Geoeconomics  Christopher Clayton/Mateio Maggiori/Jesse Schreger – National Bureau of Economic Research

  Geoeconomics is the use of a country’s economic strength to exert influence on foreign entities to achieve geopolitical or economic goals. We discuss how concepts of power in the political science and economics literature can be used to guide research on geoeconomics. Economic threats as a form of coercion have seen a recent resurgence. We show how different types of threats can be modeled using simple tools and discuss what channels their potential effectiveness is based on. We discuss important open questions for the future literature to pursue.

• Which Generation Spends More?     U.S. Bureau of Labor Statistics

  As it turns out, spending does differ along generational lines. In 2023 (the latest available data), those born between 1965 and 1980 spent the most, with annual household expenditures averaging $95,692. This generation was between the ages of 43 and 58 in that year and perhaps in one of the highest-earning periods of their working lives. By contrast, the lowest average expenditure was $49,206, spent by those born in in 1945 or earlier and likely retired.  Average annual expenditures for all households in 2023 were $77,280, a 5.9-percent increase from 2022. During the same period, the Consumer Price Index for All Urban Consumers rose 4.1 percent, and average income before taxes increased 8.3 percent.  These data are from the Consumer Expenditure Surveys program. For more information, please see the latest news release at “Consumer Expenditures – 2023,” as well as Consumer Expenditures data tables. Consumer expenditure data are averages for all consumer units (households). Consumer units consist of families, single persons living alone or sharing a household with others but who are financially independent, or two or more persons living together who share major expenses.