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

What To Do When The START Treaty Expires, China’s Strategy for Countering the US’s New Focus on Latin America, the Economic and Geopolitical Implications of Apple’s Supply Chain, and Why Denmark Raised the Retirement Age to 70

June 6 - 8, 2025

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

The Future of Nuclear Weapons and Arms Control 

• No New START     Franklin Miller/Eric Edelman, Foreign Affairs

  The looming expiration of the New START Treaty, the only remaining bilateral nuclear arms control agreement between the United States and Russia, has focused national security experts on what comes next. At the time it was signed in 2010, New START had some advantages. But New START was written for a geopolitical landscape that no longer exists.  Fifteen years later, the world has changed dramatically. Putin and Chinese leader Xi Jinping have emerged as aggressive and expansionist leaders, both dedicated to building a much more modernized and lethal nuclear weapons system.

• Everything Changes but Nothing Changes: Can France Overcome Its Own Nuclear Doctrine?   War on the Rocks

  In a recent interview broadcast live on French television, President Emmanuel Macron said, “Ever since there has been a nuclear doctrine, Charles de Gaulle, there has been a European dimension of France’s vital interests.  I have remained ambiguous on what those vital interests are…” Does France consider defending European allies part of their vital interests?  Does France believe in extending a nuclear umbrella that covers Europe? These questions have been debated in France for decades, and with Russia’s aggression toward Ukraine, they have risen to a new level of focus and discussion.

Latin America 

• What Will China Do Next in Latin America?   Ryan Berg/Foreign Policy

  The second Trump administration has begun with a flurry of activity in Latin America. In the first 100 days, Secretary of State Marco Rubio visited both Central America and the Caribbean, Secretary of Defense Pete Hegseth made a visit to Panama, and Secretary of Homeland Security Kristi Noem visited both South America and Central America and Mexico. Another visit to the region by Rubio and a trip by Secretary of Agriculture Brooke Rollins are in the works. Some administration officials have characterized their approach as an “Americas First” foreign policy. The reprioritization of Latin America in the United States’ foreign policy, coupled with the high-level visits by cabinet officials, has placed China on the back foot in the region—at least temporarily. In many ways, Beijing was unprepared for the Trump administration’s considerable focus on the Western Hemisphere and its scrutinizing of countries’ relationships with China.  Curiously, though, despite a revamped U.S. posture in Latin America, China appears to be sticking to a familiar bag of tricks—even as domestic challenges pare back the robustness of its offer.

• Momentum for Red Tape Reform in Chile Picks Up    Americas Quarterly

  The decision by Chile’s government to scrap the massive Dominga copper and iron mining project in January, and the resulting court battles, have roiled debates over red tape and regulation in the country, where natural resources make up 77.6% of exports. These debates—which go far beyond the mining sector—have become a campaign issue ahead of the November general election as the business community demands lighter regulation and President Gabriel Boric defends his record and tries to forge compromises with his critics.

• The War on Trees – How Illegal Logging Funds Cartels, Terrorists, and Rogue Regimes   Foreign Affairs

  Around the world, nefarious state and nonstate actors are extracting enormous value from forests to fund their operations. The unlawful clearing of land and the harvest, transport, purchase, and sale of timber and related commodities have long been dismissed as a niche concern of environmental activists. But this is a mistake. Although unsustainable deforestation imperils the environment, illegal logging also poses an outsize—and underacknowledged—geopolitical threat. Environmental crime constitutes a growing economic and national security threat to the United States and countries around the world. Yet Washington has largely ignored illegal logging’s role in its fight against transnational criminal organizations, drug cartels, terrorists, and rogue regimes, as well as China’s part in this illicit trade.

Geoeconomics

• Why Emerging Markets Weathered Federal Reserve Tightening So Well    Steven Kamin/AEI Economic Policy Working Paper Series

  The steep rise in US interest rates that started in 2022 led many observers to anticipate severe difficulties for emerging market economies (EMEs). Unlike after the Volcker disinflation of the early 1980s or the bond market turmoil of 1994, however, most EMEs weathered the Fed’s monetary tightening in 2022-23 relatively well. In particular, EME dollar credit spreads, an indicator of potential financial distress, rose only moderately in those years before dropping to historically low levels in 2024. One reason that the EMEs weathered Fed tightening so well is that, simply put, Fed tightening is no longer as injurious to them as commonly believed; this likely reflects improvements in EME policies since the 1980s and 1990s that have bolstered their resilience. A second reason why EME spreads remained relatively contained in the face of rising interest rates is that US corporate credit markets remained buoyant, and their confidence spilled over to EMEs. We show that US high-yield spreads accounted for the lion’s share of the fluctuations in EME spreads over the past couple of decades, dominating not only the effects of monetary shocks but also changes in the VIX and the dollar.

• Connectivity Policy – A Strategic Tool for the EU in its Eastern Neighborhood German Council on Foreign Relations

  Given the shifts in the geopolitical landscape, connectivity is no longer just an economic tool – it has become a strategic instrument used for influence, resilience, and security, as China has demonstrated with its Belt and Road Initiative. The EU must understand that connectivity is central to its engagement with the Eastern Partnership (EaP) countries, where the EU faces growing competition not only from China’s BRI but also from Russia’s infrastructure dominance and Turkey’s regional ambitions. This memo explores the new momentum that connectivity has gained as a part of the EU foreign policy in the EaP and examines its significance in the emerging new regional order. It assesses whether and how connectivity can be reframed as a strategic instrument for the EU’s engagement.

• Apple’s Supply Chain: Economic and Geopolitical Implications    Chris Miller/Vishnu Venugopalan – American Enterprise Institute

  Over the past decade, many electronics firms have talked about diversifying their supply chains. An analysis of Apple—America’s biggest consumer electronics firm—illustrates that most of its manufacturing supply chain remains in China, though there have been limited increases in Southeast Asia and India. China’s role for Apple has grown substantially. Ten years ago, Apple relied on China primarily for final assembly, while today Apple not only assembles devices in China, it also sources many components from the country.  However, Chinese-owned firms generally only play a role in lower-value segments of the supply chain. Many of the higher-value components—even those made in China—are produced in factories owned by Japanese, Taiwanese, or US firms.  

Immigration and Demographics

• America’s Immigration Mess: An Illustrated Guide   Nicholas Eberstadt/American Enterprise Institute

  Immigration was a flashpoint in American politics long before President Biden’s election, but it became a major political fiasco with the Biden Administration’s mismanagement of illegal immigration. Immigration ended up being one of the top issues in the 2024 election and is widely recognized as one of the key factors contributing to the re-election of President Trump. America is poised for a very different set of immigration policies today. But wherever America aims to head with immigration policy, it is essential to guide that policy with accurate information. This illustrated guide is intended to offer a summary snapshot of America’s immigration situation today, and some of the dilemmas attending it. In this illustrated guide we collect what we take to be the most accurate data and information on a number of hotly debated questions: trends in total and illegal immigration; the Biden era migration surge and its components; immigrants’ contributions to the national economy, dependence of US social welfare benefits, and impact on the budget deficit and national debt.

• Why Denmark is raising its retirement age to 70, Europe’s highest  Rangvid’s Blog

  The Danish parliament recently decided to raise the retirement age in Denmark to 70, effective from 2040. This decision attracted significant international attention. In this post, I will explain why the decision was made, the benefits it offers, and why, overall, the Danish pension system is strong, arguably among the best in the world. That said, it is not without its challenges.

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

What Is President Trump’s Golden Dome and Will It Work?  China’s Investments in EU and UK Rebounded in 2024,  Latin America’s Baby Bust is Coming Early, and Understanding the Two Chinas

Summer is just about here and we are hoping you are having a relaxing Memorial Day Weekend.  Below 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. 

President Trump’s Golden Dome

• The Golden Dome and the New Missile Age    Center for Strategic and International Studies Podcast

  President Donald Trump has proposed to create a multilayered defense system capable of intercepting missiles even if they are launched from the other side of the world and even if they are launched from space.  The concept includes both ground and space-based capabilities that would defend the US from attack by detecting and destroying them ahead of launch, intercepting them early in flight, halting them midcourse and stopping them in the last few moments of approaching a target. CSIS’s podcast takes a closer look at the President’s proposal and how it would be implemented, how much it will cost, and how it cannot work unless Canada is a part of it.

• Golden Dome for America: Revolutionizing U.S. Homeland Missile Defense   Lockheed Martin

  Defense contractor Lockheed Martin hopes to be the primary builder of President Trump’s Golden Dome missile defense system.  IN a recent post on their website, they offer an in-depth presentation of the multiple ways the Golden Dome, as they envision it, would be deployed in space, land, sea, and air.

• Bad News for Trump’s Golden Dome: He Can’t Build it without Canada  Politico

  President Donald Trump left out a key detail this week when he outlined his plans for a massive missile and air defense shield over the continent: He can’t build it without Canada. And it’s not clear America’s northern neighbor wants in.

• Can China’s New Stealth Tech Challenge Trump’s Golden Dome?     South Morning Chian Post

  Chinese scientists have unveiled a new material that could undermine the effectiveness of the new US missile defense system – known as the Golden Dome – proposed by President Donald Trump.  The material may be used as a stealth material that is effective against both infrared and microwave detection and could prove suitable for high-speed aircraft and missiles.

Asian-Pacific Economics

• There are Two Chinas, and America Must Understand Both    New York Times

  Two Chinas inhabit the American imagination: One is a technology and manufacturing superpower poised to lead the world. The other is an economy that’s on the verge of collapse.  Each reflects a real aspect of China.  resident Trump, as he tries to negotiate a resolution of a trade war, must reckon with both versions of America’s arch geopolitical rival. The stakes have never been higher to understand China. It’s not enough to fear its successes or take solace in its economic hardships. To know America’s biggest rival requires seeing how the two Chinas are able to coexist.

• A Geo-Economic Conundrum for the Member States of ASEAN    International Institute of Strategic Studies

  When leaders from Southeast Asia meet at a regional summit on 26–27 May in Kuala Lumpur, the sense of imminent crisis will have lifted, given the agreement announced by Beijing and Washington on 12 May to pause for 90 days their ongoing trade dispute. Yet anxiety will still be high. Another 90-day pause – on the ‘reciprocal tariff’ schedule announced by United States President Donald Trump in April – will expire on 8 July. All ten member states of the Association of Southeast Asian Nations (ASEAN) would face significant new tariffs under the schedule, with Cambodia, Laos, Thailand, and Vietnam being the hardest hit. Vietnam, facing a 46% tariff unless it reaches a bilateral deal with the US, might have the most to lose given its increasingly prominent position in supply chains serving the US market.

• Chinese Investment Rebounds Despite Growing Frictions    Mecator Institute for China Studies/Rhodium Group

  Chinese foreign direct investment (FDI) in the EU and UK rebounded last year for the first time since 2016: it reached EUR 10 billion, rising 47 percent from 2023.  Europe remained the leading destination for Chinese investment in high-income economies, drawing 53.2 percent of all Chinese FDI in such markets. In 2024, the EU and UK’s share of total Chinese FDI also rose to 19.1 percent, the first significant increase since 2018.  The growth of Chinese FDI in the EU and UK was driven by a slight recovery in mergers and acquisitions (M&A) activity and continued appetite for greenfield investment.  Greenfield investment increased for the third consecutive year, rising by 21 percent year-on-year and hitting a record high of EUR 5.9 billion.  2024, five investors—CATL, Tencent, Geely, Envision, and Gotion—accounted for almost half of the Chinese FDI in Europe.

Latin America

• When Recession is Not Mexico’s Biggest Problem     Americas Quarterly

  The “R” word is becoming increasingly popular in Mexico. On the same day that the U.S. reported a surprising quarterly GDP contraction in the first trimester of the year, data released by Mexico’s statistics institute, INEGI, showed an unexpected 0.2% quarterly economic expansion for the same period. Since this initial and seasonally adjusted reading followed a 0.6% decline in economic output in the last quarter of 2024, it appears Mexico barely escaped the curse of a so-called “technical recession” (i.e., two consecutive quarters posting negative changes).  This result, however, is unlikely to settle the issue, particularly in Mexico’s polarized political climate. It can be easily argued, for instance, that the positive reading is explained by an unusually strong 8.1% growth rate posted by the volatile primary sector. This serves as a good reminder that business cycles are a more complex affair than a simple rule of thumb would suggest. More importantly, a discussion about this issue should not be Mexico’s main priority.

• Latin America’s Baby Bust is Arriving Early     Bloomberg

  Data published in the past few weeks confirm the quick decline in the region’s fertility levels, with the number of births in Brazil falling to the lowest in close to 50 years. In Argentina, the number of newborns has almost halved in just a decade, with kindergartens struggling to find pupils. In 2024, Uruguay had more deaths than births for the fourth consecutive year. Even Bolivia, a country of traditionally large families, is about to fall below the 2.1 children-per-woman threshold necessary to keep its population constant.

•  The Spy Factory – Russian Intelligence’s Use of Brazil for Deep Cover Operations    New York Times

  For years, a New York Times investigation found, Russia used Brazil as a launchpad for its most elite intelligence officers, known as illegals. In an audacious and far-reaching operation, the spies shed their Russian pasts. They started businesses, made friends and had love affairs — events that, over many years, became the building blocks of entirely new identities.  Major Russian spy operations have been uncovered in the past, including in the United States in 2010. This was different. The goal was not to spy on Brazil, but to become Brazilian. Once cloaked in credible back stories, they would set off for the United States, Europe or the Middle East and begin working in earnest.  The Russians essentially turned Brazil into an assembly line for deep-cover operatives.

Geoeconomics

• Unconventional Monetary Policies in Small Open Economies   Jesper Lindé/Marcin Kolasa/Stefan Laseen IMF Working Papers

  This paper provides a comprehensive assessment of the macroeconomic and fiscal impact of unconventional monetary tools in small open economies. Using a DSGE model, we show that the exchange rate plays a critical role to amplify the favorable impact of unconventional monetary policy while it attenuates the effectiveness of conventional fiscal policy to jointly boost output and inflation. We then use the model as a laboratory to do a case study of the Swedish Riksbank asset purchases and negative policy rates 2015-2019. We find that the Riksbank unconventional policy measures provided meaningful macroeconomic stimulus to economic activity and inflation, with the dual benefit of reducing overall government debt by about 5 percent of GDP. If conventional fiscal policy had been used to provide a commensurate output boost, inflation would have risen notably less, and the fiscal cost would have amounted to a deterioration of the government debt position with nearly 8 percent of GDP.

• What Have We Learned from the U.S. Tariff Increases of 2018-19?     Reserve Bank of St. Louis “On the Economy” Blog

  In the summer of 2018, the normal pace of global trade encountered an important disruption: The United States increased tariffs to a wide set of imported goods from China, which included such diverse products as electronics, furniture, manufacturing equipment and aerospace components. In this way, the imposed tariffs impacted final consumption goods, intermediate inputs and capital goods used by U.S. households and firms.  All told, these measures affected approximately $376 billion of Chinese exports to the U.S., or around 50% of all the country’s imports from China. The scale becomes even more remarkable when one considers that prior to this campaign, most of these goods faced tariffs of just 3% to 4% and that China was the largest trading partner of the U.S. in terms of imports.

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

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

April 11 - 13, 2025

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

India’s Role in the Increasingly Turbulent World of Trade 

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

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

• India could help save an aging Europe   Politico EU

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

Recommended Weekend Reads

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

Geopolitical Risk, Economic Statecraft, and Tariff Impacts

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

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

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

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

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

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

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

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

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

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

• Americans' Foreign Policy Priorities, NATO Support Unchanged  Gallup

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

Asian Trade & Economics

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

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

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

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

Recommended Weekend Reads

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

February 21 - 23, 2025

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

U.S – Canadian Critical Minerals Trade

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

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

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

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

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

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

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

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

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

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

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

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

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

 The Economic Impact of Russia’s War on Ukraine

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

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

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

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

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

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

Geoeconomics

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

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

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

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

Recommended Weekend Reads

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

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

The Indo-Pacific Region

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

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

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

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

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

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

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

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

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

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

The 2025 Budget and Tax Reconciliation Debate

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Americas

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

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

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

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

Africa

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

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

Geoeconomics

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

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

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

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