Recommended Weekend Reads

The Iran War: What to Expect and Can There Be Change?  Challenges to China’s Economy, The Coming US-Cuba Showdown, and America’s Great Happiness Compression

March 6 - 8, 2026

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

The Iran War

• The Mirage of the New Middle East: War With Iran Won’t Reshape the Region the Way America Wants     Dalia Dassa Kaye/Foreign Affairs

  Eager to show that he can do what no American leader has done before, President Donald Trump has chosen conflict over diplomacy and gone to war with Iran. How this war will end remains uncertain. But when it does, the United States will have to face what comes next. To the extent that the Trump administration has considered plans for “the day after,” it seems to have made a series of overly optimistic assumptions about how the war might reshape Iran and the Middle East.  The outcome of this war will likely fall far short of these rosy expectations. After the bombing ends, Iran and the region could look worse, or at least not better, than they did before the war. The fighting could create a power vacuum in Tehran, sour U.S. allies on their partnerships with Washington, and produce ripple effects on conflicts elsewhere in the world, all without removing sources of regional strife that have nothing to do with the regime in Iran.

• How Far Can Russian Arms Help Iran?  Carnegie Russia Eurasia Center

  While the United States and Israel are starting another military intervention against Iran, Russia is increasing arms supplies to the isolated Islamic nation—despite its own ongoing war with Ukraine. Tehran is already in possession of Russian trainer jets, attack helicopters, armored vehicles, and small arms. Now the two countries have signed another major deal, according to the Financial Times, under which Russia will supply Iran with Verba man-portable air defense systems (MANPADS) worth 500 million euros. Despite the growing scale of the cooperation in military technology, these arms shipments are still unlikely to be able to protect Iran from U.S. or Israeli air strikes. What’s far more likely is that Russian weapons will continue and to grow significantly if Russia gets the opportunity.

• War With Iran: Why Now and What Comes Next    Carnegie Connects Podcast

  Host Aaron David Miller discusses the Iran War with the Brooking Institution’s Suzanne Maloney, International Crisis Group’s Ali Vaez, and Yale University’s Rob Malley on these and other Iran-related issues, on the next Carnegie Connects.

• Good News: Iran’s Nuclear and Missile Programs Look Destroyed. Bad News: The Regime May Survive     19fortyfive.com

  Dr. Andrew Latham, a professor of international relations and fellow at Defense Priorities, evaluates this “Trumpian Dilemma.” He argues that while the mission to disable programs has been a triumph, the mission to reshape the Iranian political order remains a dangerous, open-ended commitment that may collide with the administration’s “America First” instincts.

China’s Economic Outlook

• When Does China Stop Growing (Entirely)?     Dereck Scissors/AEI

  The Chinese economy has been generally weaker than acknowledged in the 2020s. The most frequently discussed solutions, such as stimulating consumption, cannot generate a sizable, sustained impact for more than a year or so.  Reinflating the property bubble would do so. It cannot be done immediately or easily but could for a multiyear period bring clearly faster economic growth without wrenching dislocation or automatically adding to the debt burden. In the longer term, even successful property reflation will not matter much. Unwillingness to reform, debt accumulation, and especially demography guarantee a China that essentially stops growing by the late 2030s.

• China’s Cheap Money Is Shaking $9.5 Trillion Global Loan Market     Bloomberg

  Chinese banks, flush with low-cost funds, are reshaping parts of the global loan market, underscoring how deflationary pressures in the world’s second-largest economy are increasingly influencing competition with international lenders. Much like US and European manufacturers who have long complained about being undercut by cheaper Chinese rivals, bankers at global institutions now say they’re facing the financial equivalent: being priced out of some of Asia’s most sought-after borrowers as Chinese lenders extend cheaper credit across borders. Enabled by Beijing’s monetary easing to counter slowing growth, Chinese banks are expanding overseas lending amid weakening domestic credit demand. That edge may prove even more significant as the Iran crisis threatens to upend global energy markets, raising the likelihood that major central banks will hold off easing interest rates amid mounting uncertainty.

Growing US – Cuban Tensions 

• The Coming Showdown Over Cuba     Rut Diamint & Laura Tedesco/Foreign Affairs

  President Trump stated this past week that “Cuba is going to fall pretty soon.  They want to make a deal badly.” Even before the current crisis, the Cuban people had long suffered under a cruel dictatorship, ruinous economic policies and mismanagement, and a six-decade U.S. trade embargo. In recent years, the island has experienced gasoline and medicine shortages, routine power outages, food cost increases, and mosquito-transmitted-disease outbreaks that have overwhelmed the public health system.  Havana has little room to maneuver. Yet the chances that Trump will launch a Maduro-style military mission in Cuba remain low. After his Venezuela operation, undertaking a similar ouster would no longer have the advantage of surprise, and Cuba’s security forces are generally believed to be more loyal to their regime than Venezuela’s were to theirs.

• Seven Charts on Cuba’s Economic Woes     Americas Society/Council of the Americas

  The Caribbean island is undergoing its worst economic period in decades while facing rising U.S. pressure.  These seven charts show how the island country is facing an extraordinary economic and demographic collapse.

• Cuba’s Military: The Institution Washington Cannot Ignore    Americas Quarterly

  For more than six decades, U.S. policy has failed to dislodge the Cuban regime, even when it appeared economically and politically vulnerable. As Washington again intensifies pressure on the island, policymakers must confront a central reality often overlooked in external debates: the decisive role of Cuba’s Revolutionary Armed Forces (FAR).  More than a traditional military institution, the FAR functions as a political, economic, and administrative pillar of the state. It mediates regime continuity, oversees strategic sectors of the economy, and would shape the parameters of any eventual transition. In practice, the keys to both change and stability in Cuba are likely to rest not with opposition movements or external actors, but with key members of the FAR.

America’s Mood vs. Historic Economic Growth

• Poverty and Dependency in the United States, 1939–2023    Richard V. Burkhauser & Kevin Corinth/National Bureau of Economic Research

  Abstract: We compare trends in absolute poverty before (1939–1963) and after (1963–2023) the War on Poverty was declared. Our primary methodological contribution is to create a post-tax post-transfer income measure using the 1940, 1950 and 1960 Decennial Censuses through imputations of taxes and transfers as well as certain forms of market income including perquisites (Collins and Wanamaker 2022), consistent with the full income measures developed by Burkhauser et al. (2024) for subsequent years. From 1939–1963, poverty fell by 29 percentage points, with even larger declines for Black people and all children. While absolute poverty continued to fall following the War on Poverty’s declaration, the pace was no faster, even when evaluating the trends relative to a consistent initial poverty rate. Furthermore, the pre-1964 decline in poverty among working age adults and children was achieved almost completely through increases in market income, during which time only 2–3 percent of working age adults were dependent on the government for at least half of their income, compared to dependency rates of 7–15 percent from 1972–2023. In contrast to progress on absolute poverty, reductions in relative poverty were more modest from 1939–1963 and even less so since then.

• State of the Nation: National Malaise Continues         Gallup

  Each January, as part of its Mood of the Nation poll, Gallup asks Americans whether they are satisfied or dissatisfied with a battery of national conditions, offering a public "state of the union" measured ahead of the president's address to Congress. In January 2026, an average of 36% said they were very or somewhat satisfied across 25 aspects of the country, the numerically lowest reading in the poll's history dating back to 2001. The Trend: For two decades, average satisfaction with these national conditions stayed within a narrow band, fluctuating between 42% and 49%. It fell to 40% in January 2021 and has declined further since.

• The Great Happiness Compression   Home Economics

  American happiness has fallen off a cliff. The General Social Survey has tracked this since 1972. Their data shows the share of Americans reporting they are "very happy" dropped from 29% before the pandemic to 22% in the most recent reading—the largest decline over any comparable span in the survey's 52-year history. The chart shows the shift in the "very happy" distribution across the population, along with the ten demographic groups that experienced the biggest happiness declines. The groups that lost the most happiness are the ones that had the most to begin with. The bottom barely budged. The groups that held up best share one trait: social connection. People who see friends often dropped just 4 points, compared to a 9-point drop among those who see friends rarely. Happiness for those who socialize with neighbors dropped less than for those who rarely do.

Recommended Weekend Reads

The Future of NATO and the Transatlantic Relationship, Are Trump’s Tariffs Working? And The Persistent Global Fertility Decline

February 13 - 15, 2026

Below are several reports and articles we read this past week that we found particularly interesting.  I hope you find them both interesting and useful.  Have a great weekend.

The Future of NATO and the Munich Security Conference 

NOTE: With the Munich Security Conference taking place this weekend, we wanted to bring focus to several of the key issues being discussed and debated.

• Trump’s NATO Dilemma – America Can’t Disengage from the Alliance and Also Lead It    Sara Bjerg Moller/Foreign Affairs

  Amid a sea of disruptions—territorial threats against Denmark, missed alliance meetings by senior U.S. diplomats, and planned personnel reductions at NATO installations—the Trump administration’s second-term approach to NATO is now coming into focus. Rather than openly abandoning the alliance, as some analysts feared, the United States appears to be “quiet quitting”: incrementally stepping away from the alliance it has led for close to eight decades. The White House seems to believe that only if the United States steps back will Europe finally be forced to step up.  But it will find that walking away from overseeing NATO’s military machinery is far harder than anticipated. NATO’s command structure was built around U.S. infrastructure and personnel, and no other member of the alliance is currently equipped to replace Washington. If Trump does choose to push ahead with his planned disengagement, the logistics of succession would be the least of the United States’ concerns. No major power has ever voluntarily surrendered control, much less command, of an alliance it built and led. Doing so at a moment of profound geopolitical upheaval would weaken the transatlantic partnership—and leave the United States less secure.
  

• Poll: Top NATO allies don’t think the US helps deter enemies anymore     Politico EU

  As global leaders convene in Germany for the Munich Security Conference, new results from The POLITICO Poll show President Donald Trump’s efforts to rewrite longstanding international relationships — particularly in Europe — are repelling longtime, traditionally loyal partners. The United States’ eroding reputation is raising fresh questions about the stability of the global order that has held for decades, and of the country’s strength on the world stage. Across all countries polled, far more people described the U.S. as an unreliable ally than a reliable one, including half the adults polled in Germany and 57 percent in Canada. In France, too, the share of people who called the U.S. unreliable was more than double the share who said it was reliable.
  

• Can Germany's Merz be the savior of Europe?    Reuters Commentary

  European Union leaders are meeting this week to discuss how to boost the bloc's competitiveness. While President Donald Trump’s withering description of Europe last month as a "decaying" region was unwelcome, it may be what finally prompts them to take much-needed action. Germany has historically been a brake on EU reform, but Berlin now appears to be on board. Chancellor Friedrich Merz told the World Economic Forum in Davos last month that the EU now had no choice but to urgently pursue former European Central Bank president Mario Draghi’s blueprint for a competitive Europe.
  

• Europe’s Next Hegemon: The Perils of German Power    Liana Fix/Foreign Affairs

  After many delays, Germany’s Zeitenwende—its 2022 promise to become one of Europe’s defense leaders—is finally becoming a reality. In 2025, Germany spent more on defense than any other European country in absolute terms. Its military budget today ranks fourth in the world, just after Russia’s. Annual military spending is expected to reach $189 billion in 2029, more than triple what it was in 2022. Germany is even considering a return to mandatory conscription if its military, the Bundeswehr, cannot attract enough voluntary recruits. Should the country stay the course, it will again be a great military power before 2030.
  

• Vladimir Putin is trapped in a war he cannot win but dare not end     Peter Dickerson/The Atlantic Council

  Putin’s reluctance to accept Trump’s offer makes perfect sense when viewed from the perspective of the Russian ruler’s revisionist worldview and imperial ambitions. Crucially, Putin is well aware that any peace deal based on the current front lines of the war would leave 80 percent of Ukraine beyond Kremlin control and free to integrate into the democratic world. That is exactly what he is fighting to prevent. As the war enters a fifth year, Putin finds himself in an unenviable predicament. He has no obvious pathway to victory, but cannot agree to a compromise peace without acknowledging what would amount to a historic defeat and placing his own political survival in question.
  

Tariffs, Trade, and Geoeconomics

• Who Is Paying for the 2025 U.S. Tariffs?    Federal Reserve Bank of New York

  The Federal Reserve Bank of New York is out with a new analysis that finds ~90% of tariffs’ economic burden was borne by American firms and consumers in the first 8 months of 2025. Between January and November, however, that incidence declined 88 percent as firms reorganized supply chains.

• Americans Largely Disapprove of Trump’s Tariff Increases    Pew Research Center

  By a wide margin, Americans continue to say they disapprove of the Trump Administration substantially increasing tariffs: 60% say, including 39% who say they strongly disapprove.  By contrast, 37% say they approve of the increased tariffs, and just 13% strongly approve.  Views of the Administration’s tariff increase have been relatively stable since last April, when President Donald Trump unveiled his far-reaching tariff policy.

• Trump Tariffs: Tracking the Economic Impact of the Trump Trade War   The Tax Foundation

  President Trump has imposed International Emergency Economic Powers Act (IEEPA) tariffs on US trading partners, including China, Canada, Mexico, and the EU. In addition, he has threatened and imposed Section 232 tariffs on autos, heavy trucks, steel, aluminum, lumber, furniture, semiconductors, pharmaceuticals, and copper, among others.  The Trump tariffs amount to an average tax increase per US household of $1,000 in 2025 and $1,300 in 2026.  Under the tariffs imposed and scheduled as of February 6, 2026, the weighted average applied tariff rate on all imports rises to 13.5 percent, and the average effective tariff rate, reflecting behavioral responses, rises to 9.9 percent—the highest average rate since 1946.  The Trump tariffs are the largest US tax increase as a percent of GDP (0.54 percent for 2026) since 1993.  Trump’s imposed tariffs will raise $2.0 trillion in revenue from 2026-2035 on a conventional basis and reduce US GDP by 0.5 percent, all before foreign retaliation. Accounting for negative economic effects, the revenue raised by the tariffs falls to $1.6 trillion over the next decade. We estimate that the tariffs raised $132 billion in net tax revenue in 2025. The Trump tariffs threaten to offset much of the economic benefits of the new tax cuts, while falling short of paying for them.

Demographic Trends and Employment Gaps

• The Likelihood of Persistently Low Global Fertility      Journal of Economic Perspectives

  Low fertility is likely to persist as a global phenomenon as pro-natal policies have been insufficient to “adequately challenge conventions, challenge social orders, and challenge what gets society’s attention, power, and investment.”

• Switzerland To Vote On Plan To Cap Population At 10mn     Financial Times

  Switzerland will hold a vote on a radical proposal to cap the country’s population at 10mn people, a move that could threaten crucial agreements with the EU and limit companies’ access to skilled foreign workers.  The country’s current population is 9.1 million people, and Switzerland has a high level of immigration, as people are drawn by its high wages and quality of life.  It has one of the largest proportions of foreign residents in Europe, at 27% according to official figures, and its population has grown by some 25% since 2000, much higher than most neighboring countries.

•  The H-1B Wage Gap, Visa Fees, and Employer Demand    George J. Borjas/National Bureau of Economic ResearchAbstract: The H-1B program lets firms hire high-skill foreign workers for a six-year term. The annual number of visas allocated to for-profit firms is capped at 85,000 and there is excess demand for those visas. The analysis merges administrative data, including the I-129 petitions that report the wage offer made to specific H-1B beneficiaries, with the American Community Surveys. On average, H-1B workers earn 16 percent less than comparable natives, suggesting that firms may be willing to pay a one-time fee to obtain the visa. The data are examined using a labor demand model to simulate how a fee alters the hiring decision. Depending on the level of excess demand, the unobserved productivity gains or costs from an H-1B hire, and the rate of job separations, the revenue-maximizing fee is between $118,000 and $264,000, has little or no impact on the number of H-1Bs hired, and generates between $6.2 and $22.4 billion in revenues. The demand for visas remains strong even if firms offshore some of the jobs currently held by H-1Bs. The fee also changes the skill composition of the H-1B workforce, making it more skilled.

Recommended Weekend Reads

China’s Determined Latin America Strategy, How Mexico Is Winning The Tariff Wars, How Will China Rightsize Its Economy?, and How The Ukraine War is Fraying Russia’s Society

January 2 - 4, 2026

Americas

• China’s Third Policy Paper on Latin America and the Caribbean: Expanding Influence and Ambitions   Ryan Berg/Center for Strategic and International Studies

  China’s Foreign Ministry recently released its third policy paper on Latin America and the Caribbean (LAC). The paper is wide-ranging, encompassing topics from diplomacy to security cooperation and cultural exchange. The document reflects China’s growing engagement with the Western Hemisphere and its increasingly comprehensive approach.

• Erasing the Verdict: The Ongoing Shock of Trump’s Cocaine Kingpin Pardon   Bloomberg/Businessweek

  Bloomberg takes a deep dive into President Trump’s recent surprise pardon of former Honduran President Juan Orlando Hernández, arguing that it “toppled the capstone of one of the most ambitious narcotics investigations in the history of the Department of Justice.”
  

• The Unexpected Winner of Rising American Tariffs Is Mexico   Wall Street Journal

  When President Trump began raising tariffs earlier this year, government officials and economists feared Mexico’s export-led economy would take a devastating hit. Instead, Mexican exports to the U.S. have grown. Because Mexico’s ultimate tariff rate ended up lower than for most other countries, the disparity has helped Mexican exports fill some of the gap left by Chinese products subject to higher levies. Even with steep tariffs on autos, steel, and aluminum bound for America, Mexican manufacturing exports to the U.S. rose almost 9% from January to November, compared with the first 11 months of 2024, according to Mexican government data. Auto-industry exports to the U.S. fell close to 6% during the period, but exports of other manufactured goods surged 17%.  Trade in goods between the U.S. and Mexico is on track to reach a record of nearly $900 billion this year.

• LatAm Outlook 2026   Canning House

  The Canning House (the UK’s leading Latin American-focused think tank) has just published its 2026  LatAm Outlook.  It is done in conjunction with Bloomberg, the International Institute for Strategic Studies, SEI, Ipsos, Control Risks, and the UK’s Department for Business & Trade and was first launched their annual outlook in March 2020, offering a look ahead at the next five years and beyond across key trends in Latin America through the lens of the region's six largest economies - Argentina, Brazil, Chile, Colombia, Mexico and Peru.

China

• China Manufacturing Overcapacity Boosts Output, Stagnation Fears  J. Scott Davis and Brendan Kelly  Federal Reserve Bank of Dallas

  China’s economy has experienced rapidly growing indebtedness and fixed asset investment since the 2008 Global Financial Crisis.  Overinvestment initially showed up in a booming real estate sector, but more recently has taken hold in the industrial sector. Ultimately, it has produced overcapacity and the current phenomenon of involution—disorderly price competition that damages industry health—with producer price deflation and increasing losses among domestic firms. Such overcapacity is made possible in part by the phenomenon of zombie lending, characterized by banks unwilling to realize losses and instead rolling over the debt of unprofitable firms. This inefficient allocation of capital is enabling unprofitable firms to survive, forcing the government to engage in an anti-involution campaign to curb the resulting overcapacity.

• China’s Economy: Rightsizing 2025, Looking Ahead to 2026   Daniel Rosen, Logan Wright, Oliver Melton, and Jeremy Smith   Rhodium Group

  According to Rhodium’s analysis, China's actual 2025 GDP growth fell short of 3%.  For domestic demand to lift China above 2% GDP growth in 2026, Beijing must reverse the systemic causes of household and business malaise or pile on costly demand subsidies.  China’s statistics show real GDP growth of 5.2% year to date through the third quarter of 2025, an acceleration from 2024. They will almost certainly claim 5% growth or better for the full year. A year ago, we said China could perform better in 2025, hitting 3 to 4.5% if Beijing prioritized growth after a poor 2024 performance in the mid-2s. With late-2025 growth sputtering around 1% and a charm offensive aiming to encourage American hopes for a great power deal, Beijing is talking loudly about supporting domestic growth in 2026. But domestic growth hasn’t stalled for want of talk: Pledges have been abundant, yet China remains dependent on a trillion-dollar (and growing) trade surplus that steals growth from others. For domestic demand to lift China above 2% GDP growth in 2026, Beijing must reverse the systemic causes of household and business malaise or pile on costly demand subsidies.
  

• Seatbelts for Speeders: Why Beijing Ignores Washington’s Red Phone     Carla Freeman and Alison McFarland/War on the Rocks

  In early November, after meeting China’s defense minister, U.S. Secretary of Defense Pete Hegseth performed a longstanding ritual in military relations between the United States and China: He announced that the two countries would “set up military-to-military channels to deconflict and de-escalate” problems between them. Like most rituals, this one is unlikely to have any practical effect. The pursuit of effective crisis communications channels between the American and Chinese militaries to mitigate the risk of crisis escalation has been a work in progress since President Bill Clinton was in office. Progress, however, has been halting and largely unproductive. Washington and Beijing, it is true, have managed to negotiate multiple agreements on crisis communications mechanisms, but when actual crises erupt, Beijing rarely uses these links.

Implications of Russia’s War on Ukraine

• As Russia’s war grinds on, its society is fraying   Washington Post

  There is no outlet for public frustration and no relief from the mounting national exhaustion with a nearly four-year-long war that is corroding the country from within and making society more dysfunctional, broken, and paranoid, according to observers and those interviewed for this article.  Over the past year, the Russian economy has lurched from spectacular growth to near stagnation. Russia’s digital repression and isolation are deepening as more apps and platforms are banned.  According to Western intelligence, more than a million Russian fighters have been killed or wounded — many in battles for marginal gains. And as Moscow’s search for internal enemies intensifies, its machine of repression is turning on its own children and patriots.

• Sanctions on Rosneft and Lukoil: Initial impacts and policy implications    Stockholm Centre for Eastern European Studies

  Initial market impacts have been substantial. Russian export volumes have fallen, and the Urals discount has widened to its highest level since early 2023 (–$24 per barrel, or 37 percent).   Rosneft’s and Lukoil’s international assets have experienced significant operational disruptions and forced divestment processes.  US enforcement will be the key determinant of impacts going forward. Importers and intermediaries are likely assessing the strength of the US commitment before deciding whether to comply with, defy, or attempt to evade the sanctions. Weak enforcement would likely allow export volumes to rebound and discounts to narrow.   European policymakers should support US sanctions while also considering additional measures that do not rely heavily on US coordination or commitment.

 Geoeconomics

• Global Working Hours    Amory Gethin and Emmanuel Saez   National Bureau of Economic Research

  Abstract: This paper uses labor force surveys from 160 countries to build a new microdatabase on hours worked covering 97% of the world population in cross section. We also construct time series spanning over 20 years in 87 countries. Hours worked per adult are slightly bell-shaped with GDP per capita but weakly correlated with development overall. Hours worked by the young (aged 15-19) and elderly (aged 60+) decline with development, driven by growing school attendance and public pension coverage. Hours worked among prime-age adults (aged 20-59) are mildly bell-shaped with development for men while they are increasing for women. The fall in male hours in middle-to-higher income countries is driven by reduced hours per worker and is offset by increases in female labor force participation. These two forces have exactly compensated each other in many countries, leading to a remarkable long-run stability of prime-age hours worked.

• The effects of commuting and working from home arrangements on mental health   Journal of Social Science & Medicine

  Abstract: In this study, we quantify the effects of commuting time and working from home (WFH) arrangements on the mental health of Australian men and women. Leveraging rich panel-data models together with home-job-spell fixed effects, we first show that the adverse effects of commuting time are modest in magnitude and manifest only among men with poor levels of mental health (0.01 SD decrease per 10-minute increase of commuting time). Second, we show that WFH arrangements have large positive effects on women’s mental health, provided that the WFH component is large enough. The effects are once again concentrated among individuals with poor levels of mental health (0.2 SD increase corresponding to working from home 50–75 % of the time). This uncovered contingency of effect sizes on the reported levels of mental health is novel and extends beyond Australia: we show that it also underlies the adverse effects of commuting time on the mental health of British women. Our findings highlight the importance of targeted interventions and support for individuals who are dealing with mental health problems.

Recommended Weekend Reads

The National Security Implications of the US Industrial Base, China’s Ongoing Demographic Crisis, The US-Venezuelan Crisis and Bonds, and the Growing Global Debt Crisis

December 5 - 7, 2025

The US Industrial Base and National Security

• Building Greater Resilience and Capacity in the US National Security Industrial Base  Brookings Institution

  In the current policy landscape, virtually every stakeholder—from federal agencies to industry groups—calls for classifying a widening swath of economic activity as “national security.” The impulse to broaden what counts as critical has gained momentum not only with each new global disruption, but also with each new report highlighting U.S. exposure to China in key sectors, making “national security” a catchall for fears that range from supply interruptions to cyber threats.  While this instinct reflects real vulnerabilities, it leaves policymakers struggling to prioritize and risks making the label so expansive that it ceases to have sharp policy meaning. This paper cuts through that noise. We agree with the notion of expanding the concept of national security to include production supply chains, the interruption of which by a hostile foreign actor could directly imperil large numbers of American lives or the functioning of society. Our approach, however, is not simply whether to broaden the concept of national security, but how to realistically scope it—especially when it comes to supply chains.

• The National Security Strategy of the United States of America 2025     The White House

  On Friday, the White House released a report entitled “The National Security Strategy of the United States of America 2025.”  In it, the report makes clear that securing access to critical supply chains and materials is of paramount importance to the Trump national security strategy, along with reindustrialization, balance of trade, and reviving the US’s Defense Industrial base.

• Acquisition Reform vs. Congress: Who Will Win?    War on the Rocks

  Weeks ago, Secretary of Defense Pete Hegseth gave a speech announcing the Pentagon’s intentions to embrace more aggressive acquisition reforms. One of the most significant changes is to shift from a program focused acquisitions to portfolio concepts. According to Hegseth: “We will shift funding within portfolios’ authorized boundaries swiftly and decisively to maximize mission outcomes. If one program is faltering, funding will be shifted within the portfolio to accelerate or scale a higher priority. If a new or more promising technology emerges, we will seize the opportunity and not be held back by artificial constraints and funding boundaries that take months or even years to overcome.”  But the biggest obstacle to shifting the Department of Defense to a portfolio management structure comes from congressional appropriators. Regardless of party affiliation, appropriators jealously guard their role as the arbiters of spending allocation in defense and other Federal roles. They have consistently opposed giving the Pentagon this degree of flexibility. A knock-down, drag-out fight between the Trump Administration and Congress now looms.

Latin America

• The US-Venezuela relationship as seen through the price of an oil-linked bond   Reuters

  The ramp-up of U.S. pressure on Venezuelan President Nicolas Maduro's government is bringing fresh attention to the nation's defaulted bonds, including those of the state oil company Petroleos de Venezuela, known as PDVSA.  Venezuela defaulted on its debt in 2017 but PDVSA continued to pay holders of a specific bond maturing in 2020. It was issued in 2016 under a swap offer that replaced debt maturing the following year. This bond is secured with a pledge of 50.1% of refiner Citgo Holding through PDVSA’s wholly-owned subsidiary PDV Holding. But payments stopped after the opposition-led National Assembly declared the bond contract illegal in October 2019.

• The Hidden Cost of Your Avocado    Ioan Grillo/New York Times

  In recent years, Mexico’s cartels have diversified from drug production to a portfolio of criminal rackets, from human smuggling to stealing crude oil — and, increasingly, extorting civilians. The shakedowns, known here as “cobros de piso,” rob workers, from mom-and-pop shop owners to farmers to truck drivers, of their earnings and force up the prices of goods in Mexico and abroad. One business association estimates that such protection rackets cost Mexican enterprises around $1.1 billion this year as of September.

China’s Demographic Challenge

• China's Demographic Dilemma    Pekingology Podcast: On Chinese Politics/Center for Strategic and International Studies

  In this episode of Pekingology, CSIS Senior Fellow Henrietta Levin is joined by Philip O’Keefe, Professor of Practice at the University of New South Wales Centre of Excellence in Population Ageing Research and one of the world's leading experts on demographic trends in China and across Asia. They unpack the rapid aging of Chinese society, exploring the impact of a shrinking population on China's politics, economy, and innovation ecosystem, as well as its trade imbalances and Beijing's global ambitions.

• China Is Trying to Boost Fertility. It’s Not Working     Rand Corporation

  China's population is aging rapidly, and its birth rate is declining. These trends have resulted in a shrinking workforce and growing pressure on social services. In response, Beijing has rolled out a series of pronatalist policies.  A new RAND study finds that these efforts have been unevenly implemented and largely ineffective. This shows the limits of government attempts to influence family decision-making.  These findings have implications for the United States, where fertility rates are also declining. Rather than trying to increase the population's desire to have children, it may be more effective to help those who already want to grow their families. Such an approach might include removing structural barriers by improving access to affordable child care and housing.  As the authors write, “The United States should learn from China’s failed pronatalist policy.”

 Geoeconomics

• The Global Debt Crisis Builds    Robin Brooks Substack

  Fed cuts aren’t pulling down long-term yields: if you look at the long end of the yield curve properly by stripping out front-end yields, things look very worrying. 10y10y and 10y20y forward yields are near their highs and the gap of both metrics with 10-year yield has grown. The buyers’ strike for longer-dated Treasury debt looks like it’s getting worse. There’s many idiosyncratic trouble spots: a key feature of the recent rise in long-term yields is that there’s many fiscally distressed countries that run into trouble at different points and for idiosyncratic reasons. Italy, France and the UK are all part of this dynamic and have very elevated 10y20y forward yields. Traditional safe havens are failing: in the past, Japan and Germany would have been safe harbors in this kind of environment, but these days they’re at the heart of the rise in long-term yields.

•  The State of Generative AI Adoption in 2025    Federal Reserve Bank of St. Louis “On the Economy” Blog

  In September 2024, we presented results from the first nationally representative U.S. survey of generative AI adoption at work and nonwork settings, conducted in August 2024. Since then, we have conducted our survey—the Real-Time Population Survey—on a quarterly basis. In this blog post, we share an update on the state of generative AI adoption by U.S. workers and look for evidence of this technology’s impact in the broader economy.

Recommended Weekend Reads

What Next for Russian-Ukrainian Peace Talks?  Russia’s Shadow War on Europe, The U.S.–Saudi Critical Mineral Deal, and the Great Reallocation in the U.S. Supply Chain Trade

November 28 -30, 2025

We hope you had a wonderful Thanksgiving holiday!   Below are a number of reports and articles we read this past week and found particularly interesting.  Hopefully, you will find them interesting and useful as well.  Have a great weekend.

The Ukraine Peace Negotiations

• Is there any peace deal that Putin would accept?        Vox

  In recent weeks, President Trump has offered a 28-point peace plan, which is now a 19-point peace plan.  Hard bargaining is going on between the US, Ukraine, and the EU.  But at this point, nobody seems to have any leverage over Russian President Vladimir Putin.  Which is why the question of whether this war will end soon comes down to what terms Putin finds acceptable.  This raises the depressing question of whether peace is possible at all as long as Putin is alive and in power.
  

• A Ukraine Plan that Would Actually Work    Hal Brands/Bloomberg Opinion

  President Donald Trump’s new peace ploy in Ukraine will likely fail. He has a chance, in the coming months, to craft an approach that might succeed. Real peacemaking could be possible in 2026, because the strains on Russian leader Vladimir Putin’s economy and army are getting worse. But policymakers in the US, the European Union and Ukraine will have to overcome their own hesitations and weaknesses — or Putin will still be able to settle this war on his terms. But if this round of peacekeeping proves abortive, the next one could go better — if Ukraine and its supporters properly prepare. Putin seems confident that Russia is on the road to victory. Yet his position is weaker than it seems.
  

• This Might be the best Ukraine can Hope For     Jamie Dettmer/Politico EU

  As it stands, there is scant grounds for optimism that, for all its heroism, Ukraine can turn things around. The country is unlikely to emerge from its most perilous winter of the war in a stronger position, better able to withstand what’s being foisted upon it. In fact, it could be in a much weaker state — on the battlefield, the home front, and in terms of its internal politics. Indeed, as it tries to navigate its way through America’s divisive “peace plan,” this might be the best Ukraine can hope for — or at least some variation that doesn’t entail withdrawing from the territory in eastern Ukraine it has managed to retain.
  

• War Without End: Russia’s Shadow Warfare    Center for European Policy Analysis

  Even as Ukraine continues to suffer under wave after wave of bombardment and an ever-deepening occupation, Europe as a whole is under a sustained assault from Russia of a different kind. This report explains the who, what, why, and how of Russian shadow warfare, uncovering the nature of the forces Russia brings to bear against Europe itself, their governance structures, and, critically, the implicit doctrine that shapes strategic and tactical decision-making. This analysis shows that Russia’s shadow warfare is not simply a covert strategy, developed to take advantage of Western soft spots or fecklessness. Rather, it is the reflection of a deeper ideological and institutional logic, a neo-Stalinist threat framework that sees warfare as continuous and ubiquitous, that fuses domestic and foreign threats, and that understands everything and everyone as a potential target. This is an approach to warfare that generates escalation not by mistake, but by design. Unless Europe can impose discipline on the Russian shadow-warfare machine through clear deterrence, the likelihood of full-scale war between Russia and NATO will only increase.

 The Americas

• Russian Disinformation Comes to Mexico, Seeking to Rupture U.S. Ties The New York Times

  Russia’s disinformation efforts across Latin America have intensified over the last two years, partly aimed at sowing discord between the United States and its allies in the region, according to an American diplomatic cable and new report by watchdog groups.  The campaign is spearheaded by Kremlin-owned media outlets like Sputnik and RT, officials say, describing an effort to stoke anti-American sentiment, especially in Mexico, the world’s largest Spanish-speaking nation and Washington’s biggest trade partner.

• Tension in the Caribbean reverberates in Havana: ‘Venezuela is crucial for the Cuban political elites’    El País

  With the USS Gerald R. Ford, the world’s largest aircraft carrier, positioned in the Atlantic, and Puerto Rico militarized with at least 5,000 of the nearly 15,000 troops mobilized for the operation, the specter of the Cold War — this time against drugs — seems to have resurfaced in the region, and Havana is beginning to worry.  If Venezuela falls, Cuba would lose its most important point of reference in the Southern Cone at a time when Latin American democracies, with their electoral volatility, are transitioning from progressive governments — which could be potential allies — to right-wing governments. More than an economic loss, Cuba would lose an ideological and symbolic ally.

The Latest on the Global Race for Critical Minerals

• What’s in the New U.S.–Saudi Minerals Agreement?    Center for Strategic and International Studies

  The visit by Saudi Crown Prince Mohammed bin Salman to Washington, D.C., marks a high-profile moment in the strategic partnership between the United States and Saudi Arabia. The visit represents a major step forward in the bilateral minerals’ relationship. The two countries established a Strategic Framework for Cooperation on securing uranium, metals, permanent magnets, and critical mineral supply chains, which is designed to facilitate two-way investment in this vital sector and serve as a "cornerstone" of the bilateral strategic partnership. Additionally, the U.S. Department of Defense (recently renamed the Department of War) also announced that it will finance a 49 percent equity stake in a new rare earths refinery in Saudi Arabia. Given the kingdom’s substantial reserves of heavy rare earth elements, this partnership between the Department of War, Maaden, and MP Materials will play a critical role in reducing dependence on China, particularly following a year of pronounced volatility in global access to heavy rare earths.

• The Global South and China’s Mineral Power         Jesse Marks/Rihla Research & Advocacy LLC

  Abstract: This paper examines how Chinese scholars and policymakers interpret the accelerating contest over critical minerals and what it reveals about Beijing’s evolving approach to supply-chain power in the Global South. It shows how China increasingly views minerals as strategic assets foundational to national strength and industrial autonomy. Chinese analysts frame resource security as an integrated system that blends state-backed finance, diplomacy, and co-development with host countries to secure and diversify supply, while mitigating external pressure from U.S.- and EU-led “de-Sinicization” strategies. At the same time, they acknowledge China’s own vulnerabilities, defined as heavy import dependence, exposure to political risk in resource-rich states, and a global shift toward resource sovereignty that raises the bar for local processing, technology transfer, and joint ventures. The result is a more contested, politically charged mineral landscape in which Beijing seeks both secure access to mineral resources, as well as a more concerted effort to shape the rules, governance models, and industrial pathways of the next generation of mineral economies.

Geoeconomics 

• What Is a Tariff Shock? Insights from 150 years of Tariff Policy   Regis Barnichon/Aayush Singh/Federal Reserve Bank of San Francisco

  Widely touted by the White House, this paper looks at 150 years of tariff policy in the US and the estimates it has on macro aggregates.   Starting in 1870, the study shows that a tariff hike raises unemployment (lowers economic activity) and lowers inflation. Using only tariff changes driven by long-run considerations—a traditional narrative identification—gives similar results. We also obtain similar results if we restrict the sample to the modern post-World War II period or if we use independent variation from other countries (France and the UK). These findings point towards tariff shocks acting through an aggregate demand channel.

• Analyzing Japan’s $550 Billion Pledge to Invest in the U.S.    Federal Reserve Bank of St. Louis

  In July 2025, the United States and Japan reached a major trade agreement that includes Japan’s pledge to invest $550 billion in U.S. industries in return for lower tariffs on Japanese imports. The details of this investment pledge became clearer on Sept. 4, when U.S. Secretary of Commerce Howard Lutnick and Ryosei Akazawa, then Japan’s top trade negotiator, signed a memorandum of understanding (MOU).  In practice, this structure makes Japan’s commitment resemble a loan rather than an equity investment, since Japan does not become a shareholder in the projects. The interest rate of this “loan” is called “deemed interest rate,” which is based on a benchmark rate plus a spread that depends on the project’s risk profile. Once the principal and accrued interest are fully repaid, Japan begins receiving returns through its 10% profit share. Nevertheless, it remains unclear what would happen if Japan were unable to fully recoup its deemed allocation amount. In that case, the “loan” would likely become unrecoverable, and Japan would have to write it off.
  

• An Anatomy of the Great Reallocation in US Supply Chain Trade    Laura Alfaro and Davin Chor   National Bureau of Economic Research

  Since 2017, China has experienced a large and persistent decline in its share of the US import market. The main gainers have been Vietnam, Mexico, and (more recently) Taiwan. It is well-documented that China’s share in US direct imports fell from around 21% in 2017 to 16% in 2022. Figure 3 reveals a further drop in the US import market share held by China to around 13% by 2024. The decoupling that started under the first Trump administration thus extended through to the end of the Biden presidency, rather than undergoing any reversal. Figure 3 further hints at how these large shifts in the sources of US imports have persisted post-Liberation Day. By July 2025, China’s share in US direct imports had fallen by another 4pp relative to 2024, declining from 13% to roughly 9%. To put this in perspective, China’s share in total US imports stood at approximately 9% in 2001, in its accession year to the WTO. This climbed steadily over the next 16 years, peaking at 22% in 2017. The drop back to a 9% import share by mid-2025 thus represents a remarkable unwinding, in just half the time it took this share to reach its pre-trade war peak.
  

• The Predictability of Global Monetary Policy Surprises  Federal Reserve Bank of Boston Research Working Paper

  Surprise changes to short-term interest rates around central bank announcements—commonly termed “monetary policy surprises”—have been shown to be predictable using information available before the announcements. This is notable given the profit opportunity this predictability presents in such an important market. This paper investigates the predictability of monetary policy surprises in an international context. The author constructs a data set with monetary policy surprises across nine central banks—covering Australia, Canada, the euro zone, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States—and around 2,000 announcements.

Recommended Weekend Reads

China’s New Latin American Playbook, Russia’s Increasingly Desperate Search for Soldiers, Who Will Succeed Xi as China’s Next President?,  and Geopolitical Implications of the Race for 6G

October 17 - 19, 2025

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

Latin America

• China’s New Playbook for Latin America         Americas Quarterly

  China has entered a new phase in its engagement with Latin America.  It is one still characterized by extensive resource-seeking and market-seeking activity, features of the relationship for more than three decades now. As China invests and trades in Latin American raw materials and builds markets across the region for everything from its toys and textiles to ultra-high-voltage transmission lines and cloud services, overall trade continues to rise.  At the same time, the relationship is rapidly evolving toward a more targeted, strategic approach. For all the recent attention given to China’s signature Belt and Road Initiative (BRI) infrastructure projects, Latin America’s relative share of investments under the plan is falling for the third consecutive year. The region received a little more than 1% of Beijing’s global BRI construction spending and 0.4% of outbound investment in the first half of 2025. Growth in Chinese foreign direct investment (FDI) in the region is also slowing. Whether those trends hold remains to be seen. But the days of Beijing showering the region with loans and large-scale infrastructure projects may be over, or at least diminished, replaced by more deliberate engagement and a focus on specific sectors of Chinese interest, especially at the higher end of the value chain.
  

• How China’s Energy Investments Provide Durable Influence in South America  Henry Zeimer/Center for Strategic and International Studies

  China’s growing presence in South American energy generation and distribution has largely gone underreported, even as it risks placing critical infrastructure under foreign influence. Properly grasping the nature of this influence is of particular importance as the United States finds itself in the midst of a shift to a more competitive stance in its foreign policy approach in the Western Hemisphere.

• What Is Mexico’s Amparo Reform? Everything You Need to Know    Moments in Mexico

  Mexico’s democracy is again on the precipice of a key inflection point. This time, it entails the Sheinbaum administration’s efforts to reform the amparo, a tool of the Mexican legal system that grants individuals the right of redress in the case of constitutional and/or human rights violations. There is no direct counterpart to the Mexican amparo in the United States; however, its functions are roughly carried out through a combination of civil rights litigation, judicial review, injunctions, and the writ of habeas corpus. The amparo and associated processes are complex. This piece is intended to provide a cursory overview and highlight the changes that the Sheinbaum administration seeks to impose.

Russia

• Putin Seeks More Foreign Fighters Amid Mounting Russian Losses in Ukraine   Atlantic Council

  As Russia’s full-scale invasion of Ukraine approaches the four-year mark, Moscow is facing increasing difficulties replenishing the ranks of its invading army. With fewer Russians now prepared to volunteer, the Kremlin is seeking to recruit more foreign fighters to serve in Russian President Vladimir Putin’s colonial war. A number of recent media reports have highlighted the growing role of foreign nationals in the Russian military. In early October, an Indian citizen was captured by Ukrainian forces while fighting for Russia. The 22-year-old claimed to have been arrested in Russia while studying and pressured into signing a contract with the Russian army in order to secure his release from prison. After just two weeks of basic training, he was sent to the front lines of the war in Ukraine. Also in early October, the Los Angeles Times reported that Russia may have recruited tens of thousands of foreign fighters via social media, with many coming from disadvantaged countries across the Middle East, Africa, and East Asia. The article detailed how many of these recruits are allegedly enticed with offers of generous benefits including large salaries and Russian citizenship in exchange for military service in non-combat roles. In practice, however, most are soon sent straight into battle.

• The Shooting Party: Russia’s Evolving Threat Perceptions Since 2002    Center for Naval Analysis (CNA)

  In this paper, the authors examine how Russian military thinkers interpret and operationalize the threat perceptions defined by the country’s political leadership. Despite nearly four years of war in Ukraine, Russian security concerns regarding US military capabilities remain largely unchanged. Russian military thinkers continue to perceive US ballistic missile defense and Prompt Global Strike programs as the main threats to Russia’s security, believing these programs to be designed to degrade Russia’s retaliatory strike capabilities. The war in Ukraine has exposed gaps in Russia’s military capabilities, heightening Russian anxiety about the military contingents from the North Atlantic Treaty Organization (NATO) in the Baltic and Black Seas, particularly potential US deployments to Finland and Sweden. Viewing the substantial US and NATO military assistance to Ukraine as part of a broader strategy to weaken Russia, Russian military thinkers are particularly alarmed by Ukrainian offensive operations within Russian borders or those that target mainland Russia. Russian military thinkers believe that the United States and NATO are preparing for a long-term confrontation with Russia, which reinforces their views on the importance of maintaining and enhancing Russia’s strategic deterrence capabilities.

• ·Russia’s Crime-Terror Nexus: Criminality as a Tool of Hybrid Warfare in Europe    GLOBSEC/International Centre for Counter-Terrorism

  This report takes stock of Russian hybrid warfare in Europe in the context of its war of aggression against Ukraine. While doing so, it offers more than a catalogue of kinetic incidents attributed to Moscow. The report shows the extent to which criminality – whether through direct reliance on criminals to conduct attacks or through the “spook-gangster” nexus – constitutes a central pillar of Russia’s hybrid warfare. It opens with an overview of the phenomenon and traces Russia’s experience with hybrid tactics back to at least the 1920s. It then explores Moscow’s enduring use of criminality as a tool of domestic control and foreign policy, with particular emphasis on the post-2022 period.

China

• Xi Jinping's Successor and the Future of China    The Foreign Affairs  Interview Podcast

  When Xi Jinping took over the Chinese Communist Party in 2012, he began a new chapter in China’s history—one that would come to be defined above all by his grip on power. Xi overhauled not only the CCP but also China’s economy, military, and role in the world. Yet no matter how secure his power may be—and no matter his recent hot-mic musings about living to 150—what comes after Xi, and how it comes, is an increasingly central question in Chinese politics. As the political scientists Tyler Jost and Daniel Mattingly wrote recently in Foreign Affairs, “For any authoritarian regime, political succession is a moment of peril . . . and for all its strengths, the CCP is no exception.” And that’s not just a risk for the future. The uncertainty and the jockeying that the succession question spurs is already starting to shape China’s present. To Jost and Mattingly, there’s more at stake than just the matter of who will follow Xi. They note: “The drama created by a struggle over the succession . . . is unlikely to stay inside China’s borders.” They joined Deputy Editor Chloe Fox to discuss the nature of Xi’s rule, his attempt to define his legacy, and what that will mean for China in the coming months, years, and decades.
  

• Stabilizing the US–China Rivalry    Rand

  The geopolitical rivalry between the United States and China embodies risks of outright military conflict, economic warfare, and political subversion, as well as the danger that tensions between the world's two leading powers will destroy the potential for achieving a global consensus on such issues as climate and artificial intelligence. Moderating this rivalry, therefore, emerges as a critical goal, both for the United States and China and for the wider world. The authors of this report propose that, even in the context of intense competition, it might be possible to find limited mechanisms of stabilization across several specific issue areas. They offer specific recommendations both for general stabilization of the rivalry and for three issue areas: Taiwan, the South China Sea, and competition in science and technology.

Geoeconomics, Technology, Global Food Policy, and Dealing with Student Absenteeism

• 6G isn’t about speed. It’s about sovereignty    The Strategist

  The race to 6G isn’t just about bandwidth. It’s about control over spectrum, standards, supply chains, and the values underpinning tomorrow’s infrastructure. If 5G taught us anything, trust and interoperability need to be built in from the start.  The Indo-Pacific is already the world’s most contested connectivity environment. Through submarine cables, cloud platforms, and national 5G rollouts, governments are already making decisions that will shape how their citizens communicate, how their economies function, and who sets the rules. The shift to 6G only sharpens that contest.  Reporting from the Financial Times makes clear that China is moving fast. Beijing is systematically excluding European vendors from its domestic telecommunications networks. Ericsson and Nokia, already reduced to a 4 percent market share, now face opaque security reviews that stretch for months. The message is that foreign firms aren’t welcome, while domestic vendors are being positioned as the only trusted suppliers for national infrastructure. They are backed by policy, shielded from competition, and expected to dominate the market at home and abroad.
  

• Why Have Inflation Expectations Surged Recently? A Historical Perspective  Federal Reserve Bank of Boston

  Average near-term household inflation expectations in the Michigan Survey of Consumers have peaked higher than 8% four times in the past 60 years: twice in the 1970s, during the 2021-2022 post-pandemic inflation surge, and since spring 2025. Coincident sharp increases in gas and food prices, along with underlying broad-based inflation, explain a large share of the 2021-2022 spike in inflation expectations; those factors also accounted for about two-thirds of the 1973-1975 surge. The 1978-1980 increase in inflation expectations was much larger than the increase that rising prices usually would imply, consistent with the de-anchoring of inflation expectations at that time. Rising prices can barely explain the 2025 surge observed in the Michigan Survey of Consumers, which may signal that the risk of de-anchoring is larger than it was in the pre-pandemic period.
  

• Is the U.S. in an Above-Target Inflation Regime?    Federal Reserve Bank of St. Louis

  Since January 2012, the Federal Reserve has adopted an explicit target of 2% inflation, measured as the 12-month change in the personal consumption expenditures (PCE) price index.1 And yet, after several years of below-target inflation prior to the COVID-19 pandemic, inflation rose above 2% annually in March 2021 and has persisted above 2% ever since. According to the latest data available (August 2025), inflation remains significantly above target, at 2.7%. In previous blog posts, I have analyzed these dynamics and their likely origin. In this blog post, my analysis suggests that we may be in a persistent above-target inflation regime.
  

• The Challenge to Feed the World in the 21st Century: Useless, Harmful, and Helpful Policies  American Enterprise Institute

  Hunger, malnutrition, and food insecurity remain significant global problems, but instead of working toward solutions, Western governments are implementing policies guaranteed to reduce food production. Environmental benefits often attributed to policies that support biofuels, organic agriculture, land conservation programs, and similar strategies appear to be moderate or disappear once their impacts on the conversion of forested lands to agriculture are considered. The United Nations and the European Commission propose reducing food loss and waste and eating fewer animal products as strategies to combat food scarcity, but neither approach would likely be effective. To address world hunger, malnutrition, and food insecurity, the United States and other rich countries must stop enacting policies and supporting production practices that reduce agricultural yields, divert production from food to fuel, and encourage the conversion of forested lands to agricultural production across the world.

• Need Not Be a Surprise: Early-Warning Systems for Chronic Absenteeism     Nat Malkus/Sam Hollen – American Enterprise Institute

  The COVID-19 pandemic drove up chronic absenteeism in nearly every school and student demographic, making district leaders’ task of targeting resources difficult. Whom do you help when every student is a candidate? Existing work shows that it is possible to predict absenteeism in advance, but past approaches are largely proprietary or hard for district leaders to use. We present a series of early-warning systems, starting very simple and adding complexity, with district leaders’ needs and constraints in mind.

Recommended Weekend Reads

America’s Secret Weapon for its Critical Weapons Strategy, How China’s Economy is Weathering the Economic Storm, AI’s Exponential Growth is Not Impacting the Labor Market, and What Impact Pharma Tariffs Will Have on Healthcare Costs

October 3 - 5, 2025

Each week, we gather up the best research and reports we have read in the past week and pass them on to you.  Below is this week’s curated collection.  We hope you find them interesting and informative, and that you have a great weekend.

Updates on the Global Race for Critical Minerals

• The Secret Weapon in America’s Critical Minerals Strategy    Hudson Institute’s “First Breakfast”

  Since 1980, leaders in Washington have stressed the need to secure rare earth supply chains to achieve strategic independence from America’s adversaries.  In the coming weeks, Congress will decide on legislation reauthorizing the International Development Finance Corporation (DFC), the little-known agency established during the first Trump administration as a counterweight to China’s predatory investment practices under its Belt & Road Initiative. The DFC maintains a dual mandate to advance U.S. foreign policy and economic development by mobilizing the private sector abroad, injecting capital, and offering insurance to support projects that further U.S. strategic goals. Given the great demand for rare earths and their refined products here at home, the DFC presents an opportunity to work with our foreign partners and American businesses to bolster our supply chains abroad. This is not a new idea; the creators of the BUILD Act, which authorized the DFC, envisioned the agency investing in key industries like mining, energy, and logistics. Unfortunately, results in the mineral sector have fallen short of these aspirations. Since operations began in December 2019, the DFC has made nearly 650 investments, fewer than a dozen of which are in mining-related projects.

• Leveraging US-Africa critical mineral opportunities: Strategies for success   Brookings Institution

  The U.S. is highly dependent on imports of critical minerals, but existing supply chains are vulnerable, plagued with high geographic concentration, slow mine development, and under-researched reserves. The authors argue for why Africa is uniquely positioned to partner with the U.S. in a supply chain realignment, given the former’s significant reserves, existing mining and refining infrastructure, and business opportunities along development corridors. With other countries such as China, India, Saudi Arabia, and the European Union entering into the African critical minerals sector, the U.S. should not be left behind.  The authors provide actionable recommendations to both the U.S. and African countries for creating and growing a mutually beneficial critical minerals partnership.

Russia & China 

• Changing Course in a Storm: China’s Economy in the Trade War     China Leadership Monitor

  China is weathering deflation, a property-sector collapse, and renewed trade tensions with the United States through calculated restraint rather than panic. Exports remain resilient via market diversification and price cuts. Chinese leaders are deploying targeted fiscal interventions, pursuing supply-side reforms, and combating “involution”–destructive race-to-the-bottom competition eroding profits across industries. This strategic patience reveals Beijing’s fundamental gamble: accept short-term economic pain to build long-term technological dominance and self-sufficiency. The leadership believes that the emerging high-tech sectors will ultimately replace both lost export markets and the crumbling property engine. This is a high-stakes bet on China’s ability to transform its economic model under pressure.

• With Putin in Charge, Russia’s Vassalage to China Will Only Deepen     Carnegie Politika

  Moscow should be looking for ways to correct its course and restore balance in its foreign policy, instead of putting all its eggs in the China basket. But Putin is no pragmatic decision-maker, and the deepening vassalage to China is his own choice.

• Global FDI is uncoupling from China   Robin Brook’s Substack

  Brooks writes: “A few weeks ago, I wrote a post about how foreign investors have been putting less money to work in China, with non-resident flows into China a lot weaker since the invasion of Ukraine. Weaker foreign flows into China stand in contrast to flows to the rest of EM, where inflows have rebounded to very robust levels. This suggests that global markets - in the wake of the Ukraine invasion - are paying closer attention to geopolitical risks and are taking a more cautious approach to China.”

•  Don’t Overestimate the Autocratic Alliance     Foreign Affairs

  No moment captured the shifting global balance of power more vividly than when Chinese leader Xi Jinping, Russian President Vladimir Putin, and North Korean leader Kim Jong Un walked in lockstep on the red carpet at China’s military parade in early September. The three autocrats, despite a long history of mutual suspicion, projected a show of unity against Washington. The message behind the carefully managed scene was unmistakable: China is at the center of a rising anti-Western bloc, while the United States is adrift—divided at home, faltering abroad, and rebuffed by its rivals.   But beneath this show of solidarity, China, North Korea, and Russia remain uneasy partners. What the three countries have is a tactical alignment rooted not in trust or shared values but in overlapping grievances and necessity. History demonstrates that they are not natural allies. Each state remains wary of entrapment and is unwilling to subordinate its national interests to those of the others. And crucially, each still seeks something from the United States—leverage that Washington must wield wisely.

Geoeconomics

• Evaluating the Impact of AI on the Labor Market: Current State of Affairs    The Yale Budget Lab

  The Yale Budget Lab looks at how AI is impacting employment – specifically, whether it is causing an increase in unemployment.  Their report shows that overall, their metrics indicate that the broader labor market has not experienced a discernible disruption since ChatGPT’s release 33 months ago, undercutting fears that AI automation is currently eroding the demand for cognitive labor across the economy.
  

• The Geoeconomic Interconnectivity Index        Bertelsmann Stiftung/ECIPE

  In today’s European neighborhood, trade, investment, and economic policy have become deeply entangled with geopolitical competition — involving the EU, the United States, China, and Russia as leading geoeconomic actors. The Geoeconomic Interconnectivity Index brings together a wide range of indicators across trade, investment, and economic policy in an accessible, comparable format. Covering the years 2010 to 2023, it provides a clear picture of evolving patterns of economic engagement.  The Index is designed to support timely and informed debate on the EU’s external policies — offering insights that matter in a geoeconomic age.

• How Pharmaceutical Tariffs Will Affect US Health Care Costs       Alex Brill/AEI Economic Perspectives

  Tariffs on pharmaceuticals are under consideration following a Section 232 investigation into imports of medicines and active pharmaceutical ingredients (APIs). With US imports in 2024 totaling $210.8 billion in finished medicines and $36.2 billion in APIs, the threat of tariffs puts nearly $250 billion in trade at risk. Tariffs could raise list or net prices for pharmaceuticals, drive up insurance premiums, increase the risk of drug shortages, elevate costs for US producers using imported APIs, and reduce the competitiveness of US exports of finished drugs.

•  War, Geopolitics, Energy Crisis: How the Economy Evades Every Disaster   The Economist

  The world economy appears impressively and increasingly shock-absorbent. Supply chains in goods—widely believed to be a source of fragility—have shown themselves to be resilient. A more diverse supply of energy and a less fossil-fuel-intensive economy have reduced the impact of changes in the oil price. And across the world, economic policymaking has improved. According to the conventional narrative, the “great moderation”, a period of steady growth and predictable policymaking, ran from the late 1980s to the global financial crisis of 2007-09. But perhaps it did not die alongside Lehman Brothers.  This year, just 5% of countries are on track for a recession, according to IMF data—the least since 2007. Unemployment in the OECD club of rich countries is below 5% and close to a record low. In the first quarter of 2025, global corporate earnings rose by 7% year on year. Emerging markets, long prone to capital flight in times of trouble, now tend to avoid currency or debt crises (see chart 3). Consumers across the world, despite claiming to be down in the dumps, spend freely. On almost any measure, the economy is basically fine. 

Recommended Weekend Reads

Assessing the EU’s Defense Sector Build-Up, New Studies on the Economic Impact of Trump’s Tariffs, China’s “Anti-Involution” Campaign, and Russia’s Shrewd Focus on Africa 

September 19 - 21, 2025

Each week, we gather up the best research and reports we have read in the past week and pass them on to you.  Below is this week’s curated collection.  We hope you find them interesting and informative, and that you have a great weekend.

The Growth of the EU’s Defense Sector

• Progress and Shortfalls in Europe’s Defense: An Assessment    International Institute for Strategic Studies

  This IISS Strategic Dossier examines important capability areas that European allies need to address in order to reduce their vulnerabilities and overdependence on the US. The aim is to identify existing gaps and challenges but also note where progress has already been made towards a situation where adequate capabilities for the defense of Europe are provided by Europeans in a more autonomous way, while still working with partners and allies.

• Defense Expenditures of NATO Countries (2014 – 2025)        NATO

  NATO collects defense expenditure data from Allies and publishes it on a regular basis. Each Ally’s Ministry of Defence reports current and estimated future defense expenditure according to an agreed definition. The amounts represent payments by a national government that have been or will be made during the course of the fiscal year to meet the needs of its armed forces, those of Allies or of the Alliance. In the figures and tables that follow, NATO also uses economic and demographic information available from the Directorate-General for Economic and Financial Affairs of the European Commission (DG ECFIN), the International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD). In view of differences between these sources and national GDP forecasts, and also the definition of NATO defense expenditure and national definitions, the figures shown in this report may considerably diverge from those that are referenced by media, published by national authorities or given in national budgets. Equipment expenditure includes expenditure on major equipment as well as on research and development devoted to major equipment. Personnel expenditure includes pensions paid to retirees. The cut-off date for information used in this report was 3 June 2025. Figures for 2024 and 2025 are estimates.

• The EU’s Road to Economic Security De-Risking, Strategic Investments and Critical Partnerships   Italian Institute for International Political Studies

  The European Union has redefined its strategic priorities through three phases: the rise of geoeconomics, the structuring of de-risking, and its current testing in a shifting global context. Geoeconomics exposed the link between economy, security, and power, driven by US and Chinese strategies to weaponize industrial assets and by renewed geopolitical rivalry. Europe’s dependence on critical raw materials, especially Chinese rare earths, accelerated the push for strategic autonomy. Since 2021, with the European Economic Security Strategy, the Chips Act, and the Critical Raw Materials Act, Brussels has pursued de-risking as diversification rather than decoupling, focusing on semiconductors, green technologies, and critical minerals. Yet US, Japanese, and South Korean industrial policies show de-risking is a broader challenge. The EU must now deliver concrete results, combining competitiveness and resilience with multilateral cooperation. How can Europe secure adequate resources to meet these goals? And how can it balance industrial autonomy with global partnerships?

China’s Competitiveness Challenge

• China Wants to Integrate AI Into 90 Percent of Its Economy by 2030. It Won’t Work.   Carnegie Emissary

  Recently, Beijing debuted its latest strategy for winning the AI race. China’s powerful State Council laid out an ambitious vision to rapidly diffuse AI into six key areas, ranging from accelerating scientific research and development to improving governance capacity. The plan sets striking, concrete targets that include deploying a range of applications across 90 percent of wide swaths of its economy in just five years. China’s latest plan is part of a broader strategic bet. The PRC thinks it can integrate AI throughout its society to turbocharge its economy and secure AI leadership. It’s a playbook the country has used before. During the mid-2010s, China transformed its digital economy by diffusing internet applications throughout what Beijing calls the “real economy.”  But this time could be very different. Chinese leadership is confident in its AI development, but—perhaps counterintuitively—investors are not. China’s venture capital ecosystem is dry at this critical moment for AI, and as a result, Beijing’s aspirations are likely to fall short of the whole-of-society economic transformation the party wants. U.S. policymakers should mostly ignore China’s aspirational rhetoric and focus on what it can achieve in practice.  

• Involution and Industry Self-Discipline: Echoes from the Past    Center for Strategic and International Studies

  No doubt the word of the year in China is “involution.” The term in Chinese really did not exist prior to 2020, but its use has exploded since, particularly in 2025. When the Chinese term first emerged in popular culture in China a few years ago, the initial application was to Chinese students and young people trapped in highly competitive schools and jobs that brought little personal fulfillment, with immense efforts and sacrifices that to many seemed ultimately meaningless, a feeling made more acute by the arrival of the pandemic. This led many to respond by giving up on their ambitions and “lying flat”, which has also been a source of much social debate.   

  In 2025, involution now refers specifically to the widespread phenomenon of continued massive expansion of production in sector after sector, despite any semblance of sufficient domestic demand to absorb these goods. Chinese officialdom has vociferously rebutted charges by foreign governments that China has been suffering from “overcapacity.  As part of this retort, it has been argued that industrial policy and subsidies are not the source of China’s industrial strength, but rather high quality and competitiveness. As a result, governments around the world are wrong to impose any restrictions on Chinese exports.  But while China is rebuffing international charges of overcapacity, it has opened the doors to a domestic debate about involution and how to tackle it. Hence, the emergence of a highly public conversation about “anti-involution policy, a catch-phrase which has also spread like wildfire.

 Updates on Global Trade Wars

• Markets shrug off trade conflicts    Bank for International Settlements

  In a new study, BIS found that global financial markets maintained a risk-on tone during the review period, shrugging off concerns over mounting tariff and policy uncertainty. Despite short-lived bouts of volatility triggered by incoming data and political developments, market sentiment remained upbeat, defying mounting challenges, including unease over the longer-run fiscal outlook in several key jurisdictions. Short-term bonds priced in greater policy easing, but long-term yields stayed high and yield curves steepened at the very long end on fiscal and inflation concerns.  Emerging market assets saw gains, benefiting from the risk-on environment and the weakening of the US dollar.

• The Trump Shock That Wasn’t (At Least Not Yet)   Brad Setser/Council on Foreign Relations

  President Trump’s tariffs have been a profound shock to the global trade rules.  They have generated enormous volatility in measured trade flows. But so far the volatility has essentially come from pharmaceuticals and gold (including gold bars, or imports of “metal forms”). The impact of the tariffs core trade flows—and hence the global economy—has been modest, at least so far. 

• Tariffs, Manufacturing Employment, and Supply Chains    Joseph Steinberg/NBER

  Abstract: I use a dynamic general-equilibrium model with supply-chain adjustment frictions to study the effects of tariffs on manufacturing employment. The model has four distinct manufacturing sectors: upstream goods with high trade elasticities (“oil”); upstream goods with low trade elasticities (“steel”); downstream goods with high trade elasticities (“toys”); and downstream goods with low trade elasticities (“cars”). I find that tariffs can increase overall manufacturing employment in the long run, but are likely to reduce it in the short run, and cause more reallocation of workers across these individual sectors than overall employment growth.

Russian Foreign Policy 

• Russia is Shrewdly Playing the Long Game in Africa    War on the Rocks

  What if Moscow’s most dangerous moves right now aren’t in Europe, but along the Gulf of Guinea? With its resources sunk deep into Ukraine, the Russian military has weighed carefully whether and when to engage elsewhere, standing aside amid recent conflicts in the South Caucasus and Middle East. An exception to this pattern of inaction is in West Africa. After the failed mutiny of Wagner Group chief Yevgeny Prigozhin in June 2023, the Russian government established a new paramilitary group called Africa Corps, tethered closely to the military chain of command. The unit then progressively took over most of Wagner’s operations in Africa and expanded into Burkina Faso and Niger. It now seems to be eyeing a presence in Benin and Togo next. These activities suggest that Russia is seeking a West African foothold on which to build once an end to the war on Ukraine frees up additional conventional military forces. Russia may then try to further extend Africa Corps’ presence.

• The Scale of Russian Sabotage Operations Against Europe’s Critical Infrastructure    IISS

  Russia is waging an unconventional war on Europe. Through its campaign of sabotage, vandalism, espionage and covert action, Russia’s aim has been to destabilize European governments, undermine public support for Ukraine by imposing social and economic costs on Europe, and weaken the collective ability of NATO and the European Union to respond to Russian aggression. This unconventional war began to escalate in 2022 in parallel to Russia’s invasion of Ukraine. While Russia has so far failed to achieve its primary aim, European capitals have struggled to respond to Russian sabotage operations and have found it challenging to agree a unified response, coordinate action, develop effective deterrence measures and impose sufficient costs on the Kremlin. IISS has created the most comprehensive open-source database of suspected and confirmed Russian sabotage operations targeting Europe. The data reveals Russian sabotage has been aimed at Europe’s critical infrastructure, is decentralized and, despite European security and intelligence officials raising the alarm, is largely unaffected by NATO, EU and member state responses to date.

Recommended Weekend Reads

Are the CRINKs a Real Global Power Bloc Or Not? Taking a Deep Dive into the US-Japan Trade Deal, and the Projected Impact of Generative AI on Productivity Growth

September 12 - 14, 2025

Each week, we gather up the best research and reports we have read in the past week and pass them on to you.  Below is this week’s curated collection.  We hope you find them interesting and informative, and that you have a great weekend.

What’s Up with The CRINK’s?

• CRINK Economic Ties: Uneven Patterns of Collaboration   Center for Strategic and International Studies

  This brief explores the post-2022 economic ties among China, Russia, Iran, and North Korea—the so-called CRINK states. Historically, economic alignment among military allies has been uneven and has not necessarily indicated the formation of a cohesive bloc. The World War II–era Axis powers, for instance, had fragmented economic cooperation due to geographic distance, wartime needs, sanctions, mistrust, and a focus on self-sufficiency—factors that also constrain CRINK today. Still, signs, including rising trade in energy and dual-use technologies, point to growing economic coordination. Assessing these ties is difficult, however, due to limited or opaque data (especially from Iran and North Korea) and increased informal trade since Russia’s 2022 invasion of Ukraine. This brief draws from diverse international and industry-specific sources to fill data gaps. Findings show uneven patterns: China-Russia economic ties have grown, especially in energy and dual-use goods, but Chinese investment in Russia remains modest amid concerns over sanctions-related investment risks. Other CRINK members show far weaker economic coordination.
  

• Russia’s New Fear Factor   Foreign Affairs

  Among elites in Russia today, something dark is happening.  According to Novaya Gazeta, the independent Russian newspaper, there have been 56 deaths of successful businesspeople and officials under strange circumstances since February 2022. Many of them have fallen out of windows.  More and more, people who have loyally served Putin’s system are being persecuted, mainly on the grounds of corruption.  As the Putin regime turns on its own people, it, too, has begun to replace them with a new breed of loyalists, people whose primary qualifications are their apparent fealty to the leader, and sometimes their participation in the war. Still, Putin prefers experienced and talented technocrats for the most responsible positions, such as governors and ministers. After more than three and a half years of war and mounting economic challenges, Putin’s aim is not to fight corruption. His goal is to avoid internal threats. And to do that, he needs to turn the elites into a frightened and therefore controllable class.
  

• China’s Anti-Western Bloc? Not So Fast   Center For European Analysis

  The Shanghai Cooperation Organization (SCO) summit in Tianjin from August 31-September 1 was filled with carefully curated images of the post-Western world that China is working to construct.  For the men complaining that they, and their peoples, have been poorly rewarded by the global system, this was a big moment. Photographs captured China’s Xi Jinping, Russia’s Vladimir Putin, and India’s Narendra Modi in a huddle and holding hands. That in itself was enough to send a not-very-friendly message to the United States and its European and Asian allies.  But that snapshot failed to show intense competing agendas among these countries. For now, at least, it is premature to interpret it as either a significant challenge to the Western order or an alliance of authoritarian states. 

• Why India and China Remain Bitter Rivals    Shyam Saran/Time

  Shyam Saran is a former Foreign Secretary of India and the author of “How China Sees India and the World.”  In this essay, he argues that the visuals of exaggerated cordiality between Prime Minister Narendra Modi of India, President Vladimir Putin of Russia, and President Xi Jinping of China at the recently held Shanghai Cooperation Organization (SCO) summit on September 1 displayed China’s convening power. But the gathering of major non-Western leaders in Tianjin, a city in eastern China, didn’t do much to resolve the long-standing border dispute and ever-growing competition between India and China. 

Update on the Trade Wars

• Investing in Security and Success: Analysis of the US-Japan $550 Billion Strategic Investment Fund    The Hudson Institute

  The centerpiece of the recent trade agreement between the United States and Japan was Japan’s promise to invest $550 billion in a new fund that would help “rebuild and expand core American industries.” On September 4, the US and Japan signed a memorandum of understanding (MOU) that details the full scope of the investment framework, including:

  • Japan should allocate the $550 billion before President Donald Trump’s term ends on January 19, 2029.

  • Investments should go to key strategic sectors—semiconductors, pharmaceuticals, critical minerals, metals, shipbuilding, energy (including pipelines), artificial intelligence (AI), and quantum computing.

  • The president will create an investment committee to recommend and oversee investments. The US Secretary of Commerce will chair the investment committee and select its other members.

  • A consultation committee, with designees from both the United States and Japan, will advise an investment committee, which will then recommend projects. The consultation committee will also provide legal and strategic input to the investment committee.

  • The United States Investment Accelerator will execute, manage, and administer the investments. This office is based within the Department of Commerce, and the Secretary of Commerce has the power to appoint its executive director.

  • The US will create a special purpose vehicle (SPV) for each investment. The US or its designees will govern these investment SPVs.

  • With the president’s approval, the US will propose projects and their investment amounts for Japan to review. Japan will have about two months to respond and transfer the necessary funds—in US dollars—to the investment accelerator.

  • Japan has the right to decline to fund all or part of a project. But the US can then impose tariffs on Japanese imports in response.

  • Japan and the US will evenly split profits from the project until Japan recoups its investment. Afterward, profits will be disbursed at a ratio of 90 percent to the US and 10 percent to Japan.

  • The US government will try to arrange leases to federal land, access, water, power, and energy to investment projects, as well as organize offtake arrangements. The federal government will also expedite relevant regulatory processes.

  • When possible, Japanese firms will receive priority over comparable foreign firms to serve as vendors and suppliers for projects.

• A Guide to Trump’s Section 232 Tariffs, in Maps   Council on Foreign Relations

  Section 232 tariffs aim to protect U.S. national security. Created by the Trade Expansion Act of 1962, Section 232 empowers the president to charge duties pending the results of a Department of Commerce investigation into the imports’ effects on national security. The Donald Trump administration has already used this tool to raise levies on aluminum, cars and car parts, copper, and steel—and has launched Section 232 investigations into nine other types of products. These twelve graphics dive into each sector, laying out the scale of imports, their concentration by country, and the geopolitics of exporting nations, separating friends—NATO members, major non-NATO allies, and free trade agreement (FTA) partners—from potential foes.

Geoeconomics, Data Centers, and Power Generation

• Financial Bubbles Happen Less Often Than You Think   William Goetzman/Wall Street Journal

  Bubbles loom large in our historical understanding of the financial markets. They are memorable. They are colorful. They are scary. They raise questions about investor psychology and the madness of crowds. In good times, we worry if we’re going to be caught in the next big bubble. Looking at financial bubbles since 1790, however, we find that they are much rarer than their presence in the public imagination—and not necessarily purely negative. They sometimes set the stage for major changes in people’s worldviews, upending old ideas about the possibilities and limitations of business. Sometimes bubbles remake society itself, as all that investor money funds technological advances that change the world.

• The New Economic Nationalism: Industrial Policy and National Security in the United States, China, and the European Union    Geoforum

  Abstract: This paper examines the resurgence of industrial policy and national security strategy across the United States, China, and the European Union. We analyze how these major economic powers are implementing distinct approaches to industrial policy while pursuing similar objectives of technological leadership and national economic prosperity. The United States has adopted a hawkish stance with extensive trade policies and subsidies. China has pursued ambitious growth in a range of sectors through long-term planning and strong government control. The European Union has balanced autonomy with trade openness and somewhat less state intervention. Our comparative analysis reveals that while these policies may be successful in strengthening domestic economies, they collectively reshape the world economy in ways that may disadvantage other nations, especially in the global South. However, ‘connector’ countries in the global South are benefiting by forging strategic ties with several superpowers. Additionally, the rise of China gives hope for South-South development cooperation that upend existing imperial arrangements often characterized by North-South relations. We argue that the convergence of industrial policy and national security represents more than a temporary response to recent disruptions; it signals a fundamental shift in the world economy towards more economic nationalism.

• The Projected Impact of Generative AI on Future Productivity Growth   Penn Wharton Budget Model

  The Penn Wharton Budget Model (PWBM) team estimates that 40 percent of current GDP could be substantially affected by generative AI. Occupations around the 80th percentile of earnings are the most exposed, with around half of their work susceptible to automation by AI, on average. The highest-earning occupations are less exposed, and the lowest-earning occupations are the least exposed. 

  • AI’s boost to productivity growth is strongest in the early 2030s, with a peak annual contribution of 0.2 percentage points in 2032. After adoption saturates, growth reverts to trend. Because sectors that are more exposed to AI have faster trend TFP growth, sectoral shifts during the AI transition add a lasting 0.04 percentage point boost to aggregate growth. 

  • Compounded, TFP and GDP levels are 1.5% higher by 2035, nearly 3% by 2055, and 3.7% by 2075, meaning that AI leads to a permanent increase in the level of economic activity. 

  • Caution is required in interpreting these projections of AI’s impact, which are based on limited data on AI’s initial effects. Future data and developments in AI technology could lead to a significant change in these estimates.

  • In ongoing work, PWBM is estimating the impact of AI on the federal budget. In very preliminary analysis, we estimate that AI could reduce deficits by $400 billion over the ten-year budget window between 2026 and 2035.

• How Retainable are AI-Exposed Workers?     Federal Reserve Bank of New York

  Abstract:  We document the extent to which workers in AI-exposed occupations can successfully retrain for AI- intensive work. We assemble a new workforce development dataset spanning over 1.6 million job training participation spells from all U.S. Workforce Investment and Opportunity Act programs from 2012 to 2023, linked with occupational measures of AI exposure. Using earnings records observed before and after training, we compare high AI exposure trainees to a matched sample of similar workers who only received job search assistance. We find that the average earnings return to training among AI-exposed workers is high, around $1,470 per quarter. Low-exposure trainees capture higher returns, and trainees who target AI-intensive work face a 29 percent earnings return penalty relative to their high-exposure peers who pursue more general training. We estimate that between 25 and 40 percent of occupations are “AI retrainable” as measured by their workers receiving higher pay for moving to more AI-intensive occupations—a large magnitude given the relatively low-income sample of displaced workers. Positive earnings returns in all groups are driven by the most recent years when labor markets were tightest, suggesting training programs may have stronger signal value when firms reach deeper into the skill market.  

• Data Centers Make the Beige Book, Plus Power Problems    Paul Kedrosky Blog

  Recent reports from the Federal Reserve’s Beige Book and five regional Federal Reserve Banks point out that the explosion of data center construction is “causing a step increase in regional electricity loads” – meaning, power generation is the biggest constraint on continued data center capex at the current rate.

Recommended Weekend Reads

Is Trade Uncertainty Boosting Automation? Putin’s Fear of Economic Humiliation, American Soybean Farmers Feeling the Pain of China’s Boycott,  And How Geopolitical Risk Impacts Consumer Spending

September 5 - 7, 2025

Each week, we gather up the best research and reports we have read in the past week and pass them on to you.  Below is this week’s curated collection.  We hope you find them interesting and informative, and that you have a great weekend.

Geoeconomics & Trade

• Will Trade Uncertainty Boost Automation?    Federal Reserve Bank of San Francisco

  Recent surges in trade policy uncertainty highlight the fragility of global supply chains, prompting businesses to consider reshoring—moving production from abroad to domestic locations. Reshoring can be costly, creating incentives for businesses to automate. Evidence suggests that businesses facing heightened trade policy uncertainty in industries more exposed to international trade reshore more and automate more than those that are less exposed to trade. Automation appears to help mitigate the otherwise negative effects of trade policy uncertainty on production and labor productivity.

• In Tariff Standoff with Trump, China Boycotts American Soybeans    New York Times

  China has rare earth metals. The United States and Brazil have soybeans. For all the chokeholds China maintains on global supply chains, it is overwhelmingly dependent on soybeans from other parts of the world. China imports three-fifths of all the soybeans traded on international markets. Now with China and the United States locked in a tense standoff over tariffs, soybeans have emerged as a central dispute between the trading partners.  China has been boycotting purchases of U.S. soybeans since late May to show displeasure with President Trump’s imposition of tariffs on imports from China. The pain is being felt in Midwest states, especially Illinois, Iowa, Minnesota and Indiana. For the first time in many years, American farmers are preparing to harvest their crop this fall with no purchase orders from China.
  

• Effects of Tariff Uncertainty on the Outlook of Small and Medium-sized Businesses   Federal Reserve Bank of Boston

  A large body of research demonstrates that uncertainty affects many dimensions of firms’ decisions, from investment and hiring to pricing and profitability. To gain a better understanding of how uncertainty induced by shifting trade policy shapes the behavior of small and medium-sized businesses (SMBs) the authors surveyed decision-makers at SMBs. Key Takeaways include:

  • Results from the survey indicate that uncertainty about tariffs rose markedly from the first wave to the third for all SMBs, and especially for importers.

  • Survey respondents with greater uncertainty about tariffs in April 2025 – and especially those that import – tended to report greater uncertainty about business operations, particularly about investment and worker head count.

  • The respondents indicated that a hypothetical reduction in business uncertainty would improve their expectations, but another increase in business uncertainty would not lead to further deterioration in their outlook.

  • The muted reaction to a hypothetical increase in business uncertainty suggests that by April 2025, the effect of increased uncertainty on SMBs’ expectations may have already peaked and/or that financial conditions had not tightened enough to notably amplify any negative real effects of further increases in uncertainty.

• The Fiscal Impact of Immigration: An Update    AEI Economic Perspectives

  Immigrants have an overall positive fiscal impact on the US—an effect driven by high-skilled
  immigrants. Low-skilled immigrants, like their US-born counterparts, impose a net fiscal cost.
  However, recent studies show that the indirect fiscal effects of low-skilled immigration are positive,
  partly offsetting the negative direct fiscal impact. Moreover, immigrants will help bear the cost
  of future policy changes required to address the growing national debt. Smaller immigration
  inflows might reduce fiscal pressure on state and local governments, but would increase fiscal
  pressure on the federal government and slow economic growth.

•  The Impact of Geopolitical Risk on Consumer Expectations and Spending  Yuriy Gorodnichenko, Dimitris Georgarakos, Geoff Kenny, and Olivier Coibion / NBER

  Abstract: Using novel scenario-based survey questions that randomize the expected duration of the Russian invasion of Ukraine and Middle East conflict, we examine the causal impact of geopolitical risk on consumers’ beliefs about aggregate economic conditions and their own financial outlook. Expecting a longer conflict leads European households to anticipate a worsening of the aggregate economy, with higher inflation, lower economic growth, and lower stock prices. They also perceive negative fiscal implications, anticipating higher government debt and higher taxes. Ultimately, households view the geopolitical conflict as making them worse off financially and it leads them to reduce their consumption.

Russia’s Struggling Economy

•   Can Russia Weather a Fuel Crisis Caused by Ukrainian Drone Attacks?   Carnegie Politika

  Once again, Russia is in the grips of a gasoline crisis. Prices at the pump are rising, and some gas stations have run dry. This isn’t the first time Russia has experienced such shortages, but this time around they could be more serious because of the ongoing war in Ukraine.  There were gasoline crises in Russia both before the full-scale invasion (in 2011,2018, and 2021), and afterward (in 2023). Despite a 2024 Ukrainian drone campaign targeting Russian refineries, the fuel market remained relatively calm. Back then, each refinery was only hit by a single drone, reducing plant capacity but leaving it operational. The damage was dealt with in a matter of weeks, consecutive attacks, were rare and often deflected, and neighboring plants continued to operate without interruption. Ultimately, the 2024 drone attacks caused inconvenience and expense for the Russian oil industry, but did not present a major problem.   This time could be quite different.

• Putin’s Fear of a Humiliating Economic Crisis     Foreign Policy

  Russian President Vladimir Putin has every reason to seek a lifeline for the Russian economy. In recent weeks, a flurry of signs has shown Russia’s war-drained, sanctions-constrained economy to be at an inflection point. For the first time since the start of the war, nonmilitary economic activity has been contracting, bankers are making plans to weather a financial crisis, and energy firms are worrying about losing their largest customer for seaborne oil exports.  Putin’s intensifying economic troubles have important implications for Western policymakers as they begin negotiating with Moscow about the future of Ukraine. Unlike the impression the Russian leader tries to make, time is far from being on his side. In fact, economic pressure remains the best leverage that Ukraine’s supporters have over the Kremlin. It remains to be seen whether Europe and the United States will choose to play the economic ace they still have up their sleeves.

The Global Race for Critical Minerals

• Why Is Renewing AGOA Strategic for U.S.-Africa Minerals Diplomacy?   Center for Strategic and International Studies

  The African Growth and Opportunity Act (AGOA), first signed into law by President Bill Clinton in 2000, is a unilateral U.S. trade preference program set to expire in September 2025. Its pending reauthorization has sparked debate over whether—and how—it should be extended and reformed. A failure to extend AGOA could have larger ramifications at a time when the United States is doubling down on its commercial diplomacy—and more specifically, its mineral diplomacy efforts—with Africa.
  

• Europe’s Strategic Access to Battery Minerals in a Changing Geoeconomic Landscape   The Hague Centre for Strategic Studies

  Europe’s transition to a low-carbon economy hinges on the rapid deployment of battery technologies. Batteries are essential for stabilizing electricity grids powered by renewables and for enabling the shift from internal combustion engine (ICE) cars to electric vehicles (EV), especially after the European Union’s (EU) 2035 ban on new ICE cars. The successful deployment of batteries in Europe depends on secure supply chains, which are heavily concentrated. China plays a dominant role across the entire battery supply chain. It produces most of the world’s batteries and controls large shares of battery material mining and processing capacity, including graphite, lithium, manganese and phosphate. The Chinese government can use its control over battery supply chains to exert geopolitical pressure on other countries.  To reduce its vulnerability, Europe could choose to look into types of batteries that rely less on raw materials whose supply chain is dominated by China.