Recommended Weekend Reads

Russia’s Challenging Homefront, China’s External Challenges, The Labor Market Impacts of GLP’s, and How Markets Are Looking to New Places (including oceans) for Critical Minerals

July 24 - 26, 2026

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.

What is Happening Inside Russia?

• The Burden of Return: Russia’s Veterans, Regional Strain, and the Politics of Reintegration  Delphi Global

  The scale of the challenge of veteran reintegration in Russia is already outpacing state capacity, with just a fragment of war participants having returned and demobilized. The Prosecutor General publicly berated the government for lagging in the employment and registration of returning soldiers. At the same time, independent reporting confirms widespread stigmatization of veterans in broader society and a lack of service delivery. The Kremlin’s political priority is ensuring the political loyalty of returning soldiers and preventing them from turning into a political force, not improving service delivery. The costs of wider reintegration are being systematically shifted onto regional budgets and, ultimately, the private sector at precisely the moment both are under acute fiscal stress. The resulting squeeze means that the sustained, diffuse costs of veteran healthcare, disability support, and employment - which fall disproportionately on subnational governments and employers - will act as a structural drag on Russia’s public finances and private sector for years to come. According to a February 2025 analysis of the International Institute of Strategic Studies, by the end of 2024 the number of severely wounded service members was already 376,000, with around half of them having lost limbs.
  

• Rebuilding to Reconquer: Can Russia’s Defense Firms Deliver?  Center for Strategic and International Studies

  By some estimates, the scale of state-backed corporate borrowing in Russia is estimated to have ballooned to over $446 billion, with much of that money directly and indirectly supporting Russia’s war effort in Ukraine. Overall, in the post-2022 period, Russia has expanded domestic arms production to replace battlefield losses and meet future demand, with defense enterprises at the center of this effort. This report offers the first in-depth examination of five Russian defense firms that cover a broad cross-section of Russia’s defense sector: four major, well-established defense enterprises—Uralvagonzavod, Almaz-Antey, KRET, and Kalashnikov—and a new defense player, Ushkuynik. Together, these firms play central roles in the design, production, scaling, and supply of key systems—tanks and other armored vehicles (Uralvagonzavod), air defense systems (Almaz-Antey), electronic warfare (KRET), artillery and precision weapons (Kalashnikov), and drones (Ushkuynik). The report analyzes the internal and external factors shaping their production dynamics—including historical background and organizational structure, scale of production both before and after the full-scale invasion, revenue and procurement patterns (where possible), labor constraints, and evolving networks of foreign suppliers—and assesses what these trends imply for Russia’s ability to meet current wartime and future reconstitution goals.

China’s External Challenges

• The Gulf’s China Problem Foreign Affairs

  The war in Iran has unsettled the Gulf. Arab states are increasingly frustrated with the United States, which, after launching a war that wreaked havoc on global energy markets, failed to keep them safe from Iranian strikes. But the war is also forcing these countries to reassess their relationship with China. Beijing’s wait-and-see approach to the war and unwillingness to use its leverage over Tehran to contain the conflict have disabused Gulf Arab states of any lingering expectation that China could become an important security partner in the foreseeable future.

• Troubled Straits: Analyzing Trade Chokepoints in the South China Sea Center for Strategic and International Studies

  Each year, trillions of dollars of goods flow through the South China Sea, making it the world’s most consequential maritime corridor. The region is also a hotbed of geopolitical tensions that threaten to upturn global commerce. Despite the enormous stakes, the sea’s critical chokepoints have been poorly understood—until now. This CSIS brief and its companion interactive dashboard offer groundbreaking insight into the value and types of goods transiting eight different South China Sea chokepoints. The new data reveals the extent of each country’s reliance on each chokepoint and challenges existing notions about the importance of these chokepoints.

• The Second China Shock - How This Time Is Different Brad Setser/Markus Academy Podcast

  Brad Setser, a Senior Fellow at the Council on Foreign Relations and a former senior US Treasury and US Trade Representative, joined Markus’ Academy for a two-part conversation on the Second China Shock and the Second Coming of Global Imbalances. We will share the second part with implications for Europe tomorrow. Setser’s slides are available here. A summary in three bullets:

  • Concentration and bifurcation: compared to the imbalances of the 2000s or 2010s, today surpluses are concentrated in East Asia, China above all. China’s economy is now bifurcated: exports surge while domestic demand stalls, and due to import substitution policies domestic demand has decoupled from imports;

  • The financial flows have reversed: the pre-GFC’s safe-asset scarcity has ended. Reserve accumulation has stalled, and surpluses are no longer recycled into Treasuries;

  • The mismeasurement of China’s investment income account understates its true surplus, lifting the yuan’s implied undervaluation to ~30%, versus the ~19% implied by the officially-reported surplus (the IMF’s own estimate of undervaluation is smaller still).
    

• Malign Alignment: How China, Russia, Iran, and North Korea (CRINK) Threaten the US and Our Allies George W. Bush Presidential Center

  China, Russia, Iran, and North Korea, known together as CRINK, threaten democratic institutions, global security, mineral supply chains, and human rights by challenging the credibility of U.S. leadership. This report breaks down the four major challenges posed by the CRINK alliance and argues the US and its allies can counter their efforts by collective innovation, emerging military technologies, and strategic policy shifts.
  
  

More on the Impact of GLP’s on Society and Markets

• The Labor Market Impacts of GLP-1s N. Meltem Daysal, Camille Fredrickson, Ida Kristiansen, Mircea Trandafir, et al. National Bureau of Economic Research

  Abstract: We estimate the causal impacts of GLP-1 treatment on labor market outcomes using linked Danish administrative data and a matched stacked difference-in-differences design. We compare patients who initiate GLP-1 treatment during the first two years of Semaglutide availability to observably similar patients who initiate four years later. We find that GLP-1 treatment reduces long-term sickness leave by 17.3%. We estimate total fiscal benefits of GLP-1 initiation of approximately 1.3–1.5% of annual labor income per employed individual. We do not detect statistically significant or economically meaningful impacts on income, labor force participation, or employment over four years.
  

Latin America’s Growing Space Capabilities

• The Space Race Comes to Latin America  Americas Quarterly

  Why would Ecuador - specifically the area of Guayaquil of all places - be a focus in Latin America’s new space race? Well, the answer is in the country’s name. The Guayaquil area is strategic for a different reason: It sits just two degrees south of the imaginary line dividing the world into two hemispheres. The planet rotates at its maximum speed at the equator—1,040 miles (1,670 kilometers) per hour—making it more efficient to launch rockets from these latitudes. Thanks to the rotational boost, less fuel is needed to reach orbital velocity, which in turn means rockets can carry more payload at a lower cost. Compared to many other countries that sit directly on the equator—a list that includes Congo, Somalia, Uganda and Indonesia, as well as Colombia and Brazil—Ecuador, with its dollarized economy and business-friendly government, looks attractive despite its security challenges
  

• Latin America Has a Space Agency. Now Comes the Hard Part  Americas Society

  The Latin American and Caribbean Space Agency (ALCE) held its first general assembly in Mexico in February, marking the transition of a five-year-old diplomatic ambition into an operational institution. Of the 18 countries that signed the agency’s founding convention in 2021, only 11 ratified it. The challenge ahead is making it matter.
  

• Brazil’s Landmark Satellite Program  Americas Quarterly

  Amazônia-1, the first satellite entirely designed and operated by Brazil, is part of a larger mission. The country plans to put two new units into orbit as part of a mission to observe and monitor deforestation in the Amazon, natural resources, and agricultural areas.
  

Critical Minerals

• Is vanadium the future of critical minerals? Kazakhstan hopes so  Javier Piedra/Asia Times

  Vanadium is viewed as a critical mineral by the United States, the European Union, Russia, China and many other countries because of its importance to energy storage and industrial alloys. Of the critical metals that will define the next half-century, vanadium has perhaps the strongest claim to indispensability: it hardens the steel in our infrastructure and defense systems, and it stores the energy that our grids will increasingly depend on. Yet the market has consistently failed to price that future in, and nowhere is that mispricing more visible than in the vanadium deposits of Kazakhstan.
  

• Seawater holds enough lithium and magnesium for the next 50,000 years, scientists say  Interesting Engineering News

  Researchers in the US have begun developing seawater mining technologies after estimating that just 0.1 percent of seawater has enough critical minerals to supply humanity for the next 50,000 years. Scientists at the Pacific Northwest National Laboratory (PNNL) believe the world’s oceans contain one of the greatest untapped reserves of critical minerals. These include lithium, magnesium, manganese, cobalt and rare earth elements that are essential for electronics and clean energy.
  

• Critical Minerals: Why Rare Earths Now Shape Defense Power Abby Lilly/Foresight (The Tawazun Council for Defense Enablement – UAE)

  The strategic landscape of defense has shifted dramatically. Where once our supply chain focus centered on optimizing logistics, trimming costs and meeting predictable lead times, today it is inseparable from national security. The raw materials that enable the most advanced weapon systems, such as rare earth elements, gallium, germanium, tungsten, indium, and a growing list of specialty metals, have moved from obscure commodities to the very building blocks of modern military supremacy. Critical minerals are now a strategic constraint on readiness.

• · Mining the deep ocean Natasha Gilbert/Knowable Magazine

  More than 13,000 feet below the surface of the Pacific Ocean, a more-than-70- ton machine trundled like a tank on its caterpillar tracks for a tenth of a mile — sucking up potato-sized nodules of rock packed with copper, manganese, cobalt and nickel. It was 2022, and that pilot run of a subsea harvester by a Canadian business, The Metals Company, was pronounced a success. The company is working to get a green light to deploy similar machines for commercial harvesting over an area of 65,000 square kilometers, to extract over 600 million metric tons of nodules. There are riches on the ocean floor — round deposits made up of tightly packed layers of critical minerals that have long been out of reach. But not anymore. The pursuits of The Metals Company are among 31 initiatives by companies, governments and state-owned enterprises — including China, India and the Republic of Nauru, a tiny island nation in the southwestern Pacific Ocean — to collect nodules for analysis and to test mining equipment.

• The Faults of Long-Term Thinking on Critical Minerals Critical Supply Substack

  The debate over critical minerals is presenting long-term policies that do not alleviate the immediate concerns with this supply chain. As these goods continue to be weaponized by the People’s Republic of China, lawmakers should be thinking of short-term solutions too. Plus, China’s latest AI model is casting doubt on Western leadership — are those concerns justified? Lastly, experts explain the latest political developments in Ukraine.

Recommended Weekend Reads

Russia’s Growing Economic Problems, How the Iran War is Changing the Middle East, What Happens When Trust in Economic Statistics Declines, And the Memo That Killed the Penny

July 10 - 12, 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 Ukraine War and Russia’s Growing Troubles

• Endgame: The State of the Russian Economy  The Kiel Institute for the World Economy

  The contours of a genuine economic endgame are coming into view for Russia. The economy has not collapsed, but the structural foundations have eroded fast. Economic growth has come to a standstill, and fiscal buffers are largely exhausted. Higher oil prices as a result of the war in the gulf will likely only bring temporary fiscal effects, as Ukrainian “drone sanctions” have been effective in reducing export volumes. Russia’s current macro stance is not sustainable. High interest rates are stifling the economy, while loose fiscal policy and quasi-fiscal operations are propping up the defense sector. The Q1 2026 budget deficit exceeded the full-year target in just three months. The choice now is between fiscal consolidation or monetary accommodation resulting in even higher inflation. Going forward, export revenues from the sale of raw materials remain the decisive variable for the economic outlook: With fiscal buffers spent, Russia’s war capacity is more than ever directly coupled to hydrocarbon export income.

• Putin’s economy is running on fumes after Ukrainian attacks  Politico EU

  For four years, Russian President Vladimir Putin has largely managed to shield the population from the economic consequences of his war in Ukraine. No more. The Ukrainian missile and drone strikes on key energy infrastructure in recent weeks has turned the war from a relatively minor irritant that most Russians could ignore into an immediate and increasingly acute fuel crisis. Two-thirds of Russia’s 83 regions are now reporting problems with fuel supply, an immediate inconvenience to millions and an equally immediate threat to the viability of many businesses. As far as hard numbers go, the scale of the damage is being disguised, with Russia adding domestic fuel prices to the list of economic data that it no longer publishes. Plenty of Russians, however, are finding out for themselves just how bad things are. Social media are exploding with footage of drivers attacking each other over gasoline at filling stations, or even rampaging in trucks through queues of cars waiting to fill up. It’s gotten to the stage where the nation that the late Sen. John McCain derided as “a gas station masquerading as a country” isn’t even a gas station any more: Reuters reported on Wednesday that India — the biggest foreign buyer of Russian crude oil — will now export some of what it refines back to its country of origin.

• Russia’s Losing Hand in the South Caucasus  Center for European Analysis

  Russia sought to influence Armenia’s recent parliamentary elections and derail the re-election of Prime Minister Nikol Pashinyan’s re-election – and failed. Russian President Vladimir Putin has sought to reassert influence over the South Caucasus nations of Armenia and Azerbaijan but has increasingly been stymied. The Armenian election and the defeat of pro-Putin candidates pushed the Kremlin to work harder to rekindle its relationship with Azerbaijan as it seeks to reassert itself in the region. But Russia has also been increasingly frustrated by both Azerbaijan’s and Armenia’s ties with President Donald Trump’s administration, particularly over critically important transport infrastructure. And now, Russia is facing a significant loss of influence in its “near abroad.”

• The War In Ukraine Is Already Over — And Putin Lost  James Jay Carafano/1945.com

  National security expert James Jay Carafano argues that although the fighting grinds on, the war in Ukraine is strategically over — and Putin has lost. Russia has passed its culminating point, he writes, leaving three realities Moscow cannot change: an independent, well-armed Ukraine, an intact NATO, and a homeland now permanently vulnerable to deep strikes.

The Iran War and How It is Changing the Middle East

• Syria deal gives Trump potential route to bypass Hormuz  The Telegraph

  Last Thursday, on the sidelines of the NATO Summit in Turkey, President Trump met with Syrian President Ahmed al-Sharaa. The meeting came as the US announced it would remove Syria from the list of sanctioned state sponsors of terrorism – on top of lifting sanctions last year. And in return, al-Sharaa gave President Trump – and Gulf States – a potential solution to loosening Tehran’s chokehold on shipping oil and gas via the Strait of Hormuz. Syria’s strategic location – with a large stretch of Mediterranean coastline and a land mass connected to oil-rich Middle Eastern nations – makes it easy to connect to global trade. Options include trucking or moving energy supplies through dedicated pipelines to coastal ports where goods can be loaded on to commercial vessels bound for Europe and further afield. Using this route would allow countries to bypass maritime trade through the Strait of Hormuz, reducing the leverage that Iran holds by attacking commercial vessels in transit. Pipeline projects are already under consideration, and could link major energy producers in the Gulf, including Saudi Arabia and Qatar, directly to Syria’s ports in Baniyas and Latakia.

• Iran is Losing Iraq  Kamaran Palani/Foreign Affairs

  Whenever the Iran war comes to an end, the Islamic Republic is likely to emerge in a stronger position. But at least in one area, the war has left Iran notably weaker: Iraq. Ever since the toppling of the Iraqi dictator Saddam Hussein in 2003, Iran has been able to exercise a great deal of influence over its western neighbor. It has embedded itself within Iraq’s Shiite political establishment, mediating between rival factions, shaping successive governments, and using Iraq to gain hard cash through smuggling and currency exchange networks. Iran supported many of the Iraqi paramilitary groups that helped defeat the Islamic State, also known as ISIS, in 2017. Iraqis still grew to resent Iran’s overweening influence in their country, not least because of the involvement of Iranian-backed militias in a brutal crackdown on anticorruption protesters in 2019 and 2020.Now, the tumult of recent months has further tilted Iraqis against Iran’s desire to make their country a staging ground of resistance to the United States and Israel. Leaders of political parties and militia groups that once hewed close to Tehran are pulling away.

• Going Over the Brink: How Hizballah’s Risk Strategy Made Lebanon Impossible to Ignore  Kelly Grieco, George Saade, and Hunter Slingbaum, War on the Rocks

  When the United States and Iran announced their framework agreement on June 15, attention focused on the direct U.S.-Iran dimensions of the deal, including the reopening of the Strait of Hormuz, the lifting of the U.S. naval blockade, and the fate of Iran’s nuclear program. But the agreement also included a commitment to the “immediate and permanent termination of military operations on all fronts, including Lebanon.” Washington had spent months treating Lebanon as a separate issue in negotiations, even as the Israel-Hizballah conflict remained active under a nominal ceasefire in place since April 16. That Lebanon ended up inside the agreement was not an accident. Newly compiled data on 1,155 Hizballah attacks between April 15 and June 14 — 540 drone strikes and 615 rocket, missile, and artillery incidents – and this points to the reason Lebanon was included: Iran via Hezbollah ran a deliberate, calibrated pressure campaign designed to keep the southern front permanently on the edge of escalation to a wider war. By raising the costs of continued fighting and increasing the risk of a broader regional crisis, Hizballah gave Tehran leverage to insist that negotiations could not proceed while Israel’s offensive in Lebanon continued. That linkage, in turn, forced Washington to lean on Israel to de-escalate and ultimately accept Lebanon’s inclusion in the final agreement. But that agreement did not resolve Lebanon. Worse, it institutionalized the conflict as a source of Iranian leverage, giving Tehran another means of extracting concessions from Washington. The United States is now trapped managing a conflict it cannot leave without jeopardizing the broader deal it seeks to conclude.

Geoeconomics, Statistics, and Pennies

• ·US Monetary Spillovers, Foreign Exchange, and Gold Reserves at Times of Geopolitical Fragmentation  Joshua Aizenman, Jamel Saadaoui, Gazi Salah Uddin and Naoki Yago National Bureau of Economic Research

  This paper shows that US monetary policy surprises exert significant spillover effects on exchange rate through dollar liquidity and capital flow channels. Using high-frequency exchange rate data and detailed currency composition of reserves for 18 countries, we show that estimated reserve-buffer effects depend on their composition. Dollar-denominated reserves substantially mitigate depreciation pressures, while non-dollar reserves have smaller estimated effects. Gold reserves are also associated with smaller exchange-rate responses, though less strongly than liquid FX holdings due to differences in immediacy and usability. Our results highlight an empirical complementarity between reserve holdings and access to international liquidity facilities such as central bank swap and repo lines. These arrangements are associated with a smaller role for reserve depletion during periods of dollar funding stress. Aggregate reserve size alone does not capture all dimensions associated with external resilience; currency composition and access to dollar liquidity facilities are empirically relevant for exchange-rate responses to US monetary shocks. These findings are consistent with recent large-scale purchases and sales of gold reserves by emerging economies amid sanctions-related restrictions and geopolitical concerns about access to dollar liquidity.
  

• When Trust in Official Statistics Declines  Michael Strain, VoxEU/CEPR

  Trust in official economic statistics has become an increasingly salient policy issue, including in the US, where the Commissioner of the Bureau of Labor Statistics was dismissed in August 2025 amid allegations that agency data had been manipulated. This column shows that the events produced a sharp increase in economic policy uncertainty, with existing estimates linking uncertainty to macroeconomic outcomes, implying that the resulting loss of confidence may have reduced US GDP by roughly $20 billion. While some economic activity postponed during periods of uncertainty may eventually occur later, there are reasons to believe that at least part of the effect could be lasting.

• ·The Memo That Killed the Penny  Bloomberg

  Previously undisclosed documents obtained by Bloomberg’s FOIA Files reveal how the Trump administration found a way to halt penny production and why officials considered the decision “critical. It was actually Elon Musk’s Department of Government Efficiency (now defunct) that called attention to the skyrocketing costs of producing the penny — a day after Trump was sworn into office. It wasn’t the first time the practicality of the lowly coin was debated. A half-century ago, Treasury Secretary William Simon wrote in a memorandum to President Gerald Ford: “Concerning the one-cent coin, we are rapidly approaching the decision point for continuance or elimination.” In 2013, President Barack Obama seemed to be open to the idea of discontinuing the minting of pennies. Simon and Obama both cited the increased costs to taxpayers to produce the coins and the fact that people were using them with less frequency. They also noted that discontinuing the production of the penny would require an act of Congress, whose coinage power is spelled out in the Constitution.

• AI, Immigration, and Collapsing Labor Force Participation  Applied Complexity

  Overall Labor Force Participation (LFP) is at a 50-year low. As fewer adults work or seek work, a larger fraction of voters experience the economy mostly as consumers, retirees, or rentiers, not as workers. That changes political incentives around wages, immigration, AI, taxation, and redistribution. The economy becomes increasingly dependent on a shrinking core. A shrinking group of workers generates the income, taxes, and innovation that support a growing number of non-workers. The economy becomes more fragile because labor shocks are concentrated among fewer participants. Capital must increasingly substitute for labor. Labor scarcity raises the return on automation, AI, robotics, and software. The AI bet becomes as much about compensating for workers’ absence as simple replacement. Growth increasingly depends on productivity, not participation. Any [productivity] miss will be much more consequential than in the past, given that labor no longer picks up the slack.

Recommended Weekend Reads

June 5 - 7, 2026

Assessing U.S. Military Options Toward Cuba, Chile’s Investment Reset, China Considers the Challenge of Ruling Taiwan, and Is AI Creating Value?

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.

Americas

• The Next Caribbean Crisis? Assessing U.S. Military Options Toward Cuba   Center for Strategic & International Studies

  The United States has engaged in touch-and-go negotiations with various figures within the Cuban communist regime, while at the same time issuing an executive order to further increase economic pressure on the island.  The United States has stepped up military surveillance overflights of Cuba, gathering intelligence on the capabilities and dispositions of the country’s Revolutionary Armed Forces (FAR). In late May, CIA Director John Ratcliffe met with Cuban leaders, bringing along a paramilitary officer who was involved in capturing Maduro and killing the Cuban military personnel who were guarding the Venezuelan leader. It was a sign of what could come if negotiations are unsuccessful. Although the crisis in the Persian Gulf continues to smolder, the United States has enough military assets to operate simultaneously in the Western Hemisphere. While the ultimate objective of U.S. Cuba policy remains unclear, the possibility of military action is present. Therefore, it is worthwhile to examine a range of possible scenarios involving the use of force against Cuba. This report examines five such scenarios, their relative likelihoods, and the risks involved.

• Why Brazil–U.S. Relations Will Worsen Before They Improve     Latin America Takeaways

  Between new tariffs on Brazil and the recent announcement of new  U.S. measures targeting Brazil criminal gangs— the designation of the PCC and Comando Vermelho as terrorist organizations and, more recently, the conclusion of the Section 301 investigation — domestic political analysis has focused more on the electoral implications of these developments than on their broader consequences for the overall trajectory of the bilateral relationship. As the Brazilian elections get closer, the U.S.-Brazil relationship is likely to worsen before getting better.

• Kast and Chile’s Investment Reset     Americas Quarterly

  For decades, Chile stood out as Latin America’s most reliable destination for foreign direct investment (FDI), capturing as much as $192 billion between 2000 and 2014, or 7.4% of the region’s total net inflows. But since then, the country has endured a substantial erosion of its ability to attract international capital. That may be about to change. In April, President José Antonio Kast submitted an economic reform to Congress — the Reconstruction and Economic Development (RED) bill — that seeks to modernize the investment regime and encourage both international and local investment as the government aims to boost GDP growth to 4% annually by the end of his administration, double the average annual GDP growth rate reported since 2014. The goal is to reset the investment climate after years of lackluster performance, and the House already passed the proposal, which the Senate will begin discussing today. Kast defended the scope of the reform during his first annual address to the nation held at the National Congress in Valparaiso on Monday. Reviving the investment environment and redefining its institutional framework presents a challenge: how to rebuild economic dynamism without undermining the regulatory legitimacy gained through social and political reforms of the recent past. This is a political question, not only an economic dilemma.

• U.S. Foreign Policy in the Western Hemisphere: Issues for Congress     Congressional Research Service

  The Congressional Research Service – the research arm of the U.S. Congress – recently prepared an updated brief for members of Congress on the region and official U.S. policy.  It offers a good high-level overview of all that has changed in U.S. foreign policy for the region.
  

• Delcy Rodríguez Tries to Show She Has a Debt Strategy      Caracas Chronicles

  In April 2026, the IMF and World Bank resumed dealings with Venezuela for the first time since 2019, opening the path to a formal economic assessment and potentially unlocking $4.9 billion in frozen special drawing rights. In May, the Delcy administration announced a “comprehensive restructuring of its sovereign debt” and PDVSA obligations, appointing Centerview Partners as financial adviser and pledging a macroeconomic framework by June. This did not include a request for a macroeconomic program established by the Fund, which distanced itself from Venezuela’s announcement shortly after. According to Reuters, Venezuela’s total liabilities could be above $150 billion.  On June 2, Venezuela added Hogan Lovells as legal counsel for the restructuring under a dual mandate that also covers strategic lobbying for the Venezuelan embassy in Washington. The account is led by Norm Coleman, a former Republican senator with deep political connections in the capital. Neither selection has been free of political entanglement. Former Trump official Mauricio Claver-Carone, earmarked by The Washington Post as Venezuela’s unofficial viceroy, has vouched for Centerview. His business partner, Jessica Bedoya, was on the same chartered flight to Caracas as two Centerview executives on February 12, weeks before the firm finalized its contract (Centerview denied Bedoya played any role in their assignment).
  

• The US plan for Venezuela won’t work without the rule of law. Here’s how to make progress     Chatham House

  Drawing on discussions with a group of experts including Venezuelan and international jurists, diplomats, scholars of democratic transitions and democratization, and representatives of the Venezuelan opposition, this policy paper sets out recommendations for incremental, integrated steps to achieving rule-of-law reform in post-Maduro Venezuela. The paper makes the case that a negotiation and monitoring process must be put in place without delay, with the committed involvement of the US, the interim Venezuelan government, multilateral organizations, diplomatic missions, investors, and local business and civil society. The framework for this process will need to identify priorities, benchmarks, and a timeline for institutional and legal reforms, and it should clearly articulate how judicial, commercial, legal, and human rights reforms relate to, and underpin, economic and political development.
  
  

Indo-Pacific

• How China Misperceives Itself       Foreign Affairs

  Great powers rarely fail because they are unaware of their problems. More often, they fall apart because they misidentify or only partially identify the root of those problems. The ability to accurately diagnose weaknesses, to distinguish between temporary constraints and structural limits, and to generate the political will to fix deep-seated problems separates states that adapt and thrive from those that stagnate or crumble.  China today faces an imposing list of challenges that it needs to assess and address. Economic growth is slowing, the population is aging, the financial system is under stress, and other countries have been tightening trade controls and scaling up their own industrial policies to compete. For many years, China’s economic expansion could mask the country’s underlying vulnerabilities. That era is now over. And in party documents and major speeches alike, leaders in Beijing admit these pressures and acknowledge the country’s weaknesses.

• After the Invasion: China Considers the Problem of Ruling Taiwan      War on the Rocks

  In August 2024, scholars at a Xiamen-based think tank published a paper urging Beijing to immediately establish a shadow Taiwan government on the Chinese mainland in preparation for a full takeover of the island. “It is imperative to prepare a plan for the comprehensive takeover of Taiwan after unification,” they said. The scholars were writing at a fraught moment for Beijing.  Only months earlier, the anti-China Democratic Progressive Party had taken office after a third consecutive presidential election win. Unusually for a Chinese publication on such a sensitive topic, the paper made several frank admissions: that opposition to unification within Taiwan had deepened rather than softened; that Hong Kong’s post-1997 governance model was ill-suited to Taiwan; and that many Chinese officials lacked even a basic understanding of political and social conditions on the island. The paper circulated briefly before disappearing from China’s internet, which underscored the sensitivity of the topic and the rarity of such candor.

The Iran Effect: Showing The Many Challenges to Crude Oil Processing

• The global refining disorder: The political geography of crude processing     Alexander Etkind, Georg-Kaup, Ayansina Ayanlade, Gustavo Andreao/Energy Research & Social Science

  Abstract: Why are refineries where they are, and what forces explain their distribution across planetary space? This article develops the concept of the Global Refining Disorder (GRD) to analyze the political geography of crude oil processing. Departing from location theory, which privileges transport-cost minimization, we argue that refinery siting is determined by the interplay of national strategies, security regimes, postcolonial legacies, and economies of scale. We identify two ideal types of refining political economy — the mercantile pump, which concentrates processing capacity near centers of power and imports crude from peripheries, and the developmental syringe, which locates refining near extraction sites to stimulate peripheral growth. Working across five comparative cases – the United States, Russia, Saudi Arabia, Brazil, and Nigeria – we analyze the transportation triangles shaped by oil fields, refineries, and consumers of fuel. To operationalize these carbon flows, we calculate two derived measures — refining lag and the export-to-refining ratio. With the concept of securitization of scalability, we explain how economies of scale generate systemic vulnerability of refineries. Recent events in Ukraine and Iran empirically demonstrate that refineries constitute the most vulnerable component of the global energy system. Looking forward, we argue that the path from refining to circularity secures decentralization of energy supply, with political choice — rather than geological endowment or market signals — remaining the decisive variable in transition.

Is AI Creating Value?

• Writing Code vs. Shipping Code: Productivity Effects Across Generations of AI Coding Tools Mert Demirer, Leon Musolff & Liyuan Yang/National Bureau of Economic Research

  The Financial Times Data Points columnist John Burn-Murdoch wrote an intriguing piece asking if AI was really creating much value.  Burn-Murdoch wrote, “One particular point of tension between AI’s boosters and detractors has been the disconnect between reported increases in coders’ output and the apparent lack of a corresponding boom in product or value creation. A new paper leaves both sides able to claim vindication.  The study by MIT’s Mert Demirer and co-authors tracked software developers’ work before and after they adopted AI tools. Importantly, they measured this at several different levels, from the amount of code written, to the number of discrete files edited, to the number of projects or features worked on, to actual releases of new software. They found an explosive impact at the top of this funnel — coders created or edited almost 300 per cent more files — but that boost was halved to 150 per cent by the time they got to the number of discrete pieces of work submitted for review, and that in turn shrunk fivefold to a roughly 30 percent uplift in the number of full software releases.  This is the study.  And here is the abstract:

  • Abstract: How do the productivity effects of AI evolve across successive generations of tools, and to what extent do task-level gains ultimately translate into final output? We study these questions in the context of software development, using data on more than 100,000 GitHub developers combined with their AI usage telemetry. In a matched event study design, we find that autocomplete, interactive coding agents, and autonomous coding agents each significantly increase coding activity (“commits”), with respective cumulative effects of 40%, 140%, and 180%. These gains, however, attenuate sharply across the production hierarchy: the 180% cumulative effect falls to 50% for the number of projects, and to 30% for actual releases. This pattern is consistent with the weak-link hypothesis: the strong productivity gains from AI are attenuated by human bottlenecks in the production chain, with an estimated elasticity of substitution of 0.25 between AI and human effort, which indicates strong complementarities. We further confirm these results across four major app marketplaces, finding a moderate increase in the number of new apps but no increase in total usage. Large task-level AI productivity gains have therefore translated only partially into shipped and used software thus far.

Recommended Weekend Reads

May 29 - 31, 2026

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.

Sanctions, Tariffs, and the Financing of Global Wars

• How Trade Policy is Changing: From Broad Rules to Targeted RestrictionsFederal Reserve Bank of St. Louis

  From 2015 to 2024, the number of new export-related trade restrictions introduced across the globe each year and the cumulative number of restrictions in place both grew, with a particularly sharp increase after 2019.During this period, trade restrictions accumulated steadily across a wide range of policy instruments, reflecting a sustained shift in how trade policy is used.Targeted measures, particularly export bans and licensing requirements, expanded much faster than traditional, broad-based trade instruments like tariffs.The effects of targeted trade restrictions are not spread evenly across the global economy; rather, they tend to be concentrated in certain strategic, high-value and high-technology sectors.

• States as Financiers: International Lending in War and Peace Kiel Institut

  States are major international financiers, but their role is poorly understood. We study state-driven cross-border lending over two centuries using a new database covering 1.2 million official loans and grants by 134 governments and 70 multilateral institutions since 1790. We document a dual, state-contingent structure of international credit. In normal times, private creditors dominate cross-border lending. In adverse states of the world, such as wars and financial crises, official creditors step in, at times on a massive scale. These official flows are driven by great powers, are highly subsidized, and are largely absent from canonical models in international macroeconomics.

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• Shifting Conclusions From The Crises Of The Past 30 Years Louis-Vincent Gave Gavekal Research

  Louis-Vincent Gave argues that “the lesson of the Strait of Hormuz” is to continue the shift toward investments in gold and industrial commodities – which will create a sustained liquidity drain on global financial markets. The lesson of the 1997-98 Asian and emerging market crisis was to accumulate more US treasuries. The lesson of the 2008 global mortgage crisis was to accumulate more US treasuries. The lesson of the 2011-13 eurozone crisis was to accumulate more US treasuries. The lesson of the 2022 Ukraine war and consequent financial sanctions was to accumulate more gold. Then what will be the lesson of the Strait of Hormuz crisis? Odds are it will be to accumulate larger inventories of industrial commodities, energy and food while reinvesting in the resilience of one’s own power grid. All of this will require capital and therefore act as a sustained liquidity drain on global financial markets for years to come.
  

• Geoeconomics: What’s the Cost of Coercion in Global Trade? Federal Reserve Bank of Boston Podcast

  When countries practice geoeconomics, they use their economic might to win concessions from other nations. Geoeconomics can include tools like industrial policy, tariffs, and embargoes. But some say these economic coercion tactics could reduce trust and cooperation among nations – and have critical impacts on global trade. Listen to the panel discussion with economists Douglas Irwin, Karen Dynan, and Caroline Freund and download the paper given by professor Jeffry Frieden at the Boston Fed’s 69th Economic Conference, “The U.S. Economy in a Changing Global Landscape.

• State Dependence of Monetary Policy During Global Supply Chain Disruptions Jesus Fernández-Villaverde/National Bureau of Economic Research

  Abstract: We study how global supply chain disruptions affect monetary policy transmission. Post-pandemic evidence indicates surging transportation costs, goods-market imbalances, and rising prices. We develop a model in which logistical bottlenecks (upstream slack coexisting with downstream shortages) steepen the aggregate supply curve. This convexity amplifies price responses to monetary policy while dampening output effects. Threshold VAR and Local Projection estimates are consistent with this mechanism: during disruptions, contractionary policy reduces prices more at smaller output cost, easing the stabilization trade-off.
  

• Glass Jaw? The New Economic Fragility Recasting American Power War on the Rocks

  A pair of children’s shoes is an odd place to look for the changing dynamics of American power. But stick with me because, after the past year, it is one of the clearest places to see them. Long before those shoes reach a store shelf, tariffs have raised the cost of materials, components, and importation. Oil touches nearly everything else: synthetic fabrics, foam, adhesives, packaging, and freight. When both shocks arrive together, companies cut margins, cut orders, cheapen materials, delay investment, and eventually pass the pain on to consumers. Now, multiply that across the economy, and you start to see the troubling scope of the strategic problems this is causing. The Trump Administration’s International Economic Powers Act tariffis and subsequent Section 122 tariffs have degraded the ability and agility of the U.S. economic system to absorb future shocks — critical parts of the systemic bedrock of American economic power. This is vital to understand because America’s economic power is not being hollowed out exclusively because of the Iran war and decreased energy supplies. In reality, the oil crisis is being layered on top of America’s new tariff-induced fragility, pushing America into a new economic cycle: one of higher prices and diminished capacity for American businesses to absorb and navigate global shocks to their supply chains. American businesses are already feeling this in real time. The shocks are still moving through the system and more will follow.
  

• What Demographic Prediction Can and Cannot Achieve Samuele Lo Piano, Marta Kuc-Czarnecka, Roger Pielke, and Andrea Saltelli Social Science Research Network

  Abstract: Simulation of the decision chain yielding projections of world population in 2050 that range from 6 to 14B suggests most of the variance in demographic forecasts arises not from parameter uncertainty or data randomness but from model choice. We explore demographic predictions by propagating all plausible choices that can be made during the analysis through the modelling process. This approach involves navigating the so-called ’garden of forking paths’—mimicking in silico what would happen if multiple investigators were to examine the same problem. For this, we now abandon [the Chinese government mathematician] Song Jian’s ‘historic’ model and turn to models currently in use: the Cohort-Component and UN WPP models, the Lee-Carter model and the Lotka-Volterra model. Note that in standard use, these tools are used in isolation, see e.g. the FAO’s How to Feed the World in 2050, resting on a single UN WPP population trajectory shielding the reader from the compounding effect of their uncertainty. Unsurprisingly, the exercise capturing the modelling of the modelling process for global population projections to 2050 and 2075 reveals distinct characteristics regarding the sensitivity and projection outcomes of the different models. Once abandoned the straitjacket of Song’s approach, uncertainty is free to manifest itself. The overall uncertainty distributions of the projected populations show a wide range of possible outcomes, reflecting the inherent uncertainties in demographic projections.
  

Americas

• Hong Kong and the Shadow Fleet: How One City Helped Sustain Maduro’s Oil Trade China Strategic Risks Institute

  Whatever one thinks of the US government’s unilateral actions toward Venezuela in recent months, there should be no confusion about what networks used to help sustain the regime. Maduro’s regime remained in power through repression, corruption, and the systematic plunder of state resources while ordinary Venezuelans paid the price. The vessels moving Venezuelan crude outside normal channels were part of that survival strategy. They were part of what is commonly called the shadow fleet, the loose and constantly shifting ecosystem of ageing tankers, opaque shell companies, false flags, ship-to-ship transfers, and other deceptive practices used to move sanctioned oil for regimes such as Russia, Iran, and Venezuela. The usual way of telling this story is as a maritime one, about suspicious voyages, evasive maneuvers, and interdictions at sea. But the more important story is often on land. Again and again, when the ownership and management chains behind these vessels are traced backwards, they lead to Hong Kong, to shell companies incorporated there, to secretarial firms that provide them a sheen of legitimacy, and to a Western sanctions designation and enforcement system that fails to identify targets hidden in plain sight.

• Cuba’s Only Choice: A Deal With Washington Is the Island’s Best HopeForeign Affairs

  Ever since U.S. commandos removed Venezuelan President Nicolás Maduro from power in January, Washington has piled unprecedented pressure on Cuba, Caracas’s beleaguered former ally. The island’s economy had already been spiraling as a result of the first Trump administration’s “maximum pressure” sanctions, the COVID-19 pandemic, and Havana’s failure to adopt deeper economic reforms. But Cuba’s loss of access to heavily discounted Venezuelan oil dealt a lethal blow. Time is running short. Frustrated by Havana’s intransigence, the Trump administration has threatened to impose crippling new secondary sanctions on foreign companies doing business in key sectors of the Cuban economy. This is not just a story about Washington’s choices, however. For decades, the island’s government has prioritized internal control and external patrons over political and economic transformation. The onus to avert catastrophe is now on Havana. The longer Cuban leaders treat the path forward as a matter of revolutionary dignity rather than national survival, the more certain it becomes that whatever follows will be worse.
  

• The US’ Donroe Doctrine is reshaping conflicts in Latin America and the Caribbean ACLED (Armed Conflict Location & Event Data)

  The US has escalated its use of direct military force with governments it perceives as failing to meet its policy objectives, but direct military interventions are less likely during the remainder of President Donald Trump’s administration, which favors bilateral agreements or forced negotiations secured through pressure and threats. US pressure on organized crime is accelerating the spread of militarized security approaches in the region, which has had a number of knock-on effects:

  • The number and lethality of clashes between security forces and armed groups have surged, and the approach has fostered an environment of impunity for security forces.

  • Violence has decreased in areas where criminal groups have more limited resources, but gangs have responded by relocating, scaling back visible activities, and turning to selective forms of violence.

  • Armed groups have fragmented, increasing competition in countries where organized crime groups’ revenue sources are more diversified.

Recommended Weekend Reads

A Deeper Dive Into Cuba, Europe’s Critical Mineral Dependency Trap, The Geography of Start-Ups During COVID, and the Case for Data Centers in Space

May 22 - 25, 2026

Happy Memorial Day Weekend! Hopefully, you will get a little time to rest and read. 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.

Cuba

• The Secretive Conglomerate that Controls Cuba’s Economy The New York Times

  The most powerful entity in Cuba is not the Communist Party. It is a secretive military-run conglomerate known as GAESA which is estimated to control between 40 percent to 70 percent of the Cuban economy. It is a commercial empire established by Raul Castro – brother of the late dictatorial leader Fidel Castro – to bolster the military. Today, it controls the finest hotels, restaurants, most of the gas stations on the island, the internet, and supermarkets. The New York offers a comprehensive, inter-active report on who exactly runs GAESA and just how sprawling an empire it is.

• In Cuba, Socialism Has Morphed Into A Racket: What I saw on the island that once considered itself the future  Persuasion (Substack by James Bloodworth)

  The author traveled to Cuba recently, touring the capital, Havana, and was appalled by what he found. In the past, apologists for the Cuban government, wanting to show that the people have enough to live on, would point to the monthly ration book—the libreta—through which Cubans received a basic food basket. But since Raúl Castro succeeded Fidel in 2008, the ration book has been steadily pared back. Today it supplies, on average, enough to subsist on for perhaps 10 days at most, and only with careful rationing. Everyday items such as toothpaste and shampoo have disappeared from it altogether. In their place is the unforgiving market: a tube of toothpaste can now cost as much as 600 pesos, around 15 percent of a typical monthly salary. That is the equivalent of spending something like $800 on a single tube.

• The Dilemma Over Cuba’s Future  El País

  Between grandstanding, contradictory statements, and secret meetings, something is happening in Cuba. A path has opened that is still full of unknowns, but one that now seems hard to reverse. In recent days, events have accelerated with the unusual visit by the CIA chief to Havana, the U.S. indictment of Raúl Castro — the Cuban Revolution’s last great symbol — and the deployment of an aircraft carrier in Caribbean waters near the island. As to what is likely to happen next, the precedent in Caracas looms over the island, but analysts and historians see a horizon of ‘capitalism without democracy’ as more likely than regime change.

• Cuba’s Soviet-Era Military Could Still Complicate U.S. Operations in a Caribbean Crisis Global Defense News

  Recent U.S.-Cuba tensions have sharpened a practical military question: what Cuba’s armed forces could actually bring to bear in a crisis with the United States, and which assets would matter first. Cuba’s Revolutionary Armed Forces remain built for territorial defense, relying on Soviet-era ground equipment, layered but aging air defenses, limited combat aviation, coastal patrol forces, and mobilization manpower. A 2025 profile estimates about 50,000 active armed forces personnel, with mandatory service for men aged 17 to 28, a 24-month obligation in the armed forces or Interior Ministry, and reserve liability for men until age 45. Older open-source military tables give lower regular army figures, around 38,000 active and 39,000 reserve personnel, illustrating the uncertainty that surrounds Cuban force accounting. The important point is functional rather than numerical: the FAR is designed to combine regular units, territorial militias, internal-security forces, dispersed storage sites, and local defense zones. In practical terms, that means Cuba’s military value is concentrated in delaying, absorbing, dispersing, and imposing local costs, not in matching U.S. joint forces in mobility, air power, naval reach, or precision strike.

Europe’s Competitiveness Challenge

• Out of the Dependency Trap: Why Germany’s and Europe’s Critical Raw Materials Policy Falls Short and How to Fix It Global Public Policy Institute

  We find that Germany and Europe’s policy approaches are still too strongly based on the false assumption that improving framework conditions for private-sector projects in Europe and elsewhere in the world will suffice to drive supply diversification. This assumption is misaligned with the reality of China’s state-backed, vertically integrated dominance that allows Beijing to shape prices and supply conditions. As a result, policies focused primarily on stimulating supply through permitting reform, financial derisking and project support in partner countries are insufficient. Other players such as Japan and the United States (US) have responded with greater resolve, deploying tools such as coordinated offtake agreements and price-support mechanisms to actively shape market dynamics. Europe’s failure to take similar steps reflects persistent misconceptions about global CRM markets, alongside fragmented and insufficient capacity in public institutions and a weak CRM ecosystem. Past efforts along four policy levers – (1) stockpiling, (2) expansion of primary supply, (3) expansion of recycling, and (4) demand reduction – exhibit a range of shortcomings, among which one stands out: the absence of stable, long-term demand at price levels that make investment in diversified supply chains in Europe and partner countries commercially viable. Without addressing this demand-side gap, even well-designed supply-side measures will fail to unlock the investment required.

• China Shock 2.0: The Cost of Germany’s Complacency Brad Setser/Sander Tordoir, Centre for European Reform

  There is a growing consensus a new China shock is reverberating across global goods markets. Nowhere is that shock more consequential than in Germany. Its manufacturers in core industries – cars, machinery, chemicals and aircraft – are being simultaneously squeezed out of China and other foreign markets, and at home. The shock is worsening. Analysts had estimated China would only export 10 million cars a year by the end of the decade. But China’s 2025 fourth quarter exports, annualized, already hit that mark. The car sector is not unique. In 2025, China’s overall export volumes grew at more than twice the pace of global trade. And they gained strength in early 2026, with first quarter export volume growth at 15 per cent. The risk for Berlin, which already struggled to adjust when China’s surplus jumped from 2 to 5 per cent of GDP from 2022 to 2025, is acute. Germany faces a structural demand shock from a state-distorted rival that cannot be addressed like past competitiveness challenges: Berlin and Brussels must either bolster their trade defenses and industrial policy or prepare to offset the social and economic costs of deindustrialization at China’s hand.

• How can Europe shape the Iran war’s aftermath? Nathalie Tocci/Brookings Institution

  The U.S.-Israel war against Iran, encompassing the Persian Gulf and Lebanon, has revealed Europe at its worst. Looking ahead, it could also see Europe at its best. The war in Iran is laying bare a long-standing reality: Europe’s attachment to multilateralism and international law has been rooted as much in interests as in idealism. If Europeans genuinely internalize this lesson, they must be willing to act on it in concert with Gulf and Asian partners in shaping the postwar order. This neither means decoupling nor closing the door to the United States. Rather, as multilateral initiatives are planned and hopefully implemented in the region, the door should remain open for the day Washington chooses to step in.

• Dawn of the Electric World Order Kate Maackenzie/Tim Sahav – Phenomenal World (Substack)

  Oil and gas—the foundation of global systems of energy and production—are no longer reliably available where and when they are needed at bearable prices. Two wars in four years have triggered a permanent risk regime shift. No matter how uneven and uncertain the immediate reaction from markets and governments, the lesson of the present energy shock is unavoidable: the geopolitical conditions that once stabilized the carbon-based logistics of the modern world can no longer be guaranteed, and electrification offers a structural exit from instability. After two months of war and supply chain disruption, the situation is becoming desperate in much of Asia and Africa and roiling across Europe and the Americas. Many oil and gas importing countries are now being forced to triage: how much LNG goes to power generation versus fertilizer plants? Bidding wars will leave those without deep pockets paying in increased hunger, lost wages, and shrinking economies. It’s not just oil being affected by the war. From cooking gas to fertilizers to sulphur to helium, the war has yet again exposed the material underpinnings of the global economy and its web of interdependence. Where does this leave Europe?

Geoeconomics, AI, and Start-Ups

• The Geography of the Startup Surge During the Pandemic Federal Reserve Bank of St. Louis

  After sharply declining since the late 1970s, the firm startup rate began to steadily rise in the 2010s, with a shift toward larger cities. Startup activity then accelerated during the COVID-19 pandemic. Where did this pandemic-era growth occur? Startup growth during the pandemic was spread widely across U.S. regions instead of being concentrated in coastal tech hubs. While bigger cities continued to have higher startup rates, business formation rose across all city sizes.

• The Jevons Paradox and Insatiable Humans: Why AI Won’t Empty the Finance SuiteEldar Maksymov/Arizona State University (ASU) - School of Accountancy

  Abstract: The conversation around AI and white-collar work has fixated on the wrong question. Anthropic’s March 2026 finding that AI can theoretically perform 94.3 percent of business and finance tasks has executives debating which jobs will survive. They should be asking which jobs are about to come into existence. The Jevons Paradox—William Stanley Jevons’s 1865 observation that efficiency gains expand rather than contract resource use—provides the framework. Its cleanest modern test: U.S. accountants quadrupled between 1980 and 2022, growing at nearly seven times the rate of population growth, after spreadsheets automated their core work. AI is to today’s accountant what VisiCalc was to 1980’s—except more powerful. The near-term displacement is real and painful. But firms that treat AI only as a headcount-reduction tool will miss the expansion. This article maps that expansion and offers concrete prescriptions for students, executives, and educators.

The Commercial Space Race

• Old Space, New Space: A Commercial Revolution in Innovation? Ruben Gaetani and Alexander T. Whalley National Bureau of Economic Research

  The biggest post-1970s surge in space innovation came in the 1990s, when policy created commercial markets for satellites and communications. Incumbent firms, not “New Space” entrants, drove most of this boom and still account for most space patents. This paper uses patent data to examine the timing and composition of space innovation, finding patterns that challenge the popular narrative attributing commercial space transformation to entrepreneurial entrants after 2005. Our findings reveal that the commercial space transformation is more closely connected to its government-led origins than narratives emphasizing entrepreneurial disruption suggest.
  

• “I’ll buy 10 of those”—NASA science chief yearns for mass-produced satellites ARS Technica

  There are more opportunities to access space than ever, thanks to a bevy of commercial rockets, some with reusable boosters, led by SpaceX’s workhorse Falcon 9. So why is NASA launching fewer telescopes and planetary science missions than it did a quarter-century ago? The answer is complex. It is not necessarily the money. The space agency’s science budget this year is $7.25 billion, roughly the same as it was in 2000, adjusted for inflation. This is despite attempts by the Trump administration to drastically reduce NASA science funding.

• The case for data centers in space: An Interview with Starcloud CEO Philip Johnston McKinsey

  As demand for AI compute rapidly accelerates, space-based data centers have the potential to move from concept to early deployment. In practical terms, this involves packaging servers and supporting systems into space-qualified modules, powered primarily by solar energy, managing tempo, and connecting back to Earth through high-bandwidth communications links. In theory, space-based systems could offer both structural advantages, such as unconstrained energy scaling and higher solar efficiency, but also the potential for cost competitiveness with terrestrial systems. Questions remain, however, about whether space-based compute can deliver that in practice, offering predictable performance, repeatable deployment, credible reliability, and sustainable, competitive economics even after accounting for launch cadence, replacement cycles, and data-movement costs.

Recommended Weekend Reads

Putin and Russia Are Facing Rough Waters, How Mexico Benefits From the US – China Trade War, Will Raising Taxes Solve the US Debt Problem? And How America is Experiencing a Productivity Miracle

May 15 - 17, 2026

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.

Russia

• Putin Is Losing His Grip on Russia The World Unpacked Podcast

  Russia’s surprising recent Internet shutdown did more than disrupt daily life: it also crippled the regime’s own communications and propaganda. It’s one of a series of strange events—from a diminished Victory Day parade to crackdowns on businesspeople and celebrities—that suggest growing disorder and confusion within the Russian state. Alexandra Prokopenko, a former Moscow insider who quit over the Ukraine War, says that Vladimir Putin has lost focus on running the country. She joins Jon Bateman on The World Unpacked to explain the erosion of Russia’s social contract and share stories from her new book, From Sovereigns to Servants: How the War Against Ukraine Reshaped Russia’s Elite.

• In Russia, the Public Mood Is Souring Carnegie Russia Eurasia Center

  Something in the air has changed in Russia. Now even loyalists complain about the mounting restrictions and repression, and once-upbeat businesspeople are now despondent. What we are witnessing is three related processes. First, attitudes toward President Vladimir Putin are changing. Second, economic optimism and the associated everyday patriotism, which celebrates survival rather than development (people are simply grateful to be alive) are fading. And finally, Russian people are realizing the impossibility of winning a war that has minimized their country’s advantages.

• The Russia-Ukraine War Report Card, May 13, 2026 Russia Matters

  May 12, 2026, update: Russia Matter’s analysis of ISW’s data for the past four weeks (April 14–May 12, 2026) indicates that Russian forces endured a net loss of 45 square miles (about twice the size of Manhattan Island) of Ukraine’s territory during that period. This contrasts with the previous four-week period (March 17–April 14, 2026), in which Russian forces lost a single square mile of Ukraine’s territory. In the past week (May 5–12, 2026) Russia recorded a net loss of 12 square miles (about half of Manhattan Island). Notably, Russia launched more than 8,000 drones last month, the highest monthly total on record since the start of its full-scale invasion of Ukraine on Feb. 24, 2022, according to data published by CSIS since September 2022 and analyzed by RM. Meanwhile, FT reported, citing two people in contact with Vladimir Putin and a Ukrainian intelligence assessment, that Russia’s top commanders have convinced Putin their forces could seize the whole of the Donbas by this fall. Since the beginning of the war, RM and other analysts estimate Russia has military losses of more than 1,000,000 men, 14,000 tanks and armored vehicles, 361 aircraft, and 29 naval vessels.

• War, Inflation, and Putin’s Paranoia: Has Russian Public Opinion Begun to Shift? Russian Roulette (Center for Strategic and International Studies Podcast)

  Dr. Sam Greene, professor of Russian Politics at King’s College London, discusses the state of Russian public opinion today and whether domestic conditions have begun to change given the state of the economy, war, and ⁠reports⁠of increasing paranoia in the Kremlin.

Geoeconomics

• America Is Experiencing A Productivity Miracle Economist Staff The Economist

  The 2019–2024 uptick in US productivity wasn’t driven by the information sector, whose growth and scale is on par with its 2000–2019 mean, but rather by professional services and management, which together make up ~10% of the economy.
  

• The Microstructure of AI Diffusion: Evidence from Firms, Business Functions, and Worker Tasks National Bureau of Economic Research

  Abstract: Using novel, nationally representative data from the 2026 AI supplement to the U.S. Census Bureau’s Business Trends and Outlook Survey (BTOS), we characterize AI diffusion across three layers: firm-wide adoption, business-function deployment, and worker-task use. During Nov 2025–Jan 2026, 18% of firms used AI in at least one function (32%, employment-weighted), with adoption expected to reach 22% within six months. Use is concentrated in large firms and knowledge-intensive sectors, reaching 50%–60% (60%–70%, employment-weighted) among very large firms in Information, Professional Services, and Finance. Among adopters, scope remains limited: 57% use AI in three or fewer functions, most often Sales and Marketing (52%), Strategy (45%), and IT (41%). Worker-level use appears in 23% (41%, employment-weighted) of firms, primarily for writing, document analysis, and information search; 65% restrict use to three or fewer tasks. Evidence suggests both top-down and bottom-up diffusion: worker use can occur without firm adoption, and vice versa. Most firms (66%) use AI for task augmentation, while employment reductions are rare (2%). Regression results show a positive relationship between firm performance and AI integration breadth. However, functional deployment and operational investment are associated with employment declines, while worker-task use is not once these factors are controlled for.

• Can Tax Reform Solve the Debt Problem—or Just Slow It? Tax Foundation

  The US federal government faces several fiscal challenges in the coming decades, as the Congressional Budget Office projects that, under current law, publicly held debt as a share of GDP will rise to a new record high within the next four years and continue rising to 175 percent of GDP by 2056. While revenues are projected to grow as a share of GDP, spending will grow faster so that deficits rise to 9.1 percent of GDP by 2056. This study simulates several large tax increases and consistently finds that even tax increases large enough to close the primary deficit in the near term will lose ground over time and fail to put the debt on a sustainable course. The most popular proposals, from hiking taxes on the rich to raising tariffs, tend to target a narrow set of taxpayers and produce the least sustainable revenues. These options are likely to introduce large economic distortions and slow economic growth without substantially improving the debt trajectory. The results suggest deficit reduction efforts should focus first on reducing the growth of major entitlements, and second on relatively efficient, broad-based tax increases.
  

Latin America

• Mexico Gains From U.S.-China Trade War; Inefficiencies Limit Benefit Ricardo Reyes-Heroles, Luis Torres and Diego Morales-Burnett Federal Reserve Bank of Dallas

  Abstract: We examine the effects of the tariffs implemented during the U.S.-China trade war on Mexico’s GDP, using a multi-country, multi-sector general equilibrium trade model. Higher U.S. tariffs on Chinese goods reduce the competitiveness of Chinese exports in the U.S. market, thereby shifting U.S. demand toward alternative suppliers, including Mexico. Model simulation indicates the U.S. - China tariff shock generated a positive effect on Mexico’s GDP, shifting U.S. demand from goods produced in China toward those produced in Mexico. There was a clear increase in U.S. demand for goods produced in Mexico during 2017–24, suggesting that output in Mexico expanded to meet this increased demand in response to the China trade tension. In the medium run—a period when aggregate capital does not change through investment—Mexico experiences a modest increase in GDP of 0.35 percent, driven primarily by higher exports to the United States and expansion of sectors integrated into North American value chains. Once Mexico’s capital stock adjusts, GDP expands by an additional 0.73 percentage points (total of 1.08 percent), reflecting increased investment in expanding industries (Chart 3). Although trade reallocation has contributed to economic growth in Mexico, structural constraints led to underperformance.

• The Strategic Link Between USMCA and Critical Minerals Arturo Sarukhan/Americas Quarterly

  Critical minerals have emerged as one of the issues most likely to define what the “new USMCA” stands for: not merely a trade agreement, but the enforcement spine of a broader hemispheric economic-security strategy that integrates market access, technology governance, and supply chain integrity. If the review produces a meaningful minerals annex—or a trilateral minerals side agreement—it will represent a genuine architectural advance. If it fails to do so, the continent risks locking in bilateral templates.
  

• Unpacking Peru’s First-Round Elections 35 West Podcast

  On April 12, Peruvians took to the polls to vote in the first round of elections that would decide the country’s next president. Some hoped the elections would help usher in an end to the country’s long running political crisis where no president has served out a full term since 2016. However, delays and complications in counting the votes, and fraud allegations leveled by some candidates turned the April election into its own miniature crisis. In this episode, Henry Ziemer sits down with Mitra Taj, a freelance reporter based in Lima to unpack the results of the first round of voting. Together they explore the key figures and power brokers heading into the runoff, as well as how the two candidates, Keiko Fujimori and Roberto Sánchez, will likely approach key issues of economic development, security policy, and relations with Congress. They also explore the significance of the elections for ongoing U.S.-China competition in South America.
  

• The prediction markets are betting on Colombia’s upcoming election Latin America Reports

  Prediction market giants Kalshi and Polymarket are showing a recent surge in bets on right-wing populist Abelardo de la Espriella to be the eventual winner of Colombia’s presidential election at the end of May. The markets are out of line with conventional polls in Colombia, which have leftist candidate Ivan Cepeda comfortably leading the race with de la Espriella in second, followed by center-right candidate Paloma Valencia. In the last week, however, bets on de la Espriella to win the election have increased relative to bets on his rivals. On May 1, de la Espriella was given a 28.8% chance of victory whilst Cepeda was given 38% on betting market Kalshi. As of May 8, de la Espriella has overtaken Cepeda by 1 percentage point, reaching 42%. Polymarket shows a similar trend. De la Espriella’s odds have risen from 28% to 39% over the last seven days, though he still trails Cepeda, who remains on 41%.

• How America Can Coerce the Cartels Benjamin Lessing/Foreign Affairs

  There is an alternative to the ongoing violent response to Latin American drug cartels: It is what the author calls “conditional repression.” Countries facing powerful and destructive criminal groups, such as drug cartels and prison gangs, should draw bright redlines and concentrate their fire on the groups that cross them. Escalatory measures, whether military or judicial, could be used to punish only the worst cartel behavior. In this way, the repressive force that is currently failing to stop the drug trade could be used coercively to reduce its most pernicious harms. And nobody understands coercion better than Trump. From tariffs to military operations in Iran and Venezuela, he has seized personal control over levers of power and used it to punish those who do not bend to his will. Trump could do the same to cartels: cow them into ending fentanyl flows and minimizing violence, criminal governance, civilian extortion, and environmental degradation. However contentious his tactics, this president may be uniquely (and surprisingly) qualified to change the way the United States—and the world—fights the drug war.

Recommended Weekend Reads

Previewing the Trump – Xi Summit, Overcoming Latin America’s Stubborn Productivity Gap, Who Will Make Money on AI?, and How Americans Rarely Talk to Their Neighbors

May 8 - 10, 2026

The US and China in Advance of the Xi–Trump Summit

• In What Ways Has U.S. Trade with China Changed? Hunter Clark and Gregory Simitian - Federal Reserve Bank of New York

  In 2025, the US deficit with China in machinery and electrical goods fell ~$70 billion, while the US deficit with ASEAN in similar goods rose ~$80B, and China’s surplus with ASEAN increased ~$70 billion — reshuffling, not shrinking, trade imbalances.

• What will happen when Trump meets Xi? Brookings Institution Expert Roundtable

  President Donald Trump will travel to Beijing for meetings with President Xi Jinping on May 14-15, 2026. Nine Brookings experts weigh in below on how Trump and Xi’s interaction will impact their areas of expertise and how the summit’s success will be measured. But as Ryan Haas, Brookings Director of the John L. Thorton China Center, suggests, observers should have low expectations for the upcoming summit. While the relationship has stabilized since the two leaders met last November, Haas points, it remains fragile—defined more by an absence of friction than any affirmative agenda or deep dialogue on the substantial differences that bedevil the relationship. Many Chinese analysts expect a U.S. snap back to a more competitive China policy, either after the midterms or after Trump steps down in 2029. Beijing seems focused on using this interregnum to enhance its position vis-à-vis the United States. Likewise, many in the Trump administration and on Capitol Hill favor a return to sustained strategic competition.

• Americans’ views of China have grown somewhat more positive in recent years Pew Research Center

  For the better part of a decade, most Americans have had negative views of China. This is still the case, but the share with a favorable view has ticked up, according to a Pew Research Center survey conducted in March. Today, 27% of Americans have a positive opinion of China. That has risen 6 percentage points since last year and nearly doubled since 2023. And it’s part of a modest softening of Americans’ opinion of China on multiple fronts:

  • Confidence in Chinese President Xi Jinping to do the right thing regarding world affairs has gone up 4 points since last year and roughly doubled since 2023.

  • When asked whether China is a partner, enemy or competitor of the United States, fewer Americans call China an enemy now than in 2025. But most Americans still see it as a competitor.

  • Slightly fewer say now than last year that China is benefiting from trade at the expense of the U.S.

• China’s Demographic Future Is Now The Rhodium Group

  We estimate China will lose nearly 60 million people in the next decade, roughly equivalent to the population of France. The impact on household consumption is obvious, but the larger problem for Beijing may be the hit to social security funds. The headlines are bad, the regional breakdown is worse. The country’s most developed provinces are seeing falling populations, which will impact overall consumption and the future productivity of the labor force. The impact on household consumption is obvious, but the larger problem for Beijing may be the hit to social security funds. The fiscal subsidy to social security funds rose to a record 2.9 trillion yuan last year, or 10.1% of general budget spending, and appears set to rise in the future.

Latin America

• A Bad USMCA Rewrite Will Cost Mexico More Than No Deal Juan Pablo Spinetto/Bloomberg

  The USMCA free-trade pact is due for review on July 1, with negotiations likely to run past the deadline and potentially leading to annual reviews. Mexico has high stakes in the review, with an updated USMCA potentially lifting uncertainty and unlocking investments, but the country should resist sacrificing a good deal for a quick one. Mexico should secure explicit guarantees that US tariffs on certain goods will be lifted or reduced before making any announcements, and may be better off waiting for a shift in Washington’s stance if such guarantees are not provided.

• Sinaloa Governor Indicted: USMCA, Cartels, and the Future of U.S.-Mexico Trade Center for Strategic and International Studies

  On April 29, Sinaloa Governor Rubén Rocha Moya and nine other current and former Mexican officials were indicted by the U.S. Department of Justice on charges of conspiring to assist the Sinaloa Cartel in trafficking drugs into the United States in exchange for bribes and political support. The move was not a surprise, but a culmination. For 18 months, the White House had been turning the screws on the Sheinbaum administration, demanding deeper security cooperation and tangible outcomes, while holding a series of escalating threats in reserve, among them the specter of unilateral U.S. military action on Mexican soil. Mexico responded at nearly every turn—yet the goalposts moved. The indictment of sitting officials from Morena, Mexican President Claudia Sheinbaum’s party, represents one of the most consequential of those threats, one that the White House had kept in reserve but never fired. Its timing is not incidental. It comes at a moment of acute bilateral tension, and just weeks before the formal review of the United States–Mexico–Canada Agreement (USMCA), currently scheduled to launch, without Canada, on May 26.

• Overcoming Latin America’s Stubborn Productivity Gap Americas Quarterly

  Call it Latin America’s perennial challenge: Low productivity. Measured as output per worker or per hour, productivity in most of the region remains a fraction of that in advanced economies and has hardly improved over the past 75 years. The result is a development constraint that scholars and observers use to explain why Latin America and the Caribbean are currently immersed in a “low growth trap” that limits wages and political stability alike. A growing body of research has identified the persistent culprits, but also the solutions that we urgently need. Low productivity limits the region’s ability to capitalize on new global opportunities—including those emerging from today’s rapidly shifting trade environment.

Geoeconomics, Statistics, and The Global Growth of AI

• The Value of Reliable Statistics Nicholas Bloom/Erica Groshen/Duncan Hobbs/Michael Strain – NBER Working Paper Series

  Abstract: On August 1, 2025, President Trump fired the head of the U.S. Bureau of Labor Statistics (BLS) and claimed that the agency’s data were “rigged.” In the aftermath, measures of economic policy uncertainty rose sharply, consistent with the idea that reduced trust in official data increases uncertainty for investors, businesses, and households. We use an event-study design to estimate the effect of the firing on policy uncertainty and then map that increase in uncertainty into implied macroeconomic outcomes. This yields a back-of-the-envelope estimate of the marginal value of public trust in official statistics. Our baseline estimate implies that preserving trust in the integrity and quality of official statistics generates economic benefits of about $25 for every $1 spent on the agency’s budget.

• Who Will Make Money on AI? A Discussion Paper on Aligning Commercial Incentives with National Security Interests Geoffrey Gertz and Emily Kilcrease/Center for a New American Security

  The private sector is playing a leading role in advancing the frontier of artificial intelligence (AI). As a result, commercial incentives are likely to have a significant impact on how AI capabilities develop and diffuse across markets. Firms’ commercial incentives will influence U.S. national security interests associated with the emergence of powerful AI systems. These interests include enabling beneficial uses of AI while limiting security risks associated with AI misuse, ensuring reliable and controllable AI system behavior in deployment, and maintaining strategic geopolitical advantage in the development and global diffusion of AI. Yet to date, stakeholders focused on AI national security interests have paid only limited attention to AI companies’ commercialization strategies and market dynamics across the AI stack. This paper seeks to bridge this gap, identifying potential scenarios for the future shape of AI markets and exploring the implications of these scenarios for U.S. national security. Rather than attempting to resolve core debates on the commercialization of AI, the paper seeks to prompt consideration in both the private and public sectors, and among economics and national security expert communities, of how commercial incentives can better align with U.S. national security interests.
  

• The Sovereign AI Index – Tracking the Global Push for AI Self-Reliance Center for a New American Security

  CNAS is running an interactive, regularly updated site tracking the explosive growth of AI globally. As they point out, The United States and China control 90 percent of the computing power needed to develop and deploy frontier AI. They own all 50 of the top-ranked AI foundation models. Concerned about this concentration of AI power, governments worldwide have responded with initiatives to strengthen their AI capabilities under the banner of “sovereign AI.” Although a consensus definition of sovereign AI remains elusive, this index defines a sovereign AI project as a government-backed AI initiative tied explicitly to national strategic interests and backed by material public investment in domestic compute, models, or data ecosystems. The drivers of sovereign AI vary widely. For some countries, the imperative is security: protecting sensitive data and ensuring access to advanced capabilities for defense and intelligence. For others, it is the economy: leveraging AI to spur AI-related local investment, jobs, productivity, and long-term value. Culture is another driver, with nations seeking AI systems that better reflect local languages and norms. Autonomy also motivates countries that see danger in growing AI dependence on the United States or China. These drivers often overlap. The result is a surge in sovereign AI activity across the globe.
  

• An American industrial revolution is brewing. I saw it in Pittsburgh. David Ignatius/Washington Post

  Columnist and former Business Editor Ignatius went to Pittsburgh to witness first-hand an extraordinary change taking place. Watching a nimble robot check for flaws along the side of a massive steel tube crafted to simulate the reactor of a nuclear submarine, you see a snapshot of the revolution in manufacturing and maintenance that could transform the gritty, routine tasks of the defense industry — and perhaps American manufacturing, as well.
  

• How Students and Recent Grads are Responding to the Rise of AI Sarah Eckhardt and Nathan Goldschlag/Agglomerations

  Far from shying away from AI, American undergraduates “are flocking towards the most-AI-exposed degrees,” with enrollment in these majors up 8% last year compared to 2017. Are students shying away from fields that have more exposure to AI, perhaps worried that AI will shrink the number of jobs available to them? Or are students shifting towards those fields, preparing for a future in which they will have to be comfortable using AI? To find out, we can check enrollment for groups of degrees based on the AI exposure of the jobs that students with those degrees are likely to take, as shown in Figure 1. As is clear, undergraduates are flocking towards the most-AI-exposed degrees, with enrollment in those degrees up 8% last year compared to 2017. This trend holds despite a notable decline in Computer Science degrees, one of the most-AI-exposed degrees, but whose decline is more than offset by increases in other exposed degrees like Engineering.

Societal Challenges in America

• Strangers Next Door Daniel Cox, Jae Grace, and Avery Shields/American Enterprise Institute

  In 2012, 51% of Americans aged 18–29 and 59% of all Americans spoke to their neighbors “at least a few times per week.” By 2025, only 25% of 18–29 year olds did relative to 40% of Americans overall. The effect was less pronounced for college grads.

• Is America Financially Illiterate? The Numbers Are Alarming  The Tax Foundation

  In this podcast, Most Americans don’t understand how the tax code works, and it’s costing them. In this episode of The Deduction, host Kyle Hulehan sits down with Zoe Callaway, VP of Education at Tax Foundation, to talk about tax and financial literacy in America. They dig into the results of Tax Foundation’s national survey on tax literacy, the most stubborn misconceptions people have about taxes (including one that nearly made a teacher turn down her own promotion), and what’s happening in high school classrooms across the country. They also connect everyday tax confusion to bigger policy questions, from tariffs to tax refunds.

Recommended Weekend Reads

The Global Threat Assessment, The Iran War and What Comes Next, China – US Relations At an Inflection Point, and AI and the Fable of ATMs

March 20 - 22, 2026

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.

The Global Threat Assessment

• The 2026 Annual Threat Assessment of the U.S. Intelligence Community   Office of the Director of National Intelligence

  The Office of the Director of National Intelligence (ONDI) – which oversees all 18 US intelligence agencies and organizations – this past week published it annual global threat assessment. The report details cybersecurity risks posed by nation-states to U.S. networks and critical infrastructure, as well as the increasingly sophisticated capabilities of cybercriminal ransomware actors. It outlines the current threat landscape, focusing on nation-state adversaries linked to the governments of China, Russia, Iran, and North Korea. The report also emphasizes the growing cyber espionage threat from Iran targeting U.S. networks and critical infrastructure.

The Iran War: Why Is It Happening and What’s Next?

• You Can’t Print Molecules   Jeff Currie and James Gutman   Carlyle

  When the dust settles and the strait reopens — partially, gradually, and perhaps on Tehran’s terms — the cost of rebuilding will likely be enormous. Governments must simultaneously finance defense, rebuild strategic reserves, restart domestic energy production, and harden infrastructure. All of this comes at a moment when inflation expectations are driving the cost of funding sharply higher — Germany’s 10-year bund auction technically failed this week, not for lack of liquidity, but because the bond market is already pricing the inflationary impact. Where does the capital come from? Capital will flow from the sectors that prospered during the era of open sea lanes and cheap energy, asset light, into the sectors that will build the replacement, asset heavy. The rotation back toward physical assets is not a trade — it is a regime change.

• Tracking US Military Assets in the Iran War   The Atlantic Council

  The Forward Defense program of the Atlantic Council’s Scowcroft Center for Strategy and Security have just launched a new regularly updated tracker to analyze what the US military is committing to the war in Iran and what that means for a potential conflict with China.  Operation Epic Fury is stressing military capabilities—aircraft carriers, bombers, missile defense systems—in ways that will have an impact in other theaters around the world. That includes US efforts to credibly deter Chinese aggression and prevail against China in a future conflict. Monitoring the military assets that are relevant to US strategy in the Indo-Pacific and currently deployed to Iran offers insight into how the war might affect the US military's readiness to meet the threat posed by Beijing—the most consequential challenge the United States faces.  Actual numbers of US inventory and deployment data are classified. This tracker provides estimates for a subset of assets where open-source information is most reliable. It will be regularly updated and expanded with new data and expert context.

• The Stunning Failure of Iranian Deterrence And Why It Augurs a More Dangerous World   Nicole Grajewski & Ankit Panda/ Foreign Affairs

  Although it was the United States and Israel that instigated attacks on Iran on February 28, leaders in Tehran deserve some of the blame for failing to effectively deter their adversaries. As the deceased commander of the Islamic Revolutionary Guard Corps Aerospace Force, Amir Ali Hajizadeh, once put it, maintaining deterrence is like riding a bicycle: “You have to keep pedaling all the time, or else the bicycle will fall.” Over the past three years, Iran started to lose its balance; now it has tipped over.

• Why Escalation Favors Iran      Robert Pape/Foreign Affairs

  Iran’s military strategy cannot be dismissed as acts of scattered retaliation, the flailing lashing out of a dying regime. Rather, they represent a strategy of horizontal escalation, a bid to transform the stakes of a conflict by widening its scope and extending its duration. Such a strategy allows a weaker combatant to alter the calculus of a more powerful foe. And it has worked in the past, to the detriment of the United States. In Vietnam and Serbia, U.S. adversaries responded to overwhelming displays of American airpower with horizontal escalation, eventually leading to American defeat, in the former case, and, in the latter, frustrating U.S. war aims and spurring the worst episode of ethnic cleansing in Europe since World War II. Decapitation strikes, in particular, create powerful incentives for horizontal escalation: when a regime survives the loss of its leader, it must demonstrate resilience quickly by widening the conflict. Although the United States has hugely battered Iran, it must reckon with the implications of Iran’s response. Otherwise, it will find itself losing control of the war it started.

• How Iran’s ‘forward defense’ became a strategic boomerang   Chatham House

  The war has exposed the limits of Iran’s long-standing strategy of ‘forward defense’. Worse still, that strategy has significantly contributed to Iran’s current predicament. So much so that, depending on the current conflict’s outcome, Tehran may need to fundamentally reconsider an approach to its security that it has refined, expanded and invested in for more than four decades.  Since the 1980s, Iranian leaders have tried to push threats away from their borders by cultivating armed partners in fragile and divided Arab states. Through Hezbollah in Lebanon, militias in Iraq and Syria, Palestinian militant groups in Gaza and the Houthis in Yemen, Iran built a destabilizing network that allowed it to project influence while avoiding direct armed conflict with Israel and America.

China

• Trump, Xi, and the Case for Strategic CalmRyan Hass/Foreign Affairs

  After a decade of elevated tensions, Washington and Beijing now find themselves navigating relatively calm waters. Last October, U.S. President Donald Trump and Chinese leader Xi Jinping reached an agreement in Busan, South Korea, to pause the trade war between their two countries. The truce paused new U.S. tariffs and rolled back Chinese restrictions on American access to rare earths and magnets. That reprieve is real—but fragile.  Expectations are high that the next time the two leaders meet—originally scheduled to be March 31, in Beijing, but now delayed at Trump’s request because of the U.S. war in Iran—they will reaffirm and potentially extend their trade war truce. But the truce is driven less by a desire to resolve underlying challenges in the U.S.-Chinese relationship than by a convergence of interests between the countries’ leaders to buy time for their own domestic self-strengthening projects. What will determine the balance of power for years to come is not what Trump and Xi say to each other at this highly staged summit but what the United States and China each does during this larger respite of calmer relations.  To take advantage of this current period of fragile stability in its relations with Beijing, Washington will need to wind down its military operations in Iran and refocus on a more consequential national imperative: rebuilding capacity to compete with China.

• Double-Edged Swords: How Military Purges Shape Authoritarian Appetite for War   War on the Rocks

  In less than three years, dozens of senior Chinese military officials have been removed. Many of these officers were promoted by Xi after he assumed power in 2012, when he pledged to eliminate endemic corruption within the armed forces.  This unprecedented wave of purges among the highest-ranking generals has prompted questions regarding the implications for China’s international and military ambitions: How do military purges affect authoritarian regimes’ propensity to initiate war?

Geoeconomics, Markets & Politics

• Why People Disagree About What Drives Stock Prices  Andrew Atkeson,  Fabrizio Perri & Jonathan Heathcote/National Bureau of Economic Research

  Abstract: We show that, to a first-order approximation, estimates of fluctuations in Shiller’s fundamental price relative to observed price depend primarily on forecasts of long-horizon expected returns. Researchers using different measures of cash flow and valuation may reach different conclusions about the extent to which values fluctuate excessively relative to fundamentals, but that is only because return forecasts based on different cash-flow-to-value measures will be different. Using U.S. equity data, we demonstrate that the amount of persistence in expected returns, rather than the amount of short-run return predictability, is the key determinant of implied excess volatility. Disagreements about stock market valuation therefore reduce to disagreements about long-run expected returns.

• AI and the Fable of the ATMs     Paul Kedrosky/Notes on Complexity

  The author points out that the implantation of bank ATMs did reduce teller labor demand — just not in the way the standard story claims.  What kept total teller employment up was not automation-driven demand growth, but a massive branch expansion driven by deregulation. That matters because the ATM example is often misused as proof that task automation naturally creates offsetting new human work.  The real lesson for AI is harsher: unless you can identify the offsetting force, job survival may be coincidence rather than mechanism.

• The Micro-Geography of Persuasion: Randomized Peer Exposure and Legislative Outcomes   Lauren Cohen & Bo Li/National Bureau of Economic Research

  Abstract: We find that randomly assigned peers play a sizable and unique role in shaping political economy. Closely seated, and exogenously assigned, US Senate peers have a significant impact on Congressional voting, shifting votes by 11.9 percentage points (t=7.34). Physical distance is the largest and most consistent of any characteristic outside of party or state in impacting voting behavior. The distance effect is concentrated in the closest peers, existing for up to 19.6 feet on the Senate floor, then dissipating. Close peers additionally increase the probability of aisle-crossing (voting with the opposite party), with the aisle-crossing impact being roughly eight times larger on the final votes on bills. We then utilize a state-of-the-art AI-enhanced computer vision model based on real-time interactions using CSPAN video data at every 10-second interval amongst Congressional members. Using these observed interactions, we find that face-to-face interactions are associated with significant impacts on immediately pending votes. The interactions are largely driven by distance, with aisle-seated Senators from both parties being amongst the most likely to engage in face-to-face interactions across party lines. By conducting counterfactuals through randomized Senate seating, 59 consequential bills would have switched outcomes over our 30-year sample period.

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.