We begin this week’s newsletter by examining the state of the Middle East, which is still embroiled in conflict. Next, we turn our focus to Europe’s political and economic ailments, focusing on the particular weaknesses in major economies such as France and Germany. We then continue our discussion on China’s stimulus, examining the underlying reasons why Beijing has decided on this policy route. Finally, we conclude by taking a look at some of the modern paradoxes we see in the world around us, focusing on the success of the American economy in the face of what some claim to be unethical supply chains and monopolistic dominance.

Conflict Still Ravages the Middle East

The Path to Regional War 

Joost Hiltermann, The New York Review

Why Netanyahu Won’t Cease Fire 

 Bernard Avishai, The New Yorker

Gaza in Ruins After a Year of War 

Raja Abdulrahim, Helmuth Rosales, Bilal Shbair, Anjali Singhvi, Erika Solomon, Iyad Abuheweila, Abu Bakr Bashir, Ameera Harouda, Malika Khurana, Veronica Penney and Scott Reinhard, New York Times

The EU’s Divisions Over Israel and Gaza Are Widening 

Anchal Vohra, World Politics Review

On October 7, 2023, Hamas, the militant group governing Gaza, launched a surprise, deadly attack on southern Israel, killing civilians and capturing over 200 hostages. In response, Israel initiated a large-scale military operation targeting Hamas’s infrastructure and leadership. As we have covered over the last several months, the conflict expanded quickly as Hezbollah, the Iran-backed militia in Lebanon, launched attacks on Israeli positions in the disputed Shebaa Farms region in solidarity with Palestinians, leading to intense exchanges of rocket and artillery fire. Tens of thousands of civilians were displaced on both sides. Iran-aligned groups like Iraqi militias and Yemen’s Houthis also entered the fray, attacking U.S. bases in Iraq and Syria and targeting vessels linked to Israel in the Red Sea, prompting U.S. retaliatory strikes on Houthi positions in Yemen. While these actions caused significant disruptions, they initially did little to shift the broader balance of power between Israel and the Iran-led resistance axis.

The fragile balance broke down in July 2024 when Israel escalated by assassinating Hamas’s political leader, Ismail Haniyeh, during his official visit to Tehran, further inflaming tensions. In September 2024, Israel’s targeting of Hezbollah’s leadership and communication networks—culminating in the killing of Hassan Nasrallah—sparked Iranian retaliation on October 1st with ballistic missile strikes against Israeli military targets. Despite Iran’s attempts to limit the strikes to military infrastructure, the conflict has continued to escalate. Israel, seeking both to restore national security and weaken its regional adversaries, has maintained its military course in both its south and north, heightening the risk of a wider regional war that could draw in countries like Syria, Jordan, Turkey, Egypt, and the Gulf states. External powers like the U.S. and the EU, though active, have struggled to mediate effectively. Israeli hardline policies have repeatedly thwarted U.S. efforts to broker a ceasefire between Israel and Hamas, while the EU, once united in its condemnation of Hamas, has grown increasingly divided over Israel’s actions. The conflict has already left a legacy of widespread devastation, especially for Palestinians in Gaza, who have endured heavy casualties, destruction of homes and infrastructure, and mass displacement, highlighting the need for a sustainable peace solution.

Europe in Crisis?

Is Europe Becoming Ungovernable? 

Bojan Pancevski, Wall Street Journal

France stares into a “colossal” budgetary abyss 

The Economist

Europe Is Almost Out of Time to Defend Its Place in a Brutal World 

Ben Sills, Bloomberg

Europe finds itself in a precarious position, facing a convergence of economic stagnation, political fragmentation, and security threats. Economically, the continent is struggling with low productivity growth, lagging behind its rivals, the US and China. Despite warnings and calls for investment from figures like former Italian Prime Minister Mario Draghi, the EU has failed to implement significant changes. This economic weakness has also contributed to fiscal instability in key member states like France, which is facing a projected budget deficit exceeding 6% of GDP in 2024, despite attempts at austerity measures. Further exacerbating the economic challenges is the ongoing war in Ukraine, which has depleted European military stockpiles and exposed the continent’s reliance on external actors for security.

Politically, Europe is experiencing growing fragmentation and polarization. Germany and France, traditionally the driving forces of the EU, are increasingly paralyzed by divided parliaments and the rise of fringe political parties. This division has hampered the EU’s ability to act decisively on pressing issues like immigration, defense, and economic reform. The inability to forge a cohesive response to internal and external challenges has eroded faith in the European project, both among its citizens and leaders. Some officials are looking to forge alliances outside the traditional EU framework, further undermining the bloc’s unity and effectiveness. While some solutions have been proposed, such as Draghi’s call for increased investment and joint debt issuance, these have faced resistance, particularly from Germany. The lack of a unified response raises concerns about Europe’s ability to maintain its global standing and ensure its long-term security and prosperity.

The Reason for China’s Stimulus

Analysis: Chinese leaders finally admit economic ‘difficulties’ 

Katsuji Nakazawa, Nikkei

China’s real intent behind its stimulus inflection 

Arthur Kroeber, Financial Times

China promises to borrow more to shore up economy and boost banks 

Joe Leahy and Edward White, Financial Times

The Chinese government recently announced a series of stimulus measures aimed at stabilizing its slowing economy. These measures, which include issuing more debt to boost the property market and recapitalize banks, were announced on October 12th by Finance Minister Lan Fo’an in Beijing. While the exact amount of fiscal spending was not revealed, Lan emphasized that the government has “significant room” to increase the deficit and issue more debt. These actions come after several months of declining market confidence and a prolonged property sector slowdown. The CSI 300 index, China’s benchmark stock index, surged 24% following the announcement of extensive monetary stimulus by the central bank in late September but then tumbled again after a week-long holiday. Experts, such as Alicia García-Herrero of Natixis and Raymond Yeung of ANZ, are critical of the lack of clarity and forceful action from Beijing. Heron Lim, an economist at Moody’s Analytics, believes that while bailing out local governments would help them increase spending and boost the economy, the lack of a specific stimulus figure might make investors hesitant.

Politically, the stimulus measures represent a tactical shift rather than a fundamental change in Xi Jinping’s long-term vision for China. Arthur Kroeber, founding partner of Gavekal Dragonomics, argues that the stimulus is intended to stabilize the economy and prevent deflation, not to generate a major reacceleration. Xi’s ultimate goal remains focused on shifting capital from the property sector into technology-intensive manufacturing, which he believes will create a self-sufficient and technologically powerful economy, immune to U.S. influence. While acknowledging the economic difficulties, Xi’s leadership team remains committed to this long-term strategy, prioritizing investment over consumption and maintaining central control of finance and capital allocation. Experts like Andy Rothman of Matthews Asia see the stimulus as a significant policy response that signals Xi’s understanding of the need to restore confidence among consumers and entrepreneurs. However, the long-term success of this strategy remains uncertain. While the stimulus may lead to short-term economic gains, the underlying structural issues and Xi’s focus on state control could continue to hinder sustainable growth and profitability in the long run.

A Time of Paradoxes

How a break-up of Google could transform tech 

Richard Waters and Stephen Morris, Financial Times

The American Economy Has Left Other Rich Countries in the Dust

The Economist

How This Conflict Mineral Gets Smuggled Into Everyday Tech 

Alexandra Wexler, Wall Street Journal

Despite persistent fears of American decline, the U.S. economy in 2024 continues to defy expectations, surging ahead of its wealthy counterparts and maintaining a trajectory of growth that leaves other advanced economies in its wake. Over the past thirty years, countless predictions of stagnation and decline have fallen flat, as the American economy has consistently outperformed its peers. Since 2020, the U.S. has experienced a real economic growth rate of 10%—triple the average growth of other G7 nations—fueling its dominant position within the global economy. Today, America accounts for nearly half of the G7’s overall GDP, with per capita output 40% higher than Western Europe and 60% higher than Japan. This strength is evident in global travel and spending trends, as Americans, buoyed by the strong dollar, set record overseas spending. America’s economic vitality is rooted in its vast consumer market, cutting-edge industries, and the government’s willingness to make decisive interventions during crises. Even in the face of rising powers like China, the U.S. economy remains unmatched, perpetually proving the pessimists wrong.

Yet, paradoxes define this era of American dominance. While the U.S. economy thrives, critical legal and ethical questions shadow its success. The Department of Justice’s antitrust case against Google, stemming from a ruling by Judge Amit Mehta, highlights the tension between economic prowess and fair competition. Google, which generated $175 billion in revenue last year, faces scrutiny for anti-competitive practices, including $20 billion in exclusivity deals with Apple for preferential iPhone access. Attorney General Merrick Garland’s DOJ seeks to dismantle Google’s monopolistic advantages, such as its data superiority and inflated advertising prices, by considering structural remedies, including breaking up its Android and Chrome operations. These reforms, while aimed at leveling the playing field for competitors, also raise questions about how regulation will impact the rapidly growing field of generative AI. At the same time, America grapples with another paradox: while it champions technological advancement, its supply chains are tainted by ethical concerns, such as the illicit coltan trade in the Democratic Republic of Congo. Despite the Dodd-Frank Act’s 2010 provisions to prevent the use of conflict minerals, coltan smuggling continues to fuel armed militias, undermining the “conflict-free” claims of tech giants like Apple and IBM. These intersecting challenges reveal the complex reality that underpins America’s economic success: a tension between innovation, regulation, and ethical responsibility in an increasingly interconnected world.