Geopolitical Concerns
Trump’s Pivot Toward Putin’s Russia Upends Generations of U.S. Policy
Peter Baker, New York Times
The transatlantic relationship is crumbling, says an ex-head of NATO
The Economist
Analysis: Xi seeks to join Trump and Putin for Yalta 2.0
Katsuji Nakazawa, Nikkei
5 Takeaways from Germany’s Election
Christopher F. Schuetze and Jim Tankersley, New York Times
In the past month, a significant shift in international relations has been observed as President Trump has sought warmer ties with Russia under President Vladimir Putin, a stark contrast to decades of US foreign policy. This pivot is evident as American and Russian negotiators meet for the first time since Russia’s full-scale invasion of Ukraine nearly three years prior. Trump voices opinions that absolve Russia of responsibility for the war, instead blaming Ukrainian leaders and suggesting they should have conceded territory. This viewpoint sharply diverges from that of previous American presidents and raises concerns among allies. Secretary of State Marco Rubio met with Russian Foreign Minister Sergey V. Lavrov in Riyadh, Saudi Arabia, to discuss potential partnerships if the Ukraine war could be resolved. Trump’s administration is considering concessions that align with the Kremlin’s objectives, such as recognizing Russia’s territorial gains in Ukraine, ceasing security support for Ukraine, and lifting sanctions. In his first month of his second term, Trump has also been threatening tariffs against allies, demanding they increase their military spending, and asserting claims over some of their territory.
Accordingly, the transatlantic relationship is facing unprecedented strain as Europe grapples with the implications of a potentially isolated future. Anders Fogh Rasmussen, former head of NATO, argues that Europe must accept the possibility of being alone and increase defense spending accordingly. He suggests increasing the current NATO defense spending target of 2% of GDP to 3% immediately and 4% by 2028, which would result in approximately $400 billion in additional annual defense spending. Meanwhile, China aims to play a crucial role in shaping a new world order, potentially joining Trump and Putin in a “Yalta 2.0”. Xi Jinping seeks to leverage China’s economic and military strength to become a co-architect of this new order, possibly through participation in a security framework for Ukraine after a ceasefire. China has also informed the Trump administration of its readiness to send PLA troops to join a peacekeeping force in Ukraine after an eventual truce. The German election saw Friedrich Merz and the Christian Democrats emerge as the leading party, with Chancellor Olaf Scholz’s Social Democratic Party experiencing a record-low result. The election was influenced by concerns over Trump’s stance on NATO and fears of Russian aggression, with a significant percentage of German voters worried about helplessness against both leaders. Despite receiving support from Trump officials and Elon Musk, the Alternative for Germany (AfD) party’s vote share fell short of expectations, while Die Linke, Germany’s far-left party, experienced a surge in support.
Geoeconomics
‘Mar-a-Lago Accord’ Chatter Is Getting Wall Street’s Attention
Liz Capo McCormick, Bloomberg
Who will now stabilise the world economy?
Robin Harding, The Financial Times
Will the bond market rein in Donald Trump?
Harriet Clarfelt, The Financial Times
Wall Street is paying increasing attention to the buzz surrounding a potential “Mar-a-Lago Accord,” a concept discussed by Jim Bianco with his clients. This accord, a riff on the 1985 Plaza Accord and the 1944 Bretton Woods Agreement, is viewed as a plan to remake some of the financial system. The ideas behind it come from a November 2024 paper by Stephen Miran, Trump’s nominee to lead the White House Council of Economic Advisers. Miran’s paper outlines a plan for reforming the global trading system and addressing economic imbalances caused by “persistent dollar overvaluation”. The Trump team’s agenda includes revamping global trade through tariffs, weakening the dollar, and reducing borrowing costs to level the playing field for US industry. This plan may include creating a sovereign wealth fund and pressuring allies to increase their security spending. Bianco referenced the work of former Credit Suisse Group AG strategist Zoltan Pozsar, who has called for a “Bretton Woods III” revamp, envisioning a less dominant role for the dollar in global finance. A key idea involves nations swapping Treasuries for 100-year, non-tradeable zero-coupon bonds to ensure the stability provided by the US, with the Federal Reserve potentially offering temporary liquidity through a lending facility. Despite the radical nature of these proposals and the need for significant international cooperation, bond investors have shown little sign of concern, with calm trading in the Treasury market.
As the US and China appear unwilling to fully assume responsibility for stabilizing the global economy, the question arises: Who will step up? Charles Kindleberger has argued that a stable world economy requires a hegemon willing to incur costs and risks for the greater good. Historically, the US played this role, coordinating responses to crises like the Latin American debt crises of the 1980s and the 2008-09 global financial crisis. However, America’s ability to act as a hegemon has declined due to China’s rise. China, on the other hand, is acting as a destabilizing force by creating domestic deflation that impacts other countries and shows no willingness to take on the responsibility of a global economic leader. The potential for the bond market to rein in Trump’s policies exists, especially with a large fiscal deficit. The downfall of UK Prime Minister Liz Truss in 2022 serves as a reminder that investors won’t always accept unorthodox fiscal policies. JPMorgan strategists noted that foreign investors offloaded a net $50 billion in long-term Treasuries in December, marking the highest net sale since May 2021. Ed Al-Hussainy, rates analyst at Columbia Threadneedle Investments, notes that the scale and scope of the fiscal deficit could be quite large and long term, potentially damaging the rates market.
Global Junctions
Quantum Computing Is Closer Than Ever. Everybody’s Too Busy to Pay Attention.
Isabelle Bousquette, Wall Street Journal
The Economist
The AI Economy’s Massive Vulnerability
Jared Cohen, Foreign Policy
PsiQuantum, a startup based in Palo Alto, California, anticipates having a commercially viable quantum computer ready as early as 2027. They are constructing quantum computers in both Australia and Chicago, where they will be the primary occupant of the planned Illinois Quantum and Microelectronics Park. Their strategy involves utilizing existing fabrication plants and contract manufacturers, similar to those used by conventional data centers and supercomputers, to accelerate progress. Tech leaders at the Wall Street Journal’s CIO Network Summit expressed more pressing concerns, such as ensuring the reliability of AI and navigating new tech policies. While recognizing quantum computing’s potential in areas like drug discovery, finance, and energy, none of the attendees were actively pursuing business applications for it. Half cited being too preoccupied with other priorities, while 29% were unsure of its business value. Efforts are underway to develop post-quantum cryptography to protect sensitive data from code-breaking.
In other developments, gene editing has seen rapid advancements, particularly with CRISPR technology. In early 2005, Rodolphe Barrangou and Philippe Horvath discovered unusual repeating genetic code in Streptococcus thermophilus. They found that bacteria which survived a viral attack kept segments of the attacking virus’s DNA in their genomes, which functioned as an immune system. In 2012, Emmanuelle Charpentier at the Max Planck Institute in Germany and Jennifer Doudna at the University of California in Berkeley found that CRISPR could be hacked to make cuts at precise sequences in the genome of any organism. Scientists can now design an RNA fragment to match the gene they want to edit, bonding the RNA to Cas9 and exposing the cells to this complex. Meanwhile, the AI economy faces a major vulnerability due to its reliance on subsea cables, which constitute a network of roughly 750,000 miles. These cables transport 95% of international data flows, including an estimated $10 trillion in daily financial transactions. In November, a Chinese vessel reportedly severed data cables in the Baltic Sea. In early January, another undersea cable located to the north of Taiwan was damaged.
Global Trajectories
Behind the Trump offensive, a quiet struggle for control of strategic metals
Bastien Bonnefous, Le Monde
After 150 Years of Friendship, the U.S. and Canada Come to Blows
Vipal Monga and Jeanne Whalen, Wall Street Journal
Debt Has Always Been the Ruin of Great Powers. Is the U.S. Next?
Niall Ferguson, Wall Street Journal
Over the past month, geopolitical and trade tensions are destabilizing critical minerals markets due to a new US policy. Green transition metals experienced a dismal year in 2024. On February 1, Donald Trump raised tariffs on Chinese products by 10%. China retaliated three days later by cutting its exports to the US of critical metals essential to its defense and industry. On February 10, Trump conditioned arms deliveries to Ukraine on privileged access to the country’s mineral wealth, partly to bypass China. Since the 1980s, China has been implementing a strategy of conquering critical minerals, indispensable in the manufacture of military equipment and in the energy transition industries. China accounts for a large share of the world’s production of these metals and controls almost 90% of their refining. Western countries relocated metal refining to China in recent decades for economic and environmental reasons, which has become their Achilles heel. In 2023, the EU adopted a regulation on critical raw materials, and Stéphane Séjourné wants to speed up the reopening of mines in Europe. In 2012, the Americans relaunched the Mountain Pass rare earths mine in California. In 2022, the Pentagon signed a contract with Lynas to set up a plant in Texas to process Australian and Californian ores, expected to be operational during 2025. Several critical minerals saw sharp declines on the markets in 2024 with lithium losing 70% of its value, cobalt 15% and nickel 9%.
After 150 years of friendship, the US and Canada are experiencing escalating tensions and fractures. Trump has been proposing removing what he calls the “artificial line” between the two countries and has threatened to use “economic force,” including tariffs, to compel Canada to join the United States. He told Trudeau he could erase the border by ripping up a 1908 treaty. Trudeau convened an emergency economic summit, encouraging businesses and labor leaders to lessen their dependence on the U.S.. Following a hockey game between the US and Canada, Trudeau posted on X, “You can’t take our country—and you can’t take our game”. Gerald Butts said Trump made the 51st state comments a few times during his first term, but always in private. Officials in Ottawa said they are bracing for a possibly lengthy campaign in which the U.S. uses economic pressure to bend Canada to Trump’s will. Trump claims the U.S.’s annual “subsidy” of Canada amounts to $200 billion, after accounting for a goods trade deficit that totaled $63 billion in 2024 and the money the U.S. contributes to joint defense of the countries. Lastly, the U.S. risks losing its great power status as it spends more on servicing debt than defense. Ferguson’s Law, as coined by Niall Ferguson, holds that a great power spending more on debt service than defense risks decline, an idea rooted in Adam Ferguson’s 1767 analysis of excessive public debt. In 2024, for the first time in nearly a century, U.S. interest payments on federal debt ($1.124 trillion) exceeded annual defense spending ($1.107 trillion), violating Ferguson’s Law. This trend is likely to continue in the coming decades.
