Welcome to this week’s edition of Geopolitics & the Day After. Each week, we curate and synthesize key developments from global politics, economics, and financial markets, drawing from a wide range of trusted sources. Our goal is to provide you with a clear, concise, and insightful overview of the forces transforming the world today and shaping tomorrow. Below is an overview of what we cover this week:
Geopolitical Concerns examines how Sudan’s grinding civil war and a new Turkish-Saudi-Pakistani defense pact reveal states building their own security guarantees rather than trusting multilateral protection, a fragmentation rooted in a Chinese political system scholarship increasingly identifies as totalitarian rather than merely authoritarian.
Geoeconomics tracks how sovereign borrowing costs are climbing to multi-decade highs as the bond market grows more dependent on leveraged hedge fund positioning, a fragility compounding just as China’s export-led growth model approaches the limit of what the world can absorb.
Global Junctions explores how China’s dependence on food imports has become a source of geopolitical leverage even as it exposes a real vulnerability, a dynamic mirrored in an American technology sector betting trillions on AI infrastructure that utilities increasingly doubt can be powered.
Global Trajectories outlines how a historic Super El Niño is compounding a European drought and an Asian heat crisis running into the tens of billions of dollars, the same brittleness that runs through a global antibiotic supply chain concentrated almost entirely in China.
Geopolitical Concerns
A Battle for Supremacy has laid Sudan and its Capital to Waste
The Economist
The Making and Remaking of Chinese Totalitarianism
Chenggang Xu, Project Syndicate
Here’s What Middle Powers Can Actually Do
Suzanne Nossel, Foreign Policy
Turkey-Pakistan-Saudi pact a ‘Muslim NATO’?: 5 things to know
Sinan Tavsan, Nikkei Asia
Sudan’s civil war has entered its fourth year, with the Sudanese Armed Forces holding Khartoum but unable to convert that recapture into a decisive victory over the Rapid Support Forces, which retains strongholds across Darfur, a region the size of France. Hundreds of thousands have died, and roughly 14 million people have been displaced, the largest forced movement of people this century, and the conflict has splintered into a contest involving at least 150 militias organized along ethnic and local lines. That fragmentation traces directly to divided foreign backing: the United Arab Emirates supports the RSF while Egypt, Turkey, Saudi Arabia, and Qatar back the SAF, a split that has paralyzed the four-party Quad forum meant to broker a settlement. Iran’s closure of the Strait of Hormuz has only sharpened Gulf states’ strategic interest in Sudan’s Red Sea coastline, without bringing them any closer to consensus on ending the war. That same anxiety over Iran, paired with growing doubt about the reliability of American security guarantees, drove Turkey, Pakistan, and Saudi Arabia to sign the Mecca Joint Defense Agreement earlier this month. The pact treats an armed attack on any one member as an attack on all three. Turkey’s foreign minister has described the arrangement as technically equivalent to NATO’s Article 5, and says Egypt could join in a next phase, naming Qatar, Azerbaijan, Jordan, and Syria as other natural candidates for expansion. None of the three states moved militarily after a recent Houthi strike on a Saudi refinery, and the agreement still lacks the political-military committee that would coordinate intelligence sharing and logistics in an actual crisis. It nonetheless builds on a prior bilateral defense agreement between Saudi Arabia and Pakistan, under which Islamabad already deployed troops and an air defense system to the kingdom, reflecting a Gulf increasingly building its own security guarantees rather than assuming Washington’s will suffice.
That same instinct runs through a wider pattern in which middle powers are discovering the limits of collective action even as the incentives for it grow. Canadian Prime Minister Mark Carney’s call for middle powers to jointly rebuild the international order has largely gone unrealized, and countries such as Canada, Germany, Japan, and Poland have instead prioritized national self-preservation over a shared architecture. The European Union’s failed effort to channel frozen Russian assets to Ukraine shows the same dynamic, as does the paralysis that gripped a Latin American bloc after the United States intervened in Venezuela. Coalitions built around specific chokepoints, such as the fifty-one-nation grouping assembled to secure the Strait of Hormuz, can prepare for contingencies without having any power to resolve the conflicts that created them. A deeper structural reality underlies much of this fragmentation, one Chinese President Xi Jinping has worked to obscure by framing China as merely a rising power caught in a Thucydides Trap with Washington. Scholarship on China’s “institutional genes” argues otherwise: the country is not a conventional authoritarian state trending toward pluralism, as South Korea and Taiwan once did, but a communist totalitarian system in which the ruling party penetrates and controls the state, the economy, the media, and even private life. This structure traces a lineage back to imperial China, where a centralized bureaucracy, state control over land, and an ideological examination system sustained dynastic rule for centuries. Contemporary China reproduces the same trinity today, through a party-state bureaucracy, party control over land and finance, and centralized oversight of personnel and ideology, a structure researchers term Regionally Administered Totalitarianism. Deng Xiaoping’s reform era loosened some of those controls without ever relinquishing the Communist Party’s monopoly on power, and Xi’s recent tightening illustrates that monopoly reasserting itself against the private enterprise and civil society the reforms once allowed to grow. Whether the multilateral institutions middle powers are struggling to hold together can accommodate a China of this kind depends on recognizing it for what it is, rather than treating it as an ordinary great power.
Geoeconomics
Global Bond Slump Sends Long-Term Borrowing Costs to Highest in Decades
Greg Ritchie and Matthew Burgess, Bloomberg
The Treasury Market’s Toxic Codependency
Robin Wigglesworth, Financial Times
Costliest US Bond Sale Since 2001 Is Investor Warning to Bessent
Greg Ritchie, Bloomberg
The Next Global Economic Crisis Could Be Made in China
Michael B. G. Froman, Foreign Affairs
Sovereign borrowing costs are surging across every major bond market at once, with 30-year US Treasury yields climbing to their highest level since 2007, while French, German, and British long-dated yields hit their own multi-year peaks, and equivalent Japanese debt trading close to its all-time high. The United States’ most recent thirty-year bond auction cleared at 5.216 percent, the highest rate since the Treasury discontinued the long bond in 2001. That decision was reversed in 2005 under circumstances almost the mirror image of today, when the volume of Treasuries outstanding was a tenth of what it is now. Investors read the result as demand for greater compensation to finance a deficit pushing the national debt toward 40 trillion dollars, with interest payments on that debt now exceeding US defense spending by some measures. Structural forces are compounding the strain. Hedge funds have doubled their exposure to Treasuries since 2023 and now hold 8.5 percent of the market, more than China, Japan, and Saudi Arabia combined, and more than the country’s entire mutual fund or banking industry holds. That concentration puts the world’s most important bond market in the hands of leveraged, short-term-financed positions built around trades like basis arbitrage and swap spreads, structures that performed reliably in calm conditions but amplified the dysfunction seen in both March 2020 and April 2025. Corporate borrowing tied to the artificial intelligence buildout is adding further competition for long-dated capital, even as traditional buyers such as pension funds retreat from the asset class in favor of equities. The Federal Reserve says this shift toward price-sensitive private investors accounts for roughly ninety basis points of the term premium on thirty-year Treasuries alone.
Beijing faces a parallel reckoning on the other side of the global imbalance. China’s trade surplus reached nearly 1.2 trillion dollars in 2025, and the country now accounts for roughly 30 percent of global industrial production, a concentration with no historical precedent outside the postwar United States and a share the UN expects to reach 45 percent by 2030. Nearly 30 percent of Chinese industrial firms operate at a loss, a share that rises to 34 percent in sectors prioritized under Xi Jinping’s Made in China 2025 initiative. Local governments and state banks prop those firms up because their own finances depend on the factories staying open, rolling over debt for insolvent borrowers rather than allowing them to exit. The result is a dynamic the Chinese call neijuan, or involution, which captures a race to the bottom that cannot sustain itself. Germany’s experience illustrates the pressure this exerts abroad: German car exports to China are down 66 percent since 2022, and metal-sector layoffs now exceed those of the 2008 financial crisis. Volkswagen is weighing cuts to as much as a sixth of its workforce, and Berlin is now weighing tariffs modeled on America’s Section 301 trade authority as a result. As trading partners from the European Union to a new critical-minerals coalition erect barriers against Chinese exports, the arithmetic grows harder to escape, with a 1.2 trillion-dollar surplus chasing a global economy the IMF projects will grow just 3.1 percent this year. China’s export-led model may be approaching the limit of what the world can absorb, and such a shock would compound an already fragile global bond market rather than relieve it. A slowdown severe enough to force Beijing into stimulus would still need financing from the same stressed pool of global capital already demanding higher yields from Washington, London, and Paris. Advanced economies collectively now carry far more debt relative to their economies than they did heading into the 2008 crisis.
Global Junctions
Caitlin Welsh and Brian Hart, Foreign Affairs
Why Big Tech’s AI Spending Is $3 Trillion Higher Than It Seems
Peter Rudegeair and Peter Santilli, The Wall Street Journal
Kenneth S. Rogoff, Foreign Affairs
Most Power Sought for US Data Centers Will Never Materialize
Gabriel Levin and Emily Forgash, Bloomberg
China’s need to import food has become one of its sharpest tools of geopolitical leverage, even as it exposes a genuine vulnerability. China imports nearly 85 percent of its soybeans and roughly a quarter of its beef, dependencies built on decades of rising incomes and shrinking arable land. Beijing has used access to its market as a weapon at least twenty-six times since 2010, suspending American soybean purchases, Canadian agricultural imports, and Japanese seafood in response to policy disputes. That leverage cuts both ways, with China holding a significant share of global grain reserves, including 44 percent of world wheat stockpiles and 53 percent of world rice stockpiles. Beijing is simultaneously investing heavily in seed biotechnology and animal-feed inputs, hoping to wield exports, not just imports, as a source of pressure over its rivals. A comparable asymmetry is emerging in artificial intelligence infrastructure, where the capital committed dwarfs what shows up on any balance sheet. Nine major technology companies have accumulated roughly 3 trillion dollars in off-balance-sheet obligations for uncommenced data center leases and chip purchase commitments, nearly triple the 1.15 trillion dollars those same companies owe under existing leases and long-term debt. Alphabet alone disclosed 811 billion dollars in purchase commitments as of June, more than double what it reported three months earlier, though the company has not detailed exactly what all that spending will buy. Meta’s Hyperion campus in Louisiana illustrates how the structure works: Meta leases the data center from a joint venture that holds the underlying asset. The 27 billion dollars in construction debt financing that venture raised never appears on Meta’s own balance sheet, since Meta owns only a minority stake and has said it does not consider repayment under its lease guarantee probable. Nvidia has taken a similar approach with its equity commitments, agreeing to invest 27 billion dollars in other companies over roughly nine months, obligations that likewise sit outside its reported capital expenditures.
Whether that infrastructure bet pays off depends on assumptions about future demand that are already showing cracks. Wood Mackenzie estimates that grid operators and utilities will ultimately commit to only about 28 percent of the 1,066 gigawatts of power capacity that data center developers have requested, a figure that would otherwise represent 83 percent of the nation’s entire existing generation capacity. Developers are pitching the same speculative project to multiple utilities, creating what the industry calls phantom applications that grid operators cannot reliably screen out, with only about half of requests on the largest US grid considered credible. Texas regulators have paused approvals to audit the state’s grid queue as a result, putting billions of dollars in industry revenue at risk and delaying nearly a fifth of the nation’s data center pipeline. That gap between requested and deliverable power complicates a broader argument advanced by the Trump administration, which holds that artificial intelligence’s productivity gains will generate enough tax revenue to resolve America’s fiscal trajectory before the debt reaches 40 trillion dollars. Rising interest rates driven partly by the AI buildout itself would offset much of that windfall, and capital’s rising share of national income relative to labor makes future productivity gains inherently harder to tax than economists once expected from a 1990s-style boom. Consumers may also save less if they believe AI-driven abundance is coming, pushing interest rates higher still as competition for capital intensifies. The common thread linking China’s food strategy and the AI infrastructure race is a bet on scarcity as leverage, whether over agricultural supply chains Beijing does not fully control or over computing capacity that utilities and grid operators increasingly doubt will be built as fast as promised.
Global Trajectories
How ‘Super El Niño’ Adds Fuel to the Climate Fire
Christine Li Edwards, Bloomberg
The Economics of Europe’s Drought
Attracta Mooney, Susannah Savage, Sam Fleming, and Steven Bernard, Financial Times
Extreme Heat Is Tightening the Food-Energy Link Across Asia
Irvan Maulana, Nikkei Asia
The West Has Given China the Keys to the Medicine Cabinet
Ara Darzi, Financial Times
A Super El Niño, described by climate researchers as potentially the worst in 76 years, is compounding an already severe European drought. The Rhine River fell to its lowest recorded level at Kaub, Germany, forcing Rotterdam-bound cargo vessels to sail at roughly 30 percent capacity, and operators must now pay for about 100 extra barges a week and still cannot carry everything they transported before. Nuclear plants in France, Hungary, and Romania have curtailed output for lack of cooling water, and the Romanian military’s attempt to redirect river flow toward the Cernavodă plant failed outright, forcing the plant to begin shutting down last week. Economists estimate the drought’s direct short-term cost to Europe at a minimum of 50 billion euros, a figure that could rise significantly if the water shortages drag on. The total toll of summer heat on food, energy, transport, and labor productivity could reach as high as 180 billion euros once wildfires and infrastructure damage are included. The same heat dynamic is straining Asia, where the toll runs through labor as much as infrastructure. The International Labour Organization estimates that nearly 75 percent of workers across Asia and the Pacific face excessive heat exposure, and by 2030 Southern Asia could lose 5.3 percent of its working hours to heat, with Southeastern Asia losing 3.7 percent. Cooling now accounts for as much as a third of India’s electricity demand on peak summer nights, after the country’s power grid hit a record 270 gigawatts of demand this past May. India’s push toward 20 percent ethanol blending in gasoline, up from under 1.5 percent a decade ago, adds a further strain, since a fixed fuel mandate still must be met even in a year when heat has already cut into the harvest meant to supply it.
The same fragility now runs through the medicine cabinet as through the power grid and the harvest. China supplies roughly 94 percent of the raw materials used to manufacture amoxicillin, the world’s most common antibiotic, and holds a stake in nearly 700 medicines approved for use in the United States. A 2026 Council on Foreign Relations report likened that concentration to China’s dominance over rare earth mineral processing and warned it could be weaponized in a crisis, a warning that felt less hypothetical after a 2022-23 amoxicillin shortage swept the US and Europe. The underlying cause is a market failure rather than a deliberate Western choice, since antibiotics earn the least money when used most responsibly, and new drugs must be held in reserve to preserve their potency. That dynamic has prompted Novartis, AstraZeneca, and Sanofi to abandon antibiotic research altogether, leaving fewer than a dozen genuinely new antibiotics in the World Health Organization’s global development pipeline. Britain has begun paying for antibiotic access through a fixed annual subscription rather than per-prescription pricing, a model mirrored in America’s long-stalled Pasteur Act, which Congress has repeatedly declined to pass despite bipartisan support. Proponents of reformed diagnostic reimbursement argue that cheaper, faster testing could reduce wasteful prescribing without new legislation at all, since a rapid molecular test can cost several hundred dollars while the antibiotic it would spare costs only a few. China has meanwhile accelerated its own drug development and now accounts for roughly a third of the world’s new drug pipeline after a decade of regulatory reform. Europe’s drought and the antibiotic supply chain are different problems on their face, but both trace back to the same failure to price a public good correctly before scarcity forced the reckoning.
