At the Intersection of Geopolitics and Geoeconomics

January 24, 2023 | Volume 6, Issue 1 | Rachel Poole Mustor

Here is a summary of important events that unfolded over the last month, and which may affect economic, financial, and geopolitical issues in the months ahead.

North America

• Last Thursday, the US hit its $31.4 trillion borrowing limit, forcing the US Treasury to employ “extraordinary cash management measures” to stave off default until June 5^th. The situation has kicked off a battle in Congress over raising the debt borrowing limit. House Republicans will not agree to raising the debt ceiling unless Democrats agree to cut federal spending, but Democrats have rejected negotiations around raising the limit. A US default would surely bring market volatility and could downgrade the US credit rating. Treasury Secretary Janet Yellen is warning that the failure to raise the debt ceiling could result in a financial crisis with global ramifications. 

• A Special Counsel has been appointed to investigate the presence of classified documents found at President Joe Biden’s home in Wilmington, Delaware. The Presidential Records Act strictly governs the handling of classified materials by former presidents. The appointment of the special counsel mirrors the ongoing investigation into former president Donald Trump on similar grounds. The Biden investigation will likely complicate any prosecution against the former president.

• This month, Mexican President Andrés Manuel López Obrador (AMLO) hosted Canadian President Justin Trudeau and US President Joe Biden for the 2023 “Three Amigos” summit. Migration was a key topic of discussion as approximately 2.3 million migrants arrived at the US-Mexico border last year, while President Biden’s recent expansion of Title 42 will only add to the pressure. Other issues at the top of the agenda were strengthening regional supply chains, promoting clean energy policies, and fighting fentanyl trafficking. In the days immediately before the summit, it was announced that Canada and Mexico won in their dispute with the US on the US interpretation of contents rules for cars under the USMCA (US-Mexico-Canada) free trade agreement.

• Following 14 unsuccessful ballots, Republican Representative Kevin McCarthy was finally elected Speaker of the House. A few hardline Republicans stalled McCarthy’s appointment to pressure him into making significant concessions, particularly regarding spending cuts and restrictions on his leadership. The drawn-out vote highlighted fissions in the Republican party. 

• President Biden announced several new immigration policies ahead of his visit to the southern border. The administration will accept 30,000 migrants per month from Cuba, Haiti, Nicaragua, and Venezuela. It will also implement a new regulation that prohibits migrants from applying for asylum in the US before first seeking asylum in a transit country.

Europe

• After rejecting Ukrainian President Volodymyr Zelensky’s peace plan that would include a war crimes tribunal and the Kremlin giving up occupied territories in eastern Ukraine, Russia has doubled down with attacks on Ukraine’s power grid. Despite the onslaught, there continue to be setbacks for the Kremlin’s troops, particularly in the Kharkov region and the city of Kherson. As a result, Russian President Vladimir Putin has replaced the top commander of Russia’s “Special Military Operation” in Ukraine. Meanwhile, the US and nine other NATO countries have each announced new military aid packages for Ukraine. However, there is an ongoing standoff over the delivery of main battle tanks; Germany will not commit to sending Leopard 2 tanks unless the United States pledges to send its own main battle tanks, which is not a part of the most recent aid package from the US.

• Beginning February 1^st, Russia will ban oil exports to countries that have imposed a price cap on Russian oil. The Group of Seven (G7) nations, the European Union, and Australia adopted a $60 per barrel price cap for Russian oil late last year in an effort to shut down Russia’s war machine. 

• The decision on Sweden’s membership to the North Atlantic Treaty Organization (NATO) rests in the hands of Turkey. Since their bids for membership were submitted in May, Turkey has objected to Sweden and Finland becoming members of the defense alliance. The NATO alliance would have significantly more control over the Baltic Sea if Sweden and Finland joined the group. Now, a list of demands from Ankara is standing in the way of Sweden’s ratification. Sweden’s Prime Minister Ulf Kristersson said Turkey’s demand to extradite people whom Ankara links to terrorism in Turkey is a step too far. Negotiations are ongoing.

• More than 1 million people in Paris and other French cities protested French President Emmanuel Macron’s proposed pension reforms last week. If passed by lawmakers, the reforms would increase France’s retirement age from 62 to 64. While the government argues this is the only way to stabilize the pension system, protesters view the act as an attack on hard-fought worker’s rights and believe it would weaken the welfare state. Attempts made to reform the pension system in 2019 were met with mass demonstrations as well. France has one of the lowest retirement ages; every French citizen receives a state pension.

Asia, Eurasia, & the Pacific

• China is dealing with a resurgence of the Covid-19 virus after repealing its zero-Covid policies late last year following protests. China’s top health officials calculate almost 250 million people were infected in the first 20 days of December. Though the surge has overwhelmed healthcare facilities, parts of the economy are beginning to rebound. Beijing has made restoring China’s economy a priority, and central planners are aiming for higher than 5% GDP growth this year. The sudden spread of the virus has prompted several countries to require negative Covid-19 tests from Chinese travelers. Though China imposes similar testing requirements for all travelers arriving to China, Beijing has suspended the issuance of short-term visas from Chinese embassies in South Korea & Japan in retaliation for imposing the testing requirement on Chinese arrivals into their countries.  

• Japan and the United Kingdom (UK) formally signed a defense agreement a few weeks ago in London when Japanese Prime Minister Fumio Kishida was visiting British Prime Minister Rishi Sunak. The pact, which was agreed to in principle last year, will allow the countries to deploy forces on each other’s soil. Both leaders expressed their desire to stand together against competition in the Pacific, noting China’s challenge to the stability of the Indo-Pacific region, and Sunak stated that the agreement cements the UK’s commitment to the Indo-Pacific region. The two leaders also discussed the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a regional trade agreement.

• As a result of simmering tensions with China on its shared border and China’s increased militarization of the Pacific region, India is purchasing air defense missiles to support the country’s northern border. Last month, Indian and Chinese troops clashed at the Line of Actual Control in the Himalayan region of Ladakh. Since a deadly clash in 2020 resulted in the deaths of 20 Indian and at least four Chinese soldiers, the two countries have been unable to completely defuse the border crisis. The two countries have held 17 rounds of talks, but progress has been slow.

• Myanmar continues to be oppressed by the military junta which overthrew the country’s elected government in February 2021. This month, the United Nations Security Council (UNSC) adopted a resolution on Myanmar that demands an end to the violence and calls for the military junta to release all political prisoners, including the country’s former leader Aung San Suu Kyi. Human rights groups estimate that at least 16,000 thousand people have been arrested on political charges and at least 2,400 civilians have been killed by the junta as it cracks down on any form of dissent, including peaceful protests. The UNSC resolution also calls for the return of Rohingya Muslims, an ethnic minority group that was forced out of Myanmar in a military operation in 2018.

• Indian Prime Minister Narendra Modi hosted the “Voice of the Global South” summit this month, bringing together nearly 120 envoys from lower-income countries, often referred to as the Global South. As India begins its Group of 20 (G20) presidency this year, Modi proclaimed to its Global South counterparts, “Your voice is India’s voice. Your priorities are India’s priorities.”

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