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 a NATO alliance unprepared for a two-front war and a missile arsenal depleted by the Iran conflict are exposing gaps in America’s military strength, just as Washington retreats from underwriting democracy and the rules-based order it built after 1945.
Geoeconomics tracks how Treasury yields at their highest since 2007 are forcing Secretary Bessent into direct bond-market intervention, while concentrated stock indices and a booming currency carry trade leave markets exposed to the same narrow set of risks.
Global Junctions explores how hackers exploited America’s unregulated water utilities to breach systems in at least seven states, a vulnerability mirrored in Washington’s inability to blunt China’s expanding commercial reach, from AI models undercutting Anthropic on price to infrastructure deals across Latin America.
Global Trajectories outlines how wartime disruption to global grain supplies, growing sovereign debt loads, and AI’s expanding reach into biosecurity and household wealth are all testing which states and citizens can withstand the shocks ahead.
Geopolitical Concerns
Simon Shuster, The Atlantic
Is America Still Capable of Enforcing the World Order?
Yaroslav Trofimov, The Wall Street Journal
Mark Leonard, Foreign Affairs
The new world order? Every man for himself
Alec Russell, Financial Times
Western military planners increasingly agree on the nightmare scenario they are least prepared for: a coordinated attack in which Russia strikes a NATO member in Eastern Europe while China moves on Taiwan, forcing the U.S. military to fight on two fronts at once, or three if the Middle East campaign continues. General Alexus Grynkewich, NATO’s top commander in Europe, issued a rare public warning about the risk roughly a year ago, but Mark Montgomery, a retired admiral who last war-gamed the scenario 15 years ago, said the exercise concluded the United States lacked the stockpiles and industrial capacity to sustain multi-front fighting, and that “every one of those metrics has gone down” since. War games run by the European Values Center for Security Policy found the U.S. would prioritize the Chinese threat in almost every dual-crisis scenario, transferring resources from Europe to Asia and leaving NATO allies to fend for themselves against Russia. In one iteration, China embargoes raw materials to Europe’s defense sector for five months before Russia, backed by full Chinese resource access, invades a NATO member. The Center for Strategic and International Studies estimates the U.S. has burned through half its prewar stock of Patriot and Thaad interceptors and a third of its Tomahawk and JASSM missiles while fighting Iran, leaving only about 800 Patriots in the arsenal, while Russia now produces more than 100 ballistic missiles a month, an output the West’s interceptor manufacturers cannot match even after Lockheed Martin’s $59 billion contract to triple Patriot production by 2030. A Council on Foreign Relations study concluded bluntly that the depleted U.S. arsenal “no longer has the capacity to deter a Chinese attack against Taiwan.” Strategist Matthew Kroenig frames the shift as a matter of capability catching up to credibility: allies have long doubted American will, he argues, but the munitions numbers now give them reason to doubt American ability too, a doubt German lawmaker Roderich Kiesewetter put more bluntly still, declaring that “the American nuclear umbrella is gone.”
That capability gap is unfolding against a much larger backdrop: Mark Leonard argues the U.S.-led rules-based order has not merely eroded but been abandoned outright, comparing the moment to China’s “rotten-tail” buildings left half-finished after its housing crash, with states now improvising rather than waiting for institutions like the UN or WTO, which persist in form but not function, to be restored. He traces the collapse to Henry Kissinger’s two pillars of world order, a stable balance of power and a shared set of rules, both of which he says are crumbling with no realistic prospect of repair, and he identifies fragmentation, contagion, and the weaponization of chokepoints from the Strait of Hormuz to the SWIFT payments system as the three forces driving what he terms an “un-order,” a world in which powerful actors no longer even recognize the rules they are breaking. That posture already shows up in how Washington treats its own alliance: NATO Secretary-General Mark Rutte has mocked allies who suggest preparing to defend themselves without U.S. help, telling them to “keep on dreaming.” The Trump administration shuttered Voice of America, the state broadcaster that spent decades supporting opposition movements and independent media in closed societies, and has left democracy promotion off its agenda entirely. When allies of Zimbabwe’s president Emmerson Mnangagwa forced through a law extending his term this summer, Washington offered no objection at all, prompting the Financial Times’s Alec Russell to invoke Kofi Annan’s old put-down for convenient autocratic rationalizations: “that’s Johnnie Walker talking.” Canadian Prime Minister Mark Carney has already dismissed the rules-based order as “pleasant fiction,” a critique that resonates widely in the developing world even as the vacuum left by American disengagement gets filled by authoritarian and autocratic power dynamics.
Geoeconomics
Bonds Are Getting Hammered, and Wall Street Says the Rout Won’t End Anytime Soon
Sam Goldfarb and Richard Rubin, The Wall Street Journal
Why Bond Yields Are Rising, and What It Means for the Economy
Aruni Soni, The New York Times
Treasury market interventions are only a band-aid
The Editorial Board, Financial Times
Stock indices no longer reflect equity reality
The Economist
‘It’s a Carry World’: EM Trade Posts Longest Run Since 2008
Vinicius Andrade and Srinivasan Sivabalan, Bloomberg
Long-term U.S. borrowing costs have surged to their highest levels since 2007, with the 30-year Treasury yield topping 5.3 percent and the 10-year settling near 4.7 percent. The global bond selloff behind that move is being blamed on a mix of Iran-war inflation anxiety, ballooning federal deficits, a deluge of AI-related corporate bond issuance competing for the same capital, and a lack of clear communication from new Federal Reserve chair Kevin Warsh. Interest payments already consume nearly one in five federal revenue dollars, a share the Congressional Budget Office expects to climb from 3.3 percent of GDP this year to 4.6 percent by 2036, and a mere 0.1 percentage-point rate surprise above forecasts would add $379 billion in net interest costs given that publicly held debt now sits near 100 percent of GDP. Bank of America analysts note that the once-reliable negative correlation between stocks and bonds has flipped positive and is now at its strongest since the 1990s, meaning bonds no longer cushion equity losses the way investors have come to expect. Treasury Secretary Scott Bessent has intervened directly in bond markets, backing the yen this month to relieve pressure on Japan to sell Treasuries and pledging last week to buy twice as many long-dated bonds, an unusual break from the department’s “regular and predictable” issuance posture. The Financial Times’s editorial board was skeptical the moves would work. It noted that Bessent made his name in 1992 betting against the pound when Britain’s government lost credibility trying to defend an unsustainable currency peg, and argued his interventions now amount to a bandage over deficits that only fiscal discipline, not market manipulation, can actually fix. Bessent has said he wants deficits closer to 3 percent of GDP, roughly half the current level, but has offered no concrete path to get there. Rising yields are already reaching consumers regardless: the average 30-year mortgage rate has climbed to 6.67 percent from roughly 6 percent earlier this year, according to Freddie Mac data.
Stress in the bond market has a counterpart in equities. Nvidia alone accounts for 8 percent of the S&P 500’s value, enough that a single 3 percent move in its share price, which has happened 30 times this year, shifts the whole index by a quarter of a percentage point, but the concentration is far more extreme abroad: TSMC’s market capitalization has doubled to $2 trillion and now makes up over 40 percent of Taiwan’s TAIEX, a share regulators enabled last year by scrapping a rule capping any single stock at 30 percent of an index fund’s holdings. South Korea’s KOSPI is similarly distorted, with Samsung Electronics and SK Hynix briefly exceeding 40 percent of the index in June; the benchmark’s volatility ran four times its historical average this summer, sinking 11 percent on July 28th before soaring 18 percent three days later, and the Korea Exchange suspended trading five times and curbed it nearly 30 more times in the first half of 2026 alone, more than in the whole of the 2008 financial crisis. Switzerland’s SPI shows concentration does not have to mean instability: five firms hold nearly half its value too, but their industries are varied and their earnings stable, unlike Taiwan and South Korea’s near-total dependence on chips. Away from stocks, dollar-funded carry trades are having their best run since 2008, delivering a seventh consecutive quarter of gains as investors borrow cheaply and put the money to work in higher-yielding currencies. PGIM’s Cathy Hepworth, who oversees $1.5 trillion in emerging-market debt, put her highest-conviction call simply: “carry, carry, carry.” The trade has returned about 22 percent since the end of 2024, more than triple what Treasuries earned over the same period, with dollar-funded bets in Colombian pesos up 48 percent and Turkish lira trades still profitable despite a 26 percent currency decline because local yields exceed 32 percent. The Treasury’s new buyback plan, aimed at pushing U.S. yields lower, risks reinforcing the very trade by making dollar funding even cheaper.
Global Junctions
Why the world’s richest country can’t defend vital infrastructure
The Economist
US Lead in the AI Race With China Is Rapidly Narrowing
Luz Ding, Spe Chen, and Hayley Warren, Bloomberg
Trump Fails to Loosen China’s Economic Grip on Latin America
Mie Dahl and Colum Murphy, Bloomberg
Three Ways AI Will Change the Course of Humanity
Dambisa Moyo, Project Syndicate
Hackers breached water and wastewater systems in at least seven states, and possibly more than twelve, in late July, forcing an emergency declaration near Minneapolis and a boil-water advisory for 300,000 people served by the Clayton County Water Authority south of Atlanta. American officials have preliminarily linked the intrusions to groups affiliated with Iran, whose hackers federal prosecutors separately charged this month with breaching university and corporate systems to steal research, while a separate Chinese campaign known as Volt Typhoon has spent years burrowing into American infrastructure to prepare for future sabotage, underscoring that water is only one entry point among many. The vulnerability is structural: roughly 90 percent of the nation’s water utilities serve fewer than 10,000 customers and, unlike the electricity grid, face no federal cybersecurity standard, a gap that let hackers seize a Pennsylvania pump in 2023 and nearly poison a Florida town’s water supply in 2021. Proposed federal budget cuts would reduce the EPA’s water cybersecurity funding by nearly 90 percent, and the agency tasked with defending the nation’s infrastructure has already lost a third of its staff over the past year. A similar erosion of assumed American advantage is playing out in technology. Chinese AI developers have narrowed what Washington assumed was a durable lead: Moonshot’s Kimi K3 model nearly matches Anthropic’s most capable system at a fraction of the price, and DeepSeek charges as little as $3.96 per million tokens against Anthropic’s $50. Chinese models overtook American ones in global usage for the first time in June, capturing more than 60 percent of the market tracked by OpenRouter, and Alibaba alone has logged more than 3 billion downloads of its open-weight models in six months. Nearly 200 U.S. companies have lobbied against banning Chinese models precisely because the discount has become load-bearing for their own businesses, even as Beijing commits 2 trillion yuan to new domestic data centers to reduce its remaining reliance on Nvidia chips.
Washington is running into the same wall elsewhere. Trade between China and Latin America has grown from $14 billion in 2000 to more than $500 billion last year, and Beijing has overtaken the U.S. as South America’s top trading partner despite a wave of Trump-aligned election wins across the region. Ecuador’s President Daniel Noboa, a close U.S. security partner, still spent a week in Beijing meeting Xi Jinping this month to secure Chinese solar and weather-forecasting investment, and Chinese state firms now control more than half of Chile’s power transmission grid and distribute electricity to Lima’s 10 million residents. In Brazil, the carmaker BYD now has a dealership in every state and has poured money into prime-time television and soccer sponsorships to build its brand, while Mexico has separately imposed tariffs of up to 50 percent on more than 1,400 Chinese product categories, a move a former Mexican ambassador to China said reflected pressure from domestic industry rather than from Washington. Dambisa Moyo argues both trends are symptoms of a much larger inflection point, contending AI will simultaneously reorder disease, war, and economic growth, the three forces that have driven humanity’s greatest transformations throughout history. AI-guided drones already account for 70 to 80 percent of battlefield casualties in Ukraine, and a McKinsey study estimates AI could add roughly $13 trillion to global GDP by 2030, as venture capitalist Vinod Khosla predicts it will be capable of performing 80 percent of existing jobs by the early 2030s. In both the AI race and the contest for Latin American markets, Moyo’s underlying point holds: American coercion has done little to blunt the commercial and technological logic pulling much of the world toward whichever power offers the better deal.
Global Trajectories
Global food security may be collateral in Ukraine war
Alexander Gabuev, Financial Times
The bond scare and the balance of power
Patrick Foulis, Financial Times
AI and the New Age of Bioweapons
Elizabeth Sherwood-Randall, Foreign Affairs
A new force is increasing inequality in America
Shira Ovide, The Washington Post
Since July, Kyiv has struck all three grain terminals at the port of Novorossiysk, which together ship more than 40 percent of Russia’s grain, while Moscow has intensified missile barrages against Ukrainian Black Sea ports and sunk vessels bound for Odesa, a genuine break from both sides’ prior restraint on targeting food exports. Russia and Ukraine together supply 27 percent of the world’s wheat exports and dominate the market for the Middle East and North Africa, and wheat prices are already more than 25 percent above 2025 levels because of Gulf-war fuel costs and heatwave damage to European and American harvests. Alexander Gabuev, of the Carnegie Russia Eurasia Center, argues that restoring the unspoken shipping arrangement that held for the war’s first three years is a more realistic near-term goal than ending the war itself, and that only sustained pressure from grain-dependent states such as Egypt, Turkey, and Saudi Arabia is likely to bring it back. A comparable test of capacity is unfolding in sovereign debt. Global public debt has climbed from 59 percent of GDP in 2007 to 95 percent today, and Patrick Foulis argues the widening gap between low-debt states like Germany and South Korea and heavily indebted “desperados” like Britain, France, and Japan is starting to reshape alliances, not just balance sheets: Gulf states with cash buffers have already superseded Egypt as leaders of the Arab world, and a low-debt bloc of Nordic, Baltic, Polish, and German states, which together fund two-fifths of Europe’s defense spending, may soon demand a bigger say in NATO’s leadership in exchange for propping up their poorer allies. Canada slashed military spending by a fifth after its 1990s debt crisis, a history Foulis thinks Washington itself may soon revisit given the Treasury’s own bond-market interventions this week. He closes by recalling Mikhail Gorbachev, having just warned James Baker against a reunified Germany joining NATO, pleading in the same breath for $15 to $20 billion just “to tide us over,” a reminder that geopolitical leverage without fiscal capacity behind it rarely lasts.
A different kind of capacity gap is emerging around artificial intelligence itself. Elizabeth Sherwood-Randall warns that AI has collapsed the technical barriers to bioweapons, giving even a small group with minimal training the theoretical ability to design a more lethal strain of a virus like H5N1 using a jailbroken model and a commercial cloud lab. She argues the Cold War-era doctrine of nuclear retaliation was never built to deter this kind of threat, since the “bio-risk club” now extends to individuals and terrorist groups rather than a handful of hostile states, and she wants the biotechnology industry formally designated critical infrastructure, the same status chemicals and energy already hold. A 2024 outbreak of H5N1 bird flu, though naturally occurring rather than engineered, already exposed how thin America’s monitoring and response systems are, requiring emergency federal funding to build an mRNA vaccine and still leaving inadequate supplies for months. A more mundane version of that same asymmetry is unfolding in the economy. About half of American adults and roughly one in five U.S. businesses now use AI, but the technology has not yet raised unemployment or otherwise shaken the broader economy. AI adoption remains highest in wealthy regions like the San Francisco Bay Area, New York, and Washington, while poorer states lag furthest behind, and because the top fifth of American households own nearly 90 percent of U.S. stock market wealth, AI-driven equity gains are flowing overwhelmingly to those already best off. Moody’s Mark Zandi finds that spending growth among the richest fifth of households now runs roughly three times that of the bottom 80 percent, and Nobel laureate Daron Acemoglu warns the combination could compound a labor share of national income already at its smallest point in 79 years, saying he is “genuinely afraid” it could “threaten social peace and the very foundations of democracy.”
