Geopolitical Concerns

Trump Upending Global Politics a Month Before Taking Office 

Josh Wingrove, Bloomberg

Will Europe Fragment Under Trump 2.0?

Agathe Demarais, Foreign Policy

Russia’s Economic Gamble: The Hidden Costs of War-Driven Growth

Alexandra Prokopenko, Carnegie Endowment

Israelis See Chance to Remake Middle East in War’s Wake

Dov Lieber, Wall Street Journal

The re-election of Donald Trump has ushered in an era of profound geopolitical uncertainty, leaving allies and rivals alike grappling with the implications of Trump 2.0 and his “America First” agenda. Europe, already grappling with economic woes and internal divisions, faces the increased possibility of transatlantic trade wars and the potential for the US to stop supporting Ukraine and provide sanction relief to Russia, all increasing concern in Brussels. Germany, heavily reliant on the US market, is particularly vulnerable to Trump’s tariff threats, with US imports accounting for between 22% and 46% of their non-EU exports. Trump’s protectionist instincts have already sent shockwaves through the Canadian government, culminating in the resignation of Trudeau’s top lieutenant amidst disagreements over preparing for a potential trade war. On the other hand, China, anticipating a renewed onslaught of Trump-era trade measures, is proactively strengthening its trade defenses, limiting exports of critical minerals to the US, and improving ties with key US allies like Japan and India.

Meanwhile, Russia, under the leadership of Vladimir Putin, has embarked on a high-stakes economic gamble, prioritizing military spending at the expense of social and infrastructure programs in a bid to sustain its war effort in Ukraine. Emboldened by Trump’s campaign promise to end the war “in 24 hours” and the prospect of a US retreat from supporting Ukraine, the Kremlin has doubled down on its military-industrial complex, doubling armored vehicle production and increasing ammunition output fivefold. This militarization has come at a steep cost, with defense and security spending now exceeding 8% of GDP and consuming 40% of total federal expenditure, levels not seen since the height of the Cold War. By November 2024, the liquid assets of Russia’s National Wealth Fund had plummeted to a mere $31 billion, the lowest point since its inception in 2008. While the Russian economy has so far defied predictions of collapse, posting growth rates of 3.6% in 2023 and an expected 4% in 2024, experts warn that this war-driven growth is unsustainable and masks deep structural imbalances that could lead to long-term stagnation. Israel, on the other hand, sees the current regional turmoil as an opportunity to reshape the Middle East in its favor. The weakening of Iranian proxies like Hamas in Gaza and Hezbollah in Lebanon, coupled with the fall of the Assad regime in Syria, has emboldened Israeli Prime Minister Benjamin Netanyahu. Israel, despite facing international criticism and arrest warrants from the International Criminal Court for its conduct in the Gaza war, believes that its military successes against Iranian-backed forces lay the groundwork for a new regional order.

Geoeconomics

Fiscal Debt Binge Is World’s Biggest Stability Threat, BIS Says 

Bastian Benrath-Wright, Bloomberg

What’s in store for China’s economy in 2025: 5 things to watch

Stella Yifan Xie, Nikkei

Ten business trends for 2025, and forecasts for 15 industries

The Economist

Just how frothy is America’s stockmarket?

The Economist

The growing threat of fiscal debt overshadows the geoeconomic situation entering 2025, a phenomenon increasingly recognized as a critical destabilizing force for the global economy. Claudio Borio, a senior official at the Bank for International Settlements, issued a stark warning in December, calling government debt levels the most pressing threat to macroeconomic and financial stability. Major economies, including the United States, China, and the G7 nations, are predicted to face unsustainable fiscal pressures by 2050 if current trends persist. Echoes of the 2007–2008 global financial crisis are apparent, with US Treasury yields reaching levels reminiscent of that turbulent period. The situation is compounded by the pervasive role of the US dollar, signaling that any financial disruption originating in the US could ripple through global markets with devastating force. Borio’s retirement message urged immediate action to restore public finances before bond investors’ alarm transforms into a worldwide crisis. Amid this fiscal precariousness, the frothy US stock market draws additional concern. In 2024, the S&P 500 has soared to unprecedented levels, driven by investor exuberance around artificial intelligence. With the CAPE ratio near historic highs and the market’s concentration in a few dominant firms, future returns look uncertain, raising questions about whether the boom is sustainable or destined for a sharp correction.

China’s economic outlook for 2025 is fraught with uncertainty, as the country navigates significant domestic and international challenges. President Xi Jinping touted “around 5%” GDP growth in 2024, but analysts forecast a more muted 4.4% for the coming year. The Chinese economy remains hampered by a persistent property downturn, a local government funding crisis, and a sluggish labor market. The specter of deflation further threatens economic vitality. International tensions compound these difficulties; Donald Trump’s return to the US presidency has reignited trade hostilities, with proposed tariffs on over $500 billion worth of Chinese imports casting a long shadow over China’s export-driven economy. Economists warn these tariffs could reduce GDP growth to 3.9%, depending on their severity and timing. Meanwhile, the Economist Intelligence Unit has identified ten critical business trends shaping 2025. Key highlights include IT spending reaching $3.6 trillion, driven by a surge in AI investments by large American firms, and governments intensifying green initiatives, leading to a 7.5% rally in global metals prices. Electric vehicle sales are projected to rise by 25%, even as range anxiety continues to deter some buyers. The global tourism industry, with international arrivals set to reach 1.6 billion, highlights the mounting challenge of carbon emissions in aviation. Against this backdrop of transformative trends and looming uncertainties, businesses and governments face a pivotal year of adaptation and resilience.

Global Junctions

Europe’s economic apocalypse is now

Matthew Karnitschnig, Politico

The zero-sum game investors are betting on

Phillip Coggan, The Financial Times

The Six Choke Points That Can Upend Global Trade

Alaric Nightingale, Bloomberg

A plot in paradise and India’s struggle for influence in Asia

Gerry Shih and Siddharthya Roy, Washington Post

At the close of 2024, the global economy finds itself at a precarious crossroads, beset by mounting challenges, with Europe epitomizing the broader anxieties. Once a beacon of post-war prosperity, the continent grapples with stagnation, declining competitiveness, and the looming threat of protectionist policies from a resurgent Donald Trump. Germany, long the economic engine of Europe, faces a particularly acute crisis as its automotive industry falters, losing ground in the electric vehicle revolution to Tesla and Chinese manufacturers. This failure has left Germany, and Europe as a whole, increasingly vulnerable to American trade policy, exemplified by Trump’s 2018 tariffs on European steel and aluminum—measures that remain in place and could resurface with his return to the White House. Compounding this challenge is Europe’s transformation into an “innovation desert,” with only four European companies making the list of the world’s top 50 tech giants. Paired with an aging population and shrinking workforce, this lack of economic dynamism paints a troubling picture for the continent’s future. Christine Lagarde, President of the European Central Bank, has warned that Europe’s cherished social model may be in jeopardy, highlighting the stakes of inaction.

Amid widespread voter discontent over stagnant living standards and global political unrest, equity markets have paradoxically thrived, with the S&P 500 and Germany’s Dax 40 posting significant gains in 2024. Yet, this stark disconnect highlights a widening gulf between soaring corporate profit margins and decelerating economic growth, constraining governments’ ability to address public dissatisfaction. Adding to these challenges is the fragility of global trade, highlighted by vulnerabilities at six critical maritime chokepoints: the Bab el-Mandeb Strait, Strait of Malacca, Strait of Hormuz, Danish Straits, Turkish Straits, and Panama Canal. Recent Houthi attacks on shipping in the Red Sea have forced costly rerouting of vessels around the Cape of Good Hope, exposing the delicate balance of global supply chains. Simultaneously, geopolitical rivalries continue to escalate, as evidenced by the intensifying contest between India and China for influence in the Maldives. Following Mohamed Muizzu’s September 2023 election—widely seen as favoring Beijing—India faces heightened concerns over China’s expanding strategic footprint in the Indian Ocean region, adding another layer of complexity to an already fraught international landscape.

Global Trajectories

A new electricity supercycle is under way

The Economist

The Real Stakes of the AI Race

Reva Goujon, Foreign Affairs

The Return of Total War

Mara Karlin, Foreign Affairs

Rebel Yell

Walter Russell Mead, Tablet

Driven by anxieties over global technological dominance, the AI race is rapidly escalating, marked by major players like the United States, China, and middle powers vying for supremacy in this transformative technology. This competition extends beyond mere computing prowess and has morphed into a battle over whose vision of the world order will prevail. This struggle is reflected in the massive investments being channeled into AI development, with the United States alone pouring over $328 billion in the past five years. These investments extend to the energy sector as well, recognizing the immense power consumption required for AI infrastructure. China, for example, has emerged as the fastest developer of energy generation globally, seeking to secure its energy needs for data centers that often consume as much power as nuclear plants. These developments raise concerns about the potential for unintended consequences, particularly given the escalating tensions between Washington and Beijing over AI supremacy.

As the US aggressively deploys a regulatory arsenal to stifle China’s technological advancements and maintain its lead, China is countering with state-backed initiatives to close the gap. This high-stakes competition, characterized by aggressive technology controls and retaliatory measures, risks spilling over into the security sphere, raising the specter of total war and comprehensive conflict. Adding to these global anxieties is the resurgence of Jacksonian populism in the US epitomized by the return of Donald Trump to the presidency in the 2024 election, a phenomenon that echoes the rise of “Balrogs,” symbolizing the powerful forces of economic, immigration, and identity politics, that have come at the expense of the traditional Reagan-Bush Republicans. This shift reflects a deep-seated frustration among blue-collar and lower-middle-class Americans, especially in the south, who feel left behind by globalization and the perceived indifference of the establishment to their concerns. This sense of alienation fuels the rise of figures like Trump, who capitalize on these anxieties, promising a return to a more protectionist, nationalist agenda, further complicating the global landscape and adding fuel to the simmering tensions that characterize the AI race and the potential for broader conflict.