Geopolitical Concerns

Trump Is Ushering In a More Transactional World 

Ravi Agrawal, Foreign Policy

Donald Trump’s rhetoric of a new American imperialism 

 Piotr Smolar, Le Monde

Europe could be torn apart by new divisions

The Economist

‘There’s been a vibe shift’: welcome to the new political disorder

Katy Balls, The Spectator

The re-election of Donald Trump has ushered in a new era of geopolitical uncertainty and a more transactional approach to foreign policy, leaving the world grappling with the potential consequences. Trump, known for his “America First” rhetoric, has signaled a willingness to prioritize US interests, even at the expense of traditional alliances and global norms. This has been evident in his demands for increased defense spending from NATO allies, specifically a target of 5% of GDP, up from the current 2%. His transactional approach to foreign policy prioritizes self-interest and zero-sum deals, often at the expense of alliances and multilateral systems, accelerating the decline of the post-WWII international order. Countries and companies with leverage, such as emerging markets like India and Saudi Arabia, exploit opportunities through quid pro quo arrangements, while smaller nations without clout face significant disadvantages under this rules-averse system. Critics argue that Trump’s tactics, including tariffs and leveraging family connections, risk destabilizing global markets and weakening U.S. credibility, further shifting geopolitics toward a world where “the strong do what they can, and the weak suffer as they must.” He has even suggested that he might encourage aggressors to act against allies who fail to meet his demands. This aggressive stance has created unease among European nations, particularly those heavily reliant on US security guarantees.

Furthermore, Trump’s revived interest in acquiring Greenland, a semi-autonomous Danish territory, highlights his unconventional approach to foreign policy. His previous attempts to purchase Greenland in 2019 were met with ridicule, yet his recent refusal to rule out the use of force underscores his willingness to employ coercive tactics. This, coupled with his stated intention to rename the Gulf of Mexico the “Gulf of America,” signals a disregard for international norms and the sovereignty of other nations. This assertive, transactional approach has exacerbated existing divisions within Europe. The economic woes plaguing Germany, now entering its third year of recession, coupled with the rising influence of protectionist voices in France, Spain, and Poland, threaten the cohesion of the European Union. As the continent grapples with economic challenges and diverging security concerns, the potential for fragmentation is high. This new political disorder, characterized by the rise of populist sentiment and a weakening of multilateral institutions, presents a significant challenge to the established global order.

Geoeconomics

A Bond Selloff Is Rocking the World. You Might Want to Take the Other Side.

Jon Sindreu, Wall Street Journal

Why global bond markets are convulsing

The Economist

Credit Markets Signal Warning for a Relentless Equity Rally

Will Kubzansky and Denitsa Tsekova, Bloomberg

Global bond markets are experiencing significant upheaval, with rising yields impacting governments and borrowers worldwide. This surge, particularly noticeable in long-term government bonds like ten-year American Treasury bonds approaching 5% and German bunds reaching 2.6%, signifies a stark departure from the record lows observed during the COVID-19 pandemic. The situation is even more pronounced in Britain, where gilt yields have soared to almost 5%, marking their highest point since 2008. These escalating yields translate into increased borrowing costs for governments and individuals alike, placing a strain on national budgets and household finances. For instance, a 30-year fixed-rate mortgage in America is nearing 7%, a full percentage point higher than just a few months ago.

A key factor driving this bond market turbulence is the widening gap between equity profit yields and bond yields. The earnings yield on the S&P 500 shares is at its lowest point compared to Treasury yields since 2002, indicating that equities are significantly overvalued relative to fixed income. This disparity is particularly evident when comparing the S&P 500’s earnings yield, currently at 3.7%, with the 5.6% yield of BBB-rated dollar corporate bonds. Historically, a negative spread between these figures, as is the case currently, has often preceded substantial stock market downturns, particularly during periods of economic bubbles or heightened credit risk. While a correction isn’t guaranteed in the short term, as the negative spread has persisted for about two years, this discrepancy underscores the precarious nature of the stock market’s recent rally following the US election. The situation is further complicated by the Federal Reserve’s indication on December 18th, 2024, that it plans to slow the pace of interest rate cuts. This announcement, interpreted as a signal of prolonged higher interest rates, triggered a stock market sell-off, with US stocks plummeting nearly 3% that day. Despite some recovery since then, this event highlights the sensitivity of the market to changes in interest rate expectations.

Global Junctions

Today’s Robber Barons Hide in Plain Sight

Max Hastings, Bloomberg

Emerging Stocks Enter Correction as Traders Weigh US Policies

Zijia Song and Colleen Goko-Petzer, Bloomberg

‘At what point does hybrid warfare become outright war?’

Sylvie Kauffmann, Le Monde

The global landscape in the early stages of 2025 is increasingly shaped by the actions of a new breed of “robber barons” — ultra-wealthy individuals like Elon Musk who are leveraging their immense fortunes to exert unprecedented influence on politics and international affairs. These modern-day titans, often at the helm of powerful tech giants such as X (formerly Twitter) and Meta, are blurring the lines between business and government, using their platforms to advance their own agendas and potentially undermine democratic processes. Musk, in particular, has openly expressed his desire to translate his wealth into political power, even going so far as to consider a £100 million donation to the UK’s far-right Reform Party. His actions, coupled with the growing political influence of figures like Jeff Bezos, who owns the Washington Post, raise concerns about the undue sway of wealth in shaping political outcomes and potentially silencing dissenting voices.

Adding to the global unease, the re-election of Donald Trump has injected further volatility into the geopolitical arena. His unpredictable policies, particularly his trade policies and his aggressive stance towards China, have spooked investors, sending emerging market stocks into a correction. The MSCI Emerging Markets Index tumbled by 10% from its October 2nd high, reflecting growing anxieties about Trump’s potential to disrupt global trade and economic stability. Simultaneously, Russia continues to wage a “hybrid war” against Europe, employing a range of tactics, including sabotage, cyberattacks, and disinformation campaigns to sow discord and undermine Western institutions. Incidents like the Christmas Day attack on underwater electric cables in Finland highlight the vulnerability of critical infrastructure to these tactics. As these aggressions intensify, fears are mounting that Russia’s actions could escalate beyond the realm of hybrid warfare, potentially triggering a more direct and dangerous confrontation with Europe.

Global Trajectories

Russia’s war economy is a house of cards

Martin Sandbu, Financial Times

Trump’s Falsehoods Aside, China’s Influence Over Global Ports Raises Concerns

Ana Swanson, New York Times

A Weakened Iran Doesn’t Mean a More Peaceful Middle East

Abolghasem Bayyenat, World Politics Review

Russia’s war economy, despite outward appearances, is teetering on the edge of collapse. President Putin’s strategy of funding the war through a covert system of state-directed lending has masked the true costs, creating the illusion of stability. Corporate debt has skyrocketed by 71% since 2022, fueled by below-market-rate credit funneled to companies favored by the government. This massive money-printing scheme, estimated at 20% of Russia’s 2023 national output, is akin to a financial time bomb. Soaring borrowing costs exceeding 20% are crippling businesses, while the growing risk of loan defaults threatens to trigger a banking crisis and undermine the government’s legitimacy. The Kremlin’s aversion to a visible budget deficit and runaway inflation has only exacerbated these vulnerabilities, leaving Russia’s economic future precariously balanced.

Meanwhile, China’s expanding influence over global shipping and ports has raised alarms in Washington, particularly in relation to the Panama Canal. While former President Trump’s claim of Chinese soldiers operating the canal was false, Chinese companies, particularly CK Hutchison Holdings, play a significant role in managing key ports at either end of the canal. This strategic positioning, coupled with Beijing’s growing assertiveness on the world stage, has fueled concerns about potential disruptions to US commercial and military shipments in times of conflict, especially given China’s willingness to weaponize supply chains. The fact that 40% of US container traffic passes through the Panama Canal highlights the vulnerability of vital trade routes to Chinese influence. Moreover, China’s recent expansion into Latin America, including its Belt and Road Initiative and diplomatic ties with Panama, further amplifies anxieties about its long-term strategic goals in the region. While Panama has expressed a desire to deepen ties with the United States and diversify its partnerships, the specter of Chinese control over critical infrastructure near the Panama Canal remains a pressing concern for US policymakers. In the Middle East, a weakened Iran, while seemingly positive, may actually destabilize the region. The crumbling of Iran’s alliance system, particularly with the fall of the Assad regime in Syria, has left Tehran vulnerable and may push it toward riskier actions. The loss of the Syrian land bridge to Hezbollah, a key component of Iran’s “Axis of Resistance,” has significantly hampered the group’s operational capabilities. With Iran feeling cornered, its adversaries may be emboldened to act recklessly, increasing the likelihood of miscalculations and further escalating tensions in the region.