Geopolitical Concerns
See How Russia Is Winning the Race to Dominate the Arctic
Daniel Kiss, Thomas Grove, Vipal Monga, Austin Ramzy, Roque Ruiz, Wall Street Journal
A US Takeover of an Emptied Gaza? Why Trump’s Proposals Are Shocking
Ethan Bronner, Bloomberg
Middle Powers and the Art of the Deal by Anne-Marie Slaughter
Anne-Marie Slaughter, Project Syndicate
The Case for “Avalanche Decoupling” From China
Eyck Freymann and Hugo Bromley, Foreign Affairs
Presently, several major geopolitical developments are reshaping the global landscape, creating an intricate web of competition and strategic maneuvering. Russia is aggressively pursuing dominance in the Arctic, a region warming nearly four times faster than the rest of the planet, leading to the dramatic reduction of sea ice from an annual minimum of 2.7 million square miles in 1979 to 1.7 million in 2024. This shift has unlocked new shipping routes and resource access, fueling Russia’s military and economic expansion in the region. Moscow has intensified military exercises, including nuclear submarine drills near NATO borders and joint bomber flights with China near Alaska, while also increasing commercial activity along the Northern Sea Route, where record volumes of cargo now flow to China. Strengthened ties with Beijing, particularly through energy investments and joint military patrols, further bolster Russia’s Arctic ambitions, all while the U.S. lags in Arctic infrastructure. Meanwhile, in a vastly different theater, President Trump has proposed that the U.S. take control of Gaza, displace its 2 million residents, and redevelop it into a resort—an announcement in early February 2025 that was swiftly met with Palestinian outrage and skepticism from neighboring states. The proposal, requiring significant U.S. military involvement, contradicts Trump’s previous promises to reduce foreign entanglements, deepening tensions in an already volatile region.
Amid these power shifts, middle powers are strategically leveraging a “multi-alignment” approach, as coined by India, to navigate the increasingly fragmented geopolitical order. Donald Trump’s transactional foreign policy, which prioritizes bargaining and deal-making, has inadvertently empowered middle powers like India, Brazil, and Indonesia, allowing them to form flexible coalitions and negotiate from positions of strength. As BRICS+ expands, these nations are diversifying their partnerships, creating alternatives to Western-dominated agreements, and thriving in an evolving global marketplace. At the same time, rising tensions in the Taiwan Strait and South China Sea are fueling discussions of “avalanche decoupling” from China, a move that, if realized, could send shockwaves through the global economy. The U.S. faces the difficult challenge of deterring China while managing deep economic interdependence, as a potential break between Beijing and Washington could trigger financial turmoil and supply chain disruptions. Collectively, these developments illustrate a world where traditional power structures are being upended, middle powers are asserting greater agency, and global stability is increasingly defined by fluid alliances and economic uncertainty.
Geoeconomics
Trump’s Bullying Trade Tactics Will Backfire
Karishma Vaswani, Bloomberg
Kolanovic Returns With Prediction for An S&P 500 Downturn
Alexandra Semenova, Tracy Alloway, and Joe Weisenthal, Bloomberg
The Dumbest Trade War in History
The Editorial Board, Wall Street Journal
President Trump’s imposition of tariffs on goods from China, Mexico, and Canada marks a significant shift in U.S. trade policy, aimed at addressing concerns over the illicit drug trade and immigration. These tariffs—10% on Chinese goods and 25% on imports from Canada and Mexico (postponed)—are widely seen as aggressive measures that could backfire, particularly in the deeply integrated North American auto industry. In 2024, Canada supplied nearly 13% of U.S. auto part imports, while Mexico accounted for nearly 42%, with supply chains crisscrossing borders multiple times before final assembly. This sector contributed over $809 billion to the U.S. economy in 2023, supporting 9.7 million jobs, yet the tariffs risk disrupting these networks and undermining the competitiveness of American automakers. The trade war extends to agriculture as well, with Mexico and Canada collectively supplying over 40% of U.S. agricultural imports, prompting concerns about rising consumer prices and supply chain instability. The Wall Street Journal has called this “the dumbest trade war in history,” as retaliation from Canada and Mexico looms, with Canada already vowing a dollar-for-dollar response.
Adding to economic uncertainty, former JPMorgan strategist Marko Kolanovic warns of a substantial downturn for the S&P 500, even as the index recently surpassed 6,000 and hit new highs. He predicts a potential drop into the 5,000s or even the 4,000s, citing high stock concentration, geopolitical turmoil, and the risk of persistent inflation keeping Federal Reserve interest rates elevated. The uncertainty surrounding Trump’s trade war only exacerbates market volatility, with a recent $1 trillion rout triggered by a cheap AI model from a Chinese startup DeepSeek. Kolanovic also highlights the historical parallels to the 2000 tech crash, warning that the current stock concentration mirrors the prelude to that market collapse. As retaliatory tariffs, inflationary pressures, and unpredictable trade policies create turbulence, investors and businesses face an increasingly volatile economic landscape.
Global Junctions
DeepSeek hints that China has mastered the art of ‘kaizen’ — the west should be worried
Leo Lewis, The Financial Times
Is China’s DeepSeek an Nvidia killer or overhyped? 4 things to know
Cissy Zhou and Cheng Ting-Fang, Nikkei
Five Things to Know About AI’s Thirst for Energy
Jennifer Hiller, Wall Street Journal
Chinese AI company DeepSeek has emerged as a major force in the global AI race, shaking up the technology and investment landscape. Its rapid success is partly attributed to its mastery of kaizen, the Japanese philosophy of continuous improvement, which emphasizes incremental advancements in product and process development. China has embraced and accelerated this approach, leveraging its vast talent pool and attracting experienced Japanese engineers with lucrative consulting deals. China’s innovations extend beyond AI to low-cost, high-quality electric vehicles, consumer electronics, industrial machinery, high-speed trains, and robotics—raising concerns in the West. Some analysts argue that by learning from Japan’s manufacturing model and refining it, China may be outpacing Western technological innovation. DeepSeek exemplifies this trend with its AI models, particularly its low-cost AI inference services, priced at just $2.19 per million output tokens compared to OpenAI’s $60. This cost efficiency stems from its “optimized co-design of algorithms, frameworks, and hardware,” potentially signaling a broader shift in technological and economic power.
DeepSeek’s breakthrough, particularly its low-cost AI model, has also sparked questions about the future of AI hardware investment. The release of its R1 model triggered a steep decline in Nvidia’s stock price, wiping nearly $600 billion off its market capitalization overnight. While Nvidia has acknowledged DeepSeek’s achievement as “an excellent AI advancement,” debate continues over whether this marks a fundamental industry shift. Some analysts argue that despite DeepSeek’s efficiency, companies will still need to invest heavily in AI infrastructure. However, DeepSeek’s ability to deliver comparable results with less powerful hardware challenges the rationale behind the massive AI-related hardware spending that has fueled recent market rallies. Founder Liang Wenfeng has set his sights on Artificial General Intelligence (AGI), focusing on pioneering new model architectures that maximize performance with limited resources. Meanwhile, the AI industry’s energy demands are soaring. Meanwhile, the ata centers needed for AI training already consume vast amounts of electricity, and demand is expected to increase dramatically by 2030. The Wall Street Journal projects AI-driven computing could require over 5 gigawatts of electricity, with estimates suggesting AI could consume between 4.6% and 17% of U.S. power. Yet, grid expansion faces significant bottlenecks, renewables and nuclear power cannot scale fast enough, and data centers may consume up to 24% of regional electricity—raising concerns about future power shortages.
Global Trajectories
Europe’s 3 Futures Under Trump
Theodore Bunzel and Sienna Tompkins, Foreign Policy
Climate Change to Wipe Away $1.5 Trillion in U.S. Home Values, Study Says – WSJ
Nicole Friedman and Deborah Acosta, Wall Street Journal
The fall of Goma heralds more bloodshed in eastern Congo
The Economist
In early 2025, Europe faces a critical crossroads as it grapples with the implications of Donald Trump’s second term, with three potential paths emerging, according to Foreign Policy. The first is conciliation, where Europe aligns more closely with Washington to avoid conflict, potentially increasing purchases of U.S. liquefied natural gas, making trade concessions, and hardening its stance on China. The European Commission has formed a “Trump task force” to explore this approach, though it risks sidelining EU priorities on climate and technology while empowering right-wing leaders. The second path is division and paralysis, where EU member states pursue their own interests rather than a unified strategy. Countries like Italy, Poland, and Hungary may seek bilateral deals with Washington, weakening the EU’s collective influence and creating opportunities for Russia and China to exploit European disunity. The final option is strategic autonomy—an ambitious but uncertain path requiring Europe to bolster its own economic and defense capabilities. This could include a “Buy European” approach to defense, joint borrowing to fund military investments, and a more independent strategy toward China. While this route may cause short-term friction with the U.S., it is seen as a long-term investment in European resilience.
Meanwhile, in the U.S., climate change is expected to reshape the housing market, with a First Street study projecting a $1.47 trillion decline in home values by 2055 due to rising insurance costs and growing awareness of environmental risks. Areas like Fresno County, California, and Ocean and Monmouth Counties in New Jersey are expected to see falling property values and potential population declines. In contrast, cities like Houston, Miami, and Tampa may experience continued growth despite higher insurance costs, driven by strong local economies. The study predicts that average home-insurance premiums will rise by 29.4% over the next three decades, with 55 million Americans factoring climate risks into their relocation decisions. Simultaneously, in Africa, the fall of Goma on January 27, 2025, to the M23 rebel group—backed by Rwanda—has triggered a major escalation in the Democratic Republic of Congo. Reports of corpses in the streets and overwhelmed hospitals highlight the severity of the humanitarian crisis, as Congolese troops and foreign reinforcements either fled or were overrun. Despite widespread condemnation, neither Western powers nor African states appear willing or able to decisively intervene. The fall of Goma is seen as a defining moment in the Great Lakes region’s modern history, raising fears of a broader conflict with lasting geopolitical consequences.
