Geopolitical Concerns
Trump and the end of American soft power
Joseph S Nye, The Financial Times
The Editorial Board, The Financial Times
Trump’s Alternate Reality in the Middle East
Hussein Ibish, The Cairo Review of Global Affairs
EU Hits Back as U.S. Steel and Aluminum Tariffs Take Effect
Gavin Bade and Paul Vieira, Wall Street Journal
Under President Trump, a shift away from the principles underpinning American soft power appeared imminent, marked by a transactional and coercive approach to international relations. His background in real estate has fostered a view of power limited to transactional approaches, evident in actions such as his bullying of Denmark regarding Greenland and threats directed at Panama, which elicited outrage in Latin America. Furthermore, his alignment with Vladimir Putin over Ukraine strained the NATO alliance, and his administration moved towards dismantling the US Agency for International Development (USAID), an organization established by John F. Kennedy to project American goodwill. These actions coincided with a broader “America First” policy that, while resonating domestically, held little appeal overseas. Public opinion polls reflected a decline in American attractiveness during his initial term. Adding to this evolving geopolitical landscape, on February 5, 2025, during a press conference at the White House alongside visiting Israeli Prime Minister Benjamin Netanyahu, President Trump stunned observers by proposing that the United States should “own” the Gaza Strip. He suggested expelling the 2.2 million Palestinian inhabitants to neighboring countries like Egypt and Jordan, with the expectation that wealthy Arab states in the Gulf would finance this displacement. Trump further outlined a vision to transform Gaza into a Mediterranean “Riviera” populated by “international people,” potentially including some Palestinians. While Netanyahu cautiously described Trump’s idea as “thinking outside the box,” he refrained from a direct endorsement. In the same press conference, Trump indicated that his administration would make a significant announcement concerning Washington’s policy toward Israeli land claims in the occupied West Bank within approximately four weeks.
In response to the shifting global order under a second Trump administration, Germany, under incoming Chancellor Friedrich Merz, embarked on a significant policy shift. Recognizing the new realities, Merz and his likely coalition partners from the Social Democrats reached an “epochal agreement” to relax Germany’s long-standing debt rules to facilitate substantial investment in both infrastructure and the military. This stimulus package, potentially the largest since German reunification in 1990, includes a €500 billion special purpose vehicle dedicated to infrastructure investment, with 20% allocated to federal states, aiming to reverse years of underfunding in crucial sectors like transport, hospitals, energy, education, and digital infrastructure. Furthermore, the agreement allows for essentially unlimited borrowing for defense spending, projecting a rise in expenditure to 3.5 percent of GDP in 2027, up from 2.1 percent in 2024. This “reawakening of Germany” was seen as Berlin moving towards providing necessary economic and security leadership for Europe. Simultaneously, the European Union responded swiftly to President Trump’s implementation of 25% tariffs on all steel and aluminum imports, which took effect on March 12, 2025. The EU announced retaliatory tariffs targeting approximately $28 billion worth of US exports, including bourbon whiskey, boats, and motorcycles, with the levies set to begin in early April. China also declared its intention to take all necessary measures to protect its legitimate rights and interests in response to the US tariffs. Earlier in the week, a trade dispute with Canada involving threatened tariff increases on Canadian metals and potential reciprocal measures, including Ontario considering cutting off electricity exports to parts of the US, caused a sharp downturn in US stock markets on Tuesday, March 12, 2025, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all experiencing significant losses. These losses were partially recovered following reports that Ontario would scrap its electricity surcharge in exchange for a relaxation of the steel and aluminum tariffs.
Geoeconomics
Wall Street Banks Say Markets Are Flashing Rising Recession Risk
Denitsa Tsekova, Bloomberg
What a Fast-Changing World Means for Your Money – WSJ
James Mackintosh, Wall Street Journal
What lies behind the dramatic shift in markets
Mohamed El-Erian, The Financial Times
Growing anxieties about a potential economic downturn were increasingly evident in early March as prominent Wall Street institutions issued warnings based on their internal models and concerning economic indicators. By Tuesday, March 4, 2025, JPMorgan Chase & Co.’s model indicated a market-implied probability of a US recession climbing to 31%, a significant jump from the 17% recorded at the end of November. Similarly, Goldman Sachs Group Inc.’s model showed a rising recession risk, reaching 23% from a previous 14%. This apprehension stemmed from multiple factors, including President Trump’s newly imposed tariffs on Canada, Mexico, and China, which took effect on March 4th, generating uncertainty about their impact on business and consumer confidence. Concurrently, key economic data revealed a weakening US economy. Reports over the last several weeks have shown US factory activity edging towards stagnation with contracting orders and employment. This followed earlier data indicating consumer confidence hitting its lowest levels in months, unexpected decreases in personal spending, and disappointing figures from the American housing market. Mohamed A. El-Erian, president of Queens’ College, Cambridge, also noted an increased probability of recession, estimating it at 25% to 30%, up from 10% at the start of the year, emphasizing stubborn inflation pressures and declining consumer and business confidence.
This darkening economic sentiment and the volatile policy environment under President Trump were causing a dramatic shift in financial markets by mid-March 2025. Investors have been grappling with the implications of the tariffs, which Goldman Sachs estimated could add 0.6 percentage points to core inflation from the Canada/Mexico tariffs alone, with additional pressure from the tariffs on China. The Federal Reserve’s potential response to rising inflation in a weakening economy became a central concern. Traders were increasingly betting on the Fed prioritizing economic support, with the probability of at least four rate cuts this year soaring to 38% from just 4% since President Trump’s inauguration on January 20th. Simultaneously, a reassessment of global economic prospects was underway. US stocks began to underperform relative to international markets, reflecting eroding belief in American economic exceptionalism as US bond yields fell due to growth concerns and the dollar weakened. Meanwhile, Europe, particularly Germany under Friedrich Merz, was contemplating a significant fiscal policy shift towards increased defense and infrastructure spending in response to the changing geopolitical landscape. China was also signaling a move towards more robust stimulus and reforms to counter economic deceleration. This confluence of factors, including US policy unpredictability, potential European fiscal expansion, and Chinese policy adjustments, presented two possible scenarios: an optimistic upward convergence of global growth or a more pessimistic downward convergence featuring stagflation.
Global Junctions
Inside the scientific quest to reverse human aging
Gretchen Reynolds, The Washington Post
Elon Musk and China chase humanoid dreams with echoes of EV buildup
Cissy Zhou, Nikkei Asia
How Natural Gas Became America’s Most Important Export
Kevin Crowley and Ruth Liao, Blomberg
The scientific pursuit to reverse human aging is reaching a pivotal moment, with cellular reprogramming emerging as a transformative yet contentious frontier. At the Salk Institute, researchers have extended the lives of mice engineered to age prematurely by injecting them with viruses carrying Yamanaka factors—genes that strip away the epigenetic markers of aging, effectively resetting cells to a youthful state. This breakthrough has sparked a longevity gold rush, with biotech firms like Life Biosciences racing toward human trials as early as this year, targeting conditions like optic nerve damage. Yet, the promise of extended health spans is tempered by risks, including the formation of monstrous tumors in animal studies, raising urgent questions about safety, ethics, and accessibility as society grapples with the prospect of defying age itself.
Meanwhile, a high-stakes race is unfolding between Elon Musk’s Tesla and China to dominate humanoid robotics, echoing the electric vehicle boom. China’s government is pouring resources into the robotics and humanoids sector, aiming to build a trillion-yuan industry by year-end, while Musk’s Optimus robot promises to revolutionize labor, starting with Tesla’s factories. This technological showdown could reshape global economies and workforces, though geopolitical tensions—amplified by Musk’s ties to a Trump-led U.S.—threaten to complicate supply chains and collaboration. On the energy front, the United States has solidified its status as the world’s top exporter of liquefied natural gas (LNG), a shift set to expand under Trump’s second term. With production capacity poised to surge 60% in the coming years, LNG is becoming a cornerstone of U.S. diplomacy, securing pledges from Europe, India, and Japan despite Trump’s unorthodox foreign policy moves. However, this leverage faces challenges from potential market oversupply and the long-term pivot toward renewables, highlighting the fleeting window for America’s gas-driven influence. Together, these developments signal a world at a crossroads, where innovation and power dynamics promise both unprecedented opportunities and profound uncertainties.
Global Trajectories
In Africa, the Race for Critical Minerals Is Recreating Colonial Models
Duncan Money, World Politics Review
The Economist
What Role for the Bond Vigilantes?
J. Bradford DeLong, Brigitte Granville, Desmond Lachman, Paola Subacchi, and Edward Yardeni, Project Syndicate
The intensified competition for critical minerals across Africa is setting the stage for significant future global shifts, potentially mirroring historical patterns of resource exploitation. The recent agreement between Burundi and Tanzania with Chinese state-owned firms to construct a railway primarily for nickel exports highlights this trend. This $2 billion project is part of a larger wave of infrastructure development financed by external powers, often framed within geopolitical competition, particularly between the U.S. and China, who are also funding railway links for copper mines in Central Africa. However, these projects predominantly focus on connecting extraction sites to coastal ports, echoing colonial infrastructure models designed to funnel raw materials out of the continent rather than fostering intra-African trade and development. This pattern risks recreating economic inequities reminiscent of past eras, with Africa serving primarily as a source of raw materials for industrialized nations. Simultaneously, silver is emerging as a significant asset, challenging the traditional dominance of gold. Since the start of 2023, silver’s price has soared, even outperforming leading share indices. This surge is driven by both its safe-haven appeal amid geopolitical instability and rising prices, mirroring gold’s traditional role, and a substantial increase in industrial demand, particularly for its use in solar panels, with imports into major manufacturing hubs like China skyrocketing. Constrained mining supply further exacerbates this imbalance, suggesting a sustained upward pressure on silver prices and potentially positioning it as a crucial commodity for investors and even central banks seeking to diversify their reserves.
The evolving dynamics of the global economy and fiscal policy are bringing renewed attention to the influence of bond markets on major economies. The concept of “bond vigilantes,” investors who act to constrain economic policymaking through their reactions in the bond market, is gaining traction once again. Concerns are mounting as government debt levels remain alarmingly high in many advanced and developing nations, coupled with relatively high interest rates and lackluster economic growth. In the United States, for instance, rising ten-year Treasury yields in early February 2025, even as the Federal Reserve cut its policy rate, signaled market apprehension toward potential increases in the budget deficit, particularly in light of proposed tax cuts. The Committee for a Responsible Federal Budget estimated that these proposals could add trillions to the national debt over the next decade, potentially inviting a strong reaction from bond investors. While some argue that central banks possess tools to manage bond market pressures, historical examples, such as the market backlash against former UK Prime Minister Liz Truss’s unfunded tax cuts in 2022, underscore the potential for swift and significant consequences when fiscal policy deviates from market expectations. Therefore, policymakers in major economies are increasingly faced with the imperative to maintain fiscal discipline and address inflation concerns to avoid triggering adverse reactions in the bond markets, which could undermine their economic agendas.
