Geopolitical Concerns
Christopher S. Chivvis, Foreign Affairs
The US and Iran are on the road to escalation. Europe can and should create an off-ramp
Dr. Sanam Vakil and Dr. Aniseh Bassiri Tabrizi, Chatham House
The Real Threat to American Soft Power
Bobby Ghosh, Bloomberg
The burgeoning collaboration among China, Iran, North Korea, and Russia, termed by some as the “axis of upheaval,” has become a significant point of concern within U.S. national security circles, particularly following Russia’s war on Ukraine which acted as a catalyst for their increased alignment. The fragility of the alliance lies in the fact that it is primarily a loose entente born out of shared grievances and the specific circumstances of the war in Ukraine, rather than a deeply rooted and permanent coalition driven by congruent long-term national interests or a unifying ideology, with most cooperation occurring through overlapping bilateral relationships with weak institutional foundations that are likely to attenuate once the wartime pressures subside. However loose entente has witnessed tangible cooperation, such as Iran’s provision of drones and medium-range ballistic missiles to Russia in exchange for Russian intelligence and fighter aircraft, enabling Russia to sustain its military efforts against Ukraine. North Korea has also contributed to Russia’s war by supplying 11,000 troops along with munitions, artillery, and missiles, receiving oil, fighter aircraft, and potentially other weapons in return, which could embolden Pyongyang’s provocations towards Seoul. Furthermore, China has tacitly supported Russia by allowing Chinese firms to supply dual-use goods, receiving defense technologies and less expensive energy in return, aiding Russia’s advanced weaponry production despite Western sanctions. This strengthened wartime cooperation is underscored by the mutual defense treaty signed between Russia and North Korea in June 2024 and a defense agreement between Iran and Russia in January 2025.
On the other hand, the US-Iran relationship is on a dangerous path toward escalation, with the JCPOA set to expire in October 2025 after being weakened by the US withdrawal in 2018. Efforts to revive or replace the deal have failed due to mistrust, US sanctions, and regional crises like the Gaza war. The expiration will eliminate key enforcement tools, raising concerns that Tehran may further advance its nuclear program, especially amid Israeli strikes and conflicts involving Hezbollah and Hamas. President Trump’s return has intensified tensions with renewed sanctions and discussions of direct military strikes on Iran’s nuclear facilities. Despite these challenges, the E3 (made up of France, Germany and the UK) and the EU are uniquely positioned to re-establish their historic mediating role between Iran and the US, building on decades of engagement with Tehran and aiming to find common ground with Washington. E3 representatives held three meetings with Iranian officials between November 2024 and February 2025 to discuss the parameters of direct negotiations, and a fresh round of E3 negotiations is anticipated. To be effective, the EU should establish a clear timeline to secure a deal before snapback sanctions expire and define the scope and incentives involved. At the same time, American soft power is under threat—not just from foreign aid cuts but from declining moral authority due to Trump’s diplomatic approach. Experts argue that domestic policies and international bullying could erode US influence more than reductions in foreign assistance. The rise of digital communication amplifies these effects, as US political and cultural shifts are scrutinized globally in real-time. If these trends persist, they could diminish Washington’s ability to rally allies, shape global norms, and maintain leadership in international institutions.
Geoeconomics
The US Economic Outlook Is Becoming More Uncertain
Mohamed A. El-Erian, Bloomberg
Europe’s Economic Decoupling From America Is Underway
Anchal Vohra, Foreign Policy
Will America’s stockmarket convulsions spread?
The Economist
Why it might get worse for US stocks
Katie Martin, The Financial Times
The anticipated deceleration of the US economy is manifesting in tangible geoeconomic shifts, with downward revisions of 2025 growth projections becoming widespread. The International Monetary Fund’s January forecast of 2.7% US economic growth was quickly superseded, with Goldman Sachs Group Inc. lowering its projection to 1.7% in March 2025. This convergence towards a more turbulent near-term trajectory is driven by concerns surrounding lower-income consumers, policy uncertainties stemming from tariffs and government efficiency announcements, and the potential for a negative wealth effect following a significant stock market correction, marked by the S&P 500’s fifth-fastest correction since World War II. Concurrently, the European Union is actively pursuing economic decoupling from the United States in response to US-imposed tariffs on steel and aluminum in mid-March 2025, with threats extending to cars and agricultural products by early April. European Commission President Ursula von der Leyen spearheaded efforts to finalize trade deals with the Mercosur bloc (Argentina, Brazil, Paraguay, Uruguay) in December 2024 and restarted talks with Malaysia and India, aiming to create alternative markets representing nearly two billion potential customers. While facing internal opposition, such as farmers’ protests against the Mercosur agreement in Brussels and other European capitals, the EU views these deals as crucial to offsetting the economic impact of strained trade relations with the US.
The ongoing turmoil in the US stock market, evidenced by a 5% drop in the first half of March 2025 and an 8% decline since mid-February, carries the risk of broader contagion, especially as traditional safe havens like US government bonds are not providing their usual buffer. This unusual behavior suggests a dominant “sentiment shock” rooted in concerns over US economic policy and geopolitical unpredictability, rather than solely poor economic fundamentals, as February’s inflation rate slightly receded to 2.8%. Investors, exemplified by Michael Strobaek of Lombard Odier, are reportedly selling US assets and moving into bonds and cash due to anxieties surrounding the Trump administration’s tariff policies and international rhetoric, creating an environment where making reliable earnings forecasts becomes exceedingly difficult. Sentiment trackers indicate a level of market pessimism comparable to major historical financial crises. Furthermore, the Federal Reserve’s capacity to intervene with significant interest rate cuts is perceived as constrained by persistent inflation, leaving the market without a clear short-term catalyst for recovery. With US stock valuations remaining high (a price-to-earnings ratio of 24) compared to Europe (17), there is limited incentive for bargain hunters to step in, suggesting that the downturn in American equities may persist and potentially deepen.
Global Junctions
China’s AI boom is reaching astonishing proportions
The Economist
Cheap Chinese Cars Are Taking Over Roads From Brazil to South Africa
Chester Dawson, Rachel Gamarski, Mpho Hlakudi, and Patpicha Tanakasempipat, Bloomberg
Analysis: Will China face same fate as post-bubble Japan?
Kutsuji Nakazawa, Nikkei Asia
China’s technological ambitions are reshaping global markets, yet economic vulnerabilities loom large. The AI sector is ablaze: since January, when startup DeepSeek unveiled a cost-effective model rivaling Western counterparts, the Hang Seng Tech Index has soared over 40%. Tech giants like Alibaba are investing heavily—Alibaba alone pledged $53 billion for data centers—while the government launched a 1 trillion yuan ($140 billion) fund to fuel innovation. However, reliance on US semiconductors, particularly Nvidia’s H20 chips, poses a risk amid potential export restrictions.
Simultaneously, Chinese automakers are accelerating their global footprint. Passenger car exports surged to 4.9 million in 2024, up from 1 million in 2020. In emerging markets, their market share is skyrocketing: South Africa’s rose to 10% from 2% since 2019, and Thailand’s EV market share hit 71% in 2024. By building local plants and leveraging EV incentives, they’re outmaneuvering established brands. Projections suggest they’ll capture 13% of the global market outside China by 2030. Yet, economic storm clouds gather. To avert financial instability, China is injecting 500 billion yuan ($68.9 billion) into state-owned banks—the first such move since 1997. This echoes Japan’s post-bubble bailouts, but with China’s economy and banking sector vastly larger, the challenge is magnified. Premier Li Qiang’s silence on reforms, unlike his predecessor’s transparency, fuels concerns about leadership and the depth of the crisis. With nonperforming loans rising and foreign capital fleeing, China’s path forward remains uncertain.
Global Trajectories
Trump, Bitcoin, and the Future of the Dollar
Carla Norrlof, Project Syndicate
The Promise of the Egyptian Plan for Gaza
Lisa Anderson, Foreign Affairs
The Collateral Damage of Trump’s Firing Spree
Lindsay Ellis, The Wall Street Journal
President Trump’s recent executive order to create a U.S. Bitcoin reserve marks a dramatic shift in financial strategy, leveraging seized assets and potential market purchases to establish America as a major BTC holder. Coupled with aggressive tariffs—25% on Canadian and Mexican imports and an average 39% on Chinese goods—the administration’s strategy aims to weaken the dollar to boost manufacturing and revenue. However, by legitimizing Bitcoin as a reserve asset, Trump may unintentionally accelerate global de-dollarization, as nations like Brazil, Bhutan, and El Salvador explore BTC reserves. With trade partners potentially resisting these measures, the long-term stability of the dollar’s dominance remains uncertain.
Egypt’s $53 billion reconstruction proposal for Gaza envisions housing, a commercial seaport, industrial zones, and tourism development, contrasting sharply with Trump’s suggestion of mass displacement. With endorsements from the Arab League and Organization of Islamic Countries, President Abdel Fattah el-Sisi positions Egypt as a regional power broker while seeking investment from Gulf states and China. However, Israeli Prime Minister Benjamin Netanyahu has rejected the plan, and Trump’s ambivalence poses additional hurdles. While Cairo attempts to revive Palestinian statehood prospects, the initiative’s success hinges on overcoming geopolitical resistance and securing sustained financial backing. Meanwhile, in a bid to slash $1 trillion from the federal budget, President Trump’s administration has launched an unprecedented 200,000-job reduction by December 2025, affecting critical agencies like the Department of Veterans Affairs, Education, and National Park Service. The Department of Government Efficiency, influenced by Elon Musk, has driven mass layoffs that have already disrupted services, from veterans’ healthcare to disability education programs. Legal challenges, including rulings from U.S. District Judge William Alsup, have temporarily halted some firings, but uncertainty looms as the White House vows to push forward. With Oxford Economics forecasting a 200,000-worker decline, the political and economic fallout of this aggressive downsizing remains a growing concern.
