For this week’s newsletter, we examine the trends driving investing and economics alongside geopolitical developments in crucial regions. First, we look at the stakes of the war in Ukraine, especially in the light of potentially declining US support. Then, we delve into what makes Nvidia the current king of artificial intelligence. We then discuss the strong economic growth that the US has seen, as well as the potential factors that could undermine it. To end this week, we review of Xi Jinping’s ideological and geopolitical vision for China.

Ukraine’s Ongoing Struggle for Independence 

The new stakes of the war in Ukraine.

Le Monde

Hard Lessons Make for Hard Choices 2 Years Into the War in Ukraine

Steven Erlanger and David E. Sanger, The New York Times

The war in Ukraine began in 2014, not two years ago

Benoit Vitkine, Le Monde

February 24, 2024 was headlined as the “second anniversary” of the start to the war in Ukraine. However, some maintain that the war instead began in 2014 with Vladimir Putin’s military intervention and annexation of Crimea, and has evolved into a prolonged conflict marked by Russian aggression targeting Kyiv’s aspirations for a turn to the West. Moscow’s actions, including fanning discontent in southeastern Ukraine and fabricating allegations of “genocide,” have led to military escalations resulting in thousands of deaths. Ultimately, Putin’s invasion launched on February 24, 2022 is viewed as part of a longer history of Ukrainian repression, underscoring the ongoing struggle for independence and sovereignty against Russian aggression. 

Despite initial support, the United States is now perceived in Europe as having lost its will to aid Kyiv effectively, while Europe, though willing, lacks the capacity to repel Russia’s offensive. Sanctions against Russia have proven less effective than intended, with the Russian economy outpacing Germany’s and benefiting from military spending and oil exports. President Putin is determined to persevere in Ukraine, even at great cost, banking specifically on potential failures in Congress to fund Ukraine or a victory by former President Donald Trump in the upcoming election. Meanwhile, Europe is decreasing defense spending and moving towards a more independent defense infrastructure. Nonetheless, doubts persist about its ability to defend against a resurgent Russian threat without a durable American commitment. 

Nvidia’s AI Chipmaking Dominance

Why do Nvidia’s chips dominate the AI market?

The Economist

The AI Chip Behind Nvidia’s Supersonic Stock Rally: QuickTake

Ian King, Bloomberg

The Meteoric Rise of Nvidia, in Five Charts

Hardika Singh, The Wall Street Journal

Nvidia’s journey to becoming the third most valuable US company, with a market cap exceeding $2 trillion, has been dramatic. Fueled by the booming Artificial Intelligence (AI) sector, particularly in areas like language generation and cloud services, the chipmaker’s stock price surged in 2023 and has continued its upward trajectory this year, easily outpacing the market. This surge follows a period of rapid growth, with Nvidia’s market cap multiplying from $600 billion to $2 trillion in just one year. Despite a temporary setback in 2022, the company’s impressive financial performance, including an massive increase in earnings and a tripling of sales in its latest quarter, has solidified investor confidence. Notably, even compared to other tech giants, Nvidia’s growth stands out.

The company’s AI chips, originally designed for gaming, excel at parallel processing, making them ideal for training AI models. Nvidia has a strong competitive edge due to its high-performance networking tech, industry-standard software, and continuous chip innovation. Nvidia’s groundbreaking H100 data center chip, released in 2023, has revolutionized the AI landscape. Optimized for AI model training, the H100 boasts unmatched speed and power, leading to unprecedented demand and wait times. While its valuation remains attractive to investors, trading below its historical average, Nvidia’s dominance in the AI chip market, with an 80% control of data centers used by tech titans like Amazon and Google, further cements its position as a leader in its field.

Strong Economic Growth May Not Be Sustainable

Are We in a Productivity Boom? For Clues, Look to 1994.

Jeanna Smialek, The New York Times

Stockmarkets are booming. But the good times are unlikely to last

The Economist

Spiralling US public debt risks action from bond vigilantes

John Plender, Financial Times

Recent economic conditions, marked by surprising growth, wage gains, and easing inflation, echo the 1990s when productivity gains played a pivotal role in economic growth. With productivity data showing an uptick for the first time in years, fueled by new technologies and practices like AI and hybrid work, economists are hopeful that this might be the start of a lasting productivity boom. This could have significant implications for the US economy, allowing companies to pay better wages without raising prices, ultimately fueling healthy economic growth. While some analysts doubt that AI could improve productivity beyond office jobs, the recent surge in business formation, particularly in productivity-boosting sectors like online retailing, software publishing, computer-systems design, and research-and-development services, offers promise. Similar to the 1990s, cooling inflation and a strong job market may be pushing companies to become more efficient, potentially driving a new era of sustained productivity growth.

However, some believe that the good times may not be just around the corner. Despite US stock markets hitting record highs recently, high valuations, high interest rates, and shifting tax policies are putting pressure on corporate profits, a significant driver of stock market growth. The corporate world faces political uncertainties, skepticism towards big business, and risks from ongoing inflation-fighting measures, making the path forward less clear-cut. Meanwhile in the public realm, some analysts believe that the safe-haven status of US Treasuries and the dollar’s dominance as the global reserve currency is being undermined. The US’ massive public debt, fueled by years of loose monetary policy, has reached potentially unsustainable levels. This fiscal instability, combined with political gridlock, makes debt reduction unlikely. If the demand for safe dollar debt overwhelms the US government’s ability to back it due to potentially unsustainable public debt, it could spark a financial crisis akin to the collapse of the Bretton Woods system in the 1970s. This will likely force a shift toward prioritizing fiscal responsibility among sovereign borrowers and create new challenges for countries unable to offer safe assets as alternatives.

Xi Jinping’s Plans for China 

China’s plan to reshape world trade on its own terms

James Kynge and Keith Fray, Financial Times

The Real Roots of Xi Jinping Thought

Rana Mitter, Foreign Affairs

In a bid to redefine China’s ideological identity, President Xi Jinping has supported a synthesis of Marxism and traditional Chinese culture, particularly Confucianism. This effort was highlighted by the airing of a series on Hunan TV titled “When Marx Met Confucius,” depicting Karl Marx and Confucius engaging in political discussions. This juxtaposition suggests a compatibility between their ideologies or even hints at the influence of Confucianism on Marx. This initiative is part of Xi Jinping’s broader push to declare Marxism as China’s “soul” while emphasizing traditional Chinese culture as its foundation. Despite historical criticism of Confucianism for its hierarchical nature, late Qing dynasty thinkers began applying Confucian thought to contemporary issues, paving the way for a Chinese Marxist synthesis. Critics, however, argue that this blending of ideologies oversimplifies complex debates and lacks nuanced discourse. 

Xi Jinping’s vision for China is not only ideological; China’s approach to trade is also undergoing a significant shift, moving away from reliance on the World Trade Organization (WTO) towards a network of free trade agreements (FTAs) with developing nations. The transition toward this strategy is fueled by concerns over US trade disputes and the perceived dysfunction of the WTO, and may be exemplified by China’s Belt Road Initiative (BRI) which includes FTAs covering 28 countries that account for 40% of its exports. These agreements serve as a partial backup plan in case the WTO fails to meet China’s trade needs. Despite these efforts, China risks trade tensions with the US and EU, as evidenced by a contraction in trade in 2023. To counter these challenges, China is focusing on its FTA network, particularly the Regional Comprehensive Economic Partnership (RCEP), to pivot trade towards the developing world, with exports to ASEAN surpassing those to the US.