The post Chhangani cited in the World Economic Forum Insight Report on modernizing financial markets with wholesale central bank digital currency appeared first on Atlantic Council.

The post Donovan and Nikoladze cited by the National Interest on an alternative market of sanctioned oil in China, Iran, and Russia appeared first on Atlantic Council.

However, two years on it is becoming increasingly clear that the legacy of the IRA is tethered to a renewed pact between government and the US economy, with key implications for trade, technological competition with China, and foreign policy writ large.

Since the early 1980s, the prevailing dogma on both sides of the aisle regarding US economic policy has largely been one of skepticism about direct government intervention in the economy. Trade and domestic market liberalization have been features of Republican and Democratic rhetoric since at least the Reagan administration. Of course, US government spending did increase over this period, and Washington did often step in with, for example, countercyclical spending during economic downturns. Nonetheless, most US politicians took as axiomatic that the government should not be “picking winners and losers” in the economy. The IRA has ushered in a new era in which this reflexive aversion to economic intervention may be vanishing.

Industrial policy has risen from the gutter

The IRA’s subsidies and grants for low-carbon electricity generation and technology manufacturing, along with its capitalization of the US Department of Energy’s Loan Programs Office, represent a divergence from the once-dominant economic policy consensus. The IRA is among the most significant government investments in the US economy since President Franklin D. Roosevelt’s New Deal. In fact, it is rivaled only by primarily demand-side stimulus packages, such as the American Recovery and Reinvestment Act (ARRA) of 2009 and the CARES Act of 2020.

According to Goldman Sachs estimates, by 2032 the IRA will provide $1.2 trillion in incentives with the intention of fueling the deployment of energy technologies. This includes technologies that are currently profitable, such as solar and onshore wind, as well as new market entrants, such as electric vehicles, grid storage, new forms of bioenergy, offshore wind, clean hydrogen for hard-to-abate sectors, point-source carbon capture, and carbon removal. If the broad-scale deployment of these technologies is achieved at the scale envisioned by prevailing models—which is dependent on additional regulatory reform—these effects of the legislation will be uniformly positive for climate mitigation and economic growth alike.

These positive effects are being borne out in data. Of an estimated seventy-eight billion dollars in public investment since the IRA’s enactment, the bill has shepherded between five to six times that figure in private investment. In fact, investment in low-carbon technologies and manufacturing has comprised about half of private investment growth since the IRA’s passage. That is a success.

The implications of the IRA as a shift in economic policy are not uniformly positive, however. The global consequences of this shift have manifested in at least two ways.

First, the floodgates of government market interventions have been opened. In 2023 alone, governments around the world implemented more than 1,600 industrial policies. The IRA is both an example of this general trend and, given the size of the US economy and the IRA’s intervention, something other countries have reacted to with their own interventions. For example, the United States’ use of subsidies for its economy has prompted adverse reactions from the European Union, whose single market makes the use of subsidies difficult, and prompted concerns regarding the comparative advantage of its domestic industry. This year, the European Parliament and European Council passed the Net-Zero Industry Act, which provides financial support through grants, loans, and other funding mechanisms to promote research, development, and deployment of clean technologies and manufacturing capacity—a direct response to the IRA.

In a sense, the IRA has prompted global competition among governments to make public investments in emerging industries and technologies.

Second, trade measures have arisen as a method by which to protect, or “ring fence,” domestic industrial policy strategies from foreign competition. Notably, the May 2024 suite of tariffs announced by the White House represent a substantial signal of intent to isolate encroachment of Chinese imports on domestic industries that have not yet been established and that the IRA supports. In the IRA, certain softly punitive measures impact trade, stoking additional tension. For instance, eligibility for subsidies under the Clean Vehicle Tax Credit is limited, based on the country of origin of critical minerals and battery components and excluding several US allies and partners.

Economic competition among the United States, the European Union, and China is increasing, and the decades-long criticism of China’s subsidy-centric growth model by Washington and European capitals is being usurped by a new industrial policy with US and European characteristics. In some sense, although all three blocs are competing, two distinct visions have emerged: the bottom-up, private sector-led and government-enabled vision of the United States and European Union, and the top-down, state-directed vision of China.

Trade-offs, tariffs, and technological innovation

Will this trend continue? Industrial policymaking in democracies is necessarily impacted by political feasibility, what is favored by those with power, and what works within the parameters of a state’s administrative capacity, as an International Monetary Fund publication recently reflected. As such, the IRA is also a product of the political moment, dubbed by the Breakthrough Institute as a period of “post-COVID congressional profligacy.” It is difficult to predict what the next major industrial policy package in the United States will consist of, but it will likely be shaped as much by the political forces at play as by rigid economic analysis.

Careful reflection is needed going forward, as industrial policy, by definition, leads to concentrated benefits and carries diffuse costs. As such, it can also lead to unintended or counterproductive outcomes. The recent tariffs may prove this true, depending on one’s definition of the intended outcome.

Take the 25 percent tariff increase that was imposed on imports of Chinese solar cells. While this may protect domestic solar manufacturers, it may also slow the rate of solar deployment overall, given the higher resulting price for panels. Absent this tariff, solar panels would likely be cheaper, so it would be fair to say that the Biden administration’s implicit target of countering China’s industrial prowess is countering its explicit goal of achieving a carbon-free power grid by 2035.

The effects of trade policies such as this are unclear. What is clear is that acknowledgement of the trade-offs is necessary.

Public investments in infrastructure do have an important role. They are critical conduits of productivity growth and are necessary in areas where clear incentives for the private sector are not present. For instance, while nuclear energy is critical for bolstering the reliability of the electric grid, its business model has suffered significantly from the natural gas production boom that the United States has experienced from 2005 to the present. The affordability of gas, and increasingly of other resources, such as solar power, has made nuclear power’s high operating and capital costs less attractive to utilities, among other factors. Programs such as the Department of Energy’s Civil Nuclear Credit Program, which provides financial assistance to the United States’ nuclear reactor fleet, play an essential role.

Looking forward, however, it is also worthwhile to recall what is historically the engine of growth for the modern US economy, and the principal root of US competitive advantage in the global economy—technological innovation. It was not the tariffs of the McKinley administration or the safety net of the Roosevelt administration that led the way in supercharging US growth, although safety nets and infrastructure definitively do breed innovation.  

Attempting to reinvigorate domestic industry through grants, loans, or subsidies may be necessary to achieve goals such as “reshoring” manufacturing. At the same time, investments in research and development (R&D) are proven over decades to provide consistent macroeconomic returns and drive technological progress. An independent report commissioned by the Department of Energy’s Office of Energy Efficiency and Renewable Energy found that investments of twelve billion dollars made by the office since the mid-1970s have yielded more than $388 billion in total undiscounted net economic benefits to the United States.

However, public R&D spending in the United States has been stagnant for decades as a percentage of gross domestic product. If government investment is looking for the best rate of return, as sound investors do, R&D may be an underappreciated “asset class” that should increasingly be targeted by the United States and its partners.

William Tobin is an assistant director at the Atlantic Council Global Energy Center, where he focuses on international energy and climate policy.

The post The IRA two years on: A signpost of the new economic policy consensus appeared first on Atlantic Council.

How did this happen? Russia, long opposed to the Council of Europe’s 2001 Budapest Convention on cybercrime, began this process in 2017. Then, in 2019, Russia, along with China, North Korea, Myanmar, Nicaragua, Syria, Cambodia, Venezuela, and Belarus, presented a resolution to develop a global treaty. Despite strong opposition from the United States and European states, the UN General Assembly adopted a resolution in December 2019, by a vote of seventy-nine in favor and sixty against (with thirty abstentions), that officially began the process. Already, it was clear that the member states did not share one vision. Indeed, they could not even agree on a name for the convention until last week. What they ended up with is a mouthful: “Draft United Nations convention against cybercrime: Strengthening international cooperation for combating certain crimes committed by means of information and communications technology systems and for the sharing of evidence in electronic form of serious crimes.”

This exceedingly long name reveals one of the biggest problems with this convention: its scope. At its heart, this convention is intended to allow law enforcement from different countries to cooperate to prevent, investigate, and prosecute cybercrime, which costs trillions of dollars globally each year. However, the convention covers much more than the typical cybercrimes that come to mind, such as ransomware, and includes crimes committed using technology, which reflects the different views as to what constitutes cybercrime. As if that were not broad enough, Russia, China, and other states succeeded in pushing for negotiations on an additional protocol that would expand the list of crimes even further. Additionally, under the convention, states parties are to cooperate on “collecting, obtaining, preserving, and sharing of evidence in electronic form of any serious crime”—which in the text is defined as a crime that is punishable by a maximum of four years or more in prison or a “more serious penalty,” such as the death penalty.

In Russia, for example, association with the “international LGBT movement” can lead to extremism charges, such as the crime of displaying “extremist group symbols,” like the rainbow flag. A first conviction carries a penalty of up to fifteen days in detention, but a repeat offense carries a penalty of up to four years. That means a repeat offense would qualify as a “serious crime” under the cybercrime convention and be eligible for assistance from law enforcement in other jurisdictions that may possess electronic evidence relevant to the investigation—including traffic, subscriber, and even content data. Considering how much of modern life is carried out digitally, there will be some kind of electronic evidence for almost every serious crime under any domestic legislation. Even the UN’s own human rights experts cautioned against this broad definition.

Further, under the convention, states parties are obligated to establish laws in their domestic system to “compel” service providers to “collect or record” real-time traffic or content data. Many of the states behind the original drive to establish this convention have long sought this power over private firms. At the same time, states parties are free to adopt laws that keep requests to compel traffic and content data confidential—cloaking these actions in secrecy. Meanwhile, grounds for a country to refuse a cooperation request are limited to instances such as where it would be against that country’s “sovereignty,” security, or other “essential” interest, or if it would be against that country’s own laws. The convention contains a vague caveat that nothing in it should be interpreted as an obligation to cooperate if a country “has substantial grounds” to believe the request is made to prosecute or punish someone for their “sex, race, language, religion, nationality, ethnic origin, or political opinions.”

Russia claimed that such basic safeguards, which do offer some protection in the example regarding LGBT activity as “extremist,” were merely an opportunity for some countries to “abuse” the opportunity to reject cooperation requests. Those safeguards, conversely, could also be abused by the very same states that opposed them. The Iranian delegation, for its part, proposed a vote to delete that provision, as well as all other human rights safeguards and references to gender, on the day the text was adopted. These provisions had already been weakened significantly throughout the negotiation process and only survived thanks to the firm stance taken by Australia, Canada, Colombia, Iceland, the European Union, Mexico, and others that drew a red line and refused to accept any more changes.

The possible negative consequences of this convention are not limited to human rights but can seriously threaten global cybersecurity and national security. The International Chamber of Commerce, a global business organization representing millions of companies, warned during negotiations that “people who have access to or otherwise possess the knowledge and skills necessary” could be forced “to break or circumvent security systems.” Worse, they could even be compelled to disclose “previously unknown vulnerabilities, private encryption keys, or proprietary information like source code.” Microsoft agreed. Its representative, Nemanja Malisevic, added that this treaty will allow “for unauthorized disclosure of sensitive data and classified information to third states” and for “malicious actors” to use a UN treaty to “force individuals with knowledge of how a system functions to reveal proprietary or sensitive information,” which could “expose the critical infrastructure of a state to cyberattacks or lead to the theft of state secrets. Malisevic concluded that this “should terrify us all.”

Similarly, independent media organizations called for states to reject the convention, which the International Press Institute has called a “surveillance treaty.” Civil society organizations including Electronic Frontier Foundation, Access Now, Human Rights Watch, and many others have also long been ringing the alarm bell. They continue to do so as the final version of the convention adopted by the committee has failed to adequately address their concerns.

Given the extent and cross-border nature of cybercrime, it is evident that a global treaty is both necessary and urgent—on that, the international community is in complete agreement. Unfortunately, this treaty, perhaps a product of sunk-cost fallacy thinking or agreed to under duress for fear of an even worse version, does not solve the problems the international community faces. If the UN General Assembly adopts the text and the required forty member states ratify it so that it comes into force, experts are right to warn that governments intent on engaging in surveillance will have the veneer of UN legitimacy stamped on their actions. Rights-respecting states should not allow themselves to be co-opted into assisting abusive practices under the guise of cooperation. Nor should they willingly open the door to weakening their own national security or global cybersecurity.

Lisandra Novo is a staff lawyer for the Strategic Litigation Project at the Atlantic Council specializing in law and technology.

The post The UN finally advances a convention on cybercrime . . . and no one is happy about it appeared first on Atlantic Council.

That tailspin has ended almost as quickly as it started, and new inflation data today is making the Fed’s upcoming interest rate decision much more straightforward. But it’s worth revisiting what exactly happened in the markets over the past ten days and the lessons we should take heading into a consequential fall.

On August 5, markets in the United States fell 13 percent, in part thanks to Japan’s decision but also based on signals of a cooling US labor market. Global markets have experienced jolts in recent years; In 2023 Silicon Valley Bank (SVB) collapsed, marking one of the largest bank failures since 2008.

Below is a market reaction comparison for SVB and the recent “Summer Selloff.”
Click the arrow to see more.

While the recent shock differed in many ways from the one in March of last year, two key factors set the Summer Selloff apart: the state of the US economy and the situation with Iran.

One of the main reasons the VIX (the stock market’s expectation of volatility, sometimes called the fear gauge) spiked to historic highs last week was the risk of Iran’s retaliation and a wider war in the Middle East. As more serious talks of a ceasefire deal emerged during the week, markets started to recover quickly. But the situation is shifting day-to-day.

In the United States, markets were worried that the Fed was reacting too slowly to what was happening in the jobs market. In February 2023, right before SVB, the United States was adding 300,000 jobs a month, beating all expectations. But last month’s report was under 115,000 jobs. 

The Fed typically convenes eight times a year, but the summer schedule means there will be a notably long seven-week break before interest rates are revisited (absent a highly unlikely, and based on current conditions unnecessary, emergency meeting). This time gap could heighten market anxiety that the Fed is falling behind the curve and further erode confidence among businesses and consumers. While the Fed has signaled that it is preparing to cut rates in September, it is also aware that the meeting takes place six weeks before the presidential election, putting even more scrutiny than usual on its decision making. Federal Reserve Chair Jerome Powell has been clear that the election will in no way impact the Fed’s decision making. 

This morning, the Fed’s decision was made easier. The consumer price index increase data came in lower than expected, at 2.9 percent, which strengthens the argument for a rate cut when the Fed meets next month. In fact, some market participants think the Fed will cut by 50 basis points (bps), or half a percentage point, not its more standard 25 bps move. 

Compare the situation in the US economy now to the one during SVB’s collapse.

When SVB was unfolding, countries around the world knew they could rely on US growth to  stabilize the global economy. Forecasts for the economy were high and labor data was strong. Today, US growth is slowing (forecasted to be under 2 percent in 2025), China’s economy is stalling, and Europe remains stagnant. 

That explains why the market reacted the way it did last week—but what about the rapid recovery? All of last week’s losses have since been recoupled. In short, markets came to their senses. 

True, the Fed does not meet for another month, but Powell will be giving one of his biggest speeches of the year at the Jackson Hole Economic Symposium in a little over a week. The annual central banker retreat brings together financial leaders from across the world’s largest economies to discuss the ongoing economic issues and policy challenges. Powell’s speech is the perfect opportunity to signal the Fed’s intentions to cut rates and cool markets.

Meanwhile markets realized that while the United States is indeed slowing, it is still growing and far from a recession. Today’s inflation data confirms that the Fed—and the broader US economy—still have a very real chance of sticking the “‘soft landing” by hiking rates enough to tame inflation without causing a recession, an outcome that would be far outside the historical norm.

The bottom line is that between an election, the threat of conflict, and a slowing economy, there is likely to be more volatility in the months ahead. But volatility doesn’t necessarily equate to a downturn—it just means there’s more uncertainty than usual. 

Josh Lipsky is the senior director of the Atlantic Council GeoEconomics Center and a former adviser to the International Monetary Fund.

Alisha Chhangani is an assistant director with the Atlantic Council GeoEconomics Center.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Get ready for a volatile fall in the financial markets—but not necessarily a downturn appeared first on Atlantic Council.

Perhaps none have been as active, nor shown a greater commitment to bipartisanship, than Senators Richard Blumenthal (D-CT) and Lindsey Graham (R-SC), who made their sixth trip to Kyiv on August 12. This was no recess joyride down Kyiv’s Khreshchatyk Street. Most notably, the two senators met with Ukrainian President Volodymyr Zelenskyy and then quickly announced what could be a blueprint for US policy toward Ukraine in the waning months of the current Congress.

In a joint press release, Blumenthal and Graham outlined four pillars for a strong US policy on Ukraine through 2024 and 2025. First, they called on NATO to “issue an invitation this year to Ukraine for membership,” an obvious but crucial next step to more formally bind the country into the Alliance.

Second, the two announced that Blumenthal would introduce the Stand with Ukraine Act when Congress returns to Capitol Hill in September to “codify the bilateral security agreement” that the Biden and Zelenskyy administrations reached in June. This, too, is a sensible and necessary move. While Ukraine has signed security pacts with a host of Western partners, nearly all of them have been non-binding, including the US-Ukraine agreement. An act of Congress would seal its implementation over the length of its ten-year lifespan.

The senators joined a growing chorus of US lawmakers and experts calling on the Biden administration to lift restrictions on Ukraine’s use of US weapons against military targets in Russia. After months of pressure, the administration assented in May to allow limited strikes inside Russia, but only under specific conditions. Blumenthal and Graham see the folly in limiting when and how Ukraine can use US weapons and vowed to “urge the Biden administration to lift restrictions on weapons provided by the United States so they can strike the Russian invaders more effectively.”

Finally, and perhaps most interestingly, the senators offered the prospect of a strategic economic partnership between the United States and Ukraine centered on metals and rare earth elements development. Their press release hinted that their suggestion was a welcome surprise for Zelenskyy, whose government has expressed hopes of leveraging Ukraine’s vast mineral wealth to become a major exporter of lithium and rare earths, raw materials key to new technologies and the energy transition. In a veiled reference to China’s dominant position in the rare earths market, the senators noted that “an agreement with Ukraine in this area would make the US less dependent on foreign adversaries for rare earth minerals.”

As the world watches the Russian invasion of Ukraine unfold, UkraineAlert delivers the best Atlantic Council expert insight and analysis on Ukraine twice a week directly to your inbox.

After the House of Representatives belatedly passed the national security supplemental package that unlocked further US aid to Ukraine in April, experts and lawmakers alike began to wonder how Washington might continue to support Ukraine throughout the rest of 2024. The Blumenthal-Graham priorities outline what could be an ambitious, re-energized US policy on Ukraine through the end of the current year.

US President Joe Biden has been skittish at the last two NATO summits about pushing for Ukraine’s membership in the Alliance, largely for fear of escalating tensions with Russia. But with Biden now out of the 2024 presidential race, he may be thinking more about his foreign policy legacy. Having already helped usher Finland and Sweden into the Alliance, opening Ukraine’s accession bid in earnest would be the third in a hat-trick of transatlantic security wins for Biden. Meanwhile, the Kremlin’s underwhelming response to Ukraine’s offensive into Russia’s Kursk Oblast should certainly tamp down any misplaced fears of escalation.

Eurasia Center events

Online Event Thu, August 15, 2024 • 9:00 am ET

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

Blumenthal’s Stand With Ukraine Act will likely run up against latent partisanship and electoral jitters when he introduces it in September. Much of Congress will be campaigning this fall, avoiding difficult votes while trying to score political points against the other party. Senate Majority Leader Chuck Schumer could very well bring the bill to a floor vote, both to support Ukraine and to force a vote from anti-Ukraine Republicans, but Speaker of the House Mike Johnson may be loath to spend political capital to do the same. Even so, the bill may get the ball rolling on further Ukraine legislation, especially as some pro-Ukraine Republicans indicate they want funding to continue uninterrupted, even under the prospect of a Donald Trump presidency.

As for dropping restrictions on the use of US weapons, only the Biden administration can reverse this policy, something it has repeatedly declined to do. It may take further public and private calls from Democrats such as Blumenthal before the White House agrees to a change. In the meantime, Russian rockets will continue to kill Ukrainian civilians using launch systems that could have been taken out by US-provided Army Tactical Missile Systems (ATACMS) and other Western-supplied weapons.

The senators’ proposal for a US-Ukraine economic partnership has all the ingredients for bipartisan consensus in Washington: Support for Ukraine without US taxpayer dollars, reduced dependence on China, and the potential for economic gain by importing one of the few materials the United States can’t make itself. A formal agreement would likely be highly technical and take many months to negotiate, but all the incentives are there for a new element in US-Ukraine relations.

Congressional delegations can sometimes be high on style and discussion but low on action and deliverables. This time, Blumenthal and Graham delivered on all counts and laid out a road map outlining US support for Ukraine through the end of 2024. Their list is as ambitious as it is sounds, both in its support for US interests and in helping Ukraine move toward victory on the battlefield. That combination of vision and vigor is exactly why their initiatives deserve bipartisan support.

Andrew D’Anieri is a resident fellow at the Atlantic Council’s Eurasia Center.

Further reading

UkraineAlert Aug 13, 2024

Ukraine’s Kursk offensive proves surprise is still possible in modern war

By Mykola Bielieskov

Ukraine’s Kursk offensive has succeeded in demonstrating that surprise is still possible despite the increased transparency of the modern battlefield, writes Mykola Bielieskov.

Conflict Defense Policy

UkraineAlert Aug 11, 2024

Ukraine’s invasion of Russia is erasing Vladimir Putin’s last red lines

By Peter Dickinson

Ukraine’s invasion of Russia has erased the last of Vladimir Putin’s red lines and made a complete mockery of the West’s frequently voiced escalation fears, writes Peter Dickinson.

Conflict Defense Policy

UkraineAlert Aug 8, 2024

Ukraine continues to expand drone bombing campaign inside Russia

By Marcel Plichta

Ukraine’s long-range drone bombing campaign targeting military and industrial sites inside Russia has had a dramatic series of successes over the last few weeks, writes Marcel Plichta.

Conflict Defense Technologies

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

Read more from UkraineAlert

UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

Learn more

The post New US-Ukraine partnership proposal from influential senators is a recipe for bipartisan success appeared first on Atlantic Council.

These steps are encouraging and indicate welcome Western awareness of the repression that continues to define the political climate in today’s Belarus. Nevertheless, there is still a sense that not nearly enough is being done by the international community to challenge the impunity enjoyed by Lukashenka and members of his regime.

These concerns were amplified recently when the largest prisoner swap between the Kremlin and the West since the Cold War went ahead without featuring any Belarusian political prisoners. Lukashenka himself was closely involved in the complex negotiations behind the exchange. The Belarusian dictator agreed to free German national Rico Krieger, who was being held in Minsk on terrorism charges, as part of efforts to convince the German government to release Russian secret service assassin Vadim Krasikov.

Many have questioned why prominent Belarusian pro-democracy leader Maria Kalesnikava, who had previously lived for many years in Germany, was not also freed as part of the trade. Kalesnikava was jailed amid nationwide protests following Lukashenka’s rigged 2020 election. One of the figureheads of the anti-Lukashenka protest movement, she has reportedly been suffering from deteriorating health for the past year and a half. Similar questions were also asked regarding fellow political prisoners Ales Bialiatski, who was awarded the Nobel Peace Prize in 2022, and Ihar Losik, a prominent blogger and journalist for RFE/RL’s Belarus Service.

As the world watches the Russian invasion of Ukraine unfold, UkraineAlert delivers the best Atlantic Council expert insight and analysis on Ukraine twice a week directly to your inbox.

Four years since the sham ballot that sparked the biggest protests of Lukashenka’s three-decade reign, he appears more comfortable than ever with the idea of holding large numbers of political prisoners as hostages. This must change. With no regime-linked Belarusians in Western custody who are anything like as valuable as Krasikov was to Putin, other approaches are clearly needed to increase the pressure on Lukashenka and convince him to release political prisoners.

Economic measures can be used to target the largely state-controlled Belarusian economy, but this is more likely to have an impact as part of a long-term strategy. One alternative approach would be to engage third parties such as China, which has considerable influence in Minsk. Earlier diplomatic efforts succeeded in securing the release of US citizen Vital Shkliarau, indicating that negotiations of this nature can yield results.

Finding the right formula to keep up the pressure on individual members of the Lukashenka regime is crucial. At present, comparatively few of those involved in repressive measures are subject to international sanctions. For example, I was recently sentenced in absentia by a Belarusian court to ten years in prison alongside nineteen other independent Belarusian analysts and journalists. The judge in our case has a history of handing down lengthy sentences to prominent opposition figures, but has yet to be sanctioned.

During the past four years, only 261 Belarusians have been placed on the EU sanctions list. While the work of sanctions teams is commendable, their capacity is limited. Past experience has also demonstrated how sanctions can be sabotaged, as was the case in 2020 when Cyprus was accused of blocking the introduction of new restrictions against Belarus. There is also room to improve cooperation between Western partners, with a view to developing a more unified approach to sanctions.

Eurasia Center events

Online Event Thu, August 15, 2024 • 9:00 am ET

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

Strikingly, the quantity of Belarusians currently facing Western sanctions is far less the almost 1,400 political prisoners in the country’s prisons. According to human rights groups, tens of thousands of Belarusians in total have been detained in recent years for political reasons. Behind these arrests and prosecutions stands an army of enablers including government officials, security personnel, and judges. The vast majority of these people have yet to be held accountable by the international community for their role in the repressive policies of the Belarusian authorities.

There are some indications that Western policymakers are looking to broaden the scope of sanctions and increase individual accountability. However, while the recent round of sanctions included new measures targeting officials responsible for regime propaganda, other representatives of the Belarusian state media received international accreditation to cover the Olympics in Paris.

The West already has powerful tools at its disposal that can realistically make Belarusian officials consider the consequences of their actions. Standard personal sanctions such as travel bans and asset freezes go far beyond mere symbolism and are capable of creating problems that can have far-reaching practical implications in everyday life. However, more leverage is required in order to maintain the pressure on the regime and on the individuals responsible for specific abuses.

Looking ahead, the West needs to make the issue of political prisoners far more uncomfortable for the entire Lukashenka regime. There is no single solution to this problem; instead, a range of options should be explored including broad economic restrictions, personal sanctions, and diplomatic pressure. Crucially, sanctions should be applied to thousands of officials rather than just a few hundred. The end goal must be to significantly raise the costs of the repressive policies pursued by Lukashenka and all those who enable his regime.

Hanna Liubakova is a journalist from Belarus and nonresident fellow at the Atlantic Council.

Further reading

UkraineAlert Aug 13, 2024

Ukraine’s Kursk offensive proves surprise is still possible in modern war

By Mykola Bielieskov

Ukraine’s Kursk offensive has succeeded in demonstrating that surprise is still possible despite the increased transparency of the modern battlefield, writes Mykola Bielieskov.

Conflict Defense Policy

UkraineAlert Aug 11, 2024

Ukraine’s invasion of Russia is erasing Vladimir Putin’s last red lines

By Peter Dickinson

Ukraine’s invasion of Russia has erased the last of Vladimir Putin’s red lines and made a complete mockery of the West’s frequently voiced escalation fears, writes Peter Dickinson.

Conflict Defense Policy

UkraineAlert Aug 8, 2024

Ukraine continues to expand drone bombing campaign inside Russia

By Marcel Plichta

Ukraine’s long-range drone bombing campaign targeting military and industrial sites inside Russia has had a dramatic series of successes over the last few weeks, writes Marcel Plichta.

Conflict Defense Technologies

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

Read more from UkraineAlert

UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

Learn more

The post Belarus’s political prisoners must not be forgotten appeared first on Atlantic Council.

The post Economic Statecraft Initiative webpage included in a Bloomberg op-ed on the use of economic policy as a tool for foreign policy appeared first on Atlantic Council.

The post Busch and Mohseni-Cheraghlou and Amin cited in the UN’s International Maritime Organization’s March bulletin on climate-related trade disruptions appeared first on Atlantic Council.

The post Busch and Mohseni-Cheraghlou cited in the UK Parliament’s research briefing on climate-related trade disruptions appeared first on Atlantic Council.

Kenya is a prime example: In 2007, a local telecommunications provider launched a form of mobile money called M-PESA, which enabled peer-to-peer money transfers between mobile phones and became wildly successful. Within five years, it grew to fifteen million users, with a deposit value approaching almost one billion dollars. To address rising security concerns, in 2013, the Kenyan government implemented a law requiring every citizen to officially register the SIM card (for their cell phone) using a government identification (ID). The measure was enforced swiftly, leading to the freezing of millions of SIM cards. Over ten years later, SIM card ID registration laws have become common across Africa, with over fifty countries adopting such regulations. 

But that is not the end of the story. In parallel, a practice called third-party SIM registration has become rampant, in which cell phone users register their SIM cards using someone else’s ID, such as a friend’s or a family member’s. 

Our recent research at Carnegie Mellon University, based on in-depth user studies in Kenya and Tanzania, found that this phenomenon of third-party SIM registration has both unexpected origins and unintended consequences. Many individuals in those countries face systemic challenges in obtaining a government ID. Moreover, some participants in our study reported having privacy concerns. They felt uncomfortable sharing their ID information with mobile money agents, who could repurpose that information for scams, harassment, or other unintended uses. Other participants felt “frustrated” by a process that was “cumbersome.” As a result, many users prefer to register a SIM card with another person’s ID rather than use or obtain their own ID.

Third-party SIM registration plainly undermines the effectiveness of the public policy and has additional, downstream effects. Telecommunications companies end up collecting “know your customer” information that is not reliable, which can impede law enforcement investigations in the case of misconduct. For example, one of our study subjects shared the story of a friend lending their ID for third-party registration, and later being arrested for the alleged crimes of the actual user of the SIM card. 

A core implication of our research is that the Kenyan government’s goals did not fully take into account the realities of the target population—or the feasibility of the measures that Kenya and Tanzania proposed. In response, people invented their own workarounds, thus potentially introducing new vulnerabilities and avenues for fraud.

Good policy, bad consequences 

Several other case studies demonstrate how even well-intentioned regulations can have unintended consequences and practical problems if they do not appropriately consider security, privacy and usability together. 

• Uganda: Much like our findings in Kenya and Tanzania, a biometric digital identity program in Uganda has considerable unintended consequences. Specifically, it risks excluding fifteen million Ugandans “from accessing essential public services and entitlements” because they do not have access to a national digital identity card there. While the digitization of IDs promises to offer certain security features, it also has potential downsides for data privacy and risks further marginalizing vulnerable groups who are most in need of government services.
  
• Europe: Across the European Union (EU), a landmark privacy law called General Data Protection Regulation (GDPR) has been critical for advancing data protection and has become a benchmark for regulatory standards worldwide. But GDPR’s implementation has had unforeseen effects such as some websites blocking EU users. Recent studies have also highlighted various usability issues that may thwart the desired goals. For example, opting out of data collection through app permissions and setting cookie preferences is an option for users. But this option is often exclusionary and inconvenient, resulting in people categorically waiving their privacy for the sake of convenience.
  
• United States (health law): Within the United States, the marquee federal health privacy law passed in 1996 (the Health Insurance Portability and Accountability Act, known as HIPAA) was designed to protect the privacy and security of individuals’ medical information. But it also serves as an example of laws that can present usability challenges for patients and healthcare providers alike. For example, to comply with HIPAA, many providers still require the use of ink signatures and fax machines. Not only are technologies somewhat antiquated and cumbersome (thereby slowing information sharing)—they also pose risks arising from unsecured fax machines and misdialed phone numbers, among other factors.
  
• Jamaica: Both Jamaica and Kenya have had to halt national plans to launch a digital ID in light of privacy and security issues. Kenya already lost over $72 million from a prior project that was launched in 2019, which failed because of serious concerns related to privacy and security. In the meantime, fraud continues to be a considerable problem for everyday citizens: Jamaica has incurred losses of more than $620 million from fraud since 2018.
  
• United States [tax system]: The situation in Kenya and Jamaica mirrors the difficulties encountered by other digital ID programs. In the United States, the Internal Revenue Service (IRS) has had to hold off plans for facial recognition based on concerns about the inadequate privacy measures, as well as usability concerns—like long verification wait times, low accuracy for certain groups, and the lack of offline options. The stalled program has resulted in missed opportunities for other technologies that could have allowed citizens greater convenience in accessing tax-related services and public benefits. Even after investing close to $187 million towards biometric identification, the IRS has not made much progress.
  

Collectively, a key takeaway from these international experiences is that when policymakers fail to simultaneously balance (or even consider) usability, privacy, and security, the progress of major government initiatives and the use of digitization to achieve important policy goals is hampered. In addition to regulatory and legislative challenges, delaying or canceling initiatives due to privacy and usability concerns can lead to erosion in public trust, increased costs and delays, and missed opportunities for other innovations.

Policy as product design

Going forward, one pivotal way for government decision makers to avoid pitfalls like the ones laid out above is to start thinking like product designers. Focusing on the most immediate policy goals is rarely enough to understand the practical and technological dimensions of how that policy will interact with the real world.

That does not mean, of course, that policymakers must all become experts in creating software products or designing user interfaces. But it does mean that some of the ways that product designers tend to think about big projects could inform effective public policy.

First, policymakers should embrace user studies to better understand the preferences and needs of citizens as they interact digitally with governmental programs and services. While there are multiple ways user studies can be executed, the first often includes upfront qualitative and quantitative research to understand the core behavioral drivers and systemic barriers to access. These could be complemented with focus groups, particularly with marginalized communities and populations who are likely to be disproportionately affected by any unintended outcomes of tech policy. 

Second, like early-stage technology products that are initially rolled out to an early group of users (known as “beta-testing”), policymakers could benefit from pilot testing to encourage early-stage feedback. 

Third, regulators—just like effective product designers—should consider an iterative process whereby they solicit feedback, implement changes to a policy or platform, and then repeat the process. This allows for validation of the regulation and makes room for adjustments and continuous improvements as part of an agency’s rulemaking process.

Lastly, legislators and regulators alike should conduct more regular tabletop exercises to see how new policies might play out in times of crisis. The executive branch regularly does such “tabletops” in the context of national security emergencies. But the same principles could apply to understanding cybersecurity vulnerabilities or user responses before implementing public policies or programs at scale.

In the end, a product design mindset will not completely eliminate the sorts of problems we have highlighted in Kenya, the United States, and beyond. However, it can help to identify the most pressing usability, security, and privacy problems before governments spend time and treasure to implement regulations or programs that may not fit the real world.

Karen Sowon is a user experience researcher and post doctoral research associate at Carnegie Mellon University.

JP Schnapper-Casteras is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and the founder and managing partner at Schnapper-Casteras, PLLC.

Giulia Fanti is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and an assistant professor of electrical and computer engineering at Carnegie Mellon University.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Tech regulation requires balancing security, privacy, and usability  appeared first on Atlantic Council.

An initiative led by the Atlantic Council’s Adrienne Arsht Latin America Center in partnership with the US Department of State continues to focus on facilitating greater constructive exchange among multisectoral thought leaders and government leaders as they work to implement commitments made at the ninth Summit of the Americas. This readout was informed by a private, information-gathering roundtable and several one-on-one conversations with leading experts in the digital space.

Executive summary

At the ninth Summit of the Americas, regional leaders agreed on the adoption of a Regional Agenda for Digital Transformation that reaffirmed the need for a dynamic and resilient digital ecosystem that promotes digital inclusion for all peoples. The COVID-19 pandemic exacerbated the digital divide globally, but these gaps were shown to be deeper in developing countries, disproportionately affecting women, children, persons with disabilities, and other vulnerable and/or marginalized individuals. Through this agenda, inclusive workforce development remains a key theme as an avenue to help bridge the digital divide and skills gap across the Americas.

As part of the Atlantic Council’s consultative process, thought leaders and practitioners evaluated progress made in the implementation of the Regional Agenda for Digital Transformation agreed on at the Summit of Americas, resulting in three concrete recommendations: (1) leverage regional alliances and intraregional cooperation mechanisms to accelerate implementation of the agenda; (2) strengthen public-private partnerships and multisectoral coordination to ensure adequate financing for tailored capacity-building programs, the expansion of digital infrastructure, and internet access; and (3) prioritize the involvement of local youth groups and civil society organizations, given their on-the-ground knowledge and role as critical indicators of implementation.

Recommendations for advancing digitalization and workforce development in the Americas:

Report

May 31, 2024

PACC 2030 objectives: The road to implementation

By Wazim Mowla, Charlene Aguilera

The Atlantic Council organized a PACC 2030 Working Group and worked closely with governments, the business community, and civil society organizations to support the implementation of PACC 2030’s objectives.

Caribbean Climate Change & Climate Action

Report

Apr 16, 2024

Advancing health and resilience policies in Latin America and the Caribbean

By Isabel Chiriboga, Martin Cassinelli, Diego Area

During an off-the-record private roundtable, thought leaders and practitioners from across the Americas discussed how to further enhance access to and finance for health services and products in the region.

Coronavirus Latin America

Summit of the Americas

Amid global uncertainties and new challenges, the ninth Summit of the Americas is a renewed opportunity to bring about hemispheric cooperation and consensus to reach regional prosperity and security.

Staff

Isabel Chiriboga

Assistant Director

Adrienne Arsht Latin America Center

Colombia Corruption

Staff

Maite Gonzalez Latorre

Program Assistant

Adrienne Arsht Latin America Center

Americas Education

Staff

Diego Area

Deputy Director, Strategic Development

Adrienne Arsht Latin America Center

Crisis Management Democratic Transitions

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Learn more

The post The future of digital transformation and workforce development in Latin America and the Caribbean appeared first on Atlantic Council.

First, what is a strategic reserve? A strategic reserve is a stock of a systemically important input, which can be released to manage serious disruptions in supply. The most well known example—the strategic petroleum reserve (SPR)—was created as a response to the 1973-74 Arab oil embargo, as well as to meet the reserve obligations of the international energy program. Since the 1970s, the SPR has been tapped more than two dozen times for a range of reasons: from providing critical petroleum supply after natural disasters, to most recently reducing inflationary pressures on energy prices after Russia’s invasion of Ukraine. In addition, if managed well, drawdowns of the reserve can occur when the United States is able to sell the crude oil at high prices and buy it back when prices are low.

What purpose would a strategic bitcoin reserve serve? Proponents of the idea think of bitcoin as a national and economic security asset like oil or gold. However, in economic security terms,  bitcoin clearly does not serve the same function in the US economy as petroleum. Oil is one of the basic inputs that powers our economy and daily living—crypto is not. Holding a bitcoin reserve would be the equivalent of the government holding a lot of iPhones in case it needed to intervene to reduce iPhone prices in the future. It is not a crucial commodity or input in our economy.

Moreover, as this week has made clear, bitcoin price is impacted by macroeconomic factors and recovers slower, even as markets are settling down this week. As the one-two punch of an unexpectedly weak jobs report and a surprising rate hike in Japan came in over the weekend, markets all over the world reacted strongly. A bigger, mirrored dip was seen in crypto prices after Friday. What we saw is a sell-off of crypto—an exchange of a liquid asset to pay off debts and higher borrowing costs—incurred by rising uncertainty in the markets as they begin to price in a possible conflict in the Middle East, in addition to the macroeconomic data. Compare this with gold—another reserve asset—which stayed relatively stable over this period. This volatility of crypto is persistent and makes it an ineffective hedge against inflation. 

Additionally, bitcoin is only one type of crypto asset. In the case of a strategic petroleum reserve, we don’t just use one provider of crude oil, regardless of its market share. Moreover, a large majority of the US government’s seized crypto assets are in the form of tether and other assets. It’s still an open question if they would become a part of the strategic reserve.  

Since it’s not about the resilience of bitcoin during a period of macroeconomic uncertainty, or its strategic importance in our economy—what is the idea of strategic bitcoin reserve actually about? Both critics and proponents have talked about how this proposal could make bitcoin and crypto more institutionalized and  enmeshed with traditional finance, raising its popularity and use for commercial purposes. For the last five years, the crypto industry has wanted to shed its outsider status and enter the mainstream of global finance. It has been somewhat successful with the introduction of BlackRock’s bitcoin ETF this year, in addition to increased interest in tokenization experiments. This sort of institutionalization has helped, largely because it has been realistic about crypto’s capabilities and importance in global markets. 

The biggest drawback of the strategic bitcoin reserve proposal is that it prescribes crypto values it does not have, at least for now. This proposal is at best, premature, and at worst, out of touch with the reality of markets and US national security objectives. Bringing bitcoin into mainstream use is not reason enough to create a strategic bitcoin reserve. 

Ananya Kumar is the deputy director, future of money at the Atlantic Council’s GeoEconomics Center.

Data visualization created by Alisha Chhangani.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post What exactly is a strategic bitcoin reserve? appeared first on Atlantic Council.

The gulf between economic data and official pronouncements grew through the second quarter of 2024. Property markets, stock prices and consumer sentiment all indicated weakness while China showcased engagement with foreign investors and private Chinese firms to signal intent to boost activity. But new policy actions were not market friendly in the period before the July 2024 Third Plenum economic planning meetings. There were a few encouraging signs for foreign investors, including pledges to discipline local protectionism and arbitrary regulations, but these have been heard before, and “promise fatigue” is a serious problem. Most of the clusters we track showed limited progress or further divergence from OECD norms. On trade, China refused to acknowledge the legitimacy of the overcapacity concerns the world was alarmed about.

The second quarter generally reflected the takeaway from the July plenum meetings: China will leverage whatever it can to drive technological advancement, and national security will override efficiency at home and engagement abroad. New rules to address excess local regulation contain expansive national security carveouts, as do pilot measures to allow foreign investment in data centers and telecom. Beijing’s commitment to direct state support to vast swaths of the economy was reinforced this quarter, with the state planning plenum manifesto as a capstone.

Read the full issue brief below

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

Sinographs Jul 23, 2024

Key takeaways from China’s Third Plenum 2024

By Hung Tran

The communiqué of the Third Plenum of the CCP Central Committee lacks major policy initiatives to address the country’s near-term growth challenges.

China Economy & Business

Issue Brief May 15, 2024

China Pathfinder: Q1 2024 update

By GeoEconomics Center and Rhodium Group

In the first quarter of 2024, Beijing pushed forward with a flurry of efforts to support a faltering stock market, ramp up exports to make up for domestic demand, and double-down on high-tech sectors with subsidies and other innovation funding.

China Fiscal and Structural Reform

Report Oct 4, 2023

Running out of road: China Pathfinder 2023 annual scorecard

By Atlantic Council GeoEconomics Center and Rhodium Group

The China Pathfinder project examines whether China’s economy is converging or diverging with the world’s leading open market economies.

China Digital Policy

The post China Pathfinder: Q2 2024 update appeared first on Atlantic Council.

The initiative also represents a significant part of Armenia’s peace agenda in the South Caucasus amid negotiations with Azerbaijan. Armenian leaders envision these renovated and newly built routes as conduits for cultivating economic, political, and cultural ties between the countries involved, thus advancing long-term peace and stability in the region. With the potential to economically benefit the region, promote peace and cooperation in the South Caucasus, and reduce Armenia’s dependence on Russia, the West should support the Crossroads for Peace plan with more robust diplomatic backing and infrastructure investment.

Decades of instability

The South Caucasus, straddling the juncture between Europe and Asia, has long been a region of strategic importance plagued by persistent instability and conflict. Most notable has been the Karabakh conflict between Armenia and Azerbaijan, which emerged in the early 1990s and led to the closure of the Armenia-Azerbaijan and Armenia-Turkey borders, severely restricting Armenia’s trade and hardening political divides.

The conflict experienced a significant turning point on September 27, 2020, when Azerbaijan launched a major offensive, triggering the worst escalation since 1994. After six weeks of intense fighting, a Russia-brokered ceasefire was signed on November 9, 2020, which stipulated concessions of Armenian-controlled territory within the internationally recognized borders of Azerbaijan. Azerbaijan blockaded Karabakh for nearly ten months starting on December 12, 2022, leading to a humanitarian crisis. On September 19, 2023, Azerbaijan launched a military assault that seized full control of Karabakh and forced more than one hundred thousand ethnic Armenians to flee to Armenia. The United Nations estimates that only about fifty Armenians remain in the region.

The Karabakh conflict ended on January 1, 2024, with the Karabakh authorities announcing that their unrecognized government ceased to exist. Consequently, the initial rationale behind the closure of the Armenia-Azerbaijan and Armenia-Turkey borders no longer holds. Despite this, both Azerbaijan and Turkey, with the latter often aligning with the former’s policies, continue to refuse to reopen their borders with Armenia. This refusal persists even in the face of Armenia’s Crossroads for Peace initiative—a proposal that would be beneficial for regional development.

Corridors and crossroads

The Trans-Caspian Corridor, also known as the “Middle Corridor,” is an increasingly important channel for transportation and cross-border trade connecting the Central Asian states with Europe. It primarily involves the transport of goods and resources across the Caspian Sea, bridging Central Asian countries such as Kazakhstan and Turkmenistan to Azerbaijan via maritime routes. From Azerbaijan, the goods are then transported through Georgia and Turkey, reaching European markets. Though trade volumes and capacity are still relatively low, the corridor holds immense strategic opportunities, as it offers a viable alternative to the traditional, longer routes through Russia or the southern maritime paths via the Suez Canal, significantly reducing transit time and avoiding geostrategic hotspots.

The Eurasian Northern Corridor, offering both road and rail options, is currently the primary route for transcontinental transport but largely traverses Russian territory. Western sanctions, investment deterrents, and financial restrictions tied to Russia’s war on Ukraine complicate this corridor’s use, and potential instability in Russia might eventually further weaken this route’s reliability. More direct routes through Central Asian and South Caucasus nations could diminish the value of the Eurasian Northern Corridor, aligning with US and European Union efforts to reduce dependencies on Russia. The development of the Trans-Caspian Corridor offers such a strategic alternative, diversifying energy supplies to Europe and enhancing trade connectivity between Asia and Europe, while bypassing Russian influence.

Armenia’s Crossroads for Peace initiative, therefore, would create a vital complementary set of routes, enhancing the strategic depth and utility of the Trans-Caspian Corridor. By developing infrastructure such as the Yeraskh-Julfa-Meghri-Horadiz railway, Armenia would offer new logistic pathways linking the Caspian region directly to the Mediterranean and Black seas through Armenian territory. This would not only shorten transit times and distances between Asia and Europe but would also introduce reliable alternative routes.

Additionally, the integration of Armenia into the Trans-Caspian Corridor could stimulate economic growth in the region by attracting foreign investment focused on logistics and infrastructure development. Armenia could become a central node in Eurasian trade, enhancing the corridor’s capacity and security. This strategic expansion would diversify the transport routes available to major trading powers and fortify the economic independence of Armenia and its neighboring countries by reducing their reliance on Russia.

Moreover, the Crossroads for Peace initiative is premised on the principles of sovereignty and jurisdiction, ensuring that infrastructure within each country’s borders remains under its control. The idea is to promote mutual respect and cooperation among its neighboring nations, facilitating equal and reciprocal management of border and customs controls. This ensures that each country would be able to safeguard its interests while promoting shared economic growth.

Obstacles in the path

However, Crossroads for Peace faces significant geopolitical hurdles. Azerbaijan has so far refused to support Armenia’s initiative, with analysts stating that neither Baku nor Ankara had been consulted. While the Armenian government should intensify its outreach on Crossroads for Peace, Armenia’s neighbors should judge the initiative in good faith on commercial viability, rather than on geopolitical grounds.

If realized, Crossroads for Peace could significantly benefit both Azerbaijan and Turkey by boosting regional trade and opening new markets. For Azerbaijan, it could provide a more direct route to European markets, while Turkey could see enhanced trade corridors that bypass less stable regions. Additionally, the project could serve as a diplomatic bridge, easing longstanding tensions and transforming a historical conflict into a hub of international commerce. For Turkey in particular, supporting this initiative could strategically position it as a peace broker in the region, which could strengthen its diplomatic relationships not only with its immediate neighbors but also across Europe and into Asia. 

Baku has instead called for the development of the “Zangezur Corridor,” which would connect mainland Azerbaijan directly with its exclave of Nakhchivan through Armenia’s southernmost Syunik province. Azerbaijan’s conception of Zangezur includes not only a railway link, but also a highway between the two parts of Azerbaijan, and demands that it would have extraterritorial status, which would require Armenia to cede control over a strip of its own territory. Crucially, Zangezur envisions opening a single transit route with Azerbaijan, whereas Crossroads for Peace aims to open several border crossings with both Azerbaijan and Turkey.

Armenia has firmly stated that any discussions involving the loss of sovereignty and territorial integrity or third-party control over its territory are nonnegotiable red lines. Indeed, Baku has insisted that a detachment from Russia’s Federal Security Service guard Zangezur; having just kicked Russian border guards out of the country, it’s understandable why Armenia would balk at the installation of more Russian agents on its territory.

Azerbaijan’s Zangezur plan is also detrimental to Western interests in several ways. First, it would hinder the broader Western strategic objective of stabilizing and economically developing the South Caucasus—critical for energy routes and geopolitical balance among Europe, Asia, and the Middle East. By stalling broader regional integration initiatives, Azerbaijan’s position perpetuates dependence on existing routes that run through Georgia, which face logistical and capacity hurdles, and which could be susceptible to disruptions by external geopolitical influences.

This ongoing tension and the resultant lack of comprehensive peace and cooperation in the South Caucasus allows Russia and Iran to exert their influence there. Armenia’s isolation forces it to maintain its reliance on Russia, countering Western efforts to promote democratic governance and market liberalization in the area. This situation becomes increasingly dangerous as autocratic Azerbaijan deepens its ties with Russia. Simultaneously, Iran benefits by positioning itself as a crucial partner for Armenia in energy and trade, while also providing diplomatic support by rejecting the Zangezur plan to maintain clout in the South Caucasus.

By keeping the Armenia-Azerbaijan and Armenia-Turkey borders closed, Azerbaijan impedes Armenia’s economic and connectivity opportunities, limiting the scope for Western engagement and investment in the region. This keeps Armenia overly dependent on trade with Russia. Baku has long complained about Armenia’s close ties with Russia and should welcome Yerevan’s desire to open trade with Azerbaijan and Turkey, as well as its commitment to leave the Moscow-led Collective Security Treaty Organization.

The Crossroads for Peace initiative, therefore, offers a more promising path. By opening up the region and paving the way for a new era of mutual economic growth and cooperation in the South Caucasus, Crossroads for Peace could serve as a catalyst for regional stability and prosperity. This initiative not only counters the restrictive nature of the Zangezur plan but also aligns economic incentives with geopolitical opportunities.

How the West can help

Armenia’s Crossroads for Peace initiative deserves more robust support and engagement from Western nations. By backing Armenia’s efforts to integrate into the Trans-Caspian Corridor and promote cooperation across the South Caucasus, Western countries can help ensure that the region develops into a vibrant economic hub that is less dependent on Russia. Increased investment in infrastructure, clear diplomatic backing, and strategic partnerships, such as the recent upgrade in US-Armenia relations, can solidify the West’s commitment to promoting a more balanced geopolitical landscape in this region.

This should start with applying diplomatic pressure on Turkey and Azerbaijan to engage constructively with the initiative and entering security pacts with Armenia that help deter aggression and maintain open and secure trade routes. Subsequently, Western countries should implement targeted funding and financial incentives along with technical assistance for the construction and modernization of infrastructure in the region. Potential new trade agreements and the promotion of private sector involvement encouraging Western businesses to invest in and partner with local firms within the framework of Crossroads for Peace would also help make the initiative more viable.

Enhanced Western support for Armenia could also serve as a catalyst for broader regional cooperation and prosperity, setting a precedent for peaceful conflict resolution and cooperative development efforts. Western policymakers should therefore help integrate Crossroads for Peace into regional connectivity plans that promote open, stable, and cooperative international systems and can make Armenia a key player in the diversification of transit routes across Eurasia.

Sheila Paylan is a human rights lawyer and senior legal consultant with the United Nations. The views expressed herein are her own and do not necessarily reflect those of the United Nations.

The post How Armenia’s ‘Crossroads for Peace’ plan could transform the South Caucasus appeared first on Atlantic Council.

What accounts for this market correction? The most important factor has been the perception that the US Federal Reserve is behind the curve, having missed the opportunity to cut the federal funds rate in last week’s Federal Open Market Committee (FOMC) meeting. This perception was reinforced by weaker than expected employment numbers on August 2. Nonfarm payrolls increased by only 114,000 in July, and the unemployment rate rose to 4.3 percent from 4.1 percent in June. The fact that the unemployment rate (on a three-month moving-average basis) has risen by more than 0.5 percentage points from its low of 3.5 percent in July 2023 has heightened fears of an imminent recession, according to the so-called Sahm rule. As a consequence, market interest rates declined substantially with two-year US Treasury yields falling to 3.8 percent, causing the gap against the effective federal funds rate of 5.3 percent to widen the most since the global financial crisis in 2008. Furthermore, the federal funds rate is also far above the policy rate of 3.95 percent, according to the Taylor Rule (developed by economist John Taylor in 1993 to calculate what the federal funds rate should be given current economic conditions). These gaps appear to validate the view that the Federal Reserve is behind the curve.

Having painted itself into this corner, there are no good options for the Federal Reserve going forward. Waiting until the September FOMC meeting to start cutting rates—as implied by the July meeting—could risk having additional weak economic data prolong the market selloff, undermining business and consumer confidence and hurting economic activity. Implementing a rate cut before September could send the message that things are not well, triggering worse fears among investors. Cutting by fifty basis points—instead of the traditional pace of cutting twenty-five basis points per meeting—would also confirm that the Federal Reserve has been wrong in delaying easing for too long. On balance, using the September meeting with more data to make an appropriate cut—of fifty basis points, if necessary—would be the least bad option, minimizing the risk of the Federal Reserve inadvertently feeding into the present market panic.

This “September fifty” option seems to be supported by a close look at the overall economic conditions. The July employment data could be distorted to some extent by Hurricane Beryl and problematic seasonal adjustment factors. The increase in the unemployment rate was caused by a rise in the number of workers entering or reentering the labor force—the prime-age (twenty-five to fifty-four years) labor force participation rate surged to 84 percent—and not by a decline in employment. Furthermore, the Purchasing Managers Index for the important services sector recovered to 51.4 in July from 48.8 in June. In fact, the Federal Reserve Bank of St. Louis gross domestic product “nowcast model” estimates 2.54 percent growth in the third quarter, accelerating from the 1.14 percent pace in the second quarter. Weakening employment numbers warrant close attention to growth prospects, but a recession is yet to become the base case scenario.

Moreover, the global market selloff has also been driven by the normalization of outsized expectations for the high-tech sector and one-way betting for low Japanese interest rates and yen exchange rates. It could, therefore, be regarded as fundamentally healthy. For example, the US “magnificent seven” high-tech stocks, including Nvidia and Apple, have accounted for most of the market price gains over the past year or so, significantly stretching their market valuations. Their recent disappointing earnings reports have triggered the correction, shedding nine hundred billion dollars in market value.

In the case of Japan, investors have expected interest rates to remain low compared to the United States and for the yen to be weak against the dollar. Consequently, investors have borrowed substantially in yen to put on carry trades—investing in higher-yielding bonds, including in the United States and emerging markets. As the Bank of Japan hiked policy rates to 0.25 percent last week—for the second time since 2007—and outlined a plan to unwind its massive bond purchase program, the yen has strengthened by 10.5 percent against the dollar from its thirty-eight-year low of 166.99 yen/dollar in June. The appreciation of the yen has been magnified by short covering on the part of carry-trade investors—and this is expected to go on for some time given the estimated huge carry-trade positions, underpinning the yen in foreign exchange markets. A stronger yen would reduce the profits reported by many Japanese corporations, many of which rely on overseas markets for their profits, negatively impacting Japanese stock markets. To a lesser extent, the renminbi has also recovered to a seven-month high of 7.13 yuan/dollar due to short-covering of yuan-based carry trades.

On balance, the sharp equity market selloff may be painful to investors, but it could turn out to be a timely and healthy correction. Meanwhile, it is important that the Federal Reserve uses its long-planned review of its monetary policy operating framework to learn from its recent mistakes. (It has been behind the curve twice: keeping the federal funds rate too low for too long in 2022, and too high for too long now.) Going forward, the Federal Reserve must adopt a forward-looking policy framework instead of being fixated on current economic data.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center, a former executive managing director at the Institute of International Finance and a former deputy director at the International Monetary Fund.

Data visualization created by Alisha Chhangani.

The post Monday’s market rout is a painful but fundamentally healthy correction appeared first on Atlantic Council.

An instigating ingredient added this past weekend was the disappointing jobs report released on Friday. Analysts expected 180,000 jobs—which would signal a slowdown but still relatively healthy job growth. This was, it seems, what the Federal Reserve expected last Wednesday when it decided not to cut interest rates and its chair, Jerome Powell, said, “the labor market has come into better balance.”

Instead, 114,000 jobs were created in July. This was disappointing, and some believed it signaled that the United States is headed for slower growth than forecast and even—dare one say the dreaded word—a recession. But within a day or two, most market participants had taken a deep breath, recognizing that bad weather probably had an impact, remembering that unemployment was still near historic lows, and aware that US gross domestic product growth was far outpacing that of the rest of the Group of Seven (G7).

Then Japan happened. As several financial commentators have noted, a unique mix of problems is plaguing Japanese markets. The Bank of Japan had stuck to zero interest rates during the global cycle of rate hikes but was forced to intervene last week to avoid further yen depreciation. This now means that Japanese borrowing conditions are becoming tighter as recession risks grow, making it an outlier during the coming easing cycle—just as it was during the global cycle of rate hikes. The record Nikkei index rout on Monday can also be attributed to the export-oriented nature of Japanese firms, which had benefited from the weak yen, until now.

So why then did US markets react so violently Monday? It’s not just the jobs report and it’s not just Japan. Instead, it’s the x-factor ingredient—geopolitics. Specifically, Iran’s likely imminent attack on Israel, as retribution for the assassination of Hamas political leader Ismail Haniyeh in Iranian territory.

Pricing in geopolitics is almost always an impossible task for Wall Street. Speculation about equity markets is one thing. Speculation about Ayatollah Ali Khamenei’s intentions is usually far outside traders’ field of expertise. With more uncertainty comes more fear—see the VIX index, which is essentially Wall Street’s fear gauge, below—surprisingly showing that the market is more concerned now than it was during Silicon Valley Bank’s collapse in March 2023. In fact, it’s the highest volatility reading since the COVID-19 pandemic, rivaling volatility during the global financial crisis.

What’s especially hard for markets is to navigate a geopolitical crisis intertwined with bad economic news. Individually, either one can be mitigated and hedged against. But together, the two developing at the same time create a haze that can make each situation appear more threatening than it actually is. How then do we find solid ground? Focus on the data.

The US economic data remains strong. The economy is slowing, but it is nowhere near a recession. And in fact, as the chart below shows, it could slow significantly before falling to the level of its G7 peers.

Moreover, data released Monday show that economic activity in the service sector grew more than expected. And remember that the United States is still creating new jobs, even if at a slower pace than before. Gas prices are significantly lower than two years ago at the outset of Russia’s full-scale invasion of Ukraine. So even if a crisis widens in the Middle East, a slower global economy should keep price increases in check.

Meanwhile, inflation is finally coming back down to the Federal Reserve’s target range of 2 percent. All this signals an economy that is, as long forecast, coming off its breakneck pace. The Federal Reserve should probably have acted sooner by cutting rates last week, but to jump into an emergency session as some have called for is not supported by the data right now and risks creating more panic. The economic fundamentals remain stable.

Geopolitical tensions actually present the greater risk to markets. No one knows how and when Iran will retaliate and what the fallout will be. And as I wrote in February, the relative weakness of the region’s economies means any worsening of the situation could send multiple countries into debt distress and trigger more market failures.

Still, the overwhelming likelihood is that whatever develops in the Middle East this week will be contained to the Middle East. While that may impact energy prices, it is unlikely to trigger wider global economic fallout. To be sure, nothing is guaranteed. The situation could deteriorate and the worst fears could be realized. But it is not the most likely outcome.

So in the days ahead, it’s geopolitical tensions that will likely move the markets more than the macroeconomics. Watch carefully in the coming days (or as Macbeth would say, “tomorrow, and tomorrow, and tomorrow”) as markets recognize this reality and, hopefully, cooler heads prevail.

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser at the International Monetary Fund.

Data visualizations created by Alisha Chhangani, Mrugank Bhusari, and Sophia Busch.

The post Behind the market turmoil: Why a bad jobs report and the risk of war are shaking the financial world appeared first on Atlantic Council.

Based on this feedback, this blog series was started to highlight important information about targeted human rights sanctions as they relate to the Islamic Republic of Iran; major updates on Iranian perpetrators who have been sanctioned for human rights abuses and why; and any other information that may be relevant to affected communities. Input is welcomed from readers, particularly in Iranian civil society, for questions and topics that should be addressed.

This page will be subsequently updated with a Persian translation of the post. 

Background

Despite the numerous sanctions issued against individuals linked to the Islamic Republic of Iran, an “illicit global network of shell companies, banks, and exchange houses” allows many of them to evade the consequences. This is partly due to the complications involved in identifying the true owner of an asset, the “beneficial owner.” A beneficial owner is a natural person—i.e., an individual, as opposed to a legal person or entity—who actually owns or controls a legal entity. 

Why is transparency over beneficial ownership important?

Targeted sanctions generally—though not always—involve freezing the assets of designated individuals or entities. Identifying property, including legal entities, they own or control is, therefore, a key component of sanctions enforcement. 

Increased transparency over beneficial ownership, as well as leaked documents, have yielded examples that highlight why beneficial ownership information is critical for sanctions enforcement. Leaked documents show that Russian oligarch Roman Abramovich changed the beneficial ownership of trusts shortly after the start of Russia’s 2022 full-scale invasion of Ukraine—seemingly to avoid asset freezes. His seven children are now the beneficial owners of at least $7 billion. When Luxembourg established a public database of beneficial ownership in 2019, investigators used it to map the local activity and businesses of Calabrian crime group ‘Ndrangheta; uncover additional evidence of allegedly corrupt dealings undertaken by former-Argentinian President Mauricio Macri’s family while he was in office; and identify the beneficial owners of properties throughout Europe bought by companies registered in Luxembourg, such as those of an Indonesian businessman accused of human rights abuses and tax evasion.

Such transparency can help investigators identify Iranian-linked assets globally, but especially in jurisdictions where they are known to have traveled. While there are critical privacy considerations that must be taken into account,  obstacles to accessing the information must be limited to ensure as much transparency as possible. This can ultimately increase the effectiveness of targeted sanctions through the identification of all relevant assets which can be promptly frozen, and, where the appropriate legal standards are met, seized.

When do jurisdictions restrict the legal entities of designated persons?

Asset freezes vary depending on the jurisdiction, but they generally prevent designated persons from accessing their property, such as bank accounts, real estate, and other real property, and ban others from engaging in financial transactions with those designated persons. When it comes to legal entities—which may have multiple owners and stakeholders, only some of whom are designated—jurisdictions generally require that designated persons’ ownership or control reaches a certain threshold.

• Australia: The Australian government prohibits dealing with “controlled assets,” which are those owned or controlled by a designated person or entity, but there does not appear to be public guidance or a definition for determining ownership or control.
• Canada: When a property is deemed controlled by a designated person, Canadian persons are prohibited from “dealing in” it. In 2023, Canada amended its Special Economic Measures Act and Justice for Victims of Corrupt Foreign Officials Act to include provisions under which a designated person is considered to control an entity when it meets one of three criteria: if they have at least 50 percent ownership or voting rights; they have the direct or indirect ability to “change the composition or powers of the entity’s board of directors”; or, it “is reasonable to conclude” that they are directly or indirectly able to direct the entity’s activities. 
• European Union: If an entity is owned or controlled by a designated person, then the funds and economic resources of that entity must also be frozen. Ownership involves possession of over 50 percent “proprietary rights” or a majority interest. Control is determined according to a non-exhaustive list of criteria, which includes the right or exercise of power “to appoint or remove a majority of the members of the administrative, management or supervisory body”; the right to use all or part of the entity’s assets; and the sharing of financial liabilities of the entity, or guaranteeing those liabilities. 
• United Kingdom: An entity is subject to an asset freeze and restrictions on “some financial services” when it is owned or controlled, directly or indirectly, by a designated person. Like Canada, the United Kingdom requires one of three criteria to be met to establish ownership or control: when the person directly or indirectly holds more than 50 percent of the shares or voting rights; when they have the right to directly or indirectly appoint or remove a majority of the board of directors; or when it’s “reasonable to expect” the person would be able to “ensure the affairs of the entity are conducted in accordance with the person’s wishes.”
• United States: The US government uses the “50 Percent Rule”: when one or more “blocked” (i.e., designated) persons own an entity “by 50 percent or more in the aggregate,” then that entity is itself considered blocked. While the United States does not evaluate control under this rule, it may designate the entity itself if it is determined to be controlled by a designated person.

How are jurisdictions changing beneficial ownership frameworks?

To prevent designated persons from hiding their ownership of assets, jurisdictions have strengthened corporate transparency and reporting requirements on beneficial ownership. The Financial Action Task Force (FATF)—an intergovernmental organization tasked with combatting money laundering and terrorist and proliferation financing—released updated guidance on beneficial ownership in 2023. It recommended that countries establish a beneficial ownership register or alternative mechanism to document ownership information. 

• Australia: The Australian government has committed to beneficial ownership reform between January 2024 and December 2025 as part of its Third Open Government Partnership National Action Plan. This will include implementing a public beneficial ownership register, for which the Treasury previously undertook a consultation process in 2022.
• Canada: As of January 22, 2024, all corporations governed by the Canada Business Corporations Act are required to file beneficial ownership (or “individuals with significant control,” or ISC) information. Businesses have been required to maintain their own ISC registers since June 2019 but were not previously required to file them with the government. Some of the information in the filings—such as full legal names, the description of the significant control, the dates of significant control, and certain addresses—will be available through an online search on Corporations Canada, the country’s federal corporate regulator.
• European Union: The EU uses the Beneficial Ownership Registers Interconnection System (BORIS) to link the national registers of member states Iceland, Liechtenstein, and Norway. This was set up in line with a 2015 European Parliament and Council directive, as amended in 2018. Access to some information is restricted according to national laws. In November 2022, the Court of Justice of the European Union annulled provisions of a directive that granted public access to beneficial ownership information. A new version of the directive would instead grant access to the register to persons with a “legitimate interest” in the beneficial ownership information, like journalists or civil society. In January 2024, the European Council and Parliament reached a provisional agreement that includes provisions to make beneficial ownership rules “more harmonised and transparent,” for example, by clarifying rules to prevent beneficial owners from “hiding behind multiple layers of ownership of companies.” Notably, the beneficial ownership threshold was set at 25 percent.
• United Kingdom: The UK has three registers: for “people with significant control,” for trusts, and for overseas entities. Overseas entities were required to register with Companies House, the country’s corporate regulator, and tell them who the beneficial owners or managing officers were by January 21, 2023. Still, in February 2023, it was reported that almost half the companies required to do so had not. An act in the final stages of legislative approval will include reforms to Companies House, such as identity verification for certain personnel, more effective investigation and enforcement powers, and enhanced personal privacy protections.
• United States: Effective January 1, 2024, as required under the 2021 Corporate Transparency Act, certain “reporting companies”—including US-based corporations and limited liability companies, as well as foreign companies registered to do business in the US—must report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This information will be stored in the Beneficial Ownership Information database. The Department of the Treasury issued a final rule that makes money services businesses, casinos, and “other non-bank financial institutions that have anti-money laundering obligations” eligible for access to the beneficial ownership registry. 

Celeste Kmiotek is a staff lawyer for the Strategic Litigation Project at the Atlantic Council.

Lisandra Novo is a staff lawyer for the Strategic Litigation Project at the Atlantic Council.

The post Iran targeted human rights sanctions series: What is ‘beneficial ownership’ and how does it relate to targeted sanctions? appeared first on Atlantic Council.

While African athletes that year had won thirty-seven medals, including eleven golds, it is expected that they will rake in much more—about fifty—in Paris. There is a lot expected of several stars, including Kenyan marathon runner Eliud Kipchoge (considered the greatest marathoner of all time), Botswanan sprinter Letsile Tebogo, Burkinabé triple jumper Hugues Fabrice Zango, Senegalese tae kwon do champion Cheick Cissé Sallah, and Moroccan breakdancer Fatima El-Mamouny (who competes as Elmamouny). Some athletes are already meeting these expectations, with South African swimmer Tatjana Smith having already won a gold medal and Tunisian fencer Fares Ferjani having earned the silver. Beyond individual athletes, there is also optimism about various teams: For example, the Bright Stars of South Sudan were the object of great attention after giving the US team a wake-up call in a shockingly close exhibition game earlier this month (but on Wednesday, they lost to the United States).

There are also athletes who, in search of better training conditions, have migrated from Africa to countries in the West and will compete under those countries’ flags.

It is a challenge to be a high-level athlete in Africa. The International Olympic Committee’s (IOC’s) initiatives in Africa, which fund projects to support sports on the continent, do not solve the structural problems that push African athletes to leave the continent. Usually, these expatriates blame the lack of African infrastructure and mentoring programs, in addition to the costs of training and other professional challenges. While some of the African athletes who train in the United States are still competing under the flags of African countries—such as Ivoirian sprinter Marie-Josée Ta Lou or world-record-holding Nigerian hurdler Oluwatobiloba “Tobi” Amusan—time away from the African continent can easily turn into a permanent departure and end with a change of citizenship.

With that being the case, the Olympic performances of African countries don’t fully reflect the true power of the continent in sport.

As a former French deputy minister of sports, I see a paradox in Africa’s sports sector: the youngest continent in the world (70 percent of Sub-Saharan Africa’s population is under thirty years old) is a place where people aren’t engaging as much in physical activity such as sports. Plus, a recent survey highlighted that the sports sector is “underdeveloped” with key deficits in data, public strategy, and private investments.

Sports are much more than hobbies for personal fulfillment or ways to improve health. They are also powerful tools for development, major business opportunities, and pivotal ways to exercise soft power.

The opportunity at hand

According to the United Nations (UN), sports play a role in achieving many of the seventeen Sustainable Development Goals, including goals such as eradicating poverty and famine, securing education for all, supporting victims of disasters or emergency situations, and fighting diseases. Sports can also help promote gender equality, as taking part in sports is associated with getting married later in life. The UN Educational, Scientific, and Cultural Organization runs a flagship initiative called Fit for Life, which uses sports to not only improve youth wellbeing and empowerment but also support more inclusive policymaking. The African Union (AU) has recognized the role that sports can play, as a driver of the cultural renaissance outlined in its Agenda 2063; the AU proposed a Sports Council to coordinate an African sports movement.

But the international recognition of the role sports play in development has come late—and there are issues that have yet to be sorted out. Olympic Agenda 2020, adopted by the IOC in 2014, outlines recommendations for countries to make the most of sports’ impact on society, encouraging them to align sports with economic and human development, build climate-friendly infrastructure, promote gender equality, protect the rights of children and laborers, acquire land ethically and without causing displacement, improve security, and protect the freedom of the press.

At previous global sport gatherings (notably the 2008 Beijing Olympics and the 2022 FIFA World Cup in Qatar) human-rights communities have raised these issues. Their voice over many years has pushed organizations, such as FIFA and the IOC, to adopt various human-rights policies and frameworks. In considering the host nation for the 2026 World Cup, FIFA for the first time required bidding countries and cities to commit to human-rights obligations. Such requirements could have an impact in Africa, although that remains to be seen; an African country has only once hosted a global sport gathering (South Africa hosted the 2010 FIFA World Cup), while Egypt currently has its eye on the 2036 Summer Olympics, over a decade from now.

Beyond development, sports are major business opportunities. South Africa has continued to argue that hosting the World Cup was worth it, as the billions it spent went toward much-needed infrastructure that has supported an increase in tourism—and thus, economic activity—that lasted for more than a decade. The global sports industry was worth $512 billion in 2023 and is projected to grow to $624 billion in 2027. 

In Africa, the contribution of sports to the continent’s gross domestic product is more limited (0.5 percent) than it is for the world at large (3 percent). And while North America has the largest share of the sports market, Africa’s share is growing at a rate of 8 percent each year. The National Basketball Association’s investment in the Basketball Africa League is a signal to other investors of the positive outlook for African sports and the new ecosystem of opportunities. With Africa’s middle class estimated to reach 1.1 billion by 2060, and with the continent urbanizing and growing more connected, Africa is a premier market for ventures in the sports industry.

If this business opportunity is harnessed, there is reason to be optimistic that African talent will no longer have to seek earnings abroad and that African markets will see added value, including in the form of new infrastructure, hospitality offerings, merchandising, and content/media. Upcoming major sports events on the continent are slated to generate such growth, with Senegal organizing the 2026 Youth Olympic Games and Morocco co-hosting the 2030 FIFA World Cup.

Well-structured and adequately supported sports are also tools of soft power, and countries around the world, notably Saudi Arabia, are investing in them. In Africa, the Olympic Games have always been an opportunity for African countries to speak more loudly than in the UN fora. For example, African countries boycotted the 1976 Montreal Olympics, protesting New Zealand’s participation after the country’s national rugby team played several matches in South Africa (which had been banned from the Olympics because of its apartheid policy). At the 1992 Barcelona Olympics, as apartheid came to an end, the finalists of the ten-thousand-meter race—Derartu Tulu, a Black athlete from Ethiopia, and Elana Meyer, a white athlete from South Africa—hugged each other to celebrate South Africa’s return.

A new sports agenda

Africa had a late introduction to global sport competition. No African country has ever hosted the Olympic Games. The first Black African athletes—South African runners Len Taunyane and Jan Mashiani—didn’t get the opportunity to compete until 1904, eight years after the first modern Olympic Games were held. It wasn’t until the 1960 Olympic Games in Rome that the first Black African athlete took the gold: Ethiopian Abebe Bikila won the marathon running barefoot. Since then, Kenya, Ethiopia, and South Africa have been the leading Olympic teams from Africa.

To be able to compete with the best teams today and to hold onto its talents, Africa needs a more robust agenda that covers all dimensions of sports.

First, it is essential to address youth education. Governments should include sports in education systems, and sports federations should organize regular competitions within local leagues for youth. Governments should also consider making their funding of training centers contingent on the number of enrolled athletes; it has been shown that sports help improve enrollment and attendance at school, and thus sporting excellence can lead to academic excellence. Of course, in addition to investing in sports facilities at schools, it is crucial to also invest in infrastructure that helps underserved populations access these facilities, thus easing regional inequalities.

However, the financing of African sports cannot be too dependent on governments’ budgets (as it currently is) seeing as national budgets are limited. African governments should provide a fiscal and regulatory framework that supports the work of the private sector. Rather than abandoning the athletes to themselves, governments should consider creating national centers of excellence or institutes for training—similar to France’s National Institute of Sport, Expertise, and Performance—which would allow athletes to access better training conditions on the continent, hopefully keeping them in Africa.

Governments should also ensure that foreign clubs and teams that continue to host the greatest African athletes financially support the development of the African sports industry, which would not only help cultivate more star talent but also foster job creation in advertising, sports medicine, journalism, and fitness.

Sports have much greater geopolitical significance than many decision makers realize. Moving forward, they should integrate sports into their foreign policy, both bilaterally and multilaterally.

For Africa, the surge in athletic talent is evidence that its people are committed to a new era for the continent. Leaders should harness this opportunity to supercharge Africa’s transformative sports movement.

Rama Yade is the senior director of the Atlantic Council’s Africa Center. She was formerly the French deputy minister of sports and also served as the ambassador of France to the United Nations Educational, Scientific, and Cultural Organization.

The post Dispatch from the Paris Olympics: The African sports movement is about to take off, if leaders help fuel it appeared first on Atlantic Council.

Access to justice is a crucial component of the rule of law and the defense of democracy. A robust judicial system ensures that laws are applied fairly and equitably, strengthens confidence in institutions, protects rights, and promotes transparency and accountability, which are essential for democratic stability and economic development.¹ In a global context where threats to democracy are increasing, strengthening access to justice and the rule of law becomes even more critical. An accessible judicial system acts as a safeguard against those threats.² Access to justice for businesses and the general Colombian population is vital to ensure both fairness and economic efficiency. When businesses can resolve disputes quickly and fairly, uncertainty is reduced, fostering a favorable investment climate and sustainable economic development.

This research, based on a holistic and integrated approach, involves two key elements: a thorough understanding of access to justice and a comprehensive view of the justice system. The first element implies that effective access to justice extends beyond the initial approach to legal systems; it encompasses both the entry point and the ongoing journey within the system. The right to access justice is fully realized when it results in a prompt, comprehensive, and enforceable solution. This understanding of access to justice is essential for addressing the multifaceted challenges faced by individuals and corporations in Colombia.

Building on this thorough understanding of access to justice, this research sheds light on the problems faced by actors within the system, which affect companies of all sizes and citizens alike, regardless of their socioeconomic status. It explores the procedural journey, revealing systemic issues and managerial barriers embedded in the justice system. Forty-four percent of respondents expressed medium to high concerns about judicial corruption and threats to judicial independence and impartiality.

The second element is the comprehensive view of the Colombian justice system. Such a view requires data collection regarding the three routes of access to justice in Colombia, all different in nature: the judicial branch; administrative officials with jurisdictional functions; and individual entities that have the right to administer justice, such as conciliators and arbitrators.

The Colombian constitutional system allows the congress to delegate certain judicial powers to specific administrative authorities including superintendencies (regulatory agencies) of industry and commerce, finance, corporations, and health; police inspectors; and family commissariats, among others. However, it is worth noting that administrative authorities’ judicial power excludes criminal prosecutions and proceedings.³ When administrative authorities exercise jurisdictional functions through resolutions, they act as judges rather than as administrative entities. Individuals can choose, preventively, whether to approach judicial-branch judges or superintendencies judges with jurisdictional functions to resolve their disputes.

This report seeks to identify public policy recommendations that can enhance the efficiency and equity of the justice system through a holistic and integrated approach. Tackling access to justice during the process is crucial not only for the private sector, which relies on the justice system to protect its interests, but also for the broader Colombian society. This will ensure that justice is accessible and equitable for all.

“This timely and deeply researched report exposes another one of Colombia’s many paradoxes: although it has perhaps the most legalistic society in the hemisphere, the justice system is widely seen as incapable of delivering consistent and reliable results. The report’s authors suggest specific, concrete, and practical policy recommendations to improve justice delivery. As the report notes, a credible and efficient justice system is key to a thriving democracy, and this report will be a key resource for those committed to justice reform.”

Kevin Whitaker, Nonresident Senior Fellow, Adrienne Arsht Latin America Center, Atlantic Council; Former US Ambassador to Colombia, US Department of State

For all jurisdictions and types of disputes included in this study (both judicial and administrative proceedings), fewer than half of the companies surveyed fully or partially agreed that the duration of proceedings is reasonable. This finding is consistent with the study’s qualitative research component and existing cross-country data on unreasonable civil-justice delays from the World Justice Project (WJP). Colombian scores on timeliness of civil-justice delivery in the WJP Rule of Law Index are lower than those of both best-in-class nations (e.g., Germany or the Netherlands) and regional and income peers in Latin America (See Graph 1).

Delays permeate the system, affecting small, medium, and large companies. When companies were asked about the obstacles limiting effective access to justice when dealing with judicial authorities, the number of legal processes that never concluded scored as the highest obstacle, with 51 percent of companies ranking it as their top obstacle and 15 percent ranking it as a medium level obstacle (See Figure 1).

Similarly, when asked about the obstacles limiting effective access to justice when resorting to administrative authorities, interviewees ranked unjustified delays as the biggest obstacle. Forty-one percent of companies ranked it as the top obstacle and 20 percent ranked it as a medium-level obstacle (See Figure 2).

In terms of judicial independence from hierarchical superiors and other sources, superintendencies perform worse than all other paths to justice, and considerably below all judges (44 percent of companies either totally or mostly disagree that this path is free from this pressure). Critically, in terms of access to justice, it is the second-worst mechanism (34 percent of companies find it difficult to access this mechanism), (See Figure 4).

Report Nov 30, 2023

Advancing US-Colombia cooperation on drug policy and law enforcement

By Atlantic Council US-Colombia Advisory Group

Consumption and price of the drug has remained stable in the United States in recent years. However, the current trend of falling coca leaf and cocaine prices in Colombia present a natural incentive for coca growers to find alternative forms of income, which could mean a higher rate of success for alternative development programs.

Civil Society Colombia

New Atlanticist May 7, 2024

Colombia’s president must focus on economic stewardship in the second half of his term

By Enrique Millan-Mejia and Geoff Ramsey

President Gustavo Petro should adopt a steadier hand on domestic issues and a more cooperative stance toward international private sector investment.

Colombia Economy & Business

Sep 29, 2021

US-Colombia Advisory Group

The Atlantic Council’s US-Colombia Advisory Council, with Senators Ben Cardin (D-MD) and Bill Hagerty (R-TN), as honorary Co-Chairs, is a nonpartisan, binational, and multi-sectoral group committed to advancing a whole-of-society approach to addressing the most vital policy issues facing the US-Colombia relationship—with a recognition of the broader implications for bilateral interests across the region more broadly.

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Learn more

The post Justice Fair Play Initiative: The key to improving justice delivery in Colombia appeared first on Atlantic Council.

While previous G20 meetings have been noteworthy for their disagreements, Brazil has emphasized substance and consensus over geopolitics during its G20 presidency. Felipe Hees, the Brazilian diplomat and sous-sherpa of this year’s G20 presidency, explained this strategy on July 25 at an Atlantic Council conference on the sidelines of the meeting. Brasília, he said, has sought to acknowledge fundamental disagreements on geopolitics between some members, and then to sidestep them entirely at the ministerial level. The big question now is: How long can this approach last?

So far, Brazilian officials have chosen to focus on economic development issues that already enjoy widespread support. Last week, this approach resulted in one of the few joint G20 ministerial-level communiqués in the past two years. Released on July 26, this communiqué displays G20 members’ alignment on launching the Global Alliance against Hunger and Poverty under the Brazilian presidency. It’s an important topic for the host country, since Brazil is the world’s leading producer of soybeans, corn, and meat, and Brazilian President Luiz Inácio Lula da Silva has emphasized his country’s role in alleviating global food insecurity. At the same time, the issue has a wider resonance. At the Atlantic Council conference, Cindy McCain, executive director of the World Food Program, emphasized that “food security is a national security issue, and it should be labeled as one.”

Climate finance and the energy transition were at the forefront in Rio last week as well. Discussions focused on how to mobilize the public and private sector in achieving climate goals. At the Atlantic Council’s conference, Renata Amaral, the Brazilian secretary for international affairs and development in the Ministry of Planning and Budget, formally called for technical assistance from multilateral development banks for catastrophic weather events, such as the floods in southern Brazil this May. Immediately following the summit, US Treasury Secretary Janet Yellen headed to Belém, the capital city of the northern Brazilian province Pará. Located near the mouth of the Amazon River, Belém was a symbolic choice for the unveiling of the US Treasury’s Amazon Region Initiative Against Illicit Finance, which is intended to help combat nature crimes.

Another issue that garnered attention last week was wealth inequality, which the Brazilian president spotlighted in his speech on June 24. “The poor have been ignored by governments and by wealthy sectors of society,” he said. Despite disagreements on whether the G20 is the right forum for the issue, it issued the first ever ministerial declaration on taxation. While Brazil’s ambition was to move the needle on a 2 percent global wealth tax, the declaration simply said that ultra-high-net-worth individuals must pay their fair share in taxes. While this fell short of Brazil’s hopes on this issue, the meetings in Rio have done more on building consensus than the past two presidencies, which have been rife with outbursts over geopolitical issues between member states.

In 2022, the then G20 president, Indonesia, saw its plan to build international cooperation for the post-pandemic recovery paralyzed by Russia’s full-scale invasion of Ukraine in February. When finance ministers and foreign ministers met in April and July of the year, officials from Russia and from the United States and Europe walked out of the room when their counterparts spoke. Ministers failed to agree on a communiqué, and negotiations on climate and education also broke down over criticisms of the war. Ahead of the leaders’ summit in November 2022, Western leaders balked at the thought of sharing a table with Russian President Vladimir Putin, who ultimately did not attend the summit. In the end, the leaders could only agree to a declaration that was a broad, noncommittal summary of approaches to addressing global challenges.

Last year, India focused its G20 presidency on depoliticizing the issue of the global supply of food, fertilizers, and fuels, as well as on addressing climate change and restoring the foundations of negotiations at the forum. Its strategy was to move geopolitics off center stage by highlighting perspectives from the “Global South,” including formally adding the African Union as a full member, and thus shaping the platform as an action and communication channel between advanced economies and emerging markets.

This was difficult. Shortly into India’s presidency, Russia and China withdrew their support for the text in the Bali statement on Ukraine. At the technical level, none of the ministerial meetings produced a joint communiqué, and New Delhi was forced to issue chairs’ statements instead. Since the leaders’ summit in New Delhi, the outbreak of war between Israel and Hamas in October 2023 has made the job of navigating geopolitical tensions all the more difficult for Brazil.

While the Russian and Chinese leaders did not attend last year’s leaders’ summit, the New Delhi Declaration was nevertheless bolder and more specific than its Bali predecessor. It set the agenda for the G20 for the years ahead but offered few specifics on how to achieve these goals.

Will Brazil’s strategy of sidestepping geopolitics work at the leaders’ summit scheduled for November 18-19 in Rio? Finance ministers and central bank governors can ignore geopolitics; presidents and prime ministers often cannot. If Brasília concludes technical negotiations on the various proposals ahead of the leaders’ summit, then consensus-building at the gathering will be easier, as geopolitics will remain just an elephant in the room.

If Brazil is successful, it can end the stalemate that the G20 has found itself in and remake it into a relevant economic coordination body—one that can adequately address the goals of its emerging market and advanced economy members. If Brazilian officials are not successful, however, the forum’s relevance may begin to wane.

It has been in the interest of the last few G20 presidencies to keep up the balancing act between the United States, China, and Russia. Moreover, it is likely that South Africa will follow this approach as it takes on its presidency in 2025. As many of the discussions in Rio noted, however, what happens in the US presidential elections this November could determine both the relevance and the tone of the G20 meetings going forward.

Ananya Kumar is the deputy director, future of money at the Atlantic Council’s GeoEconomics Center.

Mrugank Bhusari is assistant director at the Atlantic Council’s GeoEconomics Center.

The post Dispatch from Rio: Can Brazil set the G20 leaders’ summit up for success? appeared first on Atlantic Council.

The post Tran cited in The Japan Times on Kamala Harris’ approach to Asia trade appeared first on Atlantic Council.

China’s global influence operations have received increasing attention in the national security community. Numerous congressional hearings, media reports, and academic and industry findings have underscored China’s increased use and resourcing of foreign information manipulation and interference (FIMI) tactics in its covert operations both in the United States and abroad.

In response, US government offices the Foreign Malign Influence Center (FMIC), the Global Engagement Center (GEC), and the Cybersecurity and Infrastructure Security Agency (CISA), among others, have made strides in raising awareness of the issue and charting pathways to increase the resilience of the US information ecosystem to foreign influence. To date, however, the efforts to counter the influence of the People’s Republic of China (PRC) have been fragmented. That fragmentation is indicative of a lack of cohesion around the concept of influence operations itself.

Across the government and nongovernment sectors alike, there is considerable variation regarding the definition and scope of information manipulation. For example, the Department of State’s (DOS’s) GEC has an expansive definition, which includes “leveraging propaganda and censorship, promoting digital authoritarianism, exploiting international organizations and bilateral partnerships, pairing cooptation and pressure, and exercising control of Chinese-language media.” Others define it more narrowly as disinformation and propaganda spread by a foreign threat actor in a coordinated, inauthentic manner, and largely occurring on social media platforms.

This variation is a reflection of the holistic and multifaceted nature of Chinese influence. Coercive tactics and influence operations have long been a central part of China’s strategic tool kit and core to how it engages with the outside world. Because China conceives of the information domain as a space that must be controlled and dominated to ensure regime survival, information operations are part of a much bigger umbrella of influence that spans the economic, political, and social domains. It may be more useful to think of information manipulation as existing within the broader conceptual framework of China’s weaponization of the information domain in service of its goal to gain global influence.

As previous work by the Digital Forensic Lab (DFRLab) has shown, China’s approach to the information domain is coordinated and proactive, taking into account the mutually constitutive relationships between the economic, industrial, and geopolitical strategies of the Chinese Communist Party (CCP). The aim of its efforts is to gain influence—or “discourse power”—with the ultimate goal of decentering US power and leadership on the global stage. One of the main mechanisms through which the CCP seeks to achieve this objective is by focusing on the dominance of information ecosystems. This ecosystem encompasses not only narratives and content that appear in traditional and social media but also the digital infrastructure on which communication systems rely, the policies that govern those systems at the international level, and the diplomatic strategy deployed by Beijing’s operatives abroad to gain buy-in for the CCP’s vision of the global order.

The DFRLab’s previous two reports, which explored China’s strategy and the impacts of its operations abroad, found that the United States will not be successful in addressing the challenges of Chinese influence if it sees that influence as separate from the interconnected economic, political, and technical domains in which its strategy is embedded.

To this end, the DFRLab hosted a series of one-on-one expert interviews, conducted research and workshops, and held a virtual roundtable discussion with scholars and practitioners with expertise on or experience in addressing authoritarian influence and information operations, US government processes and policies around these issues, and Chinese foreign policy. This issue brief is part of a larger body of work that examines the Chinese government’s interests and capabilities and the impacts of party’s efforts to shape the global information ecosystem. The focus of this report is on how the US government can best respond to those challenges, including the architecture, tools, and strategies that exist for addressing PRC influence and information manipulation, as well as any potential gaps in the government tool kit.

This report finds that, to mount the most effective response to Chinese influence and the threat it poses to democratic interests at home and on the international stage, the United States should develop a global information strategy, one that reflects the interconnected nature of regulatory, industrial, and diplomatic policies with regard to the information domain. A core assumption undergirding this concept is that US policymaking space tends to over-index on the threat of information manipulation in particular while under-indexing on the core national interest of fostering a secure, interoperable information environment on a larger scale.

The limits of understanding Chinese influence as systemic and part of a broader strategy has sometimes led US response to be pigeonholed as an issue of strategic communications, rather than touching on the information and technology ecosystems, among others, where China focuses its information and influence efforts. Responding to Chinese influence with government messaging is not sufficient to address the complex nature of the challenge and places the United States in a position of reactivity.

In short, understanding that the CCP (1) integrates its tech industrial strategy, governance policy, and engagement strategy and (2) connects its approach at home to how it engages abroad, the United States needs to do the same, commensurate with its values. It should not respond tit-for-tat but rather have a collective strategy for a global competition for information that connects its tech strategy to its governance approach to its engagement around the world.

That is not to say that a US strategy on information resilience should mirror China’s, or that such a strategy should be developed in response to the PRC’s actions in the information domain. Nor is it to say that the United States should adopt a similar whole-of-government approach to the information domain. There are silos by design in the US system and important legal and normative foundations for the clear delineation of mission between them. What this issue brief argues for is a strategic breaking down of silos to facilitate proactive action versus a dangerous breaking down of legally required silos.

This report emphasizes that the United States should articulate how major initiatives like the CHIPS and Science Act, regulatory approaches like the recent executive orders on AI and data security, and the DOS’s recent cyberspace and digital policy strategy are part of a cohesive whole and should be understood and operationalized as such.

The strategy should outline what the United States stands for as much as what it is against. This requires that the United States frame its assessment of threat within a broader strategy of what its values are and how those values should be articulated in its regulatory, strategic, and diplomatic initiatives to promote open information environments and shore up information resilience. This includes working with allies and partners to ensure that a free, open, and interoperable internet is a global priority as well as a domestic one; developing common standards for understanding and thresholding foreign influence; and promoting connectivity at home and abroad. One finding of this report is that the United States is already leaning into its strengths and values, including championing policies that support openness and continuing support for civil society. This, along with the awareness of influence operations as the weaponization of the information domain, is a powerful response to authoritarian attacks on the integrity of both the domestic US and global information spaces.

The United States has a core national security interest in the existence of a rules-based, orderly, and open information environment. Such an environment facilitates the essential day-to-day tasks related to public diplomacy, the basic expression of rights, and investment in industries of strategic and economic value. Absent a coherent strategy on these core issues related to the integrity of the United States’ information environment that is grounded in an understanding of the interconnected nature of their constitutive parts, the challenges of foreign influence and interference will only continue to grow. This issue brief contains three sections. For sections one and two, experts in different aspects of the PRC’s information strategy addressed two to three main questions; during the course of research, further points were raised that are included in the findings. Each section represents a synthesis of the views expressed in response to these questions. The third section comprises recommendations for the US government based on the findings from the first two sections.

Staff

Kenton Thibaut

Senior Resident Fellow, China

Digital Forensic Research Lab

China Disinformation

In-Depth Research & Reports Aug 24, 2022

Chinese discourse power: Ambitions and reality in the digital domain

By Kenton Thibaut

The CCP has embarked on a concerted strategy to gain control over the global digital and information environment. Its goal: create an alternative global order with China at its heart.

China Digital Policy

Report Aug 2, 2023

Chinese discourse power: Capabilities and impact

By Kenton Thibaut

An examination of China’s online and offline channels for the dissemination of “discourse power” and the mechanisms of oversight on which such communications rely.

China Digital Policy

The Atlantic Council’s Digital Forensic Research Lab (DFRLab) has operationalized the study of disinformation by exposing falsehoods and fake news, documenting human rights abuses, and building digital resilience worldwide.

learn more

The post Effective US government strategies to address China’s information influence appeared first on Atlantic Council.

That was a topic of a recent roundtable hosted by the GeoTech Center and Syntropy, a platform that works with healthcare, government, and other groups to collaborate on data in a single ecosystem geared toward informing healthcare research.

At the roundtable, experts from the public and private sectors discussed the complex challenges that arise with the transformation of the healthcare sector, arguing that these challenges lie not only in the development of the technology but also in the implementation and use of it.

As AI becomes more and more integrated with healthcare, policymakers must lay the groundwork for a future in which AI augments, rather than replaces, human expertise in the pursuit of better health outcomes for all. Below are the roundtable participants’ recommendations for policymakers, focusing on building strong data foundations, setting guidelines for algorithm testing and maintenance, fostering trust and transparency, and supporting a strong workforce.

1. Building strong data foundations

Data sets in the healthcare sector can be messy, small in scale, and lacking in diversity, leading to inherent biases that can skew the outcomes of AI-driven analyses—and decisions made following such analyses. Moreover, these biases are not always apparent and often require extensive work to identify. Thus, it is important at the outset to ensure the integrity, quality, and diversity of the data with which AI systems are trained.

The ability to do so will in part depend on the strength of the workforce and the infrastructure that collects and manages data. For example, hospitals—from large, well-funded facilities to smaller community-based hospitals with fewer resources—play an important role in collecting data.

A strong foundation for data is one that protects data. In an ideal world, all individuals (regardless of socioeconomic status or geographic location) can benefit from AI-driven healthcare technologies. With that come concerns about the protection of health data, particularly in countries with fragile democracies and low regulatory standards. The potential misuse of health data by governments around the world poses significant risks to individual privacy and autonomy, highlighting the need for robust legal and ethical frameworks to safeguard against such abuses.

To address such challenges with data collection and management, policymakers can begin by implementing the following:

• Establishing a foundational data strategy for healthcare data that will improve patient equity by setting standards for inclusive data sets.
• Allocating more resources and support for community hospitals to ensure that the data collected in such facilities is high quality and diverse.
• Encouraging the development of robust data systems that allow for better data sharing, collaboration, and interoperability.
• Optimizing patient benefits by providing transparency about not only the healthcare providers but also about anyone else participating in data sharing.

2. Establishing guidelines for algorithm testing and maintenance by healthcare-technology companies

While building an algorithm may be a complex process, understanding and testing its performance over time is even more challenging. The dynamic nature of the healthcare industry demands ongoing adaptation and refinement of algorithms to account for evolving patient needs, technological advancements, and regulatory requirements.

In addition to continuous testing, it’s important to recognize that the same algorithms may exhibit different risk profiles when deployed in different contexts. Factors such as patient demographics, disease prevalence, and healthcare infrastructure can all influence the performance and safety of AI algorithms. A one-size-fits-all approach to AI deployment in healthcare is neither practical nor advisable.

To ensure that algorithms are constantly tested and maintained, policymakers should consider the following:

• Developing guidelines that inform developers, testers, data scientists, regulators, and clinicians about their shared responsibility of maintaining algorithms.
• Instituting an oversight authority to continuously monitor the risks associated with decisions that have been made based on AI to ensure the algorithms remain accurate, reliable, and safe for clinical settings.

3. Fostering patient trust and transparency

As technology continues to impact the healthcare industry, and as patients often find themselves unaware of the integration of AI technologies into their care processes, it becomes more difficult for those patients to give informed consent. This lack of transparency undermines patient autonomy and raises profound ethical questions about patients’ right to be informed and participate in health-related decisions. A lack of awareness about the integration of AI technologies is just one layer to the problem; even if a patient knows that AI is playing a role in their care, they may not know about who sponsors such technologies. Sponsors pay for the testing and maintenance of these systems, and they may also have access to the patient’s data.

When AI technologies are involved in care processes, it is still important to achieve the right balance between human interaction and AI-driven solutions. While AI technologies hold great promise for improving efficiency and accuracy in clinical decision-making, they must be integrated seamlessly into existing workflows and complement (rather than replace) human expertise and judgment.

The willingness to accept AI in healthcare varies significantly among patients and healthcare professionals. To bridge this gap in acceptance and address other challenges with trust and transparency, policymakers should consider the following:

• Providing transparent information about the capabilities, limitations, and ethical considerations of AI technologies.
• Encouraging companies to use particular design methods that ensure that tools and practices align with privacy values and protect patient autonomy.
• Producing guiding principles for hospitals to promote a deep understanding of the implications of AI and proactively addressing concerns related to workforce dynamics and patient care.
• Developing strategies to strengthen institutional trust to encourage patients to share data, avoiding algorithms that develop in silos.
• Awarding organizations with an integrity badge for transparency, responsible use, and testing.

4. Supporting a strong workforce

The integration of AI tools into healthcare workflows is challenging, particularly because of the changes in processes, job roles, patient-provider interactions, and organizational culture such implementation creates. It will be necessary to support the hospital workforce with strategies to manage this change and also with comprehensive education and training initiatives. While the focus here is on humans rather than technology, such support is just as integral to realizing the full potential of these innovations in improving patient outcomes and healthcare delivery.

Many hospitals lack the necessary capabilities to effectively leverage AI technologies to their fullest potential, but supporting technical assistance training and infrastructure could help in the successful deployment of AI technologies.

To navigate the changes that AI tools would bring to the workplace, policymakers should consider the following:

• Releasing guidance to healthcare companies to anticipate change management, education, training, and governance.
• Incentivizing private-sector technical assistance training and infrastructure to provide services to communities with fewer resources.
• Creating training programs tailored to the specific needs of healthcare organizations so that stakeholders can ensure AI implementations are both effective and sustainable in the long run.

The private sector is moving quickly with the development of AI tools. The public sector will need to keep up with new strategies, standards, and regulations around the deployment and use of such tools in the healthcare sector.

Coley Felt is a program assistant at the GeoTech Center.

The GeoTech Center champions positive paths forward that societies can pursue to ensure new technologies and data empower people, prosperity, and peace.

Learn more

The post A policymaker’s guide to ensuring that AI-powered health tech operates ethically appeared first on Atlantic Council.

Climate change cost estimates by 2049 will be close to $40 trillion per year for countries such as Germany and the United States. How is Germany managing both the scale of the climate problem and related economic costs? What is the German government doing to get citizens onboard to support climate change policies? What is the role of technological innovation in Germany when it comes to combatting climate change? And what is Germany doing to decarbonize its industrial sector? What role can a post-war Ukraine play in the green energy sector in Europe, and what are the possibilities for bilateral energy trade between Ukraine and Germany?

On this episode of #AtlanticDebrief, Carol Schaeffer sits down with Dr. Lukas Köhler, member of the German Bundestag, to discuss Germany’s approach to climate policy and green energy opportunities.

Fellow

Carol Schaeffer

Nonresident Senior Fellow

Europe Center

Energy & Environment Energy Transitions

The post #AtlanticDebrief – What is Germany’s approach to climate policy? | A Debrief from Lukas Köhler MdB appeared first on Atlantic Council.

With EU countries now facing greater fiscal constraints, the bloc needs to either further amend them or find a way to have more common European debt. Only then will EU member states be able to make the increases in defense spending that are necessary to bolster security on the continent and deter further aggression from Moscow.

The EU’s fiscal rules

The EU is a partial monetary union (not every state uses the euro) and is not a fiscal union. Twenty of its twenty-seven member states use the euro, but they maintain their own public accounts. The EU’s budget amounts to just 1 percent of the bloc’s entire gross domestic product (GDP). Brussels levies few taxes and spends little for the bloc, and that relatively small budget is the sum of the EU’s fiscal union. The real power of the EU resides in the supervision of the member states’ fiscal policies.

This is why some countries with high levels of debt or deficit—France, Italy, Poland (which spends 4.1 percent of its GDP on the military), and several others—might be under special supervision by the European Commission under the Excessive Debt Procedure (EDP). The EDP requires the country in question to provide a plan of fiscal consolidation that it will follow, as well as deadlines for its achievement. Countries that do not follow up on the recommendations may be fined. Of course, many EU countries are in debt, and most of them run a deficit even in good times; in bad times, they just run even bigger deficits. The European Commission will take into account additional military expenditures in the assessment, but only on military equipment, not on increasing the number of soldiers.

In 2023, the average debt-to-GDP ratio in the EU reached 82 percent, and it was even higher in the eurozone, at 89 percent (with France exceeding 110 percent and Italy going beyond 137 percent). The highest deficits were recorded in Italy (7.4 percent of GDP), Hungary (6.7 percent), and Romania (6.6 percent). Eleven EU member states had deficits higher than 3 percent of GDP. In comparison, the United States has a debt of around 123 percent of GDP and ran a deficit of 6.3 percent in 2023.

The original EU fiscal rules implemented thresholds for each country’s deficit and debt at 3 percent and 60 percent of GDP, respectively, and they required cutting national excess debt-to-GDP ratios by one-twentieth each year. These restrictive rules contributed to the eurozone’s prolonged recession from 2011 to 2013, and some rules have since been relaxed. In response to the COVID-19 pandemic, for example, the bloc activated its general escape clause, which allows for deviations from the EU’s Stability and Growth Pact in times of crisis. Moving forward, however, the rules will likely turn restrictive again, though less so than the old ones. In April 2024, EU institutions agreed on a consensual change to the fiscal framework, making the path back to a debt of 60 percent GDP and a deficit below 3 percent of GDP a matter of negotiations between each member state’s government and the European Commission.

Treat military spending differently

Some EU countries, such as France and Poland, argue for military expenditures to be treated differently, as some member states have different needs in the current geopolitical climate. Not all EU member states are in NATO; for example, Austria is neutral. But under the current EU rules, the fiscal space for military expenditures is one-size-fits-all. After Russia’s full-scale invasion of Ukraine in 2022, defense expenditures incurred that year were within the escape clause, but this does not address the underfunding of the military within the EU.

In 2024, the average military expenditures of NATO and EU members is expected to reach 2.2 percent of GDP, with a group of countries far below the threshold of 2 percent. More importantly, these are big economies with relatively large armies, such as Italy (1.49 percent of GDP), Belgium (1.3 percent), and Spain (1.28 percent). All of these countries have high levels of debt and issues with deficits. Germany is set to reach 2.12 percent of GDP on defense spending this year, but it is held back by its constitutional debt brake, which does not allow for an annual deficit higher than 0.35 percent of GDP. This has created tensions within Germany’s coalition government, since spending more on weapons might mean having to spend less on climate change mitigation and social services.

Meanwhile, the United States spends 3.38 percent of its GDP on defense. To put that into perspective, the total expenditure of all European NATO members is $380 billion, almost three times lower than that of the United States (nearly $968 billion). At the same time, Russian military spending this year is estimated to reach $140 billion, or 7.1 percent of its GDP.

Common debt

European capitals need to treat the need for a stronger military in Europe as urgent and serious, but their accountants in the finance departments are not going to make it easy. Unless Brussels changes its fiscal rules to allow for greater defense spending, common EU debt might be the only solution.

The bloc can issue EU debt outside of national fiscal rules, which it did for the first time in response to the COVID-19 pandemic. Some analysts argue for common debt for a European air defense system, which is a good starting point. EU debt funding could include spending on the further development of European defense industrial capacities. EU leaders such as former Estonian Prime Minister and future EU High Representative Kaja Kallas, French President Emmanuel Macron, and European Commissioner for Internal Market Thierry Breton have supported some version of common debt for defense purposes.

Utilizing common debt should not aim solely to expand the power of the European Commission, as some critics in various capitals fear. Instead, it should transform this measure from a temporary crisis-management tool into a standard policy instrument, enabling Europe to develop a meaningful defense industrial strategy, which has been lacking since the EU’s inception. After the failed attempt to establish a European Defence Community in the 1950s, the European project has primarily focused on economic issues. Unfortunately, it’s time to revisit that discussion.

Europeans must now prepare for a challenging geopolitical environment by investing in European defense, whether through changes in fiscal rules or by taking on more European debt.

Whichever path forward the EU chooses, it must do so quickly. There’s no time to waste.

Piotr Arak is the chief economist at VeloBank Poland.

The post The EU needs to adapt its fiscal framework to the threat of war appeared first on Atlantic Council.

The post Bauerle Danzman cited in Nikkei Asia on Nippon Steel’s acquisition of U.S. Steel appeared first on Atlantic Council.

The post Tran cited in South China Morning Post on Belt and Road Initiative loans appeared first on Atlantic Council.

On February 28, 2024, a blog post entitled “What is Sovereign AI?” appeared on the website of NVIDIA, a chip designer and one of the world’s most valuable companies. The post defined the term as a country’s ability to produce artificial intelligence (AI) using its own “infrastructure, data, workforce and business networks.” Later, in its May 2024 earnings report, NVIDIA outlined how sovereign AI has become one of its “multibillion dollar” verticals, as it seeks to deliver AI chips and software to countries around the world.

On its face, “sovereign AI” as a concept is focused on enabling states to mitigate potential downsides of relying on foreign-made large AI models. Sovereign AI is NVIDIA’s attempt to turn this growing demand from governments into a new market, as the company seeks to offer governments computational resources that can aid them in ensuring that AI systems are tailored to local conditions. By invoking sovereignty, however, NVIDIA is weighing into a complex existing geopolitical context. The broader push from governments for AI sovereignty will have important consequences for the digital ecosystem on the whole and could undermine internet freedom. NVIDIA is seeking to respond to demand from countries that are eager for more indigenous options for developing compute capacity and AI systems. However, sovereign AI can create “sovereignty traps” that unintentionally grant momentum to authoritarian governments’ efforts to undermine multistakeholder governance of digital technologies. This piece outlines the broader geopolitical context behind digital sovereignty and identifies several potential sovereignty traps associated with sovereign AI.¹

Background

Since its inception, the internet has been managed through a multistakeholder system that, while not without its flaws, sought to uphold a global, open, and interoperable internet. Maintaining this inherent interconnectedness is the foundation by which the multistakeholder community of technical experts, civil society organizations, and industry representatives have operated for years.

One of the early instantiations of digital sovereignty was introduced by China in its 2010 White Paper called “The State of China’s Internet.” In it, Beijing defined the internet as “key national infrastructure,” and as such it fell under the scope of the country’s sovereign jurisdiction. In the same breath, Chinese authorities also made explicit the centrality of internet security to digital sovereignty. In China’s case, the government aimed to address internet security risks related to the dissemination of information and data—including public opinion—that could pose a risk to the political security of the Chinese Communist Party (CCP). As a result, foreign social media platforms like X (formerly Twitter) and Facebook have been banned in China since around 2009. It is no coincidence that the remit of China’s main internet regulator, the Central Cyberspace Affairs Commission, has evolved from developing and enforcing censorship standards for online content to becoming a key policy body for regulating privacy, data security, and cybersecurity.

This emphasis on state control over the internet—now commonly referred to by China as “network sovereignty” or “cyber sovereignty” (网络主权), also characterizes China’s approach to the global digital ecosystem. Following the publication of its White Paper in 2010, in September of the following year, China, Russia, Tajikistan, and Uzbekistan jointly submitted an “International Code of Conduct for Information Security” to the United Nations General Assembly, which held that control over policies related to the governance of the internet is “the sovereign right of states”—and thus should reside squarely under the jurisdiction of the host country.

In line with this view, China has undertaken great efforts in recent years to move the center of gravity of internet governance from multistakeholder to multilateral fora. For example, Beijing has sought to leverage the platform of the Global Digital Compact under the United Nations to engage G-77 countries to support its vision. China has proposed language that would make the internet a more centralized, top-down network over which governments have sole authority, excluding the technical community and expert organizations that have helped shape community governance from the internet’s early days.

Adding to the confusion is the seeming interchangeability of the terms “cyber sovereignty,” used more frequently by China, and “digital sovereignty,” a term used most often by the European Union and its member states. While semantically similar, these terms have vastly different implications for digital policy due to the disparate social contexts in which they are embedded. For example, while the origin of the “cyber sovereignty” concept in China speaks to the CCP’s desire for internet security, some countries view cyber sovereignty as a potential pathway by which to gain more power over the development of their digital economies, thus enabling them to more efficiently deliver public goods to their citizens. There is real demand for this kind of autonomy, especially among Global Majority countries.

Democracies are now trying to find alternative concepts to capture the spirit of self-sufficiency in tech governance without lending credence to the more problematic implications of digital sovereignty. For example, in Denmark’s strategy for tech diplomacy, the government avoids reference to digital sovereignty, instead highlighting the importance of technology in promoting and preserving democratic values and human rights, while assisting in addressing global challenges. The United States’ analogous strategy invokes the concept of “digital solidarity” as a counterpoint, alluding to the importance of respecting fundamental rights in the digital world.

Thus, ideas of sovereignty, as applied to the digital, can have both a positive, rights-affirming connotation, as well as a negative one that leaves the definition of digital rights and duties to the state alone. This can lead to confusion and often obscures the legitimate concerns that Global Majority countries have about technological capacity-building and autonomy in digital governance.

NVIDIA’s addition of the concept of “sovereign AI” further complicates this terrain and may amplify the problems presented by authoritarian pushes for sovereignty in the digital domain. For example, national-level AI governance initiatives that emphasize sovereignty may undermine efforts for collective and collaborative governance of AI, reducing the efficacy of risk mitigations. Over-indexing on sovereignty in the context of technology often cedes important ground in ensuring that transformative technologies like AI are governed in an open, transparent, and rights-respecting manner. Without global governance, the full, uncritical embrace of sovereign AI may make the world less safe, prosperous, and democratic. Below we outline some of the “traps” that can be triggered when sovereignty is invoked in digital contexts without an understanding of the broader political contexts within which such terms are embedded.

Sovereignty trap 1: Sovereign systems are not collaborative

If there is one thing we have learned from the governance of the internet in the past twenty years, it is that collaboration sits at the core of how we should address the complexity and fast-paced nature of technology. AI is no different. It is an ecosystem that is both diverse and complex, which means that no single entity or person should be responsible for allocating its benefits and risks. Just like the internet, AI is full of “wicked problems,” whether regarding the ethics of autonomy or the effects that large language models could have on the climate, given the energy required to build large models. Wicked problems can only be solved through successful collaboration, not with each actor sticking its head in the sand.

Collaboration leads to more transparent governance, and transparency in how AI is governed is essential given the potential for AI systems to be weaponized and cause real-world harm. For example, many of the drones that are being used in the war in Ukraine have AI-enabled guidance or targeting systems, which has had a major impact on the war. Just as closed systems on the internet can be harmful for innovation and competition, as with operating systems or app stores built as “walled gardens,” AI systems that are created in silos and are not subject to a collaborative international governance framework will produce fewer benefits for society.

Legitimate concerns about the misappropriation of AI systems will only worsen if sovereign AI is achieved by imposing harsh restrictions on cross-border data flows. Just like in the case of the internet, data flows are crucial because they ensure access to information that is important for AI development. True collaboration can help level the playing field between stakeholders and address existing gaps, especially in regard to the need for human rights to underlie the creation, deployment, and use of AI systems.

Sovereignty trap 2: Sovereign systems make governments the sole guarantors of rights

Sovereign AI, like its antecedent “digital sovereignty,” means different things to different audiences. On one hand, it denotes reclaiming control of the future from dominant tech companies, usually based in the United States. It is important to note that rallying cries for digital sovereignty stem from real concerns about critical digital infrastructure, including AI infrastructure, being disrupted or shut down unilaterally by the United States. AI researchers have long said that actors in the Global Majority must avoid being relegated to the status of data suppliers and consumers of models, as AI systems that are built and tested in the contexts where they will actually be deployed will generate better outcomes for Global Majority users.

The other connotation of sovereign AI, however, is that the state has the sole authority to define, guarantee, or deny rights. This is particularly worrying in the context of generative AI, which is an inherently centralizing technology due to its lack of interpretability and the immense resources required to build large AI models. If governments choose to pursue sovereign AI by nationalizing data resources, such as by blocking cross-border transfer of datasets that could be used to train large AI models, this could have significant implications for human rights. For instance, governments might increase surveillance to better collect such data or to monitor cross-border transfers. At a more basic level, governments have a more essentialist understanding of national identity than civil society organizations, sociotechnical researchers, or other stakeholders who might curate national datasets, meaning government-backed data initiatives for sovereign AI are still likely to hurt marginalized populations.

Sovereignty trap 3: Sovereign systems can be weaponized

Assessing the risks of sovereign AI systems is critical, but governments lack the capacity and the incentives to do so. The bedrock of any AI system lies in the quality and quantity of the data used to build it. If the data is biased or incomplete, or if the values encoded in the data are nondemocratic or toxic, an AI system’s output will reflect these characteristics. This is akin to the old adage in computer science, “garbage in, garbage out,” emphasizing that the quality of output is determined by the quality of the input.

As countries increasingly rely on AI for digital sovereignty and national security, new challenges and potential risks emerge. Sovereign AI systems, designed to operate within a nation’s own infrastructure and data networks, might inadvertently or intentionally weaponize or exaggerate certain information based on their training data.

For instance, if a national AI system is trained on data that overwhelmingly endorses nondemocratic values or autocratic perspectives, the system may identify certain actions or entities as threats that would not be considered as such in a democratic context. These could include political opposition, civil society activism, or free press. This scenario echoes the concerns about China’s approach to “cyber sovereignty,” where the state exerts control over digital space in several ways to suppress information sources that may present views or information contradicting the official narrative of the Chinese government. This includes blocking access to foreign websites and social media platforms, filtering online content, and monitoring digital communications to prevent the dissemination of dissenting views or information deemed sensitive by the government. Such measures could potentially be reinforced through the use of sovereign AI systems.

Moreover, the legitimacy that comes with sovereign AI projects could be exploited by governments to ensure that state-backed language models endorse a specific ideology or narrative. This is already taking place in China, where the government has succeeded in censoring the outputs of homegrown large language models. This also aligns with China’s push to leverage the Global Digital Compact to reshape internet governance in favor of a more centralized approach. If sovereign AI is used to bolster the position of authoritarian governments, it could further undermine the multistakeholder model of internet and digital governance.

Conclusion

The history of digital sovereignty shows that sovereign AI comes with a number of pitfalls, even as its benefits remain largely untested. The push to wall off the development of AI and other emerging technologies with diminished external involvement and oversight is risky: lack of collaboration, governments as the sole guarantors of rights, and potential weaponization of AI systems are all major potential drawbacks of sovereign AI. The global community should focus on ensuring AI governance is open, collaborative, transparent, and aligned with core values of human rights and democracy. While sovereign AI will undoubtedly boost NVIDIA’s earnings, its impact on democracy is more ambiguous.

Addressing these potential threats is crucial for global stability and security. As AI’s impact on national security grows, it is essential to establish international norms and standards for the development and deployment of state-backed AI systems. This includes ensuring transparency in how these systems are built, maintained, released, and applied, as well as implementing measures to prevent misuse of AI applications. AI governance should seek to ensure that AI enhances security, fosters innovation, and promotes economic growth, rather than exacerbating national security threats or strengthening authoritarian governments. Our goal should be to advance the well-being of ordinary people, not sovereignty for sovereignty’s sake.

Konstantinos Komaitis is a nonresident fellow with the Democracy + Tech Initiative of the Atlantic Council’s Digital Forensic Research Lab.

Esteban Ponce de León is a research associate at the Atlantic Council’s Digital Forensic Research Lab based in Colombia.

Kenton Thibaut is a resident China fellow at the Atlantic Council’s Digital Forensic Research Lab.

Trisha Ray is an associate director and resident fellow at the Atlantic Council’s GeoTech Center.

Kevin Klyman is a visiting fellow at the Atlantic Council’s Digital Forensic Research Lab.

New Atlanticist Jul 5, 2024

Advancing AI safety requires international collaboration. Here’s what should happen next.

By Courtney Lang

In May, ten countries and the European Union met in South Korea to establish an international network of AI safety institutes. Next, this network should focus on three specific objectives.

Artificial Intelligence Technology & Innovation

GeoTech Cues Apr 22, 2024

EU AI Act sets the stage for global AI governance: Implications for US companies and policymakers

By Mohamed Elbashir

The European Union (EU) has made a significant step forward in shaping the future of Artificial Intelligence (AI) with the recent approval of the EU Artificial Intelligence Act (EU AI Act) by the European Parliament. This historic legislation, passed by an overwhelming margin of 523-46 on March 13, 2024, creates the world’s first comprehensive framework […]

Artificial Intelligence Digital Policy

New Atlanticist Nov 9, 2023

Rival powers agree that AI poses new risks. Can they work together to address them?

By Dame Wendy Hall and Trisha Ray

The recent AI Safety Summit in the United Kingdom offered a glimpse into a possible future of international cooperation on tackling risks associated with artificial intelligence.

United Kingdom

The post The sovereignty trap appeared first on Atlantic Council.

Mere moments after the announcement, Macron declared that he would not name a prime minister until after the conclusion of the Olympic Games in August. Until then, a caretaker government under Prime Minister Gabriel Attal will remain in place. Still, the potential of an NFP prime minister spooked the markets, as the party’s economic policies would trigger even more deficit spending. The spread of France’s ten-year bond yield against Germany’s increased by five basis points, reflecting a loss in confidence in the French government’s finances. 

But even after the Olympics, Castets is unlikely to be tapped to form a government. Instead, the parties of the center, center right, and center left will have to endure a tedious drill from which France’s constitution has spared them for decades: negotiations. 

The moderate “Republican Right” (DR) appears ready to play ball and recently put forward a set of policy proposals complete with two red lines that will inform the negotiations. But a deal including the Republicans would not be enough: The centrists would need the more moderate forces from the NFP (read: excluding the far left) to support—or at least not oppose—a government for the time being.

The negotiations behind an arrangement that would bring Communists, Gaullist Republicans, Greens, and centrists under the same banner is likely to be every bit as complicated as one would imagine. But in the likely case that the NFP fails to clear the bar for government formation, this would become the only option. The question then becomes: What could this political hodgepodge compromise on? 

Synchronized steering

Despite having lost the legislative election, the Macron-supporting center block will not concede much on any of its policy laurels. Reversing the controversial and hard-won increase of the retirement age from sixty-two to sixty-four, for example, will be off the table. 

The center right has also set explicit red lines: that there be no tax increases and that fiscal reform not hurt pensioners. 

Taking into account these constraints and the need to manage France’s strained fiscal situation, there is not much negotiating flexibility left. Nevertheless, the centrist coalition must consider some concessions and secure certain inducements if they hope to bring the Republicans, Socialists, and Greens onside. 

1. Green reindustrialization

The adoption of the Inflation Reduction Act (IRA) in the United States prompted pushback from many European states. French Finance Minister Bruno Le Maire and his German counterpart Robert Habeck claimed the legislation was not compatible with World Trade Organization principles and called for the “defense” and green reindustrialization of the European Union (EU). 

In July 2023 the French National Assembly unanimously agreed on the creation of a “national strategy” for green industry, which lays out a plan for the 2023-2030 period. One week later, a Green Industry Law was approved at first reading and later adopted in October 2023. Like the IRA, France’s Green Industry Law seeks to meet environmental objectives (reducing forty-one million tons of CO2 by 2030, or 1 percent of France’s total footprint) and economic ones (positioning France as a leader in green and strategic technologies, while reindustrializing the country). As part of the law, the Green Industry Investment Tax Credit (C31V) was established to encourage companies to carry out industrial projects involving batteries, wind power, solar panels, and heat pumps. The C31V is expected to generate €23 billion in investment and directly create forty thousand jobs by 2030. 

While in opposition, the Socialists and Greens voted against the law and other left parties abstained. All cited the lack of specificity and actual green commitments in the industrialization-centered bill. However, if the centrist bloc offered to revisit the bill or introduce new, more targeted standards and legislation, it could serve as a powerful inducement to win the Greens and Socialists’ support. Given that this French counter to the IRA involves private-sector mobilization and promises reindustrialization, it has the added benefit of being (just about) fiscally feasible and acceptable to the right. 

2. Rewarding effort

The thirty-five-hour work week was first introduced into French law by Lionel Jospin’s Socialist-led government in 2000, and it has since become a cornerstone of the left’s platform. However, the fact that most employees still work above the legal thirty-five-hour limit has led to a system where they can take half days or full days off to compensate for extra hours. 

In August of 2022, Macron’s government successfully passed an amendment that allowed firms to buy these hours back from their employees, essentially transforming them into paid overtime. 

As part of the center right’s current proposal, the group is seeking additional flexibility in the thirty-five-hour work week by reducing taxation on overtime, on top of cutting overall social charges paid by employees. The center right has been fairly nonspecific about how much these would be cut, most likely to avoid alienating the left. However, the main way the Republicans propose to fund this—a cap on unemployment benefits at 70 percent of the minimum wage—would be a red flag for the parties which could otherwise be lured out of the NFP.

3. Balancing budgets

France’s large budget deficit, which in 2023 soared to 5.5 percent of gross domestic product (GDP), raises the stakes. In May, S&P Global Ratings downgraded the country’s long-term credit rating from “AA” to “AA-” and the European Commission reprimanded France for exceeding the EU’s deficit cap of 3 percent of GDP. Today, the Commission formally opened proceedings against France and six other violating countries, directing them to immediately take corrective measures to rectify their fiscal deficits or else face financial sanctions from Brussels. 

Both S&P and the Commission forecast positive economic growth, but emphasize the urgent need for France to address its public finances. Growth alone will not be enough to overcome the fiscal hurdles ahead. 

Reconciling the center right’s rejection of any tax hikes and the need to provide parties of the left with guarantees on social spending for them to abandon the NFP will be very challenging indeed. But there is some room for compromise. 

Shortly after Macron’s arrival at the Élysée Palace for his first mandate in 2017, he moved to slash France’s contentious wealth tax, replacing it with a real estate tax. A flat tax of 30 percent on capital gains was also introduced. The decision came as part of Macron’s pro-business platform in a bid to curb the flight of French millionaires from the country, and it drew sharp criticism from political opponents who labeled him “president of the rich.”

The centrist bloc could offer to reintroduce a progressive taxation scheme on capital gains. In the spirit of France’s goal of green reindustrialization, the centrists could move to keep the favorable 30 percent flat tax for green technologies to encourage investment, while introducing a progressive scheme in other sectors. If they do decide to favor green industrial investment, the tax benefit would have to apply to capital gains accrued throughout the EU—not only France—so as to not violate single market rules. 

Sticking the landing

Negotiations will be more of a marathon than a sprint. Macron is unable to call for new elections for at least the next twelve months, so until then, this parliament will have to find a way to work together. 

After the formation of a government—which Macron has indicated will not begin until after the Olympics—the next major challenge facing French policymakers is to pass the yearly budget by December. This grueling event will be made all the more difficult by today’s unprecedentedly divided National Assembly.

Whichever government emerges from current negotiations will risk having its spending plan voted down immediately. Fortunately for France, the constitution contains a proviso that would allow the state to carry on. Essentially, if the Assembly cannot agree on a new budget, the plan approved for the previous fiscal year will roll over. 

However, recycling this year’s budget would still create a projected deficit of 4.4 percent. This would again violate the EU’s 3 percent cap and fall well short of the deficit reduction the markets—the ultimate referees of how France is faring—are hoping to see. 

Charles Lichfield is the deputy director and C. Boyden Gray senior fellow of the Atlantic Council’s GeoEconomics Center

Gustavo Romero is an intern with the Atlantic Council’s GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post What French economic policy may look like after the Olympics appeared first on Atlantic Council.

The post Pelayo quoted in TRT World on Houthis’ attacks against Israel ships appeared first on Atlantic Council.

On July 17th, Global China Hub Nonresident Fellow Leland Lazarus published an article on the potential national security concerns of the Chinese-build port in Chancay, Peru in China US Focus.

Fellow

Leland Lazarus

Nonresident Fellow

Global China Hub

Caribbean China

The post Leland Lazarus on the Chinese-built port in Chancay, Peru in China US Focus appeared first on Atlantic Council.

Passing over green fields

For the most part, CFIUS only has jurisdiction to review foreign investment in existing US businesses, often referred to as cross-border mergers and acquisitions (M&A) or brownfield investment. Its inability to review most greenfield investments, or foreign investments that establish a new business, is purposeful.

Since CFIUS’s creation in 1975 there have been calls to give it authority over greenfield investments But every time CFIUS rules have undergone legislative updates, Congress has decided to retain the Committee’s focus on M&A. This has generally reflected lawmakers’ desire to prevent CFIUS from being used as a protectionist tool or from discouraging beneficial forms of foreign direct investment (FDI). Most economists and policymakers view greenfield investment as more beneficial to economic growth than cross-border M&A.

For years, the United States has been careful to emphasize in its outreach to other countries that investment screening should apply to investment in existing businesses only. Most governments with screening mechanisms agree; among the twenty-five Organisation for Economic Co-operation and Development countries with such mechanisms in 2023, eighteen countries, or 72 percent of them, do not review greenfield investments.

A real estate exception

When Congress updated the CFIUS process in 2018 (through the Foreign Investment Risk Review Modernization Act, or FIRRMA), it retained the committee’s historical focus on M&A activity—with a few important exceptions.

The committee now has review authority over real estate transactions that grant foreign investors access to or control over land located in close proximity to sensitive sites. These sites are defined in the regulation through an appendix to the implementing rules and are comprised of key critical infrastructure installations, such as ports and some military bases.

The rationale behind this change was straightforward: The US government needed additional authorities to address any attempts by foreign adversaries to buy or otherwise gain access to prime real estate from which they could spy or launch attacks on critical infrastructure.

In September 2012, for instance, then President Barack Obama used CFIUS authorities to issue a divestment order against a Chinese company that had invested in a wind farm near a US naval base in Oregon used for weapons testing and training. CFIUS was able to intervene because the Chinese company had invested in a US business. This case helped to make these kinds of collocational risks clear to US lawmakers, but before FIRRMA, there were no federal government authorities to block the sale or lease of land to foreign nationals near sensitive government sites. FIRRMA closed that regulatory gap.

Update or sea change?

So, what does CFIUS’s June 8 proposal add? On the surface, the new proposals are less new rules and more of a technical update. The proposed rules simply add a list of about fifty sensitive sites to the real estate rules’ appendix, expanding CFIUS’s jurisdiction to any land acquisition by foreign buyers that occurs close to a listed government site. For most instillations, “close” is defined as within a mile radius; for the most sensitive sites, “close” covers a one-hundred-mile radius.

This is the second time that the list of sensitive sites has been updated. The first update was made in August 2023 after a controversial proposed greenfield investment by a Chinese firm of North Dakota farmland located about twelve miles from a military site was found to be outside the scope of CFIUS’s original jurisdiction. The newly proposed rules come shortly after the Biden administration issued an executive order in May requiring a Chinese firm to divest its holdings in a crypto mining operation in Wyoming located within a mile of Warren Air Force Base. This was the first use of CFIUS’s real estate authorities to formally block a transaction that was structured as a real estate purchase and subsequent greenfield investment.

When the new rules were announced, some immediately called for CFIUS to use these new authorities to block controversial greenfield investments, such as the Chinese-owned Gotion’s development of an electric battery plant in Michigan. However, there are two reasons to be skeptical that these new authorities could be used in such a manner.

First, the Gotion land purchase occurred prior to the proposed rule change. Typically, CFIUS regulatory changes are not applied retrospectively, though the final rule should make this explicit. If CFIUS chose to attempt to apply the rules retrospectively, it would invite a lengthy legal battle.

Second, CFIUS real estate authorities provide the committee with jurisdiction over the real estate transaction, not the nature of the business activities that are planned to occur on the site in question. That is, the national security risk review of the transaction is supposed to address risks arising from colocation only, and not create a jurisdictional hook that would allow for a more comprehensive review of broader security risks associated with the specifics of the proposed greenfield investment.

In other words, a faithful interpretation of CFIUS’s real estate rules requires that transactions only be mitigated or blocked if a risk arises from the foreign entity owning or gaining access to the land under review. Whether the land is used to make cutting-edge technology or to grow cucumbers is beside the point.

For CFIUS to stop a transaction like Gotion’s from moving forward, it would need to find that access to the investment site generated a clear national security risk. The Gotion plant is located within one hundred miles of a US National Guard base that hosts joint trainings with the Taiwanese military, but there are no clear indications that the terrain in that area facilitates useful intelligence collection of activities on that base from the Gotion facility.

Likely effects

Given the narrow, technical nature of these updates to CFIUS’s authorities, it may be tempting to conclude that these expanded real estate rules will have little effect on foreign real estate acquisitions. Indeed, as the figure below illustrates, real estate FDI in the United States is low in volume and has recently experienced substantial declines.

But these figures only track FDI in land sales. They don’t track investment associated with greenfield investment that depends on acquiring or leasing land.

Considering how restrictions on land transactions could negatively affect greenfield investment, it becomes clear how these new rules could bite. They substantially expand the US land mass that is subject to CFIUS review, especially with the expansion of the number of sites for which an “extended range” of up to one hundred miles is reviewable. (See here for an especially useful map).

In today’s geopolitical environment, it is very hard to imagine CFIUS clearing any Chinese real estate transactions that fall under its jurisdiction. Espionage risks may be low-probability, but they are also of high consequence. This, plus the fact that discovering intelligence-gathering operations is challenging by design, suggests that the US government will likely be highly risk-averse when it comes to Chinese real estate purchases in designated areas.

In other words, CFIUS real estate authorities may operate functionally as a ban on Chinese greenfield investment in any area located close to a sensitive site. If that is true, then the real question will be how the US Treasury ensures that the process for identifying covered sites remains focused on narrow national security concerns and does not become overly expansive.

Sarah Bauerle Danzman is a resident senior fellow in the GeoEconomics Center’s Economic Statecraft Initiative.

The post China’s ability to buy US land near military bases just got more restricted appeared first on Atlantic Council.

Innovation, according to the communiqué, will be driven by further development in education, science and technology, as well as talent cultivation. China has done well in adopting, refining, and rolling out existing technologies; the open question is whether it can foster endogenous breakthrough innovations to stimulate growth and become self-sufficient in high tech in the face of US controls.

China’s green energy sector has seen much progress in the manufacturing of electric vehicles (EVs), batteries, and solar and wind energy products. China has achieved global dominance in the supply chains of these products, which have increasingly contributed to its economic growth and posed a threat to Western competitors in world markets by creating overcapacity which has increased trade tensions. The communiqué doesn’t seem to take this overcapacity problem seriously.

Promoting consumption will likely be implemented the “Chinese way”: strengthening social safety nets, such as insurance schemes and public provisions for unemployment, healthcare and retirement needs of an aging society. The intention of such measures is to induce households to save less and spend more, instead of raising Chinese citizens’ disposable income. After all, the share of China’s labor compensation to gross domestic product (GDP) is about 58.6 percent, just a touch less than 59.7 percent for the United States. Any increase in wages would risk worsening China’s competitive position against regional producers. Moreover, cutting personal taxes or subsidizing consumption would aggravate already stretched public finances: the International Monetary Fund expects China’s government debt-to-GDP ratio to rise from 83.6 percent in 2023 to 110.1 percent in 2029 under current policies.

The communiqué also highlights other important goals and approaches.

• Giving a bigger role to market mechanisms in the context of strengthening the CCP’s guidance and control of economic activities. This approach has been viewed as self-contradictory sloganeering by Western analysts, but China apparently regards it as the key to success in its decades-long reform efforts. One example of this strategy is the public support, including tax and regulatory preferment and favorable credit provisions, to the EV sector more than a decade ago as part of the “Made in China 2025” campaign. This support helped launch hundreds of startups in China. Since then, those companies have been subject to fierce competition to win customers in the marketplace. Steeply falling EV prices have caused profits to plummet and many companies to go out of business. The dozen or so remaining enterprises—BYD, Li Auto, Nio, and XPeng, among others—have become efficient, able to turn out good-quality products at reasonable prices and win international market shares. This has dismayed Western governments, which have resorted to tariffs to stem the flow of Chinese EV imports.
• Implementing fiscal and taxation reform to ensure sustainable funding for local governments. This is taking place against the backdrop of an ongoing recession in the real estate sector, which is reducing land sale revenues for local governments. Some local governments are reaching crisis levels of debt. The reform will try to better match the fiscal revenues and expenditures assigned to local governments, including widening their revenue bases and bigger fiscal transfers from the central government. The recent policy of issuing long-term central government bonds to gradually replace local government debt will continue.
• Persisting in gradually de-leveraging the (still) highly indebted real estate, local government financing vehicles, and small- and medium-sized financial institutions sectors in a way that minimizes the risk of a financial crisis. This will take time to accomplish. Keep in mind that Japan’s real estate bubble in the 1990’s took more than a decade to deflate.
• Unifying the national market by abolishing internal barriers to commerce. This can unlock potential for domestic production, distribution, and consumption. In the context of developing a domestic single market for labor, reforms of the strict hukou system (family registration system) can promote a rational allocation of labor nationally, improving labor productivity.
• Deepening land reform to give farmers more access to increased land values to promote urban-rural integration. This could help reduce the urban-rural income gap: As of 2023, the average annual per capita disposable income in rural areas is only 40 percent of that in urban areas, according to Statista.
• Continuing to open up to the outside world, but presumably more on Chinese terms and less on Western terms. For example, the share of the renminbi in overseas lending by Chinese banks has risen to more than 35 percent from around 10 percent ten years ago. More importantly, many Belt and Road Initiative loans have been concluded using Chinese laws and dispute settlement mechanisms instead of Western ones, such as British laws traditionally used in international bank lending.

A more in-depth document of the meeting is expected to be released soon. It remains to be seen if China’s leadership will follow up with concrete policy measures to implement those long-term goals. At the same time, Beijing still needs to address the present challenge of weakening growth due mainly to lackluster private consumption. Retail sales rose only 2 percent, pulling down China’s second quarter 2024 GDP growth to a lower-than-expected 4.7 percent.

The heady growth rates of well above 7 percent per year, common a decade ago, are over. China’s leaders face difficult and important decisions in the months and years ahead to execute concrete measures to turn the long-term goals re-affirmed at the Third Plenum into reality.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance, and a former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Key takeaways from China’s Third Plenum 2024 appeared first on Atlantic Council.

The post Lipsky cited in Bloomberg on US efforts to persuade emerging market countries to publicly criticize China’s export practices during the G20 appeared first on Atlantic Council.

The post Lipsky cited in Reuters on U.S. Treasury Secretary Janet Yellen’s engagement at the G20 summit appeared first on Atlantic Council.

Three years ago, Brian Deese, then the director of the National Economic Council at the White House, came to the Atlantic Council to announce the Biden administration’s new “industrial policy.” Considering that the term had largely been taboo in economic orthodoxy in recent decades, the announcement took many of us at the Council—and throughout Washington—by surprise. But what Deese outlined that day will turn out to be one of the enduring legacies of the Biden administration: coordinated policy to steer public and private capital toward revitalizing domestic manufacturing and prioritizing the technologies needed to compete with China.

The legislation that made up the backbone of this industrial policy will have ripple effects for the rest of the decade: the Inflation Reduction Act, the CHIPS and Science Act, and the Bipartisan Infrastructure Law. In total, the legislation authorized more than two trillion dollars in spending and tax incentives over ten years. But it wasn’t just the money; it was also the fact that major subsidies were directed to US companies producing semiconductors, clean energy, and electric-vehicle batteries. The Biden administration will point to the eight hundred thousand manufacturing jobs and fifteen million total jobs created in the past four years as proof of the success of these policies. Critics will say that the spending was misallocated, fueled the deficit, and contributed to inflation.

The final verdict will come in the years ahead, when all the investments finally pay off—or don’t. But already, the legacy of the decision is clear: There is a bipartisan consensus now on investing in domestic manufacturing. Whether former President Donald Trump or Vice President Kamala Harris becomes the next president—and even if the sectors he or she chooses to focus on are different—that kind of economic policymaking is not going away.

Of course, the rest of the world took notice of the world’s largest economy making a major macroeconomic shift. The Inflation Reduction Act in particular alarmed European allies who saw their own companies racing to set up US subsidiaries and take advantage of the new law’s incentives to manufacture in the United States. 

The administration tried to explain that this new economic approach wasn’t about the United States going it alone. Two years ago, Treasury Secretary Janet Yellen announced the administration’s “friendshoring” strategy at the Atlantic Council. She spoke in detail about how one of the lessons of the COVID-19 pandemic was the need to rethink supply chains and work more closely with partners and allies to achieve economic security and resilience, not just maximize speed and reduce cost. Her choice of the term “friends” was intentional. It was meant to be an outstretched hand to countries such as Vietnam and Indonesia, not just traditional US allies.

Being a friend didn’t mean being a full partner—at least in the ways other countries had come to expect during the previous decades. The Biden administration has remained unwilling to open the US market to allies and other countries any further and has instead pursued trade-facilitation dialogues through plurilateral arrangements, in particular the Trade and Technology Council with the European Union and the Indo-Pacific Economic Framework for Prosperity with the Asia-Pacific. While these were welcome steps, officials from several countries who met with the Atlantic Council’s GeoEconomics Center team over the years said privately that it wasn’t enough. 

What motivated the Biden administration’s economic framework wasn’t only creating jobs at home, although that certainly was a goal. The equally important ambition was competing with China. Biden maintained Trump’s unprecedented tariffs on Chinese goods and added to them earlier this year. The lines between economic policymaking and national security continued to intertwine—and will be impossible to disconnect in the years to come.

Commerce Secretary Gina Raimondo best encapsulated this dynamic when she discussed Chinese electric vehicles at the Atlantic Council in January. Raimondo pointed to the unfair trade distortions created by Chinese subsidies, which could hurt US automakers. (That’s the domestic part of the Biden administration’s economic policy.) Then she pointed out that sensors in those cars could be used for surveillance; Chinese authorities, in fact, are worried enough about US surveillance that they do not allow Tesla cars near secure facilities. (That’s the national security argument.) 

It would be a mistake to say that Biden created a new paradigm in economic policymaking. Instead, he helped rediscover an old idea—one that was part of the founding of the Bretton Woods institutions in 1944, but that the United States largely had the luxury of forgetting in recent decades: Economic security and national security are deeply interconnected. Whatever policies come next, that lesson won’t be forgotten again anytime soon.

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser at the International Monetary Fund.

The post Biden will leave an enduring legacy of linking economic and national security appeared first on Atlantic Council.

The post Tannebaum interviewed in Institute for International Finance’s podcast Current Account on the rise of secondary sanctions appeared first on Atlantic Council.

Yet the Third Plenum of the Twentieth Central Committee of the Chinese Communist Party this past week in Beijing was perhaps more consequential, as a doubling down of Chinese leader Xi Jinping’s determination to put party and state control ahead of economic growth and consumers.

In that spirit, the meeting’s communiqué deployed the Chinese word for persist, jianchi, seventeen times. As the Wall Street Journal’s Rebecca Feng and Chun Han Wong wrote, it was “an echo of state-media messaging that casts resistance to Xi’s vision as proof that his changes are necessary.”

For the uninitiated, the Third Plenum often is the most significant moment in China’s five-year political cycle.

Back in 1978, the party embraced then-leader Deng Xiaoping’s insight that “initiative cannot be aroused without economic means,” which led to reforms that set the stage for decades of economic growth. In 2013, the Third Plenum loosened the country’s one-child policy and embraced the market’s role in the Chinese economy—though the market-friendly promises were not really implemented.

The last time a Third Plenum was held, in 2018, it was accompanied by a constitutional change abolishing term limits and ensuring Xi’s continued autocratic rule. This was accompanied by a deepening of tensions with the West, including the European Union’s labeling of China as a “systemic rival” the following year.

China delayed this year’s Third Plenum, which was due to be held last autumn, without explanation, which raised speculation that the leaders of the world’s second largest economy didn’t yet have their ducks in a row.

“As China grapples with a property crisis, high youth unemployment, tumbling business and consumer confidence, and an ocean of local government debt, one might expect the government to put everything it has into plans to pull the country out of the economic doldrums,” wrote the Atlantic Council’s Jeremy Mark recently.

This week’s proceedings focused a lot on concepts of “reform” and “modernization,” but not of the kind that Chinese or foreign investors would embrace. Rather, China will focus even more on building industries needed for its confrontation with the United States, particularly in high-tech, and it will reinforce the party’s hold. A decade ago, the Chinese economy was growing well above 7 percent per year. Now, however, the Chinese government has set 5 percent as a growth target for 2024, and even that will be a significant stretch.

And here’s where the Third Plenum outcome differs wildly from the Republican convention’s stated ambitions to shake up Washington. As the Wall Street Journal reporters wrote, the plan Chinese leaders put forward after this week’s meetings “suggests a future that looks more or less like the present.”

Just like several of its predecessors, the Third Plenum will be consequential, but this time in its resistance to change, despite signs that the party is doubling down on an economic approach that investors and markets see as unsustainable. As is often the case in an autocracy, in which dear leader must come across as infallible, the plenum didn’t offer any plan B if the markets are right.

Frederick Kempe is president and chief executive officer of the Atlantic Council. You can follow him on Twitter: @FredKempe.

This edition is part of Frederick Kempe’s Inflection Points Today newsletter, a column of quick-hit insights on a world in transition. To receive this newsletter throughout the week, sign up here.

The post Xi’s answer to critics: Persist! appeared first on Atlantic Council.

Amidst the assertions of commitment to Ukraine’s defense and eventual membership in NATO, conversations at last week’s NATO summit here in sweltering Washington, DC featured another hot topic: China.

The final communiqué, approved by all thirty-two NATO members, took the unprecedented step of calling China “a decisive enabler” of Russia’s war against Ukraine, noting how this is undermining China’s interests and reputation in Europe. NATO Secretary General Jens Stoltenberg underscored that China cannot have it both ways, sponsoring the largest war in Europe in recent memory while attempting to maintain productive relationships across the continent.

These developments on the security front come as European countries with deep ties to the Chinese economy wrestle with how to protect industries from an onslaught of Chinese exports. This dynamic has been most notable in the EU’s recent provisional tariffs on Chinese electric vehicles. While far short of the 100 percent tariffs announced by the Biden administration, Brussels’ move indicates there is growing transatlantic symmetry on derisking relationships with China.

There is far more to be done—not to mention the potential impact of a change in US leadership next year—but a more united transatlantic approach on economic security regarding China does appear to be progressing alongside that on hard security issues.

Meanwhile, as your Global China Editor-in-Chief Tiff Roberts writes below, there is no indication from the Party’s just concluded Third Plenum of hoped-for economic reforms or reduced reliance on emerging and green technology industries—and their export—to spur lagging growth. That’s a recipe for growing confrontation with developed economies, highlighting again the need for continued transatlantic convergence. We cover all this and more below—take it away, Tiff!

-David O. Shullman, senior director, Atlantic Council Global China Hub

Fellow

Dexter Tiff Roberts

Nonresident Senior Fellow

Global China Hub Indo-Pacific Security Initiative

China Chinese

Third Plenum focused on ‘shiny new industries,’, neglected real reform

As Dave notes, many had been hoping China’s just-closed Third Plenum, a once-every-five-year party meeting that usually focuses on the economy, would deliver the reforms needed to jumpstart the country’s lackluster growth. That does not seem to have happened. “Instead of focusing on China’s current problems, the Third Plenum … will prepare China for a confrontation with the United States by building industries powered by massive investments in cutting-edge technologies,” GeoEconomics Center’s Jeremy Mark rightly predicted earlier this month. “China has clearly decided to direct all available resources to next-generation technologies while neglecting to support the vast majority of the population who scrape by outside the tech sector. That suggests Chinese leader Xi Jinping will end up with shiny new industries built on a weak economic foundation.”

As expected, the communiqué, released on July 18, highlighted high tech as well as reiterated Xi’s strident emphasis on the importance of security—something that has spooked both foreign and private investors before. China must achieve a “healthy interaction between high-quality development and a high level of security,” the document stated. And while it name-checked important areas like strengthening consumption and the need to improve “basic and bottom-up livelihood,” there were few specifics about the path ahead. A more detailed document will come later.

(Xi Jinping’s much-anticipated first Third Plenum in 2013 promised ground-breaking reforms to China’s economic system that many expected to see realized. I was far less optimistic, writing at the time of the “central paradox”: China needed major reforms to spark growth but “by pursuing these reforms the party is diluting its control.” That same dilemma remains today.)

The US and EU tariff war with China ramps up as the Global South welcomes Beijing’s embrace

Another big concern is China’s mercantilist trade practices, including subsidized exports undercutting global industries. But while the US and European Union (EU) have taken strong steps to retaliate, putting tariffs on Chinese electric vehicle imports as Dave noted above, Global South countries often welcome Beijing’s economic embrace.

Europe’s tariffs on Chinese EVs max out at 38.1 percent. But, as the Europe Center’s Jacopo Pastorelli and James Batchik write, while this “signal[s] greater alignment between Washington and Brussels on China,” there are differences. Washington’s tariffs will be implemented quickly and applied broadly, yet Europe’s tariffs targeted specific Chinese companies and were “provisional”—a final ruling on tariff levels won’t happen for another four months.

And while a tough approach to China has bipartisan support in the US, “another factor is European unity—or lack thereof,” particularly from export-oriented members, write the report authors. On July 15, Germany, Finland, and Sweden abstained in a non-binding vote on the tariffs, while Italy and Spain voted in favor, with a German economy ministry spokesperson saying “it is now crucial to seek a rapid and consensual solution with China.”

In marked contrast, many Global South countries are throwing their economic lot in with China. Take Peru, whose president Dina Boluarte visited Beijing on June 28. The state visit “follows a decade of increased Chinese economic influence in the Andean country. Between 2018 and 2023, Peru became the second highest recipient of Chinese foreign direct investment (FDI) in Latin America and the Caribbean,” writes the Adrienne Arsht Latin America Center’s Martin Cassinelli. “In 2024, Peru’s relevance to China will be transformed, as Lima becomes a crucial partner in China’s economic engagement with Latin America. In November, Xi plans to inaugurate the Chancay port, a $3.6 billion deep-water mega-port forty-four miles north of Lima.” Other Global South leaders who have recently visited Beijing include top officials from Guinea-Bissau, Vanuatu, Bangladesh, and the Solomon Islands.

NATO says China presents “systemic challenges to Euro-Atlantic security”

As Dave notes above, the just-closed NATO meeting singled out China for criticism like never before. The thirty-two-nation organization declared that China presents “systemic challenges to Euro-Atlantic security,” citing the buildup of its nuclear arsenal, disinformation and cyberattacks. More than anything else, concern centered on China’s role as a “decisive enabler” of Russia’s invasion of Ukraine. “We call on the People’s Republic of China (PRC) … to cease all material and political support to Russia’s war effort,” read the communiqué.

As the below chart shows, China’s trade with Russia is expanding. That trade is helping China to prop up Russia’s “war machine”, writes the Atlantic Council Global Energy Center’s Joe Webster. “While there is  no publicly available evidence that Beijing is providing lethal arms to Russian forces, its goods exports are nonetheless likely facilitating Moscow’s invasion,” the senior fellow notes, citing shipments of Chinese machinery, vehicles and parts, and dual-use technologies (In the communiqué, NATO singled out “weapons components, equipment, and raw materials that serve as inputs for Russia’s defense sector”). And it’s not just direct exports. There likely is significant indirect trade via Central Asia and Belarus, with dual-use goods exports more than doubling over the last year. “It is very prudent to examine if China’s shipments…are simply being re-exported on to Russia,” Webster writes.

Meanwhile Hungary, unlike other NATO members, showed strong support for China in recent weeks, continuing a trend that began a decade ago. “Under [far-right leader] Orbán’s leadership, Hungary has oriented its foreign policy around Russian and Chinese interests since 2014, doing the two powers’ bidding inside the European Union and NATO and becoming increasingly hostile to the leaders of the United States and the EU,” writes the Global China Hub’s Zoltán Fehér. Many EU leaders have not taken kindly to Orbán’s meeting with Xi Jinping in Beijing (and earlier with Vladimir Putin in Moscow) just before attending the NATO summit.

• Next Wednesday, the Global China Hub will be co-hosting a public conversation on exposing and countering Chinese information operations in collaboration with the Atlantic Council’s Digital Forensic Research Lab (DFRLab), Radio Free Asia, and Freedom House.
• Atlantic Council President and CEO Fred Kempe and Scowcroft Center for Strategy and Security’s Indo-Pacific Security Initiative Director Markus Garlauskas reflected on their participation in the Atlantic Council’s annual delegation trip to Taiwan in June. The delegation was hosted by the Taiwanese government, and they met with Taiwan government leaders, including President Lai Ching-te, think tanks, and business representatives to discuss security and economic issues facing Taiwan and the Indo-Pacific.
• The Scowcroft Center also published a report, “Strengthening Taiwan’s resiliency,” recommending actions for Taiwan’s new leadership to enhance its societal resilience against Chinese aggression in the context of both “gray zone” conflict and wartime attacks.
• Two years after Elon Musk’s acquisition of Twitter and rebranding as X, the platform is far from winning the battle against spambots. DFRLab led an investigation into how spambots continue to suppress authentic posts in Chinese-language searches on X.

Global China Hub

The Global China Hub researches and devises allied solutions to the global challenges posed by China’s rise, leveraging and amplifying the Atlantic Council’s work on China across its 16 programs and centers.

Explore more

The post Global China Newsletter—Russia’s ‘enabler’ punts again on economic reform appeared first on Atlantic Council.

This and similar incidents have highlighted the importance of the cyber front in the Russian invasion of Ukraine. Ukraine has invested significant funds in cybersecurity and can call upon an impressive array of international partners. However, the country currently lacks sufficient domestic cybersecurity system manufacturers.

Ukraine’s rapidly expanding drone manufacturing sector may offer the solution. The growth of Ukrainian domestic drone production over the past two and a half years is arguably the country’s most significant defense tech success story since the start of Russia’s full-scale invasion. If correctly implemented, it could serve as a model for the creation of a more robust domestic cybersecurity industry.

As the world watches the Russian invasion of Ukraine unfold, UkraineAlert delivers the best Atlantic Council expert insight and analysis on Ukraine twice a week directly to your inbox.

Speaking in summer 2023, Ukraine’s Minister of Digital Transformation Mykhailo Fedorov outlined the country’s drone strategy of bringing together drone manufacturers and military officials to address problems, approve designs, secure funding, and streamline collaboration. Thanks to this approach, he predicted a one hundred fold increase in output by the end of the year.

The Ukrainian drone production industry began as a volunteer project in the early days of the Russian invasion, and quickly became a nationwide movement. The initial goal was to provide the Ukrainian military with 10,000 FPV (first person view) drones along with ammunition. This was soon replaced by far more ambitious objectives. Since the start of Russia’s full-scale invasion, more the one billion US dollars has been collected by Ukrainians via fundraising efforts for the purchase of drones. According to online polls, Ukrainians are more inclined to donate money for drones than any other cause.

Today, Ukrainian drone production has evolved from volunteer effort to national strategic priority. According to Ukrainian President Volodymyr Zelenskyy, the country will produce more than one million drones in 2024. This includes various types of drone models, not just small FPV drones for targeting personnel and armored vehicles on the battlefield. By early 2024, Ukraine had reportedly caught up with Russia in the production of kamikaze drones similar in characteristics to the large Iranian Shahed drones used by Russia to attack Ukrainian energy infrastructure. This progress owes much to cooperation between state bodies and private manufacturers.

Marine drones are a separate Ukrainian success story. Since February 2022, Ukraine has used domestically developed marine drones to damage or sink around one third of the entire Russian Black Sea Fleet, forcing Putin to withdraw most of his remaining warships from occupied Crimea to the port of Novorossiysk in Russia. New Russian defensive measures are consistently met with upgraded Ukrainian marine drones.

Eurasia Center events

Online Event Thu, August 15, 2024 • 9:00 am ET

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

In May 2024, Ukraine became the first country in the world to create an entire branch of the armed forces dedicated to drone warfare. The commander of this new drone branch, Vadym Sukharevsky, has since identified the diversity of country’s drone production as a major asset. As end users, the Ukrainian military is interested in as wide a selection of manufacturers and products as possible. To date, contracts have been signed with more than 125 manufacturers.

The lessons learned from the successful development of Ukraine’s drone manufacturing ecosystem should now be applied to the country’s cybersecurity strategy. “Ukraine has the talent to develop cutting-edge cyber products, but lacks investment. Government support is crucial, as can be seen in the drone industry. Allocating budgets to buy local cybersecurity products will create a thriving market and attract investors. Importing technologies strengthens capabilities but this approach doesn’t build a robust national industry,” commented Oleh Derevianko, co-founder and chairman of Information Systems Security Partners.

The development of Ukraine’s domestic drone capabilities has been so striking because local manufacturers are able to test and refine their products in authentic combat conditions. This allows them to respond on a daily basis to new defensive measures employed by the Russians. The same principle is necessary in cybersecurity. Ukraine regularly faces fresh challenges from Russian cyber forces and hacker groups; the most effective approach would involve developing solutions on-site. Among other things, this would make it possible to conduct immediate tests in genuine wartime conditions, as is done with drones.

At present, Ukraine’s primary cybersecurity funding comes from the Ukrainian defense budget and international donors. These investments would be more effective if one of the conditions was the procurement of some solutions from local Ukrainian companies. Today, only a handful of Ukrainian IT companies supply the Ukrainian authorities with cybersecurity solutions. Increasing this number to at least dozens of companies would create a local industry capable of producing world-class products. As we have seen with the rapid growth of the Ukrainian drone industry, this strategy would likely strengthen Ukraine’s own cyber defenses while also boosting the cybersecurity of the wider Western world.

Anatoly Motkin is president of StrategEast, a non-profit organization with offices in the United States, Ukraine, Georgia, Kazakhstan, and Kyrgyzstan dedicated to developing knowledge-driven economies in the Eurasian region.

Further reading

UkraineAlert Jul 16, 2024

Russia’s retreat from Crimea makes a mockery of the West’s escalation fears

By Peter Dickinson

The Russian Navy’s quiet retreat from Crimea highlights the emptiness of Putin’s red lines and the self-defeating folly of Western escalation management, writes Peter Dickinson.

Conflict Defense Policy

UkraineAlert Jun 12, 2024

Ukraine is making the Russian occupation of Crimea untenable

By Olivia Yanchik

Ukraine’s growing air strike capabilities are decimating Russian air defenses in Crimea and making the occupation of the peninsula increasingly untenable, writes Olivia Yanchik.

Conflict Defense Technologies

UkraineAlert May 30, 2024

If the West wants a sustainable peace it must commit to Ukrainian victory

By Hanna Hopko, Andrius Kubilius

Since 2022, Western policies of escalation management have failed to appease Putin and have only emboldened the Kremlin. If the West wants peace, it must help Ukraine win, write Hanna Hopko and Andrius Kubilius.

Civil Society Conflict

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

Read more from UkraineAlert

UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

Learn more

The post Ukraine’s drone success offers a blueprint for cybersecurity strategy appeared first on Atlantic Council.

The post Cryptocurrency Regulation Tracker and Kumar cited by Axios on crypto regulation appeared first on Atlantic Council.

Since their inception in July 1944, they have played central roles in global finance and built the world’s economic architecture as the norm-setters, knowledge-producers, convenors, and actors in the international development and finance landscape.

In 2024, the BWIs are facing multi-faceted existential challenges, posing serious risks for their relevance and effectiveness. The rapidly changing nature of the global economy, commerce, and finance and the increasing challenges triggered by the emergence of new players, technologies, and crises—especially in the past two decades—are forcing these institutions to take a renewed look at their governance structure and mandates. This is not the first time they have had to do so.

A reformed Bretton Woods system already emerged nearly five decades ago in 1976 through the Jamaica Accords. In 1971, the Nixon administration created a shock when it canceled the direct convertibility of the US dollar to gold and rendered the old Bretton Woods system inoperative as currency exchange rates became more volatile. The new rules stabilized the international monetary system by permitting floating exchange rates and formally abolishing the gold standard, which the United States was already no longer underpinning.

This time, meaningful reform for the BWIs will require a genuine acknowledgment of the following developments in the global political economy:

1. Economies that are not part of the high-income club are playing an increasingly large role in global trade and finance. However, the BWIs’ voting, leadership, and governance structures do not reflect this shift in the global economy and the IMF and WBG remain US-, Group of Seven (G7)-, and European Union (EU)-centric institutions. Together, the EU and the United States still maintain about 40 percent of votes in the World Bank and the IMF even as their relative prominence in the global economy has eroded.
   
   
   
   
2. The global economy is facing a growing number of challenges that have stretched the resources of BWIs and tested their effectiveness in bringing together the right stakeholders. One can point to unsustainable levels of sovereign debt, weather-related extreme events, increasing risk of pandemics, and aging populations as only some of these multifaceted challenges. Moreover, tariffs, subsidies, currency wars, protectionism, industrial policies, sanctions, geoeconomic fragmentation, and decoupling have become commonplace hurdles to globalized trade. The emergence of heightened geopolitical tensions between some of the world’s largest economies has undermined global financial stability and has also introduced significant difficulties for the BWIs to adhere effectively to their mandates of effective global governance, shared prosperity, and international monetary cooperation. This is eroding gains made through globalization in the past few decades.
3. The emergence of state-led development finance institutions and the growing number and influence of regional multilateral development banks and financial institutions, sovereign wealth funds, and pension funds have drastically altered the global landscape of development finance, calling for a more active collaboration between BWIs and the following parallel institutions:
   • Nearly 160 countries are signatories to China’s Belt and Road Initiative (BRI) and/or the G7’s Partnership for Global Infrastructure and Investment.
   • More than forty multilateral development banks and financial institutions—such as the Asian Development Bank, the Inter-American Development Bank, the African Development Bank, the Islamic Development Bank, and the Asian Infrastructure Investment Bank—are active in the global development finance landscape.
   • More than fifty national development banks such as Qatar Development Bank, Korea Development Bank, and Development Bank of Nigeria are offering a wide range of financing products to international public and private entities.
   • More than 130 sovereign wealth funds boast around $12 trillion in assets globally.
   • Public and private pension funds have over $24 trillion and $42 trillion in global assets, respectively.
4. Several multinational corporations (MNCs) command economic and technological might larger than many countries and are increasingly shaping the future of global economy through innovation and by influencing policy debates. MNCs are estimated to account for nearly one-third of global gross domestic product (GDP) and a quarter of global employment, and the revenue of Walmart alone was larger than the GDP of more than 170 countries in 2023. Environmental, social, and governance standards have been put in place to create a framework where MNC activities are not detrimental to environmental and social objectives but are based on best governance practices. However, the BWIs have played too minor a role and influence in these conversations. 
5. The emergence of digital currencies and assets and the increasing role of technology (artificial intelligence, machine learning, and fintech) in economic and monetary policy offers challenges and opportunities for the efficiency and stability of the global economy. Alternative finance championed by non-state actors has moved faster than international and domestic supervisory and regulatory bodies, including the BWIs, which have not kept up with the rapid pace of change. For example, the IMF in collaboration with the Bank for International Settlements could play a significant role in coordinating the global efforts in standard-setting for central bank digital currencies and new cross-border payment systems.
6. New debates and policies are altering global economic, monetary, and trade policies. Modern monetary theory, universal basic income, quantitative easing and tightening, modern central banking, global minimum taxation, fair trade, and human rights considerations in global supply chains are some of the issues BWIs need to be more proactive about.

Acknowledging the gravity of the risks facing effectiveness and relevance of BWIs, our Bretton Woods 2.0 Project has conducted in-depth policy research on the rising challenges facing BWIs’ governance and operations and has put forth feasible policy recommendations for their consideration in their reform journey. Substantive reforms are never easy, especially for multilateral organizations with such long and complex histories and intractable geopolitical rifts between their members. Difficult decisions, especially regarding the governance and leadership structure of these institutions, must be made, however. As Axel van Trotsenburg, senior managing director at the WBG recently acknowledged, for the IMF and WBG to remain true to their mandates and still relevant at their one hundredth anniversary in twenty years, they must embark on reforms that heed the issues highlighted above.  

Amin Mohseni-Cheraghlou is a macroeconomist with the GeoEconomics Center and leads the Atlantic Council’s Bretton Woods 2.0 Project. He is also a senior lecturer of economics at American University in Washington, DC. Follow him on X (formerly known as Twitter) at @AMohseniC.

The post The Bretton Woods institutions need revitalizing. Luckily, they are no strangers to reform. appeared first on Atlantic Council.

What can be expected from a von der Leyen 2.0? Ahead of her confirmation, she laid out a raft of proposals in her political guidelines for the next Commission term—a combined effort to outline her vision and win over votes. The guidelines prioritize:

1. Building a more competitive Europe that balances regulation and innovation that facilitates Europe’s green transition, 
2. Boosting the EU’s defense ambitions, 
3. Pushing social and economic policies such as affordable housing, 
4. Sustaining agriculture and environmental policies, 
5. Protecting Europe’s democracy, and 
6. Standing up for Europe’s global and geopolitical interests.

In practice, this means her next term will mean more of a central and active role for the Commission—and for von der Leyen. But there will also likely be more roadblocks from the European Council and Parliament.

Start with her leadership style. In her first term, von der Leyen turned the Commission into the most important arm inside the EU at a time when crises came new and often. She served as the EU’s chief decision maker and negotiator during the COVID-19 crisis, helped coordinate Europe’s response to Russia’s full-scale invasion of Ukraine, and shaped the EU’s economic de-risking strategy and general hawkishness toward China, serving as Europe’s “bad cop” standing up to Beijing’s coercive and unfair trade practices. The grumblings of an overstepping and power-hungry Commission president from other arms of the EU and national capitals aside, European leaders still looked to the Commission and von der Leyen to take action.

The Commission’s role was boosted by its policy successes too. Her first term oversaw the adoption of major rules on the digital and green transitions. The EU pushed through world-leading digital regulations on artificial intelligence, online content moderation, and platform competition, and it incentivized semiconductor manufacturing. She also prioritized green policies to reduce emissions, including the Carbon Border Adjustment Mechanism and setting new emission reduction targets for cars, shipping, and factories.

For her second term, von der Leyen will seek to pick up where she left off. The Commission will also look to build itself a stronger role in the traditional defense and the economic security agendas, with an eye to boosting Europe’s defense capabilities against Russia and de-risking from China. Von der Leyen’s focus on a competitiveness agenda will push for greater innovation and industrial support while furthering the green transition. On Thursday, von der Leyen promised a “European competitiveness fund” and a “clean industrial deal” within the first hundred days of the Commission’s next mandate, along with greater investment in energy infrastructure and technologies. This will all come with a price tag, and more responsibility for the Commission.

As a consequence of a busy 2019-2024 legislative cycle, von der Leyen and her Commission must now see through a raft of new rules. On digital policy alone, the to-do list is a tall order. The EU is standing up new offices and hiring a new army of competition lawyers, boosting the already massive size and scope of the Commission.

But there will be limits to von der Leyen’s ambition as member states and the parliament will look to exercise their own power.

Europe’s political center is not what it was in 2019, and EU members will want their influence felt. Von der Leyen will have to contend with a growing number of populist leaders around the table at Council meetings. More far-right governments may pop up over the next five years, including in major countries such as France as Marine Le Pen’s National Rally gets ever closer to power. And as the Commission tries to take on a bigger role in traditional member-state driven policies, such as security and defense, von der Leyen will need to deal with more engaged member states looking to exact concessions or carveouts, or to wield their own influence at the EU level.

Far- and hard-right groups in the European Parliament are also on the rise, and they are looking to make a mark. In a shift from her first term, emboldened hard-right politicians are more eager to influence EU policy rather than just play spoiler to it. The growing number and influence of far-right and hard-right groups will likely add extra complexity to the legislative process, and legislation may need to pass with ad hoc coalitions rather than the tradition of grand coalitions of parliaments past.

Greater influence on the right may hamper the Commission’s regulatory ambition. Von der Leyen promised she would continue the green transition, but the EU’s green rules have already become a political target. The platforms of the center-right European People’s Party (EPP), von der Leyen’s own group, and the further right European Conservatives and Reformists, both have peppered in objections to onerous new regulations, especially those associated with the green transition. And the competitiveness debate is in large part spurred on by this backlash to the Commission’s regulatory appetite. This may be difficult for the Commission. Institutionally, the Commission is designed to present new regulations and proposals. It is the only arm inside the EU that can. But that desire will be a point of friction with the aversion among member states and Parliament to new, seemingly onerous, rules.

Von der Leyen will face challenges from beyond Europe, too. “We have entered an age of geostrategic rivalries,” notes the policy guidelines. To the east, Beijing will continue to try to split Europe and poison the EU’s de-risking agenda just as it is starting to take off. And supporting Ukraine against Russia’s full-scale invasion will require sustained attention and funds.

To the west, von der Leyen cannot ignore the upcoming US elections. A transatlanticist at heart, she pushed the EU closer together with the United States in her first term—in large part benefiting from a new EU-friendly US administration. She will likely face an uphill battle in strengthening transatlantic ties in the event of a second Trump administration. “They treat us very badly,” former President Donald Trump said to Bloomberg News when asked about the European Union on June 25.

Von der Leyen’s confirmation this week goes a long way already to set up the EU for success and avoids an own goal for team Europe. Rejecting her would have forced the European Council back to the drawing board to pick a new—and likely weaker—appointee, wasting more time on internal bickering and politicking when predictability, not chaos, is critical. It’s not hard to picture the jubilee from Beijing, taunts from Moscow, and even snide comments from Washington about EU dysfunction in the face of a no vote. In the words of Greek Commissioner Margaritis Schinas (and von der Leyen ally) on her appointment, “There is no plan B.” It is a good thing plan A worked.

James Batchik is an associate director at the Atlantic Council’s Europe Center.

The post What to expect from Ursula von der Leyen’s second term appeared first on Atlantic Council.

But, as entertainment and media experts from PwC warn, growth in Africa’s entertainment industries “will be distributed unevenly, with some sectors stagnating while others skyrocket.” African governments, international partners, and global investors can all play a strategic role in unlocking the commercial potential of overlooked markets and creative economies across the continent.

African music, for example, has witnessed a meteoric global rise, with the likes of Wizkid and Tems “reshaping the sound and texture of pop music,” according to Rolling Stone. Afrobeats artists were streamed over thirteen billion times on Spotify in 2022. Revenue from the music industry in Sub-Saharan Africa grew by 24 percent last year, the fastest growth globally. Between 2017 and 2023, royalties for South African artists on Spotify have increased by 500 percent; Tyla, a twenty-two-year-old who earlier this year referred to herself as a “Jozi girl living the dream,” won the first Best African Music Performance award at the 2024 Grammys. And major labels like Audiomack and Universal Music Group have opened offices on the continent, investing heavily in African talent.

Africa’s television and film industry is also reaching new global audiences. Showmax, a streaming platform headquartered in South Africa, is ramping up production on twenty-one new and original African shows. Since 2016, Netflix has invested more than $175 million in African films, including a multi-title deal with a Nigerian production company. The Nigerian movie The Black Book was watched by over twenty million people in its first weeks, becoming at one point the third most-streamed movie worldwide. African film companies have inked deals with the likes of Walt Disney Animation Studios for original productions released globally on services such as Disney+, including the animated Iwájú series, for which Disney collaborated with London-based African storytelling company Kugali Media. Nollywood, the world’s second-largest film industry by production volume, generates $1.2 billion in annual revenues.

With Africa’s population projected to nearly double to 2.5 billion people by 2050, the continent will host one-third of the planet’s young people and the fastest-growing consumer markets for the entertainment industry. Music streaming revenues in Africa are expected to rise from $92.9 million in 2021 to $314.6 million by 2026. Platforms like Spotify, Paramount+, and Netflix are vying for a share of this expanding market with compelling, locally produced content. Nigeria, poised to become one of the ten biggest economies in the world by 2050, generated $45.2 million in revenues from music, television, and film streaming in 2022—a 55 percent increase compared to the year before.

Other creative industries, like gaming, have significant growth potential in Africa but haven’t yet seen breakthrough moments comparable to music, television, and film. The continent is the fastest-growing global market for the gaming industry, expected to generate more than one billion dollars in 2024 for the first time ever, with the number of African gamers doubling over the past five years—mostly driven by youth gaming on their phones. But local game developers have yet to gain a strong foothold on the continent or beyond, despite the clear potential for new and culturally rich gaming experiences rooted in the African context. Innovators like Guzo Technologies (which has participated in programs backed by Meta, where one of the authors works) are developing innovative gaming and learning experiences harnessing virtual reality, but there remain significant barriers to access and use for many Africans.

Some African governments, international partners, and investors are striving to boost their creative industries to stimulate growth, attract investment, and create jobs. In April 2024, Côte d’Ivoire partnered with a venture capital firm and bank to create a fund for entertainment startups. In October 2023, the International Finance Corporation (IFC) and Sony collaborated to invest in Africa’s creative industries. In announcing the initiative, the IFC highlighted the African creative economy’s “significant, untapped potential . . . for boosting economic growth and improving employment opportunities for young people and women.” Zambia announced a $100-million investment plan to transform its film industry. Actor Idris Elba is backing new film studios in Sierra Leone, Tanzania, and Ghana, while Senegalese Director Mati Diop is opening a new film production house.

But African governments, their international partners, and investors can do more to ignite Africa’s creative industries. Artists have too often succeeded in spite of, not thanks to, the state—where regulatory barriers, weak intellectual property protections, and exacting tax regimes may inhibit the creative economy. Development finance institutions can follow the IFC’s lead by offering blended finance options to de-risk similar investments in other countries. The Democratic Republic of Congo—historically considered a regional cultural superpower, especially in music—shows significant growth potential, for example. Contemporary Congolese stars are yet to experience success akin to that of their Nigerian and South African peers; even Congolese icon Fally Ipupa has less than 7 percent of Nigerian artist Burna Boy’s monthly listeners on Spotify.

Beyond their remarkable economic impacts, Africa’s cultural entrepreneurs are reshaping global perceptions of the continent. As one African analyst noted, “historically, when we talk about global soft power, Africa has never really been top of mind.” But through television series and films set in Africa and written by Africans, artists are rewriting the infamous “single story” that has shaped international perceptions of a continent ravaged by war, poverty, and disease. One African-British journalist wrote about how “Afrobeats artists were the best [public relations] team we could ever have asked for—talented, arrogant, and unapologetically African.” The World Economic Forum has heralded a “rising Afro Wave inspired by the arts and cultural leaders of African and Afro diaspora . . . [empowering] nations to participate more actively in global conversations, enhancing their diplomatic influence, and forging connections that extend beyond geopolitical boundaries on key themes, issues, and business opportunities.”

Some caution that there are challenges presented by the rapid rise and commercialization of African cultural industries. Nollywood’s roots in the Yoruba people’s traveling theater tradition, with rapid recording and distribution networks, may become consigned to history as the local film industry transforms. Some African artists have also rejected the ubiquitous term “Afrobeats”—they argue it is a catchall term for an incredibly broad and diverse set of musical genres. Burna Boy, the first African artist to sell out a US stadium, said, “it’s not fair to just join everybody . . . It’s almost like joining hip-hop, R&B, and dancehall into one thing and [calling] it ‘Ameribeats.’ It doesn’t do justice to what’s really going on.”

African governments, international partners, and investors can all play a critical role in further unlocking the potential and impact of the continent’s creative industries. However, they must ensure that African artists and entrepreneurs retain ownership and creative control amid increasing international engagement and investment. Whether that is successfully done will determine whether Africa’s cultural economies benefit from the hard work of the artists and whether creative industries across the continent can build a new, better-informed international appreciation for Africa’s economic and cultural power.

Tom Bonsundy-O’Bryan is a 2023 Millennium fellow at the Atlantic Council and Meta’s head of misinformation policy for Europe, Middle East, and Africa.

Josefina Bonsundy-O’Bryan is a Women in Africa laureate, La Caixa Foundation fellow, and lawyer at Withersworldwide.

Sign up below to stay informed on future Africa Center events

The post It’s time to invest in the African creatives shaping global trends appeared first on Atlantic Council.

The post Lipsky featured in Mercatus Center podcast on tools of financial statecraft appeared first on Atlantic Council.

The post Cryptocurrency Regulation Tracker cited by Axios on global crypto regulation appeared first on Atlantic Council.

The post Cryptocurrency Regulation Tracker cited by Politico on crypto relevance in US election appeared first on Atlantic Council.

The higher demand for critical minerals is expected to cause a significant expansion in the extraction and production of an array of mineral resources. For example, the World Economic Forum projects that the production of minerals including graphite, cobalt, and lithium could increase by nearly 500 percent by 2050 to meet the growing demand for clean-energy technologies. Estimated to hold approximately 30 percent of the volume of critical-mineral reserves, the African continent is situated at the very center of the energy transition.

A considerable amount of minerals—for example, 25 percent of tin and 26 percent of tantalum production—is sourced by artisanal and small-scale mining (ASM): low-tech, labor-intensive mining operations in which workers (largely unskilled labor) use rudimentary tools and techniques to access mineral ore. ASM is an important source of rural employment in Sub-Saharan Africa, with an estimated ten million people in the region working as artisanal and small-scale miners—sourcing critical minerals but also other minerals such as gold. These workers are often driven to the sector by poverty. At least sixty million other individuals facilitate these informal supply chains.

However, many of these artisanal and small-scale miners work informally and face harsh conditions. Before critical-mineral production ramps up even further, African communities, stakeholders, and governments must take steps to formalize these workers—and the international community, including the United States, should help.

What is the problem?

In contrast with ASM, large-scale mining (LSM) is industrial and long-term, utilizing heavy machinery to extract resources. Furthermore, LSM has more geological information available to it and better access to capital and finance. Most importantly, LSM generally operates within the rules of law and adheres to international standards and regulations. It is accompanied by many challenges, however, including causing ecological and habitat damage; polluting the water, air, and soil; and threatening human health. Even where mining operations are conducted legally and formally, they still pose significant environmental and socioeconomic problems.

Although vastly different types of mining, ASM and LSM often take place in overlapping spaces, with ASM operations appearing on the periphery of larger industrial sites. Artisanal miners frequently live and work in areas earmarked for large-scale mining projects, blurring the line between the two. This is exemplified by the presence of illicit or licit networks of middlemen who transport ore from ASM sites to LSM companies and processing facilities. Middlemen often aggregate minerals from various sources, including both ASM and LSM operations, making it especially difficult to trace the origin of the minerals. The fragmented and opaque nature of the mineral supply chain complicates the traceability of products from upstream suppliers to downstream companies.  

There are many challenges associated with artisanal mining. At least 90 percent of artisanal miners work informally, without the necessary licenses or permits required by law. Securing permits improves miners’ access to services they are unable to access in the informal economy—such as microfinance credit, grants, and government loan facilities, which, in turn, place the miners in a better position to accumulate wealth. In many cases, ASM activities are found in regions that are out of reach of regulators, where the institutional presence of the government is weak. By operating outside of state recognition, it becomes impossible for the government to establish and enforce health and safety standards and regulations.

With informal mining operations flying under the radar of the government, either by the design of mining site owners or willful ignorance on the part of the government, workers are routinely exposed to poor labor conditions and dangerous situations. Artisanal miners often work without proper tools and protective gear in unsupported and poorly ventilated underground shafts where, as Amnesty International points out, temperatures can be extremely high. Exposure to the dust and mineral waste generated from these mines can lead to potentially fatal diseases and health conditions, and the dust and waste also contributes to pollution and environmental degradation in the area surrounding the mine.

Across the African continent, artisanal mining has been linked to human-rights violations, forced labor, crime, and conflict. These issues, compounded with artisanal miners’ lack of legal rights, exacerbates their vulnerability and the cycles of poverty and exploitation they face.

More at stake

The problems in ASM often present a significant barrier to sustainable foreign investment in African critical minerals. The aforementioned problems in the artisanal sector have made Western business interests hesitant to invest in Africa’s critical minerals. Poor labor practices and human rights violations associated with ASM could expose global companies to reputational and regulatory risks. These concerns—combined with pressure from non-governmental and human-rights organizations—make investment in ASM a complicated and risky proposition.

This barrier is present in artisanal cobalt mining in the Democratic Republic of the Congo (DRC). Cobalt is a critical component of many lithium-ion batteries, including ones used to power electric vehicles, produce components for wind and solar energy technologies, and power portable electronic devices such as smartphones. The DRC accounts for more than 74 percent of global cobalt mining, and 20 to 30 percent of that is via ASM.

In some regions of the DRC, artisanal miners are exploited by armed groups that seek to control mining areas and siphon revenue to finance their operations, purchase weapons, and sustain conflicts. Militias have abducted and trafficked children to extract cobalt as well as copper, in a bid to fund their groups. In addition, some ASM cobalt operations employ children. It was once estimated that forty thousand children were mining for cobalt, working in life-threatening conditions and exposed to violence, extortion, and intimidation.

Such problems associated with informality, including the absence of regulatory standards and the occurrence of human-rights violations, make it difficult for potential investors to justify long-term investments. Without clear, enforceable laws, investors face a high-risk business environment and unpredictable changes in mining policies, which undermine investor confidence.

In addition to posing these immediate risks to artisanal miners and their communities, informal mining exacerbates economic and market instability on a macroeconomic level. Informal miners typically earn a meager and unstable income, which is subject to fluctuation based on the market prices and demand for cobalt. Miners’ economic instability translates into broader economic uncertainty for the sector and limits opportunities for community development. The presence of such substantial unregulated economic activity leads to significant tax revenue losses for the government, because these transactions primarily occur outside of official channels. This undermines the state’s capacity to invest money in necessary social programs, build infrastructure, and quell violence in other regions of the DRC. In spite of these challenging economic implications, African governments might resist formalization efforts, unwilling to disrupt the vital role ASM plays in the livelihoods of many individuals and communities across Africa.

While artisanal cobalt mining in the DRC provides a case study, some of these issues associated with informality are also prevalent in the mining of critical minerals in other African nations, such as lithium production in Zimbabwe and Namibia. Across the continent, the volatility of ASM creates a less attractive investment environment, given that investors seek dependable production to ensure stable supply chains and therefore profitability.

What might formalization look like?

Despite the complications associated with the informal production of many critical minerals, the solution is not to disengage from ASM; it employs 90 percent of the mining workforce. Rather, the solution lies in formalizing and legalizing ASM, which will help mitigate the risks inherent to these mining operations while fostering a more regulated and stable environment for international investment in Africa’s critical minerals.

Integrating the ASM sector into the formal economy would help improve local security, stabilize incomes, and ensure that safer and more environmentally sustainable practices are implemented. It would also help create national regulations and international standards, pressuring the ASM sector to improve practices to become compliant.

Formalization means that miners are registered with proper mining titles. Even in some countries where ASM is recognized by law, governments have not made it possible for miners to obtain the necessary permits and licenses. But in addition to these permits and licenses, formalization also includes—according to the Washington-based nonprofit Pact—efforts by the mining industry to enact chain of custody and supply chain transparency measures; health, safety, and environmental protections; security and human-rights protections; measures that improve access to finance; and requirements to use proper mining techniques. In addition, formalization includes sound industry policies, procedures, and due diligence systems, which should be in place throughout the life cycle of a mine. These components of formalization create a framework within which artisanal miners can operate safely and legally, contributing positively to community-wide and country-wide development goals and global supply chains.

Given the complexity of the informal economy, there is no simple, one-size-fits-all approach to formalization. We can, however, look for strategies that have been effective in other countries or industries and use them to guide the approach towards formalizing ASM. For example, Rwanda’s 2010 Land Tenure Reform Programme initiated a systematic registration effort to promote land access and address tenure insecurity. This program registered over ten million land parcels in less than five years and enabled landowners to use their property as collateral for loans, facilitating access to credit. The program has been widely regarded as successful in integrating the informal economy, particularly due to its simple registration process and involvement of community members and stakeholders in the reform. Transitioning ASM to the formal economy must also use an integrated whole-of-society approach, centering African communities, stakeholders, and governments. This might mean starting small at a grassroots level by engaging local communities in social dialogue, allowing informal miners to express their views and defend their interests. Their inclusion at an early stage of the formalization process will ensure that policies address informality efficiently and enhance the effectiveness of such measures.

There have been some efforts in recent years to support the formalization of ASM workers and improve social and environmental practices in the sector. For example, as the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) explains, international Fairtrade and Fairmined standards set minimum standards for responsible mining, which support formalization. Furthermore, chain of custody initiatives trace supply chains from mine to market to ensure that supply chains are not associated with any conflicts or human rights abuses and that they meet international regulations. These are certainly steps in the right direction but, as the IGF explains, there are concerns about the long-term sustainability of these initiatives and whether they are reaching the most marginalized communities.

Formalization is a very complex but necessary process that can improve the lives of miners and address issues in the critical-mineral supply chain—and therefore attract more sustainable investment to the sector, contributing to the broader development goals of African countries.

How the international community can help

As mineral extraction in Africa is only expected to increase in the foreseeable future, it would be strategically unwise for the international community, and in particular the United States, to sit idly by on the issue of formalizing artisanal mining.

Going forward, the United States can focus on capacity building and simplifying trade processes and market access to help formalize artisanal mining in Africa, which could lead to increased global investment in critical minerals. To build the foundation for policies and programs that provide legal protection for ASM miners, the United States could fund and support training programs for artisanal miners, local authorities, and government officials on sustainable mining practices, health and safety standards, regulatory compliance, and business skills. By strengthening local and national institutions responsible for overseeing the ASM sector, governments would be better able to enforce regulations, protect the rights of artisanal miners, and formalize the sector.

The United States could also work with African governments and international organizations—such as the African Union and the United Nations Conference on Trade and Development—to simplify trade procedures, enabling miners to participate legally and more fully in global supply chains. In December 2022, the United States signed a memorandum of understanding with the DRC and Zambia to develop a productive electric-battery supply chain—from the extraction of minerals to the assembly line. The agreement also serves as a commitment to respect international standards and to prevent, detect, and fight corruption and build a sustainable industry in Africa that benefits workers and local communities, as well as the US private sector. At this time, it is more political than actionable, although it creates a framework for future negotiations and strengthened partnerships. Deepening ties with African nations and collaborating with international organizations can help leverage the resources, expertise, and global networks to ensure a more conducive environment for investment and sustainable growth. Increasing institutional capacity would also allow governments to strengthen tenure security and clarify property rights for ASM, particularly reducing the incidence of ASM-LSM conflict.

The creation of more legal channels for miners to sell their products could enhance supply chain transparency and promote more sustainable market practices. Implementing an international certification mechanism, similar to the Kimberley Process Certification Scheme (KPCS), offers the ASM sector an opportunity for empowerment and a pathway towards legitimacy. Originally established to remove conflict diamonds from the global supply chain, the KPCS mandates that member countries adhere to strict certification requirements, import and export controls, regular audits, and controlled trade. The principles of the Kimberly Process might be adapted to the extraction of critical minerals so as to increase the security of artisanal miners and their access to legal markets.

Not only would these policy actions benefit African countries in the context of the critical-minerals boom and improve the livelihoods of miners, but they would allow the United States to strengthen its economic and strategic partnerships with African countries. As critical minerals will continue to advance the clean-energy transition, decisive action is essential to make the future of mining a pathway for inclusive, sustainable development for the countries that supply minerals to the world.

Sarah Way is a graduate of the University of Colorado Boulder’s International Affairs Program with a specialization in Africa and the Middle East. Her research centers on the intersection of natural resources and development, with a specific focus on extractive minerals in Africa.

The post Integrating artisanal mining into the formal economy would benefit African miners and economies alike appeared first on Atlantic Council.

On July 1, IPSI’s recent public event and issue brief on production diplomacy in the Indo-Pacific were quoted in an Aviation Week article. On July 10, this work was also featured in a Janes report focusing on defense industrial resilience through production diplomacy.

Staff

Markus Garlauskas

Director

Indo-Pacific Security Initiative Scowcroft Center for Strategy and Security

Crisis Management Indo-Pacific

Fellow

John T. Watts

Nonresident Senior Fellow

Forward Defense Scowcroft Center for Strategy and Security

Conflict Crisis Management

Fellow

Andrew Brown

Nonresident Fellow

Indo-Pacific Security Initiative Scowcroft Center for Strategy and Security

Indo-Pacific Intelligence

The post Indo-Pacific production diplomacy event and report quoted by Aviation Week and Janes appeared first on Atlantic Council.

On July 9, Andrew Michta, director and senior fellow in the Scowcroft Strategy Initiative, was published in Politico, RealClearWorld, and RealClearDefense on why the United States must change its thinking about the international system, which would allow policymakers to think more deeply about the “vision of victory” for the global “system-transforming war that’s been all but declared by the newly formed  ‘axis of dictatorships.’” He emphasized that, if the United States and its democratic allies would like to preserve peace, a cultural change is critical to reorganize economic activity and mobilize resources for the future.

Staff

Andrew A. Michta

Director and Senior Fellow, Scowcroft Strategy Initiative

Scowcroft Center for Strategy and Security Scowcroft Strategy Initiative

Central Europe Eastern Europe

The post Michta in Politico, RealClearWorld, and RealClearDefense on why US policymakers should reconceptualize their understanding of the international order appeared first on Atlantic Council.

Read up on the events shaping the democratic world order.

Reshaping the order

This month’s topline events

Tensions mount within the Israeli government as conflict grinds on. As June ended, Israel and Hamas still had not agreed on a cease-fire, despite hopes earlier in the month that both sides would sign onto a previously floated three-phase plan. Although the United States assured that Israel accepted, it is unclear whether Israel declined the latest three phase. Yet Hamas requested some unworkable changes after all the parties alleged acceptance. Even as the two sides haggled over cease-fire terms, Israeli military operations in Gaza slowed due to operational tempo, but there remained an increase in intensity in the continued tit-for-tat exchanges between Israel and Iran-backed Hezbollah, driving global concern over a potential war between them that could evolve into a broader regional conflict. Netanyahu dissolved his war cabinet, the unit established to bring a unified approach to Israel’s fight against Hamas. The decision came following the resignation of former military chief Benny Gantz from the cabinet. Gantz resigned amidst protests over the continued lack of a strategic plan to defeat Hamas. Illustrating further divisions within the Israeli government over war aims, the Israeli army’s chief spokesman publicly questioned the government’s articulated goal of destroying Hamas, noting, “Hamas is an idea, Hamas is a party. It’s rooted in the hearts of the people—whoever thinks we can eliminate Hamas is wrong.” Tens of thousands of Israeli people protested in Tel Aviv to demand a cease-fire and the return of hostages.

• Shaping the order. Tensions within the Israeli government, between Netanyahu and his military leadership, came to a head as the two sides seemed at odds over end goals for Israel’s military operations. There remains limited consensus on the way forward. In February, Netanyahu presented a post-war plan aiming for local officials to govern Gaza, with Israel preparing to test the experimental model with “humanitarian bubbles.” Allies have collectively strategized various pathways and there remains widespread skepticism of the plan. Yet the Israeli government continues to struggle to advance a post-conflict plan and receive sufficient buy-in from the United States, Arab states, and others, which remains a key priority for regional stability and US interests.
• What to do. The Biden administration should continue to work with allies in Doha and Cairo to pursue a path to a temporary cease-fire and hostage-for-Palestinian-prisoners deal—that would also enable a flood of humanitarian relief in Gaza—despite the low probability of success.

The United States and its allies step up support for Ukraine. The United States expanded its policy to allow Ukraine to use US-provided weapons to strike “anywhere that Russian forces are coming across the border from the Russian side to the Ukrainian side to try to take additional Ukrainian territory,” according to US National Security Advisor Jake Sullivan. This builds on its May decision to allow Ukraine to use US-provided weapons to strike a limited set of targets, largely across the border from Kharkiv.

The Biden administration, following the G7 meeting in Italy, announced it would rush the delivery of air-defense interceptors to Ukraine by delaying the delivery of them to most other nations. The G7 also agreed to use interest on immobilized Russian sovereign assets to collateralize a fifty-billion-dollar loan to Ukraine. The United States added new and strong US sanctions against Russia and finalized a US-Ukraine ten-year memorandum of understanding on security cooperation.

As US munitions began to reach the front lines in Ukraine, the Russian offensive against Kharkiv lost momentum. Although Russian attacks on Ukrainian energy generation did considerable damage (taking down almost half of Ukrainian electric generation), the US decision to rush delivery of air-defense interceptors may help further mitigate such attacks, as will Romania’s decision to send to Ukraine one of its Patriot batteries. Meanwhile, Ukrainian attacks on Russian military infrastructure in Crimea were taking an increasing toll, and Russian President Vladimir Putin visited North Korea to shore up his relationship with dictator Kim Jong Un and ensure Pyongyang continues providing munitions and arms to Moscow for the war in Ukraine.

On the diplomatic front, Russia escalated its demands for a cease-fire in an unrealistic fashion, insisting that Ukraine must first abandon territory it currently holds in the four provinces partly occupied by Russia, land that Russia has been unable to take by force. Days after that, from June 15 to 16, ninety-three countries attended a peace conference in Switzerland to discuss Ukrainian terms (its ten-point plan) for a settlement and seventy-eight countries signed a document that called for the restoration of Ukraine’s territorial integrity, a key Ukrainian point (more countries have signed on since). China did not attend, however, and some key countries in the Global South such as South Africa, India, Brazil, and Mexico did not sign the conference document.

• Shaping the order. The Biden administration’s decision to allow Ukraine to use US-provided weapons to strike inside Russia, beyond initial restrictions on targets near Kharkiv, is a significant, positive step in Western support for Ukraine. Using frozen Russian assets to collateralize a loan for Ukraine is another positive step, but the United States and its allies may find they need to go further, using said assets themselves rather than continuing to use their own funds exclusively.
• Hitting home. Some US experts argue that Ukraine is a strategic liability and that US focus there diverts resources better used in the Indo-Pacific. Russian victory in the war, which is likely to result from a US withdrawal, would cause cascading security problems in Europe that would draw on even more US resources.
• What to do. The United States and its allies must marshal continued military assistance for Ukraine, including air defense and weapons that support Kyiv’s attacks on Russian military targets in occupied Ukraine, especially Crimea. The United States has the means to intensify pressure on the Russian economy and should use such tools. Washington should consider enforcing sanctions to hit smugglers of technology subcomponents utilized for Russian weapons and evaders of the oil price cap (the latter missing from the otherwise strong June 12 US sanctions package). A successful Ukrainian land offensive may not be possible in the near term. 

The center holds, but the right makes gains, in European Parliament elections. Across the EU’s twenty-seven member states, voters cast ballots to select their representatives to the European parliament. The election saw gains for the center-right and right, but it was a disappointing showing for French President Emmanuel Macron’s centrist Renew party. The European People’s Party, the European Conservatives and Reformists Group (of Italian Prime Minister Giorgia Meloni), and Identity and Democracy—the hard right—were the main beneficiaries of the elections. These results were overshadowed by Macron calling for a snap parliamentary election after his party’s incredibly poor performance in the European Parliament election (garnering less than half the votes of their far-right rivals, the National Rally): The snap election resulted in the left-wing New Popular Front on top, Macron’s  centrist alliance placed second, and  Marine Le Pen’s far-right National Rally, which finished third. Yet, the right did not do well in Scandinavia, Spain, and Romania, and had only a modest uptick in Poland, where the ruling Civic Platform came in first place. The parties in Germany’s ruling coalition—the Social Democrats, the Free Democrats, and the Greens—all lost ground in Germany, but the center-right alliance between the Christian Democratic Union and the Christian Social Union did well.

• Shaping the order. Snap elections in France overshadowed the fact that the center mostly held its ground in the EU elections. The far right’s marginal gains will matter, however, if said forces can unite and if center-right parties are willing to engage with the far-right. Even so, the incoming parliament is likely to be more fragmented and polarized than its predecessor. And the French elections, the first round having wrapped, are pointing to a major defeat for Macron and a surge of the right, which is both nationalist and wary about the extent of French support to Ukraine.
• Hitting home. Even though the center largely held in the European Parliament elections, the increased fragmentation will likely mean less clarity on policy issues that impact US companies.
• What to do. The United States should constructively engage the European Parliament, encouraging it to hold firm to its moderate stances and not bend to the far right’s proposals.

Quote of the Month

“The votes cast put the far-right forces at almost 40 percent and the extremes [on the right and left] at almost 50 percent. This is a political fact that cannot be ignored.“
—French President Emmanuel Macron, speaking after the European Parliament elections.

State of the Order this month: Unchanged

Assessing the five core pillars of the democratic world order

Democracy ()

• On June 30, the far-right National Rally won in the first round of the parliamentary elections, although it’s unclear whether they will get a majority with the second-round vote upcoming on July 7. Many French citizens have been protesting against the National Rally out of concern for women’s rights and minority rights, where thousands of women marched in dozens of French cities, including Paris, to protest against Marine Le Pen’s far-right National Rally.
• Mexico elected Claudia Sheinbaum, its first female president, in the country’s largest election in history with 98 million registered voters. As Mexico City’s former mayor and the favored successor of outgoing President Andrés Manuel López Obrador, Sheinbaum was favored to win. Promising to continue López Obrador’s policies, she believes the government has a strong responsibility to address economic inequality and establish robust social security.
• On balance, the democracy pillar was unchanged.

Security ()

• Chinese forces seized Philippine small boats that were attempting to resupply a Philippine military outpost at Second Thomas Shoal. Multiple Philippine vessels were damaged, and sailors were injured in the incident. One US official called China’s actions “deeply destabilizing.”
• Houthi rebels launched an aerial drone, striking and damaging the Transworld Navigator in the Red Sea, one of more than sixty attacks targeting specific vessels. The attack comes after United States recalled its USS Dwight D. Eisenhower after an eight-month deployment. Shipping in the corridor—crucial for connecting Europe, the Middle East, and Asia—has slowed significantly. The Houthis said they would continue the attacks as long as the Israel-Hamas war continues.
• On balance, the democracy pillar was unchanged.

Trade ()

• Amid the European Commission’s anti-subsidy investigations into electric vehicles (EVs) coming from China , the European Union announced additional tariffs on  imported Chinese EVs. The tariffs range from 17.4 to 38.1 percent—and that’s on top of the 10 percent duty already in place. As a result, Chinese car companies may consider raising prices or establishing factories in Europe, as the continent recently became China’s largest EV export market.
• On balance, the democracy pillar was unchanged.

Commons (↓)

• The United Nations conducted a worldwide poll that revealed 80 percent of people want governments to take more action on addressing climate change. The survey noted majority support for stronger climate action in twenty of the world’s biggest greenhouse gas emitters and majority support globally a quicker transition away from fossil fuels. Despite the increasing state of global conflict and rise of nationalism, the desire to set aside geopolitical differences and work together on climate change is expanding.
• Record-breaking heat, fueled by climate change, affected millions around the globe, scorching four continents and surpassing last summer as the warmest in two thousand years. There were more than forty thousand suspected heat stroke cases in India between March 1 and June 18, and in Saudi Arabia, over one thousand people died participating in the Hajj pilgrimage amid soaring temperatures. Devastating forest fires spread in Europe and northern Africa, and a heat dome trapped large regions of the United States, preventing cool air from getting in.
• On balance, the commons pillar was weakened.

Alliances (↑)

• For the first time in twenty-four years, Russian President Vladimir Putin and dictator Kim Jong Un met in North Korea, reinforcing their commitment to cooperate and protect each other’s interests. As part of the meeting, they signed a mutual military-assistance treaty, with Putin announcing that Russia could provide weapons to North Korea—with potentially destabilizing effects for the democratic world order.
• The leaders of the G7 convened in Apulia, Italy, for the 2024 G7 Summit to discuss supporting Ukraine, pushing back on unfair economic practices, combating climate change, addressing food and health insecurity, leveraging critical technologies, and partnering with like-minded countries around the globe.
• On balance, the alliances pillar was strengthened.

Strengthened (↑)________Unchanged ()________Weakened (↓)

What is the democratic world order? Also known as the liberal order, the rules-based order, or simply the free world, the democratic world order encompasses the rules, norms, alliances, and institutions created and supported by leading democracies over the past seven decades to foster security, democracy, prosperity, and a healthy planet.

This month’s top reads

Three must-read commentaries on the democratic order

• Michael Doyle, in Foreign Affairs, argues that democratic peace is back in vogue and great powers can prevent the tensions between democracies and autocracies from escalating into full-blown global cold war.
• Robert C. O’Brien, in Foreign Affairs, outlines a Trump administration foreign policy centered on the return of peace through strength.
• Célia Belin and Mathieu Droin explore in Foreign Policy what a far-right victory would mean for French foreign policy.

Action and analysis by the Atlantic Council

Our experts weight in on this month’s events

• Niva Yau, in an  Atlantic Council report, shows how China is training future authoritarians overseas in order to secure its interests in Global South countries and beyond.
• Matthew Kroenig and Dan Negrea, in Foreign Policy, explain that the United States’ competition with China should be focused on weakening and defeating the Chinese Communist Party regime.
• Daniel Fried, in the New Atlanticist, offers seven ways to reboot G7 sanctions on Russia, stating that United States and its allies must commit to dedicating resources to identifying targets for taking economic steps against Russia.
• Andrew Michta, in a piece for the German Council on Foreign Relations, contends that Germany must commit to significantly expanding its defense industrial base so that it will be well positioned to establish strong cooperation with whichever candidate wins the next US presidential election.

__________________________________________________

The Democratic Order Initiative is an Atlantic Council initiative aimed at reenergizing American global leadership and strengthening cooperation among the world’s democracies in support of a rules-based democratic order. Sign on to the Council’s Declaration of Principles for Freedom, Prosperity, and Peace by clicking here.

Patrick Quirk – Nonresident Senior Fellow
Dan Fried – Distinguished Fellow
Ginger Matchett – Project Assistant

If you would like to be added to our email list for future publications and events, or to learn more about the Democratic Order Initiative, please email pquirk@atlanticcouncil.org.

The post State of the Order: In June, the world’s alliances strengthened—but concerning risks for the democratic order remain appeared first on Atlantic Council.

The post Donovan and Nikoladze cited by Washington Post on sanctions evasion appeared first on Atlantic Council.

On July 8, GCH/IPSI nonresident fellow Parker Novak was quoted in a VOA article about China’s growing diplomatic ties with the Solomon Islands and Vanuatu. He highlighted the precarious economic situation in the Solomon Islands and discussed Prime Minister Jeremiah Manele’s efforts to secure economic benefits from Beijing.  

Fellow

Parker Novak

Nonresident Fellow

Global China Hub Indo-Pacific Security Initiative

Australia Democratic Transitions

The post Novak quoted in VOA on China’s ties with Pacific Island states appeared first on Atlantic Council.

The post Bauerle Danzman cited in Nikkei Asia on CFIUS real estate rule appeared first on Atlantic Council.

This surge in defense spending follows Russia’s full-scale invasion of Ukraine in February 2022. The war in Ukraine has prompted an unprecedented 18 percent increase in defense spending this year among NATO allies across Europe and Canada. In total, NATO countries now meet the 2 percent target, together spending 2.71 percent of their GDP on defense. This creates positive momentum and success to build on for the Washington summit, which is expected to highlight the Alliance’s collective strength and focus on deeper integration with Ukraine. 

Poland stands out as the biggest spender, allocating 4.12 percent of its GDP to defense. Sweden has also increased its defense spending dramatically since the 2022 Russian invasion of Ukraine. The Washington summit will witness Sweden’s first participation in a NATO summit as an official NATO member, following its accession in March.  

As NATO celebrates its seventy-fifth anniversary, the large increase in defense spending can help renew the Alliance’s unity and strength to continue supporting Ukraine and be prepared for the future. 

Clara Falkenek is an intern with the GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Who’s at 2 percent? Look how NATO allies have increased their defense spending since Russia’s invasion of Ukraine. appeared first on Atlantic Council.

One of the IMF’s tasks is indeed to deflect some of the political blame from a government that has committed to fiscal adjustment measures and faces public opposition. Even after the bill was withdrawn, however, public anger has yet to subside, fueled by killings of demonstrators and accusations of corruption and misuse of public money.

The truth is, of course, that Kenya’s decline into fiscal trouble has been entirely predictable, led by the ambitions of past leaders who followed the path of easy money. Especially during the mid-2010s, under President Uhuru Kenyatta, Kenya was looking for ways to leverage its “frontier market” status into higher growth via debt-financed investments and infrastructure projects. As a result, within a decade, Kenya’s public debt ratio almost doubled from 41 percent of gross domestic product (GDP) in 2014 to a projected 78 percent of GDP in 2024.

One prominent creditor has been China’s Export-Import Bank, which provided Kenya with $3.2 billion to build a Standard Gauge Railway (SGR) between Nairobi and the port of Mombasa—a project that has been criticized because of its weak governance and high cost but, according to recent reports, will be extended to Kenya’s western border with Uganda.

Although public investment does have an important role in raising a country’s economic fortunes, Kenyans are still waiting to see the social returns of the debt-financed investment spree. GDP growth has hovered around 5 percent since the mid-2000s, real GDP per capita has stagnated in recent years, and the poverty rate (at just below 40 percent) remains above pre-COVID-19 levels. It is no wonder that the fiscal belt-tightening now required to arrest a further run-up of public debt has met with resistance, amid legitimate questions about who benefited from the loans that ordinary Kenyans now have to repay.

Ruto, in office since 2022, carries his share of responsibility for the fiscal sins of the past, having been vice president in the previous administration and a proponent of the Chinese railway loan. His government is also dealing with droughts and the aftermath of the COVID-19 crisis, which hit Kenya and other frontier markets particularly hard, including through spillover effects from global inflation and higher interest rates. Being caught out in a weak fiscal position and facing eventual default, Kenya turned to the IMF in 2021 to help stabilize its finances, including a “multi-year fiscal consolidation effort centered on raising tax revenues and tightly controlling spending.”

The government did reasonably well under this program, which originally foresaw a steady pace of fiscal adjustment (at about 1 percentage point of GDP per year over five years) and allowed for measures to absorb its social impact. Both the primary fiscal deficit and the trade balance improved, and the shilling unwound much of its decline vis-à-vis the US dollar as Kenya surprised markets by repaying a two-billion-dollar Eurobond last month. Moreover, the program unlocked a considerable amount of concessional multilateral financing, including from the World Bank.

But the country remains in a financial hole from which it will be very difficult to climb out. One problem is that higher interest rates keep adding to Kenya’s debt dynamics, as illustrated by the hefty 10 percent interest rate on a smaller Eurobond that Kenya issued in February to meet its June payment. Therefore, despite an improvement of the primary deficit broadly in line with program targets, Kenya’s public debt is still projected to increase this year.

While the government planned to continue on its programmed adjustment path, the latest package of measures—including tax measures to offset gradual revenue slippages over the years—appears to have been the political straw that broke the camel’s back. So, what are the alternatives available to the government now?

• First, “keep calm and carry on” may be the motto of the day. The government appears to be looking for spending measures to substitute for lost revenues, but this will not be viable in the long term. Expenditure compression has its own distributional (and political) consequences, and the overall fiscal adjustment strategy will need to be balanced across revenue and spending items.
• Second, with interest payments accounting for more than a quarter of total revenue, the Kenyan government may decide to seek a debt restructuring. This is not something the IMF could impose on Kenya, unless it judged that public debt was unsustainable. However, the government went to great lengths in the past to service its debt and retain access to financial markets. It would have been cynical on the part of IMF shareholders, who routinely call for strong ownership from program countries, to force Kenya into an unwanted debt operation—as long as there was still a realistic chance of avoiding it. This now looks less assured, and it may be the only avenue left for the government.
• Third, however, the Export-Import Bank of China is the biggest bilateral lender to Kenya, holding claims worth $6.5 billion, close to two thirds of all bilateral debt. China has a special responsibility to provide debt relief, given the history of corruption and questionable economic value of the SGR project it helped finance. Kenya would have to request a debt treatment under the Group of Twenty (G20) Common Framework, which has recently become more efficient in dealing with problem cases. However, bilateral debt negotiations could still take a long time to resolve, and Kenya would risk being cut off from external financing for a considerable period.

As the government needs to chart a fresh course in this difficult environment, it is also very likely that supporters in the West will call for more money and fewer fiscal adjustment as the solution to Kenya’s problems. The Nairobi-Washington Vision, formulated during Ruto’s state visit to the United States in May, has also called for increased financial support for developing countries. The question is, where should this money come from?

• First, anyone who has looked at a financing needs table of an IMF program (for example, see Table Six here) understands that spending can either be financed by revenues, grants, or borrowing. Since grants don’t carry any interest or repayment burden, they would be ideal for a country in Kenya’s situation. But taxpayers in rich countries have shown less and less inclination to finance development aid, let alone through direct transfers or outright debt relief for poorer countries.
• Second, the IMF and other multilateral institutions have raised funds and mobilized special drawing rights (SDRs) in recent years to subsidize interest rates paid by poorer member countries, and Kenya is already benefiting from this effort. However, there are limits to this approach. Subsidies have to be either financed from donor countries’ budgets (with less and less political support) or they are generated from richer countries’ SDR holdings.
• Third, SDR-based lending works only to a limited extent. SDRs derive their value from their status as foreign exchange reserves and being exchangeable for dollars and other hard currencies held by central banks in wealthy countries. Any overuse or exposure to default risk (for example, from rising public debt in recipient countries) could compromise their reserve-asset status, which would impact both the IMF’s financing model and its capacity to lend to countries in distress.
• Fourth, could the IMF and World Bank provide larger loans? The two institutions regularly review the amounts that countries can access under various conditions. Ceilings have gone up over time, but shareholders (who carry the ultimate risk) generally require that larger loans come with stricter macroeconomic conditionality, an approach that would presumably have triggered a similar outcome for Kenya. Moreover, multilateral loans already account for more than a quarter of Kenya’s public debt. Since these loans cannot be restructured, private creditors might be more hesitant to invest in the country, because any future debt operation might need to be deeper than in similar countries with a smaller share of multilateral debt.

To sum up, Kenya’s predicament is largely homemade, albeit with help from willing external lenders. The COVID-19 crisis exacerbated a lack of fiscal discipline, eventually forcing the country to adopt a stabilization program. While meeting with some initial success, recent events have made it clear that the government’s adjustment strategy needs to change, putting a possible debt operation on the table. The IMF did its best to support an initially credible effort by the government, but it must also ask itself what could have been done to prevent the sharp increase in public debt that is at the heart of Kenya’s problems today.

Martin Mühleisen is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former IMF official with decades-long experience in economic crisis management and financial diplomacy.

The post Kenya’s fiscal troubles are largely homemade. Now the country is running out of options. appeared first on Atlantic Council.

The post CBDC Tracker cited by BeInCrypto on North Carolina CBDC bill appeared first on Atlantic Council.

Instead of focusing on China’s current problems, the Third Plenum of the Chinese Communist Party’s (CCP) Central Committee—so-called because it is the third session of the committee’s five-year term—will prepare China for a confrontation with the United States by building industries powered by massive investments in cutting-edge technologies. This program is aimed at reinforcing the party’s hold on Chinese society and paying obeisance to paramount leader Xi Jinping, whose policy mistakes—ranging from zero-COVID-19 lockdowns to a crackdown on major online companies—have produced economic malaise. It will also underline China’s shift away from its longtime economic strategy of growth for growth’s sake.

Among the policies expected to be announced at the July 15-18 plenum (which was inexplicably delayed from late 2023) will be reforms restructuring tax and fiscal policies, as well as greater coordination of regional economic development. Both are policies that will reinforce the role of the central government in guiding development. There will probably also be declarations of support for China’s beleaguered private sector, which accounts for more than 60 percent of gross domestic product and over 80 percent of urban employment. But Xi and his subordinates have emphasized that the policy pendulum is swinging decidedly toward statist solutions.

This strategy will offer little respite to a population struggling to make ends meet and businesses that have lost the will, or means, to invest. Beijing’s drive for what it calls a “high-level socialist market economy” based on “new quality productive forces” will be powered by Xi’s willingness to see the Chinese people—especially its young people—“eat bitterness” in pursuit of national ideals. Government resources are being directed to research and development and industrial subsidies, not social programs.

It should come as no surprise that as the plenum approaches, the Chinese media has featured renewed calls for “common prosperity,” a Mao Zedong-era egalitarian slogan that Xi returned to prominence during the 2021-2022 crackdown on online conglomerates. While that campaign was subsequently de-emphasized, the party-run People’s Daily on June 24 published a full-page article “solidly promoting common prosperity in high-quality development” (originally reported by the Sinocism blog) and a contribution from the secretary general of the Chinese Academy of Social Sciences advocating for China to “resolutely abandon the erroneous tendency of putting capital first, material first, [and] money first.”

All of this is a far cry from the late leader Deng Xiaoping’s call nearly five decades ago to “let some people get rich first.” It is also a clear shift from the landmark directives of previous Third Plenums that heralded market-oriented economic policies. Deng’s turn away from Maoist “class struggle” and toward modernization came at the 1978 Third Plenum. His endorsement of China’s full-fledged opening to the global economy was the theme of the 1993 meeting. And even Xi’s first Third Plenum in 2013 called for more than three hundred market-related reforms (most of which were never implemented).

Since then, however, the ideological tide has turned. The 2018 plenum rubber-stamped the elimination of term limits for CCP general secretaries, allowing Xi to hold power indefinitely and heralding a marked change in policy direction. Recent CCP speeches and articles have featured a word salad of Marxist-Leninist jargon justifying new statist policies and endlessly praising Xi, but the propaganda boils down to greater government control over the economy.

Beijing justifies this policy shift as necessary because of national security concerns, or what the State Council, in announcing the plenum, called “the increasingly fierce international competition” with the United States and its allies as they tighten controls on the flow of technology and capital to China. As a result, Beijing is prioritizing “high-level technological self-reliance,” by investing tens of billions of dollars in research into advanced semiconductors, quantum computing, new types of renewable energy, and many other areas. This high-octane industrial policy has the government supporting state-owned enterprises and picking winners among private companies to achieve rapid growth in “a single-minded pursuit of technological progress,” as Arthur Kroeber wrote in a recent Brookings Institution paper.

Chinese officials certainly pay lip service to addressing the current economic difficulties, and the plenum likely will trumpet its intention to deal with the property crisis and depressed business confidence. But while Beijing has spoken for months about a “new model” of real estate and the need to expand domestic demand, there are few signs of major measures to pursue these goals. Instead, the plenum will push the reform of tax and fiscal policies. This will be aimed at channeling more money to heavily indebted provinces, cities, and counties, whose main source of cash—land sales—has dried up amid the property slump. With the economy struggling and tax revenue falling, Beijing will be hard-pressed to make up the difference, even with more central government resources slated to be shared with local governments. In the end, a newly empowered bureaucracy could end up squeezing the citizenry—especially if, as Xi has envisioned, local authorities are to assume some of the burden of supporting new technologies and industries.

The plenum is also expected to announce measures to reduce restrictions on Chinese citizens’ movement from the countryside to cities, and thus ostensibly offer new opportunities to millions who have not benefited from the country’s growth. But Beijing does not appear to have policies to generate jobs for them. Nor is it taking adequate steps—either social programs or fiscal stimulus to lift consumption—that would assist all those who are feeling the pinch of youth unemployment, lower income, sinking housing prices, corporate downsizing, and a struggling stock market. A highly touted effort to subsidize purchases of new cars and appliances has fallen flat.

China has clearly decided to direct all available resources to next-generation technologies while neglecting to support the vast majority of the population who scrape by outside the tech sector. That suggests Xi will end up with shiny new industries built on a weak economic foundation.

Jeremy Mark is a senior fellow with the Atlantic Council’s GeoEconomics Center. He previously worked for the International Monetary Fund and the Asian Wall Street Journal. Follow him on X: @JedMark888.

The post What to expect at the Chinese Communist Party’s most important meeting of the year appeared first on Atlantic Council.

This week, three of the Western world’s most significant leaders are suffering from self-inflicted wounds that are likely to have long-term political and economic consequences.

They are US President Joe Biden, French President Emmanuel Macron, and outgoing British Prime Minister Rishi Sunak, and this is no small story as their countries are all nuclear powers that represent the world’s first-, sixth-, and seventh-largest economies.

What I mean by self-inflicted is that Macron took a gamble on staging snap parliamentary elections, whose second and final round is on Sunday, in hopes of getting a fresh mandate after his party’s humiliating drubbing in European Parliament elections. He’ll pay a price with, at best, a hung parliament. At worst, he will enter into what the French call “cohabitation” with a far-right prime minister.

Sunak had until the end of the year to call elections in the United Kingdom, but picked July 4. He and his party have now been ousted, ending fourteen years of Conservative rule that has brought Brexit, historically low productivity gains, and growth levels below the European Union (EU) average.

Some Biden allies have been saying quietly since this time last year that he could best cement his legacy by stepping aside and letting a younger candidate take on former President Donald Trump. Instead, Biden has gambled on being able to arrest his own aging process—and then convince voters he has done so—a far more difficult prospect following last week’s debate.

It’s telling that these stories are coming together in a single week, with Western democracies all in anti-incumbent moods, often despite their own economic interests, which is especially the case in France.

Macron’s decision to hold these elections three years earlier than was necessary was based on the convoluted logic that voters would come to their senses and give him a fresh mandate rather than face the prospect of extreme-right rule.

Instead, the far-right National Rally is likely to produce the largest percentage of the vote in the second round of parliamentary voting on Sunday, closely followed by the newly united, left-wing New Popular Front, which includes everyone from center-left socialists to La France Insoumise, led by a former Trotskyite.

This week, more than two hundred candidates dropped out of the second round of French elections as Macron’s camp and the left are coordinating to stop National Rally from winning an absolute majority and thus the right to put in place a prime minister for three years of uncomfortable cohabitation with Macron, whose term doesn’t end until 2027. The most likely outcome on Sunday is a hung parliament, but one with a great deal of far-left and far-right leverage.

That puts at risk seven years of economic progress under Macron, during which France has cut business and wealth taxes, reformed employment and pensions to encourage hiring, and thus created two million new jobs and six million new businesses.

“The market could see both the extreme right and the extreme left promising to reverse cost-saving measures taken by the incumbent government (such as pension reform) without offsetting these with new sources of income,” write Sophia Busch and Charles Lichfield at the Atlantic Council.

This comes at a time when France’s finances are already fragile, with an annual budget deficit above 5 percent of gross domestic product (GDP) and public debt worth some 110 percent of GDP. In June, the European Commission named France as one of seven EU members states in violation of its new fiscal rules. The Paris Olympics starting later this month, with the sparkling new venues and train lines, might be less a celebration than a denouement.

The British Labour Party’s sweeping victory, which left the Conservative Party with its lowest number of seats in Parliament in nearly 200 years, is less an endorsement of Keir Starmer’s leadership than it is a condemnation of fourteen years of Conservative rule. The Economist, hardly a fan of the British left’s proclivity for state intervention, endorsed Labour because “it has the greatest chance of tackling the biggest problem that Britain faces: a chronic and debilitating lack of economic growth.”

Starmer’s biggest success has been to quickly change course from predecessor Jeremy Corbyn’s leftist dogma to make the party electable. However, if he can’t address the country’s stagnant productivity, find new growth through investments and trade, and steer away from his party’s statist instincts, he won’t succeed.

The stakes are highest in the United States for November’s elections, as capital markets continue to shrug off the country’s dysfunctional domestic politics and growing geopolitical risks with yet another record high NASDAQ result this week.

Biden must decide within the next month whether to say in the race, and he’ll have to mull over the choice while his presidential duties carry on. Next week, the seventy-fifth NATO Summit kicks off. He will host heads of state and government from the Alliance’s thirty-one other members in Washington, DC, amid wars in Europe and the Middle East and tensions in Asia. The stakes have seldom been higher.

Frederick Kempe is president and chief executive officer of the Atlantic Council. You can follow him on Twitter: @FredKempe.

This edition is part of Frederick Kempe’s Inflection Points Today newsletter, a column of quick-hit insights on a world in transition. To receive this newsletter throughout the week, sign up here.

The post What do Biden, Macron, and Sunak have in common? They brought it on themselves.  appeared first on Atlantic Council.

• Introduction
• I. The freedom landscape: Authoritarianism on the back foot?
• II. Democracy agenda 2025-2029: Core priorities
• III. A policy framework for advancing democracy
• Conclusion

Introduction

The next president of the United States, whether a Democrat or Republican, will enter office in January 2025 confronted by a world where freedom is under threat. This is a central challenge to the United States because American citizens benefit most when the world is free and open. Supporting democracy must therefore feature in the foreign policy agenda of any administration. How should the presidential campaigns think about this challenge, and what should they do about it once in office? What does the data tell us about the nature of today’s challenges and the most cost-effective ways to address them? 

This paper examines the main challenges to democracy and offers nonpartisan policy solutions to them. It starts by surveying the state of democracy globally and articulates why underwriting the expansion of freedom (understood using the Atlantic Council’s Freedom Index definition) is vital to US interests.¹ The second section outlines priority challenges and opportunities, from the need to supercharge countering China’s malign influence to shoring up the core institutions of democracy in strategically important countries. The paper concludes with a set of recommendations that the president and US Congress can action to address challenges to US interests.²

I. The freedom landscape: authoritarianism on the back foot?

The security of the United States, democratic partners and allies, and humanity’s future depends significantly on the state of democracy worldwide. Yet, over the past seventeen years, if we look at indices like those published by the Atlantic Council’s Freedom and Prosperity Center, authoritarianism has risen globally, while democracy shows alarming decline in regions of importance to the United States. 

After a nearly two-decade recession, democracy is showing promising signs but faces continued headwinds. Many democracies are experiencing legitimacy crises due to a long-standing failure to deliver adequately for their constituents. This core weakness has made them more vulnerable to authoritarians, disruptive information technologies, external malign attacks, and internal demagogues who now use a proven playbook to weaken democratic governance from the inside out. 

Political freedom, in particular, has witnessed a pervasive decline across all regions without exception.³ Africa, often in the spotlight due to dramatic military coups, has experienced the most recent decline, spanning from 2014 to the present. This decline is primarily attributed to mounting pressures from authoritarian regimes on electoral systems and the erosion of legislative controls over executive powers. 

Europe has been grappling with a decline in political freedom since 2012, regressing to levels akin to those observed in 1996. In Latin America and the Caribbean, the decline started in 2003, exacerbated by diminishing political rights and a collapse of civil liberties beginning in 2016. 

The global trajectory of the rule of law has been on a downward trend since 2012, as authoritarians co-opted and undermined institutions. Nearly every region has faced mounting pressure on the rule of law. Notably, the Middle East and North Africa region has witnessed the most significant decline across most indicators, including security and judicial independence, and a rise in corruption. 

These declines not only challenge US interests abroad but also directly impede prosperity and sustainable development. The global turning point of 2012 has directly impacted prosperity levels. Between 1995 and 2012, prosperity exhibited an average annual increase of 0.4 points. From 2012 onward, this progress has significantly slowed, dwindling to 0.1 points per year. 

But all is not bleak. Despite significant odds, Bernardo Arevalo was inaugurated as president in Guatemala. Elections in Taiwan ushered in a decidedly pro-democratic candidate committed to maintaining the island’s independence from China. Political freedoms have also expanded in Zambia following the electoral defeat of President Edgar Lungu. And Senegal, after a series of democratic setbacks, just elected its youngest president, forty-four-year-old Bassirou Diomaye Faye. 

Citizens are also not standing by. Instead, they are mounting broad-based civil resistance movements to demand change, as in Belarus, or to root out endemic corruption, as in Iraq. Since 2017, roughly one hundred significant civil resistance movements have led to substantial reforms or the removal of thirty governments and leaders.⁴ Moreover, the number of new civil resistance movements seeking political transitions has grown over the last three decades. 

1. Freedom abroad is essential to US national security at home

Supporting democracy—particularly in strategic locations—is not an altruistic enterprise. We can and should support freedom fighters and strong political institutions because doing so aligns with American values. But the main reason we promote democracy through a combination of diplomacy, investment, and foreign aid is because it is good for the United States.⁵ The United States is more secure with a world that is free and open. Democracies are more reliable trading partners, less likely to go to war with one another, and less apt to incubate and export transnational crime and terrorism.⁶

By contrast, authoritarians are unpredictable and can generate instability. Some of the least free states produce the most instability.⁷ From the Sahel to the Middle East, weak states characterized by predatory elites governing unresponsive institutions have consistently been breeding grounds for terrorist cells that attack American interests, service members, and allies.

Democracy abroad is also better for US businesses. Autocrats often oversee regulatory regimes that are unfavorable (if not hostile) to US businesses. By contrast, countries with trans-parent regulations and processes are more reliable markets for American companies.⁸ According to the Atlantic Council’s Freedom Index, which ranks countries on a composite score of economic, political, and legal freedom, four of the five top emerging markets for US companies are free (South Korea) or mostly free (Brazil, Mexico, and India).

A foreign policy with democracy support as a key component also positions the United States to compete with China, Russia, and Iran. The Chinese Communist Party (CCP) and Kremlin understand that other countries’ political systems affect their national security and have therefore been widely promoting an authoritarian development and governance model.⁹ The CCP is working to create a world safe for the communist party—one composed of authoritarian regimes—by exporting surveillance technology, autocratic governance practices, and other repression modalities. The CCP provides training to political parties in the Global South to promote authoritarian solutions to governance challenges. To curry favor with local elites and foster an environment favorable to China’s interests, Beijing co-opts journalists and invests in the media sector to shape reporting.¹⁰

The weak regulatory environment and minimal transparency around foreign financing and investments in fragile democracies create conditions for countries to become dependent on China, whether due to unsustainable debt to Chinese state-governed banks or reliance on information communication technologies from Chinese government-linked companies. The consequence of this dependence is an expanding set of countries that will choose China as their primary economic and political partner and side with Beijing against US interests in multilateral institutions.

It is no coincidence that countries that already host—or have reportedly considered welcoming—a Chinese military base on their territory are non-democracies and usually indebted to or otherwise dependent on China. Supporting democratic actors and institutions can help ensure that fewer countries find themselves in situations like Djibouti, Cambodia, and Equatorial Guinea, among others, limiting the number of countries eager to help the People’s Liberation Army expand its global presence.

Russia’s campaigns to undermine free societies also threaten US interests. The Kremlin, while destroying all domestic opposition and independent media, is interfering in elections across the globe and deploying Wagner mercenaries from Syria to the Sahel. Putin’s invasion of Ukraine, if successful, risks incentivizing the Kremlin to attack a NATO ally. A Russian victory could also incentivize China to attack Taiwan.

Beijing and other autocracies are unabashedly trying to create a world safe for autocrats. Authoritarian regimes across the globe are learning from one another and actively cooperating to crush democratic movements at home and rewrite international norms to advance their interests. Their actions present clear, consequential threats to American security interests.

2. Democracy assistance in practice: Tools and proven return on investment

A world made up of a constellation of autocratic regimes is bad for America and good for Xi Jinping and Vladimir Putin. To advance US economic and security interests, American foreign policy must have supporting democratic governance as a central component.

Like deploying warships, employing sanctions, or transferring defensive weapons, using diplomacy and foreign assistance to help allied nations guard themselves against authoritarian incursions are tools the United States uses to advance US national security.¹¹ Democracy assistance can help achieve both security and prosperity. This argument is instrumental, not ideological or normative.

What does American support for democracy look like in practice? It is not nation building or forcing democracy at the tip of a gun, as pundits like to suggest.

Democracy support is assistance the United States provides to protect and strengthen democratic governance abroad. The two main tools are complementary: foreign assistance programs that strengthen the capacity of democratic institutions or actors within and outside government; and US diplomatic engagement that champions local democracy advocates and holds despotic regimes accountable for their actions.¹²

In addition to coordinated diplomacy and development assistance, the United States enforces human rights criteria for export controls; deploys visa restrictions or financial sanctions to punish and change the behavior of kleptocrats and autocrats; restricts military aid based on human rights standards; and offers economic support for allied countries targeted by China, Russia, and other malign actors.

Democracy assistance can help strengthen institutions to make them more effective and accountable; bolster democracy advocates working to hold corrupt leaders accountable; and advance more transparent regulatory regimes, among other benefits. These changes that democracy promotion can help bring about deter malign states from exerting their influence in a target country or, at a minimum, make it more difficult for them to do so. Robust electoral processes defend against interference in elections and help maintain public confidence in democracy. An independent civil society and media help hold leaders accountable and mitigate against external actors corrupting and ultimately co-opting them. Democracy support helps bolster transparency and counter CCP and Kremlin efforts to capture political and economic elites that, if unchecked, can result not only in reduced political accountability but in policy and commercial decisions in line with China’s or Russia’s interests and contrary to those of Washington and US businesses.

Democracy assistance is effective and shows a strong return on investment for US taxpayer money to advance US interests overseas. Studies show that this investment delivers real results. A study of US democracy promotion programs conducted between the critical post-Cold War period of 1990 and 2003 found that democracy assistance had “clear and consistent impacts” on overall democratization, including civil society, judicial and electoral processes, and media independence.¹³ And despite the recent global democratic recession from 2012 to 2022, eight countries that were veering toward autocracy bounced back to democracy in 2023. International democracy support and protection was an important factor in securing these gains.¹⁴

II. Democracy agenda 2025-2029: Core priorities

The next president’s democracy agenda should focus on four priorities, centered on the main threats to US interests and evidence-based approaches to addressing them.

• Shore up countries’ resilience to Chinese and Russian malign influence and co-optation. If the United States wins, China loses.¹⁵ Plain and simple. This confrontation with China and Russia, of course, has a military component but is more fundamentally ideological. We therefore need to center the democracy agenda on ensuring China fails in the battle of ideas and narratives about the superiority of its system. This stream of work should have two core pillars. First, we need to make sure that China cannot co-opt or otherwise influence local politicians to pass policies/laws or agree to opaque deals that together or apart benefit CCP interests at the expense of that country’s citizens and the United States. This involves strengthening institutions and policies in countries the CCP or Kremlin targets to make these states and political systems more resilient to outside aggression. Second, we need to scale up messaging, internationally and to target countries, on why democracy is superior—based on facts—to the authoritarian model on offer from Beijing and Moscow. This stream of work, as with all democracy promotion, should not center on forcing any model on another country.
• Focus US democracy assistance on bolstering the core political and institutional elements of democracy and governance (namely, political parties, legislatures, electoral commissions, and other related ministries) and empowering newly elected, reform-minded leaders to deliver. Strong institutions and political party systems promote resilience to Chinese and Russian malign influence. These institutions are also the best bet for ensuring democracy delivers for citizens. Strong institutions set the playing field for robust competition of policy ideas and offer better return on investment than approaches rooted in a specific social agenda. The United States, in deciding which types of democracy support to focus on, has in recent years drifted too far toward helping grow civil society in target countries so these actors can push elected leaders for specific policy solutions. Absent capable officials and institutions to advocate to, however, such groups will be screaming into a void. The United States, in deciding how to allocate finite resources, needs to focus on shoring up political institutions and political parties (the key link between citizens and their government) first and civil society second.
• Advance a vision for technology advancement grounded in democratic principles and thwart “digital authoritarianism.” Couple this offensive agenda with one that helps partners push back against digital authoritarianism. A proliferation of new technologies has affected nearly every aspect of human existence. The way countries govern is no exception. The United States, first during the Trump administration and to a lesser extent during the Biden White House, worked with other democracies to ensure this proliferation of technologies leads to a “technological ecosystem” globally that is based in “openness, trust and security, and that reinforces democratic principles and human rights.”¹⁶ This vision is in stark contrast to the CCP’s vision for technology, one rooted in censorship and centralized control. The next president needs to further advance this vision for technological use (from rules governing the internet to those shaping the rollout of AI) based on freedom and openness. They also need to forcefully push back against Chinese and Russian attempts to the contrary.
• Revamp how the United States uses diplomacy to advance democracy and recommit to encouraging burden-sharing among allies to support democracy globally. The extant US diplomatic playbook for supporting democracy overseas is shopworn and largely ineffective. Successive administrations resort to the same set of public messages condemning human rights abuses or a fraudulent election, yet with few, if any, consequences attached to these words. The repressive regime targeted by US rhetoric yawns. We need a new template. The same applies for how we use multilateral diplomacy to advance democracy interests. The United States cannot and should not foot the bill for democracy support everywhere. We must ramp up not only coordination with allies—through groupings like the G7—but also agree to a division of labor in select countries.

III. A policy framework for advancing democracy

The sections above establish that expanding freedom is vital to US national security and articulate the four areas our next president should focus on to advance democracy abroad. This section outlines a roadmap for realizing this aim. It includes two sets of recommendations: one centered on changes to the US government bureaucracy necessary to maximize the probability that America can advance democracy overseas; and the second focused on actions to advance the four priorities outlined above.

1. Reforms to the US government

Delivering on priorities requires having the bureaucratic structures in place to carry out policy, develop a strategy to execute said policy, and then deliver the associated goals and objectives through coordinated action overseas. The extant structure of the executive branch has several deficiencies that must be changed to realize the priorities listed above. These recommendations are divided into adjustments necessary to maximize the impact of US democracy promotion efforts specifically and US foreign aid more broadly.

Structural changes specific to democracy promotion

• Prioritize supporting democracy in foreign policy deliberations. The state of democracy directly influences America’s ability to advance key US foreign policy objectives, whether to enable our companies to invest overseas or to prevent the CCP from co-opting strategically important countries. The United States must therefore place democracy protection and promotion on par with—or close to—other factors key decision-makers consider. Democracy promotion will not, and should not, trump many purely security considerations. Nor will prioritizing democracy promotion mean cutting off collaboration or engagement with less democratic states. The United States will need to engage non-democracies to address pressing security challenges, in particular those that imperil US citizens and American territory.
• However, if the United States is to succeed in shoring up democracy to compete with our adversaries, then the American government must actively consider implications for democracy in its foreign policy deliberations. Failing to do so, and blindly prioritizing short-term security gains, will feed the vicious cycle we see globally—from the recent string of coups in the Sahel to people seeking to overthrow governments in the Middle East. This approach has fueled grievances undermining democratic governance and produced instability that hurts our interests, rather than sustainably advance our objectives. At a practical level, this should involve elevating the functional offices and bureaus at the State Department and United States Agency for International Development (USAID) that work on democracy issues to ensure they have an influential seat at the policy decision-making table.
• Draft a US democracy strategy that outlines clear goals and metrics for success. Given how central democracy promotion is to US interests, each administration should be required to develop and deliver to Congress a strategy for doing it effectively. The next president should direct their national security advisor (NSA) to draft a democracy strategy and an executive action that cements this strategy as US policy. The strategy should encompass all relevant agencies and departments, and articulate short- and long-term goals as well as theories of success for realizing these objectives.
• The strategy should include as its stated end goal a world where democracy is the predominant form of governance because this is the model that best delivers for US interests as well as global prosperity and security. The strategy for realizing this overarching goal should convey regional and country-specific priorities and a theory of the case for achieving these priorities. The president should task their deputy national security advisor with overseeing execution of the strategy and holding involved departments and agencies accountable for results. The strategy should have metrics for success to gauge change in target countries as well as changes, internal to the US government, required to be effective. The strategy must affirm that political change in target countries can take years—not months—and structure its components and objectives accordingly.
• The president should formalize the strategy in a national security directive (NSD) because doing so codifies the strategy as US policy and therefore carries with it the expectation that relevant components of the federal government will execute the strategy. Every president since Harry Truman has used NSDs to articulate their policies and vision for achieving them. The Trump administration, for instance, issued eighteen directives while the Obama team issued forty-three. Accountability is the key advantage of codifying policy in a national security directive—federal departments and agencies must deliver on the president’s vision.¹⁷

Structural changes related to US foreign assistance

• Fully empower the US Department of State’s Office of Foreign Assistance to fulfill its mandate of aligning foreign aid with policy goals and maximizing impact. The Office of Foreign Assistance is charged with ensuring foreign aid allocations and spending is aligned with US foreign policy objectives. In practice, however, USAID and other aid-providing departments exercise too much independence and spend funds on priorities tangentially related to American priorities. The secretary of state should empower the Office of Foreign Assistance to fulfill its mission by mandating oversight of planning and allocation back to its director. This will help make sure that aid generally—and democracy assistance in particular—is used to advance specific foreign policy objectives. Some have called to eliminate this office, in the spirit of streamlining the US government bureaucracy to more efficiently advance US national security. Doing so would be counterproductive to that very aim. We need an empowered central body to coordinate and guide spending, in line with policy aims, not more decentralized decision-making on where and how to use US foreign aid monies.
• Instead of prioritizing “localization” of US foreign aid—the policy which mandates sending a predetermined amount of foreign assistance to local organizations—focus on maximizing the impact of democracy assistance to achieve results that advance US national security. Foreign aid benefits American citizens by leading to changes in a recipient country—stronger electoral commission or laws, for example. American citizens do not benefit if a specific amount of aid, say 30 percent, goes to local organizations. The next president should pursue increasing host government “self-reliance,” a key element of the Trump administration’s foreign aid agenda, where feasible—for example, in the areas of health or education—but jettison arbitrary requirements for a specific portion of funding to go to local organizations, and instead focus staff time on crafting foreign assistance interventions that deliver. Said interventions can and should include components to increase the capacity of local entities to execute specific types of work. The interventions should also include direct support to movements or organizations that can—through financial and managerial controls—ensure proper use of taxpayer funds. The United States should call for this as part of program design, provided it helps achieve the government’s goal, instead of using a percentage of aid to local organizations as a goal in and of itself. If the next administration wants to retain some focus on “localization,” the United States could leverage philanthropy to meet its percentage targets. Prominent philanthropic entities can use funds as they see fit, as they are not responsible for delivering to the US taxpayer, and therefore can and should aid organizations directly as they see fit.¹⁸ By contrast, foreign aid is a statecraft tool used to advance American interests. It is not charity.
• To maximize return on investment of taxpayer dollars, reduce the US government’s use of contracts (for profit) to fund democracy assistance work overseas and shift this spending to grants (nonprofit). This is another straightforward step the United States can take to reduce waste and maximize the return on every dollar invested. During the Biden administration, USAID has drastically expanded its use of contracts over grants. The result has been more money going to for-profit firms as a fee, and fewer resources being spent overseas to help realize changes that benefit American citizens. Why should the US taxpayer foot the bill for contractor profits instead of having these monies go to advancing American security and economic interests overseas? Contracts can be a useful vehicle for foreign aid spending in very specific instances—for example, to procure a set number of textbooks or building materials. Ordering and delivering these items is straightforward. However, the rigid and costly nature of contracts makes them ill-purposed for implementing democracy and rights programs in highly complex environments that require adaptation and flexibility. The White House should direct USAID to increase its use of grants/cooperative agreements—created with the explicit purpose of offering flexibility that enables results in highly complex and fluid environments—and scale down monies flowing via for-profit contract mechanisms.

2. Advancing the democracy agenda priorities

With the above bureaucratic and policy recommendations in place, the United States should implement the following steps for each of the four priorities comprising our democracy agenda framework. These recommendations and those above are meant to serve as a broad framework to guide decision-making and transition team ideas and policies and are not meant to represent a comprehensive set of solutions.

Shore up countries’ resilience to Chinese and Russian malign influence and co-optation.

Policy recommendations

• Expand initiatives focused specifically on detecting, preventing, and countering CCP and Kremlin interference. Strong institutions, addressed in priority two below, are an effective source of resilience to foreign malign influence. They are necessary, but unfortunately not sufficient, to guarantee mitigating attempts by Beijing or Moscow to influence political systems of other countries and undermine democracy, and US interests, in the process. The United States must therefore pair institution-strengthening with diplomacy and foreign assistance-supported programming in areas that have proven effective in building democratic resilience to foreign authoritarian influence: (1) supporting independent media that can produce independent reporting on Chinese and Russian influence efforts; (2) people-to-people exchanges where citizens abroad, and in particular those countries in PRC or Kremlin crosshairs, visit the United States to witness first-hand the efficacy of our institutions and benefits of our model; and (3) dialogues between elected officials, from the United States and other nations, to share understanding of foreign influence operations and solutions to address them.
• Ensure the National Endowment for Democracy (NED) is adequately funded to combat or address the plethora of democracy-related challenges. The NED and its four core institutes are the preeminent US democracy assistance organizations. All are nonprofit entities with low overhead budgets that focus resources on addressing threats to democracy—and US interests—rather than turning a profit. The NED is a mission-oriented enterprise with one goal: to defend freedom and spread democracy. These organizations are the logical partners for on-the-ground work because they have long-standing relationships with local partners and individuals, rooted in trust, and can therefore better deliver results. The current NED budget ($315 million) is not sufficient. Congress should increase or at least maintain NED’s budget, so its leadership can expand work specifically on countering China. Congress can offset this increase to NED’s budget with a commensurate decrease in the budget for humanitarian assistance. The next president will need to prioritize spending, and helping our partners gird themselves against Chinese and Russian incursions to their political systems is more important than distributing aid in the wake of a natural disaster.
• Congress should pass new legislation (the “Non-Kinetic Competition Act”) to require the White House to submit multiyear plans outlining the US approach—harnessing all nonmilitary statecraft tools, including foreign aid and diplomacy—to compete with China in select priority countries. Congress, through other legislation, has mandated that the executive branch develop and submit plans for addressing fragility and instability in specified countries. It should do the same for competition with China and Russia. Congress should require that strategies feature support for democracy as a centerpiece.¹⁹

Focus US democracy assistance on bolstering the core political and institutional elements of democracy and governance (namely political parties, legislatures, electoral commissions, and other related ministries) and empowering newly elected, reform-minded leaders to deliver.

Policy recommendations

• In priority countries, assess the state and capacity of political parties, electoral commissions, legislatures, and related institutions, and focus democracy assistance on shoring up gaps. Country teams can assess these needs and advise on how best to use foreign aid to address them. Diplomats can focus their engagement on pushing host government officials to make good on existing—or start new—reform agendas.
• In countries experiencing a democratic opening, surge support to the newly elected and reform-minded leader to ensure they can deliver on campaign promises and therefore head off disenchantment with democracy not delivering. The Biden administration has rightfully attempted to address this critical need through its Democracy Delivers Initiative (DDI), which involves the US government mobilizing resources from across US agencies to help selected “countries cement early democratic gains, create space for further reforms, and promote the global progress of democracy.” Moving forward, a key part of DDI or its successor should be to surge support to newly elected leaders to ensure they have the resources to deliver. The county and regional strategies, to be required in the democracy strategy referenced above, should have a focus on supporting countries showing signs of democratization and having experienced a recent opening. US support cannot and should not just mean procurement of resources or material goods. It should include surge support of staff to support on key technical and policy areas for specific ministries. It should also mean changing key US policies— for example, lifting sanctions where warranted—that make it easier for the new government to deliver.
• Support pro-democracy movements in authoritarian/ closed societies to continue a push for reform and ensure actors are in place to lead once the autocratic government falls. In some contexts, institutions are captured by the ruling authoritarian regime and therefore do not warrant support. In these closed spaces, the United States should focus on supporting nonviolent civil resistance movements that have proven to be vital to advancing democracy and reversing authoritarianism. In closed societies, these movements offer the best bet, and return on US investment, for enabling a democratic opening—and ensuring there are pro-democracy actors present to lead once the authoritarian regime falls or reforms begin. Popular civil resistance movements—using tactics such as strikes, boycotts, protests, and other tactics of noncooperation—are historically one of the most powerful drivers of democracy worldwide. The United States should follow a well-researched playbook for supporting these movements, which includes providing support to movements earlier, particularly in the early organizing phase, and using convening power to bring together movement activists and potential external supporters to discuss coordination of external support. In countries where movements succeed in removing an authoritarian government, we often see movement leaders outmaneuvered by the former regime actors. They lack political skills, not just technical ones, and we can help them succeed through both programming (technical assistance) and policy (public support where it’s helpful, connections with international business, etc.). In countries where kleptocratic capture is the defining feature of governance, efforts to assist democratic activists should prioritize integrity champions.²⁰ Anti-corruption campaigns can galvanize broader collective action oriented toward openness, helping create a window of opportunity for meaningful reform.

Win the race to leverage technology by articulating and then supporting enacting a positive vision for how technology can deliver on democratic principles. Couple this offensive agenda with one that helps partners push back against digital authoritarianism.

Policy recommendations

• Invest in efforts to foster and sustain a global movement to embrace technology as an advantage rather than a harm for democratic societies. Digitally native democracies empower citizen engagement, improve transparency, strengthen citizen trust, and position democracies to be resilient, responsive, and effective even as new geopolitical threats emerge. Investing in democratic stakeholders that effectively use technology can demonstrate democracy’s ability to evolve, be effective, and better deliver for citizens than authoritarian models of governance. With the rise of AI, this emerging technology can be a positive enabler of democracy, if used with the appropriate safety and regulatory measures in place. Democracies should leverage AI to improve citizen engagement, enhance information accessibility and provision, and service delivery—especially during important political processes— while establishing guardrails to encourage democratic uses of the tool, facilitate prosocial design by AI developers, and ensure no one gets left behind.
• Boost the support surveillance/censorship circumvention technologies and mainstream these internet freedom technologies into democracy assistance. The values embedded in internet freedom—an open, free, global, interoperable, reliable, and secure internet—are essential infrastructure for democracy, human rights, and governance. Unfortunately, authoritarians are effectively using technology to further their values, principles, and goals. The United States and its partners need to do the same. Funding for the critical technologies and programs that keep democratic actors safe, facilitate access to information, and make democratic organization possible needs to keep up with the threat environment. Internet freedom funding also needs to be mainstreamed into broader democracy assistance.
• Work with partner nations to strengthen their domestic laws and regulations to improve cybersecurity. Such interventions could support executive branch institutions, judicial institutions, and legislatures, as well as bolster awareness and training within political parties and civil society.²¹ Subsequent support could be provided to ensure implementation across national and subnational governments. The US House Democracy Partnership, a congressional diplomacy initiative, could leverage its global platform to spotlight and share comparative examples of quality cybersecurity frameworks with allied governments for consideration and adoption.²² The United States should require that the data/information management systems of all partners and implementers meet or exceed minimum standards and requirements for best practices. That might mean, for example, accelerating movement to secure cloud services, and ensuring investment in technology and personnel to match these goals. This could involve an executive order that applies to foreign aid comparable to that on improving the cybersecurity of the United States.²³ To address resource and capacity constraints, partners should adopt a risk-based approach which prioritizes the most critical assets and systems.

Revamp how the United States uses diplomacy to advance democracy and recommit to burden-sharing with allies to support democracy overseas.

Policy recommendations

• Recalibrate the US approach to engaging “hybrid regimes” to stop giving them a pass on repressing freedoms because they might be relevant to other American interests, and start holding them accountable because doing so better advances American objectives. Hybrid regimes are countries like El Salvador and the Philippines that want to be seen as democracies but lack the fundamentals of a democracy. They hold elections, but the playing field is uneven, and the electoral management body often compromised. They have governance institutions, but said bodies often serve the regime’s interests first and those of citizens second. Unfortunately, since these governments hold elections and display other trappings of democracy, some policymakers give them a pass on their democratic track record—especially if the country is tied to other American interests. Giving these regimes a pass is a policy mistake. Hybrid regimes vote less frequently with the United States at the UN and are more prone to instability. The United States must balance collaborating with hybrid regimes, when it is necessary at all, with pushing their rulers to reform and advance democratic progress. To do so, the United States and G7 allies should: (a) make clear they will not welcome leaders chosen through dubious, substandard elections; (b) increase the use of public sanctions, including asset freezes and visa bans, on regimes proven to engage in election fraud/malfeasance; and (c) improve the use of high-level diplomatic engagement, including Cabinet-level delegations and the legitimacy they confer to the recipient country, to incentivize governments to reform and adhere to international democratic best practices.²⁴
• Establish and make public a framework of consequences the United States will impose on regimes should they repress their people/movements. US statements condemning, for example, a fraudulent election or a government repressing its citizens are necessary and welcome. However, such talk is cheap and rarely (if ever) changes the target regime’s behavior. To make repressive leaders stop abusing their power, the United States and its allies need to pair messages with consequences—and make sure autocrats understand the consequences of their actions in advance, so they mitigate against action in the first place. To further deter authoritarian repression, the United States with G7 allies should develop a tiered framework for imposing costs in response to escalating domestic (and at times international) repression of civil resistance movements. This tiered approach, which the author and colleagues have advanced in a separate publication, would indicate proportional US and allied responses to repression and abuse of power—with lower costs for shutting down a small section of the internet or jailing a single opposition leader (although, to some extent, this depends on who the leader is), and more robust consequences for a regime that authorizes lethal military force against nonviolent demonstrators (e.g., the Syrian government in 2011) or incarcerates and tortures movement participants. For the fully elaborated tiered framework, see Merriman, Quirk, and Jain, Fostering a Fourth Democratic Wave.²⁵ At the highest “tier” of this framework, a regime engaged in widespread jailing or killing of activists—as is occurring now in Nicaragua—would be met, for instance, with deep and broad sanctions; removal from SWIFT, the network banks use to send information; cyberattacks to disrupt the regime’s coercive apparatus; and taking steps, with allies abroad, to apprehend and jail regime authorities should they travel. While undoubtedly difficult to implement such a framework, if followed, it would add bite to America’s diplomatic bark.
• Work with G7 partners to identity shared democracy advancement priorities and develop plans to pool funding to address them. The G7 offers an already established and proven mechanism for strong democracies to collaborate. Its members command more than 50 percent of global GDP and associated government resources, diplomacy, and foreign aid for advancing democracy and combatting authoritarian aggression. This group, or an expanded version of it (e.g., the D-10), can also work with NATO to ensure its strategic concept conveys the importance of protecting and promoting democracy.
• Leverage our strongest bilateral partnerships—with the United Kingdom, Germany, Japan, South Korea, and others—by identifying shared priorities and devising plans to advance them. This can include supporting key regional allies to do more to advance democracy in their respective regions. The United States could, for example, help South Korea—which can finance foreign assistance work but does not yet have the infrastructure to execute projects—to identify priorities, ways to fund them, and mechanisms for advancing them.

Conclusion

Strengthening democracy will never trump immediate security concerns. However, failing to strengthen governance, even over the medium term, will lead to a repeat of many security challenges, from coups across Africa leading to unpredictable partnerships to terrorists launching attacks from semi-governed spaces. This paper outlines a measured proposal for supporting democracy in the places that matter most for US interests and in a manner that maximizes return on investment.

Fellow

Patrick Quirk

Nonresident Senior Fellow

Freedom and Prosperity Center Scowcroft Center for Strategy and Security

Civil Society Conflict

Trackers and Data Visualizations

Jun 15, 2023

Freedom and Prosperity Indexes

The indexes rank 164 countries around the world according to their levels of freedom and prosperity. Use our site to explore twenty-eight years of data, compare countries and regions, and examine the sub-indexes and indicators that comprise our indexes.

Feb 26, 2024

2024 Atlas: Freedom and prosperity around the world

The contemporary geopolitical landscape is marked by a series of crises—economic downturns, geopolitical tensions, and global pandemics—that have reshaped the role of governments worldwide. This comprehensive volume, featuring insights from twenty leading economists and diplomats, serves as a roadmap for navigating the complexities of contemporary governance. 

Report Jun 15, 2023

Prosperity that lasts: The 2023 Freedom and Prosperity Indexes 

By Dan Negrea, Joseph Lemoine

The 2023 Freedom and Prosperity Indexes measure the distribution of freedom and prosperity in 164 countries. The report explores the relationship between the two and identifies global and regional trends over the last twenty-eight years.

Africa Americas

Report Jan 11, 2024

False promises: The authoritarian development models of China and Russia

By Joseph Lemoine, Dan Negrea, Patrick Quirk, Lauren Van Metre

Are authoritarian regimes more successful than free countries in offering prosperity to their people? The answer is decidedly no, yet China and Russia advertise the “benefits” and “promise” of their authoritarian development model. This paper showcases why and how the authoritarian development model is inferior to that of free societies.

China Democratic Transitions

The post Advancing freedom, defeating authoritarianism: A democracy agenda for 2025-2029 appeared first on Atlantic Council.

The high rate of dropouts ahead of the second round make the number of three-way races favoring National Rally much lower and a hung parliament more likely. An absolute majority for National Rally cannot be fully ruled out yet, but an absolute majority for the New Popular Front already can. This shift in probabilities has led to diverging reactions in bond yields, which have remained slightly higher than before the first round, and stock prices, which have rallied.  

Following Macron’s announcement of the snap election on June 9, French ten-year bond yields increased more than in any other week since 2011. In other words, it was the worst week for the rate at which France borrows from markets since the heart of the eurozone crisis. 

While he was admittedly in campaign mode, French Finance Minister Bruno Le Maire’s warning of a possible “Liz Truss-style” event if National Rally wins—referring to the 2022 bond market meltdown in the United Kingdom that forced the then-prime minister to reverse course on her fiscal plans—was more than a mere talking point. Increased yields arise from falling demand for government loans, reflecting a diminished faith in a government’s finances. The market could see both the extreme right and the extreme left promising to reverse cost-saving measures taken by the incumbent government (such as pensions reform) without offsetting these with new sources of income. 

This graph shows that the “spread” with German bonds has yet to fall significantly despite the greater likelihood of a hung parliament. Why? 

France’s finances are already fragile. Two weeks ago, the European Commission named France as one of seven countries in violation of its new fiscal rules due to high debt levels and no expected reduction in spending. With no tradition of broad coalitions in France, the assumption at this point is that no government will be able to conduct more cost-cutting or efficiency measures. 

Still, France’s bond yield increases thus far remain far less severe than the UK gilt crisis in 2022. 

On the other hand, the results of the first round prompted stock market prices to rally from their initial steep drop following the announcement of the snap election. France’s private sector seems to have taken comfort from the central scenario of a hung parliament and the elimination of a New Popular Front majority scenario. The likelihood of punitive taxes and other major economic changes businesses would need to contend with is now much lower, but not gone.

While France’s CAC 40 index noticeably increased on Monday and Tuesday, it hasn’t fully recovered the losses made following Macron’s decision to dissolve parliament. Clearly, investors are still waiting to see how the second round and its aftermath play out. In a hung parliament scenario, Macron’s party would have to negotiate with all parties that reject the far right. The strongest bloc among these will be the left. This is enough for investors to remain in wait-and-see mode for now.

Charles Lichfield is the deputy director and C. Boyden Gray senior fellow of the Atlantic Council’s GeoEconomics Center

Sophia Busch is an assistant director with the Atlantic Council GeoEconomics Center.

Clara Falkenek contributed research to this piece.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email
SBusch@atlanticcouncil.org.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post How are markets reacting to the French snap election? appeared first on Atlantic Council.

On the eve of the invasion in February 2022, the Russian Navy began blocking Ukraine’s Black Sea ports, cutting off long-established trade routes taking Ukrainian grain and other agricultural goods to international markets. This represented a devastating blow to the Ukrainian economy, while also increasing the threat of famine in countries throughout the Global South dependent on Ukrainian food supplies.

For more than two years, this attack on the Ukrainian agricultural sector has continued to accelerate. From Odesa to the Danube Delta, the southern Ukrainian port facilities that are so crucial to the export of agricultural produce have been subjected to relentless bombardment. According to Odesa Military Administration head Oleh Kiper, this has made it impossible to accumulate large quantities of grain in warehouse facilities, and is forcing the country’s agricultural exporters to operate under constant threat of attack.

Ukraine’s agricultural infrastructure is also being systematically targeted across the country, with regular Russian attacks on equipment, storage facilities, and transport hubs. According to recent research, the total value of destroyed agricultural assets amounts to more than ten billion US dollars. Meanwhile, approximately two billion dollars worth of Ukrainian agricultural products have been destroyed or stolen and shipped to Kremlin allies such as Syria and Iran.

The scale of the damage done to Ukraine’s farmlands is staggering. More than one-third of the Ukrainian agricultural land dedicated to cereal production has been directly affected by the war, with about four million hectares currently unusable due to mining, munitions, or ongoing hostilities. A further eight million hectares of Ukrainian farmland is currently under Russian occupation. Beyond the front lines, Russia is also accused of deliberately setting fire to Ukrainian grain fields.

The Kremlin’s goal is clear: Russia aims to inflict irreparable damage on Ukraine’s agricultural industry, leading to economic collapse and depopulation. Ukraine has historically been known as Europe’s breadbasket, with the country’s agricultural sector serving as a key engine of the national economy. By blocking agricultural exports, destroying agricultural infrastructure, and preventing farmers from growing crops, Moscow hopes to undermine the economic foundations of Ukrainian statehood and pave the way for the country’s subjugation.

As the world watches the Russian invasion of Ukraine unfold, UkraineAlert delivers the best Atlantic Council expert insight and analysis on Ukraine twice a week directly to your inbox.

Russia’s campaign against the Ukrainian agricultural industry also has a broader international dimension. The Kremlin is using food as a weapon to expand its influence throughout the Global South while employing a combination of blackmail and bribery. Moscow seeks to prevent Ukraine from exporting foodstuffs to countries in Africa and Asia, while at the same time looking to “replace Ukrainian grain” with Russian supplies.

In summer 2022, there were hopes of some relieve for the Ukrainian agricultural sector when Russia signed up to a UN-brokered grain deal. This apparent breakthrough sparked initial optimism, but ultimately highlighted the Kremlin’s readiness to exploit global food security concerns. The UN-backed grain agreement allowed for limited exports of grain from Ukraine’s Black Sea ports, but it soon became apparent that Moscow saw the deal primarily as an opportunity to secure further concessions. The Kremlin consistently sabotaged implementation of the grain agreement, before unilaterally withdrawing one year later when its escalating demands were not met.

Eurasia Center events

Online Event Thu, August 15, 2024 • 9:00 am ET

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

Ukraine has achieved some notable successes in defense of the country’s farming industry. Beginning in August 2023, Ukraine has managed to partially unblock the country’s Black Sea ports and resume grain deliveries through the creation of a new corridor for merchant shipping. Maritime agricultural export volumes are now close to prewar levels, underlining the remarkable resilience of wartime Ukraine.

The resumption of agricultural exports via Ukraine’s Black Sea ports represents one of the country’s most significant victories since the onset of Russia’s full-scale invasion. This was made possible by the innovative use of Ukrainian drone technologies and the effective deployment of missiles provided by the country’s international partners, allowing Ukraine to significantly reduce the Russian Navy’s effectiveness in the Black Sea.

Despite this progress, much more still needs to be done in order to safeguard shipping lanes and allow for the free passage of agricultural produce across the Black Sea to global markets. As the trade routes that Russia is targeting lie in international waters, this is not an issue for Ukraine alone. Instead, there are implications for the wider international community, especially for other Black Sea region countries. It is important to hold Russia accountable for jeopardizing the security of vital maritime trade routes and for engaging in conduct that could be classified as piracy.

Ukraine has proven that it can fight back effectively against Russia with even limited resources. The Ukrainian military has damaged or destroyed around one-third of the Russian Black Sea Fleet, and has forced Putin to withdraw the bulk of his remaining warships from occupied Crimea to Russia itself. Ukraine now urgently needs to receive fighter jets, long-range missiles, and air defenses from the country’s international partners. With the right tools, Ukraine will be able to protect its ports and agricultural infrastructure, enforce international law in the Black Sea, and safeguard the breadbasket of Europe from further Russian attack.

Hanna Hopko is co-founder of the International Center for Ukrainian Victory and head of the ANTS Network. She was a member of the Ukrainian Parliament from 2014 to 2019 and served as head of the Parliamentary Committee on Foreign Affairs.

Further reading

UkraineAlert May 30, 2024

If the West wants a sustainable peace it must commit to Ukrainian victory

By Hanna Hopko, Andrius Kubilius

Since 2022, Western policies of escalation management have failed to appease Putin and have only emboldened the Kremlin. If the West wants peace, it must help Ukraine win, write Hanna Hopko and Andrius Kubilius.

Civil Society Conflict

UkraineAlert Jun 12, 2024

Ukraine is making the Russian occupation of Crimea untenable

By Olivia Yanchik

Ukraine’s growing air strike capabilities are decimating Russian air defenses in Crimea and making the occupation of the peninsula increasingly untenable, writes Olivia Yanchik.

Conflict Defense Technologies

UkraineAlert Jun 4, 2024

Vladimir Putin just tacitly admitted Crimea is not really part of Russia

By Peter Dickinson

Russia claims to have annexed five Ukrainian provinces but refuses to extend security red lines to these regions. This highlights the pragmatic political realities behind Putin’s talk of historic conquests, writes Peter Dickinson.

Conflict Disinformation

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

Read more from UkraineAlert

UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

Learn more

The post Bombing Europe’s breadbasket: Russia targets Ukrainian farmers appeared first on Atlantic Council.

The success of Chinese economic diplomacy in Peru

In 2024, Peru’s relevance to China will be transformed, as Lima becomes a crucial partner in China’s economic engagement with Latin America. In November, Xi plans to inaugurate the Chancay port, a $3.6 billion deep-water mega-port forty-four miles north of Lima under exclusive operating rights by China’s state-owned COSCO. The port is set to reshape global trade between Asia and Latin America, reducing the travel time for shipping vessels between both countries by ten days. COSCO’s exclusivity over the port would make Chancay China’s first logistics hub in South America. Similarly, China Southern Power Grid’s ongoing acquisition of Italian Enel’s equity stakes in Lima’s electricity distribution will put 100 percent of Lima’s electricity in the hands of Chinese companies.

Beyond these two projects, Boluarte’s state visit to China follows a decade of increased Chinese economic influence in the Andean country. Between 2018 and 2023, Peru became the second highest recipient of Chinese foreign direct investment (FDI) in Latin America and the Caribbean, and the largest recipient of Chinese FDI in South America, standardized by gross domestic product.

Chinese investment has grown in Peru despite its political instability. From 2016 onward, the country has been entangled in an institutional and political crisis. With six presidents governing the country since 2016, Peru has been hardly able to offer any political stability to investors. As Chinese companies’ interests increase in an institutionally weaker Peru, it becomes essential for the Chinese government to secure support at the highest political level to shield its strategic investments from this instability. The state visit provides an example: In the months preceding the visit, both the Chancay port and China Southern Power Grid’s acquisition were scrutinized by Peru’s port and antitrust authorities, respectively. The National Port Authority even revoked COSCO’s exclusivity deal, which threatened to stymie China’s control over the port.

But after months of legal disputes, and upon the announcement of Boluarte’s state visit to China, the Peruvian government withdrew its request to revoke COSCO’s rights for Chancay, and China Southern Power Grid was able to finalize its acquisition, just days before the visit. Boluarte and her delegation even met with the presidents of COSCO and China Southern Power Grid during her trip to Beijing, demonstrating that the state visit was a successful tool of economic diplomacy for China.

What does the state visit mean for US economic diplomacy?

The United States should be concerned. Boluarte’s state visit represents the pinnacle of a successful economic engagement strategy between China and Peru that has resulted in deeper political ties between both countries. The projects that are the fruits of these deeper ties could directly counter US interests in the region.

The United States has already raised concerns over the Chancay port and the possibility that it could be used as a dual-use facility by the Chinese navy. US officials have also encouraged the Peruvian government to create a committee to vet foreign investment in strategic sectors, such as electricity, on national security grounds. But expressions of these US concerns haven’t yielded significant results. The limits of US diplomacy in Peru have much to do with its limited economic engagement with the country relative to China.

While the US-Peru free trade agreement doubled the trade volume between both countries in the fifteen years since its signing, US FDI represents about one-third of Chinese FDI in Peru, and Peruvians export five billion dollars more in goods to China than to the United States. And while the Peruvian government prides itself on its membership in the Americas Partnership for Economic Prosperity—the Biden administration’s pillar of economic diplomacy toward Latin America—the framework will take time to deliver tangible trade and investment benefits that can rival China’s. As Peru is still looking to recover economically from the effects of the COVID-19 pandemic, the United States can open doors for closer diplomacy with the country by working with it to foster economic growth.   

Why deeper collaboration between the US and Peru matters

As the US government seeks to expand and diversify supply chains away from China and advance its energy transition, it can benefit from increased collaboration with Peru, not least because of its mineral abundance. Peru is the second largest world producer of copper, and stands among the top producers for silver, lead, and zinc.

To compete with Chinese investment, US companies will have to participate in the bidding for large infrastructure projects and should present an alternative partner for building out Peru’s critical infrastructure, such as energy, port, or telecommunications infrastructure. For this to happen, Washington needs to better align the risk appetite of US investors and firms with Peru’s project and country risks. While the United States won’t model China’s state-led investment, agencies such as the International Development and Finance Corporation should collaborate more closely with the private sector to de-risk and incentivize US bids on infrastructure projects in Peru.

Deeper US economic engagement with Peru is also in Peruvians’ interests. The United States is the only global superpower interested in and capable of assisting the Peruvian political class to exit nearly a decade of institutional corrosion. US diplomacy toward Peru has rightfully focused on addressing the country’s democratic instability and political crisis, recognizing these issues as the country’s biggest challenges. The US government has encouraged Peruvian officials to respect the constitutional order and has expressed concern when they have deviated from it, such as when then President Pedro Castillo attempted a self-coup in December 2022.

When the Peruvian government abused its power in the demonstrations of January 2023, US representatives called out the government for its human rights violations. In March of this year, as Peru’s Congress sought to weaken the judiciary watchdog, the Junta Nacional de Justicia, US senators Ben Cardin and Tim Kaine publicly expressed their concern. It is no overstatement to say that Peruvian democracy is at risk, and the United States has been right to recognize its fragility. But the United States’ capacity to assist Peru in building out its institutions will yield very little unless its statements of concern are accompanied by economic tools that incentivize cooperation with the United States.

Martin Cassinelli is a program assistant in the Adrienne Arsht Latin America Center at the Atlantic Council.

The post What the Peruvian president’s state visit to China means for US economic diplomacy appeared first on Atlantic Council.

Introduction
The geopolitics of infrastructure
The economic realities
Coordination of project identification and implementation
Recommendations
Conclusion

Introduction

Infrastructure development is a central component of the West’s global engagement strategy. This effort, if done effectively, could be a strategic, economic, and geopolitical feat. The development of sustainable and secure infrastructure carries the potential to create economic prosperity for countries aspiring to move up the global value chain, support the world’s green transition, provide an alternative to China’s exploitative investments, and strengthen the Western-led order.

The Group of Seven (G7) countries have varying plans for infrastructure development in cooperation with various partners around the globe, with particular focus on the Global South. Launched in 2022, the G7’s Partnership for Global Infrastructure and Investment (PGII) aims to mobilize $600 billion in capital for development projects by 2027.¹ In Europe, the European Union’s (EU) Global Gateway will invest 300 billion euros by 2027 in global infrastructure projects on behalf of the bloc.² Italy’s Mattei Plan, launched in January 2024, brings a direct focus on infrastructure development in Africa.³ Further abroad, the Group of Twenty (G20) partners signed the India-Middle East-Europe Economic Corridor (IMEC) memorandum in 2023, which aims to directly counter China’s Belt and Road Initiative (BRI) and cut down transit time between India and Europe.⁴

These initiatives are a good start. However, all G7 members face various challenges that could ultimately hamper progress on these initiatives, most notably: geopolitical challenges, limited funds, skittishness from private sector investors, and lack of coordination. For these initiatives to have a lasting impact, the G7 and likeminded partners must closely coordinate to both avoid and overcome these pitfalls.

Some efforts to better coordinate development projects have already begun. Along with its investments and focus on leveraging private capital, the United States led in the creation of the Blue Dot Network, “a multilateral initiative aimed at advancing robust standards for global infrastructure and mobilizing investment for projects in developing countries.”⁵ In addition, the US-EU Trade and Technology Council (TTC) has launched coordinated connectivity projects between the United States and the EU in third countries including Kenya, Costa Rica, Jamaica, the Philippines, and Tunisia.⁶

Holding the G7 presidency for 2024, Italy has made infrastructure development and strengthening relations with the Global South, and in particular Africa, central to its priorities. The 2024 G7 Leaders’ Summit in Apulia, Italy, in June 2024 again reaffirmed the group’s commitment to PGII and investments across Africa, with announcements including the creation of a secretariat to coordinate investments and aid information sharing and a greater shared focus on unlocking investment for green infrastructure projects.⁷

Now, G7 countries must focus on transforming the summit’s conclusions into reality and making real progress on development coordination. This issue brief provides an actionable set of recommendations to advance the G7’s ambitions.⁸ It examines the geopolitical impetus for infrastructure development, the economic realities of infrastructure, and the state of coordination on project implementation before providing recommendations to take forward for the rest of Italy’s G7 presidency and beyond.

The geopolitics of infrastructure

The G7’s focus on development is rooted in the shared understanding that G7 countries must fundamentally reset relations with the Global South. Historically, countries in the Global South, particularly in Africa, have been on the receiving end of unfair and extractive relationships with the West.

The result has been growing mistrust and disillusionment, and many countries now view China as a better partner than Europe or the United States. A 2022 study conducted by the University of Cambridge noted that around seventy percent of people not living in liberal democracies held positive views of China, and those in the developing world held more favorable views of China than of the United States.⁹ Another 2023 survey saw China’s approval rating in Africa rise to its highest levels in a decade, with ten-point increases in some countries.¹⁰

On infrastructure development specifically, China has outcompeted the West for years. China’s outreach to the Global South has been generally successful, and the BRI has evolved into an established brand. For example, in 2021 China pledged $40 billion over three years to Africa (though this was a reduction from an earlier pledge of $60 billion), and Beijing has out-invested the United States in Africa every year since 2013.¹¹ Though Chinese investments have yet to surpass their pre-pandemic heights, China’s rate of investment is again rising, and Africa was the largest recipient of BRI investment in 2023.¹² In part, as a result, Beijing is also poised to overtake Europe’s total trade with Africa by 2030.¹³

There are downsides to partnering with China, however. Its values-ambivalent approach is not built for sustainability and comes with a well-documented debt trap. For example, Zambia, which had more than 50 percent of its foreign loans from China, went into default and was unable to afford interest payments on loans financing construction projects in the country including ports, mines, and power plants (though China and Zambia have agreed to a restructuring of Zambia’s debt).¹⁴ Similarly, in Kenya, the government held back paychecks to its civil-service workforce to save cash to pay foreign loans.¹⁵

G7 countries are making progress on closing this partnership gap with China. Leaders at the Apulia Summit reaffirmed their ambition to meet the spending target of $600 billion by 2027, and the summit’s conclusions have a clear focus on infrastructure development, including with an announcement of a secretariat to facilitate the coordination of development projects.¹⁶ Leaders made further announcements at a side event where Italy joined the US- and EU-led consortium on projects in the Lobito Corridor in southern Africa, and Western companies like Microsoft and Blackrock pledged more investments across Africa and beyond.¹⁷

The summit also saw the participation of countries including Algeria, Brazil, Kenya, and Tunisia, among others—something Prime Minister Georgia Meloni lauded as delivering on a pledge to make outreach to the Global South a cornerstone of Italy’s G7 presidency.¹⁸

The summit also highlighted that the West’s values-based approach can be a strategic asset to building sustainable global partnerships. A focus on good governance and environmental and labor standards allows for long-term success and, in turn, economic growth. The G7 recognizes the importance of engaging with Africa specifically, with the 2024 Communiqué positioning the PGII, the Global Gateway, and the Mattei Plan as frameworks to “promote [the West’s] vision of sustainable, resilient, and economically viable infrastructure in Africa underpinned by transparent project selection, procurement, and finance.”¹⁹

This is a good start, but there is still room for improvements. Some of the West’s recent outreach has received similar criticisms to previous efforts, for example, failing to consult the very countries these efforts are meant to engage. In particular, African leaders noted Italy failed to consult them before announcing the Mattei Plan.²⁰ Moreover, the West’s tedious approach to infrastructure development can be perceived as an obstacle, not an asset, especially if it is not applied consistently.²¹

G7 countries should make greater efforts to convene with PGII partners in the region including the private sector, civil society, and government—to sustain debate and discussion about the West’s ambitions and the reasoning behind its values. At the same time, more regular and targeted engagements can, in turn, expose Western public and private financial institutions to the realities of partner markets and address the misconceptions of perceived risks. It’s a win-win for both sides. Where possible, the framing should be adapted to showcase the importance of the long-term sustainability of projects, especially compared to the non-durability of Chinese infrastructure. This engagement will also be a useful tool to address criticisms that Western initiatives are organized without the feedback and involvement of partner countries.

Finally, while competition with China will be a defining element of Western global infrastructure projects, geopolitics cannot eclipse all else. Recipient countries are looking for projects for their benefit to move up the global value chain and to spur domestic growth—not to be a pawn in other parties’ geopolitical rivalries. States can and have the option to accept projects from different sources, including from China. In response, policymakers should be cognizant that countries might be interested in partnering with both China and the West, and should not be forced into a binary, mutually exclusive choice of one or the other.

It will be important, then, for transatlantic policymakers to work out how to both compete against and partner with China. This will be critical specifically in the area of information and communications technology (ICT) development, where using “untrustworthy” vendors has been an area of focus. Policymakers should be clear about where and when non-G7 countries are involved in projects, and in what respects that will not preclude partnership.

The economic realities

Geopolitics may be a key impetus for development initiatives, but policymakers must also contend with economic realities that have long-plagued development projects. Economic stability in recipient countries is important for investments, but that stability is not always a luxury the West can expect. The International Monetary Fund’s regional economic outlook from spring 2024 for sub-Saharan Africa, for example, notes “the fiscal position of many sub-Saharan African countries has deteriorated, a trend exacerbated by repeated shocks and the ensuing demand for fiscal support,” which adds to political and economic uncertainty.²² The cost of borrowing for African states is also four to eight times higher than for Western countries, making raising capital prohibitive.²³

The reality is that currencies can collapse and interest rates can rise, but the need and opportunities for investments will remain. The West, therefore, cannot wait to invest in projects until after implementing structural reforms to partner states’ finances and economies.

G7 countries, the United States in particular, have stressed the importance of the private sector to achieve its financing goals. The Apulia Summit placed additional emphasis on the necessity of private-sector capital for the success of PGII. Side events on the PGII have taken place at every G7 summit since the PGII was announced, and since 2023, have prominently featured participation from major investors and companies including Citi, Nokia, Global Infrastructure Partners, Blackrock, and Microsoft—usually with investment announcements in tow.²⁴ Policymakers should appreciate and foster a bottom-up approach to project identification from the private sector and its appetite to invest.

However, leveraging private capital to help fund infrastructure projects comes with its own challenges. Investments into large-scale infrastructure projects are inherently risky, and shaky local markets only add to the unease felt by private-sector investors as currency devaluations risk erasing investments.

G7 members will therefore need to play a greater role, in some form, as guarantors of investments to help reduce the cost of borrowing and alleviate some of the risk. This comes with its own difficulties, as unlocking government-backed funds is not a straightforward process. Certain firms may not be eligible for funding depending on where they are located. And while it makes sense for European taxpayer funds to go to European firms, for instance, multinational firms can become caught up in the bureaucratic web, impeding their involvement with investment projects. Nevertheless, governments must figure out how to play a role here. The European Union, for instance, has a AAA credit rating, and can take on the role of a guarantor for private-sector investment.²⁵ The US International Development Finance Corporation (DFC) has provided political-risk insurance up to $25 million for investments in Ukraine.²⁶ The case of Ukraine is not a one-to-one comparison to investments in the Global South, but offers a useful example to consider. This is not meant to provide a blank check to the private sector for risky investments. However, investment projects cannot wait for long-term structural reforms that will impact geoeconomic changes like foreign-exchange rates. Instead, investors need to work within current economic realities.

Greater efforts are also needed to address change Western misconceptions of African markets and perceived risks that may not truly reflect realities on the ground. The metrics used by the West to measure projects, specifically environmental, social, and governance (ESG) standards, do not always have as strong a foothold in recipient countries, making investment look riskier or undesirable. Balancing the focus to communicate the impetus for these metrics—while maintaining a degree of flexibility and not completely sacrificing all ESG baselines—will be an important needle for policymakers and investors to thread.

Coordination of project identification and implementation 

Shared project standards are an opportunity for greater coordination. The 2023 Hiroshima G7 summit provided a starting point, highlighting forty projects of common interest.²⁷ Italy’s G7 presidency looked to further this effort. As Meloni outlined at the G7 summit side event focusing on the PGII, Italy’s ambition was to create “structured synergies and coordinated activities to maximize efforts and investments” between G7 members’ various projects.²⁸

The 2024 Apulia Summit specifically pledged greater effort at coordination through three prongs: establishing a secretariat “for effective implementation and investment coordination with partners,” supporting investment platforms to “enhance information sharing, transparency, and public policies on investments in Africa,” and working in particular on green investments in Africa.²⁹ These efforts are all good starts, but they remain wide in their ambition and vague in actual substance.

Coordination on project identification should be an early priority for the PGII secretariat. As G7 countries and the private sector will necessarily look to identify more of these projects, it will be useful to have shared criteria for projects to meet quality and sustainability standards. A shared understanding of what projects G7 members are looking to support, and metrics to assess projects, would also help the private sector in more easily identifying projects in which to invest. The Blue Dot Network is a good starting point for this effort, but so far only a few European G7 countries are on its steering committee.

Additionally, coordination between the United States and the EU through the TTC to support connectivity projects provides another useful starting point for this effort. Established in 2021, the TTC has become the backbone of this US administration’s efforts to strengthen its relationship with Brussels. Despite its initially limited scope, it has morphed into a clearinghouse for discussions not only on transatlantic trade and technology coordination, but also on sanctions against Russia and support for projects in third countries to support internet connectivity.³⁰ Supporting connectivity projects at the TTC is useful, but it is limited to smaller projects. Taking coordination from the TTC to the G7 level would allow participation and coordination with countries like the United Kingdom and Japan.

In terms of project selection and implementation, the G7 must also ensure money is available for maintenance, and enough staff is available to follow-up and to make projects sustainable. Ongoing efforts must leverage available funding not just to start projects, but to fund them through their full cycle, and staff them at a level that supports medium- to long-term maintenance. Often, this will include building relationships with on-the-ground in-country partners, and then training and subsequently employing local civilians to shoulder these responsibilities. It is simply not feasible for European, US, Japanese, British, or Canadian project managers to shoulder this burden. In this respect, it is equally important to get buy-in from national and local governments in recipient countries. Locals with knowledge about projects, communities, and factors on the ground will be critical to the maintenance and durability of such projects. The G7 conclusions rightly noted the importance of working with local partners. Now, a secretariat should take forward that effort in earnest.

Maintenance also means investing in skills. This is just as important for implementation and maintenance as investing in technology or brick-and-mortar buildings. Project identification must not look past the funds and time needed to train partners on the ground. For G7 members it will be important, especially on projects in which the United States and EU are involved, to standardize, de-duplicate, or divide training efforts.

Recommendations

At the 2024 Apulia summit, G7 countries made some progress on global infrastructure development in the context of the PGII. Implementation must now follow pronouncements. Italy should lead through the rest of its G7 presidency to see that real progress is made and to ensure this remains a priority in forthcoming summits (much like the role Japan played on artificial intelligence), and each G7 member must also work to meet its national commitments. To make greater coordination a reality, the G7 should undertake the following recommendations.

• Expand the Blue Dot Network Steering Committee. The European Union and/or all EU member states that are part of the G7—Italy, Germany, and France—should join the Blue Dot Network. The Blue Dot Network’s steering committee is currently composed of Australia, Japan, Spain, Switzerland, Turkey, the United Kingdom, and the United States (Canada, Czechia, and Peru are network members and do not contribute funds).³¹ All G7 members, and the EU, should become members of the steering committee. European membership in the Blue Dot Network should not be limited just to G7 EU members, and the EU could take on a role representing all EU member states.

• Invest in the PGII secretariat and commit to the adequate staffing of development institutions. A PGII secretariat can serve as an important hub for coordination, but it must be staffed adequately. G7 countries should assign national-level envoys to the secretariat, or at least fold them into the offices responsible, such as IMEC. Much of the work to take forward the agreements at the G7 will also fall to domestic institutions and development finance institutions. However, staffing and financing shortages have limited their effectiveness. G7 members should pledge a benchmark for spending on development financing.

• Establish regular convenings in or with partner countries. G7 members should commit to hosting regular meetings with partners and their private sectors, civil societies, and governments. The Hiroshima G7 meeting highlighting the PGII was a good start, but the initiative should now be further developed with a partner-first mindset. G7 member officials should host annual meetings in partner countries to make the case for the West’s efforts. This would signal a departure from the West’s historically paternalistic approach to engagements with African partners, and the Global South generally. Outreach and consistent engagement at the ambassadorial level would also be useful.

• Identify which third countries can take part in which projects. Currently, there is no clear framework for which third countries can take part in specific development projects or what limits exist to partnering with third countries, including those like China. Where issues like human rights and national security come into play, G7 countries may differ in their strategies for engaging with third countries. At the same time, there should be clearer frameworks for private companies and governments in terms of in which projects each can take part.

• Build in long-term maintenance and implementation of projects at the development stage. Projects should begin with the end in mind. If there is no way to measure success or to educate and employ local populations, these projects will turn into basic assistance with no longevity. G7 countries should agree that investment projects under the PGII umbrella should mandate a long-term implementation and maintenance plan with substantial involvement and buy-in from the partner country. Countries want economic success and want to move up the global value chain; they don’t want to be seen as mere development recipients. It is up to the G7 to ensure such upward movement happens.

• Map and publish all PGII-related projects. The PGII secretariat should map out all investments under the PGII umbrella, along with projects of interest. This could serve as a clearing house, especially for the private sector to identify opportunities for investment. This would also create a strong public relations tools showcasing the West’s impact and investment footprint. This effort could also be utilized to facilitate the submission of new investment projects by the private sector and potentially lead to consolidated funding for joint investments promoted or pursued by G7 members.

Conclusion

Giorgia Meloni called the dialogue around the PGII “one of the most significant achievements of the G7” to deliver “concrete action” to Africa and the Global South.³² The G7 has made progress, but such a conclusion is premature. The G7 is well on its way to turning its ideas and visions for new partnerships with the Global South into action. Putting the resources and people behind those visions will ensure that they come to life.

James Batchik is an associate director at the Atlantic Council’s Europe Center, where he supports programming on the European Union, the United Kingdom, Germany, Italy, and the center’s transatlantic digital and tech portfolio.

Rachel Rizzo is a nonresident senior fellow at the Atlantic Council’s Europe Center. Her research focuses on European security, NATO, and the transatlantic relationship.

Nick O’Connell is the deputy director for public sector partnerships at the Atlantic Council. He also contributes regularly to the Atlantic Council’s Italy project, a collaboration between the Europe Center and Middle East Programs.

New Atlanticist Apr 24, 2024

Dispatch from Rome: Political stability gives Italy a chance to step into the spotlight

By Jörn Fleck, Rachel Rizzo, James Batchik, Nicholas O’Connell

With newfound steadiness at home, Rome can make its priorities for the West heard, especially the security of the Mediterranean and outreach to Africa.

Economy & Business Europe & Eurasia

Report Apr 3, 2024

The case for African social infrastructure

By Tom Koch

Investment in African social infrastructure can be defined as African real estate that serves an essential societal purpose.

Africa Economy & Business

New Atlanticist Feb 5, 2024

Italy’s Mediterranean pivot: What’s driving Meloni’s ambitious plan with Africa

By Alissa Pavia

The Mattei Plan for Africa was presented on January 29-30 to a delegation of more than twenty-five African leaders. It seeks to establish an Italian agenda that prioritizes Africa’s needs and avoids predatory practices.

Africa Economy & Business

The Europe Center promotes leadership, strategies, and analysis to ensure a strong, ambitious, and forward-looking transatlantic relationship.

Learn more

The post Doing as the Romans do: Recommendations for the infrastructure development agenda for Italy’s G7 presidency appeared first on Atlantic Council.

Economic diversification and foreign direct investment

The US-Morocco FTA removed tariffs and significantly reduced trade barriers between the two countries. This, alongside other FTA and advanced trade agreements with the European Union (EU), China, Egypt, Turkey, and the United Arab Emirates (UAE), contributed to Morocco’s efforts to diversify its economy and trade. Through providing access to the US market, the FTA encouraged Moroccan firms to expand into new high-tech manufacturing such as automotive and aeronautics parts, as well as electronics. The agreement has also contributed to a steady increase in bilateral trade. According to the Office of the United States Trade Representative, US-Morocco trade in goods and services has grown to nearly $7 billion annually. This trade growth reflects a deepening of economic ties between the two countries.

Another significant impact of the US-Morocco FTA and other trade agreements has been increased foreign direct investment (FDI). The agreement provided a framework that infused confidence in US and EU investors and caused an inflow of investment in various sectors, including manufacturing, tourism, and renewable energy. These investments have been central in creating jobs and developing the skills of the Moroccan workforce.

One example is the automotive industry, in which major companies like Japan-based Yazaki, Ireland-based Delphi Technologies, Germany-based Schlemmer, and US-based Lear Corporation have established operations in Morocco. These investments have created thousands of jobs and positioned Morocco as a regional hub for automotive parts manufacturing, generating more than $10 billion in revenue and making it a leading sector in the country’s export market. Additionally, the growth of the renewable energy sector has made Morocco a global leader in the green energy industry, with ambitious projects like the Noor Ouarzazate Solar Complex.

Challenges and structural reforms

While Morocco’s FTA and trade agreements with the United States and other major economies have brought numerous benefits, challenges exist. One of the main issues has been guaranteeing that the gains from free trade are distributed equitably across Moroccan society. There is a need for sustained efforts to address regional disparities and support small and medium-sized enterprises (SMEs) that may struggle to compete with state-owned enterprises (SOEs) in a liberalized trade environment.

Moreover, the agreement has highlighted the importance of structural reforms to enhance Morocco’s competitiveness. Hence, the Moroccan government has undertaken various measures to improve the business climate, such as simplifying regulatory procedures, developing and improving infrastructure, and investing in education and vocational training, with a particular focus on empowering girls and women. These reforms are crucial for sustaining long-term economic growth and ensuring that Morocco can fully capitalize on the opportunities presented by free trade.

Future prospects

Looking ahead, the US-Morocco FTA serves as a foundation for further economic cooperation and integration between the two economies. Both countries have expressed a commitment to deepening their trade relationship and exploring new areas of collaboration. For Morocco, this includes leveraging the FTA to attract more investment in high-tech industries and innovation-driven sectors. Morocco’s strategic location and proximity to European Union and African markets, coupled with its relatively modern infrastructure and stable political environment, position it as an attractive investment destination in emerging market economies.

Alongside the agreements signed between Morocco and other countries, the US-Morocco FTA remains one of the most important as it has played an integral role in transforming Morocco’s economy and labor force, contributing to the diversification of its trade portfolio and helping to attract foreign investment. However, regulatory, legal, and labor force challenges remain, and continued efforts are needed to ensure that the benefits of free trade are more equitably shared across various sectors of Moroccan society.

As Morocco looks to the future, the strategic vision should focus on further enhancing its competitive edge and strengthening its position as a key player in the global supply chain. Morocco’s Atlantic Sahel initiative is an important step in this direction. With sustained commitment and strategic planning, the next twenty years can bring even more prosperity and development for the Moroccan economy and greater profits for US and other foreign businesses operating in the kingdom.

Amin Mohseni-Cheraghlou leads the Bretton Woods 2.0 Project at the Atlantic Council’s GeoEconomics Center. He is also a senior lecturer of economics at the American University in Washington, DC.

The post Diversification and growth: How the US-Morocco FTA boosts Rabat’s modern trade appeared first on Atlantic Council.

Africa is central to the global energy transition. The necessary resources for a low-carbon economy are abundant in Africa, with the continent possessing 30 percent of the world’s known mineral reserves—many of which are critical for the manufacturing of batteries, solar panels, wind turbines, and other clean energy technologies. Africa’s untapped potential is greater yet, with research suggesting that the continent holds 85 percent of manganese reserves, 80 percent of platinum and chromium reserves, 47 percent of cobalt reserves, and 21 percent of graphite reserves, much of which is unexplored or underexplored. Demand for these resources is also on the rise, expected to more than double between now and 2030.

While Africa is rich in minerals and strategically located, it risks losing out on a historic investment opportunity. The infrastructure investment problems that have hindered non-Chinese capital flows into African markets for decades are front and center as investors and governments assess the strategic role the continent could and should play in the global shift to cleaner energy sources. While infrastructure investment has shown growth in recent decades, a significant financing gap persists, estimated to be around $100 billion each and every year.

To counterbalance China’s dominance in battery supply chains, the United States must leverage its strengths in technology, education, and capital markets. Initiatives such as Prosper Africa need to be dynamically scaled and optimized to provide meaningful support, ensuring that US investors can more easily and rapidly navigate the complex landscape of Washington.

With this urgency in mind, this report provides a snapshot of Africa’s mineral wealth and the state of mining industries, draws out the similarities between the mining and infrastructure investment attraction challenges, describes the competitive landscape African nations find themselves in, and makes innovative recommendations—namely to the US government—to rapidly accelerate investment in sustainable mining industries in African markets.

This report is the first in a series on the critical minerals sector in Africa, and is part of the Africa Center’s Critical Mineral Task Force.

The Africa Center works to promote dynamic geopolitical partnerships with African states and to redirect US and European policy priorities toward strengthening security and bolstering economic growth and prosperity on the continent.

Learn more

AfricaSource Jun 7, 2024

Increasing investment in African mining should be a higher priority for the United States

By Aubrey Hruby

If governments, investors, and development partners don’t make dramatic changes in the next five years, the United States will fail to counter Chinese influence in supply chains.

Africa Energy & Environment

AfricaSource Mar 18, 2024

The critical-minerals boom is here. Can Africa take advantage?

By Alexander Tripp

The critical minerals discussion on extraction, national security, and supply chains will move past Africa unless the moment is seized.

Africa Economy & Business

The post From greenfield projects to green supply chains: Critical minerals in Africa as an investment challenge appeared first on Atlantic Council.

But now, climate-skeptic voices and opposition to climate efforts are gaining political weight, as shown by recent trends in the European Parliament election results earlier this month. While Europeans still see climate change as a major challenge, discontent with financial developments and concerns about defense and security rank even higher in their priorities, according to the latest Eurobarometer polling.

With the changing composition of the European Parliament, some of the biggest implications will concern climate policy. A weakened EU climate agenda could result in the continent falling short of decarbonization targets. It could also influence partners abroad to mirror more lax climate policies. In the face of these shifts, Europe’s policymakers need a resilient environmental policy profile that endures political shifts and builds trust in the longevity of EU climate action among voters and international partners. 

The legacy of a climate consensus

In the 2019 European Parliament elections, climate change was a decisive topic for voters. Following the vote, the then nominee for European Commission president, Ursula von der Leyen, promptly pledged a strong focus on climate action as part of her eventually successful bid to secure the approval by the European Parliament. The Commission turned her pledge into action with the European Green Deal, which comprised numerous ambitious decarbonization policies. Von der Leyen called it Europe’s “man on the moon” moment.

To align EU legislation with the intermediate goal of reducing net greenhouse gas emissions by at least 55 percent by 2030, the Fit for 55 package expanded the EU emissions trading system, introduced the Carbon Border Adjustment Mechanism for carbon-intensive imports, and set new standards for the land use, transportation, and energy sectors, among other policies. Furthermore, at least 30 percent of the European recovery package funding was allocated for climate action.

Despite the initial progress, the wind in the sails of the EU’s green agenda now appears diminished. A sluggish economic recovery, stubbornly persistent inflation, and rising energy costs—in part, a downstream effect of Russia’s full-scale invasion of Ukraine in 2022—have resulted in the green agenda as a target for farmers’ protests and rallies.

Interest group pressure and conservative opposition to climate action have hampered green policies at the national level, too. A watered down German climate change law, climate-skepticism among Italian political leadership, and French President Emmanuel Macron calling in May of last year for a “pause” of EU environmental regulations exemplify the simultaneous nature of developments on the member state and the EU level.

Green parties lost in this year’s European Parliament elections, greatly diminishing their political weight in the body. Some commentators have already written the obituary of the bloc’s green agenda, arguing that “Europe’s green moment is over.” 

What’s next for the Green Deal?

The center-right European People’s Party (EPP), von der Leyen’s party group and the largest in the European Parliament, reaffirmed Europe’s leading role in global climate action in its 2024 party platform. At the same time, it advocates for technological neutral approaches and distances itself from the Greens and Socialists, whose position the EPP calls “ideological” in their manifesto. The rejection of a contentious bill on pesticide use in 2023 demonstrates the group’s ambiguous stance on environmental legislation as it restrained von der Leyen’s Green Deal objectives to foster sustainability in the agricultural sector. Newly and reelected EPP members are “completely divided on where to go with the Green Deal,” according to Greens/EFA co-president Terry Reintke, emphasizing the limbo in which the project currently hangs.

In the incoming European Parliament, support for the Green Deal will continue to come from the center-left Socialists and Democrats (S&D) group, which highlights the social aspects of a just climate transition, and the liberal Renew Europe group, which emphasizes the need for pragmatic implementation. While the Greens proposed an even more ambitious Green and Social Deal as a major investment plan, other left groups are more critical of the bloc’s approach to decarbonization.

Further to the right, the green backlash has become a rallying cry for conservative and far-right political groups, such as the European Conservatives and Reformists (ECR) and the populist Identity and Democracy (ID), which oppose the Green Deal, advocate for local climate strategies, and call decarbonization targets unrealistic. A more prominent role of the ECR and ID in the European Parliament, following their gains in the European elections could slow down the already insufficient emissions reduction and impede the effective implementation of Green Deal policies.

However, it’s too soon to declare the death of the green agenda. It will, instead, likely be deprioritized, contending with competing policy interests. While the overlapping crises of climate change, pandemic recovery, the war in Ukraine, and the resulting inflationary trends have drawn away the electorate’s focus on climate issues, environmental concerns remained salient for voters. It is unlikely that the European Green Deal will be abandoned, especially if von der Leyen stays on as European Commission president.

The new distribution of the parliamentary seats opens possibilities for a more conservative majority but also for coalitions with center-left parties. While the three main centrist groups have reportedly reached an agreement on top European Union posts with von der Leyen as Commission president, it is not a given that she will gather enough votes in parliament. Given the new distribution of parliament seats, Green parties might therefore be the key to securing von der Leyen a second term and thus exert influence on climate protection to remain prioritized.

Regardless, even a weakened climate agenda would be a mistake. Both for political and strategic reasons, European policymakers cannot abandon the green transition. Other priorities may, rightly, deserve attention, but the climate crisis must not be ignored. Europe is, after all, the fastest-warming continent, according a recent report by the United Nations and EU. Temperatures there are rising at around twice the global average.

To ensure the viability and centrality of the Green Deal in the new European parliament, officials will need to link policy issues and make the case that the green transition can help the competitiveness agenda. A focus on implementation rather than new legislation is likely. In this consideration, a nonpartisan commitment to technologically sound and ecologically just climate action is necessary to accommodate voters’ demands and bridge party gaps. This will require political leadership, especially from von der Leyen and her EPP party group, which has yet to find a common line regarding the future of the European Green Deal.

Moritz Ludwig is a young global professional with the Atlantic Council’s Europe Center.

The post Green Deal fatigue? How the European Parliament elections could affect EU climate policies. appeared first on Atlantic Council.

In December 2023, Chinese leader Xi Jinping visited Vietnam and agreed on building “shared future” between the two countries, three months after US President Joe Biden announced the US-Vietnam Comprehensive Strategic Partnership. In addition to private companies expanding their manufacturing bases to Vietnam as a de-risking strategy, the two major powers are also doubling down on courting Vietnam on an official level.

Registered investment from China and Hong Kong combined exceeded $8.2 billion in 2023, accounting for 6,688 projects, in contrast with $500 million from the United States. China’s integration in trade with Vietnam has steadily grown over the past decade—reaching $171 billion in 2023, bolstered by the free trade agreement between China and the Association of Southeast Asian Nations (ASEAN) and the Regional Comprehensive Economic Partnership (RCEP) that reduced tariffs and harmonized rules of origin and intellectual property protection. Meanwhile, Biden’s pledges of more investments and easier trade have significant ground to cover. In the first ten months of 2023, the United States invested just $500 million in foreign direct investment (FDI), while exports from the United States plunged by 15 percent to $79.25 billion.

China is positioning itself to prioritize innovation and research and development (R&D), aiming to ascend the value chain and achieve self-reliance in alignment with Xi’s strategy for “high-quality development.” Against the backdrop of the changing economic priorities, the State Council of China published a policy document in December 2023 that supported “core firms in the supply chains” to expand overseas production and leverage global resources. Responding to the “unreasonable trade restrictions” imposed by foreign governments, China is initiating a friendshoring strategy of its own.

The key is electronics. The persistent dominance of China in the critical supply chains of the United States is most evident in the Information and Communication Technology (ICT) sector, supplying 30 percent of US imports by April 2023. Thus, as global scrutiny over China’s manufacturing overcapacity intensifies, electronics companies are figuring out coping strategies. Vietnam’s rules of origin stipulate that if a product includes at least 30 percent of local value content or change to a different Harmonised System (HS) classification, it qualifies as “Made in Vietnam,” which provides a workaround for the trade barriers erected by the US government since the 2017 trade war. As multinational technology firms like Apple diversify their supply chains as part of their “China plus one” strategies, its Chinese suppliers are following this trend. For instance, Apple’s contractor, Luxshare Precision Industry Co., has announced plans to double its investment in Bac Giang, Vietnam to $504 million, responding to a trend of “internationalization of industrial chains.” Goertek, another Apple supplier, is also investing up to $280 million to establish a new subsidiary in Vietnam to serve Apple’s demands.

Since as early as 2013, nine out of the top ten Chinese electronic component and assembly companies have been making greenfield investments in Vietnam, with the capital influx accelerating since 2018. These expansions not only cater to Apple’s appetites, but also aim to broaden their market reach within ASEAN. For instance, BYD plans to open a plant in Vietnam to produce car parts, with the aim to export components to its factory in Thailand that serves mainly the expanding Southeast Asian electric vehicle market.

China accounted for 39 percent of Vietnam’s electronics imports in 2022, with a below-average annual growth rate of 1.3 percent among all sources. Considering that 33.21 percent of Vietnam’s total imports come from China, the electronics sector is not an outlier of particular concern. Vietnam’s electronics supply chain, intermediary and finished combined, remains diversified, with substantial contributions from South Korea (27 percent), Taiwan (9 percent), and Japan (7 percent). Despite recent increases in Chinese FDI, there has not been a corresponding surge in demand for Chinese intermediary goods, challenging the “re-routing” argument that these enterprises mislabel Chinese goods as Vietnam-made to evade tariffs.

Although Vietnam’s sourcing of electronic goods is not overly reliant on China, China can still influence on how Chinese-based companies operate there. When then US President Donald Trump placed an executive order to force TikTok to sell or close in 2020, the Chinese Ministry of Commerce expanded the “Catalogue for Prohibited and Restricted Export Technologies” and prohibited tech transfers relating to big data software. Currently, the ICT section of the catalogue only includes integrated circuits and robotics. Should China decide to include core electronics technologies in this catalogue, plants in Vietnam might face challenges in maintaining production.

As China’s intensifies its strategy of friendshoring in the electronics sector, Vietnam’s industries could be more entangled with China. In response, Washington should proactively bolster its anti-dumping and anti-subsidy enforcement. In a 2019 case, the United States imposed duties of 456.23 percent on steel imports from Vietnam, attributing the decision to the mislabeling of products from South Korea and Taiwan to evade the levies. The United States also has the option of lifting overall duties for products from key industries. Although the Biden administration waived trade duties on solar modules from Vietnam until June 2024, the exemption depends on renewals every two years and companies’ compliance of related trade rules.

The United States remains well-positioned to provide Vietnam with the right incentives to reduce its dependence on China and maintain it as a dependable supply chain partner. Under the CHIPS Act, the United States can allocate a portion of the $500 million of International Technology Security and Innovation Fund to enhance Vietnam’s semiconductor ecosystem. The United States has a strength in mobilizing private investments: it has initiated workforce development initiatives in Vietnam with two million dollars in “seed funding” to incentive the private sector to join. In contrast to Chinese firms, which primarily focus on manufacturing, US companies, including Qualcomm, NVIDIA, and fifteen other companies are planning to establish R&D centers and nurture local talent in technology, aligning with Vietnam’s goal to ascend the value chain and fostering a balanced approach amidst US-China tensions. By portraying itself as a good partner, the United States offers a prospect that Vietnam has every reason to embrace.

Stanley Zhengxi Wu is a former young global professional with the Atlantic Council GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post China and the US both want to ‘friendshore’ in Vietnam appeared first on Atlantic Council.

These new tariffs on both sides of the Atlantic signal greater alignment between Washington and Brussels on China. That is good news for the transatlantic partnership. But the technical differences in the latest salvos by the United States and Europe point to important differences in where Washington and Brussels are starting from and where they each might move next.

The Biden administration’s tariffs, announced on May 14, cover a wide range of strategic industries deemed critical to national security. These industries include steel, aluminum, microchips, EVs, and batteries. The most eye-grabbing figure was US tariffs on Chinese EVs quadrupling to 100 percent. The news from Brussels on June 12 delivered a similar but smaller effort, and one based less on a national-security framing. Moreover, Europe’s new tariffs are part of an ongoing investigation into Chinese practices, and therefore they are provisional.

The European Commission began its probe into Beijing’s massive subsidies of key sectors in October 2023. It has focused on the threat of cheap Chinese imports flooding the European market, driving down prices, and hurting Europe’s automotive sector. The investigation reflects a calculated approach, aligning with the EU’s new de-risking approach, but still, as is typical for the bloc, centering on adherence to World Trade Organization-complying trade defense regulations. 

Unlike Washington’s tariffs, which apply to the entire sector, the new European tariffs target specific Chinese companies. They do not, in the words of German Vice Chancellor Robert Habeck, amount to “punitive tariffs.” Europe’s tariffs on battery EVs will cover a wide umbrella of companies, including Western brands with production facilities and joint ventures in China. This leaves open the option for carmakers to relocate their production to Europe, thereby avoiding the tariffs.  

Much of the difference between Washington and Brussels is due to the different immediate market threats posed by Chinese EVs. The United States imported fewer than three thousand EVs from China last year, and the tariffs are in part intended to prevent Chinese market share from growing. In Europe, in contrast, China is already a major player. Chinese-made EVs account for around 25 percent of the European market, with Beijing exporting 430,000 such vehicles to the continent in 2023, a number that has quadrupled in the past five years. The EU decision therefore must be seen as an attempt to strike a balance between protecting Europe’s internal automobile industry and avoiding escalation into a trade war with Beijing.

Another factor is European unity—or lack thereof. European Commission President Ursula von der Leyen has underscored that Europe “will not waver from making tough decisions needed to protect its economy and its security” and she has not shied away from directly confronting China’s leadership on Chinese overcapacity “flooding the European market.” But von der Leyen is well out in front of many of her European counterparts with her economic security agenda. Export-oriented members, such as Germany, Sweden, and Greece, have expressed reservations toward the increased tariffs, and the Commission’s announcement came only after an eleventh-hour push by Germany to lower the tariffs.

This hesitance from certain member states is spurred on by Beijing, which has fought the investigation since its inception and sought to sow division within the bloc. Even though Europe’s countervailing duties are likely insufficient to offset the advantage China holds in production, Beijing has warned that the EU’s moves could lead to a trade war. On June 17, Beijing opened a dumping probe into imports of pork from the EU in response to Brussels’ tariff announcement.

Prior to the news of the EV tariffs, China also threatened retaliatory tariffs targeting German carmakers, French luxury products, and the European aviation and agricultural sectors, highlighting the breadth of China’s appetite to hit back at sectors that will hurt specific EU countries.

Another difference between the US and EU tariffs is the finality of these announcements. The Biden administration can move relatively quickly and decisively, but the European Commission’s tariff announcement is provisional. The investigation is still ongoing, and final tariffs will come four months after the provisional tariffs’ imposition on July 4. The EU’s tariffs could realistically be lowered during this time if China continues to push back and if EU member states get skittish. The EU and China have already begun consultations on the tariffs, which may bring about some revisions to the EU’s actions.

Finally, there is the issue of leadership. The United States will hold an election in November, but Washington is generally united on its approach toward China. As the Biden administration’s extension of many of the Trump administration’s policies toward Beijing signal, tariffs and a hardline approach on China will likely feature in any next US administration. There is far less certainty of consistent support in Europe, however.

Over the summer, the European Commission leadership will turn over. If von der Leyen were to win a second term leading the next Commission, it would solidify the EU’s increasingly tough trade policy approach toward China, signaling continuity and alignment with Washington. But nothing is guaranteed. Von der Leyen has yet to be nominated by the EU’s member states or confirmed by the European Parliament. She will certainly defend her Commission’s decisions on China, but she may be forced to make concessions on future action to secure her post. This trade saga is far from over.

Jacopo Pastorelli is a program assistant with the Atlantic Council’s Europe Center.

James Batchik is an associate director at the Atlantic Council’s Europe Center.

The post The EU’s new tariffs are just the start of the EV trade saga with China appeared first on Atlantic Council.

The United States is outperforming all of its advanced economy peers in post-COVID growth, and it is not particularly close. As we’ll surely hear from Biden on Thursday, fiscal policy has played a role. The major infrastructure investments through the Inflation Reduction Act and CHIPS and Science Act, have started to create new jobs in the manufacturing sector. The Federal Reserve also played a key role by keeping interest rates near zero for twenty-two months and pumping trillions in liquidity and backstops into the US economy after the crisis. But there are other factors at play as well, including the rise of homegrown artificial intelligence companies and producers such as NVIDIA that make those machines hum, boosting the United States ahead of its fellow Group of Seven (G7) countries. Combined with increased productivity growth, you have the recipe for an unexpected surge in the US economy. 

—Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser at the International Monetary Fund.

How does inflation in the United States compare to the G7? It’s falling, but not as fast as in Europe. The tradeoff with higher growth has been somewhat sticky inflation in the United States and a struggle to get back to the Fed’s 2 percent target range for price growth. It’s the surge in inflation during the pandemic and the still-elevated price levels that have generated so much discontent domestically about the US economy. Voters can’t feel that they may be doing better than citizens in Japan or Germany—what they can feel is how much it costs them to go to the grocery store this year compared to last. 

—Josh Lipsky

One of the biggest points of contention during the debate will be about job creation. Biden will say Trump was the first president since Herbert Hoover to leave office with the United States having lost jobs during his presidency. If there’s one rule in US economic history, it’s to try not to be compared to Herbert Hoover. Of course, the reason for that fact was the COVID-19 pandemic. What’s most surprising, though, is what happened after. Unlike previous recoveries, the US labor market rebounded swiftly and within twenty-nine months had recovered all the jobs lost during the crisis. As of May 2024, over fifteen million jobs have been created during the Biden administration. The numbers are the numbers. The big debate that we will see play out Thursday is which factors drove which parts of the crash and recovery, and who gets the credit or blame. 

—Josh Lipsky

One issue on which both sides of the aisle seem to agree is taking a strong stance on economic competition with China. The question of how strong will be up for debate, with Trump suggesting a 60 percent tariff on Chinese goods and Biden following a more targeted approach in his recent tariff increases on electric vehicles, steel, and other goods. Biden likely won’t mention that most of the Trump-era tariffs remain in place, and Trump won’t want to admit that the share of US imports coming from China is lower now than at any point in the last decade. Two of the driving forces—China’s economic slowdown and zero-COVID policies—probably won’t be part of the discussion. But they should be. 

—Sophia Busch is an assistant director at the GeoEconomics Center.

The US economy continues to show declining emissions intensity of gross domestic product (GDP), meaning the amount of carbon emissions per unit of GDP. Crucially, the United States is cutting emissions while continuing to grow the economy. The Rhodium Group projects that emissions fell 1.9 percent even as the economy expanded by 2.4 percent in 2023. Accordingly, US emissions intensity of real GDP continues to decline even though the US economy is larger than it has ever been. 

—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center.

US energy production stands at an all-time high because of the country’s higher output of oil, gas, and renewable energy sources such as solar and wind. Energy from oil production in 2023 rose by 5 percent compared to pre-COVID times in 2019, while natural gas output increased by 32 percent. Solar energy production has soared by a whopping 104 percent, as wind energy output grew by 44 percent. These developments have put pressure on coal output, which has fallen by 17 percent and is poised to decline further. Crucially, solar generation outpaced coal consumption for the first time in March 2024 in Texas, the country’s largest coal-consuming state. The US energy production mix is changing. Energy production—including for clean energy sources such as solar, wind, and nuclear energy—seems poised to surge if onerous permitting roadblocks, such as for siting transmission lines, are lifted. 

—Joseph Webster

While the United States outperforms other G7 nations in economic growth, it falls behind in broader measures of well-being. Over the past decade, the United States has seen a decline on the Atlantic Council’s Prosperity Index, the only G7 country to experience a decline. More striking is the fact that even in the prosperity components in which the country has experienced improvements, such as education, these gains have been smaller than its peers’. As a result, the United States’ ranking has fallen in virtually all categories of the Prosperity Index since 1995. Yet this decline must be put in perspective, as the United States remains well established among the top countries on the Prosperity Index—ranking thirty-sixth out of 164 countries.

—Joseph Lemoine is the director of the Atlantic Council’s Freedom and Prosperity Center.

Life expectancy, an important health indicator, remains a challenge for the United States. Not only does it lag behind other G7 nations, but it also experienced the worst decline among G7 nations during the COVID-19 pandemic. Furthermore, the United States is one of only two G7 countries, alongside Germany, that hasn’t fully recovered from the pandemic’s impact on life expectancy.

—Joseph Lemoine

Income inequality has been a persistent problem in the United States for decades. While there might be temporary fluctuations, the overall trend shows minimal improvement. There has been some progress made in the last five years, but the United States remains worse off compared to 2010 when it comes to income inequality.

—Joseph Lemoine

Alisha Chhangani, Clara Falkenek, Gustavo Romero, and Konstantinos Mitsotakis of the GeoEconomics Center contributed to the data visualizations in this article.

The post Your presidential debate prep on the US economy, in charts appeared first on Atlantic Council.

The post Dollar Dominance Monitor featured by Reuters on BRICS de-dollarization efforts appeared first on Atlantic Council.

The post Transatlantic Economic Statecraft Report cited in the International Cybersecurity Law Review on semiconductor supply chains appeared first on Atlantic Council.

Defense Journal by Atlantic Council IN TURKEY (DJ): ATBR is a fairly new enterprise but one with potentially big impact on US-Turkish strategic cooperation. Can you tell us a little about its mission and purpose?

Bloom: The American Turkish Business Roundtable, or ATBR, is a nonprofit organization with 501(c)(6) legal status in the United States with a singular purpose of promoting bilateral trade between the United States and Turkey. The organizers have deep experience with the US defense industrial base (DIB) and a related interest in energy infrastructure and energy security. Simply put, ATBR is an initiative to improve stability and advance the interests of the United States and its treaty allies through cooperation in defense and energy, where there are obvious synergies but also numerous roadblocks—thus the need for a forum to seek creative, mutually beneficial solutions to common challenges. The ATBR is a priority for the Jones Group, a business run under the guidance of former Supreme Allied Commander Europe and former US National Security Advisor Gen. James Jones. Gen. Jones’ time in NATO, and later as head of the American-Turkish Council, formed his understanding of Turkey as a defense and strategic partner for the United States—but also a potentially very important trade and economic partner. The Jones Group sees ATBR as a form of public-private partnership that enables cooperation in defense, energy, and trade.

DJ: If the focus is trade, how is this different from other commercial support groups, such as the US Chamber of Commerce and its Turkish counterpart?

Bloom: We focus on helping Turkish companies engage with potential US partners and seek areas of mutual benefit. This is a bit different from the mission of US trade promotion organizations, such as the US Chamber of Commerce, that promote the interests of US companies abroad. ATBR looks to collaborate and cooperate with other trade promotion organizations and strengthen the bilateral relationship. We are seeking synergies. The Turkish DIB benefited in many ways from partnerships with US companies, including F-16 production over several decades and early development of the F-35, the contentious end of Turkish production for the F-35 notwithstanding. This demonstrated that the US and Turkish DIBs have a synergistic capacity in a number of areas. Partnerships and collaboration can benefit both sides. As we like to say, defense cooperation begins not on the battlefield but on the factory floor.

DJ: Defense industrial collaboration went into a deep freeze between 2010 and 2024. The approval of the F-16 deal and announcement of artillery ammunition coproduction in early 2024 seem like the opening of a new stage. Is defense cooperation now increasing in scope? 

Bloom: We are engaged with a great number of defense sector producers in both Turkey and the United States; we, and those we talk with, see the current fragility of the US DIB as an urgent call for partners. Turkey has the ability and resources to be a great partner in this regard. US defense manufacturers focus on high-end but frequently expensive solutions—what we might call the few and exquisite. Turkish defense industry produces items at a lower price point but an effective level of performance—what we might call the many and adequate. In terms of defense strategy, there is a need for both.  

DJ: If the need is obvious, why is there a need for an organization to facilitate? Won’t the governmental or corporate organizations find opportunities for collaboration?

Bloom: This is not always a natural or easy strategic partnership, though it is one with great present and potential value. There are many differences in politics, strategic culture, and position that make this a thornier relationship on both sides than, say, the one between the United States and the United Kingdom. Given the number of complicating factors, private sector facilitation, especially from the US side, provides an important balancing and catalytic element to motivate both sides to overcome the known obstacles.

DJ: The hallmark of bilateral cooperation during the Cold War was defense, but ATBR focuses on energy as an important second pillar. Why?

Bloom: Energy policy is a central strand of statecraft. Strong partnership in geopolitical matters requires not just cooperation on defense but a common approach to stability—and energy matters as much as military or counterterrorism and counterintelligence for stability. Cooperation on energy makes the region more stable—in the case of the United States and Turkey, multiple regions. Washington and Ankara are both interested in energy flows from the Caucasus, through the Black Sea, Iraq, the Gulf, North Africa, the eastern Mediterranean. Energy policy is a key tool to incentivize partnerships and reconciliation—if we get this right with Turkey, the profits will be geopolitical and strategic, as well as economic.

DJ: Is the ATBR interested in areas beyond defense and energy?

Bloom: Our project is about connecting Turkish companies and US partners for mutually beneficial and strategically important projects. We’ve talked to both sides about minerals, heavy industry, construction, and tourism. But defense and energy are the most tangible projects that generate momentum for the others, and so they have been an early focus.

DJ: Given the turbulence in bilateral relations over the past fifteen years, is the private sector gun-shy or risk-averse? Is there an appetite on both sides for new initiatives?

Bloom: For certain, there is appetite on defense and energy. People who understand the limitations of the US DIB get the need for it. The “few and exquisite” combined in a package with “the many and adequate” in terms of price and sophistication is the sine qua non of warfare in the early twenty-first century. Tons of Turkish and US defense and industry experts see this, so we see an increasing desire for corporate cooperation. With the recent deal between Turkish Repkon and General Dynamics as an example, we find that when the private sector finds complementary solutions, the policy process becomes easier. Sometimes, bottoms-up works better than top-down in defense-industrial cooperation.

DJ: Final thoughts on what the ATBR might achieve in the defense sector?

Bloom: ATBR is chaired by Gen. Jones. Gen. Tod Wolters, another former SACEUR, is a board member. This shows that the most authoritative voices on transatlantic security consider the US-Turkish bilateral relationship as a critical component of security for those two countries but also for the Alliance as a whole. There is a parallel to the thinking behind the Abraham Accords—that trade and mutual interest can overcome frictions and disinclinations. The overriding logic of mutual benefit, operationalized by US and Turkish companies, will benefit the strategic interests of both countries.

Gregory Bloom is a board director of the American-Turkish Business Roundtable (ATBR). He also serves as Chief Operating Officer for the Jones Group International, and as a senior advisor to the Atlantic Council’s Scowcroft Center for Strategy and Security.

Explore the journal

The Atlantic Council in Turkey, which is in charge of the Turkey program, aims to promote and strengthen transatlantic engagement with the region by providing a high-level forum and pursuing programming to address the most important issues on energy, economics, security, and defense.

Learn more

The post Defense Journal by Atlantic Council in Turkey interview with Gregory Bloom appeared first on Atlantic Council.

The post Fleck, Lipsky, and Shullman cited by Business Insider on Europe-China economic decoupling appeared first on Atlantic Council.

The post Donovan and Nikoladze cited by The Atlantic on China-Russia oil trade appeared first on Atlantic Council.

The post Kumar cited by Axios on wholesale central bank digital currency development appeared first on Atlantic Council.

The post CBDC Tracker cited by Coingeek on wholesale central bank digital currency development appeared first on Atlantic Council.

The post Tran cited by Business Insider on Saudi Arabia petrodollar alternatives appeared first on Atlantic Council.

Compared to last year’s economic free-fall, Argentina’s situation is indeed looking up. President Javier Milei and his team have embarked on a serious fiscal adjustment initiative and are making a determined effort to bring inflation down from record levels. These policies have met with considerable early success, but the austerity measures needed to reduce the fiscal deficit have led to massive social disruption and serious street protests against the government.

Despite these early achievements, the real issues facing Argentina remain low productivity, a weak growth outlook, and large external financing needs in the foreseeable future. Together, they call into question whether Argentina will be able to crawl out from under its large debt burden and access markets to obtain fresh financing beginning in 2025, as projected by the latest IMF staff report. This forecast corresponds to an exceedingly optimistic scenario, in which continued reforms lead to an improvement in Argentina’s twin deficits, culminating in a strong pickup in capital flows in the medium term.

In reality, it is more likely that the reform momentum will be slowed by hardening opposition in the National Congress of Argentina, in particular in the Senate, where Peronist provincial governments still hold sway. Further exchange rate depreciation, the lack of a strong rebound in labor markets, and accumulating pain from continued austerity will also impair Milei’s hopes of gaining a parliamentary majority of his own during next year’s midterm elections.

A drubbing at the polls could throw Argentina back to square one. Both of the last two governments were hobbled by weak election outcomes halfway through their presidents’ terms. Despite Milei’s popularity with a large part of the Argentinian public, failure to array Congress behind his movement could again leave Argentina with a lame duck government and a half-completed reform agenda.

In such a situation, the envisaged liberalization, if not outright dollarization, of Argentina’s exchange rate regime—which still seems to be one of the president’s key objectives—is bound to fail. The country would need a strong and growing economy to sustain the kind of fiscal discipline that is required for a stable exchange rate regime, and this will not be possible without deep changes to Argentina’s economic laws and structure, starting with the government’s own footprint.

Such changes require a societal consensus toward market-friendly reforms, but also toward the appropriate distribution of incomes in case growth takes off. In Argentina, such middle ground between radical reform and government largesse has been elusive for decades, and it is unlikely to be found unless the main political camps are prepared to compromise.

Without dismissing this possibility outright, it is much more likely that the economic hardship currently experienced by ordinary Argentineans will drive voters back toward the main opposition party. The Peronist party will, without doubt, promise large handouts to core constituencies that abandoned them during the last elections, frustrated by high inflation and rising unemployment. And as the economic environment is stabilizing, many voters will have forgotten who was responsible for Argentina’s precarious situation in the first place.

The IMF should therefore remain cautious in its discussions with the current government. The institution was wrong to lower its standards for the current program, which granted Argentina a fairly easy restructuring of its repayment terms, an operation that is in principle ruled out by the IMF’s own statutes. Going forward, the fund should be leery of granting Argentina fresh money, digging itself even deeper into a hole that is already threatening to upend its own balance sheet (and possibly imposing losses on shareholders whose per-capita income is still below Argentina’s).

Instead, any new relationship with Argentina should be based on conditionality that ensures sustained growth and the eventual repayment of Argentina’s debt. As it failed to do in 2022, the IMF should insist that both political camps sign on to a meaningful reform program. Otherwise, it risks a reprise of the Macri experience, when IMF funds provided the incumbent government with a financial war chest to support its reelection which the next opposition-led government did not feel obliged to repay when it came to power.

Martin Mühleisen is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former IMF official with decades-long experience in economic crisis management and financial diplomacy.

The post Milei’s biggest challenge is to foster the societal consensus that Argentina needs to thrive appeared first on Atlantic Council.

For years, multinational corporations by the score would pay handsomely to be partners of the forum, and would invest heavily in state-of-the-art exhibition stands. Participation was by invitation only, with careful vetting of those who were to have, once inside the entrance gate, virtually unrestricted access to the senior Russian government officials, CEOs, and other notables in attendance. The evening social and entertainment agendas were replete with over-the-top extravaganzas featuring many of the luminaries of Russia’s cultural beau monde.

SPIEF was also seen as a measure of Russia’s standing in the world as an economic and geopolitical power, and a reflection of the esteem in which world leaders held Vladimir Putin. Typically, no less than half a dozen heads of state or government from the world’s most important industrial and emerging market economies would typically join Putin on stage during the keynote address.

Most VIP political guests at SPIEF were democratic leaders, reflecting a desire to embrace Russia as a new member of the democratic club, albeit one that did not yet fully abide by the rules. Some leaders of a more authoritarian hue would also attend, but diplomatic politesse ensured that everybody was well behaved. The long days and mild weather, combined with the undeniable beauty of St. Petersburg, created an upbeat atmosphere and friendly spirits. As one who attended five SPIEFs, I can attest to the enchantment of it all.

While the weather and the venue have remained the same, SPIEF has experienced a gradual and then abrupt decline in status over the past decade. This process first began in 2014 after the annexation of Crimea. It has accelerated dramatically following the full-scale invasion of Ukraine in 2022, and was all too evident in June 2024.

As the world watches the Russian invasion of Ukraine unfold, UkraineAlert delivers the best Atlantic Council expert insight and analysis on Ukraine twice a week directly to your inbox.

Prior to 2014, SPIEF attendance had been regarded as more or less obligatory for the CEOs of all the largest international oil and gas companies. This year, however, the picture was strikingly different, with SPIEF attracting virtually no business leaders from G7 or EU member countries. Instead, there was only a relatively small contingent representing state-owned enterprises from other countries, mostly those that trade in sanctioned Russian oil and gas.

As far as can be gleaned from the official SPIEF website (personal attendance is now out of the question), the only partners and exhibitors at this year’s event were Russian companies, mostly state-owned or controlled. SPIEF claims to have attracted 21,200 participants, but this figure likely includes offsite events open to the public.

Eurasia Center events

Online Event Thu, August 15, 2024 • 9:00 am ET

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

The most striking thing about the 2024 SPIEF program was the absence of high-level international political participation. Indeed, it must have been particularly painful for Vladimir Putin to share a stage with the presidents of Bolivia and Zimbabwe. Having lived in Bolivia, I do not mean to disparage that beautiful country; nor do I harbor any ill will toward Zimbabwe. Nevertheless, there is no escaping the fact that Putin most certainly does not see those leaders as peers. Nor do they compare to the global heavyweights who traditionally participated in previous SPIEFs.

The only other “heads of government” in attendance in St. Petersburg this June were the leader of Georgia’s Russian-occupied Abkhazia region, and the head of Republika Srpska, a sub-national entity in Bosnia-Herzegovina. This underwhelming international guest list at Russia’s flagship annual economic forum speaks volumes about Putin’s pariah status.

The reasons for the absence of democratic leaders at SPIEF are obvious and require no further explanation. At the same time, it is interesting to note that numerous putative allies of Russia also gave the event a miss. Perhaps Chinese President Xi’s recent visit to the Shangri-La Conference in Singapore was too close in timing. Significantly, Iran chose not to send any senior officials. The leaders of Venezuela, Nicaragua, and Cuba similarly stayed away.

The absence of Syria’s Bashar al-Assad came as no surprise as he rarely travels. But what about Russia’s BRICS partners Brazil, South Africa, and India? Meanwhile, the most glaring absence of all was Belarusian dictator Alyaksandr Lukashenka. No other head of state is as personally indebted to Putin, who saved Lukashenka in 2020 after anti-regime protests erupted across Belarus following a sham presidential election.

Russia’s remaining partners are clearly in no hurry to engage in public demonstrations of support for Moscow. Nor can the Kremlin necessarily count on Putin’s fellow pariahs. If SPIEF is Russia’s showcase, then the glass evidently needs a thorough cleaning.

Edward Verona is a nonresident senior fellow at the Atlantic Council’s Eurasia Center covering Russia, Ukraine, and Eastern Europe, with a particular focus on Ukrainian reconstruction aid.

Further reading

UkraineAlert May 30, 2024

If the West wants a sustainable peace it must commit to Ukrainian victory

By Hanna Hopko, Andrius Kubilius

Since 2022, Western policies of escalation management have failed to appease Putin and have only emboldened the Kremlin. If the West wants peace, it must help Ukraine win, write Hanna Hopko and Andrius Kubilius.

Civil Society Conflict

UkraineAlert Jun 12, 2024

Ukraine is making the Russian occupation of Crimea untenable

By Olivia Yanchik

Ukraine’s growing air strike capabilities are decimating Russian air defenses in Crimea and making the occupation of the peninsula increasingly untenable, writes Olivia Yanchik.

Conflict Defense Technologies

UkraineAlert Jun 4, 2024

Vladimir Putin just tacitly admitted Crimea is not really part of Russia

By Peter Dickinson

Russia claims to have annexed five Ukrainian provinces but refuses to extend security red lines to these regions. This highlights the pragmatic political realities behind Putin’s talk of historic conquests, writes Peter Dickinson.

Conflict Disinformation

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

Read more from UkraineAlert

UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

Learn more

The post Russia’s flagship international forum showcases Putin’s pariah status appeared first on Atlantic Council.

It isn’t so much the contents of the new Putin-Kim agreement, which depending on who you listen to is either a mutual defense “alliance” (the North Korean leader’s characterization) or something far less. Putin said Russia “does not exclude” military-technical cooperation and that the agreement provides for “mutual assistance in the event of aggression against one of the parties.”

It isn’t even the ride-through-the-town-together bromance atmospherics of a relationship that not so long ago was frosty over Pyongyang’s nuclear breakout. Putin’s arrival gift to Kim was a Russian limousine because he knew the forty-year-old fellow autocrat likes a snazzy ride. Kim’s gift to Putin was a North Korean portrait of the Russian leader himself, Kim’s assessment of how best to endear himself to Putin.

In fact, the most terrifying point is that Putin’s full-scale invasion of Ukraine in February 2022 should have left the leader isolated and weaker due to Russia’s heavy military losses and the storm of sanctions that followed. It has instead resulted in the closest defense-industrial confederation of autocrats—Russia, China, North Korea, and Iran—perhaps ever.

For details on the whole picture, read today’s front page Wall Street Journal story, based on sourcing from US defense and intelligence officials, on how “Russia’s military cooperation with Iran, North Korea, and China has expanded into the sharing of sensitive technologies that could threaten the [United States] and its allies long after the Ukraine war ends.”

For a narrower but no less revealing view of the consequences of North Korea’s burgeoning relationship with Russia, I turned to the Atlantic Council’s own Markus Garlauskas, the director of our Scowcroft Center for Strategy and Security’s Indo-Pacific Security Initiative.

He previously served in the US government for two decades, including as the national intelligence officer for North Korea. It was a job in which, among other things, he provided direct analytical support to then President Donald Trump for his meetings with Kim in Singapore and Hanoi. Garlauskas knows his stuff.

What worries him isn’t just the military wherewithal that North Korea is providing Russia, which has concerned US intelligence officials so much that that they recently chose to expose sensitive details of what they have unearthed. According to the latest figures released by the US State Department this week, North Korea’s support to Russia in recent months has included more than 11,000 containers of munitions, which range from run-of-the-mill artillery to dozens of ballistic missiles.

Beyond the capabilities North Korea has given Putin to kill more Ukrainians and sustain his illegal war, Putin’s embrace of Pyongyang is “making North Korea a far more challenging problem,” says Garlauskas.

Putin’s support for Kim, he says, is allowing North Korea to more effectively evade United Nations resolutions and sanctions on its weapons capabilities, providing Pyongyang greater access to dual-use technology and badly needed access to hard currency.

Russian support is emboldening Kim, through the robust embrace of a United Nations Security Council member, to be more aggressive against South Korea and the United States. In effect, Putin is protecting the back of one of the world’s premier rogue actors from the consequences of his nuclear saber-rattling and missile launches.

Beyond that, Russia’s use of North Korean ballistic missiles against Ukraine is providing Kim a live-fire opportunity to refine his weapons’ capabilities and improve his tactics and techniques against US-designed missile defenses. The world usually notices and responds when North Korea fires off one of its ballistic missiles, but now the weapons are being lost in the fog of the Ukraine war.

What brings me and Garlauskas to Taiwan is a high-level Atlantic Council delegation, one that includes former Latvian President Egils Levits, former Czech Foreign Minister Tomáš Petříček, former US Defense Intelligence Agency Director Scott Berrier, and Matthew Kroenig, who runs our Scowcroft Center for Strategy and Security.

A future missive will report on Taiwan and Ukraine’s role as the front-line states that this fast-evolving confederation of autocracies has in its sights. Putin’s Pyongyang gambit is all a part of this effort, and its relevance and significance are easy to see from our delegation’s view, one thousand miles to the south.

Frederick Kempe is president and chief executive officer of the Atlantic Council. You can follow him on Twitter: @FredKempe.

This edition is part of Frederick Kempe’s Inflection Points Today newsletter, a column of quick-hit insights on a world in transition. To receive this newsletter throughout the week, sign up here.

The post The troubling significance of Putin’s Pyongyang deal appeared first on Atlantic Council.

As countries from the BRICS group and regions including the Middle East and Asia increase the use of local currencies for cross-border payments, there is a growing perception that the dollar’s importance in international finance is ebbing, particularly in global oil markets and the use of the petrodollar.  

What exactly is the petrodollar? In short, it’s a commitment by Saudi Arabia to use dollar revenues from oil sales to the United States to buy US Treasuries. But the history is more complicated.  

America and Saudi Arabia in 1974

Let’s take a look back to the Nixon administration. The United States was beset by high inflation and large current-account deficits amid an ongoing war in Vietnam, putting downward pressure on the dollar and threatening a run on US gold reserves. In 1971, the United States ended the dollar’s convertibility to gold which had been the lynchpin of the Bretton Woods international monetary system of fixed exchange rates. Major currencies began to float against each other in 1973. Then came the oil shock that fall, when the Organization of Petroleum Exporting Countries (OPEC) cut oil production and embargoed shipments to the United States during the Yom Kippur war. 

Against a backdrop of great economic and political uncertainty, as the Watergate hearings pushed toward their close, the Nixon administration embarked on a diplomatic mission that would cement an economic partnership with Saudi Arabia that has been central to the global energy trade. To encourage Riyadh’s use of the dollar as the medium of exchange for its oil sales,(and thereby funnel those dollars back into Treasury bond markets to help finance US fiscal deficits), Washington promised to supply military equipment to Saudi Arabia and protect its national security. Despite the tumult and instability in the United States at that time, the deal showed that it retained the power to set the international agenda. In addition to keeping demand for the dollar stable, the agreement promoted its use in oil and commodities trading, while creating a steady source of demand for US Treasuries. This helped to strengthen the dollar’s position as the world’s key reserve, financing and transactional currency. 

A brave new world

Fast-forward fifty years, and the dominant global position once enjoyed by the United States has comparatively weakened. Its share of world gross domestic product has declined from 40 percent in 1960 to 25 percent. China’s economy has surpassed the United States in purchasing power parity terms. It now has to vie for influence with an increasingly assertive Beijing, while facing pushes even by allies such as Europe and elsewhere that want to become more autonomous from Washington in financial and foreign policy matters. Specifically, many countries have tried to develop alternative cross-border payment arrangements to the dollar to reduce their vulnerability to Washington’s increasing use of economic and financial sanctions. 

At the same time, the United States has become far less dependent on Saudi oil. Thanks to the shale revolution, in fact, the United States is now the largest oil producer in the world and a net exporter. It still imports oil from Saudi Arabia but at a significantly lower volume. By contrast, China has become Saudi Arabia’s largest oil customer, accounting for more than 20 percent of the kingdom’s oil exports. Beijing has established close, trade-driven relationships throughout the Middle East, where US influence has waned. 

Saudi Arabia’s willingness to diversify the currencies used in selling its oil aligns with a larger strategy that requires the county to increase its international relations beyond the United States and Europe. The Kingdom’s willingness to join the BRICS club of emerging nations and partner with China and other countries in the mBridge project to explore the use of their respective central bank digital currencies (CBDCs) for cross-border payments should not be surprising.  

The dollar’s global dilemma

Saudi Arabia’s interest in currency diversification marks a small but symbolic step down the road toward de-dollarization. Increasingly, countries are using their own currencies in cross-border trade and investment transactions. The arrangements necessary to do so exist entirely outside the influence of any major power. These include currency-swap lines agreed between participating central banks and the linking of national payment and settlement systems. Using local/national currencies for cross-border payments currently entails an efficiency cost, as it relies on less liquid local foreign exchange, money, and hedging markets to directly exchange pairs of local currencies without the dollar as a vehicle. Many countries mentioned above appear to have accepted this cost as necessary to reduce their reliance on the dollar. Advances in digital payment technology, such as tokenization, would greatly reduce such costs. 

Over the past few years, the digital payment ecosystem has progressed significantly toward what is known as “tokenization” units of exchange such as CBDCs or stablecoins pegged to the dollar or any major currencies, a cryptocurrency designed to be fixed to a reference asset, etc. These tokenized units can be exchanged instantaneously and directly without having to be processed through the accounts of intermediaries such as commercial banks. Tokenized currencies are still a long way off from widespread adoption, but such an ecosystem would significantly reduce the need for participants to hold reserves to ensure adequate liquidity, weakening the role of the deep and liquid US Treasury securities market as a key pillar of support for the dollar’s dominant position in international finance. In fact, the share of the dollar in global reserves has already fallen from 71 percent in 1999 to 58.4 percent at present—in favor of several secondary currencies. 

In the foreseeable future, the dollar’s dominance will remain. But a gradual democratization of the global financial landscape may be underway, giving way to a world in which more local currencies can be used for international transactions. In such a world, the dollar would remain prominent but without its outsized clout, complemented by currencies such as the Chinese renminbi, the euro, and the Japanese yen in a way that’s commensurate with the international footprint of their economies. In this context, how Saudi Arabia approaches the petrodollar remains an important harbinger of the financial future to come as its creation was fifty years prior. 

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center, a former executive managing director at the Institute of International Finance, and a former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

Dollar Dominance Monitor

The Dollar Dominance Monitor analyzes the strength of the dollar relative to other major currencies across the world. The project presents interactive indicators to track China’s progress in developing an alternative financial infrastructure.

The post Is the end of the petrodollar near?  appeared first on Atlantic Council.

The statement released by G7 leaders after their summit last week garnered ample attention for its strong language on China’s unfair economic practices and ongoing support for Russia’s war on Ukraine, and triggered a predictably sharp Chinese response. The back-and-forth is another reminder of China’s worsened relations with developed democracies over the past few years.

Beijing is by no means abandoning those relationships – Premier Li Qiang’s visit to Australia and New Zealand this week, not to mention President Xi’s trip to Europe last month, underscore a drive to mend damaged ties. But the incident is another piece of evidence confirming that Beijing’s positions on global and economic issues receive a more welcoming reception in the developing world, where China’s economic and political ties are growing by the day.

China’s strategic shift toward greater focus on the so-called Global South is unmistakable. One need only look at where China is spending diplomatic attention and propaganda dollars.

As colleagues at the Digital Forensics Research Lab explore in a new report on China’s messaging in Africa, China is increasingly promoting pro-Russian narratives about Ukraine in sub-Saharan Africa using its media platforms, commentators, social media, and broadcasting infrastructure. The effort aims to portray China as a force for peace while the United States prolongs the war, in line with Beijing’s drive to enhance its reputation relative to Washington across the developing world.

This effort to shape perceptions of China’s responsible global role in contrast to the United States is now routinely reflected in the content of high-level diplomatic engagements with developing countries.

In his speech just last week at the BRICS Dialogue with Developing Countries in Russia, Foreign Minister Wang Yi not only underscored China’s leadership of the Global South as the “largest developing country” but also called for the convening of “a true international peace conference” on the Ukraine war that involves Russia – after Beijing pulled out all the stops to try to scuttle the Swiss-organized conference earlier this month – and threw in some choice words on US efforts to “maintain its unipolar hegemony” for good measure.

As I and the Global China Hub team discovered on a trip to Brazil, Colombia, and Honduras earlier this month, China is also ramping up diplomatic, economic, and technological engagement across Latin America, and pairing those efforts with a push to shape understanding of China across the region. Our editor-in-chief Tiff Roberts dives into that and much more in this issue of Global China – take it away, Tiff!

-David O. Shullman, Senior Director, Atlantic Council Global China Hub

Fellow

Dexter Tiff Roberts

Nonresident Senior Fellow

Global China Hub Indo-Pacific Security Initiative

China Chinese

Latin American officials flood Beijing revealing China’s global priorities

Want to know one key region of the Global South China is now focusing on? Take a look at who visited Beijing in early June. Before the first week of the month was even over, Brazil’s Vice President Geraldo Alckmin, Venezuela’s Foreign Minister Yván Gil, and special envoy of Cuban President Miguel Díaz-Canel and Minister of Foreign Affairs Bruno Rodríguez Parrilla had all passed through China’s capital (the Brazilian vice president met with Xi Jinping and secured $4.49 billion in credit concessions. Brazil has been a key market for China too, as evidenced by an eighteen-fold surge in Chinese EV sales by value).

Latin America, with its rich resources, is a key target as China expands its global economic and political reach, and that’s a concern for the US. Testifying before the US-China Economic and Security Review Commission hearing “Key Economic Strategies for Leveling the U.S.-China Playing Field: Trade, Investment, and Technology,” Pepe Zhang of the Adrienne Arsht Latin America Center called for a development-focused economic partnership with LAC that would make the Western Hemisphere more competitive, resilient, and better integrated with the US.

Economics used to bolster authoritarian power in Global South training

China’s commerce ministry isn’t just fretting about EU tariffs (see below). It has also spearheaded an effort to train officials in countries across the Global South. And perhaps not surprisingly, the instruction is about more than trade and economics: “This effort is integral to the PRC’s drive to transform a global order currently predicated on the centrality of democracy and individual rights to one more “values-agnostic” and thus suited to China’s rise under authoritarian CCP rule,” writes the Global China Hub’s Niva Yau in a June 12 report called “A Global South with Chinese Characteristics” (watch the launch event here). The 795 training descriptions reviewed by Yau show “how the PRC marries economics and politics in its trainings, revealing that Chinese economic achievements are used to support authoritarian ideals.”

The report certainly got the PRC’s attention. The Chinese Embassy responded, saying the report is “full of Cold War mentality and ideological prejudice,” with the Foreign Ministry adding that “China has always respected the peoples of all countries in independently choosing their development paths and social systems,” which is very reassuring.

A new, coordinated transatlantic response to China emerges on trade?

In a widely expected move, the European Union announced new tariffs on Chinese electric vehicles on June 12, up as much 38.1% on top of existing taxes of 10% before, affecting companies including BYD, SAIC, and NIO. Also to no surprise was the heated response from Beijing: the move by the EU “undermines the legitimate rights and interests of China’s EV industry,” and is “blatant protectionism,” Ministry of Commerce spokesperson He Yadong said in a press briefing. On June 17, Beijing officially launched an anti-dumping probe on imported pork and its by-products from the EU in response.

With the EU action coming just over a month after US President Joe Biden imposed tariffs on EVs of 100%, is a new, more coordinated transatlantic response to the Chinese trade juggernaut emerging? On June 3rd, in an ACFrontPage conversation with United States Trade Representative Katherine Tai, she did not mince words on how the US and the EU should adapt the transatlantic trade relationship to reflect the realities of China’s economic system, saying “Capitalism with Chinese characteristics… I haven’t heard that term used in many, many years. At this point, I think it’s less diplomatic than just sort of ahistorical. The China that we’re dealing with now, the PRC, is not a democracy. It’s not a capitalist, market-based economy.”

In an Econographics article exploring a similar theme entitled “Biden’s electric vehicle tariff strategy needs a united front,” the GeoEconomics Center’s Sophia Busch and Josh Lipsky write, “tariffs, working in isolation, can’t fully achieve all the objectives—no matter how high they go. It’s only when tariffs are relatively aligned across countries… that the trajectory could change.”

And it’s not just EVs that pose a threat to global industries. Without tariffs, the EU faces a flood of Chinese imports of the “new three” clean tech exports—lithium-ion batteries, solar panels, and, of course, electric cars (along with the action against EVs, the White House also raised tariffs simultaneously on lithium-ion batteries and solar cells to 25%.) “Imports of the new-three cleantech export categories have skyrocketed in recent years. Over the course of 2023, China’s exports to the EU totaled $23.3 billion for lithium-ion batteries, $19.1 billion in solar panels, and $14.5 billion for electric vehicles,” the Global Energy Center’s Joseph Webster wrote in a piece for EnergySource.

• Beginning on June 17, Atlantic Council President and CEO Fred Kempe and former President of Latvia Egils Levits have co-led the Atlantic Council’s annual delegation trip to Taiwan, hosted by the Taiwanese government. Joined by former Czech Minister of Foreign Affairs Tomáš Petříček, they will meet with Taiwan government leaders, including President Lai, think tanks, and business representatives to discuss security and economic issues facing Taiwan and the Indo-Pacific.
• The Global China Hub hosted a public conversation on allied solutions to de-risking tech supply chains from Chinese investment to spur collective action between the United States and government and private sector partners in Europe and the Indo-Pacific. The event was a continuation of the Hub’s work on tech competition and China’s drive to dominate emerging technologies and relevant supply chains.
• China’s trade with Russia has risen substantially since the Kremlin’s full-scale invasion of Ukraine, significantly bolstering Moscow’s war aims, according to new research by the Global Energy Center’s Joseph Webster.
• Xi Jinping’s recent visit to Europe was in part intended to divide it as the EU increasingly hardens its stance on China. The Global China Hub’s Zoltán Fehér explores the degree to which Xi was successful in these efforts in a New Atlanticist piece.

Global China Hub

The Global China Hub researches and devises allied solutions to the global challenges posed by China’s rise, leveraging and amplifying the Atlantic Council’s work on China across its 16 programs and centers.

Explore more

The post Global China Newsletter – Sharp words, sharper tools: Beijing hones its approach to the Global South appeared first on Atlantic Council.

On June 18, IPSI nonresident senior fellow Robert Dohner published a column in the Herald Insight Collection, titled, “Why Won’t the Dollar Topple?” He discusses the growth and permanence of the dollar and argues that the huge scale of offshore US dollar credit markets has direct consequences for US monetary policy and financial stability. 

Fellow

Robert Dohner

Senior Fellow

Indo-Pacific Security Initiative Scowcroft Center for Strategy and Security

China Economy & Business

The post Dohner published by Herald Corporation on US dollar growth appeared first on Atlantic Council.

The post Zaaimi in Leadership Connect: Tribal Spotlight Interview appeared first on Atlantic Council.

China’s direct exports to Russia since Moscow’s invasion of Ukraine have fallen only twice, both during times Chinese firms feared sanctions risks. Chinese exports first dipped in the initial days of Russia’s invasion in early 2022 amid sanctions concerns, but Chinese corporates reestablished these links, often at the urging of Chinese officials. Second, China-to-Russia shipments have declined in recent months, likely owing to stricter Western sanctions imposed in December 2023 and to Lunar New Year production pauses. This downtick is likely only temporary, and the bilateral relationship at the highest level remains strong, as the meeting between Chinese leader Xi Jinping and Russian President Vladimir Putin in Beijing in May indicates.  

Chinese imports from Russia have risen consistently throughout the conflict, largely owing to surging global commodity prices and the redirection, whenever possible, of Russian hydrocarbon exports from Europe to China.

Russia’s crude oil exports to China rose significantly after Moscow launched its full-scale invasion in February 2022. Still, Russia’s exports of other mineral fuels to China—such as natural gas, coal, and other hydrocarbons, including diesel—have grown more rapidly in percentage terms. Pipeline natural gas trade increased on the Power of Siberia pipeline as upstream production ramped up, while Russia’s coal exports to China also rose sharply. 

While Russia’s exports help finance its war effort, its imports of industrial goods are vastly more important for sustaining the economic, political, and military dimensions of its war effort, at least in the short term. Russia’s imports prevent shortages, maintain political support for the war by stabilizing living standards, and, in some cases, facilitate military capabilities. China’s exports to Russia, including of machinery, vehicle-related items, and dual-use technologies, have underpinned the Kremlin’s ongoing war effort.

Chinese automobile manufacturers, due to a mixture of massive subsidies and genuine innovations, have become global exporters. China has essentially replaced the West in vehicle trade across Russia, Central Asia, and Belarus, as a comparison of each country’s total 2021 imports versus China’s 2023 exports to those same countries suggests.

Vehicle imports by country

Russia receives Chinese vehicle-related shipments both directly and indirectly, via transshipments from third countries. While Kyrgyzstan routinely undercounted imports even prior to the war, it is not spending a quarter of its gross domestic product on auto imports from a single country. Additionally, Kazakhstan reported importing nearly $7.8 billion in autos from all sources in 2023, more than double what it imported in 2021. Many Chinese vehicle-related exports notionally bound for Central Asia are in fact headed to Russia. 

Chinese vehicle-related direct and indirect exports to Russia seem to be significantly bolstering the Kremlin’s war effort. Some Chinese-made vehicles, such as excavators, have been employed directly on the front lines. In most cases, however, Chinese vehicle-related items serve as logistic enablers, allowing Russia to avoid bottlenecks and repurpose its existing truck fleet to the front lines.

Trucks, which ease goods shortages and bottlenecks for the civilian sector and enable battlefield logistical support, are illustrative. In 2021, Russian total imports of heavy-duty trucks reached 12,785 units, for a total cost of $1.04 billion, with more than half of these shipments derived from Western sources. By 2023, conversely, China alone exported 42,562 units of these heavy-duty trucks to Russia, to the tune of $2.1 billion. Russia’s surging trucking imports are driven by wartime needs, as well as the collapse in domestic auto production, which has only recently stabilized. Here, it has found a willing supplier in China.

Chinese firms are also enabling Russia to maintain its existing civilian and military vehicle fleet. Chinese exports of vehicle spare parts to Russia and its neighbors nearly tripled since 2021, rising from $383 million to $1.12 billion. Again, while some fraction of this trade was commercial, it’s noteworthy that much of it—more than $415 million in 2023—was routed through Kyrgyzstan, which is importing 642 percent more than it did in 2021. Russia’s access to Chinese-made vehicle spare parts may have removed severe operational constraints that otherwise would have limited its recent military offensives. 

While China’s direct and indirect vehicle-related exports to Russia have been instrumental for the war effort, other exports have been even more critical for Russia’s defense industrial base. The United States, European Union, United Kingdom, and Japan imposed strict export controls on the “Common High Priority List,” a list of fifty products that Russia may seek to obtain for use in its military sector. Since then, Russia has sourced these materials directly from China and, almost certainly, from procurement agents across Central Asia. The extent of Western companies’ participation in this trade, especially via Central Asia, is an important question for policymakers to consider.

Chinese exports to Russia of high-priority goods exhibited the same pattern seen throughout the conflict. First, there was a surge in exports in the last months of 2021, due to year-end production surges (and potential stockpiling by Moscow); followed by a sharp drop in the first months of the war; a rise throughout mid-2022, as Beijing began to back Moscow’s war effort more vigorously and openly; and a decline beginning at the end of 2023, due to stricter Western sanctions (as well as the Lunar New Year).

Conversely, a look at China’s exports of dual-use goods to Central Asia and Belarus shows a nearly continuous increase since the war started.

Some of these export shipments could be legitimate. On the other hand, it is very prudent to examine if China’s shipments of dual-use goods to Central Asia and Belarus, which more than doubled in 2023 from the prior year, are simply being re-exported on to Russia. Western sanctions officials should continue to monitor Chinese dual-use exports to third-party countries, especially in Central Asia, that may serve as transshipment points and evaluate these transactions on a case-by-case basis. 

In sum, trade between China and Russia has risen sharply since the beginning of Moscow’s full-scale invasion of Ukraine, facilitating the Kremlin’s war effort. Direct trade, including in vehicles, machinery, and dual-use components, aids Russian forces in Ukraine and eases shortages in the Russian economy. Indirect trade, especially via Central Asia and Belarus, serves as a supplement for the already-considerable commercial ties between the world’s two most powerful autocracies. When examining China-Russia trade, analysts must consider the totality of their interactions, including indirect linkages via Central Asia.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and its Indo-Pacific Security Initiative. He is also an editor of the independent China-Russia Report. This analysis reflects his own opinion.

The post Indirect China-Russia trade is bolstering Moscow’s invasion of Ukraine appeared first on Atlantic Council.

Without adequate air defenses it is futile to build new fixed capacity; without adequate power and heating, the prospects for Ukraine’s economic recovery are gloomy. While severe already, this problem will become critical in the coming winter months. 

From Ukrainian President Volodymyr Zelenskyy, who spoke at the opening session, to Ihor Terekhov, mayor of the beleaguered front line city of Kharkiv, the message was driven home: Air defense and electric power are inextricably intertwined, and both are desperately needed. 

Ukraine’s partners appear to recognize the urgency of the situation. German Chancellor Olaf Sholz used the conference to announce that Germany will provide Ukraine with additional IRIS-T and Gepard air defense batteries. Italy confirmed plans to deliver another SAMP/T anti-missile battery. Just hours after the conference, Washington announced that it will be sending another Patriot anti-missile system to Ukraine. 

This was certainly welcome news for Kyiv. However, the breadth and intensity of Russia’s attacks will require many more such deliverables to provide some assurance of the survivability of any new or rebuilt power plants.

As the world watches the Russian invasion of Ukraine unfold, UkraineAlert delivers the best Atlantic Council expert insight and analysis on Ukraine twice a week directly to your inbox.

Another takeaway from the URC was the role of private sector investment in Ukraine’s recovery. Speaking at the conference, an IFC representative said the ratio of private sector investment to official funding for Ukraine’s reconstruction should be seven-to-one. As was acknowledged by many speakers, including US Special Representative for Ukraine Reconstruction Penny Pritzker, this will not be feasible without affordably priced political and war risk insurance, along with export credit guarantees backed by foreign governments. 

Here, too, the message seems to have reached Western capitals. The US Development Finance Corporation (DFC) announced a $300 million expansion of political risk coverage on top of the more than $1 billion of coverage already extended both prior to and since the full-scale invasion. The European Investment Bank (EIB) announced a new $1 billion lending facility, while the EBRD unveiled a planned $700 million credit for Ukrenergo on top of a total loan portfolio of $4.2 billion, and the IFC confirmed a total of $1.4 billion invested in Ukraine since the invasion. 

The export credit agencies of Denmark, Germany, Japan, and Poland all reported substantial coverage and very low default rates. Nevertheless, Rostislav Shurma, Energy Advisor to the President of Ukraine, cited continuing impediments to lending and insurance coverage. These include high pricing, short maturities, lending caps, and less than one hundred percent coverage. 

Eurasia Center events

Online Event Thu, August 15, 2024 • 9:00 am ET

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

The Berlin conference addressed a wide range of additional topics related to the idea of Ukraine’s reconstruction. Representatives of local and regional governments, civil society, and the private sector were active participants in the many lively sessions. Attendance was more than 1500, with the plenary session standing room only for those who dawdled on the way in (this writer included). 

The atmosphere in the breakout sessions was akin to a revival meeting, with frequent applause and eager participation from audience members. The photographs and displays lining the corridors dramatically illustrated the human tragedy of Russia’s brutal invasion, the resilience of the Ukrainian people, and their determined defense of their country. 

Still, the question remains whether the measures announced in Berlin will be enough to launch a sustainable recovery. They are a good start, and show a steady increase since the 2022 and 2023 URC events, but significant challenges remain. 

Many speakers referred to frozen Russian Central Bank reserves and other Russian assets, with Ukrainians urging Western governments to allow these funds to be used for Ukraine’s reconstruction. The $300 billion plus this represents would go a long way toward rebuilding much of Ukraine’s damaged and destroyed infrastructure. Unfortunately, there was no sign from Western government officials at the Berlin URC that their governments are quite ready to take that step. However, the issue remains very much on the agenda, with progress possible before the 2025 URC, to be hosted by Italy.

Edward Verona is a nonresident senior fellow at the Atlantic Council’s Eurasia Center covering Russia, Ukraine, and Eastern Europe, with a particular focus on Ukrainian reconstruction aid.

Further reading

UkraineAlert Jun 12, 2024

Ukraine is making the Russian occupation of Crimea untenable

By Olivia Yanchik

Ukraine’s growing air strike capabilities are decimating Russian air defenses in Crimea and making the occupation of the peninsula increasingly untenable, writes Olivia Yanchik.

Conflict Defense Technologies

UkraineAlert Jun 4, 2024

Vladimir Putin just tacitly admitted Crimea is not really part of Russia

By Peter Dickinson

Russia claims to have annexed five Ukrainian provinces but refuses to extend security red lines to these regions. This highlights the pragmatic political realities behind Putin’s talk of historic conquests, writes Peter Dickinson.

Conflict Disinformation

UkraineAlert May 30, 2024

If the West wants a sustainable peace it must commit to Ukrainian victory

By Hanna Hopko, Andrius Kubilius

Since 2022, Western policies of escalation management have failed to appease Putin and have only emboldened the Kremlin. If the West wants peace, it must help Ukraine win, write Hanna Hopko and Andrius Kubilius.

Civil Society Conflict

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

Read more from UkraineAlert

UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

Learn more

The post Ukraine’s recovery cannot begin without enhanced air defenses appeared first on Atlantic Council.