1. The G7 did not release a joint communiqué

The absence of a joint communiqué at this week’s G7 summit starkly illustrates the deepening policy divisions among leaders of the world’s most powerful economies. While policymakers debate what the G7 can accomplish amid growing US-European tensions, a more fundamental question has emerged: Is the G7 itself equipped to address today’s complex geopolitical landscape? 

The summit exposed significant rifts between G7 members and the United States on critical international issues. Trump’s assertion that ejecting Russia from the former Group of Eight (G8) was a strategic mistake amplified tensions over Russia’s war in Ukraine. While the G7 did endorse a statement calling for “de-escalation of hostilities, including a ceasefire in Gaza,” watered down statements like this underscore the challenges in achieving consensus. These parallel conflicts reveal not only internal G7 divisions but also the growing disconnect between G7 positions and broader global sentiment, especially when it comes to Israel and Gaza.  

The lead-up to the Kananaskis summit highlighted another critical question: Can the G7 remain relevant while excluding major global players? Pressure from G7 leaders ultimately compelled Canadian Prime Minister Mark Carney to extend an invitation to Indian Prime Minister Narendra Modi, despite ongoing diplomatic tensions over last year’s killing of a Khalistani separatist in British Columbia. This last-minute inclusion underscores an emerging reality—as one of the world’s largest economies, a crucial node in global supply chains, and a key player in Indo-Pacific security, India’s absence from major G7 discussions would render many outcomes meaningless. 

Perhaps most troubling is the weakening of the shared democratic values that supposedly bind the G7 together. The transatlantic relationship faces unprecedented strain as the Republican Party, under the leadership of Trump and Vice President JD Vance, increasingly views liberal European societies through a harsh cultural lens. While the United States frames China as the primary geopolitical challenge of its time, today’s Republican Party often sees European societies as equally divergent from American values and interests. This ideological drift threatens the very foundation upon which the G7 was built. 

These developments raise existential questions about the G7’s future relevance. A forum designed for the world’s democratic economic powerhouses now struggles to produce basic agreements, while excluding nations essential to global stability and prosperity. Today, the G7 risks becoming an increasingly irrelevant talking shop, much like the United Nations Security Council, unable to address many of the defining challenges of the twenty-first century. 

—Rachel Rizzo is a nonresident senior fellow at the Atlantic Council’s Europe Center.

***

Trouble was brewing even before Trump’s early departure from the leaders’ summit on Monday evening and the absence of a communiqué on Tuesday. Trump’s trade policy had already effectively resulted in a G6+1—a coalesced European, Canadian, and Japanese front against the United States. But the fracture in the G7 has only become more evident this week. At the time of its formation fifty years ago, the group was created as a channel for economic coordination between the world’s largest economies. In recent years, the conflict between Ukraine and Russia had energized the G7, which had functioned as the hub for sanctions coordination and strategizing on supporting Ukraine. This energizing, and in some ways defining, achievement of the G7 in the past decade was put into question by Trump’s assertion on Monday that Russia should be brought back into the G8 fold, laying bare the misalignment between him and the other leaders. 

There are issues that could have possibly aligned G7 leaders, such as responding to Chinese economic influence, including Beijing’s manufacturing overcapacity. But what ultimately binds the group and makes it different from the Group of Twenty (G20) and the United Nations Security Council is broad agreement on democratic values, free and open markets, and a belief in working together with allies. A fracturing G7 puts these foundational tenets under scrutiny. Trump’s early departure also snubbed partners beyond the G7; India and Mexico were looking forward to their respective bilateral meetings that could have furthered trade negotiations.  

It’s clear that on its fiftieth anniversary, the G7 is in the middle of a geopolitical crisis, as the Israel-Iran conflict plays out, and an existential crisis, exacerbated by the United States’ strained relationship with the rest of the group. What lies ahead as France will take on the presidency in 2026, and whether the G6+1 break will continue, depends on how much value Washington sees in collaborating with its closest allies on economic issues. 

—Ananya Kumar is the deputy director for future of money at the GeoEconomics Center.  

2. Trump did not meet with Ukraine’s president

Trump did himself no favors at the G7 Summit toward his goal of achieving a durable peace in Ukraine. Trump has set out a tough approach to achieve that peace. He has asked for serious concessions from both Ukraine and Russia and said that he would exert pressure on the side(s) blocking progress. Since then, Ukraine has accepted every proposal Trump has offered since mid-March, and Russia has rejected them all except for one that it violated immediately. It is clear which side is obstructionist.   

Trump had an excellent chance to use the G7 Summit to put needed pressure on the Kremlin. The G7 was poised to lower the price cap for a barrel of Russian oil from sixty dollars to forty-five dollars, which would put pressure on the Russian oil revenues enabling its aggression in Ukraine. But the United States vetoed the proposal last week—Trump’s first gift to Russian President Vladimir Putin at this G7 Summit.   

The second gift came after his arrival in Canada. The US president repeated his criticism of the G7 for kicking Russia out of the group because of its conquest and “annexation” of Crimea in 2014. (Trump had done the same in his first term.) Since Putin is blocking his peace efforts, why would Trump provide this offering to the Russian dictator at this time? It is also true that by departing the summit early to deal with the ongoing crisis in the Middle East, Trump missed a planned side meeting with Ukrainian President Volodymyr Zelenskyy. No harm, no foul there, but achieving a real peace in Ukraine will remain a distant wish if the White House continues to treat the aggressor to bouquets. 

—John E. Herbst is the senior director of the Atlantic Council’s Eurasia Center and a former US ambassador to Ukraine. 

3. Trump did not meet with Mexico’s president

After much anticipation, the first face-to-face meeting between Trump and Mexican President Claudia Sheinbaum did not take place due to the US president’s early departure. Perhaps unexpectedly, the leaders have had an amicable and constructive relationship so far, with mutual praise often being shared between the two and at least seven phone calls taking place since Trump’s election in 2024.  

The meeting in Kananaskis, however, would have offered neutral ground for both leaders to further discuss the actions Sheinbaum has taken to address US security concerns while also addressing the thornier aspects of the bilateral relationship. This includes Mexico’s refusal to accept the involvement of US troops in its strategy against the illegal drug trade and cartels. It also includes Mexico’s concern about a proposed 3.5 percent tax on remittances currently moving through the US Senate. (Remittances to Mexico represent roughly 3.7 percent of the country’s gross domestic product.)  

A three amigos-style meeting of Trump, Sheinbaum, and Carney was off the table even before the summit. But the presence of all three newly minted North American leaders and their confirmed bilateral meetings on the sidelines of the G7 Summit had nonetheless raised hopes across the region that a tangible agenda to discuss next steps for the United States-Mexico-Canada Agreement (USMCA) would be set. Now, just over a year before the sunset clause is activated in July 2026, the private sector across all three countries will be left craving certainty about the future of the trade deal, especially against the current backdrop of continuously changing trade conditions and recently doubled steel and aluminum tariffs.  

So what comes next? US-Mexico communication lines remain open. Mexico has an ally in Christopher Landau, a US deputy secretary of state and a former US ambassador to Mexico who met with Sheinbaum last week. The United States should now continue to signal its willingness to engage with Mexico to find solutions to shared challenges by setting a date for Secretary of State Marco Rubio’s announced visit and pave the way for a Trump–Sheinbaum tête-à-tête.  

—Valeria Villarreal is a program assistant at the Atlantic Council’s Adrienne Arsht Latin America Center.

4. No momentum was generated going into the NATO Summit

The G7 presents two cautionary tales for next week’s NATO Summit in The Hague. First, if Zelenskyy’s presence at the G7 contributed to Trump’s early departure, then this would serve as a reminder for NATO allies to tread lightly on signaling too much support for Ukraine in The Hague at the risk of alienating the US administration. Second, Trump’s comments in Canada suggesting that Russia should rejoin the G8 are also a warning to NATO. While allied leaders were already unlikely to raise costs on Russia at the summit for its ongoing war in Ukraine, Trump’s comments highlight that even tough language on Russia in the expected summit communiqué could exacerbate tensions while Trump is in The Hague.  

Ignoring the threats Russia poses to the Alliance and the importance of maintaining support for Ukraine comes with different (and I would argue more problematic) risks. But if NATO’s goal in The Hague is to project Alliance unity and avoid a dust-up with Trump, then the Alliance should stay focused on securing a new defense spending pledge and go home. All the hard work, for better or for worse, will fall after the summit. 

—Torrey Taussig is the director of and a senior fellow at the Transatlantic Security Initiative in the Atlantic Council’s Scowcroft Center for Strategy and Security. Previously, she was a director for European affairs on the National Security Council.

The post What did not happen at the G7 Summit in Canada (and why it matters) appeared first on Atlantic Council.

The White House has tied potential tariff relief to the elimination of tariff and nontariff barriers identified in the Office of the US Trade Representative’s 2025 National Trade Estimate Report on Foreign Trade Barriers (NTE Report). While the administration’s plan may be a well-intentioned attempt to increase US exports to the region in general, it overlooks a critical reality: Many of the so-called “barriers” are rooted in complex legal systems that cannot be easily dismantled without legislative or judicial processes. Pressuring countries to enact sweeping reforms in uncertain political environments could destabilize fragile democracies and weaken strategic partnerships, particularly at a time of growing global competition.

Profitable economic relationships

Despite ongoing challenges, Latin America has proven to be a successful economic partner for the United States. Washington enjoys trade surpluses with most Latin American countries that have existing agreements. According to US Census Bureau data, in 2024, US exports to CAFTA-DR nations totaled $47 billion, compared to $36.6 billion in imports.

Several examples illustrate this point. Colombia has consistently posted a surplus in industrial goods since 2012, driven by exports of machinery, vehicles, agrochemicals, and pharmaceuticals. Very recently, the United States has gained a trade surplus in agricultural goods with Colombia. Peru and Chile are also vital markets for US technology, medical equipment, and engineering services, due to their dynamic mining and agricultural sectors.

Moreover, many larger US companies have made significant investments across Latin America—investments made viable by the legal certainty that free trade agreements provide. 

Complexity, not obstructionism

It is worth zeroing in on the “barriers” the White House aims to remove. The 2025 NTE Report outlines a variety of trade “barriers,” ranging from health policies to customs procedures. Yet many of these are embedded in domestic legal frameworks and cannot be removed through executive fiat. In Colombia, for example, lifting certain phytosanitary restrictions requires prior consultation with indigenous communities, as mandated by the country’s constitutional court. In the Dominican Republic, altering labeling or certification norms requires legislative action. In Honduras, reforms to intellectual property laws must pass through cumbersome legislatures facing intense social scrutiny.

These legal and institutional realities should not be viewed as roadblocks but as features of functioning democracies. The United States expecting immediate compliance is not only unrealistic; it risks backfiring.

Still, there are areas where progress can be swift and impactful. Many Latin American governments are already working to streamline health registration processes, modernize customs systems, and improve transparency in public procurement. For instance, Peru’s National Customs Superintendency has digitized import procedures, significantly reducing clearance times. Guatemala’s Ministry of Economy has pushed for regulatory alignment with international food safety standards, boosting trade efficiency.

These efforts reflect a clear political will to cooperate and offer the Office of the US Trade Representative a path to pursue measurable outcomes without demanding sweeping structural reforms upfront. Furthermore, these efforts are a clear message that FTA partners in the region are facilitating trade with the United States by avoiding unnecessary red tape procedures while also complying with WTO standards.

A strategic imperative: Latin America vs. Southeast Asia

Meanwhile, Southeast Asia is emerging as a strong competitor for US investment, bolstered by market-friendly reforms and frameworks such as the Indo-Pacific Economic Framework. Vietnam, Thailand, and other countries in the region are actively positioning themselves as preferred US trade partners in that part of the world, but with the caveat that none of them currently has an FTA with the United States.

There is no doubt, however, that China is wielding its geopolitical influence to use neighboring countries to export its goods to Latin America. From there, China takes advantage of the current network of trade pacts in Latin America to distort the rules of play of many products covered under FTAs. The triangulation of goods from third countries can often circumvent proper country-of-origin rules, undermine trade facilitation efforts in the region, and contribute to unfair trade practices.

US trade partners in Central and South America cannot afford to fall behind. The region’s comparative advantages—geographical proximity, shared legal traditions, integrated supply chains, and democratic values—are unmatched. Unlike Southeast Asia, Latin America shares a common geopolitical space with the United States, in addition to their shared economic security interests.

It is time for US stakeholders to fully recognize the strategic value of Latin American partners. Providing support for viable reforms, offering technical cooperation, and showing flexibility in tariff negotiations can help ease current trade tensions and solidify the US presence in a region where China is seeking to expand its influence.

Thankfully, an appropriate framework for institutional trade cooperation is already in place. These agreements don’t require reinvention—only thoughtful adjustment. To give one clear example, free trade commissions established under free trade agreements—such as CAFTA-DR and the free trade agreements with Colombia and Peru—play a critical role in ensuring adherence to agreed commitments and resolving disputes effectively and diplomatically. These bilateral committees, which offer the possibility of engaging separately in previous consultations with the private sector, provide a structured forum for addressing trade issues, implementing dispute resolution mechanisms, and updating the technical provisions of agreements as trade dynamics evolve.

Under CAFTA-DR, the committees have helped resolve disputes concerning agricultural market access and rules of origin. In the case of Colombia, the committee has facilitated dialogue on labor practices and sanitary barriers affecting US agricultural exports. With Peru, the committee has been instrumental in addressing environmental concerns, particularly those related to illegal logging.

By providing an institutionalized channel for engagement, these bodies help prevent diplomatic tensions and foster mutually beneficial outcomes, thereby enhancing stability and predictability in trade relations. The United States should look to make the most of these important committees.

In an increasingly fragmented global landscape, deepening ties with existing partners is the most direct and effective path to advancing US economic security and strategic interests. The best way to foster sustainable growth for US exports to the region is for the United States to seek predictable rules of engagement with its trading partners in the Western Hemisphere.

Enrique Millán-Mejía is a senior fellow for economic development at the Adrienne Arsht Latin America Center. He previously served as a senior trade and investment diplomat of the government of Colombia to the United States between 2014 and 2021.

The post What should Trump do next on trade? Optimize existing US trade agreements in Central and South America. appeared first on Atlantic Council.

Session I

Session II

Session III

Session IV

Session V

Sasha Toperich
Executive Vice President
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The post Southeast Europe Transatlantic Economic Forum 2025 appeared first on Atlantic Council.

A little noticed fact is that the Ukrainian economy is actually doing relatively well in the context of the current war. The Russian onslaught in 2022 reduced Ukraine’s GDP by 29 percent, but in 2023 it recovered by an impressive 5.5 percent. Last year, Ukrainian GDP rose by a further 3 percent, though growth is likely to slow to 1.5 percent this year.

Any visitor to Ukraine can take out cash from an ATM or pay in shops using an international credit card. Countries embroiled in major wars typically experience price controls, shortages of goods, and rationing, but Ukraine has none of these. Instead, stores are fully stocked and restaurants are crowded. Everything works as usual.

How has this been possible? The main answer is that Ukraine’s state institutions are far stronger than anybody anticipated. This is particularly true of the ministry of finance, the National Bank of Ukraine, and the state fiscal service. After 2022, Ukraine’s state revenues have risen sharply.

In parallel, wartime Ukraine has continued to make progress in combating corruption. When Russia’s invasion of Ukraine first began in 2014, Ukraine was ranked 142 of 180 countries in Transparency International’s annual Corruption Perceptions Index. In the most recent edition, Ukraine had climbed to the 105 position.

Rising Ukrainian patriotism has helped fuel this progress in the fight against corruption. EU accession demands and IMF conditions have been equally important. Ukraine has gone through eight quarterly reviews of its four-year IMF program. It has done so on time and with flying colors. The same has been true of each EU assessment.

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.

Looking ahead, three critical factors are necessary for wartime Ukraine’s future economic progress. First of all, Ukraine needs about $42 billion a year in external budget financing, or just over 20 percent of annual GDP, to finance its budget deficit. The country did not receive sufficient financing in 2022 because EU partners failed to deliver promised sums. This drove up Ukraine’s inflation rate to 27 percent at the end of 2022. The Ukrainian budget was fully financed in 2023 and 2024, driving down inflation to 5 percent. The budget will be fully financed this year.

The second factor is maritime trade via Ukraine’s Black Sea ports. Shipping from Odesa and neighboring Ukrainian ports to global markets has been almost unimpeded since September 2023 after Ukraine took out much of the Russian Black Sea Fleet. The vast majority of Ukraine’s exports are commodities such as agricultural goods, steel, and iron ore, which are only profitable with cheap naval transportation, so keeping sea lanes open is vital.

The third crucial factor for wartime Ukraine’s economic prospects is a steady supply of electricity. Russian bombing of Ukraine’s civilian energy infrastructure disrupted the power supply significantly in 2024, which was one of the main reasons for the country’s deteriorating economic performance.

Ukraine’s economic position looks set to worsen this year. In the first four months of 2025, economic growth was only 1.1 percent, while inflation had risen to 15.9 percent by May. The main cause of rising inflation is a shortage of labor. The national bank will presumably need to hike its current interest rate of 15.5 percent, which will further depress growth. After three years of war, Ukraine’s economy is showing increasing signs of exhaustion. The country has entered stagflation, which is to be expected.

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Russia’s current economic situation is surprisingly similar to Ukraine’s, although almost all trade between Russia and Ukraine has ceased. After two years of around 4 percent economic growth in 2023 and 2024, Russia is expecting growth of merely 1.5 percent this year, while official inflation is 10 percent. Since October 2024, the Central Bank of Russia has maintained an interest rate of 21 percent while complaining about stagflation.

The Russian and Ukrainian economies are both suffering from their extreme focus on the military sector. Including Western support, Ukraine’s military expenditure amounts to about $100 billion a year, which is no less than 50 percent of Ukraine’s GDP, with 30 percent coming from the Ukrainian budget in 2024. Meanwhile, Russia’s 2025 military expenditure is supposed to be $170 billion or 8 percent of GDP. Unlike the Ukrainians, the Russians complain about the scale of military spending. This makes sense. The Ukrainians are fighting an existential war, while Russia’s war is only existential for Putin.

Contrary to common perceptions, Russia does not have an overwhelming advantage over Ukraine in terms of military expenditure or supplies. Russia does spend significantly more than Ukraine, but much of this is in reality stolen by politicians, generals, and Putin’s friends. Furthermore, Western sanctions impede the Russian military’s ability to innovate. In contrast, Ukraine benefits from innovation because its economy is so much freer, with hundreds of startups thriving in areas such as drone production.

Russia is now entering a fiscal crunch. Its federal expenditures in 2024 amounted to 20 percent of GDP and are likely to stay at that level in 2025, of which 41 percent goes to military and security. However, the Kremlin has financed its budget deficit of about 2 percent of GDP with its national welfare fund, which is expected to run out by the end of the current year. As a result, Russia will likely be forced to reduce its public expenditures by one-tenth.

Low oil prices could add considerably to Russia’s mounting economic woes and force a further reduction in the country’s public expenditures. However, Israel’s attack on Iran may now help Putin to stay financially afloat by driving the price of oil higher.

Economically, this is a balanced war of attrition at present. Ukraine’s Western partners have the potential to turn the tables on Russia if they choose to do so. Ukraine has successfully built up a major innovative arms industry. What is missing is not arms but funds. The West needs to double Ukraine’s military budget from today’s annual total of $100 billion to $200 billion. They can do this without using their own funds if they agree to seize approximately $200 billion in frozen Russian assets currently held in Euroclear Bank in Belgium. This could enable Ukraine to outspend Russia and achieve victory through a combination of more firepower, greater technology, and superior morale.

Anders Åslund is the author of “Russia’s Crony Capitalism: The Path from Market Economy to Kleptocracy.”

Further reading

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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.

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The post Russia and Ukraine are locked in an economic war of attrition appeared first on Atlantic Council.

By assenting to the continued abuse of corporate structures and short-circuiting the establishment of a database of the people who own and control real businesses operating in the United States—or “beneficial owners”—the Treasury has made the American financial system, and Americans, less safe. But that outcome wasn’t inevitable and is reversible.

The first Trump White House supported the CTA in a 2019 statement of administration policy, writing that the law “will help prevent malign actors from leveraging anonymity to exploit these entities for criminal gain… strengthening national security, supporting law enforcement, and clarifying regulatory requirements.” Other supporters included the US Chamber of Commerce, federal prosecutors, international human rights non-governmental organizations, financial institutions, police, sheriffs, faith-based groups, national security experts, and more than a hundred other organizations.

The persistent risk of anonymous shell corporations

Despite the passage of the CTA in 2020, anonymous shell companies remain a risk to the US financial system. Drug traffickers, terrorists, and nation state adversaries, including China, use our opaque corporate structure to harm Americans. In the CTA, Congress found that malign actors use US corporate law to facilitate “money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption, harming the national security interests of the United States and allies of the United States.”

High profile prosecutions demonstrate the roles that anonymous shells continue to play. For example, a Shanghai-based international drug trafficking organization used domestic Massachusetts shell companies as a US base for its operation to distribute fentanyl to customers across the country, resulting in multiple deaths before being shut down by the Department of Justice (DOJ) in 2018. Similarly, a February 2024 DOJ indictment revealed a scheme where a Chinese national used a US front company to launder Iranian oil into China, the proceeds of which funded Iran’s Islamic Revolutionary Guards Corps, a designated foreign terrorist organization in the United States.

The enduring danger that shady corporate structures present creates an imperative to act. It may also put Treasury Secretary Scott Bessent’s rollback strategy in legal peril, as long as the CTA is on the books. By statute, in order for a court to uphold the new rule, the rule must demonstrate that eliminating anonymous shell corporations: “(1) would not serve the public interest”; and “(2) would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes.” The Treasury makes little attempt to achieve this impossible showing. Given this shaky legal foundation, the new rule is likely to end up in court.

Building a beneficial ownership system with less burden

If Secretary Bessent’s true objective is to ease the burden on small businesses and banks, a better way forward is to determine what went wrong in the first round of implementation and fix it, eliminating uncertainty, confusion, and unnecessary compliance burdens. Secretary Bessent has spoken fondly about how the new technology expertise at the Treasury can bring our “Blockbuster-style government in a Netflix world.” He should deploy it to ease the pain points of the first round of implementation.

For example, technology can significantly ease the compliance burden on companies who are required to report their beneficial ownership information. Reporting companies are the smallest of small businesses—by statute, only companies with fewer than 20 employees are required to report. These firms usually only interact with the federal government to file taxes. With time and resources, Treasury could collaborate with the Internal Revenue Service to allow small businesses to opt in to submitting their beneficial ownership information alongside their tax information.

Secretary Bessent could also rationalize the beneficial ownership and customer due diligence (CDD) systems, which already require financial institutions to collect beneficial ownership information from their customers. Initial implementation froze the status quo for banks and built an entirely separate—and barebones—beneficial ownership database at Treasury. There must be a better way where financial institutions and Treasury join forces to collect, maintain, validate, and deploy data jointly. They should share the costs so that the American people can enjoy the formidable national security and public safety benefits of securing our financial system against illicit actors. This could functionally reduce compliance burdens of banks without reducing the quality of information available to law enforcement.

As long as the CTA remains law, Treasury is obliged to accurately implement and enforce it. Perhaps more importantly as long as anonymous shell corporations endanger our national security and safety, the US government should mitigate the grave threat they present. Following the money remains one of the most potent tools we possess to solve crimes and protect our national security. We must not disarm.

Julie Brinn Siegel is a contributor at the Atlantic Council, former Deputy Chief of Staff at the US Department of the Treasury, and former Deputy Federal Chief Operating Officer.

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Over the weekend, new details emerged about how the share is intended to work, provoking some comparisons with nationalization schemes in other countries. Below, Sarah Bauerle Danzman, a resident senior fellow with the GeoEconomics Center’s Economic Statecraft Initiative, delves into where exactly this deal lands between free enterprise and state control—and what it might mean for other US businesses.  

1. What is a “golden share”?

A golden share typically refers to a special class of ownership stake in a publicly traded company reserved for a government. The golden share confers substantial shareholder rights that would otherwise be atypical given the size of the ownership position.  

For instance, the Brazilian government has a golden share in Embraer, its national aviation champion, that amounts to an approximately 5 percent equity stake in the previously state-owned company. The arrangement also provides the government substantial governance rights, such as the ability to direct the company’s strategic director or veto a takeover or joint-venture arrangement involving the company.

The United Kingdom has used golden-share arrangements extensively to retain influence over strategically important companies, such as BAE (a major defense contractor) and NATS (its air traffic control provider) after they were privatized.  

Reporting suggests that the US government’s golden share is in US Steel rather than in Nippon Steel. This distinction is important because it means that the US government’s formal influence over Nippon will only relate to its US business (called US Steel) and not to its business operations in other locations. By tying the golden share to US Steel, the US government has also ensured that it will be able to fully control any future sale of the company. 

2. Does this deal amount to the nationalization of US Steel?

The golden share is “noneconomic,” meaning that it did not require the US government to make an investment in the company, and it also does not provide the United States with an equity stake in the company. This means that the US government will not be earning an economic return on its share, nor would it be eligible to accrue dividends. Additionally, the United States is not going to be involved in the day-to-day operations of US Steel. Because of this, and because the United States is not taking equity stakes away from owners, this is not a nationalization. 

However, the golden share gives the US government an extraordinary amount of control over the company. The company’s governance documents will outline the areas of strategic and operational decision making over which the US president will now have veto authority. US Steel may not be state-owned, but it is certainly now controlled by the US government.  

3. How will it be enforced?

The golden share will require presidential approval for a range of strategic and operational decisions, including capital allocation and investment decisions. Plainly, Nippon has agreed to an arrangement in which it would need to seek presidential approval if market conditions changed, and it decided it could not fulfill its commitment to invest another fourteen billion dollars into US operations over the next several years.  

This raises several questions: How will these requirements be enforced? What if Nippon reduced investments even without presidential approval? How would the US government compel Nippon to increase investments to its promised amount? The enforcement options of the US government are relatively weak here, especially if Nippon finds itself in a fragile economic position. A golden share gives the government substantial strategic control on the cheap, but the US government may find that some elements of its authority would be hard to enforce in a soft economy. 

4. What wider implications could this have for US businesses?

A golden share reduces the economic value of the company for other investors, even if the government only takes a “noneconomic” position. That is because the government is reducing the ability of equity shareholders to control the strategic and operational decision making of the company, which could generate costs and inefficiencies for the corporation. If golden shares were ubiquitous, then financing costs would increase and the attractiveness of the United States and US businesses as investment opportunities would decline. 

5. How can the US government mitigate these concerns?

The Committee on Foreign Investment in the United States, known as CFIUS, and the president should release more guidance as quickly as possible to make clear the circumstances under which CFIUS would seek to mitigate national security risks through a golden-share arrangement. These should be very rare cases, and the government should make clear its commitment to restraint. Otherwise, what is to stop the US government from always taking a golden share in any cross-border merger of interest? 

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The Trump administration has launched an investigation under Section 232 of the Trade Expansion Act into the impact of semiconductor imports on national security, a step toward imposing tariffs. But if it moves ahead with tariffs on all semiconductor imports, the United States would raise hardware costs for US AI firms, punish important partners such as Mexico and Taiwan, and lower prices for Chinese competitors. Tariffs targeted at China have their uses in the US-China tech competition, but they shouldn’t be applied haphazardly to US allies and partners.

Semiconductors and dual-use imports

Today, the United States and like-minded allies and partners are competing with China in AI, or what AI entrepreneur Dario Amodei and former US Deputy National Security Advisor Matt Pottinger have described as possibly “the most powerful and strategic technology in history.” AI-related imports enable US AI companies to access cost-effective inputs and continue to outpace Chinese competitors. Since AI is an emergent technology with such large potential utility and consequences, it would be a mistake to allow China to define the rules of engagement.

Components are a key cost driver for training AI models. Key AI-related component imports include processing units, such as graphics processing units (GPUs) and central processing units (CPUs), and printed circuit assemblies (PCAs), all of which could be targeted by Section 232 tariffs. GPUS are one of the most popular computing technologies to run AI models due to their ability to train massive models and speed up inference at scale; they’re also used on board autonomous vehicles. Similarly, PCAs are critical because they house and interconnect critical components like GPUs, CPUs, memory, and networking chips inside servers and data center infrastructure. AI is a critical source of demand, although chips and printed circuits are also used by a variety of non-AI applications, including cars, computers, washing machines, routers, etc. Imports of processing units and PCAs have surged in recent months due to both AI-driven demand and companies seeking to get out ahead of tariffs.

PCA unit imports have more than quintupled since 2021, with no productivity changes to explain the jump—pointing to greater hardware needs. Consequently, if PCA prices rise due to tariffs, the US AI buildout could slow.

Two economies are prominent partners of dual-use technology, with both military and civilian applications, for the US AI sector. The first, Taiwan, not only ships leading-edge GPUs to the United States, but the Taiwan Semiconductor Manufacturing Company has committed to investing a cumulative $165 billion in the US tech sector. The second, Mexico, is the largest single aggregate supplier to the United States of GPUs and CPUs, as well as PCAs, by value. Tariffs on semiconductor inputs would punish US partners while limiting the access of US firms to the global market.

Indeed, hardware is a significant cost driver for US AI. Researchers for Epoch AI and Stanford University have found that AI accelerator chips and other server component costs comprise about half of all costs for training and experiments of machine language models. Moreover, building AI models is highly capital intensive: hyperscalers committed $200 billion in twelve-month trailing capital expenditures in 2024; Morgan Stanley projects hyperscaler capital expenditures could reach as high as $300 billion in 2025. Significantly, since hardware acquisition costs are “one to two orders of magnitude higher than amortized costs,” higher prices via tariffs could deter new AI entrants, slow adoption, and stymie dynamism. 

Unintended tariff consequences on the Chinese tech sector

While heavy tariffs would harm the US tech sector, they are unlikely to impede China in the AI race. In fact, tariffs could indirectly encourage tech transfer to China by pushing other countries, especially in Southeast Asia, to work more closely with Beijing. In mid-April, after US President Donald Trump’s announcement of global “reciprocal” tariffs and the subsequent ninety-day pause, Chinese President Xi Jinping visited Vietnam, Malaysia, and Cambodia, saying he would “safeguard the multilateral trading system.” China left these meetings with several memorandums of understanding on investment and trade, including a call to increase AI cooperation with Malaysia.

The mention of AI cooperation was striking and potentially significant. Export controls of US-designed semiconductors to China have been leaky: There is some evidence of GPU transshipment to China through Southeast Asia, notably Malaysia. The Wall Street Journal also reports that Chinese engineers are using Malaysian data centers to train AI models. Meanwhile, the export of GPUs and other computer hardware containing semiconductors from Taiwan to Malaysia reached $307 million in April (more than half the value of the same exports for all of 2024). Remarkably, Taiwan’s GPU and CPU exports to countries in the Association of Southeast Asian Nations (ASEAN) hit a record high in April—surpassing exports to the United States by value for the first time on record.

The increase in Taiwan’s semiconductor exports to ASEAN does not, by itself, demonstrate transshipment to China: Malaysia is becoming an increasingly popular spot for international data centers because of the country’s cheap real estate and its proximity to Singapore. It’s possible that the GPUs and CPUs were consumed in the domestic market. Still, it’s worth noting that recent data center entrants in Malaysia include Chinese firms. If US tariffs make countries like Malaysia more willing to work with China, that could increase the risk of US export controls being violated.

 If not tariffs, then what?

Given that non-China tariffs appear likely to harm the US tech sector and could strengthen Chinese tech firms via technology leakage, US policymakers should consider alternative tools.

The United States has been able to slow the Chinese tech sector by imposing a series of bipartisan export controls that limit Beijing’s access to high-end semiconductors. Last month, the Bureau of Industry and Security rescinded the AI Diffusion Rule, which strengthened chip-related exports. Some criticize the framework for casting too wide of a net, while others hold that export controls are a crucial economic statecraft tool for protecting US national security interests and preventing technological acquisition by strategic rivals.

Export controls are vital and necessary, but they are not a silver bullet. To outcompete China, the United States must strengthen its own capabilities, including by incentivizing manufacturing and know-how in semiconductors and other strategic technologies. This is precisely the rationale for the bipartisan CHIPS and Science Act, which was signed into law in August 2022. Tariffs alone do not provide enough support to incentivize foreign investment and domestic capacity in chip technologies. While Congress and the White House should make adjustments to the CHIPS and Science Act where appropriate, the program’s overall aims should be maintained.

No one should be unclear on the stakes, amid the global race toward artificial general intelligence (AGI)—or artificial intelligence equal to or exceeding human capabilities. Whether the race is a sprint, a marathon, or something else entirely, the technology’s productivity gains will likely prove sizable. AGI also holds obvious potential risks, but it is in the United States’ best interest to be at the forefront of setting standards and developing the regulatory environment. Accordingly, it is important for the United States to maximize its chances of obtaining this technology and integrating it before China does by securing vital, high-end semiconductors ahead of its rival.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and the Indo-Pacific Security Initiative. He also edits the independent China-Russia Report.

Jessie Yin is an assistant director at the Atlantic Council’s GeoEconomics Center. This article reflects their own personal opinions.

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Here’s a look inside the numbers that will frame the summit.

The G7 was formed fifty years ago so the world’s advanced-economy democracies could align on shared economic and geopolitical challenges. But what happens when the cause of instability is coming from inside the G7? That’s the question confronting the leaders as they assemble this week in Kananaskis. 

US President Donald Trump is still getting to know some of his new colleagues, including German Chancellor Friedrich Merz, UK Prime Minister Keir Starmer, Japanese Prime Minister Shigeru Ishiba, and the summit’s host, Canadian Prime Minister Mark Carney. Trump will try to coordinate the group against China’s economic coercion. But the rest of the leaders may turn back to Trump and say that this kind of coordination, which is at the heart of why the G7 works, would be easier if he weren’t imposing tariffs on his allies. The chart above shows the friction points heading into one of the most consequential G7 summits in the organization’s history.

—Josh Lipsky is the chair of international economics at the Atlantic Council, senior director of the GeoEconomics Center, and a former adviser to the International Monetary Fund (IMF). 

Originally created as an economic coordination body, the G7 began to put foreign policy and national security on its agenda in the 1980s, as the Soviet Union’s political influence was waning. Soon after, Russia attended its first G7 Summit as a guest in 1991, formally joined in 1998, creating the Group of Eight (G8), and then was suspended in 2014 due to its annexation of Crimea. 

In the years since, new geopolitical rivals have entered the fray: Since the COVID-19 pandemic, G7 summits and declarations have attempted to address China’s role in the global economy. Last year’s leaders’ communiqué was especially harsh on China—which was mentioned twenty-nine times—on everything from its material support to Russia’s war against Ukraine to Beijing’s malicious cyber activities. But China was once a guest at the forum, first joining in this capacity in 2003.

Other members of the G7+5, an unofficial grouping of large emerging markets—India, Mexico, Brazil, and South Africa—have been invited as guests in recent years. If that sounds familiar, it is because India, Brazil, and South Africa, along with Russia and China, are the founding members of the BRICS group of emerging economies, which some would consider a representation of the geopolitical and economic competition the G7 faces today. 

This year, Australia, Ukraine, South Korea, Brazil, Mexico, and India were invited to attend as guests. These invitations are a signal of broad alignment among the G7 and its guests. These invitations demonstrate the importance of the guests’ economic might on the global stage, even though India has shifted away from the G7 quite significantly in the last fifty years, as seen in the graph above. In 1992, when Russia first attended the G7 as a guest, its gross domestic product (GDP) was less than 1 percent of the world’s GDP, and the combined economies of the five founding BRICS countries made up less than 9 percent of global GDP. At the time, the G7 represented 63 percent of the world’s GDP. Today, the G7’s share is now 44 percent of the world’s GDP and the founding BRICS members’ share has more than doubled to almost 25 percent. 

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

In 2024, G7 countries attracted over 80 percent of global private artificial intelligence (AI) investments, led primarily by the United States. In ten years, private AI investments have grown almost fifteen-fold. This month, the US Department of Commerce rebranded its AI Safety Institute as the Center for AI Standards and Innovation (CAISI)—shifting away from an emphasis on “safety” and toward promoting rapid commercial development.

Carney has said that he plans to put AI at the top of his agenda at the upcoming G7 Leaders’ Summit. He has been a long-standing advocate of AI—dating back to his 2018 presentation on AI and the global economy while he was governor of the Bank of England.

But while the United States leads in AI innovation and investment, Europe continues to set the pace on regulation, and China strategically develops its own AI models. All this leaves Canada asking where it fits in.

That may be why Carney hopes to lead on this issue. The G7 presidency offers Canada a unique opportunity to convene democracies to work together on AI. Rather than trying to outspend the United States or out-regulate Europe, Canada can focus on building connections—creating shared standards, developing trusted public-private data hubs, coordinating strategic investments, and outlining guidelines for common learning and collaboration across borders.

—Alisha Chhangani is an assistant director at the Atlantic Council’s GeoEconomics Center.

Ten years after the first G6 meeting took place in France, another landmark meeting took place at the Plaza Hotel in New York, in September 1985. At the meeting, then US Treasury Secretary James Baker convinced his counterparts from West Germany, France, the United Kingdom, and Japan to support a significant devaluation of the US dollar—what became known as the Plaza Accord.

Today, the dollar’s value relative to its G7 counterparts is on the rise again, fueled by tight monetary policy and expansionary fiscal spending. Although the current appreciation is milder than the surge seen in the early 1980s, the Trump administration may use the G7 Summit to raise concerns about the burden of being the world’s reserve currency, especially when it comes to export competitiveness. In late 2024, the current chair of Trump’s Council of Economic Advisers, Stephen Miran, proposed a “Mar-a-Lago Accord” as an updated version of the Plaza Accord, though no real progress on this is apparent. Moreover, this time a key global player is absent from the conversation—China.

—Bart Piasecki is an assistant director at the Atlantic Council’s GeoEconomics Center.

The finance ministers and central bank governors of the G7 already held their meeting last month in the Canadian Rockies, emerging with a consensus on tackling “excessive imbalances” and nonmarket policies. While the G7’s finance ministers and central bank governors’ communiqué didn’t call out China by name, it’s clear that’s who they were referring to. Simultaneously, the US-UK trade deal called for the United Kingdom to meet US requirements on the security of supply chains, which infuriated Beijing.

Washington wants coordinated economic security partnerships to help counter China and encourage more investment in the United States. But the United States has been calling for allies to divest from China for a while now. In response, G7 counterparts could point to the data above and ask: How much more do we need to give?

Over the past five years, nearly every G7 country, with the exception of Canada, has scaled down their investments in China and scaled up their investments in the United States. For example, Japan has reduced foreign direct investment in China by 60 percent over the past decade, including shuttering a major Honda plant in Guangzhou. Meanwhile, the Japanese carmaker pledged to put $300 million into a plant outside of Columbus, Ohio. This has been the trend as the United States’ G7 partners reassess their economic dependencies on China. But amid ongoing trade wars, how much are they willing to coordinate more closely with the United States?

—Jessie Yin is an assistant director with the Atlantic Council’s GeoEconomics Center.

Foreign aid, or official development assistance (ODA), from G7 countries dropped sharply in 2024, and early projections through 2025 and 2026 suggest even steeper declines ahead for most nations. The United States has exhibited the most drastic retreat, following the effective dismantling of the US Agency for International Development. But European countries have also scaled back development budgets and are redirecting funds toward defense and domestic economic issues. While ODA briefly surged in response to the COVID-19 pandemic and the war in Ukraine, that uptick masked a longer-term downward trend in traditional development funding as a percentage of G7 countries’ economies.

Most G7 nations have failed for years to meet the United Nations Sustainable Development Goals Target 17.2, which called for allocating 0.7 percent of gross national income to ODA. As of 2024, none of them has reached this benchmark. This retreat is particularly troubling given today’s fractured geopolitical and economic landscape. In such times, investing in global partnerships and life-saving aid through ODA is not just a moral imperative—it’s also a strategic one.

—Lize de Kruijf is a program assistant at the Atlantic Council’s Economic Statecraft Initiative. 

A major focus heading into the G7 Summit will be how Carney handles his latest meeting with Trump. The two managed to have a cordial meeting in May, and Carney’s announcement this week that Canada will increase its defense spending could help to placate Trump, who has long complained about Canada’s lagging defense spending.

But Canada is also looking beyond its southern neighbor. Carney has invited the leaders of Australia, Brazil, India, Indonesia, Mexico, South Korea, South Africa, Ukraine, and Saudi Arabia to join him in Alberta. Under former Prime Minister Justin Trudeau, Canada’s relationships with both Saudi Arabia and India reached diplomatic low points. By inviting these leaders, Carney is demonstrating a willingness to reengage partners. In no area is Carney more likely to pursue new partnerships than in the defense sector. Canada stated its desire to join the ReArm Europe Initiative and has signed a major deal for an Australian radar system. Expect Carney to seek new partners as Canada rebuilds its defense capacity, potentially with some of the countries invited to this year’s G7.

—Imran Bayoumi is an associate director at the Atlantic Council’s Scowcroft Center for Strategy and Security.

Canada’s hosting of the G7 Summit in Alberta carries exceptional significance amid escalating tensions with the United States. Trump’s attendance, which will mark his first G7 Summit since 2019, signals renewed engagement with Canada. This could spark talks on renegotiating the United States-Mexico-Canada Agreement (USMCA) ahead of the trade deal’s first joint review in July 2026. The timing of the G7 Summit coincides with heightened Canadian nationalism and intense public focus on Canada-US relations, particularly around tariff disputes affecting sectors such as steel.

The Trump-Carney relationship differs markedly from previous dynamics between Trudeau and Trump, potentially enabling more productive G7 cooperation when US foreign policy dominates global conversations. The trilateral presence of Mexican President Claudia Sheinbaum, Trump, and Carney creates an opportunity for preliminary USMCA discussions. However, critical questions emerge: Will Mexico and Canada align against the Trump administration? Will Canada prioritize repairing bilateral US relations over Mexico-Canada ties? The summit’s outcome is likely to significantly shape hemispheric trade relationships and regional diplomatic strategies.

—Maite Gonzalez Latorre is a program assistant at the Adrienne Arsht Latin America Center and Caribbean Initiative.

Sophia Busch, Ella Wiss Mencke, Ethan Garcia, and Miguel Sanders contributed to the data visualizations in this article. The data visualization titled “US jobs rely on Mexico and Canada more than any other trade partner” originally appeared in an article by Sophia Busch published on January 16, 2025.

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Factors will depend, however, on evolving political circumstances coupled with the effects of a continuing shift toward more fragmented policy making across borders. This issue has long been on the minds of government and industry alike, but it may become more complicated in the near to medium term. It is timely to examine these trends to better understand the direction of travel between the UK, European Union (EU), and United States, and how this will impact markets and economies globally.

First, in the UK, the government’s Financial Services Growth and Competitiveness Strategy will be published this July. It will focus on five priority growth opportunities—sustainable finance, asset management, fintech, insurance, and capital markets. The Prudential Regulation Authority and the Financial Conduct Authority will be at pains to continue emphasizing that the primary objectives of consumer protection and systemic stability will not be compromised through any changes. However, it will be important to reflect on how issues such as the Basel III Endgame implementation will be addressed in light of these priorities, considering the approach of other jurisdictions (especially the United States) to the future of this global prudential package.

Second, in the EU, the European Commission has similarly affirmed that it will increasingly focus on growing financial market activity and ensuring the bloc can adequately compete with other world actors in financial services. This will likely lead to further discussions on, inter alia, sustainability standards, financial risk rules, and closer market integration. Though there is consensus on the need to make the EU more competitive, concerns have already been raised, for example, by Frank Elderson, vice-chair of the European Central Bank supervisory board that increasing competitiveness should not be pretext for watering down regulation and potentially increasing instability.

Further complicating matters is the issue of how, or if, the bloc will respond to any escalation of punitory trade measures by the US administration. Though the pace of recent trade talks has accelerated, questions remain in the near term about the potential application of the EU Anti-Coercion Instrument if negotiations fail, and what that may mean for the imposition of restrictions on financial services activity from third countries.

Third, in the United States, a more complex picture is emerging. The economic implications of White House trade policy will have to be weighed against the general deregulatory bent of the administration, but a few themes have come to light. There is a clear indication that the US Treasury will play a greater role in financial services regulation. Treasury Secretary Scott Bessent is on record stating that lending policies should better match the risk of financial firms, and that bank regulation has not taken economic growth into account. Federal banking agency rulemaking will also likely shift. Federal Reserve (Fed) vice chair for supervision, Governor Michelle Bowman, has indicated that supervisory reform, the promotion of innovation, and a pragmatic approach to regulation will be prioritized. The objective of cost-benefit analysis being applied toward regulation will affect how the Fed addresses the outstanding issue of the Basel III Endgame implementation, alongside an expected review of the supplementary leverage ratio and its impact on the US Treasury market.

Lastly, how the United States approaches international regulatory initiatives is also expected to be gauged by how they align with updated US regulatory policy objectives and the America First approach of the administration. SEC Commissioner Hester Peirce recently questioned the agendas of the international standard setters in light of calls for increased domestic control over policy. Secretary Bessent has also raised the issue of US reliance on these bodies. Such interventions will be important to monitor considering the wider gap between national and international rhetoric on cooperation geopolitically.

This is certainly a non-exhaustive snapshot of trends across three major economies, but it raises the question of where the rest of the world stands. How will international cooperation on financial stability evolve with this more domestic-minded focus on growth and competitiveness? This question is coupled with potential disputes on international trade in goods spilling into reciprocal action against the services sector.

On the first point, cooperation will likely continue around topics of consistent mutual concern at the Basel Committee, the Financial Stability Board, the Committee on Payments and Market Infrastructures, and the International Organization of Securities Commissions. Areas of focus will include oversight of the non-bank financial institution sector, modernizing cross-border payments, and addressing issues for operational resilience and cyber security. In his April letter to the Group of Twenty finance ministers and central bank governors, outgoing Financial Stability Board Chair Klaas Knot emphasized the importance of vigilance and international cooperation to address emerging risks and ensure the continued resilience of the financial system. Bilateral and multilateral regulatory collaboration is also continuing in the crypto currency space. The United States and the UK, in particular, are working together to support the responsible growth of digital assets.

However, the prospect is significant for increased fragmentation in regulatory approaches to capital, liquidity, and financial risks related to climate, among other issues. Cross-border financial institutions will potentially have to navigate a much more complicated and disparate set of requirements, which ultimately may impact systemic safety and soundness.

On the second point, the Bank for International Settlements recently warned that geopolitical tensions between countries reduce cross-border bank lending between them. The specter of retaliatory responses in reaction to punitive trade policies seeping into the regulation of financial services can exacerbate this concern. This is particularly acute in the regulation and supervision of foreign banks. Trapping capital and liquidity can have a specific negative impact on the provision of domestic financial services products, hurting the very objectives of growth and competitiveness that appear the ubiquitous watchwords of national policymakers.

There is still a strong case to be made for an interconnected global financial services system where regulatory authorities collaborate on the best means to ensure stability and security across borders. Doing so is not mutually exclusive with objectives for increased domestic growth and competitiveness. It can, in the case of cross-border capital flows, contribute to achieving those goals. An important area of reflection for both the public and private sectors in the coming months is how cooperation can be activated to prioritize economic development while maintaining stability with consistent global standards.

Matthew L. Ekberg is a contributor at the Atlantic Council and former Senior Advisor and Head of the London Office for the Institute of International Finance (IIF).

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The latest Americas economies in-depth infographic breaks down how key indicators across the region have changed in just six months. From cooling inflation to rising debt, and from export slowdowns to diverging national growth stories, the picture is far from uniform.

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1. What impact would this proposal have on the Nord Stream gas pipelines? 

This package could put the final nail in Nord Stream 2’s coffin, providing a much overdue, decisive vision for the future of Russian pipeline flows to Europe. Ending this zombie project debate once and for all also sends a clear message to global liquefied natural gas producers, which may be hesitant to expand partnerships with the European buyers as long as a relapse to Russian gas dependence is a possibility. This checkmate move from the European Commission still needs approval from EU member states, as well as watertight language on sanctions implementation to prevent caveats or exemptions. Moreover, the Commissions’s bold action on Nord Stream 2 brings the Commission’s Roadmap to fully end EU dependency on Russian energy closer to reality, just as the roadmap’s legislative proposals are expected later this month.

—Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center.

***

The proposal is a welcome one to put an end to the questions about the restarting of the pipelines. The proposed rules would ban any EU operator from doing direct or indirect transactions for Nord Stream 1 or 2, making the operation of the pipelines impossible. More importantly, the proposal would end any rumors or quiet discussions around the future of the pipeline and shows the seriousness, at least in the Commission, around achieving energy independence from Russia. “There is no return to the past,” von der Leyen declared during Tuesday’s announcement. 

—Jörn Fleck is the senior director of the Atlantic Council’s Europe Center.

***

After nearly two static decades of Germany’s Gazpromphilic foreign policy, and statements emerging in recent weeks from German politicians from the Social Democratic Party (SPD) and the Alternative for Germany (AfD) indicating openness to a revival of Nord Stream, today’s EU announcement of Nord Stream sanctions is nothing short of astonishing. That’s because it amounts to a de facto approval by new German Chancellor Friedrich Merz. Since assuming the Chancellery, Merz has taken steps toward a true Zeitenwende that were lacking in Germany since that political approach to Russia had been first announced by his predecessor Olaf Scholz, with Merz stating clearly and resolutely in late May that under his leadership, the German government will “do everything to ensure that Nord Stream 2 cannot be put back into operation.” 
 
Merz doubled down on this rhetoric while sitting next to US President Donald Trump in the Oval Office last week, declaring Nord Stream to have been “a mistake.” Saying this next to Trump is especially important given recent reports that a US-based investor has sought to lobby the Trump administration to drop sanctions on Nord Stream to allow for American ownership of the pipelines. According to the investor, this move is an attempt to supposedly achieve the “de-Russification” of the projects—despite the logical incoherence of how such infrastructure could ever be truly “de-Russified” if it were still delivering Russian gas. 
 
If the EU is able to successfully get this sanctions package through the gauntlet of member state ratification—no small task with the likes of Hungary and Slovakia waiting in the wings to go to bat for Russian President Vladimir Putin’s energy interests in Brussels—it will be a major step toward finally ending Russia’s energy grip over European political and security interests. 
 
—Benjamin L. Schmitt is a senior fellow at the University of Pennsylvania’s Kleinman Center for Energy Policy and Perry World House. 

2. How much would lowering the oil price cap from $60 to $45 hurt Russia’s economy? 

That depends on how effectively the new price cap would be enforced and where the general price of crude would fluctuate. The impact would probably be significant but not as big as it would be if the United States could find a way to limit third-country purchases of Russian oil, either through US Senator Lindsey Graham’s bill or in another (and more practical) form. 

—Daniel Fried is the Weiser Family distinguished fellow at the Atlantic Council and a former US ambassador to Poland. 

***

Russia still relies on revenue from oil exports, so lowering the price cap could negatively affect how much money they can bring in. However, the price cap has been very difficult to enforce. In response to the price cap, Russia developed an expansive shadow fleet to export its oil, which created an additional challenge for Western sanctions enforcement authorities.  

That said, lowering the price cap would be welcome considering the price of Brent Crude as of today, $67.24 per barrel, which is very close to the $60 price cap. When the price cap first went into effect in 2022, the price of oil was over $100 per barrel. Reducing the price cap is an acknowledgement that oil prices have dropped considerably since it was first introduced and reflects a commitment to restrict Russia’s ability to generate revenue. 

—Kimberly Donovan is the director of the Economic Statecraft Initiative at the Atlantic Council’s GeoEconomics Center. She previously served in the federal government for fifteen years, most recently as the acting associate director of the Treasury Department Financial Crimes Enforcement Network’s Intelligence Division.

3. What else is in this sanctions package? 

The most interesting aspect of this package is the “transaction ban” on “financial operators in third countries that finance trade to Russia, in circumvention of sanctions.” That sounds a lot like secondary sanctions, which historically have been controversial in the EU. If this passes, it could significantly strengthen EU sanctions by extending their reach. 

—Kimberly Donovan

4. What are the chances of this proposal moving forward? 

It’s worth keeping in mind that this is still just a proposal, and there is a long way to go before it is finalized. These sanctions proposals require the unanimous support of the EU’s twenty-seven member states, which, in and of itself, is no simple process of negotiations. The proposal will likely face two immediate hurdles from the likes of Hungary and Slovakia, whose respective leaders have delayed or played spoiler on the previous efforts for political leverage until their demands were met. However, the fact that there have been seventeen successful rounds of sanctions in the past suggests that solutions, however messy, incomplete, or last-minute, are possible. There is an important transatlantic angle as well. The EU wants to move together with the United States on Russia. So European holdouts will certainly not want to be seen as roadblocks should the Trump administration decide, for example, to push for further sanctions on Russia. 

—Jörn Fleck 

***

I don’t know how much has been vetted with Hungary nor what kind of pressure the Commission is prepared to put on Budapest if it attempts to block the proposal. But the Commission seems serious about ramping up pressure and announcing steps before the G7 Summit, where they will have a chance to obtain Japanese and Canadian support, and thus to present the United States with some decisions. 

—Daniel Fried  

***

Brussels seems optimistic that the eighteenth sanctions package will pass. However, aspects of the sanctions package will need G7 support. This includes the proposal to reduce the price cap, which is why the Commission understandably announced the proposal in advance of G7 meetings this coming weekend in Canada. Further, support from Washington or lack thereof could sway how countries such as Hungary and Slovakia vote on the sanctions package. 

—Kimberly Donovan

5. How might Washington react to this proposal? 

That is a big question, and I can’t give a reliable answer. The European leaders at the G7 will have a chance to convince Trump that it is his own plan to end the war that the EU is backing, and that the United States ought to go all in to that end and agree to pressure Russia. But Trump, despite edging up toward imposing additional costs on Russia, has not yet done so, despite multiple opportunities and provocations from Putin. 

—Daniel Fried  

***

It’s unclear how Trump himself will react to the proposal. But what the US president should see in this proposal is a Europe that is a willing and serious partner. The administration has made clear that it expects Europe to step up for its own security and for Ukraine’s. This is part of Europe’s response to do just that. European leaders have been united on pushing for action on Russia given Moscow’s continued intransigence on cease-fire talks and devastating attacks on Ukraine. This proposal is another indication that Europe is putting real ideas on the table to boost US and Ukrainian leverage with Putin. 

—Jörn Fleck 

***

Members of Congress may welcome this package, as the spirit is consistent with the bill Graham introduced to get Putin to the negotiating table. However, we’ll have to wait and see how Trump reacts considering the stalled cease-fire talks and escalating violence on the battlefield. 

—Kimberly Donovan

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The Abraham Accords—one of the signature foreign policy accomplishments of the first Trump administration—provide a valuable platform for harnessing these trends. But to achieve a more stable and prosperous Middle East consistent with the vision US President Donald Trump recently outlined in Riyadh, the accords must be adapted and strengthened. The United States and its partners cannot simply wait for the war in Gaza to end or for Saudi Arabia to normalize relations with Israel. They must take steps now to strengthen the accords in order for them to provide an effective path forward for the Middle East. 

Where to start?

First, to deliver strategic benefits for both the region and the United States, accords countries must go beyond normalizing relations with Israel. They should build on normalization to actively commit to core principles related to religious tolerance, broad-based economic growth, and a forward-looking approach to tackling shared challenges in cooperation with the United States. 

Second, those principles should be operationalized through a flexible mini-lateral structure that transforms the accords from a loose label into an effective network of countries spanning the Middle East and neighboring regions. This structure could learn from the successes and challenges of the Negev Forum launched under then US President Joe Biden in 2022. To succeed, this new mini-lateral forum must help identify meaningful, broad-based areas of cooperation that regularly bring together senior officials from participating countries even as political differences between some of those countries persist. In this regard, the Association of Southeast Asian Nations, or ASEAN, is a useful model, as argued previously by the Atlantic Council’s Dan Shapiro.

At the same time, the accords countries must avoid a cumbersome bureaucratic structure that creates work without delivering results and is not conducive to the private-sector engagement that should remain central to the accords network. Moreover, this structure should seek to coordinate with civil society actors—universities, hospitals, and nongovernmental organizations—that can help build people-to-people ties across countries and cooperation from the ground up. Given enough time, this network might even provide functions ranging from a voting bloc in the United Nations to an economic corridor, building on promising initiatives such as the proposed India–Middle East–Europe Economic Corridor (IMEC). 

Third, countries in the Middle East—particularly Israel—must take a greater leadership role in operationalizing that network and ensuring that new members see tangible benefits. For instance, Israel could be much more active in sharing technological expertise, financing, and building partnerships that continue to strengthen relations long after the signing of an accord document. Reviving the Abraham Accords Caucus in the Knesset could help facilitate such leadership. The UAE, which has been a consistent champion of the accords, should continue its outreach, leveraging its leadership in strategic sectors such as emerging technology, food security, and renewable energy. For its part, the United States can and should provide strong diplomatic support for the accords. Yet, as Trump made clear in Riyadh, the momentum must come from the Middle East itself. 

Early returns: How the accords are already delivering strategic benefits

An important reason to double down on the accords now is that they are already delivering meaningful results toward a more stable Middle East. Advocates of the accords often use increased trade as a metric of success, but the strategic benefits, while harder to measure, are more significant. For example, the UAE is currently leveraging its growing partnership with Israel to mediate between Jerusalem and the new government in Syria, helping to avert a major military confrontation in the Middle East whose consequences could reverberate for decades. Such talks are only possible because of the trust Emirati and Israeli officials have built over the past five years, constructing lines of communication across what previously seemed like insurmountable divides. Moreover, the fact that Arab partners helped shoot down Iranian drones and missiles launched against Israel in April 2024 demonstrates the willingness of those partners to take steps previously considered unthinkable to prevent military escalation in the region. 

The Abraham Accords have also revived or enabled economic connectivity projects that better leverage the Middle East’s role as a link between Asia and Europe. Continued success in this area through initiatives such as IMEC could benefit the global economic landscape while expanding economic opportunity for Middle Eastern countries. For the United States, such projects provide an alternative to China’s Belt and Road Initiative and help reduce opportunities for Chinese exploitation in the region. As a result, the accords reinforce US economic leadership in the Middle East—and they should continue to, especially in critical sectors such as artificial intelligence and emerging technology, where Gulf countries are increasingly asserting a major role.

What comes next

Many in the US foreign policy community assume the Abraham Accords are on pause until Saudi Arabia joins the accords. This is a dangerous assumption that risks jeopardizing the potential of the accords to deliver transformative change for the region. It’s true that Saudi Arabia is unlikely to formally normalize relations with Israel in the immediate term: Saudi officials have stressed the need not just for an end to the war in Gaza but also consensus on a credible path to a Palestinian state, and the current political realities of the region make this extremely difficult. Nonetheless, there is significant work that can and should be done to reinforce the existing accords and lay the groundwork for their meaningful expansion to other countries.

The Trump administration should build on the accomplishments of Trump’s first term by working with US partners to revive a regionally led mini-lateral forum for the accords based on clearly articulated principles. The United States and its partners should use this forum to advance tangible initiatives that strengthen collaboration between both existing and prospective accords countries so that when the accords are expanded, they are building on a solid foundation. This should include Muslim-majority countries in areas neighboring the Middle East that have natural economic, political, and security ties with the region and thus can play a meaningful role in promoting stability and prosperity. In doing so, the Trump administration should reassure its partners that the US vision for the Abraham Accords is premised on the assumption that the Palestinian issue must be resolved in a manner that is acceptable to moderate Palestinians. Doing so is essential not just to secure Saudi Arabia’s eventual participation in the accords, but to resolve a persistent threat to the Trump administration’s vision for a more stable and prosperous Middle East.

Only if this work is done now will the United States and its partners be prepared to seize the potential the accords provide for greater regional change after the war in Gaza comes to a close.

Allison Minor is the director of the N7 Initiative, a partnership between the Jeffrey M. Talpins Foundation and the Atlantic Council. She previously served as the deputy US special envoy for Yemen and the director for the Arabian Peninsula at the US National Security Council.

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This brief, the inaugural of the series, by William Yancey Brown highlights the vast energy and mineral potential of the Atlantic Ocean and how African nations bordering the basin can manage resources responsibly and fairly. It launches against a backdrop that includes World Ocean Day, the 2025 UN Ocean Conference, and the continuing work of the Group of Twenty (under South Africa’s presidency) within the Oceans 20 engagement group.

The Atlantic Ocean is of paramount importance to Africa. The African nations on the ocean’s shore represent 46 percent of the continent’s population, 55 percent of its gross domestic product, and 57 percent its trade. The blue economy is crucial for Africa as the continent’s economies see new changes brought upon by issues related to the maritime energy transition, the port revolution, maritime transport, fishing, and control over exclusive economic zones. African countries have accordingly developed frameworks, through the African Union, for action in the region and declared 2015-2025 the “Decade of Africa’s Seas and Oceans.”

Introduction

The world’s second-largest ocean—the Atlantic, bordering more than thirty nations—is rich with energy and minerals, as well as the marine life and human livelihoods that development impacts. The Atlantic has a well-established oil and gas industry and a rapidly growing offshore wind sector. In addition, nascent sources of energy and minerals exist at the water’s surface (tides, currents, and waves), just below in the temperature differences between ocean layers, and on the seafloor. There are windfarms and oil and gas infrastructure off the coasts of Europe and North America—but the challenge now is how to tap the African Atlantic’s energy potential responsibly and fairly.

Though renewables are the clear best route to reducing greenhouse gases, it can be expected that African nations will continue to develop their offshore oil and gas resources. At the same time, however, wind farming could usefully be tried in some areas along Africa’s Atlantic coast—and to expand the range of renewables available, venture capitalists should also look closely at the potential projects in the works to harness the energy of waves, currents, and the ocean’s thermal energy. Funders, international organizations, and African nations along the Atlantic have several policy options to explore the ocean’s resources in a sustainable way. On the question of mining critical minerals from the deep sea, however, much more research on the seabed environment—and availability of alternative terrestrial sources—is needed.

Nascent ocean energy and mineral resources

The Atlantic Ocean provides a place for energy production facilities that could be located on land or sea, in addition to energy sources derived from the ocean itself. These placements include the world’s first floating nuclear facility and solar power plants offshore of the Netherlands.¹ So far, mainland Africa has neither of these, although a floating solar power plant is planned for the Seychelles.² Ocean locations present a harsh environment for devices and accessibility, and environmental restoration is difficult if accidents occur. On the other hand, ocean placement offers space and distance from human settlements.

Tides and currents. Moving river water made up about 15 percent of global electricity generation in 2023.³Hydropower makes up more than half of electricity generated in the Democratic Republic of Congo, Brazil, and Norway.⁴ The Atlantic Ocean has its own standing currents and tidal flows, such as the Gulf Stream and the Atlantic Meridional Overturning Circulation, and powerful tides in locations on both coasts of the basin.

Small-scale generating facilities powered by non-tidal, standing ocean currents have been tested in locations including the Gulf Stream offshore of the United States and the Kuroshio Current offshore of Japan, but no commercial-scale facility is operating anywhere yet.⁵ The greatest potential for non-tidal current power in the African Atlantic is reportedly offshore of South Africa, or perhaps of Guinea-Bissau and Morocco.⁶

A 240-megawatt (MW) tidal power plant has operated on the Atlantic coast of France since 1966.⁷ Africa has some much smaller Atlantic tidal plants, but no commercial-scale tidal power generating facilities are operating there and prospects for tidal facilities offshore of Africa’s Atlantic coast are weak.⁸ Cost is a principal impediment. Environmental impacts are also a concern, but the same is true for well-developed hydropower on land. Despite tepid progress to date for tidal power, new projects are on the books in Europe.⁹

Waves. Waves offer great potential power for electricity on Atlantic coasts. Wave action on the US Atlantic coast could reportedly provide average power generation of about 18 gigawatts (GW).¹⁰ Wave and tidal current energy could potentially meet up to 20 percent of the United Kingdom’s current electricity demand.¹¹ Atlantic Africa has energetic waves in the south offshore of South Africa and, to a lesser extent, Namibia. Senegal, Cabo Verde, and Morocco in the north also have high wave potential.¹²

Many wave energy test projects have been completed or proposed for the Atlantic in the United States, United Kingdom, and Europe.¹³ However, only one small wave energy facility offshore of northern Portugal currently provides electricity to the grid.¹⁴ Another small grid-linked project off a pier is set to begin operations in 2025 in Los Angeles.¹⁵ As for tides and currents, the challenge and cost of maintaining wave energy facilities remains an impediment to significant deployment.

Ocean thermal energy conversion. Tropical seas, including in the Atlantic, have surface waters much warmer than the deep sea. This difference allows devices to circulate water and power turbines through ocean thermal energy conversion (OTEC).¹⁶ “Open” versions of the technology can also desalinate seawater. OTEC could theoretically provide about 8 terawatts (TW) of power globally, more than the current global electricity demand.¹⁷ However, OTEC has a long history of experimentation without yet providing a commercial operating source of power to the grid.¹⁸ This might change with a small 1.5-MW project scheduled to be installed in 2025 offshore of São Tomé and Príncipe.¹⁹ There is also potential for floating OTEC along the west coast of continental Africa, with the highest potential reportedly from Guinea to Gabon.²⁰

Methane hydrates. Methane hydrates are ice-like solids in which water traps methane. They occur on ocean continental margins, including offshore of the Americas and Africa, and hold vast amounts of carbon and energy.²¹ Combined with this promise is the peril of releasing methane from any mining, including through submarine landslides. Japan has taken a special interest in methane hydrates and has conducted experimental projects successfully extracting methane gas.²² No such projects have yet been undertaken in the Atlantic Ocean.

Developed ocean energy and mineral resources

Oil and gas. Under its Stated Policies Scenario (STEPS), the International Energy Agency (IEA) estimates that global oil supply will decrease about 7 percent by 2050 and natural gas production will increase by about 4 percent.²³ Offshore production currently comprises roughly 30 percent of global oil supply and 28 percent of global natural gas production.²⁴ Large historical Atlantic-linked sources include the Gulf of Mexico and the North Sea.

Rystad Energy estimates that, in Africa, about 3.5 million barrels of oil equivalent per day (boepd) of new deepwater oil and gas supply will be near final decision or under construction by 2035. Nigeria is the historic hub of West African offshore oil production and expects to raise production from 2 million barrels per day (bpd) to 3 million bpd with an anti-theft initiative.²⁵ The Baleine Field offshore of Cote d’Ivoire and Namibia’s offshore Orange Basin recently began production, and exploration is under way or planned offshore of São Tomé & Principe, Liberia, and Sierra Leone, among other countries.²⁶ Natural gas production began in January 2025 offshore of Senegal and Mauritania and is expected to produce around 2.3 million tons of liquified natural gas (LNG) annually for more than twenty years.²⁷ Brazil’s state-owned oil company Petrobras predicts a ramping up of current offshore production to 3.2 million barrels per day (equivalent; including natural gas) in the next five years, with oil production centered on its “pre-salt” basins.²⁸ Guyana’s Stabroek Block expects to produce 1.3 million bpd of oil by 2027 and holds an estimated 11.6 billion barrels of recoverable oil and significant natural gas.²⁹

Wind energy. Offshore wind energy farms globally provided an estimated 75 GW installed operating capacity as of 2023, about 7.5 percent of the roughly 1,000 GW total installed global wind energy that year.³⁰ Europe and the United Kingdom have historically led offshore wind development, but China is now leading deployment.³¹

Atlantic Ocean wind farms are currently operating offshore of the United Kingdom, Europe, and the northeastern and mid-Atlantic coast of the United States, with additional farms planned.³² Three commercial offshore wind farms are now operating in the United States, with other US Atlantic projects under construction.³³ The US Atlantic projects are driven by coastal state governments that have established targets for renewable energy. However, supply chain issues and costs have led to the cancellation of some proposed projects. Development is also weighed down by the shift from the strong support of the Biden administration to adversity from the Trump administration.³⁴

No wind farms are currently operating offshore of South America or Africa. Planning is under way but in early stages for Brazil, Morocco, and South Africa. Africa has good winds for turbines on the Atlantic coast in the south and northwest.³⁵ Locations on either side of the Cape of Good Hope are being considered in South Africa, with a specific project proposed to the east in Richards Bay.³⁶

Critical minerals in the Atlantic

Critical minerals are generally defined by national laws as minerals that are essential for important industries and vulnerable to supply chain disruption.³⁷

Most critical minerals, including rare earths, are more scarce than rare in terms of the amounts present in geologic features found at many locations around the globe. However, their actual mining and production are constrained, with China producing most critical minerals and Africa a key place for mining. For example, 74 percent of the world’s cobalt is mined in the Democratic Republic of Congo (DRC), under conditions that are both unsafe and undependable.³⁸ Dependable access to critical minerals without overreliance on China is a priority for many Western industries. The United States was a leader in the past but, despite such high interest in critical minerals, global prices for key metals and material fell by about 26 percent in 2023, including a 47-percent decline in cobalt and a 32-percent decline in lithium carbonate.³⁹

Whether these minerals should be mined from the deep seabed beyond national jurisdiction, in addition to land mining, is hotly debated under international law (see below). Polymetallic nodules (PMNs) in the Clarion-Clipperton Zone in the Pacific Ocean, where these nodules are abundant, receive the most attention from industry, governments, and nongovernmental organizations. The International Seabed Authority (ISA) has designated Atlantic Ocean exploration areas for polymetallic sulfides (PMSs) along the mid-Atlantic Ridge and for cobalt-rich ferromanganese crusts (FMCs) in the South Atlantic.⁴⁰ Little information is publicly available about potentially recoverable amounts and no exploitation has been authorized, but research on the biological communities that could be impacted raises great concerns for environmental impacts.⁴¹ The Trump administration stepped outside of the ISA in April 2025 with an executive order promoting seabed mining both on the high seas and the US continental shelf.⁴² Encouraged by the order, Canada’s The Metals Company has announced that it will apply for permission to mine high-seas PMNs under a US statute,⁴³ despite protests from the ISA,⁴⁴ and another company, California-based Impossible Metals, has applied to mine PMNs in the US territory of American Samoa.⁴⁵ The Department of Interior announced on May 20 that it was launching the process for a lease sale there based on that application.⁴⁶

The environmental framework

The ocean energy sources described above are primarily regulated by the nations to which they are adjacent, either because the resources are located in sedimentary geologic formations of the continental shelf (as in the case of oil) or because proximity to onshore populations facilitates construction and operations and lessens the cost of transmitting electricity (as in the case of wind). Critical mineral exploration and mining are primarily regulated on the continental shelves of nations under national laws and on the high seas by the ISA, which was established under the United Nations Convention on Law of the Sea (UNCLOS).⁴⁷The United States also has a dated statute for high seas mining, applicable to anyone under US jurisdiction.⁴⁸

National laws for ocean energy and mineral development vary, and this short paper cannot document their details. But consider US laws for reference. The facilities involved require authorization from the Bureau of Ocean Energy Management (BOEM) under the Outer Continental Shelf Lands Act (OCSLA).⁴⁹ Authorization begins with leasing, followed by approval of development plans, with environmental review under the National Environmental Policy Act (NEPA).⁵⁰ NEPA is a procedural statute without ultimate environmental standards. The approvals include conditions, most designed to mitigate environmental impacts, whose authorities come from other US environmental laws. A large offshore wind farm might have one hundred conditions. OCSLA includes standards to minimize environmental harm, but environmental review is given sharper teeth through the Endangered Species Act (ESA) and the Marine Mammal Protection Act (MMPA), which have firm impact tests.⁵¹ Noise is a significant concern, and is regulated as “harassment” under the ESA and MMPA. OCSLA also requires lessees to decommission facilities at their expense once a lease ends. All of these regulatory actions are subject to judicial review and many rulings have affected requirements. That said, oil, gas, and wind energy projects have gotten through the approval process and are operating in the United States.

European nations with Atlantic coasts (and the EU itself), South American nations, and some African nations have legal frameworks for environmental review with environmental assessment procedures akin to those of NEPA in the United States. Most lack hard stops such as the ESA and MMPA. Article 6(4) of the EU Habitat Directive approaches these stops, requiring that certain actions with negative environmental impacts can proceed only if carried out for “imperative reasons of overriding public interest” and with compensatory measures.⁵² The International Offshore Petroleum Environmental Regulators (IOPER) provides a venue for cooperation on oil and gas environmental regulation in the Atlantic and elsewhere but does not currently include any African nation agency.⁵³

The ISA has issued final rules for deep seabed prospecting and exploration in the area beyond national jurisdiction and draft rules for exploitation.⁵⁴ Both rules prohibit activities in the international area that would cause “serious harm” and define this to be any effect from activities on the marine environment that represents a “significant adverse change in the marine environment.” Both final and draft regulations also require a “precautionary approach.”⁵⁵

Marine protected areas (MPAs) are another key environmental safeguard. Some have already been designated in the Atlantic in the exclusive economic zones (EEZs) of coastal nations.⁵⁶ MPAs provide environmental protection that complements mitigation measures for activities in areas that are being developed.⁵⁷

All of these environmental policies rest on the foundational need to address climate change. The Atlantic Ocean is an important sink for carbon dioxide through direct absorption and sequestration by sea life. It is also the object of impacts such as sea level rise, higher temperatures, acidification, and potential disruption of the major currents.

Policy recommendations

Each ocean energy and mineral resource described above sits within a framework of cost competitiveness, scale, required environmental protection, and governance stability.

Recommendation: Waves, currents, and OETC

Waves, currents, and OETC have potentially great scale. In theory, each could meet large shares of Atlantic Ocean coastal electricity demand. However, none of the three has gone viral, constrained by the costs and challenges of operations and maintenance. All three nevertheless warrant continued investment in projects and research.

• Venture capital firms concerned with energy and relevant government agencies should consider funding new projects for wave, current, and OETC technologies, with a particular view for projects supplying power to island populations of Atlantic southern African nations.

Recommendation: Methane hydrates

Methane hydrates also have potentially great scale but are challenged by the risk of accidental releases in development, production of greenhouse gases, local environmental impacts, and the abundance of natural gas from alternative current sources.

• Japan has led work investigating methane hydrates on its continental shelf. It should continue these efforts and seek collaborative research partnerships with other nations.

Recommendations: Oil and gas

Oil and gas production sits in a maelstrom of analysis and often angry commentary. Science allows no sound doubt that Earth’s surface is warming because of anthropogenic fossil fuel emissions. Furthermore, it is apparent that governmental policies to date have not solved the problem. Performance has taken a back seat to aspiration. Post-combustion technologies such as engineered or natural sequestration by biota, direct removal from the air, and atmospheric additives such as aerosols are only partial solutions.

Fair play is another consideration for oil and gas offshore of West Africa and Guyana. The economies of wealthier nations historically benefited from fossil fuels. Many less wealthy nations, including those in Africa, missed out and are seeking funding to address climate impacts. They do not want to be told not to develop their own offshore oil and gas resources—particularly as production continues in wealthy countries such as the United States, United Kingdom, and Norway—and wealthy nations are unlikely to provide funding anywhere near the levels developing nations request. African nations can be expected to move forward with developing their major Atlantic offshore reserves, as they are now doing in conjunction with major companies. Better use of fossil fuels, such as prevention of methane leakage and priority for natural gas over coal or oil for electricity will help address climate impacts. However, the single best available avenue for reducing greenhouse gas emissions appears to be replacing fossil fuels with renewable energy, including solar, wind, and nuclear facilities on land in addition to renewable ocean energy.

Potential conflict and corruption are also obvious challenges hitchhiking on the road to wealth from offshore oil and gas resources for West Africa and Guyana. Unless both can be dealt with effectively, fair play in wealth allocation will be a mirage. Where US companies are involved, it does not help that the current administration has said it would not enforce the US Foreign Corrupt Practices Act or consider the social cost of carbon in decision-making as previous administrations did.

Atlantic African nations should:

• In cooperation with other agencies and institutions, prioritize renewable and nuclear energy development to mitigate climate change by replacing fossil fuels.
• Include a quantified measure of the social cost of carbon in regulatory decision-making.
• Maintain transparent and independently audited programs for government revenue collection and expenditure, including sovereign wealth funds, and explicitly require multinational firms subject to US jurisdiction to comply with the Foreign Corrupt Practices Act.
• Work with other Atlantic nations to establish and maintain what could be known as a “Pan-Atlantic Blue Ring” of coastal, island, and marine conservation areas, building on existing conservation areas, with a dual purpose of climate reliance and biodiversity conservation for its own sake.

Recommendation: Offshore wind

Offshore wind is not a pipeline for sovereign wealth, but it can mitigate greenhouse gas emissions by replacing fossil fuels. It can be cost competitive with other energy sources in some locations and has scale—in the neighborhood of 1–2 GW capacity for larger projects in the United States. Its status going forward in the United States is uncertain given the critical stance of the current administration, preexisting complications in regulatory approvals, supply chain problems, and possible overenthusiasm on finances. Some US Atlantic projects are operating or close to that and are likely to provide planned electricity over the twenty-five- to thirty-year terms of their leases. Some other leases without approved project plans might ultimately culminate in operating projects. In the long term, offshore wind is an experiment with a reasonable probability of a good result. Nations other than the United States are more supportive, such as the EU nations and China. Atlantic coastal Africa has the wind needed in the south and northwest and could usefully try it out. Whether leases will be renewed at the end of their first life is a question. Investors have generally presumed they will be, but the answer will be informed by the costs of competing energy sources, including solar and nuclear facilities on land.

• Atlantic African nations in the south and northwest with good winds should establish potential lease areas for wind farms through a public review process that examines needs for economic viability, full-scale review of environmental impacts, and deconflicting of impediments generally. Public auctions for leases should be held once potential lease areas are established, to confirm whether companies have an appetite for projects. If they do, projects should be advanced.

Recommendations: Critical minerals

Critical minerals are a proper priority for nations whose industries and national securities depend on them. The United States and others are concerned that China dominates production. However, addressing this calls for a scalpel, not a hammer. Each mineral has its own value, sources, potential replacements, recyclability, and location in the marketplace. The price for some, such as cobalt, has fallen in the past two years.⁵⁸ Furthermore, the economics and environmental impact of deep seabed mining should be compared with mining on land. Terrestrial mining can decimate mining sites and areas along the roads to them. But the ecology of terrestrial areas can be reasonably well described and impacts from mining mitigated. Also, restoration after project completion is much easier where people can walk and breathe and vehicles can drive. Recent research indicates that even larger species in the deep sea are mostly not yet described.⁵⁹ Furthermore, restoration is either conceptually impossible (if the material removed is habitat) or technically infeasible. Fundamentally, the environmental standard for mining under the high seas is to prevent serious harm. No experienced and objective environmental regulator could conclude that the standard is met by the technologies currently available.⁶⁰

• Before supporting approval of any deep sea critical mineral mining on the high seas or in their offshore national jurisdictions, Atlantic nations should advance research on the deep seabed environment, including species and ecology, and on the availability of terrestrial sources.

Additional recommendations: Artificial intelligence

Finally, many companies and researchers working on generative artificial intelligence (AI) believe that artificial general intelligence (AGI) that matches highly skilled human intelligence will be available in the next several years. Generative AI agents already exist that perform tasks as though they were humans, and they get better every day. Robots are also in the works. These advances in generative AI will touch everything in human society, including sustainable energy and mineral production in the Atlantic Ocean basin.⁶¹ AGI will likely be able to perform much analysis and procedure, improving the speed, and possibly the accuracy, of reviews. Despite model biases, generative AGI might offer the potential for less biased or corrupt decisions when it comes to selecting operators or siting energy projects.

Just as important, however, the people who now earn a living doing things related to sustainable energy and minerals will need help if AGI agents do the work in the future. The sooner these efforts start, the better.

• The larger companies with leading generative AI models should continue to provide or initiate support for institutions in Atlantic Africa for training and access to the best models they are making available.⁶²
• Community leaders in African towns and villages likely to be affected by Atlantic energy and mineral development should form stakeholder teams to engage with developers. The teams should include at least one individual with access to a leading AI large language model (LLM) and experience in prompting it so that the model itself can participate in discussions about community benefit from development and potential harm to employment from AI.

Issue Brief Apr 24, 2025

The Millennium Challenge Corporation could prove essential in the race for critical minerals. Reform it, don’t shut it down.

By Aubrey Hruby

As the Trump administration aligns foreign aid with core strategic interests, the MCC represents an underutilized asset.

Energy & Environment Politics & Diplomacy

Report Sep 23, 2024

How protecting intellectual property rights in African music, film, and fashion can create opportunity and wealth

By Eric Guichard

The creative industry has the potential to transform the African continent through economic growth and narrative change. As the demand for African innovations continues to increase, so will the need for the protection of creators.  

Africa Economy & Business

Report Sep 23, 2024

Lessons for African mineral producers from the Indonesian experience

By Julien Marcilly and Bradford Simmons

Indonesia and its success with resource nationalism can serve as an example for many mineral-rich African countries.

Africa Energy & Environment

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

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Thank you Chairman Hill, Ranking Member Waters, and distinguished members of the Committee for holding this hearing continuation and the honor of the invitation to testify on the future of digital assets. I applaud your leadership in convening the Committee on this important issue and continuing the years-long efforts of this Committee across several Congresses to evaluate and build legislation around a clear, comprehensive, and competitive cryptocurrency regulatory framework. I hope my testimony will be helpful in considering some of the most important aspects of frameworks needed to drive innovation in a secure, competitive, safe, and sound digital finance ecosystem that reinforces national security interests, defends consumers, and preserves personal liberty.

I have spent my career working at the intersection of national, economic, and technological security. I have spent two tours at the National Security Council (NSC) leading cryptocurrency initiatives; led crypto and cybersecurity policy at the US Financial Crimes Enforcement Network (FinCEN), the US anti-money laundering and countering financing of terrorism (AML/CFT) regulator; and served on advisory boards for the US Commodity Futures Trading Commission (CFTC), the Idaho Department of Finance, and the New York Department of Financial Services (NYDFS). Over recent years, I have observed massive growth, collapses, experimentation, exploitation, and innovation across the digital asset market. Of course, innovation and exploitation in finance are not unique to digital assets, and the risks and benefits of one blockchain system are not equivalent across all assets — they depend significantly on the design and features of specific systems. To make best use of the benefits and mitigate the critical risks, we need to ensure that technology, operations, and policy are aligned along critical safeguards and also with driving competitive and liquid US markets.

That brings us to this critical juncture – the current alignment and implementation of protections in digital assets is not working. The status quo has not benefited consumers, markets, or national security. As just one example, the largest heist in history just occurred in February of this year targeting this sector, perpetrated by North Korean actors as part of their revenue generation to fund activities like their proliferation program. This incident also was not in a vacuum but instead was yet another cyber theft as part of a years-long building trend in this industry exploiting both pervasive cybersecurity and AML/CFT vulnerabilities. This is just one example, which sits alongside highly volatile markets that have lost trillions and defrauded consumers, but also an environment that is reportedly set to drive the best developers abroad rather than inspiring them to stay here and build to agreed upon guardrails. Inaction by both government and industry will not achieve desired outcomes for protecting consumers or businesses.

I applaud Congress for continuing to elevate the issue of digital asset legislation to ensure appropriate regulation in the United States. Despite calls from some to avoid regulation of digital assets that may seemingly legitimize an immature sector, I maintain that regulation is critical to give a north star that demands legitimate and responsible activity within an industry with many actors who aim to bring positive evolutions in finance and cryptocurrency. Regulation also provides legitimate authorities and levers to supervisors and enforcement agencies to hold accountable illicit actors that seek to defraud consumers, launder criminal proceeds, and undermine the integrity of the US financial system. As I have testified to previously, clear and comprehensive guardrails are necessary to protect consumers, national security, and US competitiveness in financial innovation. While timely progress is critical after several Congresses being unable to establish a comprehensive approach, these frameworks must also be deliberate, thoughtful, and comprehensive of the real and present risks, as well as opportunities, that we have observed in the digital asset ecosystem and broader financial system.

The stated goals of the Digital Asset Market CLARITY Act of 2025 (the “Clarity Act”) to help address regulatory gaps and to provide clarity for an industry seeking it are laudable. Unfortunately, the tenets of the proposed legislation as drafted appear to be overly complex, forging notable gaps for coverage under consumer and market protections rather than closing them; leave insufficiently or unaddressed key areas like meaningful implementation and enforcement measures, countering illicit finance, and cybersecurity; and depart from the long bipartisan-stated principles of technology-neutrality that would enable regulations to persist in the face of technological innovations.In my testimony, I briefly offer opportunities for addressing those issues and preserving a framework built on the key pillars of sound market regulation and national security interests. I draw many of these recommendations from the groundbreaking work of the Commodity Futures Trading Commission (CFTC) Technology Advisory Committee (TAC), where I co-chaired a group of 19 incredible industry, government, and academic experts to produce a first-ever comprehensive review of risks and opportunities in decentralized finance (DeFi), with outlined steps for policymakers to take build the framework for DeFi. I encourage legislators to consider these measures especially where existing digital asset market structures differ from traditional financial market structure, and urge you to be extremely deliberate when choosing to depart from long-tested principles needed to preserve integrity of markets, such as consumer protections, resilience against exploitation and shocks, and addressing separations of functions and conflict of interests.

Regulatory gaps and potential for confusion

As I mentioned above, seeking to provide regulatory clarity, in both authority and application, are important at this critical juncture. It will establish clear rules of the road for responsible actors to engage and innovate in the space as well as ensure strong footing for regulators and enforcement agencies to oversee markets and investigate wrongdoing. A clear framework will also (finally) help level the playing field for US firms that have long been more compliant than many foreign-operating cryptocurrency businesses that exploited their savings in non-compliance as a competitive advantage against more responsible US companies.

The Clarity Act as currently written attempts to provide clarity through defining regulatory jurisdictional bounds between the Securities Exchange Commission (SEC) and CFTC as well as defining key terms of assets to establish scope of coverage as securities versus digital commodities. The bill also includes some important protection measures, specifically around areas like segregation of customer assets, limited disclosures such as around token structure and conflicts of interest, and registration requirements.

However, the Clarity Act is still absent many important protections that we have observed to be critical to protect consumers and markets in the wake of a crisis. Within the 236 pages of the bill are confusing and ambiguous definitions and missing elements that pave the way for regulatory arbitrage and exploitation:

• No clear non-securities spots market authority: This bill does not appear to clearly outline authority over spots markets for assets that are not securities. The definition of “digital commodity” may be restrictive insofar as to only cover a limited set of tokens, which would leave potentially hundreds of tokens unregulated and/or without clear guidance on its applicability even if they function as financial assets.
• Unclear definitions and impacts on securities laws: There are various definitions in the bill whose challenges with clarity may subvert the drafters’ intent to provide clarity and defend against regulatory arbitrage. Some definitions may be seen to be crafted to frame large exemptions from responsibility decentralized finance, such as in defining concepts like groups and common control in a a “decentralized governance system,” which in the bill is a system where participation (not even active involvement, just the pretext of participation) is “not limited to or under the effective control of, any person or group of persons under common control.” In another example, the bill treats assets called “investment contract assets” as digital commodities, though “investment contracts” have generally been a key element of securities laws.
• Conflating decentralization and maturity: The test for decentralization in the bill is described as a test of blockchain maturity. In a sector where projects that are (or at least claim to be) decentralized are being targeted and exploited for weaknesses in their code, cybersecurity, and irrevocability of mistakes or illicitly acquired assets, it is confusing on why a greater extent of decentralization — a concept that is also vague in the bill — inherently means maturity rather than other markers of good governance and operations. The decentralization test also introduces some confusion that may challenge real-world implementation, and is unclear on how such a feature impacts an asset functioning like a commodity versus a security. Current and former regulatory leadership has warned against arbitrary carve-outs of protections like under securities laws simply based on complex issues like decentralization that so far have largely been met with convoluted definitions that risk exemption significant amounts of high-risk investment-related activity. This also threatens potentially creating the opposite of a future-proofed regulatory approach that cannot keep up with future technological innovation.

National security and the critical role of enforcement

n the wake of serious national security threats like billion+ dollar hacks by rogue nations, growing integration of cryptocurrency as a tool for transnational organized crime, market manipulation and fraud that can threaten system integrity and stability, as well as pressure from adversarial nations seeking to develop and leverage alternative financial systems to weaken and circumvent the dollar, it is clear that strong safeguards, including for US competitiveness, are needed. This framework also demands we ensure policy and enforcement approaches both domestically and internationally create a level playing field for US firms – often the most compliant firms in the world – to be able to compete fairly. Otherwise, the foundation we build these systems on risk faltering, with the potential to not only reap significant harms but also prevent us from harnessing the greatest positive potential that is possible from a secure and innovative digital finance ecosystem.

There is limited discussion of either illicit finance or cybersecurity in the Clarity Act—many more pages are honed on establishing large regulatory carve-outs than on establishing expectations, driving needed industry standards or sponsoring research and development, or appropriating necessary resources to ensure appropriately scaled and timely enforcement of these critical requirements. Also important to note, especially in light of recent changes in enforcement posture—beyond just creating the policy framework, the government and industry must work to apply and enforce the framework. A policy that isn’t enforced or implemented does nothing to benefit consumers nor US firms with stronger compliance programs that have been operating at higher costs and less competitive advantages than many foreign-operating firms.

I have testified previously to the critical needs for strengthening AML/CFT and sanctions authorities in the cryptocurrency space, which generally have been suggested to be saved for “comprehensive market legislation.” Such enhanced protections like appropriations for skilled enforcement and investigative personnel, sharpening tools like 9714/311 designation authorities, ensuring extraterritorial application of regulations and/or through designations of entities of high national security risk, creation of an enforcement strategy to scale timely enforcement against the most egregious violators, or resourcing public-private partnerships like the Illicit Virtual Asset Notification (IVAN) program are missing from the legislation but could be easily added in to help strengthen the holistic cryptocurrency framework. In the face of disbanding of the Department of Justice (DOJ) National Cryptocurrency Enforcement Team (NCET)14 and significant downsizing and weakening of enforcement offices and personnel across the US Government, the legislation could help ensure that tools are being honed to better address the worst actors in the space. Only with meaningful enforcement can policy be truly impactful and can we reward the best actors in the space, which are typically American companies.

An alternative approach for consideration – Joint, targeted, adaptable, and balanced

I support calls for a legislative solution that enables nuance and distinct treatment across various assets based on their economic function and which will ensure persistent clarity and flexibility for regulators to address significant risks of fraud, manipulation, and investor exploitation that we have seen in the space. The legislation should also guide regulators with key principles, many of which are similar to those outlined in the Clarity Act, and should be done in full view of the benefits that some aspects of digital assets uniquely provide, such as an unprecedented level of market transparency for on-chain financial activity to enable greater market surveillance and oversight.

An alternative approach may help meet the intent of the drafters while giving time for greater exploration and experimentation while meeting near-term calls for the most beneficial transparency needs of the market, which I have observed to most consistently be calls for a clear pathway to registration. I encourage policymakers to consider a much more streamlined approach if a more complex bill proves too difficult to reconcile:

• Dual rulemaking: Similar to efforts undertaken in the wake of the 2008 Financial Crisis and pursuant to the joint rulemaking efforts directed in Title VII of Dodd Frank, Congress could again direct the SEC and CFTC to jointly develop a framework and rulemakings to give greater specificity and adaptability to approaches to ensure appropriate coverage but at least one of the markets regulators.
• Mandate for sandboxes and clear registration pathways: In the interim while the SEC and CFTC craft their approach, Congress could direct a near-term establishment via sandboxes, provisional registrations, and other requirements with clear guardrails to help ensure clear near-term coverage while giving the time needed to thoughtfully evaluate the more complex issues like dual-registered entities, defining tokens, defining the jurisdictional hand-off, and how to address DeFi. Policymakers should consider looking to the United Kingdom’s current joint efforts between the Bank of England and the FCA under the Digital Securities Sandbox for inspiration.
• Clarify commodity spots market authorities: The legislation should specify clearly authority to the CFTC over commodity spots markets, or at a minimum digital commodity spots markets.
• Explicit appropriations and mandate for additional AML/CFT and cybersecurity initiatives: The legislation would also optimally integrate near-term resourcing, not just authorizations, to ensure the ability to effectively police bad actors in the system, which should include the earlier-referenced initiatives like expanded targeting authorities, appropriations, public-private partnerships, and cybersecurity and information sharing standards.
• Undertake steps to address the regulatory perimeter and controls with DeFi: Finally, legislators should direct the SEC and CFTC to jointly undertake the steps recommended by the CFTC TAC in evaluating how to evolve market structure in addressing issues like the unique constructs in DeFi. These steps include mapping ecosystem players, processes, and data; assessing compliance and requirements gaps; identifying risks; evaluating options, benefits, and costs of changes to the regulatory perimeter, and surging research and development and standards partnerships.

With guardrails established and more consistent oversight by Congress, this approach, implemented through administrative procedure and thoughtful regulation with public engagement, I think is likely the best way to achieve a comprehensive and enduring framework.

In closing, I’d like to again underscore my gratitude for the honor of the opportunity to speak with you all today. It is critical that the United States make timely progress on establishing and implementing cryptocurrency regulatory frameworks, which should leverage years of effort on defining critical holistic protections that also reinforce the central role in the financial system and as a leader in technological innovation.

Thank you.

Fellow

Carole House

Nonresident Senior Fellow

GeoEconomics Center

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Reauthorizing the DFC is vital to ensuring the United States is not outcompeted by China in its hemisphere. It is essential for supporting US jobs, creating markets for US exports, advancing energy independence, and linking foreign policy outcomes directly to economic benefits for American workers. Congress must act decisively to secure America’s economic interests and leadership in the Western Hemisphere.

How to update the DFC to further advance US foreign policy priorities in Latin America and the Caribbean

Created in 2018 under the BUILD Act, the DFC merged the Overseas Private Investment Corporation (OPIC) with USAID’s Development Credit Authority. This restructuring introduced a more agile and powerful tool for advancing US development objectives while strategically countering rivals, especially China.

As Congress prepares to revisit the DFC’s authorizing legislation, it should prioritize ensuring that the agency can effectively mobilize private capital for high-impact investments in infrastructure, minerals, energy, technology, and healthcare. These sectors are essential to strengthening the United States domestically—a key criterion set by the current administration for all agencies pursuing foreign policy initiatives. For example, investments in rare earth mineral exploration in the region not only secure preferential access for the US to the resource but can also generate US jobs in areas such as classification, storage, distribution, and processing.

The DFC must also reposition itself with enhanced tools, such as capital financing and technical assistance, so it can lead strategic investments. These investments should prioritize relocating supply chains for critical minerals, semiconductors, pharmaceutical inputs, and digital connectivity throughout Latin America and the Caribbean. Strengthening strategic alliances with like-minded countries and the private sector is essential to expand the DFC’s role in sectors vital to US economic and national security.

Key takeaways:

• Strategic alignment: The US International Development Finance Corporation (DFC) is a crucial agency for advancing US foreign policy objectives, promoting job creation and development, fostering economic partnerships, and supporting strategic allies. It aligns with forward-looking initiatives from the Trump administration, such as América Crece 2.0, which emphasizes private-sector-led growth. But DFC’s first reauthorization provides a unique window for updates to enhance effectiveness and alignment with US foreign policy priorities. Congress has until October to approve a reauthorization bill, but the decreasing availability of funds presents an urgency for approval.
• Geopolitical competition: The DFC can and should act as a strategic counter to the rising global competition for influence across the world, and particularly, in many of the developing nations that have continued to join China’s Belt and Road Initiative. The DFC offers a transparent, market-based alternative to opaque, state-driven financing models that come with political strings attached.
• Economic security: By investing in critical infrastructure and critical rare earth minerals, cybersecurity, energy, and healthcare in Latin America and the Caribbean (LAC), the DFC can enhance US economic security by strengthening alliances with like-minded countries to serve as a counterweight to aggressive Chinese actions that seek to dominate key sectors for the US economy and US supply chains while reinforcing the value of US-led investment.

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At the same time, the quality of government bonds issued by developed countries, mainly the United States, has been questioned. Developed countries face fiscal pressures reflecting demands for higher government spending on defense, infrastructure, and other needs, while their budget deficits and government debts are already at high levels.

The ensuing search for safe assets has come up against the fact that there are no obvious alternatives to US Treasuries. Efforts to deal with the problems of fiscal deterioration in major countries by diversifying safe asset portfolios could lead to market volatility, posing a risk to global financial stability.

US dominance in the global bond market

The global bond market is estimated to be about $140 trillion, dominated by the United States, which amounts to $55 trillion—or 39.3 percent of the total. The bulk of the US bond market is made up of US Treasury securities marketable to the public. These securities are worth $28.8 trillion, and amount to the biggest and most liquid bond market in the world. A total of $9 trillion, or 31.2 percent are held by foreigners and $4.2 trillion, or 14.6 percent, are held by the Federal Reserve. Together with intragovernment holding of US Treasuries totaling more than $7 trillion, US government debt has reached $36 trillion, or 124 percent of US gross domestic product (GDP)—doubling the debt-to-GDP ratio of 62 percent posted in 2007 prior to the global financial crisis.

Moreover, the US fiscal outlook has worsened. The administration’s budget package—named the One Big Beautiful Bill Act—has been approved by the House, and is currently under the Senate’s consideration. It makes the 2017 tax cuts permanent and, if enacted, would increase the $1.8 trillion budget deficit in 2024 by $2.4 trillion between 2026 and 2034. These estimates, provided by the Congressional Budget Office, would raise the amount of government debt in the process. The United States’ deteriorating budget deficit trajectory has prompted international investors to share concerns about the sustainability of US public finance, which could lead to upward pressure on yields to compensate for the higher perceived risk. This has been manifested by the fact that, since recent stock market turmoil following the announcement of reciprocal tariffs on April 2, 2025, yields on US Treasuries have risen by forty basis points. The US dollar also weakened by 4.2 percent. If international investors flock to US Treasuries as safe havens, Treasury yields would have risen and the US dollar would have become stronger.

No good alternatives to US Treasuries

The deterioration of the US fiscal outlook has put international investors, especially foreign central banks, in a quandary. There is no good alternative to US Treasuries as safe reserve assets. Other major countries have also been burdened with high budget deficits and public debt levels—albeit generally less acute than the United States. Those markets that have lower deficits are smaller and less liquid than the US Treasury market, making them less attractive as reserve assets.

The euro has been frequently mentioned as an aspirant to compete with the dollar—a point recently emphasized by Christine Lagarde, president of the European Central Bank (ECB). However, the public bond markets dominated by the euro are fragmented and collectively smaller than the US Treasury market. They are able to supplement but not replace US Treasuries.

The European Union (EU) has launched three programs to issue joint Eurobonds within its budgetary authority: SURE, a program to support employment during Covid-19, for up to €100 billion; NextGenerationEU, a stimulus package to grow Europe’s economy, for up to €712 billion; and the European Financial Stability Mechanism, which provides assistance to member states in financial distress, for up to €60 billion. To date, about €468 billion ($533 billion) worth of Eurobonds are outstanding—just big enough to be an attractive niche market segment.

The euro area (EA) member states have a combined government bond market of more than €10 trillion ($11.4 trillion), of which about 35 percent is held by the ECB and 22 percent is held by foreigners. Trading, especially by hedge funds, has concentrated on the German, French, Spanish, and Italian markets. However, the EA market is fragmented into national markets, each of which is shaped by different and often divergent domestic economic and fiscal circumstances.

The UK government (gilt) bond market is fairly substantial at £2.6 trillion ($3.5 trillion), with about 30 percent held by foreigners.

The Japanese Government Bond (JGB) market amounts to $7.8 trillion or 250 percent of Japan’s GDP. The Bank of Japan (BOJ) holds 52 percent of the JGB market due to its massive JGB purchases, though the BOJ has been scaling back its purchasing volume while Japan emerges from deflation. Along with prospects of substantial borrowing needs by the Japanese government, this has pushed up yields and stymied demand from foreign investors who already account for only 6.4 percent of the JGB market. Finally, the Chinese bond market—at $21.3 trillion—is the second biggest in the world after the US market. However, the bulk of the public bond segment of $14.4 trillion is in bonds issued through local government financing vehicles, which are fragmented and illiquid. Central government bonds only account for $3 trillion. Foreign investors take up only 7 percent of the Chinese government bond market. Overall, the lack of free convertibility of the renminbi and the closed capital account have rendered Chinese government bonds not completely suitable as safe assets for global central banks.

Some central banks have purchased substantial amounts of gold in recent years to hedge against economic uncertainty and geopolitical tension. This has helped push the price of gold up 42 percent over the past year to record highs around $3,300 per ounce. As a result, the average share of gold at market values in global centeral bank reserves has reached 15 percent. It’s unlikely that this share will continue to rise much further in future, given the limited supply of gold. The costs of holding it also include lack of interest earnings, storage and transportation costs, and the inconvenience in using gold as means of settling international transactions.

Conclusions

The deteriorating fiscal outlook of major countries, especially the United States, has made safe assets more difficult to find. Going forward, there will likely not be an effort to replace US Treasuries with other government bonds—there is simply no viable alternative. Instead, a trend toward diversification to better manage heightened sovereign and credit risks on what used to be thought of as risk-free assets is probable. More frequent portfolio restructuring and the substitution necessary for diversification measures would add to market uncertainty and volatility, at a time when both measures have already been elevated by the tariff war and geopolitical tension. This trend would increase risk to global financial stability.

In particular, the share of the US dollar and US assets, such as Treasury securities in global safe asset portfolios, will likely decline gradually over time as international investors move to diversify their portfolios. When looking at the composition of global central bank reserves, this development is consistent with the gradual decline of the dollar from 72 percent in 1999 to 57.8 percent in the fourth quarter of 2024. The trend was not in favor of any other major currency such as the euro, whose share has been stable around 19.8 percent in recent years, but to a variety of nontraditional reserve currencies. If the world’s central banks were to maintain a neutral allocation to US Treasury securities in their reserves portfolios, that would be 36 percent—the share of US Treasuries in the global government bond market totaling $80 trillion.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center and senior fellow at the Policy Center for a New South; and former senior official at the Institute of International Finance and International Monetary Fund

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The G7 must seize this opportunity to advance a coherent, shared framework for digital policy, one that is grounded in trust, reinforced by standards, and aligned with democratic values. To do so, it can build on some of the insights from the Business Seven (B7), the official business engagement group of the G7. The theme of this year’s B7 Summit, which was held from May 14 to May 16, in Ottawa, Canada, was “Bolstering Economic Security and Resiliency.” The selection of this theme emphasized the importance of defending against threats and enhancing the ability of societies, governments, and businesses to adapt and recover.

In the spirit of that theme, the Atlantic Council’s GeoTech Center, in partnership with the Cyber Statecraft Initiative and the Europe Center, convened a private breakfast discussion alongside the B7 in Ottawa on May 15. The roundtable brought together government officials, business leaders, and civil society representatives to discuss how digital resilience can be strengthened within the G7 framework. The participants laid out foundational principles and practical approaches to building digital resilience that support economic security and long-term competitiveness. As G7 leaders gather for the summit in Kananaskis later this month, they should consider these insights on how its member states can work together to bolster their digital resilience.

1. Develop a common language for shared goals on digital sovereignty

When developing a common framework, definitions (or taxonomy) are critical. Participants emphasized that shared vocabulary is a prerequisite for meaningful cooperation. Discrepancies in how countries define concepts such as digital sovereignty can lead to fundamental misunderstandings in critical areas such as risk, which creates friction and confusion.

For example, a G7 country might frame sovereignty in terms of national control over infrastructure while another country, such as China, defines it as regulating the digital information environment. In that case, this misalignment will hinder cooperation from the outset. Specifying precise definitions of each government’s goals, including “trust,” “resilience,” and “digital sovereignty,” would enable governments and industry to align on priorities and respond more effectively to emerging standards. This definitional clarity is crucial for policymaking and a prerequisite for compliance, implementation, and interoperability across borders.

2. Build on existing multilateral and regional frameworks

Participants stressed the importance of building on existing progress toward digital resilience, both in and out of the G7, rather than discarding it in pursuit of novelty. The G7 and its partners already possess a strong foundation of digital policy initiatives. Key milestones such as the Hiroshima AI Process, launched under Japan’s 2023 G7 presidency, established International Guiding Principles and an International Code of Conduct for the development and use of artificial intelligence (AI) systems, which included frontier models. Prior to the Hiroshima AI Process, several consecutive G7 Summits committed to developing the data free flow with trust framework, which prioritizes enabling the free flow of data across borders while protecting privacy, national security, and intellectual property.

Beyond the G7, participants cited European Union (EU) partnerships as examples of forward-leaning policy environments that balance innovation with safeguards. These included the EU AI continent action plan, which aims to leverage the talent and research of European industries to strengthen digital competitiveness and bolster economic growth, as well as Horizon Europe, the EU’s primary financial program for research and innovation.

With these partnership frameworks already in place, G7 leaders should build on existing work and avoid seeking to design unique solutions that may become time-consuming—particularly when it comes to gaining political buy-in. Even in areas like AI and the use of data, where policymakers have observed rapid changes since last year’s summit, the B7 discussion participants emphasized that governments can leverage work they’ve already completed in designing and implementing existing standards. If prior technical standards and regulations are inapplicable or insufficient, policymakers can still learn lessons from an in-depth assessment, including by taking note of where they’ve fallen short of their goals.

3. Start new initiatives with small working groups and pilot projects  

Ensuring digital resilience requires managing inevitable trade-offs between national security, economic vitality, and open digital ecosystems. As one participant remarked, “the digital economy is the economy,” so policies shaping cyberspace must consider both national security and economic impacts. The G7 provides a platform for frank discussions among allies and partners about how to get these trade-offs right. But waiting for buy-in from all like-minded partners risks missed opportunities in the short term.

Participants noted that by starting with smaller forums, policymakers can build consensus that can lead to real progress. Pilot projects and working groups among smaller clusters of G7 countries could build momentum and inform scalable solutions. Participants emphasized that despite the contentious nature of some of the issues surrounding digital resilience, such as protectionism and market fragmentation, G7 governments are operating with a shared set of values. These values can motivate collaboration across the G7 on the many areas of common ground they already share, but they can also provide the basis for projects among smaller groups within the G7 to get new ideas off the ground.

A pivotal summit for digital resilience

As G7 leaders meet in Kananaskis and work toward a common framework that balances digital security and economic growth, a few key lessons can be garnered from this B7 meeting. G7 member states should prioritize developing a common taxonomy and building on the progress made on digital resilience both inside and outside the G7, all while remaining responsive to shifting geopolitical dynamics.

Disagreements among member states should be viewed not as a barrier, but as evidence of a maturing policy landscape. Constructive tension can drive refinement so long as partners are clear about their priorities. The G7’s unique value lies in its ability to forge alignment among diverse actors. False consensus only delays progress. It will take transparency, specificity, and trust to move the digital resilience agenda forward.

Sara Ann Brackett is an assistant director at the Atlantic Council’s Cyber Statecraft Initiative.

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A vague “Japanese model” comes up in many conversations about industrial strategy in the United States. It is common knowledge that, in the second half of the twentieth century, Japan found new export destinations for its industrial output while working its way up the manufacturing value chain. Japan’s powerful (though now defunct) Ministry of International Trade and Industry (MITI) almost always receives credit for managing this success. In short, the casual evaluator of economic security policies might answer that Japan has known what it is doing for longer than the United States.

Self-critical Japanese specialists would find such a portrait saccharine and outdated.

From the 1970s onward, Japan gradually opened its current account and its economy to investment. By the 1980s, when US public opinion was turning against Japanese imports, MITI’s power had already greatly diminished. Alongside the rest of the Japanese government and the Bank of Japan, it struggled to recreate favorable conditions during the lost decade that started in the early 1990s. There has since been increasing alarm regarding China’s rise and its many consequences for the Japanese economy, including Japan’s dependence on Chinese imports and investment.

While these concerns had been building for some time, the spark that started a legislative bureaucratic overhaul to extend the government’s authority and centralize the chain of command came during the second term of late Prime Minister Shinzo Abe, from 2012–2020.

The outbreak of the COVID-19 pandemic and the subsequent weaponization of supply chains made Abe’s decisions seem remarkably prescient. Yet the world has changed even faster than he might have expected. Japan has built new policies and teams to deal with economic threats wrought by China and Russia, but these were designed to work in conjunction with partners, primarily the United States. Though suspended, President Donald Trump’s “liberation day” 31-percent reciprocal tariff on Japan casts doubt on whether Washington still considers Japan the United States’ closest partner in Asia.

Japan finds itself in a predicament remarkably similar to that of other US partners. But unlike the European Union, it is wary of threatening to deploy its economic statecraft policies against the United States. Instead, following in Abe’s footsteps, it hopes to rely on deals. This has proven successful in obtaining a green light for Nippon Steel’s purchase of US steel, as Trump lifted Joe Biden’s blocking of the transaction. But the welcoming of Japanese investment by no means guarantees a looser stance on Japanese imports to the United States.

Over three months, we conducted interviews with Japan’s economic security policymakers in Washington and Tokyo, who agreed to meet despite their busy schedules. The goal of this piece is to represent how these teams are organized and how they think about relevant issues. The fallout from Trump’s tariffs was front of mind in every conversation, yet it was still possible to present a comprehensive picture of where Japanese economic statecraft stands now, and how it will continue to prepare for more uncertainty. 

From vision to legislation

Abe left a significant legacy in economic and defense policy. It should be no surprise that he also made a difference in the areas in which they overlap. Economic themes were present in Abe’s 2007 speech on the “free and open Indo-Pacific” during his shorter first term. In front of India’s Lok Sabha (or parliament), he committed Japan to promoting regional connectivity and economic partnerships. Nonetheless, the bureaucratic and legislative overhaul of economic security and economic statecraft came in the later years of Abe’s second term. Before that, security and economics were treated separately and their needs perceived as different.

On the security front, growing threats from China and North Korea helped Abe justify a reinterpretation of Japan’s pacifist constitution to expand the role of its Self-Defense Forces. In 2013, Japan created a National Security Council to centralize decision-making with the support of a National Security Secretariat (NSS). Two years later, the government passed security legislation allowing Japan to exercise collective self-defense, enabling it to aid allies under attack even if Japan itself is not directly threatened.

Concerns about economic security were already present, especially those relating to Chinese intellectual property (IP) theft and overreliance on Chinese manufacturing. However, these were clearly superseded by the need for a revitalization of Japan’s economy, which by then had suffered two decades of subpar growth. Abenomics, the prime minister’s signature economic policy, succeeded in reversing deflation and boosting consumer spending through increased government spending and quantitative easing. Attempts to improve competitiveness through structural reforms, including reform of the labor market, were somewhat less successful.

Abenomics was a net positive for Japan’s economic security, boosting consumption and making Japan (slightly) less reliant on exports. While economic revitalization was the priority, this didn’t prevent the prime minister and the political class from becoming more attuned to the economic security risks Japan faced. China’s decision to withhold exports of critical minerals for several months in 2010 was probably the first significant shock. But when Russia annexed Crimea and destabilized the Donbas region of Ukraine in 2014, Japan surprised observers by joining the United States and the European Union in imposing country-specific sanctions outside a United Nations (UN) mandate. These events were enough to kickstart an overhaul of Japan’s economic security landscape.

In 2015, Abe said in a speech to the US Congress that the United States and Japan “must take the lead to build a market that is fair, dynamic, sustainable, and is also free from the arbitrary intentions of any nation.” The subsequent years were characterized by more focus on economic security. The NSS created a specific economic security team in 2019, and Japan made several updates to legislation.

Before the changes of the late 2010s, Japan’s economic security policies were governed by the still extant Foreign Exchange and Foreign Trade Act (FEFTA) of 1949. This act originally imposed a tight regime of inbound investment screening, which was progressively hollowed out as Japan sought to bring itself in line with Organisation for Economic Co-operation and Development (OECD) and other international standards. Still, the division of labor set out by FEFTA hadn’t changed. The Ministry of Finance remained responsible for investment screening while the Ministry of Economy, Trade and Industry (METI)—the successor to MITI—became the natural decision-maker for export controls and subsidies.

To this day, FEFTA remains the legal basis for the Japanese government’s investment screening and export controls. However, vulnerabilities exposed by the COVID-19 pandemic made it clear that an additional layer of legislation would be needed—one that could build economic resilience by allowing the government and firms to cooperate in a more intensive way. This was the basic rationale of the Economic Security Promotion Act of 2022. This law created the position of minister for economic security, based in the prime minister’s office, although much of the engagement with firms and data collection is still run out of METI.

How the ministries and agencies are responding to new challenges

As the government of Japan has placed greater emphasis on economic security and updated its legislation, its departments haven’t significantly altered their division of labor in terms of economic statecraft. METI continues to lead on export controls, the Ministry of Finance on investment screening, and the Ministry of Foreign Affairs on sanctions. What has changed is how policies are coordinated, with the creation of teams explicitly devoted to economic security.

When it was created in 2014 to support National Security Council meetings, the NSS did not feature an economic security team. Instead, the Ministry of Foreign Affairs played this role by default given that it was already responsible for coordinating policy with other governments. While this ensured that Japan applied the measures to which it agreed in international forums, it was clearly insufficient to implement a holistic strategy of economic self-defense, resilience, and indispensability. 

Since the 2019 creation of an economic security team within the NSS, the balance between internal and external coordination has become clear. The ten-person team is small but powerful. It can convene meetings between large, well-established ministries and bring their preferences in line with a more general sense of Japanese strategy, including Tokyo’s alignment with Washington. This role has become more prominent since the arrival of the first minister of state for economic security—who sits in the cabinet office, not inside METI or another large ministry—and a legislative mandate in the Economic Security Promotion Act for the NSS to coordinate economic security policy. The team’s access to the prime minister’s office also allows it to seek political guidance faster than experts in ministries can.

And yet, while the role of the NSS in economic security has clearly grown, the team’s small size and the long-standing roles of other ministries and agencies make the NSS a partial counterpart to the US National Security Council. The economic security team has a blue-sky thinking role and runs a regular program of cross-departmental tabletop exercises focusing on economic coercion, some of which have included US government specialists.

It’s important to remember that the NSS economic security team is not automatically at the top of the chain of command in the way the National Security Council (NSC) might be. Sensitive decisions on export controls and investment screening can also be settled by METI and the Ministry of Finance, respectively. Therefore, studying the role of each organization remains essential.

Ministry of Foreign Affairs

The Ministry of Foreign Affairs no longer carries out internal coordination on economic security, as this mandate has been moved to the NSS. Despite this shift, the ministry still plays a vital role in Japanese sanctions and helps coordinate international positions on other tools such as export controls. As we’ve found in other countries, such as France, the diplomats have two key qualities: they are present at every international summit and often must stand in for more expert colleagues when a deal is done, and they are good at finding compromises.

While Japan has participated fully in the recent Western sanctions coalition against Russia, this has been made possible by exemptions that Tokyo sought and obtained. The best example is the sanctions exemption for the Japanese-owned Sakhalin-2 oil and gas refinery from the Russian oil price cap and other measures that could stem the flow of liquefied natural gas. The Ministry of Foreign Affairs has also contributed to talks on how to make the sanctions effort work better, such as the Common High Priority Item list for export controls. In December 2023, it also pushed Japan to take the unprecedented step of using the legal basis of its Russia sanctions to sanction third-country entities enabling Russia to circumvent sanctions.

These decisions show that the ministry’s culture still prioritizes coordination with the United States. This worked well under the Biden administration, during which both governments managed to organize two 2+2 Summits of the Economic Security Consultative Committee, with the Ministry of Foreign Affairs and METI on the Japanese side and the Departments of State and Commerce on the US side. There is no clarity regarding whether this will continue under the second Trump administration.

Difficulties coordinating with the United States will be a culture shock for the ministry, but it will try to salvage what it can and keep pushing for unity in the Group of Seven (G7). The ministry is also leading on building understanding with the Global South, especially on economic security. Japan realizes better than some of its close partners that sanctions and economic statecraft can be easily misconstrued in third countries and can have adverse impacts on their economic development. Therefore, the ministry has taken on the task of explaining how its economic security policies do not contradict overarching principles such as the Free and Open Indo-Pacific, while also pushing for overseas development aid to be better coordinated with economic security priorities.

METI

Proponents of industrial policy have a starry-eyed view of the Ministry of Economics Trade and Industry’s predecessor—the Ministry of International Trade and Industry—and its role in steering Japan’s rise as an export powerhouse. The eulogizing is not entirely misplaced, but it perhaps overlooks how the powerful super ministry has needed to adapt, first to the shortcomings of Japan’s export-driven model and now to the era of economic coercion. METI can leverage deep sectoral knowledge on the Japanese economy and its interdependencies with the rest of the world, which other ministries do not have. Yet its officials still tend to downplay their readiness for the new challenges and say Japan has a lot to learn about the tools of economic statecraft.

One sign of this is that METI’s Trade and Economic Security Bureau, though run by long-standing official Hiroshi Ishikawa, is a recent creation and another result of the 2022 Economic Security Promotion Act. The bureau’s role is to implement the new legislation by taking a forensic approach to Japan’s problems and the cards it can still play. In close cooperation with firms, the finance sector, and universities, the bureau’s work is organized into three pillars. These are

• “red” areas of disruptive technological innovation in which Japan needs to cultivate its indispensability but must beware of losing autonomy;
• “blue” areas in which Japan has technological advantages and should maintain its indispensability; and
• “green” areas of external dependence in which de-risking is needed.

So far, the approach has also made it easier to unlock larger subsidies for advanced semiconductors, which fit squarely within the “red” area in which Japan risks being left behind. The best example of this is the 1-trillion yen ($6.9 billion) subsidy for TSMC to build a factory on the island of Kyushu.

The three-pillar framework has been useful in raising awareness with firms. Some small and medium enterprises had been unaware that their intellectual property and production were part of what makes Japan indispensable to the global economy. This is usually good news. The exercises have made clear that Japan is ahead of the curve in synthetic biology. The Japan pavilion at the Osaka World Expo proudly features a human heart made of induced pluripotent stem (iPS) cells. But technological advantages are also bringing constraints, such as the US demand for a trilateral deal with Japan and the Netherlands to control the export of semiconductor manufacturing equipment or Tokyo’s own decision to restrict exports of drone technologies that can have military applications.

Ministry of Finance

Of all the ministries working on Japan’s economic security, the Ministry of Finance has had the most stable area of responsibility. Under the Foreign Exchange and Foreign Trade Act of 1949, the Ministry of Finance carries out investment screening. Policies were initially very strict; however, investment liberalization progressed after Japan joined the OECD in 1964. Since the second Abe administration, attention has shifted to the new challenge of economic security.

Unlike other export controls, which often face skepticism from Japanese members of parliament keen to help firms in their constituencies, inbound investment screening enjoys broad-based political support. In 2020, an amendment supported by politicians and driven by the changing international environment considerably tightened screening by requiring prior notification of any foreign direct investment (FDI) covering 1 percent or more of ownership in a firm in a sensitive sector—down from 10 percent. The measure is country agnostic, but the shift was apparently driven primarily by China.

Prior to a 1978 liberalization, the ministry also practiced outbound investment screening. Since 1998, a simpler post-investment reporting system has become standard practice for Japanese firms, but this does not include screening. Arguably, Japan’s modest venture capital ecosystem relative to that of the United States means it faces fewer dilemmas on outbound investment.

Japan will need to diversify its partnerships to weather the storm

Japan’s recent legislative and bureaucratic reforms were carried out with awareness of US political volatility, though perhaps not an expectation that the second Trump administration would engage in a trade war with its allies. While Tokyo welcomed early signals of US engagement, such as Secretary of State Marco Rubio’s participation in the Quad dialogues, it cannot ignore the reality that Washington is increasingly prone to economic coercion, even against allies.

This is not without precedent. US pressure in the 1980s contributed to Japan’s long economic stagnation. But today’s situation represents a larger shift and comes under more challenging geopolitical circumstances for a country like Japan, which now considers three of its neighbors to be bad actors. Japan must prepare for a strategic divergence from US economic policy, while identifying ways to prevent definitive ruptures wherever possible.

During the Trump presidency, Japan will be on a different course than the United States on green energy technology, as Japan is an export powerhouse in this field. It will also be at odds with the United States on overseas development assistance in regions where US retrenchment is enabling China’s advance. Institutions like the Japan Bank for International Cooperation (JBIC) already quietly prioritize projects with economic security value; this approach should be made more explicit to encourage greater uptake in Asia and Africa.

Deeper coordination with G7 partners and other likeminded countries is essential, including on the most worrying scenarios in the Strait of Taiwan. Japan shares many of the European Union’s concerns about the US tendency to frame every economic issue as a national security threat. Japan also prefers country-agnostic policies, instead of the tier-based or country-specific approaches US administrations have developed.

Tokyo prefers more predictable policies yet—unlike the European Union—it is unencumbered by internal divisions among twenty-seven member states. It has a unique opportunity to serve as an example of what open economies that do not wish to engage in economic coercion, but must be ready to stand up to it, should do. METI’s systematic approach to cultivating indispensability is certainly more advanced than what the rest of the G7 is doing. On the other hand, Japan remains vulnerable to coercion through its supply chains and much more work must be done to build resilient alternatives to China.

Japan is in a geopolitically challenging neighborhood and is witnessing the basic tenets of its foreign policy—from alignment with the United States to fostering a rules-based environment—come under unprecedented stress. Yet its advanced manufacturing base and recently updated legislation on economic security also provide it with more cards to resist economic coercion than most countries hold. Its public and private sectors are now largely aligned on these issues. Business leaders have even expressed support for former Economic Security Minister Sanae Takaichi becoming the next prime minister.

It’s hard to think of a more ringing endorsement from the private sector for prioritizing economic security.

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

The report is part of a yearlong series on economic statecraft across the G7 and China supported in part by a grant from MITRE.

The contents of this issue brief have not been approved or disapproved by the Japanese government.

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The post How Japanese economic statecraft has shifted from promotion to protection appeared first on Atlantic Council.

Some US trading partners may be tempted to celebrate and retreat from or slow the pace of negotiations with the United States, perhaps to wait and see how appellate courts rule. But these US partners should not breathe easy, as Trump can impose substantial tariffs under other authorities that are less susceptible to legal attack—with Section 301 of the Trade Act of 1974 likely foremost among these authorities. And, importantly, if tariffs are imposed under this authority, then they will be more difficult to reduce or remove in response to positive negotiations. Therefore, trading partners should see the recent court decisions as an opportunity to reach a more stable agreement with perhaps a more eager counterpart, rather than a justification to escape engagement with the Trump administration.

When Trump announced IEEPA tariffs in early April on imports from nearly every country around the world, virtually all of them lined up to seek an agreement with the United States that would reduce or eliminate these “reciprocal” tariffs. They joined Mexico and Canada, who had already been engaging on separate IEEPA tariffs that were announced in early February in response to drug trafficking. Since then, the United States and United Kingdom have announced a high-level framework, and substantial progress reportedly has been made with India, Vietnam, and others. More difficult conversations with the European Union are ongoing. And after a series of escalations, China too reached a temporary truce, reducing the reciprocal tariffs on China-origin goods to 10 percent for the time being. Goods from Mexico and Canada also received a reprieve of sorts, with the Trump administration quickly exempting goods entitled to preferential treatment under the rules of the US-Mexico-Canada Agreement (USMCA).

The president’s use of IEEPA to impose tariffs, which two courts ruled unlawful, was novel. While IEEPA is frequently invoked to institute sanctions, it had never previously been used to impose tariffs. But other congressional delegations of authority exist—namely, Section 301 and Section 232 of the Trade Expansion Act of 1962—and legal challenges to their use to impose tariffs have largely been unsuccessful. 

During his first term, for example, Trump imposed broad-based tariffs on China-origin goods under Section 301, following an investigation into China’s unfair intellectual property-related trade practices, including forced technology transfer. US President Joe Biden expanded those tariffs, and they remain in place today. Trump also imposed tariffs under Section 232 on steel and aluminum from around the world during his first term. Those tariffs remained throughout the Biden administration with some country-specific modifications or product-specific exclusions, and Trump strengthened and expanded those tariffs in the early days of his second term.

The Trump administration likely will use Section 232 as the basis for some sector-specific tariffs. Already, the Department of Commerce is conducting Section 232 investigations on a hefty list of imports, from timber and lumber to copper and trucks; from semiconductors and semiconductor manufacturing equipment to pharmaceuticals and pharmaceutical ingredients; and from processed critical minerals and derivative products to commercial aircraft and jet engines. But I will focus on Section 301 because that is the more likely authority if Trump is looking to replicate the IEEPA tariffs, or more precisely, the leverage those tariffs afforded his negotiators.

How does Section 301 work?

Section 301, implemented by the US Trade Representative (USTR), investigates whether acts, policies, or practices of a particular country are unjustified, unreasonable, or discriminatory, and burden or restrict US commerce. By statute, the investigation must conclude within one year, but there is no minimum amount of time it must take. In the past, USTR has published a detailed report outlining its findings and evidence. This helps legitimize the findings and aids in discussions with allies and partners around the world by socializing and substantiating the concerns. But it is not required, and it could be slimmed down or scrapped in pursuit of speed. 

There are, however, limits to how quickly a Section 301 investigation can proceed. USTR must take public notice and comment on the substance of the investigation and hold a hearing if requested. If there is an affirmative finding, USTR must also subject any proposed remedial actions (e.g., tariffs) to public notice and comment. And, under a 2022 CIT ruling that such determinations are subject to the Administrative Procedures Act, USTR must take the time to provide in writing its reasoning for rejecting substantial lines of argument raised by commenters. Once implemented, Section 301 tariffs can be modified if “appropriate,” a largely untested but no doubt expansive standard that suggests courts will show a great deal of deference to the USTR. But any proposed modifications too must be subjected to a notice and comment process. Trump almost certainly opted for IEEPA in the first place because it obviates the need for such a time-consuming process.

Moreover, unlike the global framing of Trump’s IEEPA tariffs and Section 232 findings, Section 301 focuses on the acts, policies, or practices of one particular country. There are two ways to broaden its scope to approximate the more far-reaching impact of the invalidated IEEPA tariffs. First, USTR could simply initiate a series of parallel Section 301 investigations into a common concern among several countries, as it did in 2020 with respect to digital services taxes of eleven different jurisdictions. Second, although it has never been used, Section 301 includes a provision that allows for remedies to apply on a “nondiscriminatory basis”—that is, globally—even though the investigation focused on the acts, policies, or practices of one particular country.

So, while Section 301 may entail more process and certain constraints, it provides a relatively straightforward pathway to broad-based tariffs. Notably, the statutory objective of remedies under Section 301 is the elimination of the investigated acts, policies, or practices. The statue explicitly states that the USTR is authorized to take action “against any goods or economic sector . . . without regard to whether or not such goods or economic sector were involved in the act, policy, or practice that is the subject of such action.” Thus, regardless of which unfair practices the USTR chooses to investigate, an affirmative finding would unlock broad powers to tariff any goods. And it closely resembles the “leverage” justification for tariffs that the CIT rejected as insufficient in the IEEPA context.

What Section 301 tariffs would mean for bilateral negotiations?

Trump has demonstrated a clear determination to alter terms of trade, and he has been equally committed to using tariffs not just as policy, but to shape and respond to negotiating dynamics. Should certain bilateral negotiations prove unsatisfactory, it is very likely that the Trump administration would pursue tariffs under a different authority like Section 301. US trading partners would be wise to try to avoid that result.

The speed that IEEPA enabled for imposing or increasing tariffs is a two-way street, meaning that the Trump administration could quickly employ removals, decreases, or exceptions in response to positive momentum in negotiations. Some may welcome the added process around Section 301 because it could slow the pace of change. But that same process would make Section 301 tariffs stickier once imposed. It could also create difficulty in comprehensively pulling down tariffs against a particular country should that partner make concessions the administration finds valuable but are not germane to the investigated acts, policies, or practices. The Section 301 and Section 232 tariffs from Trump’s first term have proven very durable.

What about other authorities to impose tariffs?

While Trump may proceed with sector-specific tariffs under Section 232, they are not a good fit for replicating the IEEPA tariffs because they focus on threats to national security from particular products. That makes it hard to tariff a broad range of products and limits flexibility to alter the scope or rate of tariffed products as negotiations and economic dynamics shift.

The CIT opinion pointed to Section 122 as an option to rectify goods trade deficits, but Section 122 tariffs are capped at 15 percent and can remain in effect for only 150 days. Those limitations severely undermine the leverage Trump covets.  

Finally, the administration could attempt to invoke Section 338 of the Tariff Act of 1930 (often referred to as the Smoot–Hawley Tariff Act), which authorizes tariffs in response to a foreign country’s discrimination against US goods or the commerce of the United States. Section 338 not only predates the World Trade Organization, it predates the General Agreement on Tariffs and Trade (GATT), which first established the principle of most favored nation treatment in 1947. 

Section 338 imposes no temporal limitation on tariffs, but it does provide for a maximum tariff rate of 50 percent. While it appears to require no real time-consuming investigation, it has never been used, and there are virtually no mentions of it anywhere in the public record after the establishment of the GATT. Thus, there is uncertainty from novelty, which is what did in IEEPA, at least for the time being. Moreover, the administration would need to make sense of how mechanically to apply this previously unused, nearly century-old authority. Given these uncertainties, the Trump administration may favor using this authority as a tacit threat in negotiations, but not actually invoking it and inviting judicial scrutiny.

The bottom line remains that Trump still has many tariff tools at his disposal and, if implemented, they may prove harder to pull back. Therefore, US trading partners would be better served to treat the recent court rulings as an opportunity to drive ongoing discussions to their conclusion. The uncertainty created by the court decisions, the time required to reasonably replicate a large swath of tariffs through other authorities such as Section 301, and the procedural constraints those other authorities impose on the president’s flexibility, should make the administration more eager to reach deals it approves of and that allow it to avoid those difficulties. Where trading partners remain engaged and determined, the urgency on both sides presents the best opportunity for a mutually agreeable deal, which will provide greater near-term predictability that all can celebrate.

Brian Janovitz is a partner at DLA Piper. He previously served as director for international economics at the National Security Council and National Economic Council and chief counsel for trade enforcement strategy and competitiveness at the Office of the US Trade Representative, where he led the Biden administration’s comprehensive review of Section 301 tariffs.

Trump Tariff Tracker

The second Trump administration has embarked on a novel and aggressive tariff policy to address a range of economic and national security concerns. This tracker monitors the evolution of these tariffs and provides expert context on the economic conditions driving their creation—along with their real-world impact.

The post Even as courts step in, Trump still has plenty of tariff options. US trading partners should intensify negotiations. appeared first on Atlantic Council.

However, the uninterrupted flow of trade in the food and agriculture that feeds humanity is not guaranteed. The hemisphere’s leaders must think strategically and identify opportunities to strengthen the region’s agri-food architecture. 

The Scowcroft Center for Strategy and Security’s Food Security: Strategic Alignment in the Americas project, conducted in partnership with The Mosaic Company, assesses the Western Hemisphere’s food security in a changing strategic landscape. The project draws upon perspectives from across the Americas to understand the challenges and opportunities facing regional and global agri-food systems.

On April 10, the Scowcroft Center’s GeoStrategy Initiative hosted the project’s first private roundtable, bringing together dozens of leading experts from across the Americas from an array of research institutions, universities, the agri-food industry, government, and multilateral institutions. The discussion focused on food security in Latin America, highlighting the importance of trade, geopolitics, climate change, innovation, and investment trends.

A season of change

The Americas are navigating novel geopolitical and geoeconomic conditions, with uncertainties introduced by proposed new tariffs that the United States has placed (and might yet place) on its hemispheric neighbors. A significant concern involves the impact that such tariffs could have on established agri-food trade relationships across the hemisphere. Should the United States, Canada, or Mexico implement high tariffs on agri-food products, one potential consequence could be large reductions in the levels of agri-food trade around the globe and in the Americas. At the same time, some South and Central American countries might benefit from enhanced exports to one or more of those three countries. 

There are just as many, if not more, opportunities throughout the region to enhance food security. Intraregional trade in agri-food products—including processed goods such as cereals, food residues, meats, fats and oils, food preparations, oilseeds, beverages, and dairy products—provides a significant opportunity for enhanced cooperation in the Americas. Studies by the Food and Agriculture Organization and the Inter-American Development Bank have projected that Latin America’s intraregional agricultural market has room to expand; they identified some sixty-seven agri-food products with potential for growth in the future, forecasting market growth of some $3 billion (from $21.6 billion to $24.7 billion). Latin America’s subregions have substantial capacity to expand agri-food exchange with one another, thereby improving competitiveness in global markets. For example, while 60 percent of South America’s food imports come from intraregional trade in Latin American and Caribbean markets, in Mexico and Central America, that figure is only 20 percent.

Policymakers in Latin America should facilitate intraregional trade through regional trade agreements that, among other things, dismantle the complex set of rules currently hindering integration. Greater investment in ports, rail, and roads can create more physical connectivity. And digital connectivity, which can ease exchanges of all types, such as trade logistics, should be enhanced as well. As food security will depend on the increase of crop productivity in the coming years, there are opportunities to deepen intraregional partnerships on agri-food sciences, which will support sustainable production growth in these countries.

A changing climate

Roundtable participants also stressed how the changing climate will impact agriculture in Latin America. The planet’s ongoing warming (above 1.5 degrees Celsius compared with pre-industrial levels) poses serious challenges to Latin American agriculture. Strategies to overcome climate impacts should include a focus on both adaptation and mitigation to ensure that the region’s agriculture remains viable. Policymakers should focus attention on how to make smallholder farmers more resilient given the disproportionately harsh climate impacts they face. One strategy is to provide low-interest loans and access to training and other services to smallholder farmers. Such actions can increase access to land, fertilizers, seeds, and tools while boosting incentives to implement innovative agriculture technology, ultimately increasing yields and market access.

Roundtable participants also observed that on- and off-farm innovation plays an important role in shaping Latin America’s agri-food sector, stressing the criticality of emerging technologies in a more sustainable and resilient food system. The central challenge, they asserted, involves crafting the strategies needed to finance and successfully scale new systems given their expense. Improvements in data collection and analysis enhance understanding of how climate change is contributing to pest outbreaks and crop diseases. Alternative chemical processes for creating fertilizers and seed certification programs might improve soil and plant resiliency. The adoption of low-carbon agriculture models, backed with government support within streamlined and science-based regulatory processes, could further align agricultural policy with climate adaptation and mitigation objectives.

These reforms are needed in part because Latin America continues to face problems related to food insecurity. While the region has seen declining hunger and food insecurity in recent years, in part due to investments in social protection systems, 41 million people across the region were still affected by hunger last year. Even in major food-producing countries such as Brazil and Argentina, which dominate South American production and exports of soybeans, wheat, corn, and rice, lower-income populations continue to struggle to gain access to sufficient amounts of healthy food. 

To overcome food insecurity while ensuring that Latin America’s agri-food systems are resilient and interconnected, the region’s farmers, farming associations, agri-food firms and processors, supply distributors, and policymakers must cooperate with new, innovative strategies. Agri-food frameworks that are predictable, transparent, and based on rules and science will help cement the region as economically diversified, climate adaptive, and innovative. The Americas must take advantage of its strengths in the agri-food space for preeminence on the global stage.

Peter Engelke is a senior fellow with the Atlantic Council’s Scowcroft Center for Strategy and Security as well as a senior fellow with its Global Energy Center.

Ginger Matchett is a program assistant with the GeoStrategy Initiative in the Atlantic Council’s Scowcroft Center for Strategy and Security.

The post How to improve Latin America’s agri-food security in a changing world appeared first on Atlantic Council.

A small group of nations established the International Maritime Organization in 1948 to create a modicum of global governance. Since then, IMO (as insiders call it) or the IMO (as most others call it) has fulfilled its task of functioning as a global parliament and secretariat for matters relating to ocean safety. Yet, like all other multilateral organizations, IMO depends on its member states’ goodwill and compliance. Today several large member states undermine the organization, and the United States left its negotiations over greenhouse gas reduction. IMO will continue to function as a steward of global ocean safety. But to achieve better maritime order, states should also join forces in coalitions of the willing or a maritime “elite league.” Countries in such formations could, for example, introduce stricter pollution or protection and indemnity (P&I) insurance rules.

Like many other organizations within the United Nations (UN), and the UN itself, IMO was established in the years immediately following World War II. Even with a Cold War rapidly forming, the world’s nations knew that they would need to share the oceans and that improving maritime safety was in everyone’s interest. Convening in Geneva in 1948, sixteen pioneering nations—ranging from Canada to Pakistan and including one country, Poland, from the emerging Soviet-led East bloc—formed the Inter-Governmental Maritime Consultative Organization (IMCO). ¹

The Convention on the Inter-Governmental Maritime Consultative Organization stipulated that the new organization would provide “machinery for co-operation among Governments in the field of governmental regulation and practices relating to technical matters of all kinds affecting shipping engaged in international trade, and to encourage the general adoption of the highest practicable standards in matters concerning maritime safety and efficiency of navigation. It would also “encourage the removal of discriminatory action and unnecessary restrictions by Governments affecting shipping engaged in international trade so as to promote the availability of shipping services to the commerce of the world without discrimination.”²

The IMCO’s mission was to facilitate safe and fair global shipping. It did so based on consultations and consensus-focused decisions by its members. The convention stipulated that “the functions of the Organization shall be consultative and advisory” and that the organization should “provide for the drafting of conventions, agreements, or other suitable instruments, and to recommend these to Governments and to intergovernmental organizations, and to convene such conferences as may be necessary.”³ That gave the IMCO’s secretariat no decision-making powers—decisions were to be made by the member states—and certainly no enforcement power.

In successfully founding the IMCO, the sixteen nations had proven that a shared maritime organization was possible even among nations that shared virtually nothing else. They were soon joined by a steady stream of other countries, with early joiners including nations as different as Austria and Myanmar.⁴

Mission: Facilitate safe and fair global shipping

The organization proved valuable. As Cold War power dynamics became more entrenched, global shipping continued to function, with ships able to call at any chosen port regardless of the port state’s geopolitical leanings, the ship’s flag state, or the ship’s country of ownership. Along the way, IMO’s members adopted a string of conventions that enhanced shipping safety, including the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter in 1972, Safety of Life at Sea (SOLAS) in 1974, and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage in 1971 with an amended version in 1992.⁵ The latter forms the basis of the International Oil Pollution Compensation Funds, a London-based multilateral organization that administers two compensation to victims of oil spills. Another marquee agreement—the International Convention on Oil Pollution Preparedness, Response and Co-operation—was adopted in 1990.⁶

In 1982, having decided that the name IMCO was bulky and confusing, member states renamed the organization the International Maritime Organization. It has continued to oversee the safety of global shipping, and the cargo traveling by sea has continued to grow. In 1980, ships transported 3.7 billion tons of cargo on international voyages; by 2023, the volume had grown to 12.3 billion tons.⁷

Today IMO is the world’s default maritime organization, though crucially it is not the custodian of the United Nations Convention on the Law of the Sea (UNCLOS), known as the constitution of the oceans. One hundred and seventy-six of the world’s nations now belong to IMO; the only ones that do not are landlocked countries that have very low gross domestic product (GDP) per capita (such as Burkina Faso, $887), a tiny population (such as Liechtenstein, 39,850 residents), or both.⁸ Taiwan, which has a large maritime industry but is barred from joining the United Nations system as China considers it a renegade province, is also not a member. The IMO Assembly, which approves IMO’s activities and budget and elects IMO’s executive organ, includes all the organization’s member states and meets every two years

Guy Platten, secretary general of the International Chamber of Shipping, said, “What IMO has achieved has been remarkable, things like the MARPOL Convention [the International Convention for the Prevention of Pollution from Ships] and so many other conventions and instruments. The decision-making process does take time, and it’s quite tortuous at times, but the whole idea is that the organization tries to work on a consensus. That means compromises, but it’s pretty effective.”⁹ It has indeed been effective. Even though the 176 member states have widely divergent views and priorities, IMO has managed to become a global protector of safe shipping, albeit a slow-moving one that lacks enforcement powers. Instead, like other UN agencies, it relies on its member states to follow the rules to which they have committed themselves.

Geopolitics, greenhouse gases, and an abrupt US exit

In April 2025, the IMO Marine Environment Protection Committee convened in London to negotiate an agreement reducing the shipping sector’s greenhouse gas (GHG) emissions. The emissions account for about 3 percent of GHG emissions, and IMO member states had been debating and discussing stricter emission rules for several years. Intense negotiations at the April meeting eventually resulted in an agreement that “will progressively lower the annual greenhouse gas fuel intensity of marine fuels, and a greenhouse gas pricing mechanism requiring high-emitting ships to pay for their excess pollution.”¹⁰ The agreement is to be “mandatory for large ocean-going ships over 5,000 gross tonnage, which emit 85% of the total [carbon dioxide] emissions from international shipping.”

The agreement was adopted by a majority of member states (sixty-three, including the twenty-seven European Union (EU) members, the United Kingdom, Brazil, India, China, Norway and Singapore) voting in favor. Sixteen countries (including Saudi Arabia, the United Arab Emirates, and Russia) voted against it, and twenty-five countries (including Argentina and Pacific Island states) abstained.¹¹ The agreement must be formally adopted by a two-thirds majority in October 2025; if that happens, it will enter into force in 2027.¹² However, an unusual event occurred during the negotiations. On instructions from Washington, the US delegation abruptly departed; the US government also sent a note to the other member states, urging them to reconsider their “support for the GHG emissions measures under consideration.” According to two people close to the process who spoke to the author, the US government privately put further pressure on countries to reject the agreement or abstain. Referring to the greenhouse gas emission proposal, the US démarche added, “Should such a blatantly unfair measure go forward, our government will consider reciprocal measures so as to offset any fees charged to U.S. ships and compensate the American people for any other economic harm from any adopted GHG emissions measures.”¹³

Brian Adrian Wessel, the director general of the Danish Maritime Authority and leader of the Danish negotiating team, said, “Geopolitics entered IMO with these negotiations. There was a coalition of oil-exporting states led by Saudi Arabia and a group of sanctioned states comprising Russia, Iran, Venezuela, and North Korea that opposed the agreement, and then the US de facto joined them in trying to block it. So it was left to the rest of the member states, including the EU and China, to work together to find a solution.”¹⁴

He added, “IMO stood its ground with a significant majority vote. In this day and age, a multilateral agreement on green transition is not a given in any way. The first maritime regulation on greenhouse gas emission, passed with a vast majority, that’s historic.”¹⁵

Platten said, “This is the first time in around fifteen years that an IMO agreement went to vote. It was quite a moment to be in the plenary hall when that happened. But nonetheless, we have an agreement now, which makes shipping the first industry to legislate to decarbonize, putting a carbon price for the first time, and some reward elements to it as well. What other industries have done anything like that? The answer is none whatsoever.”¹⁶ He continued, “IMO is one of the last UN bodies which is still functioning as a multinational body. I think that’s because shipping needs to be globally regulated. It cannot do anything else.”¹⁷

The deterioration of the global maritime order

The US departure from the negotiations, however, reflected a wider reality. The global maritime order, which nations and the maritime industry have painstakingly constructed over the last century, faces serious travails. To be sure, commitment to maritime treaties has never been complete. Some shipowners and flag states have been indifferent or reckless when it comes to pollution by their ships and, especially in recent years, countries have regularly violated UNCLOS. That was the case with the 1980s Tanker War between Iran and Iraq; the shadow maritime war targeting Iranian and Israeli merchant vessels in the Strait of Hormuz; the Houthis’ attacks on merchant shipping in the Red Sea; and China’s maritime harassment of civilian vessels in the South China Sea.

But nations and companies have largely adhered to IMO’s overwhelmingly technical conventions. One reason for this compliance is that better safety practices benefit everyone. Another is that any ship calling at a port is subject to port state control, the maritime equivalent of a safety inspection, which means that independent inspectors register any rule violations. Owners and flag states must address these deficiencies before ships can continue their journeys.

As the rules-based international order continues to deteriorate, commitment to IMO rules is also slipping. Even though the MARPOL Convention bars ocean pollution (whether involving oil or other substances) by merchant vessels, the world’s growing shadow fleet willingly and systematically accepts a disproportionate risk of oil spills.¹⁸ In May 2023, the shadow tanker Pablo exploded off the coast of Malaysia, causing oil spills in local waters, and other shadow vessels have spilled oil elsewhere.¹⁹ Despite such dangerous incidents, IMO has been unable to ensure compliance with its rules—even though its member states include several “flags of extreme convenience” (my term) that primarily flag shadow vessels. Insisting on compliance is made yet more difficult by the fact that shadow vessels don’t call at ports of Western countries, where post state controls are typically fully implemented, but instead sail straight to their destination or perform ship-to-ship transfers before returning to their ports of origin. “It’s very tempting to start saying, if they don’t play by the rules, why should we then play by the rules?” Wessel noted.²⁰

Response options for nations committed to maritime governance

IMO member states could introduce proposals aimed at curtailing dangerous shadow vessel practices or, for that matter, proxy group attacks on merchant shipping. Indeed, some IMO member states are teaming up to at least bring attention to systematic violations. “We try to work closely together where we see such issues, whether it’s in Asia or in our own neighborhood, and then take it into the IMO,” Wessel said.²¹Interview with the author, April 22, 2025.²² Yet most attempts at strengthening rules or creating new ones are likely to be unsuccessful, as nations benefiting from the practices would vote against the measures and encourage other countries to do the same.

“What IMO can do is act as a facilitator,” Platten said. “Everyone wants safe shipping, and that’s what IMO regulates. People make grand statements at IMO, whether it’s on the Ukraine issue or anything else, but ultimately it’s a technical body that decides on regulation for shipping. It’s never at its best when there’s political grandstanding. It’s much better when it gets on with things as it did with the greenhouse gas agreement, which is people working late, late, late into the night to try and find some landing ground.”²³

Within IMO, a significant number of countries around the world are indisputably committed to maintaining and enhancing maritime governance. By definition, shipping encompasses the whole world, and IMO remains irreplaceable as the forum through which the world’s nations can maintain standards. However, it can no longer be assumed that all members want to enhance the global maritime order.

The fact that IMO depends on its global membership for any action, and that leading nations now openly undermine the maritime order, means there is a gap in global maritime governance. It’s clearly in no country’s interest to impose more governance on itself while other countries use the world’s oceans impeded by fewer rules, but countries could team up in self-selecting groups to enhance maritime rules in their waters.

For example, while UNCLOS’s right to innocent passage is sacrosanct, countries affected by the shadow fleet could collectively adopt pollution rules that go beyond MARPOL. The countries that could initiate such an undertaking include coastal states in the Baltic Sea and the North Sea, as well as Malaysia, Indonesia, Singapore, and other countries whose territorial waters and exclusive economic zones shadow vessels regularly traverse.

As the shadow fleet has also led to systematic subversion of maritime incident insurance (known as the P&I club system), coastal states in different parts of the world now share the seemingly intractable problem that suspected shadow vessels sail through their waters with insurance barely worth the paper on which it is written. They, too, can team up to adopt stricter insurance rules. Adopting stricter pollution rules, P&I insurance rules, or both would enhance maritime safety without detracting from IMO. In that way, they would resemble initiatives by NATO member states that have a regional focus and take place outside NATO but don’t undermine the Alliance. They include, most prominently, the Joint Expeditionary Forces, which encompass ten northern European countries.²⁴

Sailing in safer waters

The International Maritime Organization serves the world’s nations and the shipping industry well, but it is undermined by growing geopolitical tensions and decreasing commitment to global rules and institutions. While IMO can continue serving a crucial function as the world’s default maritime convener, nations committed to the maritime order can enhance safety in their waters by forming coalitions of the willing that share, for example, stricter rules on pollution or P&I insurance. That would make sailing in their waters more expensive. It would also, however, help nations committed to the maritime order establish a maritime “elite league” in whose waters all maritime participants would know that the highest standards apply.

Fellow

Elisabeth Braw

Senior Fellow

Scowcroft Center for Strategy and Security Transatlantic Security Initiative

NATO Resilience & Society

Threats to the global maritime order

Learn more about the Atlantic Council’s project Threats to the global maritime order: Protecting the freedom of the seas.

Report Jan 23, 2025

From Russia’s shadow fleet to China’s maritime claims: The freedom of the seas is under threat

By Elisabeth Braw

This report analyzes the deterioration of the global maritime order, focusing on rule violations in areas including maritime border alteration, harassment of civilian vessels, and disturbance of navigational tools

China Europe & Eurasia

Report Dec 6, 2024

The threats posed by the global shadow fleet—and how to stop it

By Elisabeth Braw

Since 2022 the number of aging ships whose ownership, insurance status, and safety is unknown has exploded, prompted by Russia’s reliance on this “dark fleet” to ship its oil in defiance of Western sanctions. What can be done about this environmental, economic, and safety threat on the high seas?

China Europe & Eurasia

Report Aug 9, 2024

What attacks on shipping mean for the global maritime order

By Elisabeth Braw

This report discusses the history of attacks on shipping, the rules implemented to keep shipping safe, and the new and serious threats posed by the Houthis and other actors. It also discusses steps Western governments and the shipping industry can take to reduce the harm posed by such attacks.

Europe & Eurasia Maritime Security

The Transatlantic Security Initiative, in the Scowcroft Center for Strategy and Security, shapes and influences the debate on the greatest security challenges facing the North Atlantic Alliance and its key partners.

Learn more

The post The world needs a maritime ‘elite league’ to combat rogue shipping appeared first on Atlantic Council.

On September 30, the framework for sharing important cybersecurity information between government and industry, the Cybersecurity Information Sharing Act of 2015 (CISA 2015), will expire unless Congress acts. This law—distinct from the similarly named Cybersecurity and Infrastructure Security Agency (also CISA)—provides essential legal protections that allow private companies to share cyber threat information among themselves and with the government.

There is already bipartisan support for renewing CISA 2015. Senators Gary Peters (D-MI) and Mike Rounds (R-SD) introduced legislation to extend the current law for another ten years without changes, an approach supported by major trade associations. The bill’s authors correctly emphasize the importance of preserving the established information-sharing environment. Yet, renewing CISA 2015 unchanged leaves the cybersecurity community blind to critical threat intelligence that SMBs uniquely hold.

As originally passed, CISA 2015 removed legal barriers and disincentives to sharing cyber threat data. It provides liability protections and exemptions from certain public disclosure requirements or regulatory penalties for companies that share threat indicators in good faith. These protections significantly reduce the risk of lawsuits or regulatory enforcement when organizations exchange information with the Department of Homeland Security (DHS) or other companies under the framework, provided the information was anonymized and used strictly for a “cybersecurity purpose.”

These protections dramatically enhanced cybersecurity information sharing. In the private sector, entities such as the Cyber Threat Alliance formed to facilitate voluntary company-to-company information sharing. Information Sharing and Analysis Centers (ISACs), organizations dedicated to collecting, analyzing, and disseminating sector-specific threat data, have also grown substantially. The National Council of ISACs now comprises twenty-seven sector-specific ISACs, while the Multi-State ISAC alone exceeded 18,000 members last year. These members share cyber threat information directly because of the protections offered by CISA 2015. Even government programs have evolved in response. DHS’s Automated Indicator Sharing (AIS) platform has significantly improved rapid information exchanges and threat awareness, aided by CISA 2015 protections.

SMBs are being left behind

Still missing from this list, however, are the large number of SMBs that operate across the United States. SMBs have largely been overlooked, are subject to a large number of attacks, and their employees face social engineering threats such as phishing and fraud 350 percent more than those at large companies. While platforms such as DHS’s AIS are beneficial to larger corporations, SMB participation remains limited due to high costs, technical complexity, and inadequate outreach. This exclusion leaves SMBs vulnerable and deprives the cybersecurity community of a significant source of threat intelligence.

Since 2015, the cyber threat landscape has evolved, with SMBs now frequent targets. Roughly one in three small businesses will suffer a cyberattack in the next year, with each incident costing an average of nearly $255,000, almost an order of magnitude greater than the 2014 average cost of $27,752. This changed threat landscape and lack of participation in information sharing leaves a gap. 

Any new CISA 2015 authorization should address this gap to benefit the entire cybersecurity ecosystem. SMBs represent a valuable source of threat data, and integrating their insights would significantly enhance predictive capabilities and resilience. Strengthening SMB defenses would also reduce opportunities for attackers to exploit smaller entities as gateways to larger networks. 

How Congress can update CISA 2015

To achieve this integration, Congress should ensure any reauthorization addresses four targeted reforms. 

First, clarify definitions. The term “cybersecurity purpose” should explicitly include protections against social engineering threats such as fraud and phishing, ensuring SMBs receive comprehensive coverage for the threats they face.

Second, incentivize more participation among SMBs. Congress should authorize a DHS-managed initiative specifically designed to provide smaller businesses with accessible, actionable threat intelligence and affordable cybersecurity resources. Federal support could take the form of grants, vouchers, or subsidized cybersecurity solutions. 

Third, codify successful operational models into law. This was attempted last year with a bill introduced by Representative Eric Swalwell (D-CA-14) that would codify CISA 2015’s Joint Cyber Defense Collaborative (JCDC). The JCDC has successfully united federal agencies and private companies to effectively respond to high-profile cyber incidents, including the exploitation of Ivanti gateway vulnerabilities and the July 2024 CrowdStrike outage. Currently, JCDC and many similar programs lack explicit statutory authority, making them vulnerable to termination by executive action, which is what happened to the Critical Infrastructure Partnership Advisory Council in March of this year. Codifying such programs ensures sustained and consistent cybersecurity collaboration irrespective of political shifts.

Fourth, rename the law to clearly distinguish it from the Cybersecurity and Infrastructure Security Agency. Cybersecurity acronyms are hard enough as it is. A new name, such as the Cyber Intelligence Sharing and Protection Act (CISPA), a name from an earlier version of CISA 2015, would eliminate the confusion caused by acronym duplication. 

Reauthorizing CISA 2015 with these targeted improvements—clearer definitions, SMB support, codification of proven programs, and a distinct identity—will ensure that SMBs play their part in and benefit from making the next decade of cybersecurity more resilient than the last.

Tanner Wilburn is a recent graduate of the Indiana University Maurer School of Law with an MS in cybersecurity risk management from the Luddy School of Informatics, Computing, and Engineering. 

Sara Ann Brackett is an assistant director with the Cyber Statecraft Initiative, part of the Atlantic Council Tech Programs. 

Urmita Chowdhury is an assistant director for trainings and competitions at the Cyber Statecraft Initiative, part of the Atlantic Council Tech Programs. 

The post Cyberattacks are hurting US businesses. Here’s how Congress can upgrade cybersecurity information sharing. appeared first on Atlantic Council.

Where should the US Congress put its attention?

The heterogenous nature of the Caribbean offers various opportunities to strengthen relations with the region and, by extension, advance US interests. From natural gas to geothermal energy, Caribbean countries offer new opportunities for US investment. Reducing crime and gang proliferation across the region can protect US citizens traveling abroad and stem the potential flow of illicit goods and services.

Energy security

The United States can strengthen its positioning in the Caribbean by supporting regional energy security. At current estimated reserves, Guyana, Suriname, and Trinidad and Tobago house almost 30 trillion cubic feet of natural gas, with further offshore exploration expected to increase the size of reserves. At the same time, other countries require reliable power generation–which can be provided by liquified natural gas (LNG) imports–to provide resilience to their electricity grids during natural disasters, improve economic competitiveness, and to underpin ambitions to add renewables to their energy matrix.

Here, the United States will find opportunities on three fronts. First, natural gas exploration opportunities, liquefaction infrastructure, and building pipelines and LNG storage are areas where US oil and gas companies and mid-size service-based companies can invest. Second, imported oil from Guyana, Suriname, and Trinidad and Tobago can be low-cost and competitive options vis a vis other suppliers to satisfy growing US energy demand and supplement domestic shale supply in Texas and Midwestern states. Finally, congressional members can work with the Southern Caribbean hydrocarbon producers to support energy security in Europe and lessen demand for Russian energy resources by increasing cargo exports to EU members.

Greater Caribbean energy security can also lead to lower electricity prices, which can benefit constituents of US congressional members traveling to the Caribbean and potentially reduce migration to the United States. Most of the region (except for Suriname and Trinidad and Tobago) pays some of the highest electricity in the Americas (see Figure 3), which is on average, double or triple what US consumers pay. At the same time, electricity costs can account for almost 70 percent of a hotel’s utility due to air conditioning, lighting, and heating, among others.

Therefore, to keep profits stable, the high costs translate to the consumer–in this case, US tourists. This means that by bringing down electricity costs and lowering the cost to travel and having overnight stays in the Caribbean, US tourists benefit and have more purchasing power to buy in-country goods (most of which are imported from the United States). Further, reducing electricity prices can stem Caribbean emigration flows to US shores given that high costs of living are a key migratory push factor.

Reducing violent crime and gang activity

Security concerns in the Caribbean are on the rise. Figure 4 shows that Caribbean countries have high homicide rates (per 100,000) relative to their Latin American neighbors. Rates have been on the rise due to increased gang proliferation and illegal imports of small arms–many of which originate from the United States. For example, countries like Trinidad and Tobago, declared a state of emergency late 2024 due to increased gang activity and the usage of high-powered assault weapons. Gang proliferation is also on the rise. While Caribbean countries do not house large gangs, smaller gangs pervade the region, using the informal ports of entry to move illicit guns, goods, and services. In 2021, Jamaica identified 379 different gangs with 140 named in 2023 for Trinidad and Tobago. The decentralized nature of criminal and gang networks in the region inhibits Caribbean governments and police forces’ abilities to combat gang operations. Further, gangs in the Caribbean, especially in Jamaica, are turf oriented. This allows smaller gangs to gain a foothold in local communities, sometimes acting as community leaders and providing needed social services and protection from rival gangs.

Addressing the Caribbean’s security challenges can protect US citizens traveling to the region and curb gang activity and illicit trafficking before they reach US shores. Travel destinations for US citizens, such as Jamaica and islands in the Eastern Caribbean are among the most violent in the region. Therefore, improving citizen safety in the Caribbean ensures US citizens’ safety as well. Given that gun-related activities are a primary driver of citizen insecurity, one solution is for US agencies to work closer with Caribbean defense and police forces to improve monitoring, tracking, and seizures of illegal small arms.

Further, stemming gang activity in the region can also disrupt transnational criminal organizations’ operations. Specifically, Caribbean countries are used as a transit point for drugs, many of which end up in the United States. Enhanced maritime security and interdiction in the Caribbean Sea can help interrupt illegal drug supply chains and weaken transnational criminal organizations. However, the capacity to monitor drug flows is a challenge. Partnerships with the United States to gain access to satellite imagery and drone technologies to identify drug shipment routes can provide Caribbean governments the needed tools to tackle drug flows.

Bottom lines

• The challenges facing Caribbean countries are growing and have consequences that are not constrained to the region’s geographic borders, likely to directly or indirectly affect US interests. This can be avoided if there are consistent and strong partnerships between the Caribbean and the United States. This can and should start with stronger US congressional engagement to the region.
• US congressional members should consider legislation that prioritizes a holistic strategy with appropriated resources to the Caribbean. While CBSI tackles security challenges, support is needed across the energy, infrastructure development, agricultural, and financial services, among others.
• Given the importance of the Caribbean to US interests, the House Foreign Affairs Committee should consider a hearing that highlights new opportunities to strengthen US interests in the Caribbean and the broader US-Caribbean partnership.
• Strengthening US-Caribbean ties start with building a foundation for a long-term partnership. US congressional engagement can help turn four-year policies into decades of friendship, all while protecting US interests along its “third border.”

Staff

Wazim Mowla

Fellow and Lead of the Caribbean Initiative

Adrienne Arsht Latin America Center

Caribbean China

Staff

Maite Gonzalez Latorre

Program Assistant

Adrienne Arsht Latin America Center

Americas Education

New Atlanticist Mar 25, 2025

The US needs to build a new Caribbean policy. Rubio’s trip to the region can be the first step.

By Wazim Mowla

US engagement with the Caribbean should prioritize energy investments and efforts to reduce violent crime in the region.

Caribbean Economy & Business

New Atlanticist Apr 29, 2025

What’s next for Trinidad and Tobago’s new prime minister?

By Wazim Mowla and Dale Ramlakhan

On April 28, Kamla Persad-Bissessar was elected as the next prime minister of Trinidad and Tobago. While she is returning to the role, she’ll find a country that is different from her first term.

Caribbean Elections

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 US interests can benefit from stronger congressional ties with the Caribbean   appeared first on Atlantic Council.

On June 3, Stephen Rodriguez, Senior Advisor at Forward Defense and Director of the Commission on Software-Defined Warfare, joined a panel at the AI+Expo to discuss “Reindustrializing America via Government Procurement Reform.”

He was joined by Eric Lofgren, Staff Member, U.S. House Armed Services Committee; Scott Friedman, Vice President of Government Affairs at Altana Technologies; and Mike Manazir, Vice President, Federal at Hadrian.

Fellow

Stephen Rodriguez

Senior Advisor

Forward Defense Scowcroft Center for Strategy and Security

Defense Policy Defense Technologies

Forward Defense, housed within the Scowcroft Center for Strategy and Security, generates ideas and connects stakeholders in the defense ecosystem to promote an enduring military advantage for the United States, its allies, and partners. Our work identifies the defense strategies, capabilities, and resources the United States needs to deter and, if necessary, prevail in future conflict.

Learn more

The post Stephen Rodriguez Joins AI+Expo Panel on Government Procurement Reform appeared first on Atlantic Council.

That’s why the world’s financial leaders are closely watching the debate playing out in Congress right now over the future of stablecoin legislation. Next week, the Senate will likely take up the GENIUS Act, which will define the responsibilities for US stablecoin issuers and clarify who is responsible for oversight. 

Stablecoins are cryptocurrencies whose values are pegged to a specific underlying asset. This makes them “stable”—at least in theory.

Currently, 98 percent of stablecoins are pegged to the US dollar, but over 80 percent of stablecoin transactions happen outside the United States. 

Countries around the world are taking notice. In April, Italy’s finance minister, Giancarlo Giorgetti, said that new US policies on dollar-backed stablecoins present an “even more dangerous” threat to European financial stability than tariffs. His argument was that access to dollars without needing a US bank account would be attractive to millions of people and could undermine the effectiveness of monetary policy not just in Europe but around the world.

In many ways, it’s an old problem with new technology. Dollarization—the situation where citizens in another country try to swap their local currency for dollars—has been a risk in emerging markets and developing economies for decades. In the early 2000s, for example, a range of countries from Ecuador to Zimbabwe to Argentina had difficulty managing the demand for dollars instead of local currency. In each situation, years of economic pain followed in these countries. 

Now stablecoins are making it cheaper and easier for people around the globe to get ahold of what is still the single most in-demand asset in the world.

Instead of the old way of having to go to a bank and exchange local currency for US dollars, which is time consuming and often involves significant fees, stablecoins make dollars seamlessly available to anyone with a cell phone.

US officials argue that this benefits the United States. When I interviewed Federal Reserve Governor Christopher Waller, who oversees payments at the central bank, about this issue in February, he said that stablecoins “could be in any fiat currency,” such as pounds or euros, “but everyone wants dollar-denominated stablecoins.” He added that “if we can get good regulation, allow these things to go out, this will only strength the dollar as a reserve currency.”

Waller’s point was that if stablecoin issuers need to back up their coins with Treasuries or other liquid assets, the increase in stablecoin usage around the world will generate even higher demand for dollars. The whole point of a stablecoin is that you can fully convert it into a dollar if you want to—meaning the issuers need to have those dollars on hand.

US Treasury Secretary Scott Bessent has put it even more bluntly. “We are going to keep the US the dominant reserve currency in the world, and we will use stablecoins to do that,” he said in March.

If so, the United States should tread cautiously. 

The global proliferation of stablecoins means that some companies will take advantage of the demand and issue stablecoins that claim they are digital versions of the dollar but in reality aren’t fully backed by dollars.   

If that company failed, it wouldn’t just cost consumers their savings. It could trigger a run on all kinds of financial assets.

Think back to the collapse of the algorithmic stablecoin TerraLuna in 2022. Over $45 billion in value for TerraLuna holders was wiped out within a week. But since that time, stablecoin volumes have increased across the world by over 60 percent. 

The current patchwork of regulations around the globe creates more confusion, more friction in payments, and ultimately higher costs for consumers. 

Already, that’s what’s happening. As new research from the Atlantic Council GeoEconomics Center shows, some countries want to create their own central bank digital currencies to compete with stablecoins, while other countries are trying to regulate the wallets that hold stablecoins. 

Instead of waiting for new regulatory fences to be built up in the coming years, the United States should show that it recognizes the concerns other countries have about dollar-backed stablecoins. The legislation in front of Congress helps domestically by creating transparency and reporting requirements, but it does little internationally.

This is where the Group of Twenty (G20) comes in. The United States has a golden opportunity to help set international standards around digital assets, including the risks and regulations associated with stablecoins, during its G20 presidency next year. A key first step would be creating a new G20 payments roadmap. 

A first roadmap was agreed to in 2020 and delivered important innovations on faster payments. But technology has rapidly changed in the past five years, and it’s time for an upgrade. 

If the United States made stablecoins a focus this year, it would raise the bar across the world and ensure that dollar-backed stablecoin users in all countries are getting what they bargain for—an actual dollar—instead of an imitation of one. 

The rest of the world will welcome US leadership in this space and will take it as a sign that, at least when it comes to the future of the dollar, the United States is not looking to export instability.

Josh Lipsky is the chair of international economics at the Atlantic Council and senior director of the Atlantic Council’s GeoEconomics Center. 

The post For dollar-backed stablecoins to be truly stable, the US needs to set international standards appeared first on Atlantic Council.

Click to jump to an expert analysis:

Abdoul Salam Bello: A thirst for tangible impact

Rama Yade: A moment of opportunity for Africa

Frannie Léautier: A renewed sense of optimism

Tom Bonsundy-O’Bryan: Future-proofing the Bank

Emilie Bel: Remaking the donor base

Benjamin Mossberg: Yet, don’t discount the United States

Alexandria Maloney: An agility challenge

Didier Acouetey: A reflection of Africa’s biggest challenges

A sign of the thirst for tangible impact

Tah’s election, with 76 percent of the vote, signifies a pivotal moment for the institution and a reflection of evolving global development priorities. This robust mandate from shareholders acknowledges Tah’s multifaceted experience, which encompasses senior leadership roles in Mauritania’s public sector (including ministerial and advisory positions) and key functions within multilateral institutions focused on crisis management, financial restructuring, and resource generation for African development.

A critical factor in the shareholders’ decision was undoubtedly Tah’s leadership at the Arab Bank for Economic Development in Africa over the past ten years. His tenure saw the institution’s assets at least double and culminated in AA+/AAA credit ratings. This track record of financial acumen underscored a shareholder desire for clear, measurable outcomes and tangible impact in development initiatives, particularly within the context of reevaluating development financing models.

Achieving such outcomes will be essential as the AfDB looks to support the continent in addressing several critical challenges. These challenges include fostering substantial job creation (on a continent where the median age is about nineteen years), navigating an escalating debt burden, mitigating prevalent fragility, and securing crucial investments in sectors such as energy, agriculture, and infrastructure. The annual financing gap for Africa’s infrastructure needs is estimated at between $68 billion and $108 billion, which represents eight to ten times AfDB’s overall approvals from 2022 to 2023.

Finally, as Africa seeks to diminish its reliance on traditional aid and attract increased private investment, Tah is anticipated to catalyze more dynamic engagement with emerging economic partners actively seeking opportunities on the continent.

—Abdoul Salam Bello is a nonresident senior fellow with the Africa Center

A moment of opportunity for Africa

The AfDB and its newly elected president will be under a great deal of scrutiny.

In Washington, much of the commentary will focus on the cut in US funding. In May, the Trump administration proposed cutting $555 million in funding for the AfDB, at a time when the AfDB is looking to replenish its African Development Fund with a $25-billion fundraising campaign.

However, the new AfDB president should consider the US decision an opportunity to rebuild the financial foundations of an organization that is less “African” than other development institutions. Unlike the Africa Finance Corporation or the African Export–Import Bank, the AfDB is not entirely controlled by Africans. The AfDB has eighty-one shareholders, including twenty-seven nonregional members, ranging from Norway to the United Arab Emirates. While most of the voting power remains in the hands of African regional members, nonregional members such as Japan (the largest non-African shareholder) and the United States have significant voting power and board representation.

Consequently, these nonregional members play a key role in AfDB’s development priorities. In the previous cycle, they controlled over 40 percent of the bank’s resources. Of the nonregional members, Germany, France, and the United States pledged the most funds during the previous funding cycle. However, the US withdrawal will affect Washington’s role. Reducing the Bank’s access to US financial markets will impact dollar dominance in Africa. Given that the infrastructure needs of Africans are estimated at $100 billion per year, it is easy to forecast that the AfDB will increase its cooperation with non-US markets, including Gulf countries such as Saudi Arabia.

—Rama Yade is the senior director of the Africa Center

A renewed sense of optimism

As Tah’s campaign manager, I witnessed firsthand how his platform evolved—and how shareholders ultimately rallied behind him.

Tah brings over thirty-five years of experience in African and international finance. As president of the Arab Bank for Economic Development in Africa, he led a transformation and enhanced the institution’s lending capacity. Previously, Tah served as Mauritania’s minister of economic affairs and development, and before that, he was the country’s minister of economy and finance. In these roles, he implemented structural reforms and negotiated key agreements with development partners. His governance experience provides him with a comprehensive understanding of both the demand and supply sides of development finance.

Tah’s decisive victory reflects a desire among shareholders for a leader with a track record of institutional transformation and financial innovation. His election suggests a shift towards prioritizing capital mobilization (from both domestic and international sources), institutional reform to strengthen the agency and resilience of Africa’s financial systems, and inclusive growth. His victory also shows an acknowledgment of the importance of building infrastructure that not only meets development needs but also is resilient to climate change impacts.

With the US proposal to cut $555 million in funding for the AfDB, Tah is expected to enhance domestic resource mobilization and implement innovative financial instruments. He is also slated to strengthen partnerships and diversify funding sources, especially with emerging powers such as Turkey, the United Arab Emirates, Saudi Arabia, and others, to secure needed resources for the continent’s development agenda.

Tah’s election as president of the AfDB comes at a critical juncture for Africa. His experience, strategic vision, and commitment to inclusive and sustainable development position him to lead the AfDB in addressing the continent’s pressing challenges. And as he assumes office, there is a renewed sense of optimism and determination to accelerate Africa’s transformation.

—Frannie Léautier is a nonresident fellow with the Atlantic Council’s Africa Center.

Future-proofing the Bank

Tah’s election reflects a clear shareholder pivot toward Gulf capital as traditional donors pull back. With the United States proposing to cut $555 million in funding, shareholders prioritized a candidate who could mobilize alternative funding. Tah’s track record (doubling the Arab Bank for Economic Development in Africa’s assets) and his experience (with which he can likely channel Gulf sovereign wealth into AfDB co-investment vehicles) proved decisive. His landslide win signals a strategic consensus among shareholders: Future-proofing the Bank means diversifying, moving away from Western donors. 

—Tom Bonsundy-O’Bryan is a nonresident senior fellow at the Atlantic Council’s Africa Center and a 2023 Millennium fellow.

Remaking the donor base

Tah’s large victory should give him the momentum needed to tackle the huge challenges facing the AfDB. Among them, he will have to deal with the erosion of the traditional donor base, best exemplified by (but not limited to) the United States’ cuts to the US Agency for International Development. He will need to tap new donors and solicit more support from current donors—for example, Gulf states—as well as unlock the full potential of the private sector. Moreover, given Africa’s vulnerability to climate change, he will have to accelerate climate-change adaptation and mitigation measures and face tough choices regarding the African energy mix.

—Emilie Bel is a nonresident senior fellow with the Africa Center

Yet, don’t discount the United States

While the United States may be losing interest in the AfDB, it is clear that other powers seeking greater influence in African countries and institutions were paying close attention to this contest. The race became bitter, as countries (both African ones and other shareholders) backed different candidates. But the attention was warranted; these are difficult times for the Bank, given the challenges it faces, from climate to trade to declining donor support.

With the United States—one of the largest contributors to the AfDB—proposing to cut $555 million in contributions, voting members smartly sought a solution to help the AfDB look beyond traditional Western donors. By selecting Tah, the outgoing president of the Arab Bank for Economic Development in Africa, AfDB will be well-positioned to seek contributions from Arab League members.

Yet, under Tah, AfDB leadership should not discount the United States; it should continue to court Washington. It can do so by ensuring that projects and investments funded by US contributions are prioritized appropriately. Toward that aim, Tah should deploy a more robust communication strategy with the goal of clearly articulating to a skeptical US domestic audience how US investments in the AfDB benefit Americans.

—Benjamin Mossberg is the deputy director of the Africa Center

An agility challenge

Tuh’s victory signals continuity in some respects, but it is also a sign of potential recalibration ahead for the AfDB. While his platform emphasizes reform and modernization, the true test will lie in how he navigates entrenched institutional dynamics and mounting pressure for measurable outcomes. Tuh has inherited a Bank at a crossroads and is tasked with addressing climate finance, youth unemployment, and shifting geopolitical alignments, especially amid intensifying competition among global powers, including the United States, China, and Gulf states. His legacy will be defined by his ability to sustain trust among member states while steering the Bank toward greater agility and impact in a rapidly changing development landscape.

—Alexandria Maloney is a nonresident senior fellow with the Africa Center, president of Black Professionals in International Affairs, and a visiting lecturer at Cornell University

A reflection of Africa’s biggest challenges

Tah’s decisive election comes at a pivotal moment for Africa. In a shifting global landscape marked by geopolitical realignment and the decline of traditional development aid, his election reflects a growing and urgent concern about accelerating Africa’s transformation and unlocking youth employment. It also underscores the need to mobilize African domestic resources and to harness the continent’s demographic growth as a powerful development dividend—rather than a burden. Tah’s vision is both bold and Africa-centered; but the delivery of that vision will depend on his ability to strike strategic partnerships.

—Didier Acouetey is a nonresident senior fellow with the Africa Center and president and founder of the AfricSearch Group

The post Experts react: How Sidi Ould Tah will shape the African Development Bank appeared first on Atlantic Council.

China dominates the rare-earth supply chain, with Beijing supplying about 60 percent of global rare-earths output and controlling up to 90 percent of refining capacity. For the United States, which needs neodymium and dysprosium for F‑35 fighter jet engines as badly as it needs lithium for electric vehicles, continued dependence on Beijing is impossible. The solution is not wishful “onshoring” to the United States alone; it is establishing a portfolio of reliable partners. Kazakhstan, already the world’s leading uranium producer and a top‑ten copper and zinc exporter, is a prime candidate for such a partnership.

Rare earths have become a geopolitical flashpoint. In practice, that means Beijing can throttle supply at will. In April, for example, China abruptly restricted exports of several important rare earths and permanent magnets—actions triggered by trade disputes with the United States under the pretext of “energy security.” US firms and strategists described the move as China’s latest attempt to weaponize its rare-earths dominance.

Supply shocks will recur, not recede. After Beijing halted exports of rare-earth refining technology to the United States in late 2023, it spent 2024 steadily ratcheting up export-license requirements on strategic rare-earth oxides or outright banning its exports. These moves culminated in April of this year, with Beijing placing export restrictions on seven heavy and medium rare-earth elements (samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium) on dual-use national-security grounds.

The United States has only just begun to free its high-tech supply chain dependence on China. Over the past few years, for example, US policymakers have launched some domestic projects and lured allies in Europe and Australia to develop alternatives, but many of those efforts are still nascent. New supply lines will take years to mature. Washington needs a long-term partnership strategy that goes beyond homespun mining; it needs countries capable of supplying rare earths at scale. Since 2020, Kazakhstan has ramped up rare-earth mining, increasing its exports nearly fivefold by 2024. Still, both in 2023 and 2024, 100 percent of its rare-earth output is exported to China—a telling indicator that the resource is there, but does not currently flow to the West. By moving swiftly, the United States could hedge against future Chinese disruptions—and help build a secure, diversified global supply chain for these critical minerals.

Kazakhstan’s rare earths

Unlike some prospective supplier countries, Kazakhstan already knows it has rare-earth wealth. In early April, geologists in the country announced the “Zhana Kazakhstan” discovery: an estimated twenty million metric tons of rare-earths‑bearing ore in the Karagandy region, including sizable heavy‑rare‑earth concentrations. If even 10 percent of the ore proves recoverable at today’s grades, that equates to around 200,000 tons of rare-earth oxide content—enough to meet current US neodymium magnet demand for a dozen years. If validated, the site would give Kazakhstan the world’s third‑largest rare-earth element reserves, trailing only China and Brazil. While promising, these preliminary findings are no sure thing and will require deeper study.

This find is not an outlier. Soviet‑era data and recent airborne surveys point to additional prospects across southern and eastern Kazakhstan. The geology has been there; what was missing was investor certainty. That is changing fast. In just the past few years, the government has opened scores of new exploration projects.

Kazakhstan is no newcomer to big mining. In 2024, the country led the world in uranium output (about 38 percent of global supply) and ranked among the top ten producers of copper and zinc. The national mining concern, Tau-Ken Samruk, consolidates dozens of mines and has global joint ventures in everything from gold to base metals. Kazakhstan’s energy and transport infrastructure likewise favors large-scale mining, as it already accounts for 14 percent of the country’s gross domestic product.

Kazakhstan’s “multivector” diplomacy also plays a factor. Kazakh President Kassym-Jomart Tokayev courts Beijing and Moscow, yet he also seeks deeper ties with Washington and Brussels to balance against those giants. That instinct makes Astana a willing partner for the United States, and a less risky one than conflict-scarred alternatives such as Myanmar and the Democratic Republic of the Congo. At the same time, the United States should not expect Kazakhstan to choose only Western partners over the major powers along its eastern and northern borders.

Since 2018, Astana has overhauled its subsoil code on a “first come, first served” model. New legislation helps promote fiscal stability, offers value-added tax holidays on exploration equipment, and caps royalties. As a result, majors from Rio Tinto to Fortescue have launched joint ventures, while US‑backed Cove Capital began drilling rare-earths targets near Arkalyk in 2024.

Kazakhstan also has an edge in infrastructure. The Middle Corridor rail‑and‑port network—which runs from western China through Kazakhstan to the Caspian Sea and onward to Europe—was expanded last year with European Union (EU) financing. Aktau’s Caspian port already handles uranium concentrate bound for Canada and France; rare-earths concentrates could follow the same route with minimal modification.

In short, Kazakhstan offers what many mining countries do not: favorable geology and the business environment and infrastructure to exploit it. Kazakhstan already has smelters and refineries for many ores, and it boasts production of advanced materials such as purified manganese sulfate and titanium metal. It even produces gallium (used in semiconductors) and recycles rhenium, though admittedly it still lacks deep processing for rare-earth oxides.

The way forward

Washington has learned the hard way that pledges alone won’t break Beijing’s monopoly, and its next move should elevate quiet deals into an explicit strategy. On the Kazakh side, top leaders have made it clear that developing mining for Western markets is a priority. For example, Tokayev has called critical minerals the country’s “new oil,” and he has signed a number of memoranda with foreign partners on exploration and processing. Kazakhstan’s September 2024 “Kazakh-German” forum alone produced twenty-three agreements in mining, including rare-earth joint ventures.

Here are the three critical steps Washington and Astana should take next:

1. Unlock normal trade by repealing the Jackson-Vanik Amendment and grant Permanent Normal Trade Relations (PNTR) to Kazakhstan. The United States should finish what H.R. 1024 has already teed up: removing Kazakhstan from the Soviet-era Jackson-Vanik Amendment and extend PNTR to Kazakhstan. Scrapping this relic costs no money, instantly signals strategic seriousness, and eliminates the legal ambiguity that still shadows US financing and offtake contracts with Kazakh mines. PNTR lets both sides write binding long-term supply agreements.
2. Set up a US–Kazakhstan rare-earth task force to drive the deals. The United States and Kazakhstan should co-chair a cabinet-level task force comprised of the US State Department and US Commerce Department, as well as Kazakhstan’s Ministry of Industry. This task force would set annual, public targets for the number of exploration licenses issued to Western consortia, the amount of pilot separation plants financed and built on Kazakh soil, and the export tonnage of heavy and medium rare-earth elements to non-Chinese markets. The task force could instruct the US International Development Finance Corporation and Export-Import Bank of the United States to prioritize Kazakh rare-earth projects, while Kazakhstan fast-tracks permitting and guarantees site security. Early co-location of processing near the mine head would lock in long-term offtake for US buyers and complement EU infrastructure money already pledged for the Aktau port.
3. Deploy a blended-finance and technology package along the full value chain. Washington should pair loan guarantees with technical assistance from the US Geological Survey, Oak Ridge National Laboratory, and the Department of Energy’s Critical Materials Institute. Kazakhstan should match that support by streamlining visas for engineering teams and auctioning new mine blocks on transparent terms. The Pentagon’s National Defense Stockpile could start purchasing Kazakh oxides, while the Department of Energy and Nazarbayev University co-fund recycling research and development to close the loop at home.

To be sure, there are challenges ahead, and mining remains a difficult, uncertain venture. Bringing a greenfield rare-earths mine to commercial output can take more than a decade. But doing nothing cements Beijing’s leverage for that same decade and beyond. By acting now, Washington can buy future resilience and signal to market actors that rare-earths diversification is real.

Miras Zhiyenbayev is the advisor to the chairman of the board for international affairs and initiatives at Maqsut Narikbayev University, Astana, Kazakhstan. He is also co-sponsoring the June 4 US-Central Asia Forum at the Atlantic Council.

The post How Kazakhstan can anchor a resilient rare‑earth supply chain for the West appeared first on Atlantic Council.

The $4.6 billion initial public offering (IPO) by the battery manufacturer Contemporary Amperex Technology Co. (CATL) in late May was a clear riposte to a US Department of Defense decision to place the company on a watchlist for alleged links to the Chinese military. It also highlighted the fragility of business ties that once seemed to inextricably bind the world’s two largest economies.

The Chinese government is steering more and more of its companies away from New York for IPOs; the country’s second-largest car maker, Chery Automobile, is preparing to launch a $1.5 billion share issue in Hong Kong as well. About three-quarters of the largest twenty-five Chinese firms listed on Wall Street have set up parallel listings in Hong Kong in the past few years and already represent 60 percent of the value of shares listed there. The purpose of listing in Hong Kong is to create an escape valve if the United States follows through on its periodic threats to delist all Chinese stocks on Wall Street. The most recent such warning came from US Treasury Secretary Scott Bessent on April 9, when he declared that “everything is on the table” in response to a journalist’s question about the possibility of forced delistings. Chinese stocks in the United States have a total market capitalization of about $1.1 trillion, which, while no small change, is only a tiny portion of the roughly $52 trillion US markets.

American investors with accounts outside the United States can buy Chinese stocks in Hong Kong, and some fund managers have already shifted their holdings to the dual-listed shares there to protect against future disruptions. But many institutional investors whose governance rules do not allow for such foreign trading could not participate in the CATL IPO. The company specifically structured its share issue that way to avoid US regulatory oversight—a response to the Pentagon’s decision to blacklist the firm.

Hong Kong’s emergence as the market of choice for Chinese companies is no accident. Beijing has worked systematically to revive it as a regional financial center after many foreign investors and financial institutions retreated from the city in recent years, especially after the Chinese government’s began cracking down on mass political protests in 2019. The centerpiece of the financial market strategy is to establish Hong Kong as the largest venue for offshore transactions denominated in renminbi. Stocks are also part of the blueprint. While Chinese companies have been listing in Hong Kong for years, the stock market has gained prominence in China’s plans as US-China relations have worsened. A senior Chinese official said late last year that 80 percent of mainland businesses seeking an offshore listing are prioritizing Hong Kong, no doubt with a push from Beijing’s regulators.

The core issue for both Washington and Beijing is the national security implications of Chinese companies’ presence on Wall Street. Each US presidential administration over the past five years has sought to exclude companies regarded as part of China’s military-industrial complex from American financial markets. In 2020, the first Trump administration launched an effort to prohibit US investments in companies with ties to the Chinese government and military. This initiative resulted in the delisting of several large state-owned Chinese companies from US exchanges.

At the same time, Chinese regulators became increasingly concerned about US requirements for financial disclosure that they believed could reveal national secrets. That became a headline issue in the bilateral relationship after China refused, for many years, to allow US government auditors to inspect listed Chinese companies’ books. The US Congress eventually passed a law that mandated mass delisting if Beijing did not cooperate. A 2022 agreement that permitted American oversight defused the standoff, but the remaining Chinese state-owned firms  voluntarily delisted from Wall Street on that accord was finalized. Since 2021, China has stepped up its scrutiny of all Chinese companies seeking to list in the United States.

These issues have often been most visible when they involve publicly listed companies. However, US policymakers have also focused on restricting US venture capital and private equity investments in China, as well as Chinese investments in the United States. American venture capital and private equity investments in China in 2024 fell to $1.62 billion from a peak of $40.81 billion in 2018, and President Donald Trump issued a national security memorandum in February outlining plans to further restrict these capital flows.

There is a domestic political dimension to Beijing’s decision to expand its oversight of public listings: Control of China’s most important private sector companies, including the e-commerce giant Alibaba Group. Chinese leader Xi Jinping’s campaign to bring private conglomerates to heel has been closely tied to the regulation of foreign listings. The squeeze on corporate fundraising on Wall Street began in late 2020 when Beijing blocked a huge, planned IPO for Ant Group, the financial arm of Alibaba, after Alibaba Chairman Jack Ma criticized financial regulators. That action came as the first restrictions on US investments in Chinese companies were imposed.

From that point on, tightening controls over US listings appeared to occur in lockstep with deteriorating US-China ties. As the Biden administration broadened restrictions on Chinese companies by American investors in 2021, Beijing sought to delay a huge IPO by the Chinese ride-hailing giant Didi Chuxing. China then forced the company to delist after it defied the regulators and proceeded with the deal. Beijing followed that sanction with a raft of regulations mandating stricter oversight of all companies applying for foreign listings. Chinese IPOs in the United States have never recovered. According to the US-China Economic and Security Review Commission, forty-eight Chinese companies issued IPOs in the United States between January 2024 and early March 2025, raising a total of $2.1 billion. By contrast, thirty-two companies raised $12.1 billion in 2021.

Even before the CATL listing, IPOs in Hong Kong had risen sharply this year. The number of deals was up 25 percent in the first quarter, and the total value of those listings increased 287 percent to about $2.3 billion. The ten largest IPOs so far have been Chinese companies.

Listing in Hong Kong certainly has its drawbacks compared with Wall Street. It is a more volatile market with trading volumes far below the levels on US exchanges and lower valuations relative to earnings. A Hong Kong listing generally doesn’t command the prestige of the American exchanges; that can mean less favorable terms on other forms of financing than a US-listed company might be offered. Hong Kong’s listing regulations are also stricter than on Wall Street, and an estimated 170 small Chinese companies listed in the United States may not have the option to obtain dual listings there. However, Hong Kong offers access to a largely untapped pool of Chinese investors through an official program that enables mainlanders to buy and sell Hong Kong shares, including stocks like Alibaba that are not listed on Chinese exchanges. As of late February, investors based in China held about 12 percent of Hong Kong shares, compared with 5 percent at the end of 2020. Their trades accounted for about one-quarter of daily turnover, up from 16 percent a year ago.

Ultimately, while the lure of China’s army of retail investors might provide some consolation for companies that might lose access to the US markets, the Chinese government is the real beneficiary Beijing is prepared to exchange the financial advantages of a market it can’t control for the comfort of a city that responds to its every whim. Its actions over the past five years suggest a calculus that the political benefits of an international financial center with Chinese characteristics will outweigh the pain that decoupling inflicts on China’s private sector.

Jeremy Mark is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. He previously worked for the International Monetary Fund and the Asian Wall Street Journal.

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.

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The Middle Corridor creates a strategic role for Turkey as a central energy hub connecting Europe to additional suppliers. The European Union (EU) has recently increased its interest and investment in the corridor. However, the United States is still sitting on the sidelines even though the Middle Corridor presents a vital opportunity to counterbalance Russian and Chinese dominance in the region and limit Iran’s desire to mitigate the effects of economic sanctions. Moreover, greater connectivity means access to Central Asia’s vast deposits of rare earth elements crucial for civilian and defense products, new energy, and information technology. As corridor countries seek to reach new markets and lessen their dependence on Russia and China, Turkey, the EU, and the United States share a common interest in increasing cooperation and counterbalancing the power of Russia and China.

The rise of trade corridors

Following Russia’s annexation of Crimea in 2014, the European Union faced unprecedented precarity and had to reconsider its energy structure to diminish its vulnerable interdependence on Russia’s asymmetrical control over pipelines and weaponization of energy. China’s Belt and Road Initiative and Europe’s urge for diversification increased the need for connectivity and shifted international attention toward trade corridors. As corridor wars intensify and become the new scene for great power competition, the United States needs a more assertive policy concerning Central Asia. This is especially true as the growing cooperation between Russia, China, Iran, and, to some extent, North Korea aims to challenge Western influence by building alternative trade routes aligned with their political agenda. Washington must actively engage in infrastructure initiatives across Central Asia to counterbalance this trend.

The Middle Corridor: A strategic alternative

The Trans-Caspian International Transport Route (TITR), or the Middle Corridor, is a multimodal trade route connecting Europe and China via Azerbaijan, Georgia, Kazakhstan, and Turkey. Since Russia’s full-scale invasion of Ukraine in 2022, its strategic importance has grown as it bypasses both Russia and Iran. The Middle Corridor relies primarily on existing rail and port infrastructure and requires further development and investment. Countries along its path are working to position it as an alternative to the Northern Corridor (the traditional route through Russia) and the Southern Corridor (which runs through Iran).

Before 2022, the Northern Corridor carried more than 86 percent of transport between Europe and China, while the Middle Corridor constituted less than 1 percent. Following the full-scale Russian invasion of Ukraine, the Northern Corridor became a financial and political liability, especially for Western countries aiming to counter Russian control over trade routes. Shipping volumes of the Northern Corridor dropped by half in 2023 compared to 2022. Part of this traffic moved to the Middle Corridor, with increases of 89 percent and 70 percent in 2023 and 2024, respectively.

The Middle Corridor has many advantages. It is a relatively safer route, especially given the disruptions along the Northern Corridor due to Western sanctions on Russia and those in accessing the Suez Canal through the Bab el-Mandeb Strait due to increased Houthi attacks on vessels. In addition to providing economic revenues to corridor countries, some define the Middle Corridor as a “crossroads of peace,” echoing the “peace pipelines” strategy of the past.

According to the World Bank, by 2030, the Middle Corridor can reduce travel times, while freight volumes could triple to 11 million tonnes, with a 30 percent increase in trade between China and the EU. However, progress in the Middle Corridor is slow, and various operational and regulatory problems are causing unpredictable delays. There are still logistical and infrastructural challenges. Most importantly, its annual capacity (6 million tons in 2024) is drastically below the Northern Corridor’s annual capacity of over 100 million tons.

Corridor wars through connectivity

Recently, connectivity and diversification have become key drivers in international politics, with regional and global powers seeking to expand their influence in the Middle Corridor. Japan is following these developments to diversify its trade routes while countering Russia and China. Although the Gulf Cooperation Council (GCC) is not yet a key player in the Middle Corridor, various summits between GCC and Central Asian countries since 2023 have manifested growing cooperation and increased GCC investments in the region’s infrastructure.

As the natural entry point into Europe, Turkey understood the importance of connectivity to sustain economic, commercial, and investment relations and political and cultural ties within the region. In line with its geostrategic location, Turkey has invested in many connectivity projects since the 1990s, such as the Baku-Tbilisi-Ceyhan pipeline, the International Transport Corridor, the Black Sea Ring Highway, the Eurasia Tunnel, the Yavuz Sultan Selim Bridge, the Edirne-Kars high-speed railway, and the Northern Marmara Motorway.

The Middle Corridor, as “the most reliable trade route between Asia and Europe,” presents Turkey with a historic opportunity to establish itself as a strategic transit hub in Europe-China trade. Diversifying its energy suppliers could reduce Russian influence in Turkey’s energy policy while expanding its influence in Central Asia and strengthening its economic ties with the EU. From the Turkish perspective, the corridor would improve its strategic position and strengthen its relations with Turkic-speaking countries in the region.

For the European Union, the Middle Corridor aligns with its Global Gateway strategy. The EU defined the development of the Middle Corridor as a priority to secure connectivity in the transport and energy sectors and promote sustainable economic growth in the region. While current global challenges increase the need for solid partnerships, Central Asia is a €340 billion economy, growing at an average rate of 5 percent annually, with further potential for collaboration. The EU sees the Middle Corridor as a fast and safer route connecting Europe and China, which helps diversify supply chains.

The Middle Corridor serving Russia, China, and Iran

For China, the development of the Middle Corridor is an opening to integrate into global markets and supply chains, an opportunity to reduce its financial burden and dependence on routes controlled by Russia, and also an escape from US sanctions.

Russia remains a major obstacle in developing the Middle Corridor. For regional countries,  Moscow would “do everything in its power to control overland trade flows.” While Russia is currently distracted with its war against Ukraine, considering Russia’s sensitivities, it will at some point want to disrupt Western involvement in the region or even exploit the corridor for its own benefit. Russia has already begun exploiting the Caspian Sea and Kazakhstan to bypass Western sanctions. Moscow aims to leverage the enhanced connectivity of the Caspian Sea for military purposes, including the transport of Shahed drones from Iran. Additionally, since 2022, Russia has increased its investment in the International North-South Transport Corridor (INSTC) to diversify its trade routes, reducing its reliance on East-West routes. Iran’s neighbors and even its allies bypassed Iran in current connectivity projects. This result is mainly due to international sanctions, Iran’s poor infrastructure, and a lack of investment. In 2023, representatives from Turkey, Iran, Kazakhstan, Turkmenistan, and Uzbekistan met to discuss the Turkmenistan-Uzbekistan Route, and Tehran immediately proposed a third alternative connecting this route to Iran. Tehran also invests in routes linking Iran to China via Afghanistan to secure a stronger foothold and influence the balance of power within regional trade routes. Iran perceives the Zangezur Corridor as a potential threat that might increase Turkey’s presence near its borders. For Tehran, this project is “Turkey’s highway to Turan.”

Potential strategy for the United States, the EU, and Turkey

Although Central Asia is pivotal in ongoing corridor wars, the region is still not an American priority. The United States needs a comprehensive and updated Central Asia strategy. As Secretary of State Marco Rubio recently signaled, a first step could be to end the Jackson-Vanik Amendment, which restricts formal trade relations with nonmarket economies such as Azerbaijan, Kazakhstan, Tajikistan, Turkmenistan, and Uzbekistan. The region also needs American investment to modernize the Middle Corridor. In addition to direct economic benefits, the United States could counterbalance the influence of Russia and China. While great connectivity would enable regional countries’ ambitions, for the United States, it would facilitate access to vast mineral and rare earth reserves, which globally are under significant Chinese control.

The Middle Corridor serves as a lifeline for the landlocked region. Regional countries have the political will and determination to develop the corridor’s potential. In the age of great power competition, these countries have significant room for maneuvering, and they benefit from the multidimensional foreign policy they pursue to enhance their autonomy. However, there is a growing mismatch between expectations and the capacity of the Middle Corridor.

The United States, the EU, and Turkey should cooperate and intensify their engagement with these countries to cultivate mutually beneficial partnerships. Turkey is wildly successful as Ankara invests political capital in strengthening relations. Enhancing partnerships with regional governments and investing in infrastructure would benefit regional governments and the West, as they can maintain their influence in shaping global trade routes. Given that Russia, China, and Iran are trying to prevent the growing Western influence in the region, the West must immediately recognize the strategic importance of transit corridors. As an influence war is intensifying over transit routes, the United States should be at the center of these developments—and not in the periphery—to benefit and counter the geopolitical challenges of Russia, China, and Iran.

Karel Valansi is a political columnist who analyses the Middle East and foreign policy issues in Şalom Newspaper and T24. Follow her on X @karelvalansi.

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Dramatic events altered the geopolitical landscape, affecting Turkey, the United States, and NATO in late 2024 and early 2025. The election of Donald Trump as the forty seventh president of America, a ceasefire in Gaza after months of showdown between Israel and Iran’s Axis of Resistance, and the collapse of the Assad regime in Syria have challenged many assumptions and regional political-military considerations. The fifth issue of the Defense Journal assesses key dynamics as we enter a new era. The Defense Journal team examines the rise of the hyperwar concept via military applications of artificial intelligence and the frontier of development for robotic systems. We also look at trends in key US policy concerns in the region to the south of Turkey, including Israel and Syria. If the first months of the second Trump administration are any indication, rapid change and a high tempo in US foreign policy decisions affecting Washington, Ankara, and their shared interests across several regions is the new normal. The Editorial Team hopes you find these contributions interesting and useful.

Rich Outzen and Can Kasapoglu, Defense Journal by Atlantic Council IN TURKEY Co-managing editors

Honorary advisory board

The Defense Journal by Atlantic Council IN TURKEY‘s honorary advisory board provides vision and direction for the journal. We are honored to have Atlantic Council board directors Gen. Wesley K. Clark, former commander of US European Command; Amb. Paula J. Dobriansky, former Under Secretary of State for Global Affairs; Gen. James L. Jones, former national security advisor to the President of the United States; Franklin D. Kramer, former Assistant Secretary of Defense for International Security Affairs; Lt. Gen. Douglas E. Lute, former US Ambassador to NATO; and Dov S. Zakheim, former Under Secretary of Defense (Comptroller) and Chief Financial Officer for the Department of Defense.

Gen. Wesley K. Clark

Chairman and CEO of Wesley K. Clark & Associates & Board Director, Atlantic Council; former Supreme Allied Commander Europe of NATO

Amb. Paula J. Dobriansky, Ph.D.

Senior Fellow at Harvard University JFK Belfer Center for Science & International Affairs; Board Director, Atlantic Council; former Under Secretary of State for Global Affairs (2001-2009)

Gen. James L. Jones

President, Jones Group International and Executive Chairman Emeritus, Atlantic Council; former National Security Advisor to the President of the United States

Franklin D. Kramer

Distinguished Fellow & Board Director, Atlantic Council; former US Assistant Secretary of Defense

Lt. Gen. Douglas E. Lute

CEO, Cambridge Global Advisors & Board Director, Atlantic Council; former US Permanent Representative to NATO

Dov S. Zakheim

Senior Advisor, Center for Strategic and International Studies; Senior Fellow, CNA Corporation; Board Director, Atlantic Council; former US Under Secretary of Defense

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For more than a decade, Syria’s crisis has caused unimaginable suffering inside the country and a constant stream of strategically significant spillover effects across the Middle East and globally. However, this dynamic changed in late 2024, when armed opposition groups in Syria’s northwest launched a sudden and unprecedentedly sophisticated and disciplined offensive, capturing the city of Aleppo and triggering an implosion of Bashar al-Assad’s regime. In the space of ten days, Assad’s rule collapsed like a house of cards, dealing a crippling blow to Iran’s role in Syria and significantly weakening Russia’s influence. 

Now, for the first time in many years, Syria has a chance to recover and reintegrate into the international system. If the United States, Europe, Middle Eastern nations, and other stakeholders embrace the right approach, support the right policies, and encourage Syria’s transition to move in the appropriate direction, the world will benefit—and Syrians will find peace. The work of the Syria Strategy Project (SSP) and the policy recommendations in the report “Reimagining Syria: A roadmap for peace and prosperity beyond Assad” present a realistic and holistic vision for realizing that goal. 

This report is the result of intensive joint efforts by the Atlantic Council, the Middle East Institute (MEI), and the European Institute of Peace (EIP), which have been collaborating since March 2024 on the SSP. At its core, the project has involved a sustained process of engagement with subject-matter experts and policymakers in the United States, Europe, and across the Middle East to develop a realistic and holistic strategic vision for sustainably resolving Syria’s crisis. This process, held almost entirely behind closed doors, incorporated Syrian experts, civil society organizations, and other stakeholders at every step.

Mar 15, 2024

Syria Strategy Project

The Atlantic Council, Middle East Institute, and European Institute of Peace collaborate with subject matter experts and policymakers in the US, Europe, and the Middle East to develop a holistic strategy to sustainably forge a pathway to resolving Syria’s crisis.

Sep 5, 2019

Syria Project

Our work on Syria sheds light on the ongoing struggle of Syrians to fulfill their desire for democratic self-governance as the United States and the international community grapple with the aftermath of a devastating civil war, millions of refugees across the Middle East and Europe, and ongoing security and political challenges spilling over Syria’s borders.

Event Recap Mar 29, 2024

Launching the Syria Strategy Project

By JP Reppeto and Charles Johnson

On March 18, 2024, the Atlantic Council’s Syria Project, the Middle East Institute’s Syria Program, the European Institute of Peace, and Madaniya Civil Society Network launched the Syria Strategy, an intensive process of engagement with subject matter experts and policymakers in the United States, Europe, and the Middle East to develop a holistic strategy to […]

Civil Society Conflict

New Atlanticist May 13, 2025

Experts react: Trump just announced the removal of all US sanctions on Syria. What’s next? 

By Atlantic Council experts

Our experts provide their insights on how the removal of US sanctions on Syria would affect the country and the wider region.

Civil Society Economic Sanctions

New Atlanticist Dec 8, 2024

Experts react: Rebels have toppled the Assad regime. What’s next for Syria, the Middle East, and the world?

By Atlantic Council experts

Syrian dictator Bashar al-Assad has been ousted as opposition forces quickly took the Syrian capital. Atlantic Council experts share their insights on the developments.

Conflict Corruption

Through our Rafik Hariri Center for the Middle East and Scowcroft Middle East Security Initiative, the Atlantic Council works with allies and partners in Europe and the wider Middle East to protect US interests, build peace and security, and unlock the human potential of the region.

Learn more

The post The fall of Assad has opened a door. But can Syria seize the moment? appeared first on Atlantic Council.

Currently, remittances are not taxed separately, as senders already pay income tax on the earnings they transfer to family and friends abroad. “The One, Big, Beautiful Bill” would upend that system—effectively taxing those transfers twice. But that’s not all. A tax on remittances—valued at $905 billion globally—would not only hit US households and low-income countries, where they can account for more than 30 percent of gross domestic product; it could also undermine key US national security and foreign policy priorities.

If the Senate passes the Republican budget bill, remittance senders and recipients—who already contend with high fees—will undoubtedly be hit the hardest. In 2024, the global average cost of sending two hundred dollars across borders was 6.4 percent. That’s more than double the United Nations’ sustainable development goal of 3 percent and exceeds the Group of Twenty (G20) target of 5 percent.

If overall remittance volumes were to fall, US remittance providers—the companies that enable the sending and receiving of these payments—would be adversely affected. The proposed legislation imposes new responsibilities for these remittance service companies—such as verifying the sender’s citizenship and enforcing new fee structures and reporting mechanisms—all of which impose new costs, compliance burdens, and risks for remittance providers. These additional requirements threaten to reduce operational efficiency and drive up consumer prices, especially as US companies currently dominate the remittance services sector, setting standards for transfer speed, cost, and security. A tax-driven shift in the market would hurt these companies’ profitability and competitiveness, undermining broader US economic interests. 

The risk of driving transactions underground

When it comes to national security, the United States already has a robust framework to monitor and regulate money and payment flows, including laws and infrastructure designed to combat financial crime. Remittance service companies are a central component of this framework, enabling state and federal law enforcement to track and pursue suspicious transfers and bad actors. 

Moreover, research shows that taxing remittances leads to increased use of underground or informal channels for sending money. That is, senders seek out alternatives—less regulated, less transparent, and less safe ways of transferring their money abroad. In fact, countries that have enacted punitive measures on cross-border payments and currency exchange have often undermined their own ability to combat financial crime, thereby weakening their economies and diminishing their foreign influence. 

Argentina serves as a revealing case study. Under previous leadership, the Argentine government imposed foreign exchange and capital controls that drove transactions into underground banking networks, making it far harder to trace illicit activity. These restrictions also weakened the already vulnerable economy, contributing to stagnation and inflation. President Javier Milei is now actively reversing these policies in favor of open and transparent capital flows and foreign currency exchange—reforms that significantly benefit both law enforcement and economic stability.

In the United States, the revenue generated by a federal tax on remittances would likely be less than 0.1 percent of the national budget. At the same time, it would reduce remittance volumes or push them underground, contradicting broader US national security goals and making US companies less competitive by increasing their cost of doing business. Accordingly, policymakers should reconsider the trade-offs and recognize that transparent, reliable remittance services serve the national interest of the United States.

A foreign policy tool hiding in plain sight

With respect to foreign policy and the ability to influence global development, remittances play a vital role—especially in an era of shrinking public-sector aid. Private remittance flows often reach communities and individuals more directly and efficiently than government-to-government assistance. US senders are often family members and friends of recipients, as well as faith-based and other humanitarian organizations. These flows ultimately contribute to stabilizing fragile economies, reducing the financial distress that often drives illegal migration. Additionally, remittances often support democratic activity and institutions in recipient countries, while also helping undermine autocratic governments by empowering citizens with resources independent of state control.

Because they account for one-sixth of all cross-border payments, remittances also reinforce the global dominance of the US dollar. A large portion of remittances is sent in—or exchanged into—US dollars, bolstering the currency’s central position in the international financial system and providing visibility into foreign transactions. This visibility, in turn, allows for the effective enforcement of anti–money laundering (AML) and countering the financing of terrorism (CFT) policies, as well as sanctions enforcement in cases of illicit activity.

Given these strategic benefits, the United States should take concrete steps to better leverage remittances as a national security and foreign policy asset. This begins with adopting smart, forward-looking policies that strengthen remittance channels and maximize their impact.

First, US policymakers should not just protect, but also actively promote legal remittance channels to ensure that these funds can flow safely and efficiently. Rather than imposing restrictive measures such as new taxes, the United States should foster deeper collaboration between law enforcement and well-regulated remittance providers. Such cooperation would support the adoption of rapidly evolving compliance technologies that more effectively detect illicit financial flows.

Second, the United States should reduce the costs and friction associated with remittance transactions. This includes granting well-regulated US remittance providers direct access to national payments systems and modernizing AML and Bank Secrecy Act regulations to reflect the realities of digital transactions. Emerging technologies can improve financial crime detection—provided that regulators offer clear guidance and foster their adoption.

Third, the United States should leverage its presidency of the G20 in 2026 to establish a global working group that captures the complexity of remittances as a tool of foreign policy and national security. The G20 has traditionally provided targets for remittance payments. Additionally, a US-led working group could address the need for better global coordination to curb illicit flows, reduce frictions, and explore how remittances can complement official aid flows, especially in constrained fiscal environments. 

By recognizing and elevating the role of remittances, US policymakers can incorporate a powerful, underused asset into their broader foreign policy strategy—one that supports both domestic prosperity and global stability.

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

The author thanks Daniel Gorfine for his contributions to this article.

The post A tax on remittances could hurt US households—and national security appeared first on Atlantic Council.

Click to jump to an expert analysis:

China: There is no cooling off this trade war

European Union: New US tariffs unaffected by the courts could have the biggest bite

United Kingdom: The UK-US deal continues to provide certainty and some unique advantages

Mexico, Canada, and the Americas: While some countries may be in less of a rush, USMCA negotiations will ramp up

India: Its special position means New Delhi should press ahead on a deal

China

European Union

United Kingdom

Mexico, Canada, and the Americas

India

Trump Tariff Tracker

The second Trump administration has embarked on a novel and aggressive tariff policy to address a range of economic and national security concerns. This tracker monitors the evolution of these tariffs and provides expert context on the economic conditions driving their creation—along with their real-world impact.

The post Experts react: How the world is responding to the courtroom drama around Trump’s tariffs appeared first on Atlantic Council.

The United States has opened meaningful space for reconstruction and private sector engagement. Efforts to do so include the Treasury’s Office of Foreign Assets Control (OFAC) issuing General License (GL) 25 (including frequently asked questions on May 28), a State Department Caesar Act waiver, and Financial Crimes Enforcement Network (FinCEN) USA PATRIOT Act Section 311 exceptive relief for the systemically important Commercial Bank of Syria. Along with other relief, the measures remove obstacles to reconnecting the sanctioned Central Bank of Syria and certain Syrian commercial financial institutions to the global financial system.

While a significant signal, these announcements do not mean a return to business as usual with Syria after forty-six years of punishing economic measures directed primarily against the former Assad regime. Syria remains a high-risk jurisdiction due to years of conflict, endemic corruption, state institution collapse, narcotrafficking of captagon, insufficient anti-money laundering efforts, and inadequate financing of terrorism controls. In February, the intergovernmental Financial Action Task Force affirmed Syria’s status on its “grey list” of jurisdictions under increased monitoring. These relief measures announced by the State Department and the Treasury are also either temporary in nature (the 180-day Caesar Act waiver) or subject to revocation at any time (GL25 and the FinCEN Section 311 exceptive relief). Additionally, other US legal and economic restrictions remain in place, including the following:

• Syria’s state sponsor of terrorism (SST) designation that, in part, removes some of Syria’s sovereign immunity in US courts;
• foreign terrorist organization (FTO) designations with attendant material support criminal liability enforced by the Department of Justice and civilly by US terrorism victims;
• United Nations sanctions, including on key members of the Syrian interim government; and
• export controls administered by the Department of Commerce.

As an immediate next step to build on this momentum, the Trump administration can take the following measures:

• Provide policy clarity on the outstanding restrictive economic measures and legal prohibitions related to the SST and FTO designations. The administration can publish a memorandum by the Department of Justice to articulate the administration’s prosecutorial policy involving alleged material support to FTOs operating in Syria. While novel, such guidance would provide greater legal clarity, especially for humanitarian organizations operating in Syria.
• Work with Congress to review the statutory sanctions in place against Syria to ensure that they reflect the fall of the Assad regime and current political developments.
• Work with allies and partners to calibrate the United Nations sanctions to current risks.
• Provide guidance, including frequently asked questions, for the Caesar Act waiver and the FinCEN Section 311 exceptive relief, as well as interagency policy guidance on the roadmap for further relief.
• Develop a policy for using and supporting partners with positive economic statecraft tools such as technical assistance to rehabilitate the financial sector, in addition to licensing, waiving, and removing restrictive economic measures.

The US government should be commended for acting swiftly to update sanctions and other authorities to better reflect the current realities on the ground. Significant work remains ahead to responsibly calibrate restrictive economic measures to achieve US foreign policy goals and support positive economic tools to allow the Syrian people to benefit from this dramatic change in US policy.

Alex Zerden is the founder of Capitol Peak Strategies, a risk advisory firm, an adjunct senior fellow at the Center for a New American Security, and a former Treasury Department financial attaché. You can follow him on X at @AlexZerden.

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Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

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The post After partial relief, what’s next for Syria sanctions? appeared first on Atlantic Council.

As global dynamics evolve, Latin America and the Caribbean (LAC) are becoming increasingly important partners for the member countries of the Organisation for Economic Co-operation and Development (OECD). The region offers valuable assets, policy alignment in key areas, and opportunities for enhanced collaboration on shared challenges. 

This report outlines how deeper OECD–LAC engagement can contribute to mutual prosperity, resilience, and global stability.

The region’s assets support global economic security

LAC countries contribute significantly to global food and energy security, climate action, and economic resilience. The region plays an important role in clean energy development, particularly through renewable energy and emerging green hydrogen projects. It is a major global supplier of critical minerals—such as lithium, copper, and nickel—essential for the clean energy transition. LAC’s agricultural output is also vital to meeting increasing global food demand. Furthermore, its rich biodiversity and freshwater resources are essential to addressing long-term environmental and climate-related challenges.

Latin America and the Caribbean are home to a high concentration of electoral democracies and market-oriented economies, which share many of the values and institutional frameworks upheld by OECD countries. These shared principles form the basis for long-term partnership. In multilateral forums, LAC countries have acted as constructive and pragmatic voices, helping to bridge perspectives between developed and developing countries.

However, as the region continues to navigate growing interest from global powers, particularly through increased trade and investment from China, there is a clear call for OECD countries to reaffirm and deepen their engagement.

Key recommendations:

• Build resilient and responsible critical mineral supply chains by formalizing an OECD–LAC Critical Minerals Partnership that promotes investment, technology transfer, Environmental, Social, and Governance (ESG) standards, and infrastructure development to support sustainable mining and industrial upgrading across the region.
• Enhance global food security through targeted cooperation in agritech innovation, rural infrastructure, and trade logistics. Strategic investment in transport corridors, cold chains, and climate-smart agriculture can boost productivity and resilience in LAC’s agricultural sector, benefitting global markets.
• Strengthen global value-chain resilience by leveraging LAC’s trade agreements and geographic proximity to OECD markets. A dedicated OECD–LAC Value Chain Initiative could identify areas of comparative advantage, streamline regulations, and support industrial diversification in key sectors.

Issue Brief Dec 12, 2023

Galvanizing Spain’s presidency for the next chapter

By Ignacia Ulloa Peters, Diego Area, Felipe Félix Méndez

Spain’s presidency of the Council of the European Union in 2023 was a unique opportunity to deepen partnerships between the Euro-Americas. Through shared values, common interests, and complementary capabilities, the EU, US, and LAC have the potential to advance lasting solutions to the most pressing challenges facing these regions and the world.

Economy & Business Energy & Environment

New Atlanticist Sep 8, 2024

Argentina’s foreign minister: Why my country wants to join the OECD

By Diana Mondino

In seeking to join the OECD, Argentina is on a path to economic reforms and reputational benefits that can restore investor confidence in the country, writes Argentina’s minister of foreign affairs.

Americas Economy & Business

New Atlanticist Nov 19, 2024

How Brazil, Mexico, and Argentina approached this year’s G20

By Ignacio Albe

Disparate national priorities among Latin America’s three G20 members threaten to stand in the way of a common agenda.

Brazil Climate Change & Climate Action

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.

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The post Why Latin America and the Caribbean matter for OECD countries appeared first on Atlantic Council.

It depends on your definition of “emergency.” Donald Trump, in his self-declared “liberation day” on April 2, didn’t just impose tariffs on virtually the entire world. He did it by using a novel legal theory and expanding the use of decades-old legislation called the International Emergency Economic Powers Act (IEEPA) in a way no US president had done before. Now, with those tariffs on pause but set to come into effect in early July, a federal court ruled Wednesday that Trump’s use of that law was unconstitutional. Is this the end of the trade wars? Not at all, according to our experts. Below, they issue their verdict on what trade tools Trump could turn to next and what these developments mean for every country in the thick of negotiations with the administration.

• Josh Lipsky (@joshualipsky): Chair of international economics and senior director at the Atlantic Council’s GeoEconomics Center, and former adviser to the International Monetary Fund
• Barbara C. Matthews: Nonresident senior fellow at the GeoEconomics Center and former US Treasury attaché to the European Union

Case law

• The administration will appeal the ruling, and Josh expects an appeals court to issue a stay, meaning the tariffs would return. But this case is almost certainly headed to the US Supreme Court in the coming months. 
• Josh calls the decision “a setback for the administration,” which asked for this court to take the case. The unanimous ruling included judges appointed by Trump and former US President Ronald Reagan.  
• But Barbara notes that the ruling “is limited in scope and provides many mechanisms” for the Trump administration to “accomplish the same goals.” Specifically, “the court’s rationale supporting White House tariff tools as remedies for balance-of-payments issues potentially renders the April 2 tariffs on relatively firm ground compared with the January 2025 fentanyl tariffs against Mexico, China, and Canada.” That’s because Trump justified the April 2 reciprocal tariffs as rectifying US trade deficits with all countries participating in the global trading system. 
• The court was more definitive, Barbara tells us, about the fentanyl tariffs, ruling that both the declared emergency and Trump’s remedy were overly broad. The appeal process will need to address “whether (or not) Congress may delegate its tariff authority, whether Congress limited the scope of national emergency determinations by the White House when it enacted IEEPA,” and “whether tariffs imposed to address a national emergency must be narrowly tailored in relation to the nature of the emergency, the time horizon for the tariffs, or both.” 

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Backup plans

• While appeals play out, the administration will have several tools at its disposal to continue its current tariff policy. First, Wednesday’s decision agrees with a 1975 court ruling that Congress may provide the executive branch with “limited authority” to impose tariffs. The ruling then asserts that the authorities granted to the White House under IEEPA are more narrow than those under its predecessor statute, the Trading with the Enemy Act. The decision then “provided a blueprint for how the Trump administration can continue using tariffs to address both geoeconomic imbalances and a wide range of national emergencies with greater precision,” says Barbara.
• While it appeals Wednesday’s ruling, the White House could narrow the scope, timing, or legal foundation for the fentanyl tariffs and the reciprocal tariffs under IEEPA, Barbara says. Such a move would require the administration to admit at least tacitly that the executive branch’s emergency and tariff authorities can be limited by judicial decision. Josh adds that the administration could follow the court’s decision and rely on sections 122 and 338 of the Trade Act, involving balance of payments, to support the April 2 reciprocal tariffs.
• While the ruling was a surprise, Josh notes that a not fully appreciated move in April, in which the administration shifted semiconductors and consumer electronics tariffs to section 232 of the Trade Expansion Act, was a signal that the administration wanted stronger legal footing for some of its toughest levies on China. “In hindsight, that move was more of a tactical retreat. Because that process is well under way, it gives [the administration] a powerful new tariff that could come over the summer.” 
• Barbara agrees, noting that Trump has already used “traditional” methods of section 232 and section 301 for other tariffs unaffected by the ruling, such as those on automobiles. Such moves, however, would extend the timeline for trade negotiations and potentially intensify policy volatility until late this year or early 2026. 

Trade war and trade peace

• This news comes as countries are racing to strike deals with the administration ahead of a July deadline for the return of the reciprocal tariffs. Josh expects that “other countries will now try to slow-walk their negotiations,” resulting in fewer deals ahead of that July deadline and an August deadline to conclude tariff negotiations with China. 
• This decision also impacts congressional budget negotiations ahead of an August deadline to raise the debt ceiling. A Republican budget bill garnered enough votes to pass the House thanks in part to optimistic projections for tariff revenue, Josh points out, which is now in jeopardy. As negotiations turn to the Senate, “keep an eye on the bond market, which already has not reacted well to the bill’s deficit impact,” he adds. 
• Barbara notes that Congress could choose to use this budget bill to ratify the fentanyl and April 2 tariffs, which could satisfy aspects of the trade court’s ruling, but “any such legislation likely also would face legal challenge.” 
• “All of this adds up to more uncertainty—not less,” Josh adds. “Businesses will be unable to make any long-term investment decisions, and the idea that tariffs are going only lower from here may be a miscalculation. Markets seem jubilant that the president may not have as much tariff authority as he thought, but the hangover is coming soon. Trump has many trade tools still at his disposal, and he will not want his core international economic agenda overturned by three judges from a lower court.”  

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The post Will Trump’s tariffs survive US courts? appeared first on Atlantic Council.

I have written about the Nippon deal numerous times, always emphasizing the commercial benefits of the deal, the ways in which Japanese investment in the US steel industry is a net positive for US national-security concerns, and the dangers of blocking the transaction. The big question now, beyond the specific details of the Nippon deal, is if the CFIUS process itself has changed in ways that will affect future deals.

Rather than indicate that CFIUS has returned to its narrow national-security mandate, the Nippon deal suggests that the Trump administration is willing to use CFIUS authorities to intervene in private transactions for political and industrial policy objectives.

First, the terms of the deal, while still scant, suggest that most of the terms mirror what was already on the table, just with a different public relations spin. In an attempt to head off criticism of the transaction, Nippon clarified that US Steel would retain its name and Pittsburgh headquarters and a majority US-citizen board. As public pressure against the deal mounted, Nippon also committed to invest substantially in upgrading US capacity and promised to not offshore US production. 

Second, what may be different from Nippon’s previous offer is what US Senator David McCormick (R-PA) is describing as a “golden share.” This arrangement would likely give the US government direct control over a certain number of board seats, though no specific details of the arrangement have been disclosed. Despite the use of the term “share,” there doesn’t seem to be any indication that the US government would take an ownership stake in the company. While CFIUS mitigation agreements have in the past provided the US government with some authority to maintain minimum standards for key personnel post-merger, it would be a substantial increase in the use of CFIUS authorities to create an open-ended requirement for the US government to approve board members in an active and ongoing manner. 

Depending on the final wording of the arrangement and the manner in which CFIUS implements it, government control over board members could be used for broad industrial policy practices. CFIUS is supposed to analyze proposed cross-border acquisitions for discrete national-security risks and to only intervene if it finds a risk to national security that arises from the transaction under review. Its mechanisms for intervention are a mitigation agreement or a recommendation that the president prohibit the investment. CFIUS was not envisioned as a tool to manage US industries’ strategic competitiveness broadly, but the United States’ expanded interest in critical supply chains has substantially blurred the line between strategic industrial policy considerations and narrow national-security concerns. 

If the US government began imposing strict production requirements on Nippon, that would mark a substantial drift toward statist production management measures. Moreover, the embrace of a more forward-leaning mitigation stance would mirror the French approach to foreign investment review since 2014. As a reflection of how that has played out, Paris imposed mitigation measures on 53 percent of authorized transactions in 2022. More to the point, it would run counter to the White House’s America First Investment Policy, which explicitly calls for the end of “overly bureaucratic, complex, and open-ended ‘mitigation’ agreements” in favor of ones that “consist of concrete actions that companies can complete within a specific time, rather than perpetual and expensive compliance obligations.” 

Finally, Trump, who announced a celebratory rally in Pittsburgh along with the agreement, and Biden, who touted his decision on the campaign trail, set a concerning precedent by openly politicizing the Nippon Steel deal. In 1975, US President Gerald Ford established CFIUS through Executive Order 11858. Originally little more than a data-seeking exercise, CFIUS was explicitly formed to depoliticize foreign direct investment (FDI) at a time when some members of Congress were increasingly alarmed about the security implications of investments from oil-rich nations. Over the years, the four major overhauls of CFIUS authorities in 1988, 1992, 2007, and 2018 have all, to varying degrees, featured a tug-of-war between a Congress that sought more oversight over FDI for a mixture of security and political reasons and an executive branch that generally tried to keep FDI from becoming a political football. 

If CFIUS reviews become simply political talking points—rather than being based on factual merits—and if firms think that they must mollify the US president in order to be allowed to invest in the United States, then the Nippon Steel deal will be remembered as the transaction that confirmed the fifty-year attempt to depoliticize FDI into the United States has failed.

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

The post Does the Nippon Steel deal reflect a new normal for foreign investment in the US? appeared first on Atlantic Council.

Watch the full event

Public Event Tue, May 27, 2025 • 9:00 am ET

The Rt Hon Lord Mandelson on Britain in an enduring transatlantic relationship

British Ambassador to the United States The Rt Hon Lord Mandelson speaks at the 2025 Christopher J. Makins lecture to discuss the significance of the transatlantic relationship during this unprecedented geopolitical period.

Economy & Business Europe & Eurasia Politics & Diplomacy Security & Defense

Eighty years ago this month, the streets of Britain, America, and allied nations erupted in celebration at the fall of fascism in Europe.

For me personally, it’s a source of enormous pride that my grandfather, Herbert Morrison, served as home secretary in Winston Churchill’s wartime coalition.

He also served as deputy prime minister in Clement Attlee’s transformative postwar government in Britain. That government didn’t just support the formation of NATO to counter Soviet expansionism—they were the co-architects of it.

Amidst Cold War tensions and economic upheaval, Britain and America advanced from allies to integrated strategic partners at the dawn of the nuclear age, our scientists having joined forces in the Manhattan Project to create the advantage we had at the beginning of this age. 

It was Western unity which ultimately ended the Cold War peacefully and demonstrated resilience to new threats, including the 9/11 attacks, where NATO invoked Article 5 for the first time.

Over eight decades, the foundations of collective defense have remained steadfast whilst the transatlantic relationship has continuously evolved and adapted to counter new challenges.

Today, I want to talk about the profound challenge we face in a new age of great power rivalry, a period characterized by political volatility, by economic mercantilism, and geopolitical competition.

We are witnessing the end of an era of hyper-globalization where we assumed that economic integration had made wars almost obsolete.

The logic seemed compelling: Mutual interests, integrated global supply chains, and shared economic stakes created too much to lose from warfare. History seemed to point only in one direction.

And those comfortable assumptions have been shattered.

We now see the rise of modern mercantilism, where nations prefer to prioritize national economic strength and autonomy in many respects.

States are intervening and playing a more protectionist role in managing trade and directing industrial policy to become ever more self-sufficient and localized.

I’m not declaring globalization dead, but it is being radically reconfigured around us.

China’s export-driven growth strategy flooded the global market with state-subsidized products, undercut Western manufacturing, and hollowed out industry.

The social disruption of rapid technological change, where, if you take media as an example, we have moved suddenly from decades of information flowing to people through established news organizations to a future where you only see “news” online that is curated to what you want to know, or what the algorithm—and those behind it—decides you want to know. And then there’s the backlash against globalization’s uneven distribution of benefits.

You can produce many different numbers to show the widening wealth disparities in the West over the past thirty years, but I would choose a simple one: GDP per capita in the United States has grown about 60 percent to 70 percent in real terms, but real median household income growth has been about 20 percent to 25 percent. The typical American household has not done as well as the booming US economy would suggest. A similar story holds true across all our countries in the West.

This has posed profound challenges to culture, place, and society—which too many of us over the past decades, frankly, have ignored. From the American Midwest to the coastal towns of England, a hands-off approach left many places adrift from the success stories of global cities such as London and New York.

And in a world which has often felt dominated by the exponential rise of social media, a sense of grievance—and of difference between us and them—has been amplified.

So yes, I credit President Trump’s acute political instincts in identifying the anxieties gripping not only millions of Americans, but also far more pervasive global trends: Economic stagnation, a sense of irreversible decline, the lost promise of meaningful work for so many people. These are the giants now that we must confront head-on.

So, where do we go next?

It is in no one’s interest—certainly not those of close allies—that each country pursues a wholly individualized path, which leads to accelerated economic fragmentation.

But if we are serious about rebuilding confidence in the international system, if we wish to maintain a set of common rules and standards—a shared economic and security commons in between us—we need to devote an enormous amount of energy and goodwill to preserve, sustain, and deepen the alliances which exist between like-minded countries.

For the UK and the rest of Europe, we must reboot the transatlantic alliance—indeed, a boot up the proverbial backside is needed now—to deliver peace through strength across three interconnected domains: military, economic, and technological.

For my generation, the twentieth-century gains in peace and prosperity were thought of as a European peace dividend. 

I now recognize it as an urgent bill, that peace dividend: An urgent bill for decades of defense underinvestment—a payment that is long overdue.

We have lived in a fantasy created by the US security guarantee, complacent that a friendly heavyweight across the water would be always there when the going gets tough.

We meet in the shadow of Russia’s barbaric invasion of Ukraine, now in its fourth year.

The UK strongly supports President Trump’s initiative to bring this terrible war to an end. And we are working together with partners to secure a just and lasting peace. 

The Ukraine conflict has served as a brutal wake-up call. State-on-state war has returned to Europe. Adversaries are using nuclear rhetoric to influence decision-making, and we are seeing regular attacks on European infrastructure beneath the threshold of warfare.

It is crystal clear that European defense must step up and rebalance for our collective security. Actually, I think President Trump is doing Europe a favor by confronting us with this reality.

The United States is the UK’s closest defense and security ally. We must become less dependent on America, while remaining inseparably linked to America—a distinction that I underline of critical importance. Yes, less dependent, but still inseparably linked.

Ukraine is just one flashpoint of many amid growing global instability. Even the US does not have limitless resources.

This is precisely why Britain must step up in providing for European security and why we have committed to the biggest sustained increase in defense spending since the Cold War.

We will become NATO’s fastest-innovating nation, ensuring our military forces have the technological and military capabilities to secure long-term strategic advantage, not just spending more, but spending better.

Of course, this all needs to be grounded in intelligent and effective strategic choices, not merely increased expenditure. Efficiency and innovation to renew our defense manufacturing bases must drive every pound, every dollar, and every euro that we invest.

And we will double down on our alliances. In defense, we will always be NATO first but not NATO only—and this is particularly true of the UK’s focus on the Indo-Pacific, as well as our new security partnership with Europe.  

One good example is AUKUS, the trilateral security partnership with Australia and America, which will deliver advanced nuclear-powered submarines and catalyze technology sharing on other advanced capabilities.

Turning to the theme of economic strength, Britain now enjoys something that has eluded us for far too long: a government with both unity of purpose and longevity.

This government’s mandate and President Trump’s will both last for the next four years—providing huge opportunities for collaboration between us.

We are both pro-business and pro-trade in Britain, and committed to innovation, not as empty slogans but as practical imperatives.

This UK government is committed to creating the best investment environment with a regulatory reset that makes us the most competitive in Europe—that’s our aim.

One of the reasons we were able to close the first trade deal of the Trump administration is that our strong economic relationship between our countries is fair, balanced, and reciprocal. But also because, frankly, we are a businesslike nation with pragmatic instincts.

One of the great backhanded insults in British history was when Napoleon Bonaparte dismissed us as a mere “nation of shopkeepers.” He was right: Commerce is the lifeblood which flows through our veins, and that is one reason why we British and American cousins remain so close.

And that is also one reason why I see the current deal as the beginning of a new chapter as well as an end, in a sense, in itself. There is scope for an even more transformative stage in our long partnership. And I believe that centers on technology.

So let me address technological strength as the third. We face a clear, shared threat. There is nothing in this world I fear more than China winning the race for technological dominance in the coming decades.

China represents a far more dynamic and formidable strategic rival than the Soviet Union ever was: economically sophisticated, highly innovative, and strategically patient.

The United Kingdom and United States are the only two Western nations with trillion-dollar technology ecosystems combined with unparalleled talent and research capabilities in our universities and corporations. 

We must combine forces, in my view, to drive the scientific breakthroughs that will define this century, and AI should be the spearpoint of that collaboration.

Artificial intelligence stands as the next great foundational technology. Through its power, we can rapidly make progress across so many frontiers of science: quantum, synthetic biology, medicine, nuclear fusion.

Rather than stifling these transformative technologies through excessive regulation, our two governments must unleash their immense potential for human benefit and Western advantage.

Let me say this in conclusion. In his immortal Iron Curtain speech, delivered in Missouri, Churchill spoke eloquently about the primacy of American power and its awesome responsibility to future generations.

Today, we face our own historical inflection point.

No one should doubt that we face accelerating global competition in which it is strongly in our interests to expand the perimeter of our alliances while deepening the transatlantic partnership at its core.

So our diplomacy must be more urgent, more agile, and more creative. We must deepen the political and military alliances which defined our past successes but also create new partnerships—borne in and of technology—which will redefine our future. The stakes could not be higher. The opportunities, actually, could not be greater. And I am confident that our two countries will indeed rise together to meet those challenges.

Peter Mandelson is the British ambassador to the United States.

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After the Trump administration’s sweeping “liberation day tariffs,” the British government thought that taking the lead on negotiating with the United States might be risky. It feared other countries might blame the United Kingdom for enabling the United States’ 10 percent tariff, which is now assumed to be an unavoidable baseline, even for countries that US President Donald Trump likes. But there’s a palpable sense of relief that, so far, no other country seems to have blamed the United Kingdom for doing the deal.

British officials told us they had known it would be difficult to secure a broader tariff exemption for the United Kingdom, concurring with the GeoEconomics Center’s view that the Trump administration remains more serious about tariffs than the markets have considered. The separate exemptions for the United Kingdom from Section 232 tariffs on autos and steel (within certain quotas) are seen as significant achievements. Concessions made by the United Kingdom on imports of beef and ethanol have encountered only limited political backlash, so far.

Despite UK officials’ subtle understanding of the US administration, our interlocutors were still surprised when we warned them that the reciprocal tariffs announced on “liberation day” could be reimposed on other markets if bilateral negotiations fail to meet the US president’s expectations. This realization made them feel even better about securing a deal, and they underscored the serious misunderstanding that exists even in allied governments about the administration’s true trade goals.

The deal’s four short paragraphs on economic security show that the UK government has picked up on US concerns regarding avoiding tariffs through transshipments. An agreement was reached to refrain from further conversations on transshipments and risky vendors, though officials were keen to remind us that the deal does not constrain London’s reset with China. One of the authors (Charles Lichfield) was able to make this point on Wednesday when he gave oral evidence to the International Relations and Defence Committee of the House of Lords in a session on the future of the United Kingdom’s relations with the United States.

The sequencing of the Labour government’s trade deals was designed with domestic politics in mind. It is no coincidence that the US deal, as well as the recent trade deal with India, came before the UK-European Union Summit and its announcement of a renewed agenda for cooperation. Labour can now credibly say that it is achieving the global trade deals that the Conservative Party promised—and failed to deliver—after Brexit.

There are political risks to every deal. UK Prime Minister Keir Starmer’s government has been criticized for allowing firms to bring Indian tech workers to the United Kingdom without complying with British labor laws. Still, prioritizing the US and India deals has apparently protected the government from the inevitable accusations of “Brexit betrayal.” The attempt to reset relations with the European Union is also broadly popular. Disproportionate attention is paid to the fishing industry, which represents 0.02 percent of the gross value added by the British economy. The British beef industry, which will now face more competition from the United States, received much less attention.

The Labour government’s achievements haven’t prevented a sharp decline in the polls, fueled by mediocre growth (barely 1 percent this year) and a fraught migration debate. Without any remarkable improvement in public finances, Chancellor of the Exchequer Rachel Reeves has been forced to switch her priorities from reining in spending (and blaming this on the previous Conservative government) to prioritizing growth.

Last week, the prime minister partially walked back one of Reeves’s flagship policies of “means testing,” which is an entitlement that aims to help pensioners pay their winter heating bills by proposing that the cut-off threshold would be raised to a currently undisclosed level. Doing so makes the government vulnerable to its own parliamentary caucus, which will demand more concessions on social spending to deliver a sense of economic uplift faster.

The Trump administration is placing demands on its oldest allies, which it isn’t on newer friends in the Gulf. In a speech at Chatham House, one of the authors (Josh Lipsky) highlighted that the economic security dimension of the US-UK deal is what could underpin the future of a Group of Seven alliance to counter China economically. But our counterparts in the United Kingdom raised two key concerns. First, they asked whether the United States still saw value in alliances to achieve economic goals, or if the US priority was to reset global trade irrespective of alliances. Second, they remarked that there is no guarantee that policies decided by this US administration would continue in the years to come.

The same questions were raised at Bank of England, where senior officials questioned the Trump administration’s policies on stablecoins and cryptocurrency. Their own assessment was that unleashing these assets globally without the right regulatory framework could potentially destabilize other countries’ financial systems.

Overall, the unifying theme was a desire for stability but a begrudging acceptance that, at least from the United States, none was coming in the near term. As it approaches its first year in office, the Labour government is navigating these choppy international waters with some success. Alongside the trade deals, it has also kept the Trump administration engaged in Ukraine. These achievements all serve domestic prosperity in the United Kingdom—but making sure voters feel they are benefiting from these will be very challenging.

Josh Lipsky is chair of international economics at the Atlantic Council and senior director of the Atlantic Council’s GeoEconomics Center.

Charles Lichfield is the deputy director and C. Boyden Gray senior fellow of 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.

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Within the Trump administration, there appear to be competing and sometimes contradictory perspectives over what dollar dominance means for US policy interests. The perspectives mirror broader debates beyond the White House about the role of the US dollar. Three divergent playbooks—around the dollar as a reserve, payment tool, and store of value—are worth exploring, not least because they are increasingly at odds.

The “America first” dollar

For Trump, the dollar’s international role appears to be of a piece with his broader “America first” philosophy. Trump’s statements suggest that he sees the use of the dollar in global payments as a symbol of US nationalism. During his campaign, for example, Trump threatened to impose 100 percent tariffs on nations from the BRICS group of emerging economies and others seeking to build alternative currency blocs aimed at undermining “the mighty US dollar.” In his words: “You leave the dollar, you are not doing business with the United States.”

Trump’s renewed tariff policy risks undermining dollar dominance by disrupting the economic relationships that have sustained the global dollar system. The many countries that run trade surpluses with the United States value holding and using dollars in international trade. This is because the dollar boasts strong network effects and highly liquid markets. It offers ease of trade and the convenience of invoicing and settling in a single dominant currency. This creates a cycle: Dollars flow out when the United States imports more than it exports, and then those dollars come back as foreign investment in US assets. If the United States reduces imports significantly—via tariffs or trade restrictions, for example—fewer dollars flow abroad. There are already signs that this is happening: Foreign investors have sold $63 billion in US equities between March and April 2025, and the US dollar index is down 8 percent this year. This marks a major retrenchment given that foreign investors entered 2025 with a record 18 percent ownership share of US equities.

Although tariffs are paid by US importers, they also hurt foreign exporters by reducing demand for their goods. Importantly, these tariffs signal that the United States is willing to use its dominant position in global trade and finance as a tool of coercion. In response, affected countries may seek to reduce their dependencies on the United States by developing alternative payment systems, trading in local currencies, and diversifying their reserves. These likely consequences may be an incentive for the administration to pursue a more moderate tariff policy than originally announced, as is already happening, at least temporarily.

Trump also sees domestic innovation in private sector financial technology as central to sustaining the dollar’s global role. On January 23, Trump signed an executive order encouraging the development of dollar-backed stablecoins issued by private firms to enshrine dollar dominance. As much as 80 percent of the flow of dollar-backed stablecoins is happening outside of the United States, and countries such as Argentina, Brazil, and Nigeria have seen significant adoption of stablecoins for remittances or as a hedge against local currency instability. 

US Treasury Secretary Scott Bessent and Federal Reserve Governor Christopher Waller have emphasized that stablecoins could reinforce the dollar’s primacy by creating new demand for US Treasuries, since almost 99 percent of stablecoins are dollar-denominated. While the widespread adoption of dollar-backed stablecoins could reinforce dollar dominance, it also introduces new vulnerabilities. For example, stablecoins could potentially accelerate de-dollarization, especially if nations become concerned about excessive dollarization of their economies and threats to monetary sovereignty. 

According to the Atlantic Council’s central bank digital currency (CBDC) tracker, there has been a global increase in retail CBDC development since the Trump administration took office—potentially signaling that countries are creating domestic digital alternatives specifically designed to limit the proliferation of dollar-backed stablecoins in their economies. Moreover, if inadequately regulated, stablecoins could pose systemic risks—such as triggering bank runs or forcing the liquidation of reserve assets during periods of financial stress, destabilizing Treasury markets. Furthermore, widespread stablecoin adoption without appropriate regulations could lead to shadow payment systems evading traditional oversight, undermining sanctions and monetary policy.

Internal tensions within the Trump administration on digital assets are already emerging. Trump’s inner circle of business leaders appear to favor the broader adoption of digital assets to bolster US competitiveness, while national security officials seem to worry that stablecoins could facilitate money laundering and terrorism financing, as well as undermine Washington’s ability to effectively wield sanctions. The ultimate role of stablecoins in the dollar’s international standing will depend on whether these two groups can reconcile the multiple priorities at stake.

The dollar as an economic burden

But there are other views on the dollar in the White House, as well. Stephen Miran, the chairman of the White House Council of Economic Advisers, has argued that the dollar’s reserve currency status comes at a steep cost to American workers and industry. In November 2024, Miran framed the dollar’s reserve currency status as a structural liability—one that forces the United States to run persistent trade deficits and maintain an overvalued dollar to meet global demand for safe dollar-denominated assets. At the time, Miran proposed unconventional remedies, including purposely devaluing the dollar to create a multipolar currency system to share the reserve status burden. 

Miran seems unconcerned about the dollar’s share of global central bank reserves but acknowledges the risks of a weaker dollar—primarily that investors might abandon dollar assets, increasing US borrowing costs. His proposed solution is to “term out” US debt by convincing countries to exchange short-term holdings for one-hundred-year bonds. While this would lock in foreign investment and reduce rollover risk, the extremely distant maturity could undermine trust rather than build it. Reserve holders prioritize liquidity and flexibility, so dramatically extending maturities might backfire, accelerating diversification away from dollar assets as the currency depreciates.

A fractured coexistence

At the heart of these competing views lies a critical tension that policymakers must address: The dollar serves multiple functions globally, and each function demands distinct strategic approaches.

Miran’s critique focuses on the dollar’s role as a reserve currency. Trump’s BRICS tariff threats, by contrast, focus on the dollar’s payments role. And the Federal Reserve and Treasury’s emphasis on stablecoins is best understood as an attempt to bolster the dollar’s store-of-value function. These are different hats that the dollar wears, and they often require divergent policy responses. Managing one of the hats without due attention to the others risks internal contradictions that could erode the very dominance policymakers seek to preserve.

It is unclear which side within the administration will ultimately have more influence, leading to uncertainty about US policy in the interim.

So what’s the dollar strategy, then?

To maintain long-term dollar dominance, the Trump administration should focus on creating a cohesive policy that reconciles the dollar’s multiple roles and avoids conflicting policy actions. Central to this effort should be a commitment to financial stability (avoiding large-scale tariffs, significant currency manipulation, and cryptocurrency spillover). The world is more likely to view the dollar as trustworthy when it sees the United States as a stable and reliable custodian of foreign assets.

Here are three specific ways the White House can pursue a strong, cohesive dollar policy:

Promote responsible innovation and oversight of dollar-backed stablecoins: The administration—particularly national security agencies, the Treasury, and the Federal Reserve—should actively monitor risks posed by the global proliferation of dollar-backed stablecoins. Policymakers should not ignore the accelerated dollarization of emerging markets and potential restrictive responses. Regulation alone is insufficient; clear enforcement mechanisms are needed to ensure compliance and mitigate systemic risk.

Seek stability through strategic trade measures: The administration should prioritize a stable trade policy and eliminate broad, across-the-board tariffs. Instead, it should apply targeted measures to address specific instances of nonmarket practices and currency manipulation. This would help preserve the dollar’s role by maintaining global investor confidence and ensuring continued dollar circulation in trade without disrupting broader relationships or supply chains.

Reinforce institutional credibility and policy coordination: Reaffirming the Federal Reserve’s independence is important for maintaining global confidence in US monetary policy, capital markets, and the dollar’s long-term strength. At the same time, the administration should enhance the coordination of analytic efforts and ensure consistency across agencies in messaging and policy implementation on dollar-related issues. This could be achieved by more effectively leveraging existing interagency structures, such as the National Security Council and the National Economic Council. Or, if necessary, it could be done by creating a new, dedicated coordination mechanism. The key objective is to deliver greater clarity, predictability, and coherence in the government’s approach.

Above all, policymakers should recognize that the greatest threat to the dollar is not external—it is the erosion of trust in the United States’ political and legal institutions. The dollar is not just backed by the size of the US economy; it is backed by faith in the rule of law, the sanctity of contracts, an independent central bank, and the stability of democratic governance. Structural advantages—network effects, deep capital markets, and the dollar’s centrality to global payments—make its dominance resilient. But these foundations are only as stable as the legal, political, and institutional frameworks behind them. If that foundation weakens, then no number of tariffs or volume of stablecoins can preserve the dollar’s central role in the global system.

For now, there is no viable alternative to the dollar. But the Trump administration’s competing and fractured view on the dollar’s various roles may cause enduring harm to its long-term dominance.

Alisha Chhangani is an assistant director at the Atlantic Council’s GeoEconomics Center.

Israel Rosales contributed to the data visualization in this article.

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As the race for access to critical minerals accelerates—with US President Donald Trump declaring the minerals that power new technologies essential to US national security, and China flexing its control of mineral supply chains with export bans—the mineral-rich Democratic Republic of the Congo (DRC) is in the spotlight. But that light reveals a complicated picture: As major powers and neighboring states contend for access to the country’s tin, cobalt, and copper, the Rwandan-backed M23 paramilitary has seized control of large swaths of eastern Congo, and the specter of full-scale war looms. The DRC signed a minerals-for-infrastructure deal with China in 2007, and now a minerals-for-security or minerals-for-peace deal with the United States is in the offing. 

The DRC has a chance to break the so-called “resource curse” and use its mineral wealth to build the roads, power grids, health infrastructure, and more that will sustain a democratic, economically growing country in the years ahead. Other countries and investors have a chance to live up to their commitments to responsible sourcing of natural resources, and in so doing support good governance and regional peace. The alternative is a continuation of the bad patterns of the past, with the real risk of a new outbreak of violence along the same fault lines that produced the deadliest conflict since World War II.

We asked six experts how the DRC—and its global partners—can take this transformative path. Read on for analyses of the country’s business environment, the industrial potential of its critical minerals and other promising sectors, and peace and security throughout the country.

The business case for peace and democracy in the DRC is strong

By Dave Peterson

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Congo’s war and the critical minerals scramble are inextricably intertwined

By Mvemba Phezo Dizolele

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Critical minerals won’t transform lives in the DRC—a radical shift in security and economic governance will

By Rabah Arezki

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Partner perspective: The DRC’s vast potential extends beyond mining

By Thomas De Dreux-Brézé

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US investors must lead on responsible sourcing in the DRC

By Nicole Namwezi Batumike

Read more

Better roads and stable power grids can unlock the DRC’s potential

By Calixte Ahokpossi

Read more

The business case for peace and democracy in the DRC is strong

Dave Peterson is the former senior director of the Africa Program of the National Endowment for Democracy.

The Rwandan-backed rebel militia M23 has seized control of most of eastern Democratic Republic of the Congo (DRC) while the national army (known by its French acronym, FARDC) and international peacekeepers retreat. At least seven thousand civilians have been killed and thousands more raped. Two million displaced persons and refugees are fleeing for safety, joining some five million already displaced. The US embassy in Kinshasa has been attacked by angry mobs—and both strategic interests and American values are at stake.

The DRC is rich. With 111 million inhabitants in a geographical area the size of Europe, the country is blessed (or cursed) by $24 trillion in mineral resources such as copper, cobalt, lithium, gold, and diamonds, much of it crucial to the world’s transition to electric power, half of it exported to China, and much of it now controlled by Chinese investors. Congo has the world’s largest tropical forests after the Amazon and a vast river network that could power half the African continent; it also has enormous agricultural potential, gas, and oil.

And the DRC is where the greatest slaughter of human beings since World War II occurred just thirty years ago, even as atrocities continue to be reported daily in the country’s east. In addition to M23, more than a hundred militia groups terrorize the population. Rampant corruption sucks billions of dollars from the economy every year, and poverty, unemployment, illiteracy, and disease statistics place the DRC near the bottom of global rankings.

The Congolese people have begged for change. Democratic elections held on December 20, 2023, were won by the incumbent, Felix Tshisekedi. Although flawed in many respects, credible domestic observation groups, supported by the National Endowment for Democracy (NED) and others, concluded they reflected the will of the people. The elections were reasonably competitive and peaceful, a notable achievement compared to Congo’s nine neighbors, many among the most autocratic countries in the world. The elections raised the level of political discourse and further cultivated Congo’s democratic practice. Congo’s press is relatively free, so citizens can debate, organize, and criticize their government. The nation’s civil society is extensive, active, and skilled—advocating, educating, and mobilizing citizens on a host of issues.

Yet after another year in power, the second Tshisekedi administration has failed to resolve the conflict in the east, address rampant corruption, or improve governance. The human rights record is not reassuring, as NED’s Congolese partners and others have documented. More than one hundred kuluna, purportedly youth gang members ensnared by DRC’s notoriously corrupt justice system, were recently executed after the government reinstated the death penalty. Freedom of expression is also under pressure as activists, journalists, and whistleblowers are attacked and fear for their personal safety. Meanwhile, the president seems intent on tampering with the constitution to allow him to extend his term in office.

The mining companies, banks, and tech industry—aware of but loath to abandon the bloody supply chain they rely on—profit handsomely from Congo’s precious minerals. Although the conflict in the country’s east is about more than the trade in minerals, and international funders have spent hundreds of millions of dollars on the problem, the DRC’s best hope may be for foreign investors to mobilize pressure on the belligerents to make peace. The Belgian government has investigated Apple for tolerating human rights abuses in its supply chain originating in the DRC, and Apple has acknowledged the difficulty of identifying the sources of its suppliers. Because this is an issue for the entire industry, companies should find it advantageous, both in terms of public relations as well as in creating a conducive business environment, to be more accountable for the stability and prosperity of the communities from which they derive their wealth.

The Trump administration is paying attention. Tenuous negotiations between representatives of the Congolese and Rwandan governments led by the administration’s special envoy Massad Boulos may be making progress. To buttress this, Congolese civil society should be included in the process, including appropriate NGOs, community groups, the church, labor, and business, as proved successful in the Inter-Congolese Dialogue two decades ago. The DRC’s democratic aspirations should be the United States’ comparative advantage. The United States made mistakes in Congo, then called Zaire, during the Cold War, to the detriment of its own reputation, and it would be a shame to return to that era of zero-sum geopolitical competition. Security, strength, and prosperity are interests every nation pursues, but the United States can do better. Many Congolese, including civil society and political leaders, still see the United States as a force for good and a beacon of hope for ideals such as freedom, peace, democracy, justice, and human rights. It is what makes America strong: It is what makes the United States friends and allies, accords America respect and admiration—to be seen as a world leader rather than just another player, a model rather than a pariah.

The US private sector should take the lead. A golden age cannot be built on the blood of innocents, a course that can only lead to more hatred and suffering and will ultimately fail. The international business community must unite in committing to resource extraction practices that abide by international standards of human rights and transparency, incentivize the rival governments and factions in the subregion to lay down their arms, and make it easier and more profitable for companies to do their work. The private sector can rally international public opinion and pave the way for stability and prosperity. The long-suffering Congolese people deserve it.

Congo’s war and the critical minerals scramble are inextricably intertwined

Mvemba Phezo Dizolele is a senior fellow and director of the Africa Program at the Center for Strategic and International Studies (CSIS) in Washington, DC.

For the past thirty years, the world has viewed the Democratic Republic of Congo (Congo) through a binary lens of conflict and the exploitation of natural and mineral resources. The conflict optics magnify the insecurity that has characterized life in the eastern provinces of North Kivu, South Kivu, and Ituri. The protracted conflict between Congo and Rwanda spawned the proliferation of militias, including the two iterations of the Rwanda-backed M23, which captured the Congolese cities of Goma and Bukavu on January 25, 2025, and February 16, 2025, respectively. The death toll is estimated at more than seven thousand since January 2025, with unofficial reports from the region suggesting a much higher number of victims.

With 7.8 million internally displaced people, Congo ranks alongside Syria and Sudan among countries with the largest displaced populations, according to the United Nations. Of the more than two million people who have been displaced since the 2022 resurgence of M23, one million were displaced in 2024. Sexual violence, disappearances, and other human rights abuses have increased in M23-occupied areas. These abuses will continue as the rebels expand their territorial control.

Coverage of the conflict has also emphasized the role of natural and mineral resources as drivers of the war. Congo’s resource endowment is valued at a staggering $24 trillion. Analyses of the war have focused on the looting and smuggling of minerals, and have pointed to Rwanda and Uganda as primary beneficiaries. The two countries have emerged as major exporters of minerals, such as gold and coltan, of which they have limited reserves.

Recently, heightened interest in Congo’s mineral resources has been driven, among other reasons, by the West’s determination to circumvent China and secure critical resources like cobalt, copper, and lithium. For instance, on February 18, 2024, the European Union (EU) signed a Memorandum of Understanding on Sustainable Raw Materials Value Chains with Rwanda. Even though the EU signed similar memoranda with Congo, Zambia, and Namibia, Rwanda’s case raised questions given the country’s troubled history with Congo concerning mineral resources. This history includes invading Congo, arming violent rebel groups, and smuggling minerals out of rebel-controlled territory.

The second element driving high-profile interest in the country’s mineral wealth is the Trump administration’s classification of critical minerals as vital to US national security. The pursuit of a US-Congo minerals-for-security deal underscores Washington’s increased interest in Congo’s mineral endowment. As the world waits to learn about the contours and substance of the contract and what the United States will offer Kinshasa, it’s worth taking stock of the current foreign investment landscape in the country.

China tops the list of major investors with important financial and technical commitments to Congo’s mining sector. Besides China, the other major players who have established significant footprints in the country include the EU and the United States.

China leads in the mining and infrastructure sectors

China’s investments in DRC focus on the mining sector, with major stakes in the cobalt and copper industries. The engagement stems from the 2008 Sicomines joint venture between Chinese companies (Sinohydro and China Railway Engineering Corporation) and the Congolese government. The venture is the foundation of the Congo-China cooperation. Originally valued at $9 billion, the deal is a minerals-for-infrastructure barter. After pushback from the World Bank, the International Monetary Fund, and Congolese civil society organizations, the deal was renegotiated to $6 billion in 2009. In exchange for mining rights, China has financed infrastructure projects, including roads and hospitals. In 2024, Chinese infrastructure investment commitments were valued at $7 billion. Today, China is the largest investor in the country.

United States seeks minerals for national security

Until the advent of the second Trump administration, the United States showed little interest in DRC minerals and focused on the humanitarian challenges of the country. Western companies that secured mining deals often sold their holdings to the Chinese. With every Western business divestment, the Chinese increased their stake in Congo’s mining sector. The new policy change has generated interest for greater US-Congo cooperation. This minerals-focused change is supported by a robust diplomatic engagement that seeks to broker peace between Congo and Rwanda. The administration’s stated objective is to stabilize Congo and create the right conditions for investments in mining and infrastructure.

The new US approach is yielding early results. On May 6, 2025, California-based KoBold Metals and Australia-based AVZ Minerals reached an agreement for the former to acquire AVZ Minerals’ interests in the Manono lithium deposit in Congo. Billionaires Bill Gates and Jeff Bezos back KoBold. The agreement will enable the company to invest over one billion dollars to develop the lithium project.

It is difficult to evaluate the level of current US investments in Congo. US pledges of multi-billion-dollar investments depend on the promises of peace accords between Rwanda and Congo and related bilateral mineral agreements.

European Union focuses on ethical approach to critical minerals

European countries’ approach in Congo focuses on ethical sourcing and sustainability, which also include traceability of minerals due to armed conflict. European development banks have funded projects that improve governance and reduce poverty. Some of these initiatives, however, have faced criticism. For instance, in light of the resurgence of M23, the February 18, 2024, memorandum the EU signed with Rwanda—“establishing close cooperation with Rwanda” on the sourcing of critical minerals—has raised questions about the EU’s commitment to ethical sourcing, given that Rwanda backs the violent M23 paramilitary group. Analysts of the Great Lakes region, diplomats, and members of the European Parliament have all questioned and challenged the intent and effect of the memorandum. Some see it as a driver of the re-emergence of the M23 and the current war between Congo and Rwanda.

Top European investors in Congo include France, the Netherlands, and Italy, who contributed a combined foreign direct investment stock of approximately $32.6 billion in 2022.

Comparative overview of investments

As the scramble for critical minerals enters a new phase with increased US interest in Congo, the country needs effective governance and transparent policies to ensure that foreign investments contribute to sustainable development and economic growth.

Critical minerals won’t transform lives in the DRC—a radical shift in security and economic governance will

Rabah Arezki is a distinguished fellow at the Atlantic Council’s Freedom and Prosperity Center. He previously served as chief economist and vice president for economic governance and knowledge management at the African Development Bank, as well as chief economist for the Middle East and North Africa region at the World Bank, and as chief of the commodities unit in the research department at the International Monetary Fund (IMF).

The Democratic Republic of Congo’s abundance of critical minerals has given rise to comparisons with Saudi Arabia’s oil wealth. But that abundance has not improved citizens’ lives in one of the poorest countries in the world. Yet there is a course that could make that possible: finding the right balance between openness to investments from multinational corporations and economic sovereignty—broadly defined as the ability of a country to control its own economic system.

The DRC is the repository of the world’s largest reserves of critical minerals such as cobalt, copper, and lithium. Indeed, the DRC holds around 70 percent and 60 percent of the world’s cobalt and lithium reserves, respectively, as well significant deposits of nickel and uranium, which are metal components for energy generation and batteries for electric vehicles. Yet the DRC encapsulates the seemingly insurmountable and intertwined challenges posed by critical minerals. These challenges are tied to geopolitics, conflicts, and the environment as well as economic and social dimensions.

First and foremost, the challenge facing the DRC is the new geopolitics around critical minerals. The demand for critical minerals is exploding. According to the International Energy Agency, demand for minerals is projected to increase by more than four times by 2040 amid the transition from fossil fuels to renewable energy. Major powers—namely China, the United States, and the European Union—are engaged in a technological race spurring competition for access to these critical minerals. At the center of that global scramble is the DRC, which is being courted by these powers like never before. China is heavily invested in the mining sector of the DRC and controls the supply chains of critical minerals, including their processing.

Amid the technological race, China has recently imposed restrictions on exports of critical minerals to the United States. Washington and Brussels have tried to challenge Beijing’s monopoly of the supply chains of these minerals by attempting to secure mining contracts, including in the DRC. That competition should in principle help the DRC to not only get a fair share from the mining contracts but also the opportunity to move up the value chain. In practice, multinational corporations and foreign governments have much stronger capacity in negotiating mining contracts relative to the government of the DRC. Quid pro quos are also common involving the receipt of aid packages originating from self-interested donor countries in exchange for the awarding of mining contracts to multinational corporations—linked to donors.

Another major challenge for the DRC is conflict. The DRC is faced with external and internal conflicts. The DRC has a complex history: Once known as the Belgian Congo, it experienced a cruel form of colonization as the de facto personal property of Leopold II, Belgium’s king. The DRC’s post-independence era was plagued by direct interventions by foreign powers and autocratic rulers. That history helps explain the DRC’s deficient institutions, a persistent low level of trust among citizens, and distrust between the citizenry and the government.

The DRC has long faced massive violence and crimes in mineral-rich provinces such as Katanga and North Kivu—fueled by neighbors such as Rwanda and Uganda. The advances of Rwanda-backed M23 rebels in eastern Congo is alarming for the DRC and could fuel a “major continental conflict.” The Trump administration is actively pushing for a peace deal between the DRC and Rwanda to end the violence. This peace deal appears to be contingent upon the two countries each signing a bilateral economic agreement with the United States involving mineral extraction and processing. The peace negotiations are at an early stage, but these efforts are welcome especially if they lead to an outcome perceived as just.

Minerals are routinely smuggled out of the DRC. Add to that illicit artisanal mining—mining done, generally on a small scale and with low-tech tools, by individuals not employed by a mining company—as a tug of war between the authorities and citizens directly grabbing minerals. As a vast territory, it is imperative for the DRC to expand and strengthen the governance of its security sector to secure its borders and confront armed groups operating on its territory. The DRC is nominally a centralized republic, and it needs to find the right balance for revenue sharing between the different provinces and the central government to reduce internal tensions.

Further, the extraction of critical minerals is leading to significant environmental and health hazards. Indeed, extraction is often associated with deforestation, loss of biodiversity, and the use of toxic chemicals (including mercury), which are polluting ground water sources. Add to that child labor in the extraction of critical minerals, with children and women facing health degradation and abuse. The weak enforcement of environmental and social standards in the DRC is very concerning. A global debate is raging over the boycott of critical minerals emanating from zones of conflicts and forced labor. These boycotts alone are unlikely to sway the DRC’s government to do right by its citizens, but multinational corporations and foreign governments may be more susceptible to pressure.

These multifaceted challenges may seem insurmountable, but that should not deter the government of the DRC. To confront these challenges, the DRC must find a balance between outward- and inward-facing institutions. On the outward-facing front, the government needs to get its fair share of revenues from the extraction of minerals and attract investment in processing domestically. To do so, the government needs to deploy utmost transparency in its dealing with multinational corporations and foster the right human capital to match the capacity on the other side.

On the inward-facing front, the DRC needs to also ensure it is redistributing the proceeds of the revenues from the extraction of critical minerals to its citizens to ensure economic justice. To do so, the government of DRC needs to improve the allocative and technical efficiency of its spending. The government of DRC should pursue further its local content policy (designed to ensure that extractive industrial activity benefits the region where the resources are found) by localizing the processing of critical minerals. A useful example is the case of Botswana, which acquired a 15 percent stake in the world’s biggest diamond miner, DeBeers, which helped lock in local diamond-cutting activities.

This would represent a radical system shift in the DRC’s economic governance apparatus—and such a shift is imperative, in security as well as economic governance. Without that radical shift, the benefits of critical minerals won’t reach the people of the DRC. The Trump administration peace proposal could provide a pathway to a just peace and security between DRC and its neighbors, most notably Rwanda.

US investors must lead on responsible sourcing in the DRC

Nicole Namwezi Batumike is a gender and responsible sourcing specialist at the Congolese nonprofit Panzi Foundation.

The ongoing conversations between the United States and the DRC over access to critical minerals present a rare and urgent opportunity to reset the terms of engagement with Congolese stakeholders and the broader mineral ecosystem. US officials have indicated that American and other Western companies are prepared to make multi-billion-dollar investments in the region once the bilateral mineral deals are finalized. The DRC holds vast reserves of cobalt, copper, and other strategic minerals essential to global technological and energy systems, yet for decades, the Congolese people have borne the costs of extraction without sharing in its benefits, treated as collateral in deals driven by geopolitical rivalries and elite bargains. On top of fueling instability and deepening marginalization, these transactional arrangements have also exposed investors to growing legal, financial, and reputational risks.

Experience shows that when mining fails to deliver value to local communities, companies lose their social license to operate, along with the legitimacy of the regimes they once depended on. In turn, those regimes have proven willing to shift allegiances in pursuit of regime security. The DRC, for example, has filed lawsuits against downstream tech giants and pushed for sanctions targeting neighboring countries laundering conflict minerals. It is increasingly clear that the Congolese regime is not bound to any single partner.

US engagement in Africa must reflect geopolitical realities. Recent peace deal discussions show the United States is willing to engage Rwanda’s refining sector—despite Kigali’s documented role in violating Congolese sovereignty and committing war crimes. If responsible sourcing is to truly guide stable engagements, policymakers must reckon with the risks of endorsing impunity and failing to deliver justice for the Congolese people.

The negotiation of a US-DRC mineral deal offers a crucial opportunity to break this cycle, provided Kinshasa resists the historical pattern of leveraging minerals solely for regime survival, and provided the United States supports a model of genuine security: one not rooted in a logic of extractivism but in mutual accountability and the rule of law. By aligning US investment strategy with Congolese legal frameworks and responsible sourcing standards, both countries can lower risks by forging a sustainable model.

Responsible sourcing is a legal and strategic imperative

Meeting international due diligence standards to ensure that a given business activity does not involve human-rights violations has shifted from being a reputational safeguard to a legal and strategic requirement. Standards include the Organisation for Economic Cooperation and Development Guidelines and the United Nations Guiding Principles on Business and Human Rights. Human rights due diligence is now codified through laws such as the European Union’s Corporate Sustainability Due Diligence Directive, France’s Duty of Vigilance Law, and Germany’s Supply Chain Due Diligence Act, making risk mitigation binding across global operations, especially in high-risk contexts like the DRC.

Yet despite these frameworks, the DRC remains at war, and the global minerals trade continues to serve short-term political and economic agendas. In 2024, the US Government Accountability Office reported that Section 1502 of the Dodd-Frank Act (America’s flagship due diligence law) had not reduced violence in eastern Congo and may have exacerbated conflict around artisanal gold-mining sites. The US government’s insistence on better outcomes demonstrates that due diligence is a means, not an end, and it cannot resolve the structural drivers of the conflict.

The DRC’s mining codes provide a responsible framework for US investors

It is in this context that the DRC’s 2018 mining code emerges not as an obstacle but as a strategic foundation. On top of aligning closely with international expectations for human rights due diligence, the code offers investors and companies a clear, locally grounded framework to manage risk and build sustainable partnerships. Born out of years marked by revenue leakage, extractive impunity, and donor-driven liberalization, the code reasserts the government’s dual roles as a regulator and shareholder while mandating local beneficiation (a part of mineral processing). It raises royalty rates on strategic minerals like cobalt, introduces a “super-profits” tax, and makes community development contributions legally binding. It also restricts the use of “stabilization clauses,” which limit countries’ ability to apply new regulations to investors with agreements signed before the regulations went into effect, and strengthens environmental and social accountability.

Pilot models offer early lessons in responsible sourcing. For example, at Mutoshi in the Lualaba province, the collaboration of multinational commodities group Trafigura with Chemaf, a Congolese company, and Pact, an international nonprofit organization, showed that formalizing artisanal mining not only met sourcing commitments but also helped contribute to de-risking efforts. Meanwhile, the Panzi Foundation’s Green Mining Community Model, an initiative led by Nobel Peace Prize laureate Denis Mukwege, links inclusive training in responsible sourcing and value addition with investments in essential infrastructure like health and education. By seeking to address the root causes of conflict and the violent tactics it enables—such as the use of rape as a weapon of war—the Green Mining Community model promotes integration and community empowerment, positioning responsible sourcing as a pathway to long-term stability and shared value.

Opportunities and challenges in the US policy landscape

The United States is on the path to establishing promising policies and frameworks for responsible investment, as demonstrated by the bipartisan BRIDGE to DRC Act, which emphasizes governance and transparency. Initiatives such as the US-backed expansion of the Lobito Corridor* linking the DRC to Angola’s Lobito port, alongside previous efforts like USAID’s Just Gold project, could provide a strong foundation. However, their long-term impact will depend on aligning with fair labor and environmental standards, sustainable development, and, importantly, the continuity of these efforts under the new administration.

At the same time, setbacks like the 180-day suspension of Foreign Corrupt Practices Act enforcement must be urgently addressed. Restoring accountability is essential for ethical investment.

As US Rep. Sara Jacobs highlighted in a March 2025 Africa Subcommittee hearing, investments will only succeed in the long term if they do not ignore the root causes of exploitation.

The Democratic Republic of the Congo stands at a pivotal juncture: either the cycle of extractive exploitation continues, or the government leverages its mineral wealth to foster long-term development. For US stakeholders, the way forward lies in transparent, law-abiding, and community-centered partnerships. This requires a commitment to the DRC’s 2018 Mining Code and collaboration with Congolese civil society. While short-term gains may be tempting, only those who embrace responsible sourcing and inclusive models will build sustainable, competitive advantages.

Better roads and stable power grids can unlock the DRC’s potential

Calixte Ahokpossi is mission chief, Democratic Republic of the Congo, for the International Monetary Fund (IMF).

The Democratic Republic of the Congo has vast economic potential, but infrastructure gaps remain a major constraint. The country is rich in natural resources and has a large and young population that could drive its development. However, chronic underinvestment in critical infrastructure—roads, rail networks, and power generation—continues to stifle economic progress. Additionally, governance challenges, corruption, macroeconomic instability, and recurring shocks—including armed conflicts in its eastern region—exacerbate fragility.

Addressing these challenges requires tackling their sociopolitical and economic roots, while leveraging the country’s vast natural resource wealth to rapidly bridge the infrastructure gap and foster diversified and sustained economic growth and poverty reduction. The DRC needs an ambitious infrastructure agenda, prioritizing the development of transport corridors and stable power grids.

Weak, unevenly distributed infrastructure

The DRC’s road network is severely underdeveloped, limiting mobility and trade. With only 152,400 kilometers (km) of roads, connectivity remains a challenge. The roads serve the nation’s vast 2.45 million km² territory, a road-to-territory ratio that is just 40 percent of the sub-Saharan African average of 0.14 km/ km², which is already low compared to other regions. Fewer than 10 percent of these roads are passable year-round, and more than half of Congolese (54.5 percent) must travel over an hour to reach a paved or asphalted road. Urban-rural disparities are stark. In the southeast (Haut-Katanga and Lualaba), large-scale copper and cobalt mining has spurred some investment in roads and rail lines, but the transportation infrastructure remains vastly insufficient for a region that supplies most of the world’s cobalt and a significant share of global copper. Indeed, the DRC accounts for over 70 percent of global cobalt output and approximately half the world’s proven reserves. In contrast, the eastern provinces (North and South Kivu, Ituri)—rich in gold and the “3T” minerals (tin, tantalum, tungsten)—receive minimal investment, as small-scale artisanal mining dominates, offering limited economic spillovers.

The DRC remains one of the least electrified nations despite vast hydropower potential. Only 19.1 percent of the population has access to electricity, with rural coverage plummeting to a mere 2 percent. The country is heavily dependent on two aging hydropower plants: Inga 1 (with an installed capacity of 351 megawatts) and Inga 2 (installed capacity of 1,424 MW), both under rehabilitation and operating at roughly 80 percent capacity. These plants primarily serve the mining industry. Ambitious projects like Inga 3 (3,000 to 11,000 MW) and the even larger Grand Inga (which could surpass China’s Three Gorges Dam) underscore the Congo River’s vast potential. Yet delays, shifting international partnerships, and environmental concerns have repeatedly stalled construction.

A barrier to inclusive growth

Weak infrastructure inflates costs, constrains businesses, and fosters economic disparities. Poor infrastructure raises transportation and production costs, stifling economic activity in time-sensitive sectors (like perishable goods). This is evident in agriculture, which employs the majority of Congolese (over 60 percent of the labor force). Despite the DRC’s fertile land, poor transport links prevent farmers from bringing their surplus produce to markets. Goods perish on farms, and the country remains dependent on food imports, making it vulnerable to global food price shocks and exchange rate fluctuations. These disruptions fuel inflation, disproportionately affecting the poorest. The weak transportation network also restricts economic diversification and limits access to remote mineral deposits, leaving critical resources untapped—or controlled by armed groups.

Unreliable energy supply disrupts businesses and limits opportunities for local transformation and adding value. From irrigation systems to medical clinics, power shortages affect essential activities and reinforce a cycle of poverty and missed opportunities. They also hamper industrialization, making local mineral processing, manufacturing, and daily business operations difficult or virtually impossible. Mining companies report that frequent power shortages force them to rely on diesel generators, raising production costs substantially. This inefficiency hits small businesses even harder, eroding profit margins and reducing corporate income tax revenues. Under these conditions, the DRC’s ambition to increase local mineral processing and move up the value chain remains a major challenge.

Five steps to good roads, reliable power, and economic growth

1. Invest in transport and energy infrastructure to generate sustainable growth. The DRC’s vast mineral wealth and energy potential make it an attractive destination for large-scale private investment, but various bottlenecks such as infrastructure, business environment, and governance must be addressed. We focus here on infrastructure ones. Unlocking the hydropower potential (100,000 MW, which is 13 percent of the world’s total) could meet domestic needs and generate export revenue. Modernizing existing hydroelectric facilities and expanding transmission grids would provide clean, affordable electricity to both industry and households. For the mining sector, improved energy access could lower production costs while enhancing compliance with global environmental, social, and governance standards. Meanwhile, broader electrification would fuel local enterprise, boost economic diversification, and improve living standards.
2. Diversify financing for the substantial investments needed to bridge the infrastructure gap. The International Monetary Fund estimates that achieving universal electricity access would require annual spending of 5.9 percent of gross domestic product (GDP), while ensuring that 75 percent of the population lives within two kilometers of an all-season road would necessitate 14.9 percent of GDP annually over ten years. Given these costs, leveraging diversified public, private, and international financing is key to accelerating infrastructure development.
3. Strengthen public investment management to maximize returns. Weak governance and public investment management have led to waste, corruption risks, and substandard project execution. Strengthening investment governance would maximize value for money, boosting private-sector confidence and investment. Equally key is creating fiscal space for critical infrastructure and social and human capital investments. This requires improving domestic tax and nontax revenue collection and prioritizing growth-enhancing spending. Yet low revenue collection, especially relative to peer countries and the DRC’s economic potential, remains a major constraint.
4. Pursue prudent, strategic government borrowing to secure favorable terms. Domestically, containing inflation would lower borrowing costs and encourage higher domestic savings, strengthening the local financial market. Externally, the focus should remain on concessional financing, prioritizing low-cost, long-term loans. Over time, as policy credibility strengthens and the country’s creditworthiness improves, access to international financial markets could be considered, particularly when global conditions are favorable.
5. Scale up infrastructure investments through regional partnerships. The DRC would benefit from harnessing regional frameworks such as the East African Community and the Southern African Development Community to mobilize resources for transport and energy infrastructure. Cross-border energy grids and trade corridors can reduce operational costs, attract larger financing and enhance the country’s global competitiveness. Regional collaboration offers a pragmatic solution to tackling infrastructure deficits while strengthening economic resilience. Also, the development of the Lobito Corridor,* linking the DRC to Angola’s Lobito port, can deepen regional integration and offer more cost-effective transportation routes for DRC’s exports—though it will be important to avoid undermining parallel port development projects in the western part of the DRC.

In sum, the future of the DRC will be promising if its development challenges can be addressed in an ambitious and realistic manner. Developing a reliable road network and extending electricity provision will be critical to reap the DRC’s vast potential—and will need to be supported by sound macroeconomic policies and reforms to strengthen the country’s resilience to overcome its fragility.

Launched in 2022, the Africa Center’s programming on the DRC seeks to advise on securing the country’s governance and to raise awareness of the economic opportunities in the DRC. In partnership with Rawbank, the Africa Center analyzes the DRC’s business environment, the industrial potential of its critical minerals, and peace and security throughout the country.

*Rawbank, which supports the Atlantic Council Africa Center’s work on the Democratic Republic of Congo, has an equity stake in the Africa Finance Corporation, which leads the development of the Lobito Corridor.

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.

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As diplomatic efforts falter, attention is turning to economic statecraft—the strategic use of trade and economic leverage to influence state behavior. The European Union (EU) and United States are Israel’s largest and second-largest trading partners, and any economic pressure they apply could have severe consequences for Israel’s economy. Already facing tariffs from the US, Israel may soon encounter additional pressure from the EU, which is considering its own economic measures.

In Europe, growing humanitarian concerns about the scale of destruction in Gaza have prompted calls to reevaluate the best strategy to manage the conflict. Notably, the humanitarian blockade and high-profile incidents, such as the deaths of fifteen aid workers during an Israeli special forces operation in Rafah—an event Israel attributed to “professional failures”—have intensified pressure for a more impactful response. There is a growing sentiment that new tools may be needed to influence the trajectory of the conflict.

Recently, Dutch Foreign Minister Casper Veldkamp called on the EU to investigate Israel’s compliance with Article 2 of the EU-Israel Association Agreement, which ties trade relations to respect for human rights and democratic principles. Veldkamp argued that, “The blockade violates international humanitarian law. You have the right to defend yourself, but the proportions now seem completely lost. We are drawing a line in the sand.”

Although Veldkamp faced domestic political backlash for his move, support across Europe appears to be growing. On May 20, the governments of the United Kingdom (UK), France, and Canada issued a joint statement urging Israel to halt its renewed offensive in Gaza. While reaffirming Israel’s right to defend itself, the statement described the current escalation as “wholly disproportionate.” In tandem, the UK suspended talks on expanding a free-trade agreement with Israel and announced additional sanctions on extremist Israeli settlers in the West Bank.

Crucially, the majority of EU foreign ministers backed the Dutch proposal to review the EU-Israel Association Agreement. Their choice signals a potential turning point: the first serious momentum behind reevaluating a trade framework that underpins diplomatic and economic ties. Should the EU find Israel in breach of Article 2, it could suspend parts of the agreement or enact targeted economic penalties.

The implications are substantial. The EU is Israel’s largest trading partner, accounting for 32 percent of Israel’s total trade in goods as of 2024, amounting to $48.25 billion. Services trade added another $29 billion, while bilateral foreign direct investment stands at over $134.8 billion. This underscores a deeply integrated economic relationship.

Despite the ongoing conflict, Israel has so far managed to maintain some level of macroeconomic stability. Debt levels are within sustainable bounds, credit worthiness remains intact, and the economy has continued to grow (albeit slowly). However, the economic toll of war is has been straining certain sectors disproportionately. The tech industry continues to grow, partially due to defense contracts, but construction has largely halted, agricultural sectors have lost critical labor, and tourism has plummeted. While gross domestic product growth has not entirely contracted, it slowed to around 1 percent in 2024. This was a significant drop from 6.5 percent in 2022, with the deceleration primarily driven by reduced exports. In response, the Israeli government has implemented budget adjustments that include cuts to domestic welfare programs—historically an area of generous spending—as it works to offset growing wartime expenditures.

Compounding these challenges, Prime Minister Netanyahu recently announced plans to eliminate Israel’s trade surplus with the United States—its second-largest trading partner—which amounted to $7.4 billion in 2024. While the move is framed as a gesture toward economic rebalancing and strengthening bilateral ties, it may carry domestic economic consequences. Efforts to narrow this surplus—especially in a climate of shifting global trade patterns and economic uncertainty—could dampen Israeli export growth and further expose the economy to external shocks.

The potential suspension or downgrading of EU-Israel trade ties would add significant pressure. Given the scale and interdependence of EU-Israel trade, such a move could affect Israel’s economic resilience and, by extension, its ability to sustain long-term military operations in Gaza.

While no approach guarantees a swift end to such a deeply entrenched conflict, economic statecraft presents a credible alternative to stalled diplomatic channels. Unlike traditional negotiations, which often falter due to uncompromising demands or ideological impasses, economic levers could alter the cost-benefit calculus of continued hostilities. A concerted and coordinated effort by major economic partners could incentivize compromise, creating a window for diplomacy to succeed.

The EU’s evolving posture may represent a strategic recalibration—one that leverages economic influence to encourage de-escalation while remaining anchored in international law and human rights norms. Whether this shift can yield tangible results remains to be seen, but it marks an important recognition: that intractable conflicts may require not just moral outrage or political pressure, but a strategic application of economic power.

Lize de Kruijf is a project assistant at the Atlantic Council’s Economic Statecraft Initiative.

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Governments and private actors alike are giving gold’s role in the global financial system a boost, but with a twenty-first-century twist. Individual countries and groups of countries are experimenting with creating gold-backed digital assets and trading systems that bypass the dollar-denominated financial system. In many cases, these initiatives are for purely economic benefits. However, gold is also being used by US adversaries to evade sanctions or finance activities that counter US national security interests.

The rise of gold-backed currencies that circumvent the US banking system, coupled with sanctioned regimes’ growing interest in the adoption of alternative currencies and payment systems, could create a massive blind spot for US financial intelligence and sanctions enforcement efforts. To reduce the proliferation of these alternatives to the dollar-based financial system, the United States should temper its use of coercive economic measures that can cause gold prices to rise and promote dollarization through trade and investment ties, especially with third countries impacted by sanctions on US adversaries.

Why Russia is interested in gold

Russia’s central bank is among the top holders of gold in the world, having built gold reserves from 2014 to 2020 to hedge against Western sanctions. While the central bank’s gold reserves have not increased substantially since 2020, Russia’s Ministry of Finance is thought to be buying gold from domestic producers without reporting it. In 2021, the Ministry of Finance doubled the share of gold in Russia’s National Wealth Fund to 40 percent. 

After the West froze $300 billion of the Russian central bank’s assets in response to Moscow’s full-scale invasion of Ukraine in 2022, this gold-hoarding strategy paid off. As gold prices skyrocketed this year, the value of Russia’s gold reserves increased by $96 billion, offsetting one-third of the frozen assets.

Gold has also played a major role in Russia’s illicit trade. For example, the United Arab Emirates (UAE), a BRICS+ member and a global hub for gold trade, as well as Turkey, have engaged in cash-for-gold trade with Russian banks. The Russia-based Lanta Bank and Vitabank received twenty-one shipments of currencies such as US dollars, euros, UAE dirhams, and Chinese renminbi worth $82 million from the UAE and Turkey in exchange for Russian gold. Late last year, the United States and United Kingdom sanctioned the network of entities and individuals involved in Russia’s illicit gold trade due to their role in generating revenue for Russia’s war chest. Additionally, Britain’s National Crime Agency published a red alert in late 2023 on gold-based illicit trade and sanctions circumvention. 

Apart from using gold for reserves and sanctions evasion, Russia is also trying to leverage the BRICS+ grouping as a platform to advocate for the creation of a gold-backed BRICS+ currency. It remains to be seen if the group makes any tangible progress ahead of the next BRICS+ Summit in Brazil in early July. In the meantime, tracking the rise of gold-backed currencies and alternative payment systems across the world offers valuable insights into how they could be used for sanctions evasion. 

The rise of gold-backed stablecoins

Gold-backed stablecoins—cryptocurrencies whose prices are pegged to gold—offer the most valuable property of gold, which is stability during financial uncertainty. They are also logistically more convenient to store and sell than physical gold. Companies such as Paxos* and Tether capitalized on these qualities, creating gold-backed stablecoins in 2019 and 2020, respectively. 

Usually, each token of gold-backed stablecoin corresponds to a specific amount of gold. For example, by purchasing one unit of Tether Gold (XAUT), investors receive the ownership rights of one troy ounce of physical gold on a specific gold bar with a serial number. Each gold bar weighs four hundred ounces on average, so if investors would like to redeem a gold bar, they have to own units worth one full gold bar. Issuers of these stablecoins hold gold reserves in safe vaults, typically in the United Kingdom or Switzerland. Third parties regularly audit gold reserves to confirm that the supply of tokens does not exceed the amount of gold held by issuers.

Although commodity-backed stablecoins represent less than one percent of the market capitalization of fiat-backed stablecoins, governments are now following the lead of crypto companies in experimenting with them. Earlier this month, for example, the Kyrgyz Ministry of Finance announced that it will launch a gold-backed stablecoin called USDKG in the third quarter of 2025. The Kyrgyz Ministry of Finance holds gold reserves worth $500 million and plans to expand that number up to $2 billion. (This is separate from the gold reserves held by the National Bank of the Kyrgyz Republic, which was among the top buyers of gold in the last quarter of 2024.) USDKG will not track the price of gold, unlike well-established stablecoins such as Paxos Gold or Tether Gold. Instead, it will be pegged to the dollar but solely backed by gold reserves. USDKG holders will be able to redeem gold, other crypto assets, or fiat currency. 

The reported objective of the gold-backed stablecoin is to facilitate cross-border inflows of remittances, which make up one-third of Kyrgyzstan’s gross domestic product. Russia accounts for more than 90 percent of remittances that flow into Kyrgyzstan, sent by migrant workers back to their families. Kyrgyzstan has not yet launched the stablecoin, but if it’s going to be used to facilitate cross-border flows with Russia, then there is a chance that certain actors could use USDKG to export sanctioned goods to Russia outside of US authorities’ oversight. Financial institutions in Kyrgyzstan have already been sanctioned for their involvement in Russia sanctions evasion schemes by the United States. 

For example, earlier this year, the Treasury Department sanctioned Kyrgyzstan-based Keremet Bank for facilitating transactions on behalf of US-sanctioned Russian bank Promsvyazbank. The Kyrgyz Ministry of Finance sold the controlling shares of Keremet Bank to a firm connected to a Kremlin-linked Russian oligarch in 2024. According to the Treasury press release, the transaction was intended to turn Keremet Bank into a sanctions evasion hub that would enable Russia to receive payments for exports and pay for imports. Given sanctioned Russians’ strong interest in taking advantage of Kyrgyzstan’s financial system to import restricted technologies, they will likely be drawn to USDKG because of its ability to process transactions with Kyrgyz entities while completely bypassing the US banking system. 

How the US can stem the digital gold rush

It is no coincidence that stablecoins account for 63 percent of all illicit crypto transactions and have become a preferred tool for sanctions evasion. They attract sanctioned entities because of their ability to transfer value pseudonymously with high speed and at low cost. While the US Senate recently advanced the GENIUS Act to regulate stablecoins, one of the major deficiencies of the bill is that it does not adequately regulate offshore stablecoin issuers. Even if put into law, the GENIUS Act would fail, for example, to regulate Tether, the largest offshore issuer of dollar-pegged stablecoins, which has been the subject of federal investigations because of its alleged widespread use by terrorist groups and Russian arms dealers. 

Unlike US-issued or dollar-backed stablecoins, foreign-issued gold-backed stablecoins such as USDKG will likely escape US regulation because they don’t have a touchpoint with the US banking system. Their proliferation, along with gold-backed trading schemes, is driven to a large extent by the United States’ weaponization of the dollar, as well as uncertainty over US trade policy. 

The United States has the power to indirectly reduce gold prices and encourage the adoption of dollar-backed assets by returning to being the provider of stability in the global economy. That can be achieved by dialing down the use of tariffs and other economic measures that could cause governments and private actors to turn to gold.

At the same time, the US government should promote the dollarization of economies such as Kyrgyzstan’s by continuing to provide financial assistance and deepening trade and investment ties with other third countries impacted by sanctions against Russia. Doing so will help close gaps in US financial intelligence, strengthen US sanctions enforcement, and lower the demand for currencies outside the dollar-based financial system.

Kimberly Donovan is the director of the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. She is a former senior Treasury official and National Security Council director. Follow her at @KDonovan_AC.

Maia Nikoladze is an associate director at the Atlantic Council’s Economic Statecraft Initiative within the GeoEconomics Center. 

Note: Paxos is a partner of the Atlantic Council’s GeoEconomics Center.

The post Gold’s geopolitical comeback: How physical and digital gold can be used to evade US sanctions appeared first on Atlantic Council.

By leveraging its existing strengths, the 3SI can accelerate the development and cross-border deployment of advanced security and defense technologies to help protect critical infrastructure. This would significantly bolster regional resilience and help deter threats operating in the “gray zone” between civilian and military domains. With shared threat perceptions and strategic alignment, 3SI member states—supported by key partners such as the United States, Germany, the European Commission, Japan, and Ukraine—are uniquely positioned to confront these challenges.

The best way for the 3SI to proceed is by creating a 3SI Defense Innovation Hub that cuts across the three existing pillars of energy, transport, and digital. Devoted to developing cutting-edge technologies for critical infrastructure protection, the 3SI Defense Innovation Hub would contribute to the much-needed paradigm shift in the overall approach to connectivity projects. It would do this by incorporating tools and processes for protection from the very outset of infrastructure planning. 

Moreover, the 3SI Defense Innovation Hub could evolve into a key specialized critical infrastructure protection node within a broader allied defense innovation ecosystem, spanning from North America to Europe to the Indo-Pacific. In doing so, it could help serve as a strategic counterweight to the deepening defense-industrial cooperation and hybrid warfare efforts of Russia, China, North Korea, and Iran.

A region under attack

Across the 3SI region, Russia-backed saboteurs have increasingly targeted energy infrastructure as part of hybrid campaigns aimed at undermining societal resilience and inflicting economic harm. Undersea pipelines and power cables in the Baltic Sea have suffered clandestine cuts and physical damage, prompting NATO and littoral states to launch dedicated missions to safeguard these vital links.

On land, arson attacks and hoax bomb threats, including waves of coordinated false alarms at Lithuanian schools, airports, and governmental institutions, have become widespread phenomena. While delivering no physical destruction, these false alarms incidents have strained security services and revealed gaps in crisis-response protocols.

In the transport domain, rail lines across the 3SI region and in Germany have been subject to sabotage attempts aimed at fracturing strategic north–south corridors. In addition, GPS jamming—likely from Russian electronic-warfare units in Kaliningrad—has repeatedly degraded navigation for commercial shipping and civilian flights in the Baltic Sea region. This jamming has forced in-flight diversions and resulted in aborted landings. Potentially more destructive planned attacks have thankfully been detected before being carried out. Earlier this month, for example, three men were arrested in an alleged Russia-linked plot to place parcels with explosives on cargo planes traveling from Europe to the United States and Canada.

The digital battlefield in 3SI countries has become equally contested. For example, cyberattacks have targeted governmental institutions in the Czech Republic, Germany, and Latvia, as well as energy-sector operators in Romania, exploiting unpatched systems to plant malware or launch distributed denial-of-service attacks. Chinese cargo and Russian “shadow fleet” vessels maneuvering in the Baltic Sea are suspected of cutting undersea data cables, as well, posing a threat to digital connectivity in the region.

Collectively, these hybrid threats expose the vulnerability of siloed infrastructure sectors and underscore the urgent need for the 3SI to integrate defense-grade innovations into its energy, transport, and digital development agenda.

Incorporating defense from the start

Critical civilian infrastructure in the energy, transport, and digital domains no longer exists in isolation from the military domain—the domains have merged into a single battlefield of resilience and readiness. Power grids and pipelines, once engineered solely for economic efficiency, must now be designed with embedded defensive features. This includes hardened control systems, automated isolation protocols, and redundant interconnects that can withstand kinetic strikes, physical impact, or cyber-enabled sabotage. 

Likewise, north–south transport corridors can no longer be planned as purely commercial arteries: They must accommodate the rapid deployment of heavy armor, pre-positioned logistics modules, and secure communications nodes, all while deterring adversarial probes or hybrid ambushes.

This is the area in which the 3SI has already recognized its role, as evident in its 2024 Joint Declaration, which reaffirms the need to strengthen “the resilience of dual-use infrastructure in the region for enhanced civilian and military mobility along the North-South axis.” However, if established, the proposed 3SI Defense Innovation Hub should go further and offer solutions not only for upgrading new transport infrastructure for a dual civil-military use, but also for effectively protecting it from physical and cyber sabotage.

True resilience requires that innovation for the protection of critical infrastructure be integral to the earliest design and development phases of the 3SI’s infrastructure. An alternative, retrofitting “defense layers” onto critical infrastructure systems after their construction has been finalized, often creates significant security gaps and increases costs. It’s better to incorporate these aspects from the start.

The bigger picture

The 3SI’s broad partnership network—anchored by the United States, Germany, the European Commission, Japan, and enriched by Ukraine—provides an unparalleled foundation for extending its remit into defense innovation and contributing to the broader goal of transatlantic defense-industrial alignment.

With Russia’s war against Ukraine transforming the way war is fought and placing constant pressure on Ukraine’s critical energy infrastructure, Europe must adapt its technologies and defense strategies to prepare to confront similar challenges. Learning from Ukraine, which, under constant attack, has become a real-time innovation lab for unmanned systems, energy resilience solutions, and rapid infrastructure repairs, is essential.

With Chinese coercion and sabotage around Taiwan posing similar threats to regional stability, it is clear that a broader adversarial strategy is at play. As the European and Indo-Pacific theaters become increasingly interconnected due to similar security challenges, it will be necessary for European countries, the United States, and democratic nations in the Indo-Pacific to align their responses. 

In the meantime, the United States and the EU are searching for common ground in aligning their defense industries. However, tensions have persisted, particularly around new EU funding mechanisms, which are often perceived in Washington as favoring domestic European firms at the expense of transatlantic cooperation.

This is where the 3SI can play a pivotal role. By launching a Defense Innovation Hub focused on critical infrastructure protection, the 3SI could serve as a catalyst for deeper transatlantic defense-industrial alignment. Such a hub would help bridge regulatory, political, and operational gaps, offering a constructive step forward in building a truly interoperable, forward-leaning allied defense ecosystem in a common effort to outpace and out-innovate authoritarian challengers.

The way forward

The upcoming Croatian presidency of the 3SI in 2026—marking the tenth anniversary of the initiative’s inaugural summit in Dubrovnik—offers a timely opportunity to expand the initiative’s mission to include defense innovation. 

Building on its success in infrastructure development, the 3SI should replicate its network-based model in the defense sector—pooling risk and capital among governments, private industry, and financial institutions. This would unlock dual-use innovation pipelines that are often too complex or costly for individual actors to pursue alone. The recently launched 3SI Innovation Fund offers a promising starting point for exploring sustainable financing mechanisms to support the activities of a potential 3SI Defense Innovation Hub.

As the geopolitical landscape grows more contested, the 3SI should evolve from a connectivity-focused platform into a strategic driver of allied resilience. A dedicated Defense Innovation Hub would make the 3SI a force multiplier for NATO and EU efforts—accelerating deterrence, deepening regional interoperability, and embedding security into the DNA of the eastern flank’s critical infrastructure while at the same time providing a much-needed push for a transatlantic defense-industrial alignment.

Justina Budginaite-Froehly is a nonresident senior fellow with the Atlantic Council’s Europe Center and Transatlantic Security Initiative within the Scowcroft Center for Strategy and Security.

The post The case for a Three Seas Defense Innovation Hub appeared first on Atlantic Council.

Click to jump to an expert analysis:

Kimberly Donovan: Sanctions are a powerful, yet slow-burning tool 

Rachel Rizzo: Europe is no longer waiting for the United States to act

Elisabeth Braw: Spotlight who is replenishing Russia’s shadow fleet, too

Aleksander Cwalina: There is still more the EU can do to tighten the screws to Russia

Olga Khakova: If Trump also goes after the shadow fleet, it could bring Putin to the table

Sanctions are a powerful, yet slow-burning tool 

The EU’s seventeenth package is a welcome addition to the extensive sanctions the Group of Seven-plus (G7+) coalition maintain on Russia in response to Russia’s ongoing war in Ukraine. The latest package further brings EU sanctions in line with US and UK designations on Russian oil producers including Surgutneftegas, as well as the ongoing strategy to target Russia’s illicit oil trade using shadow fleet vessels.  

The extent and timing of this latest sanctions package demonstrate Europe’s resolve to maintain economic pressure on Russia, and they are a clear signal that Europe maintains strong economic leverage in potential negotiations with Russia to end the war.  

It’s hard not to notice that the sanctions were announced the day after US President Donald Trump spoke with Russian President Vladimir Putin and posted on social media that “Russia wants to do largescale TRADE with the United States when this catastrophic ‘bloodbath’ is over, and I agree.” There is growing concern about a potential divergence in US and EU foreign policy, and the latest EU package is a strong reminder that EU sanctions could remain in place even if Washington decides to ease its sanctions or open avenues for trade and finance with Moscow. 

That said, EU sanctions require renewal every six months and need consensus by all twenty-seven members. If the United States does not maintain economic pressure on Russia, then there is concern that Hungary may break with the bloc and veto EU sanctions on Russia’s economy when they are up for renewal in July. 

Sanctions are a powerful, yet slow-burning tool. The multilateral sanctions that G7+ coalition partners levied against Russia are finally having the intended effect. Russia’s economy is struggling, interest rates and inflation remain high, Russia is drawing down on its National Welfare Fund, and the country is in a wartime economy. This is why Moscow’s primary demand from the Black Sea cease-fire talks was lifting sanctions.  

To get a better and bigger deal with Russia over the war in Ukraine, it would be in Washington’s best interest to not only engage its European allies in negotiations, but also to join them in issuing additional sanctions to deny Moscow the opportunity to gain leverage at the negotiation table. 

—Kimberly Donovan is the director of the Economic Statecraft Initiative at the Atlantic Council’s GeoEconomics Center. She previously served in the federal government for fifteen years, most recently as the acting associate director of the Treasury Department Financial Crimes Enforcement Network’s Intelligence Division.

Europe is no longer waiting for the United States to act

The latest round of EU sanctions against Russia highlights the EU’s willingness to do something it hasn’t yet done since February 2022: take ownership over the outcome of Russia’s war in Ukraine. The United States has always been in the driver’s seat, with the Biden administration both shaping and leading the West’s response to the war. The re-election of Trump brought an almost 180-degree shift in the US approach, with a much more conciliatory tone toward Russia emanating from the White House, along with a hope that Trump’s dealmaking skills could get both sides to the table for a cease-fire. That approach has yet to bear fruit.  

This is where the EU’s pressure becomes important. It highlights the bloc’s willingness to act independently of the United States and use its own tools to get Russia to the table without waiting for the United States to provide political cover. With European Commission President Ursula von der Leyen leading the charge, the hope is that the EU stays united on the sanctions front for the foreseeable future, squeezing Russia’s war machine (and its broader economy) to the point where Putin has no other choice than to stop the war. 

—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.

Spotlight who is replenishing Russia’s shadow fleet, too

Every sanction helps reduce the shadow fleet’s activities, and the EU’s diligent efforts to identify shadow vessels are to be saluted. The EU should be especially proud of its latest package, which includes sanctions against an extraordinary 189 shadow vessels and some of the ships’ owners. The latter is especially important, since the owners do their best to operate in the shadows and are extremely hard to trace. 

However, the shadow fleet’s main characteristic remains in place: the fact that it can be constantly replenished. It can be replenished because there are ship owners willing to sell their retirement-age ships into the shadow fleet. In fact, doing so is commercially advantageous for them: Retiring old vessels involves paying for them to be scrapped, while selling them into the shadow fleet brings in money—a lot of it.  

Unfortunately, a few shipowners, including in Western countries, undermine sanctions against Russia by selling their ships into the shadow fleet. Perhaps even worse, by doing so, they willingly create risks on the high seas, because shadow vessels pose hazards to other vessels, to the maritime environment, and to coastal states. Publishing their names would send a strong message. 

—Elisabeth Braw is a senior fellow with the Atlantic Council’s Transatlantic Security Initiative in the Scowcroft Center for Strategy and Security.

There is still more the EU can do to tighten the screws to Russia

On the sidelines of the G7 finance ministers’ meetings in Banff, Canada, this week, the United States opposed language in a joint statement that included “further support” for Ukraine. The United States also expressed reluctance to describe the Russian full-scale invasion of the country as “illegal,” further distancing Washington from its G7 counterparts. This follows a concerning trend as Trump has talked about Washington stepping back in peace talks and eventually restarting US trade with Russia. 

In contrast, the European Commission pushed forward and adopted its seventeenth sanctions package against Russia, underlining European Union unity and clarity. The package closed some remaining loopholes that allow Russia to fund its war machine and access key Western technology for military use. In doing so, it reiterated EU solidarity with Ukraine. 

The package was received well in Kyiv, with Ukrainian President Volodymyr Zelenskyy calling the newest round of sanctions “strong” and saying that they will limit Moscow’s ability to continue its invasion.  

However, more can be done to tighten the screws on Russia.  

Kyiv and its European allies are already discussing how to raise the stakes in a harsher eighteenth EU sanctions package if Moscow does not make serious efforts toward a cease-fire. This would most likely target the Russian banking and energy sectors and aim to further limit the Russian shadow fleet that Moscow uses to evade maritime trade restrictions. The EU and its partners should continue to target these industries. The bloc should also seriously consider seizing assets from sanctioned individuals in the EU for Ukraine and implementing secondary sanctions that limit third-party purchasing of Russian oil—both steps recommended by Kyiv. 

As European leaders are becoming increasingly frustrated with Washington’s stalling and Putin’s faux negotiations and maximalist demands, the EU should lead by example and take bold steps to continue aiding Ukraine and putting pressure on Russia. 

—Aleksander Cwalina is an assistant director at the Atlantic Council’s Eurasia Center.

If Trump also goes after the shadow fleet, it could bring Putin to the table

Putin’s strategy of buying time with deceitful “peace” promises is shown to be failing in the face of the new EU and UK sanctions, as funding for Moscow’s war starts to run out. 

The shadow fleet carries more than 60 percent of Russian oil exports, according to a recent estimate, and the new sanctions will help strengthen enforcement of the price-caps mechanism on Russian oil. Currently, there are some discussions at the G7 level on lowering the price cap for the next sanctions package. But lowering the price cap will only impact Russia if it is enforced. Otherwise, Russia will continue to send large quantities of its oil through the shadow fleet, ensuring it continues to rake in profits.  

In addition to curtailing Russia’s oil profits, the shadow fleet sanctions protect European coastlines from the potential environmental damage and sabotage that the Russian shadow fleet could cause. Europe is achieving this by refusing the provision of services, insurance, and port access to these metal-scrap grade ships. 

The United States has already sanctioned 183 vessels. Now, Trump has an opportunity to forge his legacy as a peacemaker by joining the EU and UK sanctions on 342 vessels to bring Putin to the negotiating table. Moscow will only take US pressure seriously if it is implemented with decisiveness and strength—something the Trump administration has demonstrated effectively in tough negotiations with other nations.   

—Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center.

The post Europe is striking back at Russia’s shadow fleet. Here’s what to know about the latest EU and UK sanctions. appeared first on Atlantic Council.

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The European Union (EU) Growth Plan for the Western Balkans aims to integrate the region into the EU single market, enhance regional cooperation, implement significant governance and rule of law reforms, and boost EU financial support. In doing so, the EU seeks to foster economic development, political stability, and security in the region amid rising geopolitical tensions, while accelerating the Western Balkans’ EU accession process.

The Growth Plan holds substantial potential to reinvigorate the enlargement process and counter the stagnation felt by both the EU and the region. Strong points include:

• Tangible benefits before full accession: Providing stronger incentives for reform.
• Active involvement of regional governments: Increasing buy-in from local leaders, who must submit their own reform agendas.
• Enhanced economic integration, greater access to the EU market, increased EU funding, and reforms to governance and the rule of law: Stimulating investment, promoting economic growth, and raising living standards.

These improvements would bring the Western Balkans closer to the economic success seen in the Central and Eastern European countries in the EU over the past two decades. Moreover, fostering deeper regional cooperation will not only deliver an economic boost but also contribute to political normalization. If successful, the plan will bolster the EU’s political influence in the region, countering the impact of external actors and encouraging much-needed nearshoring investment from EU firms.

However, the plan faces several challenges:

• Enforceability: Although conditionality is rigorous, with disbursement of funds tied to strict conditions to prevent misuse, there are concerns regarding its enforceability. The European Court of Auditors has already raised reservations.
• Quantity: Additionally, the financial support offered is significantly lower than what EU member states in Southeast Europe receive. The reforms required for fund access and single market integration are substantial and will demand significant political will and institutional capacity—both of which have been lacking in the region at times over the past two decades.

The success of the growth plan will largely depend on its implementation. The EU must ensure rigorous enforcement of conditionality, reward positive reform steps, and increase funding for countries making progress. Civil society in the Western Balkans should be engaged as much as possible to foster broader support and transparency. The EU should also leverage the plan to align with its broader geopolitical and geoeconomic interests, particularly in strengthening its strategic autonomy. Additionally, the Growth Plan should be fully integrated with the EU’s competitiveness, green, and digital transition agendas. For their part, Western Balkans leaders should seize the increased agency provided by the plan. They must take ownership of the reforms they propose, participate actively in EU meetings, and design their reform agendas to deliver better living standards and deeper EU integration for their populations.

Fellow

Valbona Zeneli

Nonresident Senior Fellow

Europe Center Scowcroft Center for Strategy and Security

Albanian Corruption

Dimitar Bechev
Nonresident Senior Fellow, Europe Center, Atlantic Council
Senior Fellow, Carnegie Europe

Isabelle Ioannides
Nonresident Senior Research Fellow
Hellenic Foundation for Foreign and European Policy (ELIAMEP)

Richard Grieveson
Deputy Director
Vienna Institute for International Economic Studies

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Five experts from the region map out a reform agenda for North Macedonia’s newly elected government to pursue greater democratic progress and eventual European integration.

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Report exploring the path forward for Kosovo’s integration into transatlantic institutions and the geopolitical and economic challenges and opportunities facing the country.

Economy & Business Energy & Environment

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

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The post The European Union Growth Plan for the Western Balkans: A reality test for EU enlargement appeared first on Atlantic Council.

The agreement was widely welcomed in Kyiv. Ukraine’s Minister of Economy and First Deputy Prime Minister Yulia Svyrydenko called the deal “the foundation of a new model of interaction with a key strategic partner,” and noted that the Reconstruction Investment Fund within the framework of the agreement would be operational within a matter of weeks. “Its success will depend on the level of US engagement,” she emphasized.

This deal isn’t just about mining and investment. It is a new kind of partnership that combines economic cooperation with security interests. US Treasury Secretary Scott Bessent, who played a key role in negotiating the terms of the agreement, said the minerals deal was a signal to Americans that the United States could “be partners in the success of the Ukrainian people.” Others have stressed that the partnership will allow the US to recoup the billions spent supporting Ukraine in the war against Russia. However, the deal isn’t primarily about reimbursement. It is a declaration of a strategic alliance rooted in mutual economic interest.

The new agreement between Kyiv and Washington differs greatly from classic concession deals as Ukraine retains full ownership of national natural resources while the Reconstruction Investment Fund will be under joint management. Unlike more traditional trade deals or resource acquisitions, this is a strategic agreement that combines commercial objectives with geopolitical interests, making it a textbook example of economic statecraft. By establishing military aid as a form of capital investment, the United States is securing a long-term stake in Ukraine’s security and the management of the country’s resources.

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.

The minerals deal with Ukraine offers a number of obvious potential advantages for the United States. Crucially, it ensures preferential access to rare and highly valued natural resources like lithium and titanium, thereby reducing dependency on China. This is a strategic win for Washington with the possibility of significant long-term geopolitical implications. The deal also creates a framework for further US military aid to be treated as an investment via the Reconstruction Investment Fund, providing opportunities for the United States to benefit economically from continued support for Ukraine.

By signing a long-term resource-sharing agreement, the United States is also sending an important signal to Moscow about its commitment to Ukraine. Any US investments in line with the minerals deal will involve a significant American financial and physical presence in Ukraine, including in areas that are close to the current front lines of the war. Advocates of the deal believe this could help deter further Russian aggression. Kremlin officials are also doubtless aware that around forty percent of Ukraine’s critical mineral reserves are located in regions currently under Russian occupation.

Eurasia Center events

Online Event Tue, June 17, 2025 • 1:00 pm ET

Drones, defense, and diplomacy: Negotiations and the battlefield in Ukraine

Conflict Defense Technologies Europe & Eurasia Politics & Diplomacy

There are fears that the mineral deal makes Ukraine too dependent on the United States and leaves the country unable to manage its own resources independently. Some critics have even argued that it is a form of dependency theory in action, with Ukraine’s mineral wealth set to primarily fuel the needs of US industry rather than building up the country’s domestic economy. However, advocates argue that Ukraine was able to negotiate favorable terms that create a credible partnership, while also potentially securing valuable geopolitical benefits.

The agreement provides the US with a form of priority access but not exclusivity. Specifically, the US is granted the right to be informed about investment opportunities in critical minerals and to negotiate purchase rights under market conditions. However, the framework of the agreement explicitly respects Ukraine’s commitments to the EU, ensuring that European companies can still compete for resource access.

In terms of implementation, it is important to keep practical challenges in mind. The identification, mining, and processing of mineral resources is not a short-term business with immediate payoffs. On the contrary, it could take between one and two decades to fully develop many of Ukraine’s most potentially profitable mines. Without a sustainable peace, it will be very difficult to secure the investment necessary to access Ukraine’s resources. Without investment, the Reconstruction Investment Fund risks becoming an empty gesture rather than an economic powerhouse.

The minerals deal has the potential to shift the dynamics of the war while shaping the US-Ukrainian relationship for years to come. The United States is not only investing in resources, it is also investing in influence. Viewed from Washington, the agreement is less about producing quick payoffs and more about allowing President Trump to make a statement to US citizens and to the Russians. For Ukraine, the minerals deal provides a boost to bilateral relations and creates opportunities for a new economic partnership. America’s strategic rivals will be watching closely to see how this partnership now develops.

Svitlana Kovalchuk is Executive Director at Yalta European Strategy (YES).

Further reading

UkraineAlert May 6, 2025

The shadow of 1930s appeasement hangs over US-led peace talks

By Oleksandr Merezhko

As the world prepares to mark the eightieth anniversary of the victory over Nazi Germany, the shadow of events leading up to World War II hangs over efforts to end Russia’s current invasion of Ukraine, writes Oleksandr Merezhko.

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Drone superpower: Ukrainian wartime innovation offers lessons for NATO

By David Kirichenko

Today’s Ukraine is now a drone superpower with an innovative domestic defense industry that can provide its NATO allies with important lessons in the realities of twenty-first century warfare, writes David Kirichenko.

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By Peter Dickinson

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France Germany

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 US-Ukraine minerals deal creates potential for economic and security benefits appeared first on Atlantic Council.

Since the onset of Russia’s full-scale invasion in February 2022, hundreds of companies have sprung up in Ukraine producing defense tech equipment for the country’s war effort. Growth has been largely driven by private initiatives led by civilians with no prior experience in the defense industry. This has led to a startup culture that does not require much investment capital, with most of the products developed since 2022 based on existing open source software and hardware platforms. Data leaks are a significant issue, as the vast majority of the people involved in this improvised defense sector have not undergone the kind of security checks typical of the defense industry elsewhere.

While there is currently no end in sight to the Russian invasion of Ukraine, it is already apparent that in the postwar period, the large number of Ukrainian defense sector companies that have appeared since 2022 will face a significant drop in demand. Indeed, even in today’s wartime conditions, many companies are already lobbying for the relaxation of export restrictions while arguing that the Ukrainian state is unable to place sufficient orders.

If these companies are forced to close, skilled professionals will seek employment abroad. This could lead to the leakage of knowledge and technologies. Meanwhile, with NATO countries likely to be focused on their own defense industries and strategic priorities, it is reasonable to assume that many Ukrainian defense sector companies will concentrate on exporting to more volatile regions. The potentially destabilizing impact of these trends is obvious. It is therefore vital to adopt effective measures to limit the spread of Ukrainian defense sector technologies, data, and finished products along with skilled developers, engineers, and operators to potential conflict zones around the world.

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.

Ukraine’s defense sector innovations fall into two categories. The first includes innovations that are easily replicated using readily available technologies. The second category features more complex systems requiring skilled professionals. It makes little sense to focus regulatory efforts on the first category. Instead, preventing proliferation is more effectively managed through intelligence operations and security measures. Preventative efforts should focus on those innovations that are more complex in both development and deployment.

Efforts to prevent Ukrainian defense technologies from fueling conflicts around the world will depend to a significant degree on enforcement. While Ukraine has made some progress in combating corruption over the past decade, this remains a major issue, particularly in the country’s dramatically expanded defense sector. A successful approach to limiting the spread of Ukrainian defense tech know-how should therefore incorporate a combination of positive and negative incentives.

Positive incentives can include opening up NATO markets to Ukrainian companies and supporting their efforts to comply with NATO standards. This would likely encourage a broader culture of compliance throughout the Ukrainian defense tech sector as companies sought to access the world’s most lucrative client base.

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Online Event Tue, June 17, 2025 • 1:00 pm ET

Drones, defense, and diplomacy: Negotiations and the battlefield in Ukraine

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Creating the conditions for the acquisition of Ukrainian companies by major international defense industry players could help to encourage a responsible corporate culture among Ukrainian companies while bolstering the country’s position globally. Likewise, enhanced access to funding and a simplified route to work visas and citizenship in the EU and US would help attract and retain talent. This would further strengthen Ukraine’s defense sector and encourage corporate compliance.

Professional organizations also have a potential role to play. Promoting the development of robust industry and professional associations for Ukrainians in the defense sector would encourage collaboration, knowledge sharing, and the establishment of industry standards, which could further propel innovation and growth within Ukraine’s defense industry, while creating a climate more conducive to regulation. Regulatory measures could include enhanced access to Western defense markets, with strict penalties for non-compliance.

Targeted export controls are another important measure. By establishing robust controls over critical components such as processors and specialized equipment, Ukraine can limit the availability of these technologies in regions with high conflict potential. Enhanced monitoring mechanisms should be implemented to track the transfer of technologies and the movement of skilled personnel. International cooperation is also crucial. Ukraine should look to work closely with global partners to synchronize regulatory standards and enforcement strategies, thereby reducing the challenges presented by regions with weak legal mechanisms.

Ukraine is now recognized internationally as a leading defense tech innovator in areas including AI solutions, cyber security, and drone warfare. There is huge global appetite for such technologies, but unregulated distribution could have disastrous consequences for international security. By combining enforceable regulatory measures with strategic incentives, it is possible to reduce the risks associated with the spread of Ukraine’s wartime innovations, while simultaneously maintaining an environment that supports ongoing innovation and growth in a controlled and secure manner.

Vitaliy Goncharuk is a US-based tech entrepreneur with Ukrainian roots who previously served as Chairman of the Artificial Intelligence Committee of Ukraine from 2019 to 2022.

Further reading

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Conflict European Union

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President Trump has made a legitimate effort to broker a generous peace, but the time has now come to acknowledge that Putin is not negotiating in good faith and will only respond to the language of strength, writes Peter Dickinson.

France Germany

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 How to prevent Ukraine’s booming defense sector from fueling global insecurity appeared first on Atlantic Council.

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This Atlantic Council Strategy Paper explores the relationship between the status of the United States as a geopolitical superpower and the role of the US dollar as the world’s dominant currency. It examines how these two facets of US power have reinforced each other and how a decline in either of them could trigger a downward cycle in US influence around the world. The report discusses options for how the United States could counteract such trends, relying on its traditional strengths and strategic alliances.

How to keep the dollar at the center of global trade

Over the past eight decades, the status of the United States as an economic and geopolitical superpower and the role of the US dollar as the world’s dominant currency have reinforced each other. As a synonym for the dollar’s preeminent role in international currency transactions and foreign reserve holdings, dollar dominance has long been associated with the United States’ exorbitant privilege to finance large fiscal and current account deficits at low interest rates. This has helped the United States run a large defense budget and conduct extensive military operations abroad. In turn, the United States has used its military capabilities to support the free flow of goods and capital across the globe, boosting global growth while providing investors with confidence that investments in US financial instruments are secure. This virtuous cycle contributed to the long-lasting stability of the post-World War II international order, leading to a sustained rise in economic welfare in the United States and around the world.

As the size of the US economy relative to the rest of the world continues to shrink, this dynamic may begin to be turned on its head.¹ Maintaining a global military presence would be harder to finance in the future if the US dollar were to lose its dominant reserve position, reversing the virtuous cycle and precipitating a US loss in global influence. This is one of the reasons why strategic competitors, such as China and Russia, currently work toward a “dedollarization” of their economic relations and global financial flows more broadly. Although last year’s BRICS summit failed to make progress on an alternative financial order, China and Russia are set on undermining the leading role of the dollar, limiting the United States’ ability to impose sanctions, and making it more costly to service its debt and finance a large defense budget.²

There is currently no other currency (or arrangement of currencies) that could challenge the US dollar’s preeminence, however. Even a smaller role of the dollar in global trade transactions would not immediately challenge its reserve currency status, given the lack of investment alternatives in other currencies at a scale comparable to US markets. The dollar has also benefited from strong global network effects that would be difficult to replace (that is, the costs for any country to divest into other currencies remain prohibitively high unless other countries do the same). Nevertheless, the tariff measures recently announced by the Trump administration could lead to a decline in the global use of the dollar, especially if they were accompanied by a decline of trust in the United States as a safe and liquid destination for global financial assets. Similarly, a proposal by the current chair of the Council of Economic Advisers to use tariffs as leverage for negotiating favorable exchange rate parities with US trade partners and to restructure their US Treasury holdings into one-hundred-year bonds—a so-called Mar-a-Lago Accord—would deliberately weaken the dollar to support domestic manufacturing. This could further erode the currency’s global dominance. Both scenarios would involve high costs to the world economy, including for the United States. More fragmented markets and higher financial volatility would be associated with income losses and higher inflation. Facing higher borrowing costs, the United States would be forced to make difficult spending decisions between its military budget, social welfare programs, and other priorities. Its global leadership role would decline, allowing strategic antagonists to benefit from any vacuum that a smaller US role would leave behind.

It is therefore vital to US national security that the dollar retain its role at the center of global trade and financial networks. This paper proposes ways for the United States to maintain the attractiveness of dollar-denominated assets for foreign investors, arguing for a speedy resolution of tariff disputes that have a strong potential to weaken its global standing. It underscores the need to compensate for a relative decline in US economic and military capabilities with strong alliances, which would deny China and other autocratic states a strategic opportunity to weaken the United States’ influence on the world stage and the exorbitant privilege that the dollar’s role as the global reserve currency still confers.

Strategic context

For the past eighty years, the United States’ economic and geopolitical preeminence and the role of the US dollar as the world’s dominant currency have contributed to a vast increase in global trade and capital flows. The “exorbitant privilege” to finance large fiscal and current account deficits at low interest rates helped the United States maintain its large geopolitical footprint, which contributed to the stability of the environment fostering global commerce and investment. However, as the center of the world’s population and economic activity has been shifting toward Asia and Africa, the virtuous cycle supporting the US-led global architecture threatens to come to an end, giving way to greater economic and geopolitical volatility.

The exorbitant privilege

The US dollar’s rise as a global reserve currency dates back to about a century ago, when the British empire was in decline after World War I. The United States had become the world’s agricultural and manufacturing powerhouse, its largest trading nation, and a major source of foreign capital around the globe. It was natural for the dollar to also become one of the major currencies used for international transactions, and it eventually started to replace the pound as central banks began to hold larger shares of their reserves in dollars in the late 1920s. The transfer was backed by the economic dynamism of the world’s richest democracy and, after 1945, its might as a victorious military power.

In the early years after World War II, the dollar was the anchor for the Bretton Woods system of fixed exchange rates, established on a US promise to exchange dollars for gold at a fixed parity. It became increasingly clear, however, that the gold-based system was not adequate for a fast-growing global economy that underwent a gradual liberalization of capital flows. In the meantime, French government officials accused the United States of exploiting the status of the dollar to run up large fiscal deficits (driven by the costs of the Vietnam war), a phenomenon they dubbed the “exorbitant privilege.”³ However, when the United States under President Richard Nixon decided to take the dollar off its gold parity in 1971, this did not provoke a major flight away from the US dollar—on the contrary, the dollar itself had by then become the anchor for the global financial system.

Today, more than fifty years after the “Nixon shock,” the United States still benefits from the dollar’s leading role in the global economy, even as the relative size of the US economy has shrunk. Until recently, dollar payments accounted for 96 percent of trade in the Americas, 74 percent in the Asia-Pacific region, and 79 percent in the rest of the world outside Europe. About 60 percent of global official foreign reserves were held in dollars, and about 60 percent of international currency claims (primarily loans) and liabilities (deposits) were denominated in dollars. The United States was the world’s largest investment destination, with foreign direct investment (FDI) totaling $12.8 trillion. Inward FDI flows have increased five-fold in the last three decades with $311 billion in new investment in 2023 (see Figures 1 and 2).

Figure 1. Inflows of foreign direct investment (FDI) to the United States were the same in 2000 and in 2023 (in millions of dollars)

Figure 2. Stock of FDI in the United States has increased five-fold since 2000 (on a historical cost basis, in trillions of dollars)

In an era of floating exchange rates and liberalized capital markets, one should nevertheless be realistic about the benefits the dollar’s status as a reserve currency. It is true that the United States can borrow exclusively in its own currency; it also enjoys somewhat lower interest costs because other countries’ official reserves are being invested in US Treasury securities; and it generates seigniorage income from dollars being held abroad. But real interest rates among the advanced economies have moved broadly in tandem in recent years, and estimates for the interest savings on US treasury bonds due to the US dollar’s reserve currency status amounted to some 10 to 30 basis points at best. The exorbitant privilege therefore seems to lie mostly in the volume of debt the US government can borrow without incurring higher interest rates. One recent estimate, for example, suggests that the reserve currency status of the US dollar increases the sustainable level of US government debt by 22 percent.⁴

US deficit financing

The large size of the US economy and demand for US government securities have made US financial markets the deepest and most liquid markets in the world, with about $27.4 trillion in outstanding US government debt as of July 2024. This has been supported by strong institutions and a transparent regulatory environment, the absence of capital flow restrictions, and the wide range of services offered by the US financial industry, which all have attracted foreign capital into the United States. The importance of US debt markets was also evident during times of crisis when global shocks tended to trigger a “flight to safety” into US assets.

The market depth and safety of US dollar assets are features that traditionally distinguished the United States from other major economies that also have large financial markets and issue bonds primarily in their own currency, such as the euro area, Japan, or the United Kingdom. Moreover, these countries do not have their own means to guarantee their geopolitical security; they depend on alliances with the United States as the ultimate sovereign guarantor. This is in large part a function of US military strength and the US nuclear arsenal, backing up NATO’s credibility as a collective defense organization. Although these factors used to be rarely invoked as an explicit factor in investment decisions, investors’ trust in the ability of the United States to preserve its dynamic economy and honor its financial obligations even during times of conflict lies at the heart of the US dollar’s global dominance.

The strong preference of investors for US dollar assets allowed the United States to run permanent current account deficits in recent decades, driven both by government spending and the low saving preferences of its households. As a side effect, the United States has often functioned as a “locomotive” for the global economy, providing growth impulses for export-oriented economies such as China, Japan, or Germany, whose high saving rates and current account surpluses are the counterpart to US deficits. Moreover, for many years, differences in the composition of US financial assets (largely FDI and other equity) and liabilities (lower-yielding bonds) provided the United States with a positive foreign income balance despite the growing amount of net foreign liabilities.

Will the good times last?

Even before the current administration sought to reorient global trade patterns by imposing tariffs on allies and other trading partners alike, the question was whether and how long the United States would be able to hold on to the dollar’s dominant role. There were several developments that pointed to a more difficult future ahead, including demographics, geopolitics, and technological trends. Already at that time, however, it was clear that domestic policy choices would ultimately determine whether the United States would hit a limit in the willingness of foreign investors to finance its rising liabilities vis-à-vis the rest of the world.

First, while the US dollar is still the world’s leading reserve currency, its share in central banks’ reserve holdings has gradually fallen in recent years. The dollar’s share declined from around 70 percent in the 2000s to 60 percent in 2022, when it was followed by the euro (20 percent) and several currencies in the single digits, including the yen, pound, and Chinese renminbi. The renminbi has gained some market share as a reserve currency in recent years; yet China, with its closed capital account and politically uncertain investment climate, has not been able to significantly increase international use of its currency. Instead, most gains have been made by a range of smaller currencies, including the Australian and Canadian dollars, reflecting digital technologies that have facilitated bilateral transactions without involving the US dollar as a bridge currency. Smaller currencies may indeed continue to gain market share, but there could also be other shifts in the global reserve composition, depending on the further evolution and impact of US trade and sanctions policies. The rise in gold prices, for example, has been attributed to central banks increasing their holdings within their reserve portfolios.

Second, US net foreign liabilities have increased sharply since the global financial crisis, increasing to about 70 percent of gross domestic product (GDP) by 2023. To put this in perspective, only Greece, Ireland, and Portugal are larger net debtors among industrial and emerging economies, and US net liabilities are equal to 90 percent of the net assets of all creditor countries combined. Since current account deficits have generally been modest over the past decade, the decline owes to valuation changes stemming from the strong performance of US equity markets relative to international markets, increasing the wealth of foreign investors holding US stocks. To serve these net liabilities, foreigners implicitly expect US companies to remain highly profitable and the United States therefore to run larger trade surpluses going forward. With the dollar gradually appreciating in recent years, it remains to be seen whether these expectations can be met or whether foreign investors will reduce their net holdings of US assets. The increasing negative interest balance (and the fact that much of the positive net returns on FDI were due to profit shifting into Ireland and other low-tax foreign domiciles) has caused some to argue that the extraordinary privilege is no longer in existence.

Third, prospects of continued large budget deficits could make it more costly to finance US government debt in the future. The Congressional Budget Office (CBO) has projected US budget deficits to remain above 6 percent of gross domestic product (GDP) over the coming years. This projection is made on the basis of current law, that is, assuming the expiration of both the 2017 Tax Cuts and Jobs Act (TCJA) passed during the first Trump administration and the healthcare subsidies passed during the Obama administration. Even under this optimistic assumption, government debt is projected to rise from 98 percent of GDP in 2024 to 118 percent of GDP in 2035. While the current administration has vowed to impose significant expenditure reductions to accompany the presumed extension of the 2017 tax cuts, failure to reduce the US deficit could drive long-term interest rates higher in coming years.

Even so, until recently, it seemed too early to worry about the safe asset status of US government securities per se. This was in large part because there are currently no instruments that could match the role of US government securities at comparable volumes. However, the stability of US debt dynamics rests in no small measure on the continued performance of the US economy, which in turn depends on strong institutions and sound economic policies. History shows that political polarization has the potential to undermine both of these pillars, a warning that would be important for the US government to heed while it is reducing government functions and cutting back its public workforce. As Steven B. Kamin and Mark Sobel write, “partisan divisions, political dysfunction, and the resultant inability to cope with the nation’s challenges” should be considered the main risks to long-term US economic prospects and dollar dominance. The administration’s willingness to risk a deep recession to launch an elusive manufacturing renaissance in the United States plays precisely into those concerns.

Even before April 2025, trade restrictions had significantly increased in recent years after declining for most of the twentieth century. The geoeconomic fragmentation driven by the COVID-19 pandemic, Russia’s war of aggression in Ukraine and, most recently, economic tensions between the United States and China, could now drive a major reorganization of global economic and financial relationships into separate blocs with diminishing overlap. A study by the International Monetary Fund (IMF) estimates that greater international trade restrictions could reduce global economic output up to 7 percent. In case of a wider trade conflict, smaller countries could be increasingly forced to choose sides, with those moving closer to China likely aligning their currency use for international transactions and reserves away from the US dollar and the euro.

Fifth, the United States has used sanctions as a tool of foreign policy, particularly against Russia in the wake of its 2022 invasion of Ukraine. This led to the suspension of trading in US dollars on the Moscow Exchange (MOEX), disrupting financial operations not only within Russia, but also affecting other international market players as a result of the extraterritorial nature of the US sanctions. Since 2014, following the sanctions related to the annexation of Crimea, Russia has increased its use of the Chinese yuan, which became MOEX’s most-traded currency (54 percent in May 2024). Concerns about their bilateral trade relations with Russia and China have other countries looking for alternatives to mitigate possible risks associated with US dollar transactions, for example, in the BRICS grouping, which is set to further expand its membership of emerging market economies in coming years. If accompanied by bilateral tariff increases, as currently envisaged by the Trump administration, this could have further implications for the dollar’s role in global trade transactions.

Finally, in the context of a geopolitical fallout, potential tariffs between the United States and the EU could significantly impact the transatlantic economy, which remains the most important bilateral trade and investment relationship for both partners. For example, a 10 percent universal tariff on all US imports is projected to reduce EU exports to the US market by one-third, and subsequent retaliation could similarly hurt US exporters. Higher interest rates in response to tariff-induced inflation would have additional growth implications. All this could heavily weigh on financial markets on both sides of the Atlantic, further reducing the attractiveness of US dollar-denominated assets.

Limits to military superiority

Any developments that weaken the US economy and the role of the dollar could also affect the United States’ ability to preserve its military superiority. China is in the middle of an extraordinary defense buildup that is challenging US strategic positions in the Indo-Pacific theater. Moreover, the Ukraine war has led to stepped-up cooperation between Russia, Iran, and North Korea (which has been contributing troops to compensate for Russia’s losses), and China increasingly supports Russia’s armament efforts by supplying it with drones and dual-use technology.

The United States and Europe have also been pushed on the defensive in Africa as China, especially, has made strategic inroads there, as have Russia, India, and countries in the Persian Gulf. Many countries are looking to China for help in developing their energy and transport infrastructure, imports of low-cost consumer and investment goods, and market access for their own exports, allowing the use of strategic ports and other locations in exchange.

At the same time, China has a hold on supply chains involving critical raw materials, controlling 85 percent of the world’s refined rare earth materials, which are crucial for high-tech military technologies. If made unavailable to the United States, this could significantly complicate the production of advanced weaponry. The global processing capacity for critical raw materials is also highly concentrated in China, providing it with means to influence market prices and access, and creating supply chain vulnerabilities and dependencies.

Advances in military technology toward low-cost weapons, lower procurement costs in competitor countries, and a relative decline in US manufacturing capabilities (e.g., in shipbuilding) pose significant challenges to US military strength. While the United States retains a large nominal advantage in military spending over other competitors, the discrepancy is smaller when considering cost differences; in other words, the United States has a smaller advantage in real terms than suggested by simple budget comparisons (see Figure 3).

Figure 3. Combined military spending by China, Russia, and India outstrips the US when calculated by purchasing power parity (2019, in billions of dollars)

In fact, a recent congressional review of US defense strategy has raised concerns that the United States is not ready for a multifront war spanning theaters in Europe and Asia. US forces have also been slow to adopt new battlefield technologies, including a trend toward autonomous weapons systems, which will take considerable time to redress. In addition, the end of the New START treaty in 2026 could trigger a nuclear arms race that would force the United States to expand its nuclear forces after decades of deep cuts.

While the United States is still the only country able to project military power at any point in the world, it is unlikely to be able to respond to these challenges on its own. The room to dedicate additional fiscal means to the US defense budget is increasingly circumscribed by growing interest and entitlement spending (see Figure 4), and even under optimistic assumptions, there is a risk of strategic overreach for the United States, given the magnitude of challenges across different regional theaters.

Figure 4. Projected federal outlays show entitlement spending and growing interest may curb defense spending (2025, as a percentage of federal revenues)

While US presidents have long called for European nations to play a bigger part in their own defense, the second Trump administration has ramped up the pressure on NATO allies to take on a larger military role and financing burden in the European theater. However, raising the combat readiness of European armed forces will require several years under the best of circumstances. Unless the United States is willing to cede military dominance in Europe to Russia, it will need to continue supporting its European allies—including in arms production, securing supply chains, and military burden sharing—for the foreseeable future.

If the United States were to forgo a deepening of its alliances in Europe and become outmatched by China in Asia, it could in principle still benefit from the relative safety of its continental geography. However, it would face a loss of military stature and reduced global reach. No longer being a global hegemon, the United States would not be able to protect global trade and financial flows in the way it has done in the past, hurting itself and other economies that similarly benefited from open trade. The United States would leave a vacuum of power that would most likely be filled by China and other autocratic countries, with detrimental effects for its own security and economic stability.

Goals

This paper proposes a strategy to preserve the US dollar’s lead role in international markets, allowing it to continue attracting foreign capital at favorable interest rates. As laid out above, the dominant role of the US dollar has been a key element in a decades-long virtuous cycle that allowed the United States to finance its large military apparatus while expanding its social safety net and keeping a low tax burden.

With the rise in public debt and the sharp increase in net international liabilities, this cycle cannot continue indefinitely. The time has come for the United States to begin reining in deficit spending and rebuilding its fiscal position. Notwithstanding the Trump administration’s commitment to this objective, this process will take time, given continued pressure on defense and entitlement spending. Continued dollar dominance would therefore be critical for keeping a lid on interest rates while nurturing a political consensus that could lead to a lasting decline in government deficits over several administrations.

Continued dollar dominance would also be beneficial from a geopolitical perspective, providing the United States with leverage in shaping the future of global finance, leadership in multilateral organizations, and the continued possibility of sanctioning opponents to raise the cost of acting against US interests. Having said that, the United States’ ability to dominate global developments on its own will likely continue to diminish. To maintain and reap the full benefits of the dollar as a reserve currency, it will need to rely more on networks with countries that have trade, financial, and security interests that align with those of its own. These networks evolve around shared interests, and they will only thrive in an environment of mutual respect and give-and-take.

Breaking up such networks by way of a US isolationist withdrawal—the possibility of which is as high as it has been at any time in the past century—would trigger a fragmentation of the global economic and security landscape with large losses in general welfare (i.e., prosperity and well-being) both in the United States and abroad. It would accelerate the decline in the dollar’s reserve status as it could force countries to fundamentally rethink their security arrangements, possibly leading to a reorientation of trading and financial relationships toward China and other illiberal states.

In fostering US interests, the objective for US policymakers should therefore be to maximize the mutual advantages accruing from working with countries that benefit from the United States’ global economic and security footprint, as well as the stability provided by the dollar as a leading currency. If the United States manages to pursue its domestic interests while remaining at the center of a network of powerful alliances, the dollar’s reserve currency status and its exorbitant privilege could serve US interests for years to come.

Major elements of the strategy

In principle, the new US administration has a strong opportunity to address the geopolitical challenges facing the United States, given its decisive electoral victory and control over both houses of Congress. While there is clearly a risk that ideological priorities might preempt serious work on other issues, the presence of growing external threats should eventually refocus attention on several objectives that would be in the strategic national interest.

Foster strong and robust long-term growth

The first objective coincides with one of the administration’s key priorities, namely, to create the conditions for strong US economic growth and employment over the long term. This is a necessary condition for the United States to retain its economic and military superpower status: Without a strong economy, the burden of maintaining a global footprint would eventually become suffocating and capital would become increasingly unavailable to support a growing debt burden. In the worst case, the United States would follow the example of the United Kingdom, whose leading global status was gradually eclipsed by other powers during the last century (see Figure 5).

Figure 5. China’s GDP growth rates have outpaced those of the United States and the European Union for more than two decades (2000–2024, measured at constant prices)

The question is how the dynamism of the US economy can be maintained against the background of weakening demographics, rapid technological change, and fragmenting global trade. These trends challenge the business model of established US companies, especially those competing against Chinese or other firms that benefit from the tools of state capitalism being deployed by their home countries. Moreover, supply chains for critical raw materials and intermediate products seem more tenuous in the future, given the dominant position of China in key industries.

From a trade perspective, there are two considerations that the administration should have balanced. On the one hand, firms should be allowed to continue to operate in an open and competitive market environment that rewards innovation and efficiency, in turn allowing the United States to reap the productivity gains necessary to generate future gains in income and welfare. On the other hand, it would be naive to expect US companies (or industries) to thrive in sectors where state-backed competitors enjoy large-scale cost advantages due to extensive subsidies or other forms of state support. This suggests that the new administration should have avoided a protectionist trade stance, shielding a large part of the US economy from foreign competition. However, it should also have been prepared to stave off an economic decline of sectors that could be critical for long-term economic or military purposes.

In early April, however, the administration took an opposite approach by raising tariffs on almost all other countries in proportion to bilateral trade imbalances. (Many of the highest tariff rates were temporarily paused a week later, leaving a 10 percent rate on most of the world for now.) Apart from their economic and financial fallout, these measures are unlikely to significantly reduce the overall US trade deficit, given (a) the substantial difference in domestic saving rates between the United States and large trading partners; (b) retaliatory measures taken by many countries; and (c) trade diversions and exchange-rate adjustments that will counter some of the effects of the tariffs.

It remains to be seen whether investment in the United States will pick up to a significant extent, given the uncertainty about the extent and duration of the trade restrictions currently in place. Moreover, labor-intensive manufacturing industries will have a hard time regaining a footing in the United States, given the falling costs of automation and persistent labor cost differentials with emerging markets and developing countries. A major plank of a strategy to boost employment and long-term growth should therefore lie in a speedy resolution of trade negotiations and a reduction in bilateral tariff rates between the United States and its largest trading partners, particularly Europe, Japan, and China.

The United States should also focus its industrial policy on boosting innovation, protecting or regaining technological advantages, especially in artificial intelligence (AI) and quantum computing, preserving access to supply chains and export markets, and maintaining strategic production capacities, preferably in conjunction with its European and Asian allies.

Beyond trade policies, there is a much larger agenda to strengthen the growth fundamentals of the US economy. This includes building a growing and better educated workforce that can translate AI and other innovative technologies into commercial products that can be sold in a global marketplace. Given the significant returns to scale in digital technologies, the United States should ensure that its institutions are strong enough to ensure a fair and transparent marketplace and combat monopolistic practices.

All of this would help the United States preserve its productivity advantage vis-à-vis the rest of the world, a key condition for durable real wage growth and rising living standards. To ensure that gains are distributed broadly throughout society, the expiration of key provisions of the 2017 TCJA provides an opportunity to boost incentives for new investment and labor-market participation while generating additional revenues from higher incomes and economic rents.

Moreover, while the new administration has a critical view toward illegal immigration, cutting off the legal flow of well-educated foreign students and productive workers into the United States, a key ingredient for its past economic success, would be an unforgivable own goal.

Regain fiscal room to maneuver

Despite the projected increases of US government debt in coming years, the United States has been able to easily finance large deficits and is expected to do so in the future. However, the increasing amount of outstanding debt, as well as the rise in the average interest rate paid by the federal government, are constraining the budgetary room for new initiatives by the incoming administration. The share of discretionary spending—that is, spending not mandated by debt obligations or entitlement programs such as Social Security and Medicare—has already fallen from around 50 percent in the 1990s to below 30 percent today. As this share is projected to shrink further over the coming years, the trade-off between defense spending (which currently accounts for about half of all discretionary expenditure) and other priorities (such as infrastructure spending) is becoming stronger.

Everything else equal, reining in the fiscal deficit would therefore have a positive impact on long-term interest rates and crowd in private investment, a key ingredient for long-term growth. Although the creditworthiness of the United States is not yet in doubt, the increase in US government bond yields after the 2021 inflation scare, as well as the rise in bond yields after the April tariff announcements, has been a wake-up call, indicating a departure from the low-interest environment of the 2010s. It also increased the cost of private-sector investment, including higher mortgage rates that have contributed to a significant drop in new housing construction.

The first-best option to realize budgetary savings would be on the back of sustained robust growth, as discussed in the previous section, whereas deficit-financed tax cuts or spending increases would deepen the United States’ long-term fiscal quandary. Fiscal policy should instead focus on enhancing the efficiency of the tax system and reducing public expenditure—especially in the health sector, where the United States outspends other advanced economies by a large margin while achieving inferior outcomes.

However, imposing across-the-board spending cuts and labor-force reductions are not a proven tool to generate significant fiscal savings. They have a relatively small budgetary effect but a possibly significant impact on the government’s ability to function, which will eventually have to be rectified through new hirings. Given the demographic trajectory, there also is a need at some point for better targeting or changing the economic parameters of US entitlement programs (the “third rail” of US politics), but with continued dollar dominance, the United States would still have the space for a gradual phase-in of policy reforms.

Maintain deep and liquid financial markets

US financial markets are attractive to foreign investors because of their openness and underpinning by transparent and market-friendly rules established by US law. As a result, foreign portfolio holdings in US equities amounted to $13.7 trillion in 2023, and foreign investors owned $7.6 trillion in Treasury securities, equivalent to about a third of publicly held federal debt. Moreover, foreign deposits in the US banking system have steadily risen to about $8 trillion in 2024, highlighting the important role of foreign capital for the functioning of the US economy. Besides maintaining a welcoming framework for foreign investors, the United States will also need to ensure that financial market regulations remain effective and stay up to date with technological developments.

The more volatile geopolitical and economic environment has already tested the resilience of US financial markets, and both regulators and private entities should be prepared to deal with future shocks. As in other advanced economies, for example, US banking regulations have considerably tightened since the 2007–2009 global financial crisis; but the failures of Silicon Valley Bank and several other midsize institutions have revealed continued supervisory problems. US and European regulators were close to concluding an extension of the Basel Accord (Basel 3.1), but momentum has been lost given strong resistance by the financial industry on both sides of the Atlantic. Even if the new administration were unwilling to pursue negotiations within the Basel Committee, or planning to consolidate regulatory agencies, it must not lose focus on ensuring that banks remain well-run and adequately capitalized.

In a similar vein, there have been episodes in recent years when liquidity in US government bond markets collapsed, threatening to severely disrupt the workings of the global economy (with daily trading volumes in the Treasury bond market averaging $600 billion in 2023). Both the September 2019 repo crisis and the March 2020 meltdown required emergency intervention from the Federal Reserve system to keep the markets operational. Changes to the functioning of markets, including channeling a larger number of transactions through clearing agencies and improving transparency, should help reduce uncertainty during times of crisis, provided they are left in place by the new administration.

This, of course, assumes that there are no policy accidents, such as the US Congress not authorizing a debt ceiling increase, which could lead the United States to default on its government bonds and seriously undermine the US dollar’s standing abroad. Similarly, a forced change in the terms of US government bonds as has been proposed by some analysts, especially if directed at foreign investors, carries the risk of a large repricing of US financial instruments that could be traumatic for financial markets worldwide.

In the realm of financial regulation, the United States had until recently taken a conservative approach to innovative technologies such as stablecoins and cryptocurrencies. A 2022 report by the Financial Stability Oversight Council found that activities involving crypto assets “could pose risks to the stability of the US financial system if their interconnections with the traditional financial system or their overall scale were to grow without adherence to or being paired with appropriate regulation, including enforcement of the existing regulatory structure.”

The new administration has adopted a more welcoming approach, with several crypto proponents taking on key roles in US regulatory agencies. This pro-cryptocurrency stance may well lead to stronger innovation, but it could also contribute to heightened market fluctuations and uncertainties. Even under a lighter touch, new rules and regulations are likely to emerge from this transition phase. While this will pose some compliance challenges for companies, it will still be important to balance innovation with financial stability concerns. Introducing appropriate safeguards and maintaining a strong commitment to ethical practices will prove essential for helping businesses navigate the evolving landscape, build trust with consumers and regulators, and ensure the long-term success of digital payments.

By contrast, the Trump administration’s negative stance on the creation of a US central bank digital currency (CBDC) creates a potential risk to the dollar’s global standing. While there is indeed no clear use case for a CBDC at present, and adoption of retail CBDCs in most countries so far has been small, technological developments in this area are hard to predict. The United States might prefer to foster US dollar-based stablecoins rather than a CBDC to cement the dominant role of the dollar, but there is a risk that it could fall behind if a large number of other countries were to shift to CBDC-based settlement technologies. Moreover, given the challenging nature of digital currencies, the United States would not be able to shape international regulations that promote the efficient use of CBDCs and address critical concerns related to money laundering, fraud, and consumer protection.

Strengthen relations with emerging markets and developing countries

As the United States and Europe vie to preserve their geopolitical primacy against the onslaught from Russia and China, it is important to keep in mind that the world’s demographic center of gravity has already begun to shift toward Africa, India, and Southeast Asia. The geopolitical weight of these regions is still relatively modest, but their economic role is expected to steadily increase due to powerful demographics. Compared to China, the United States has been slow to recognize the importance of intensified trade relations with countries that may relatively soon become key export markets for US companies and engines for global growth.

Not long ago, the United States and other industrial countries were the major source for development finance, including through bilateral aid and in their role as majority shareholders in the Bretton Woods Institutions. The results of this decades-long engagement were decidedly mixed, however. Numerous large emerging-market countries thrived after the crises of the 1990s, but loans to many developing countries turned sour as countries failed to sustainably generate increases in per capita incomes. Member countries of the Organisation for Economic Co-operation and Development (OECD) consistently missed their targets for grants and other development aid, and developing countries have accused the industrialized world of not providing adequate compensation for the damage caused by past CO2 emissions.

China has used this opportunity to project itself as a friend and partner for many developing countries. Deploying its ample foreign exchange reserves (which it has been keen to direct away from US Treasury bonds), China’s Belt and Road Initiative has financed investment projects in resource-rich and strategically located developing countries—surpassing one trillion dollars—deepening trade and political relationships in a way that the West has been unwilling to match, and making China the world’s largest debt collector. China has leveraged these relationships to secure access to critical minerals and set itself up as the market leader in their processing and refining, gaining geopolitical leverage against the United States in the event of a future trade war. China has also received considerable diplomatic support from developing countries for its policy of unification with Taiwan.

The United States and its Western partners should urgently contest China’s position as an informal leader of the developing world. There is space to do so, as many countries have been disillusioned by China’s self-interested motives, which have often left them with badly executed infrastructure projects and high debt that proved difficult to restructure. To be successful, however, the United States and its allies must increase the speed and volume of their engagement with developing countries, offering projects and loans that exceed those of Chinese lenders in quality while being competitive in cost and timeliness. The Trump administration should therefore advance the planned restructuring of the former US Agency for International Development (USAID) under the State Department or the Development Finance Corporation (DFC), resuming support for partner countries in need of economic assistance.

Moreover, given tight national budget constraints, the Bretton Woods institutions should be more tightly integrated in a strategy to support friendly countries in the developing world. To do so successfully, they will need to remain firmly under Western control. However, to preserve their legitimacy as international institutions, they will need to stay focused on their essential mandates, which still enjoy widespread support.

However, the past few decades have shown that a strategy based merely on loans and development aid is not enough. Developing countries also require better market access to boost exports and raise their growth trajectories. While this will be hard to legislate both in the United States and Europe, there could be significant long-term benefits from a gradual market opening. First, it would preempt Chinese companies from cornering markets in countries with strong population growth, and second, pressures for migration could diminish as income in source countries would rise over time. Taking the long view, healthy trade and investment relations with the dynamic economies of tomorrow would benefit the standing of the US dollar.

Finally, the use of sanctions as a tool to achieve geopolitical objectives is a double-edged sword, and they should be used in a more targeted and sustained manner. The primacy of the dollar enables the United States to effectively exclude targeted individuals and economies from the global financial system. However, the effectiveness of sanctions declines over time as actors find ways to circumvent them; at worst, the broad application of sanctions against other countries can lead to a reorientation of global trade and financial relations that could undermine the dollar’s preeminence. For example, the desire of BRICS countries to develop alternatives to the use of the dollar may be inconsequential at present, but it could eventually become one of many factors that relegate the dollar to a less dominant position in global payments and reserve arrangements.

Preserve military superiority

The US National Security Strategy (NSS) recognizes China as a major national security challenge, emphasizing its ambition and capacity to alter the rules-based international order. As a result, the 2022 National Defense Strategy (NDS) focuses on bolstering US deterrence against China, with a strong emphasis on collaboration with allies and partners. Russia also poses a direct threat to US and transatlantic security, particularly in light of its invasion of Ukraine and the resurgence of traditional warfare in Europe. Additional challenges include threats from North Korea, Iran, and terrorist organizations as well as the rise of authoritarian powers, disruptive technological advancements, global economic inequality, pandemics, and climate change.

To preserve its power, strengthen deterrence, and build an enduring advantage, the United States should better integrate its military efforts with the other instruments of national power, such as economics and diplomacy. In an era defined by strategic competition and the rapid diffusion of disruptive technologies, preserving technological superiority is essential. This requires robust investment in research and development, particularly in innovative technologies like advanced weapons systems, satellites, AI, autonomous systems, and human-machine teaming to enhance the efficiency and effectiveness of US military forces.

The US defense budget, which was $816 billion in 2023 (see Figure 6), constitutes about 40 percent of global military spending and is projected to increase by 10 percent by 2038 (after adjusting for inflation), reaching $922 billion (in 2024 dollars), according to the CBO; 70 percent of that increase would go to compensate military personnel and pay for operations and maintenance. However, defense spending comprises 3.5 percent of US GDP, down from 5.9 percent in 1989, and 13.3 percent of the federal budget compared to 26.4 percent in 1989 (see Figure 7).

Figure 6. US military spending has increased sixfold from 1980 to 2023 (in billions of dollars)

Figure 7. US military spending has remained steady as a percentage of GDP but fallen as a share of federal spending (1980–2023)

During the first Trump administration, the US defense budget saw significant increases focusing on military modernization and development of new technologies, as well as the creation of the Space Force as a new branch of the military aimed at addressing emerging threats in space. The second Trump administration will likely focus on increasing defense budgets as the “peace through strength” doctrine advocates for a robust military presence to strengthen deterrence.

Aligning defense spending with the goals of the NDS requires prioritization of investment in nuclear modernization, missile defense and defeat programs, and resource allocations across air, sea, and land forces in line with strategic objectives, ensuring the efficient use of budgetary appropriations with a focus on the quality of military capabilities over quantity.

This effort would help sustain the global dominance of the US dollar by deterring geopolitical challenges and ensuring stability in international financial and trade systems, minimizing economic coercion, and reassuring global investors of the security and profitability of the US market. The US Navy plays a crucial role in securing global trade routes by keeping sea lanes open, facilitating the free flow of goods and capital. Additionally, strategic alliances and security arrangements with key oil-producing nations, particularly the Gulf states and Saudi Arabia, reinforce the petrodollar system, sustaining global demand for the US dollar in energy markets. Furthermore, US military and geopolitical strength underpin the credibility of economic sanctions, a critical tool of financial influence and dollar dominance.

Leverage military alliances

The 2022 US NSS emphasized alliances and partnerships as fundamental aspects of the US foreign policy to maintain a competitive edge in an era of strategic competition, including military collaboration, economic partnerships, and diplomatic interactions throughout the transatlantic and Indo-Pacific regions. In this aspect, strengthening relationships with key partners such as India and Japan is regarded as pivotal in addressing China’s increased influence. This includes joint military exercises, as well as sharing intelligence, and combining resources for defense initiatives.

The United States should collaborate with allies to create a secure environment by prioritizing comprehensive resilience in a community that can effectively respond to any security or defense crisis posed by adversaries, authoritarian regimes, malign state and nonstate actors, disruptive technologies, or threatening global events such as pandemics and climate change.

To bolster national security, strengthen military capabilities, foster economic resilience, and maintain global competitiveness, the US administration must prioritize a robust division of labor and responsibilities across key strategic areas, such as manufacturing, military operations, supply chain management, and weapons production. The division of labor with allies and partners enhances further efficiency and productivity, allowing partners to focus on their strengths, streamlining processes in specialized manufacturing companies while reducing costs, and providing access to advanced technologies critical for national defense. Pooling resources and know-how enables allies to share advanced technologies, coordinate and streamline production processes, and build strategic stockpiles.

Collaboration with allies plays a vital role in fostering resilient and redundant supply chains that are critical for diversifying sources of critical materials and reducing vulnerabilities in the face of global disruptions; it also fortifies national defense while promoting mutual security and economic stability. Securing critical supply chains is crucial to safeguard national security and the US administration should develop a National Defense Industrial Strategy to coordinate efforts across government agencies to prioritize resilience and protect the integrity of supply chains critical to defense manufacturing and operations.

Some elements of the above are already in place but need further enhancement and stronger commitment, particularly by leveraging economic opportunities. The United States must align economic and security interests within its alliances. Strengthening NATO’s economic coordination can ensure allies remain integrated into the dollar-based system through trade and defense procurement; it also can promote dollar-based investments in European defense, especially as European NATO partners are committing more resources to the defense sector.

Similarly, an expansion of international alliances and cooperation with a larger number of countries would reinforce dollar-based trade conditions in security agreements and promote standardization with US financial institutions among Indo-Pacific partners. Recommended actions include:

• Expanding the AUKUS security pact (with Australia and the United Kingdom) and the role of the “Quad” alliance (including Australia, India, and Japan) in economic security.
• Enhancing naval cooperation in key maritime regions and with nations that control strategic trade chokepoints.
• Increasing coordination through a strategic allied council, as warranted.

In addition, effective communication would be essential to articulate the nature of the threat with clarity and promote credible narratives to safeguard the information space against propaganda campaigns, cyber influence operations, and the weaponization of social media. Proactive information strategies devoted to strengthening partnerships with like-minded democratic nations can protect public trust and reinforce resilience.

Assumptions and alternatives

This strategy paper is based on several assumptions that are central to its proposals and the period over which they should be implemented.

• First, there is no fundamental change in the principal characteristics of the Chinese economy, namely a heavy degree of state intervention and a closed capital account. India is also assumed to maintain capital account restrictions, and Europe will not implement a single capital market for some time. A change in these conditions could prompt some reserve flows into the respective currencies, but it would still be deemed unlikely that capital markets in these countries would evolve to a point where they could compete with the United States in depth and liquidity.
• Second, US deterrence in key military theaters (Europe, South China Sea, Korean Peninsula) will remain effective for the time being, and the United States does not get drawn into an active military conflict, for example, over Taiwan. Otherwise, the United States would have to shift toward a more decisive and short-term war strategy.
• Third, the United States remains dominant, or at least competitive, in developing critical technologies such as AI, microchip production, cryptology, and communications. It will be able to defend strategic assets, such as major military bases, carrier groups, space technology, or command, control, and communications (C3) infrastructure, against physical or virtual attacks. Failure to do so would make the United States more dependent on the technological capacities of its allies, requiring more effective coordination and systems integration that would be hard to achieve over a short time horizon.
• Fourth, another important assumption is that the new administration will also realize that the United States is indeed lacking the resources to remain the sole military hegemon for much longer. Adopting a more realistic approach will not come without challenges to its own credibility, as the wider US public has yet to realize that technological progress has narrowed the military advantage held by the United States over its competitors, that the room for discretionary government spending could narrow dramatically over the coming years, and that US manufacturing would not be capable of supporting a major military conflict for long. In the event of a future conflict, public support for the Trump administration, or for any US government down the road, could evaporate quickly if these expectations were not corrected through public communication in good time.