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.

The post Seven charts that will define Canada’s G7 Summit appeared first on Atlantic Council.

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.

Behind these numbers are big global trends: falling commodity prices, questions around the path of US interest rates, and doubts about China’s growth momentum. These forces are reshaping outlooks across Latin America and the Caribbean—raising the stakes for economic reform, trade diversification, and smarter fiscal management.

Explore how LAC economies are adapting, where the risks and opportunities lie, and what to watch for in the months ahead.

The post Americas economies in depth: LAC’s economic outlook in mid-2025 appeared first on Atlantic Council.

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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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 $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.

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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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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.

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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.

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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.

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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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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

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.

Conflict European Union

UkraineAlert May 13, 2025

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.

Conflict Defense Industry

UkraineAlert May 13, 2025

How much longer will Putin be allowed to continue stalling for time?

By Peter Dickinson

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.

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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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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.

The new administration may fear that collaborating more closely with political allies, including the necessary compromises it would require, could lead to a perception that foreign interests are driving US policies. At the same time, the increasing cooperation between China, Russia, and North Korea highlights that the Trump administration would not be able to focus on China alone, as it has stated in the past, while leaving its European partners to deal with Russia entirely by themselves. On the contrary, the lack of an effective European nuclear deterrence might force Europe to increasingly fulfil Russia’s geopolitical demands to avoid armed conflict, potentially allowing Russia to undermine political and economic relations between the United States and Europe. Since Europe remains the United States’ largest trading and financial partner by a significant margin, it should be clear that such a strategy would be entirely self-defeating.

As for some of the tariff and exchange-rate pronouncements by the Trump administration, it is important to keep in mind that an economy with free capital movements and an independent monetary policy cannot pick a specific value for its foreign exchange rate (the “impossible trinity” of economics). In the case of the United States, this means that an imposition of tariffs to weaken the dollar, as has been floated by President Donald Trump during the election campaign, will not change the fact that the US dollar exchange rate remains market determined as long as the United States allows unrestricted capital inflows and outflows and has an independent Federal Reserve. In particular, the exchange rate of the dollar would continue to reflect differentials in saving rates among major trading partners, over which the United States has limited influence.

If the new administration were serious about attempting to depreciate the value of the dollar, it could only do so by undermining its appeal as a safe asset to foreign investors. One way to do this would be to renege on the US commitment to free and open trade and capital flows, which have formed the basis for robust growth over many decades. Tampering with the independence of the Federal Reserve, let alone with the US legal system more broadly, could trigger significant financial volatility, including increases in the market interest rate on US government debt, major stock market losses, and a shock to the US economy that could dwarf any gains from what might be considered as a more favorable exchange rate. The self-defeating nature of such moves would quickly become evident; but if confidence is lost, it would be difficult to restore.

Indeed, there are few credible alternatives for any US administration other than leveraging the strength of the US economy and its currency against the growing autocratic threat while operating in close alliance with other democracies.

• Withdrawing into self-isolation, as in the 1930s, could provide a false sense of security in today’s interconnected world. It would undermine the global dominance of the dollar by weakening its economic and strategic influence as allies and partners may hedge against US unpredictability, seeking alternative financial systems to diversify. Moreover, such a policy would allow other countries to occupy geostrategic positions to the detriment of the US economy and national security.
• Similarly, accommodating strategic opponents like Russia or China would undermine trust in US leadership and lead to strategic losses in all theaters. Without the United States providing strong global leadership, other countries would not be able to thrive without catering to the interests of the other powers, and the United States could enter a phase of economic decline.

Finally, the most likely alternative to the strategy outlined above would be that the United States remains mired in a polarized political environment that leads to short-sighted policy decisions that fall short of the strategic challenges ahead. Most importantly, the United States would not be able to improve its fiscal situation and eventually would lack the resources needed to maintain its strategic financial and economic dominance and the superiority of the dollar. The continued erosion of US power might not be catastrophic for the United States itself, but it could trigger bouts of political instability and economic volatility around the globe, with negative consequences for the role of the US dollar and the welfare of US citizens.

Conclusion

This paper outlines a strategy for the United States to maintain dollar dominance. It argues that the United States will likely remain the world’s largest economic and military power, though it will face increasing difficulties in pursuing its strategic objectives on its own. There is a risk of military overreach as US defense spending is competing with other public expenditure priorities. Additionally, high fiscal deficits could further weaken the exorbitant privilege that has enabled the United States to sustain large fiscal and currency account deficits in the past.

The stakes are now higher compared to eight years ago, when Trump first took office, both because of the run-up in public debt during that period and because Russia and China are now more closely aligned in trying to weaken the democratic West. While reining in the fiscal deficit and boosting the US economy’s growth potential, the administration should proceed cautiously, preserving economic and diplomatic relations with existing allies. The United States should also strengthen partnerships with emerging markets and the developing world, where countering China’s efforts to co-opt countries into its economic and political orbit should become a strategic priority.

Executive editors

Frederick Kempe
Alexander V. Mirtchev

Editor-in-chief

Matthew Kroenig

Editorial board members

James L. Jones
Odeh Aburdene
Paula Dobriansky
Stephen J. Hadley
Jane Holl Lute
Ginny Mulberger
Stephanie Murphy
Dan Poneman
Arnold Punaro

The Scowcroft Center is grateful to Frederick Kempe and Alexander V. Mirtchev for their ongoing support of the Atlantic Council Strategy Paper Series in their capacity as executive editors.

Fellow

Martin Mühleisen

Nonresident Senior Fellow

GeoEconomics Center

Digital Currencies Economy & Business

Fellow

Valbona Zeneli

Nonresident Senior Fellow

Europe Center Scowcroft Center for Strategy and Security

Albanian Corruption

Atlantic Council Strategy Paper Series Feb 12, 2025

Global Foresight 2025

In this year’s Global Foresight edition, our experts share findings from our survey of global strategists on how human affairs could unfold over the next decade. Our team of next-generation scholars spot “snow leopards” that could have major unexpected impacts in 2025 and beyond. And our foresight practitioners imagine three different scenarios for the next decade.

Civil Society Climate Change & Climate Action

Issue Brief Apr 10, 2024

Standards and interoperability: The future of the global financial system

By Ananya Kumar, Alisha Chhangani, Jennifer Lassiter, and Katherine Haar

Digital assets promise enhanced efficiency, inclusion, transparency, and choice to global payments. But to fulfill this promise, the international community must first develop interoperability standards.

Digital Currencies Economy & Business

Dec 11, 2023

Dollar Dominance Monitor

The Dollar Dominance Monitor analyzes the strength of the dollar relative to other major currencies across the world. The project presents interactive indicators to track China’s progress in developing an alternative financial infrastructure.

The Scowcroft Center for Strategy and Security works to develop sustainable, nonpartisan strategies to address the most important security challenges facing the United States and the world.

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Bilateral trade deals struck with Washington will redefine the balance of geoeconomic power and elicit powerful reactions domestically and abroad. In addition to negotiations with major trade partners (European Union, Mexico, Canada, China, Japan), at least twelve large economies reportedly have begun active trade talks with the United States. The first set of early agreements with the United Kingdom and India are incomplete; and new details could be announced at any point. These are not merely bilateral negotiations. Every public move and every new deal will change the landscape for negotiation among the other parties. 

The timing for the tariff negotiations seems certain to trigger additional policy volatility throughout the summer as overlapping – but not aligned — deadlines approach in relation to both the trade talks and domestic fiscal policy negotiations. US deadlines for reaching reciprocal tariffs agreements with trading partners are set to expire one month before separate negotiations with China. All trade negotiations will occur amid parallel budget and debt ceiling negotiations in the United States, where a trio of additional domestic pressure points loom large this summer:

• Budget negotiations, including controversial spending cuts and initiatives to make permanent the tax cuts from President Trump’s first term in office
• Treasury borrowing needs and debt ceiling challenges
• Increasingly agitated opposition party roadblocks within Congress

Consequently, the next 120 days present a critical window for decision making that will generate ripple effects across the global economy. Choices made over this period will  challenge corporate executives, financial institutions, and policymakers to chart solid trajectories amid an increasingly random news cycle that can trigger headline-driven market rollercoaster rides. Uncertainty regarding trade and tariffs could extend into the autumn and the new fiscal year if trade partners cannot agree.  The prospect for revival of the draconian tariff hikes announced in early April 2025 increase the risks of potentially destabilizing outcomes. 

The fiscal policy issues involve hard deadlines. US Treasury Secretary Scott Bessent’s letter to the speaker of the house on May 9 indicates that the next fiscal cliff (when taxpayer revenue must be supplemented by bond market sales in order to keep the government open) will likely materialize in August 2025. Secretary Bessent has requested that Congress increase the debt ceiling before departing for its traditional August recess. In other words, the deadline for resolving (or at least making progress on) the trade war truce with China now coincides with the debt ceiling “X date,” as well as the traditional summer recess for Congress.

These issues are not new. From President Obama onward, the summer budget season in the United States has consistently included debt ceiling brinksmanship, hard budget negotiations, and plenty of breathless headlines. Summer 2025 will be still more intense. Budget negotiations play out amid both a strikingly poisonous political climate and major tariff negotiations, the outcomes of which will materially impact economic growth rates globally. 

None of these inflection points align neatly with the quarterly reporting process that drives markets and corporate disclosures. Incomplete information within markets and corporates regarding daily policy decisions increases the risk of poor strategic decisions. Corporate executives understandably choose inaction pending final decisions. Inertia generates downstream slowdowns in economic activity, ratcheting up pressure on governments globally to deliver clarity. In such an environment, the risk of overreaction to a headline and a news story is high.

Those outside the policy process can, at least, anticipate new bouts of volatility and opportunity. Between June and September 2025, a number of scheduled events provide policymakers with potential offramps and opportunities to make deals, in addition to the steady stream of negotiating teams meeting with US government officials in Washington. These include:

• May 28-31, Department of Commerce rules due on the application of Section 232 tariffs regarding non-US content in auto parts
• June 3, South Korean election
• June 15-17, Group of Seven (G7) Summit in Canada
• June 19, Eurogroup Summit
• June 25-27, Penultimate Group of Twenty (G20) sherpa meeting
• June 27, EU Council Summit
• July 6-7, BRICS Summit in Brazil
• July 9, expiration of the current reciprocal tariff war ceasefire
• Mid-July, targeted date for debt ceiling extension by Congress
• July 29-31, G20 Trade and Investment Working Group meeting
• August 4, tentative Congress summer recess begins
• August 12, expiration of the reciprocal trade war with China ceasefire
• Mid-August, the latest estimate for the X date and the budget ceiling (the next fiscal cliff)
• August 21-23, Jackson Hole monetary policy conference
• September 30, end of the US fiscal year
• October 12, Department of Commerce Section 232 report due regarding critical minerals
• October 17, IMF and World Bank Annual Meetings (often with side meetings for the G20, the Financial Stability Board, the G7, and the BRICS)
• November 2, Department of Commerce Section 232 report due regarding timber and lumber
• 2026, USMCA partners must decide whether to extend or terminate the regional trade agreement

Several other events are expected, but at uncertain times. There might be changes to the United States-Mexico-Canada Agreement tariff structure, extensions to existing deadlines regarding tariff negotiations with the United States (particularly: July 9 and August 12), or a deterioration of truce terms. For example, the United States could revive at any time its doubling (to $200) of fees for de minimis packages shipped to the United States from China using the postal services.

News reports indicate that bilateral negotiations are underway between the United States and at least twelve significant global economies (in addition to ongoing negotiations with China, Canada, the European Union, the UK, and Mexico): Israel, Japan, Vietnam, Cambodia, Thailand, India, South Korea, Australia, Argentina, Switzerland, Malaysia, and Indonesia.

June and July will be a rolling feast of headlines and leaks. Each decision and headline will contribute to geoeconomic realignment, impact global growth rates, and shape the structure of cross-border economic engagement.

The current pause in the tariff war may be welcome, but the more intense negotiations still lie in the future. Never has it been more important to pay particular attention to every move of the policy cycle.

Barbara Matthews is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center. She is also Founder and CEO of BCMstrategy, inc., a company that generates AI training data and signals regarding public policy.

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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1. Why is Colombia joining the BRI?

Colombia’s decision to join the BRI appears less the result of a strategic foreign policy shift and more a reflection of domestic political needs and improvised diplomacy. In the lead-up to Petro’s visit to Beijing, tensions between him and Foreign Minister Laura Sarabia—particularly over the BRI—exposed the administration’s lack of internal consensus on China policy. Colombia did not have a clear framework for engaging China, and the memorandum of understanding (MOU) signed during the visit reflects that ambiguity.

The MOU itself is broad and general. It outlines cooperation across diverse sectors—connectivity, health, technology, green development, and trade—without tailoring to the specific contours of the Colombia-China relationship. There are no flagship projects or unique priorities; instead, it reads like a catch-all document with aspirational language. This generic approach suggests that Colombia is not yet in the driver’s seat when it comes to shaping its partnership with China. As things stand, China is likely to define future cooperation with Colombia under the BRI framework.

Aligning with the BRI offers Petro a symbolically strong, though substantively vague, diplomatic win amid mounting challenges at home. It also aligns with Petro’s broader ambition to project himself as a regional statesman. His remarks at the China-CELAC Forum were less about concrete proposals and more about positioning himself as a Latin American voice in global affairs.

Yet, this decision carries geopolitical risks. Petro spoke positively of the United States during his speech in Beijing and even called for a CELAC-US summit in an apparent attempt to reassure Washington. This cautious messaging suggests Colombia joined the BRI without preemptively managing the fallout with its principal strategic ally. The lack of a coherent China policy parallels an equally absent US engagement strategy, which is concerning given the potential sensitivities around growing China-Latin America ties, especially under the Trump administration.

Colombia’s entry into the BRI reveals more about its domestic political landscape and reactive foreign policy than any strategic realignment. It remains to be seen whether the country can translate this membership into tangible, sovereign-led development outcomes.

—Parsifal D’Sola is a nonresident senior fellow at the Atlantic Council’s Global China Hub and the CEO of the Andrés Bello Foundation–China Latin America Research Center in Bogotá.

China is already an important economic partner for Colombia. Economic ties between the two countries have been deepening for the past fifteen years and Petro inherited an economy that was already increasingly interconnected with China’s. While the United States remains the country’s main trading partner, January data showed Chinese products leading over US imports for the month. Ultimately, Colombia does not need to sign on to the BRI to continue deepening its commercial and investment relationship with China. In fact, doing so is a surefire way of losing friends in Washington at a time when the Trump administration is laser-focused on combating Chinese influence in the Western Hemisphere. So this is ultimately about domestic politics. An April survey by the leading pollster Invamer found that 62 percent of Colombians now have a favorable opinion of China, up 12 percent since February. This compares to just 40 percent that have a favorable opinion of the United States.

The MOU is wide-ranging. The focus goes beyond mere infrastructure to include topics such as technological exchange, decarbonization, and reindustrialization—but none of that comes with a clear commitment. Instead, the pillars mirror the main elements of Petro’s National Development Plan, suggesting this is merely a statement of intent from China to continue to play a role in Colombia’s economic development rather than a play to pry Colombia away from Washington’s sphere of influence.

This showcases the challenge that the United States faces in convincing Colombia of the value of US partnership. There was alarm in Washington over the fact that a Chinese firm inked a deal to construct and operate Bogotá’s first metro system. But no US firms placed bids on the metro system project or on any of Colombia’s large infrastructure projects in recent years. If Washington hopes to compete with China in the Western Hemisphere, it will have to credibly demonstrate a willingness to dramatically increase investment in infrastructure and other sectors that are attractive to Colombia and other governments across the region.

—Geoff Ramsey is a senior fellow at the Atlantic Council’s Adrienne Arsht Latin America Center.

Colombia’s announcement to join the BRI came in 2024 after Petro signaled that his administration would further open its markets to China and diversify its international partners to seek greater commercial and investment opportunities. Moreover, Colombia became one of China’s strategic partners during Petro’s 2023 visit to Beijing. In this sense, the official signing of Colombia’s participation during the China-CELAC Summit only reiterated previous plans to expand ties with China. Even before this announcement, Colombia had already welcomed several Chinese investments into the country, including Bogotá’s metro line, by China Harbour Engineering. While this move may raise some concerns over Colombia’s relationship with the United States, it is also a test of how Petro’s administration will balance relations with both Washington and Beijing as US-China tensions escalate.

—Victoria Chonn-Ching is a nonresident fellow with the Atlantic Council’s Adrienne Arsht Latin America Center, where she supports the Center’s China-Latin America work.

While some countries in the region remain cautious in their approach to China to maintain cordial relations with Washington, Colombia is embracing the opportunity to deepen ties with Beijing. Once hailed as a model of US bipartisan support in the hemisphere for its commitment to counterterrorism and anti-narcotics efforts, Colombia is now erratically pivoting under Petro. He has justified this shift by citing the strain placed on the US-Colombia Free Trade Agreement by the Trump administration’s imposition of “reciprocal tariffs.” These tariffs have effectively altered the commercial agreement’s 0 percent tariff baseline, imposing a 10 percent duty on non-mining and energy products. This affects the competitiveness of key Colombian exports to the US including coffee, cut flowers, avocados, mangoes, blueberries, peppers, light manufacturing goods, and apparel. Petro claims that China might now buy all these goods without conditions, but Beijing will not grant this for free.

Petro suggested that the free trade agreement with the United States needs to be renegotiated because it left Colombia with a trade deficit. But Colombia’s trade deficit with China is over thirteen billion US dollars per year, so it is not clear if the accession to the BRI will be an appropriate answer to this populist complaint.

—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.

2. What signals did we get from the rest of the region about China during the summit?

The latest China-CELAC Forum followed a familiar pattern: strong symbolism, minimal substance. While participation was notable—seventeen foreign ministers and three heads of state attended—the event was more a showcase of diplomatic optics than a venue for concrete policy advancement. Lofty rhetoric dominated public pronouncements, but there was little in the way of actionable deliverables or follow-through mechanisms.

The headline announcement—a $9.2 billion credit line for the region—made waves, but details remain scarce. No specifics were offered regarding how the funds will be distributed, which countries will benefit, or what the timeline looks like. Given China’s track record of making high-profile pledges that don’t always translate into implementation, it’s prudent to temper expectations.

The clearest signals came not from the multilateral setting but from bilateral tracks—especially Brazil and Chile. Both countries sent their presidents accompanied by large, high-level delegations. The presence of Brazilian President Luiz Inácio Lula da Silva, alongside nine of his ministers, underscored Brazil’s intent to deepen ties with China through structured, bilateral channels. The contrast with his visits to the United States is stark: all of Lula’s trips to Washington have involved significantly smaller delegations, often limited to a handful of advisers. That disparity speaks volumes about where Brazil sees its strategic priorities.

Chile followed a similar playbook, arriving in Beijing prepared to engage substantively. These engagements signal that China is increasingly prioritizing bilateral diplomacy over regional multilateralism when it comes to tangible cooperation. Countries with a clear agenda and internal coordination—like Brazil and Chile—are well-positioned to benefit.

The forum revealed more about China’s dual-track approach—multilateral symbolism paired with bilateral pragmatism—than about any coordinated regional response to China’s rise.

—Parsifal D’Sola

3. What are the diplomatic implications of the summit for China?

This week’s China-CELAC summit in Beijing underscores China’s expanding ambitions to exert greater influence in Latin America and the Caribbean. What were once isolated engagements with select countries have evolved into a substantive effort to shape economic development, forging geopolitical alliances in some cases and ideological ones in others. This shift is evident in China’s pledge of substantial financial support—$20 billion for infrastructure, $10 billion in concessional loans, and a $5 billion cooperation fund—solidifying China’s increasing role as a development partner in the region.

Initiatives such as the “1+3+6” cooperation framework and Colombia’s decision to join the BRI reflect a broader trend among Latin American countries seeking to diversify their economic partnerships beyond traditional Western allies. Beyond economic cooperation, China is also strengthening collaboration in technology and legal frameworks. Projects like the China-LAC Technology Transfer Center and the China-Brazil Earth Resources Satellite program demonstrate Beijing’s intent to integrate the region into its innovation ecosystem. The inaugural China-CELAC Legal Forum further institutionalizes these ties, fostering cooperation in areas such as digital law, finance, and governance.

Diplomatically, China’s growing presence poses a direct challenge to US dominance in the region. China is also leveraging the summit to diplomatically isolate Taiwan by engaging with countries such as Haiti and Saint Lucia—two of Taiwan’s remaining allies—further undermining Taipei’s international recognition.

China is also expanding its soft power through scholarships, training programs, and youth exchanges designed to cultivate relationships with future regional leaders. The summit reflects China’s aim to foster a multipolar global order, employing economic incentives, diplomatic engagement, and cultural diplomacy to establish itself as an indispensable partner to Latin America and the Caribbean.

—Enrique Millán-Mejía

The summit provided new indications that LAC countries must continue to collaborate on economic issues, particularly in the context of a lack of investment in regional infrastructure and ongoing pressure from the United States, which is engaged in a global trade war.

At the opening of the event, Xi emphasized his role as a reliable partner for LAC countries in the face of “geopolitical confrontation” and “protectionism,” a clear criticism of the United States. Xi also proposed initiatives to “build a Sino-Latin American community with a shared future” and pledged $9.2 billion in development credits for the LAC region. The delegations of the thirty-three CELAC countries responded positively, but there are still few details about how and when it will be spent.

But the announcement represents a further development in China’s interest in LAC. The region is a key target for Beijing, which is already the primary trading partner of Brazil, Peru, and Chile. Indeed, trade between China and the LAC countries surpassed $500 billion for the first time last year, a figure forty times higher than at the beginning of the century.

In contrast, despite the commitment of CELAC to regional integration, its members have taken different approaches to Beijing. While Colombia signed an agreement to join the BRI, Brazil has long avoided making such an association despite strengthening Brazil-China ties.

The United States’ more aggressive approach to Latin America has prompted several Latin American and Caribbean countries to seek closer ties with China, a phenomenon that emerged during US President Donald Trump’s first term. However, the practical implications of this enhanced relationship with Beijing over the next few years, and the potential costs for the region, remain uncertain.

—Thayz Guimarães is a visiting fellow for the China in Latin America Program at the Atlantic Council’s Global China Hub and a foreign desk reporter at the Brazilian newspaper O Globo.

4. What are the implications for the United States?

The summit demonstrated China’s aims to strengthen ties and be seen an attractive partner for the region by highlighting its support for multilateralism and opposition to protectionism. For many countries in the region, China has become a key partner, albeit one that is treated with caution and reluctance. Nevertheless, as US-China competition continues, LAC countries may have to face the challenge of balancing the pursuit of their own interests as Washington seeks reengagement with the region and China increases its efforts to present itself as a more reliable partner.

—Victoria Chonn-Ching

As China deepens its ties with LAC countries through trade, it challenges the United States’ historical dominance in the Western Hemisphere. On the diplomatic front, the summit proves China’s ability to present itself as an alternative partner that offers less conditional support compared to the United States, which sometimes links aid to governance reforms or democratic norms. This approach resonates with some leaders, especially in LAC countries that are disenchanted with US foreign policy. For the United States, failure to recalibrate its approach to regional diplomacy risks further alienation and erosion of soft power in its traditional sphere of influence.

The United States faces a strategic imperative to strengthen its alliances in the region. Washington should pursue this through renewed diplomatic efforts, competitive investment initiatives, and cooperative programs that address shared challenges such as renewable energy, illegal migration, and economic inequality.

—Enrique Millán-Mejía

The post Four questions (and expert answers) about the China-Latin America summit appeared first on Atlantic Council.

The EU and Britain need each other. Their shared challenges, including sluggish economic growth, the protracted war in Ukraine, and a US administration erecting tariffs on European goods and seeking to disengage from the continent’s defense, have made this abundantly clear.

Faced with these common challenges, EU and UK leaders are looking to sign three agreements at the summit. The first is a broad statement of shared values and common principles—a “geopolitical preamble” to shape a new strategic partnership. This statement is expected to reaffirm a commitment to free and open trade, Ukrainian sovereignty, and multilateral action to address global issues such as climate change.

The second, and most urgent, prospective agreement is a security and defense pact, which would open the way to the United Kingdom’s participation in EU-backed military spending. This agreement would allow Britain to take part in joint procurement for military capabilities alongside the bloc’s member states and to enable EU countries to purchase British-made military equipment as part of the new €150 billion European instrument to ramp up defense spending.

As one of Europe’s leading miliary powers, Britain is essential to achieving the continent’s aim of taking the primary role of defending itself in the wake of the Trump administration’s stated desire to reduce the United States’ commitment to defending Europe. In February, UK Prime Minister Keir Starmer pledged that Britain would increase its defense spending to 2.5 percent of its gross domestic product by 2027 and to 3 percent during the next parliament.

European fears about Russian aggression and US withdrawal from the continent have increased the pressure for decisive action on defense and security, and the EU-UK pact would represent a welcome step toward developing the continent’s defense industrial base and enhancing effective military cooperation.

The third item on the summit’s agenda is to agree to a “common understanding” on a range of issues concerning the trade and economic relationship between Britain and the EU. Current UK-EU trade arrangements are governed by the Trade and Cooperation Agreement (TCA) signed by the two sides in late 2020.

For all the fanfare associated with the economic deal the United Kingdom signed with the United States on May 8, the EU remains Britain’s single largest trading partner by far. Boosting economic ties weakened by Brexit could bring desperately needed dividends for both sides, even if it doesn’t produce the growth that would come from Britain rejoining the European single market, a policy Starmer promised not to pursue on the campaign trail.

The TCA is subject to a joint review next year, and both the United Kingdom and EU have bilateral issues they want to amend. The United Kingdom is keen to negotiate an agreement to reduce border checks on agricultural products and secure a mutual recognition agreement for professional qualifications to help open up markets for UK service exporters.

On the EU side, there are calls from France and others to support EU fishing rights in UK waters and a European Commission proposal to create a youth mobility scheme, which would allow young people from across Europe to work and travel freely between the United Kingdom and the EU.

Some of these issues will require political risks and trade-offs from both sides. Starmer’s popularity has slumped since he was elected last summer, and Brexiteers in the United Kingdom will be ready to accuse him of compromising on the outcome of Britian’s referendum to leave the European Union.

This domestic pressure has become more intense after local elections in England earlier this month that represented a heavy defeat for the governing Labour Party and a significant victory for the populist right-wing party, Reform UK, led by the arch Brexit champion Nigel Farage.

There will be pressure on European governments, too, not to compromise the principles of the EU single market for a deal on defense and security. And there remain concerns in European capitals about Britain’s long-term commitment to closer ties with a club it chose to leave nine years ago.

Yet, for all the political difficulties, this is a time for both the EU and the United Kingdom to be bold. Squabbles about fishing or veterinary checks cannot be allowed to undermine the vital steps that must be taken to confront the economic and security threats facing Britain and the EU today.

Europe has always been stronger when the United Kingdom and its continental neighbors are united. Next week’s summit can mark a modest but important step forward for UK-EU relations and demonstrate that the friction and pain of the last decade can be replaced by a new partnership with mutual benefits.

 Ed Owen is a nonresident fellow of the Atlantic Council’s Europe Center and a former UK government adviser.

The post Can the EU-UK summit lead to a new post-Brexit partnership? appeared first on Atlantic Council.

Click to jump to an expert analysis:

Melanie Hart: It looks like China has the upper hand in trade talks with the US 

Josh Lipsky: Treating US-China trade like a light switch will cause it to short circuit

Barbara C. Matthews: The tariff suspension creates a powerful incentive for third countries to choose a side

L. Daniel Mullaney: Whatever the outcome of talks, tariff unpredictability will reduce US trade dependence on China 

Hung Tran: The agreement is overshadowed by the possibility of abrupt change

It looks like China has the upper hand in trade talks with the US

The big takeaway from the weekend’s US-China meetings: Washington blinked, and Beijing decided to take the easy offramp on offer. 

It is no accident that these talks occurred just as Walmart and other major US retailers ramped up their warnings to the administration to prepare for COVID-19 pandemic-level shortages. Shortages were already showing up in shipping and port data. Consumer retail shelves were coming up next. And there is zero indication that US consumers are willing to experience shortages reminiscent of the Great Depression to accommodate a trade war with unclear aims.  

Meanwhile, Beijing was managing the economic fallout on the other side of the Pacific. Exports pivoted from the United States to Southeast Asia (likely the first step in a route designed to circumvent US tariffs). Many Chinese citizens praised President Xi Jinping for standing up to US bullying. Those that did not were censored. 

From Beijing’s perspective, China now has what it wants with all US administrations: a negotiation process. And it didn’t give up anything of value to get it. At home, Xi secured strongman bona fides for standing up to US President Donald Trump and a new boogeyman to blame for China’s domestic economic woes. Globally, Xi gains points for looking like the rational actor willing to come to the table and seek a deal. Beijing has been trying to engage the United States in talks over fentanyl for months. China issued a white paper back in March laying out its efforts to crack down on fentanyl. Politically, as of May, we are now back where we started at the beginning of the second Trump administration, with one major change: the United States and China are now actively engaged in trade negotiations, and it feels like China has the upper hand. 

—Melanie Hart is the senior director of the Atlantic Council’s Global China Hub and a former senior advisor for China at the US Department of State. 

Treating US-China trade like a light switch will cause some short-circuiting

This was a massive, unexpected, and very welcome de-escalation. We can cite gross domestic product statistics and market reactions, but the real driver from the US side was the prospect of missing backpacks, sneakers, and T-shirts at Walmart and Target just as parents start back-to-school shopping. 

China had a similar sense of urgency. Layoffs across ports and factories in southern China were becoming widespread. Apparently, the Chinese came into the negotiations ready to address nearly all the complaints the United States had raised and did so in a way that made US Treasury Secretary Bessent and US Trade Representative Jamieson Greer believe it was a genuine show of good faith.

Now the hard part starts—getting to a Phase Two trade deal. Inside the Trump administration, there is confidence that it can happen in ninety days. But the US-China trade deal signed during Trump’s first term took two years to negotiate—from 2018 to 2020—and this one is more complex and will address fentanyl, technology, semiconductors, and more. In the meantime, the Trump administration is going to introduce new tariffs, including on pharmaceuticals.  

Treating the relationship between the world’s two largest economies like a light switch is going to cause some short-circuiting. Expect a new surge of imports in June and July as retailers try to get ahead of whatever the fall may bring—it’s very difficult to run a global economy with this kind of uncertainty.  

The deal may be especially concerning for Europe. While Europe avoided the onslaught of cheap Chinese goods redirected to their shores, the United States is still on the hunt for revenue generators to offset the cost of Trump’s domestic priorities, including tax cuts. With China’s tariffs at least temporarily slashed and the negotiations with the European Union (EU) not gaining any traction, this puts Brussels in the hot seat.  

—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). 

The tariff suspension creates a powerful incentive for third countries to choose a side

The great global trade rebalancing of 2025 continues to gather momentum, illustrating that asymmetric negotiation is effective for counterparts seeking strategic shifts. The time horizon for tariff policy uncertainty has now extended to mid-August, aligning neatly but unfortunately with likely US fiscal policy constraints and the US budget process. The concessions by both China and the United States this weekend extend far beyond the headline temporary tariff reductions.   

Both parties have now publicly acknowledged that the Bretton Woods structure for creating economic interdependence continues to create powerful incentives for de-escalation; neither China nor the United States (much less the rest of the world) can afford to pursue long-term decoupling and trade diversion. This is the most positive signal that emerged from Switzerland over the weekend. 

Both parties also now tacitly agree that the trade imbalances created over the course of the last few decades must be addressed. China effectively had no choice: the last sixty days have seen a range of entities (the EU, the World Trade Organization, and the United Kingdom) publicly agreeing with the United States’ list of grievances against the multilateral trading system articulated in Trump’s executive order establishing high reciprocal tariffs. 

The ninety-day reprieve creates incentives for both the United States and China to build new bilateral trade arrangements with third countries to solidify their respective bargaining positions.   

The tariff suspension also creates powerful incentives for those third countries to choose a side. The recently concluded US-UK framework agreement and ongoing US negotiations with other large trading partners (including India, Japan, Canada, Mexico, and the EU) is mirrored by ongoing Chinese efforts to solidify the economic heft and geoeconomic stature of the BRICS economies. South Africa, as president of the Group of Twenty (G20) this year, has maintained a studious silence. India’s negotiations with the United States display potential fissures within BRICS, even as Brazil and Russia increase their economic ties with China. 

The current global trade policy volatility thus ironically replicates the parallel structure of negotiations that occurred in Bretton Woods, New Hampshire, eighty years ago. The great powers of the day gathered in the Gold Room to strike what we today would call “plurilateral” deals that set the boundaries of the possible even as broader negotiations in plenary sessions proceeded in the ballroom. Both then and now, the great powers of the day engaged in straight talk and struck difficult bargains for the purpose of setting a new economic equilibrium. The composition of participants in today’s Gold Room may be different, but the negotiating dynamic remains the same. The outcome will also achieve the same overall purpose: to restructure the geoeconomic balance of power. One can only hope that the deals struck over the next few months prove to be as durable as the original Bretton Woods agreement. 

— Barbara C. Matthews is a nonresident senior fellow with the Atlantic Council. She is also CEO and founder of BCMstrategy, Inc and a former US Treasury attaché to the European Union. 

Whatever the outcome of talks, tariff unpredictability will reduce US trade dependence on China

There are three major takeaways from this morning’s announcement of a temporary agreement between the United States and China: First, it is added proof that the Trump administration’s trade policy is less about the tariffs per se (or decoupling, in the case of China) than it is about achieving the objectives behind the tariffs. These objectives include curbing nonmarket excess capacity and other nonmarket policies and practices, unfair trade barriers abroad, and the goods trade deficit. Broad tariffs are ready and powerful tools for achieving these objectives, but they are also crude ones that inflict self-harm and are therefore less desirable than other arrangements with equivalent effect.   

Second, trading partners that immediately started negotiations over these objectives instead of retaliating are in as good a position as, if not better than, China, which chose a hardline retaliatory stance. The former are in negotiations with the United States, as China is now, but without the severe economic harm inflicted by the retaliation in the interim.   

Third, the United States and China are now in a position similar to that before China received “permanent normal trade relations” status and joined the World Trade Organization, when the trading relationship was subject to the uncertainty of yearly most favored nation status renewal. There was significant trade between the United States and China in this period, but it was hobbled by the unpredictability of the tariff regime. Regardless of the ultimate outcome of this morning’s agreement in terms of tariff levels, the unpredictability in the tariff regime will continue to serve the Trump administration’s objective of reducing trade dependence on China. 

—L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He previously served as assistant US trade representative for Europe and the Middle East. 

The agreement is overshadowed by the possibility of abrupt change

The United States and China have agreed to reduce their respective bilateral tariffs on each other for the next ninety days, buying time to negotiate a trade deal. Essentially, the 145 percent tariffs the United States levied on China will be cut to 30 percent, and China’s 125 percent tariffs on US goods will be cut to 10 percent. The agreement has eased tension between the two countries and triggered major rallies in international equities, as well as the dollar, which had been under selling pressure.  

While the reduction of tariffs and commitment to negotiate a trade deal between the world’s two largest economies is to be welcomed, these steps have raised important questions for the international trading system. First, this deal together with the recent US-UK trade agreement have confirmed that the world has moved into a bilaterally managed trading system based on reciprocity—with no references to previously agreed multilateral rules nor the World Trade Organization. Second, the agreements were made in a rather casual manner, without being codified into trade treaties or national laws. This adds to the uncertainty about how robust and sustainable those agreements can be, as they are overshadowed by the possibility of abrupt change. Finally, even with those agreements, US tariffs on other trading counterparts will likely remain higher than before April 2025. It appears that the global 10 percent tariff rate will become the floor tariff rate on imports by the United States.  

Taken together, these developments elevate uncertainty, unpredictability, and complexity in the world trading order. They are likely to reduce trade volumes, especially shipments to the United States, which aims to cut its trade deficit. If trade among the rest of the world doesn’t increase enough to compensate, the decline in global trade will contribute to a weakening of global growth prospects. 

—Hung Tran is a nonresident senior fellow at the GeoEconomics Center and former IMF official. 

The post Experts react: The US and China just agreed to dramatically reduce tariffs on each other, for now. What’s next?  appeared first on Atlantic Council.

It’s a dramatic de-escalation. On Monday, the United States and China announced that they will temporarily reduce the tariffs the two countries have imposed on one another for ninety days. As US-Chinese trade negotiations continue, Washington will lower its tariffs on Chinese goods from 145 percent to 30 percent, while Beijing will reduce its tariffs on the United States from 125 percent to 10 percent. Global markets reacted positively to the deal reached after talks between US and Chinese officials this past weekend in Geneva. “The consensus from both delegations is that neither side wanted a decoupling,” US Treasury Secretary Scott Bessent said after the talks concluded. Below, our experts decouple the signal from the noise of this major de-escalation of the US-China trade war. 

• Josh Lipsky (@joshualipsky): Chair of international economics at the Atlantic Council, senior director of the GeoEconomics Center, and former adviser to the International Monetary Fund

• L. Daniel Mullaney: Nonresident senior fellow with the Europe Center and GeoEconomics Center, and former assistant US trade representative 

• Barbara C. Matthews: Nonresident senior fellow at the GeoEconomics Center and former US Treasury attaché to the European Union 

• Hung Tran: Nonresident senior fellow at the GeoEconomics Center and former IMF official

Why it happened

• Put aside gross domestic product data and stock market swings: Josh tells us that the real motivator for the United States to strike a deal “was the prospect of missing backpacks, sneakers, and T-shirts at Walmart and Target just as parents start back-to-school shopping.” Similarly, China was motivated by increasing “layoffs across ports and factories in southern China.”

• In Dan’s view, the deal also indicates that the Trump administration’s trade policy “is less about the tariffs per se,” or decoupling from the Chinese economy, than it is about reducing the trade deficit, tackling trade barriers, and more. “Broad tariffs are a ready and powerful tool for achieving these objectives, but a crude one that inflicts self-harm,” making it “less desirable than other arrangements.” 

• In that sense, Barbara sees two important positives emerging from Geneva. Both the United States and China agree that they cannot “afford to pursue long-term decoupling and trade diversion.” And they “also now tacitly agree that the trade imbalances created over the course of the last few decades must be addressed.” 
• Dan adds that the agreement also sends a message to other countries considering how to approach this administration: “Trading partners that immediately started negotiations instead of retaliating are in as good a position, if not better, than China, which chose to retaliate” and suffered the harm of these punishing tariffs.  

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The next 90 days

• While the administration is claiming that it can strike a deal within the next ninety days, Josh points out that the US-China deal from Trump’s first term took two years, “and this one is more complex in scope and will address fentanyl, technology, semiconductors, and more.”

• But this idea of turning US-China trade on and off “like a light switch is going to cause some short-circuiting,” Josh says. He predicts a surge of imports this summer as retailers try to beat the resumption of these punishing levies. “It’s very difficult to run a global economy with this kind of uncertainty.”

• Meanwhile, Barbara is keeping her eye on the rest of the world. “Third countries over the next few months will be under increased pressure to choose a side between the United States and China.” This was on display in the US-UK deal announced last week and other US negotiations with allies, amid “Chinese efforts to solidify the economic heft and geoeconomic stature of the BRICS economies.” 

• With US-European negotiations “not gaining any traction,” Josh notes, “this puts Brussels in the hot seat.” 

What’s old is new again

• Hung says today’s announcement confirms “that the world has moved into a bilaterally managed trading system based on reciprocity—with no references to previously agreed multilateral rules nor the World Trade Organization.” These deals are also not codified into treaties or law, which “adds to the uncertainty about how robust and sustainable those agreements can be.” 

• Indeed, the arrangement reminds Dan of US-China dealings before China joined the World Trade Organization, when trade relations relied on annual renewal of “most favored nation” status. “There was significant trade but hobbled by the unpredictability of the tariff regime.” 

• The result is “likely to reduce trade volumes, especially shipments to the United States, which would cut its trade deficit” as the Trump administration wants, Hung says. But it will also likely result in the “weakening of global growth prospects.” 

• The participants are different, but the “negotiating dynamic remains the same,” Barbara says, as the 1944 Bretton Woods agreement. “The outcome will also achieve the same overall purpose: to restructure the geoeconomic balance of power. One can only hope that the deals struck over the next few months prove to be as durable as the original Bretton Woods agreement.” 

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 What to make of the respite in the US-China trade war appeared first on Atlantic Council.

Such data gives a different perspective on the United States’ trade relationships. Countries in Latin America and the Caribbean (LAC), especially Mexico, import US goods at levels more typical of high-income countries, outperforming countries with similar income and development levels located in other regions.

This infographic highlights LAC’s unique role as a high-value market for US products. With strong trade ties and deep supply-chain integration, the region could help the United States advance its economic goals.

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Watch the full event

Public Event Fri, April 25, 2025 • 11:30 am ET

Technology and the future of the financial system with Nasdaq CEO Adena Friedman

AN #ACFRONTPAGE EVENT—Adena Friedman, chief executive officer of Nasdaq, shares her vision for the future of the global financial system.

Economy & Business Financial Crimes & Illicit Trade Financial Regulation International Financial Institutions

According to Nasdaq CEO Adena Friedman, the movement of illicit funds through the financial system “is a global issue, and it requires global solutions.”

Friedman spoke at an Atlantic Council Front Page event on April 25, citing a Nasdaq study from last year that found that more than three trillion dollars had moved through the global financial system illegally in 2023.

Pondering the solutions needed for such a large-scale issue, Friedman said that the public, private, and technology sectors will need to work together. Markets process billions and billions of transactions, and, as she explained, it can be difficult to distinguish between those that are legitimate and those that are not.

“It’s a little bit of looking for a needle in a haystack,” Friedman said.

Below are highlights from the conversation, moderated by Economic Statecraft Initiative Director Kimberly Donovan, which covered technology’s role in the financial system and the impact of global volatility on markets.

When fin meets tech

• For Friedman, artificial intelligence (AI) is an increasingly promising approach to detect and report financial crimes to banks and law enforcement. “We’ve got to be able to unleash the technology to the best of its ability,” Friedman said. 
• “It’s amazing, unfortunately, how sophisticated the criminals can be” as they use more sophisticated tools, including AI and other leading-edge technology, Friedman warned. She said that banks, markets, and law enforcement would need to look to AI, cloud technology, and automation to thwart and disrupt the financial dealings of criminals and criminal networks. 
• Friedman said she has seen a shift among banks in the last decade, as competition among them has been tempered with a sense that collaboration is needed to solve the problem of financial crime. 
• Technology has also helped Nasdaq respond to market shocks, Friedman pointed out. In the first ten days of April, she said, Nasdaq experienced five of the top six trading days in equities ever in the United States and four of the six top options trading days. At the peak, on April 7, “we had 550 billion messages flowing through our systems in that day, just to be able to manage the level of supply and demand that was coming into the markets,” she said. That’s roughly double the previous number of daily messages. 

Responding to recent volatility

• “It’s a very, very dynamic time for investors,” Friedman said, speaking at the end of a month that has been volatile for markets following back-and-forth US tariff announcements. 
• “I always try to put myself the head of an investor when you go through these periods of uncertainty and change,” Friedman said, explaining that in response to greater uncertainty, many investors are pulling back. “There’s a lot of change. There’s a lot that’s unknowable and therefore, they’re taking risk off.”
• But this approach is likely to be followed in short order by investors redeploying their capital, Friedman said. 
• Looking at how investors responded to the COVID-19 pandemic is instructive, she explained. In the early days of the pandemic, when uncertainty was most acute, there were big drawdowns in capital. But as soon as people realized that they could operate in the new environment, investors were able “to bring their capital back in a smart way and redeploy,” Friedman explained.
• But markets have adapted to the shocks and volatility, she added. “I just want you to understand that the plumbing has been working,” Friedman said of markets’ resiliency to respond to recent trading activity and ensure stability. 

John Cookson is editor of the New Atlanticist.

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Taiwan is under unprecedented pressure from the People’s Republic of China (PRC), facing coordinated threats on multiple fronts. The PRC employs a comprehensive strategy to strangle Taiwan’s dwindling diplomatic space, pollute its public discourse with disinformation and misinformation, and apply pressure using both military and civilian means. It also wields its vast economic power to punish the island nation—as well as countries, companies, and individuals that support Taiwan.

Under the former Tsai Ing-Wen administration and the current Lai Ching-Te administration, Taiwan has taken significant steps toward ensuring that it remains a free and vibrant democracy. Last June, Lai announced the establishment of the Whole-of-Society Defense Resilience Committee at the Presidential Office to ensure that both the government and society would be able to maintain normal operations in the event of a crisis in the Taiwan Strait. The committee gathers senior leaders and representatives across a wide swath of Taiwan’s government, civil society, business, nongovernmental organizations, and academia to formulate strategy and provide recommendations in five key areas: civilian force training and utilization; strategic material preparation and critical supply distribution; energy and critical infrastructure operations and maintenance; social welfare, medical care, evacuation facility readiness, information, and transportation; and financial network protection.

In July 2024, the Atlantic Council Scowcroft Center for Strategy and Security published “Toward resilience: An action plan for Taiwan in the face of PRC aggression.” The Center for Strategic and International Studies (CSIS) followed with its “Strengthening Resilience in Taiwan” report in December 2024. These two reports provide an accurate assessment of the challenges of creating societal resilience and share policy recommendations for the Taiwan Whole-of-Society Defense Resilience Committee. However, additional perspectives—especially across social, technological, and economic dimensions—can help expand Taiwan’s approach to societal resilience.

Preparing for crisis—without spreading fear

Organizing the necessary stakeholders around a shared framework with a clearly defined and understood vision was the easy part. However, as with all large bureaucracies, Taiwan’s resilience committee faces significant challenges in getting both the government and other actors to accept and implement difficult trade-offs. These trade-offs require people, departments, and various parts of Taiwanese society to give up money, power, or influence in order to achieve the necessary reforms and make them sustainable for the long term.

A key pitfall for Taiwan was failing to persuade its people, in plain language, why it needed to create the Whole-of-Society Defense Resilience Committee in the first place. Taiwan’s resilience ultimately hinges on the public understanding that the PRC can, and might, use its full suite of tools and capabilities against the island, should Xi Jinping conclude that a takeover is otherwise unattainable. The government needs to explain how everyday citizens can prepare in the event of that type of crisis. As demonstrated by Taiwan’s response to multiple natural disasters, its government is a global leader in terms of orienting local and national efforts to recover and quickly return to a pre-disaster state. However, the resilience committee has the challenging task of learning how to balance preparing Taiwan for manmade emergencies, such as a maritime blockade or military invasion, without unnecessarily creating a sense of panic.

This May, a television miniseries titled Zero Day is set to air in Taiwan, depicting a “fictional” scenario of a People’s Liberation Army (PLA) invasion of the island. The entertainment industry has always been most effective in helping people visualize a possibility that resonates with them in a way that the most well-written and brilliant policy papers cannot. As the old saying goes, a picture is worth a thousand words; a more modern version could say a viral video is worth a thousand tweets and re-tweets. The Zero Day trailer has already increased awareness and captured people’s imaginations in a way that official government messaging efforts are unlikely to achieve. The goal is not for people to conclude there’s no point in resistance, but to spur action toward resilience efforts now.

Taiwan should capitalize on the moment and create communications channels for local and provincial townships, facilitated by a fireside chat-style format, to have a greater voice on what is effective and resonates. The national government must be prepared to provide tailored support across the five key areas, even when such support is redundant and expensive at first. It must create an environment for any local government to communicate, improve infrastructure, increase civil preparedness, and support its constituents across a range of emergencies and disasters. Some will use whole-of-society resilience as another means to get funding, but the reality is that there will be improvements that meet resilience goals. This will gain long-term support for resilience efforts if everyday people understand what could happen and see their feedback result in tangible benefits.

From technological edge to strategic advantage

On a recent Bloomberg Odd Lots podcast, Shyam Sankar, the chief technology officer (CTO) of US software giant Palantir, described what his company’s product is and what it delivers to customers. In plain, non-technical language, Sankar said the product is an artificial intelligence (AI) decision-making platform to inform better and faster decisions.

Few countries already possess the technology foundation and expertise to rapidly create and scale the types of advanced technology cited by Sankar. Whether Taiwan develops its own version of Palantir or adopts existing technology, the Taiwan resilience committee should consider taking the calculated risk of trusting AI-driven platforms. Doing so could significantly enhance its decision-making processes, thereby maximizing the efficient use of its limited people, assets, and resources in countering the full spectrum of China’s coercive tools.

It is difficult to truly replicate quality in-person training or support for social welfare and medical care. But imagine being able to wear a headset or set up another interface for increasingly sophisticated virtual reality (VR) and augmented reality (AR) systems to provide civilians, first responders, and military personnel with more effective training programs and with more realistic scenarios. These systems could also help people stay connected to the government during a crisis and provide immediate medical information in potentially demanding situations in which physical care might not be possible. VR and AR systems offer an additional benefit in their ability to connect anyone around the world and to leverage the latest training and information without the limitations of budget, policy, and travel restrictions.

Three-dimensional (3D) printing could be equally important in supporting Taiwan’s resilience efforts. The ability to print critical parts and components could alleviate the need for large storage locations, which must be maintained and can become easy targets for sabotage or kinetic attacks. Because Taiwan has a unique and harsh climate that makes food production and storage difficult even in normal conditions, it should consider developing food stockpiles that are resilient to humidity and heat and can sustain the population for longer periods. Other critical areas for advanced technology development are portable and modular water-purification systems, which could provide water security in the event that critical infrastructure is damaged or disrupted. Lastly, Taiwan is already making progress toward redundant and resilient off-island communications. Still, much more needs to be developed to survive sophisticated jamming of all communications.

How Taiwan’s tech giants could help deter China

Most economists and financial analysts would agree that the Taiwan Semiconductor Manufacturing Company (TSMC) is the flagship company driving the global technology sector. Building on this foundation, Taiwan should leverage its world-class strengths in manufacturing, supply chain management, and technological innovation to directly support the efforts of the Whole-of-Society Defense Resilience Committee.

The idea of commercial companies supporting governmental demands and requirements is not new. In the same podcast mentioned earlier, Sankar shared that well-known commercial US companies such as Chrysler and General Mills used to be dual-purpose companies that produced military hardware. Due to its expertise in production-line milling equipment, General Mills manufactured torpedoes. Sankar further noted that Chinese prime contractors today derive only 27 percent of their revenue from the PLA, with the remainder coming from commercial sales. To strengthen its resilience, the Taiwanese government should consider additional tax incentives and subsidies to encourage tech giants like Foxconn to manufacture advanced technologies—supporting both national security efforts and positioning these companies for dual commercial and government purposes.

On June 13, 2024, New York Times (NYT) columnist Ross Douthat interviewed Vice President J. D. Vance for an opinion piece titled “What J. D. Vance Believes.” In the interview, Vance referred to “the most important lesson of World War II, that we seem to have forgotten: that military power is downstream of industrial power. We are still, right now, the world’s military superpower, largely because of our industrial might from the ’80s and ’90s. But China is a more powerful country industrially than we are, which means they will have a more powerful military in 20 years.” Against this background, Taiwanese technology companies—working in concert with Korean and Japanese companies—could provide a trusted partner network for global supply chain demands and facilitate decoupling from China, especially for highly specialized components such as drone camera lenses, batteries, and control boards. Taiwan should aim to replicate the strategic dominance achieved by TSMC in semiconductors—this time by becoming indispensable for global supply chain demands. Such an effort would unlock the full potential of Taiwan’s economic power and directly contribute to the deterrence it hopes to achieve with its resilience and defense reforms.

A Herculean feat

Tsai and Lai should be commended for their whole-of-government efforts to bolster Taiwan’s societal resilience against the onslaught of Chinese coercion. Creating new government structures, managing internal power and budgetary struggles, balancing responsibilities across various branches of government, and navigating opposition politics is a Herculean feat—and those are only the domestic challenges. None of these efforts will be effective or sustainable if everyday Taiwanese citizens do not believe they are necessary or that the scenarios being prepared for are a real possibility. Adopting a bottom-up approach—not the preferred method in Asia—may be the key to building momentum for Taiwan’s resilience effort. Asking any government bureaucracy to trust advanced technology such as AI is a significant leap of faith, but the potential benefits of integrating these systems could give Taiwan the elusive asymmetric edge needed to deter and delay China’s party-driven decision-making. Lastly, Taiwan is extremely proud of its world-class technology industries that drive the global economy today—but that success was built on decades of government support. Now, Taiwan’s industries must help support their government’s resilience efforts by expanding beyond commercial purposes. They should evolve into dual-purpose companies, serving both civilian and defense needs, and become trusted partners in securing global supply chains, especially for the US defense and technology sector. A renewed focus on its people, advanced technology, and economic strategy could help Taiwan deter Chinese coercion—something that military and defense reforms alone have been unable to achieve.

Marvin J. Park is a nonresident senior fellow in the Indo-Pacific Security Initiative at the Atlantic Council’s Scowcroft Center for Strategy and Security. He is a national security professional with experience in national-level policymaking, intelligence matters, and military operations throughout the Asia Pacific, especially Taiwan, Japan, and the Republic of Korea (ROK). Park served on the National Security Council as the director for Taiwan affairs from 2023 to 2024. He retired in 2025 as a US Navy captain with over twenty-five years of experience.

The Tiger Project, an Atlantic Council effort, develops new insights and actionable recommendations for the United States, as well as its allies and partners, to deter and counter aggression in the Indo-Pacific. Explore our collection of work, including expert commentary, multimedia content, and in-depth analysis, on strategic defense and deterrence issues in the region.

Report Jul 2, 2024

Strengthening Taiwan’s resiliency

By Franklin D. Kramer, Philip W. Yu, Joseph Webster, Elizabeth Sizeland

Resilience is a nation’s ability to understand, address, respond to, and recover from any type of national security risk. Given the scale of risk Taiwan faces from mainland China, domestic resilience should be front and center in Taiwan’s national security strategy, encompassing areas such as cybersecurity, energy security, and defense resilience.

China Crisis Management

New Atlanticist Jun 28, 2024

Dispatch from Taipei: Why Taiwan’s survival may depend on deterrence through resilience

By Markus Garlauskas

A repeated theme in recent discussions in Taipei was Taiwan’s ability to withstand Chinese coercion and to adapt and sustain its defenses while under attack.

China Indo-Pacific

Issue Brief Jun 27, 2024

Production diplomacy for deterrence, readiness, and resilience in the Indo-Pacific

By Andrew Brown, John T. Watts, Markus Garlauskas

Production diplomacy provides opportunities to protect supply chains, strengthen alliances and partnerships, enhance deterrence, and build defense readiness, though it is not without risks and challenges.

Australia Defense Industry

The Indo-Pacific Security Initiative (IPSI) informs and shapes the strategies, plans, and policies of the United States and its allies and partners to address the most important rising security challenges in the Indo-Pacific, including China’s growing threat to the international order and North Korea’s destabilizing nuclear weapons advancements. IPSI produces innovative analysis, conducts tabletop exercises, hosts public and private convenings, and engages with US, allied, and partner governments, militaries, media, other key private and public-sector stakeholders, and publics.

Learn more

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Laissez-faire economics is out; less-than-it-was economics is in. On Tuesday, the International Monetary Fund (IMF) released its latest World Economic Outlook (WEO), which cut its projection for global growth in 2025 to 2.8 percent, down from 3.3 percent in its January forecast, with US growth now pegged at 1.8 percent, down from 2.7 percent. Driving a significant part of these downward revisions are US President Donald Trump’s tariff announcements, along with the associated policy uncertainty and push toward protectionism globally. “We are entering a new era,” the IMF’s chief economist said, as the “global economic system that has operated for the last eighty years is being reset.” Below, Atlantic Council experts at the IMF-World Bank meetings this week in Washington delve into the details and explore what it all means.

• Josh Lipsky (@joshualipsky): Senior director of the Atlantic Council’s GeoEconomics Center and former adviser to the IMF
• Jeremy Mark (@jedmark888): Nonresident senior fellow at the GeoEconomics Center and former IMF communications specialist
• Elizabeth Shortino: Nonresident senior fellow at the GeoEconomics Center and former US executive director at the IMF
• Martin Mühleisen (@muhleisen): Nonresident senior fellow at the GeoEconomics Center and former IMF official

Prediction problems

• Predicting the economic future is difficult any time; even more so now. Josh points out that just last week, US Federal Reserve Chair Jerome Powell said “there isn’t a modern experience of how to think about this,” underscoring the difficulty in modeling the global impacts of the Trump tariffs. The new WEO is important, Josh adds, because in effect “the IMF said, ‘We’ll give it a try.’”
• That said, the IMF does hedge somewhat by offering three scenarios. Jeremy notes that the IMF officials focused on WEO’s “reference forecast,” which sees a 0.5 percentage point reduction in global output for all of 2025 when calculating the impact of all of Trump’s tariffs this year through “Liberation Day,” without the subsequent pauses. And it could turn out to be even worse than that, Jeremy adds, since some economists see IMF projections as “too inclined to accentuate the positive”
• “The recent rapid trade and market developments make it next to impossible to produce a reliable baseline forecast for global growth,” says Elizabeth. “The IMF also had to walk a fine line in assessing the impacts of US actions without too overtly criticizing its largest shareholder. Not an easy task on both counts.”

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Certain about uncertainty

• The word “uncertainty” appears more than one hundred times across the WEO and its companion document, the Global Financial Stability Report, Elizabeth notes. “This message is on point, as uncertainty abounds and poses its own strains on the global economy.” 
• What does this uncertainty look like? In the United States, further stock market declines, higher interest rates, and exchange rate fluctuations have the potential to create “significant shocks that could destabilize financial markets,” Martin says. At the same time, the WEO states that a resolution of the tariff conflicts or an end to the war in Ukraine could provide a major boost to the global outlook. 
• And yet, Martin says, “there should be no illusion about the risks facing the world economy, reminiscent of the last financial crisis, and continued uncertainty on tariffs and other policies risks moving markets closer to the abyss.”
• Those risks come out even more when you dig below the headline numbers. Jeremy notes that the projections of 4 percent growth for China this year and next year “probably won’t go over well in Beijing,” since they are below official figures. Elizabeth points to “a more dire scenario” for global growth nestled in the WEO if the United States extends the Trump first term tax cuts, China’s domestic demand continues to lag, and Europe’s productivity does not grow.

A recession by any other name

• Could the world be headed for a recession? Josh points out that the IMF is not projecting a global recession this year, even though the risk has increased. Moreover, Josh adds, what would qualify as a global recession is different from a recession in a single country, which is generally two consecutive quarters of negative growth. 
• “When I was at the IMF, there was a debate about whether GDP growth under 2.5 percent would constitute a recession,” says Josh. “It seems like today the IMF has made a determination about what this looks like in the current situation—2 percent GDP growth—although they call it a global economic downturn.”
• Josh will be paying close attention to how IMF Managing Director Kristalina Georgieva answers the recession question in her Thursday press conference: “Just because the global economy isn’t in a recession by the IMF’s standards at the moment, it doesn’t mean in a few months we won’t cross the mysterious threshold.”

New Atlanticist

Apr 20, 2025

Inside the IMF-World Bank Spring Meetings as leaders navigate the global trade war

By Atlantic Council experts

Amid an economic climate of great uncertainty, we dispatched our experts to the center of the action in Foggy Bottom to share their biggest takeaways from a pivotal week for the global economy.

Inclusive Growth International Financial Institutions

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First, the significant effect that government-led instant payment systems can have on citizens and the financial market transforms financial inclusion and market structures. Second, decisions made during the early stages of the process, such as system pricing and ownership structure, shape the power dynamics between local and international players, as well as incumbent and new entrants. 

These lessons are shaping an emerging framework governments can use to evaluate their need for central bank-led immediate payment systems, their potential structure, organizational features, and trade-offs involved in implementing a similar approach. The framework is composed of a three-step approach, including prerequisite weighting (i.e., “do we need this system”), the preparations needed to hit the ground running, and the process of setting up new immediate payment systems.

Pix and UPI: Initial development to growing pains

But first, it’s important to understand how immediate payment systems have developed into what they are today. 

Over the last decade, India and Brazil launched their instant payment systems, UPI and Pix, on a national scale, reshaping their payment landscapes. With 350 million UPI users and 140 million Pix users, about 25 percent of India’s population and approximately 65 percent of Brazil’s population use the systems. One of every eleven adults in the world uses either Pix or UPI to send or receive immediate payments. 

Brazil’s immediate payments policy is a payments-first approach. The Brazilian Central Bank (BCB) owns Pix and pushes it to cooperate with domestic private market players, focusing mainly on immediate payments and adjacent products. The system was launched in 2020 after a two-year ideation and development period.

Pix is the most quickly adopted immediate payment system in the world. As of the second quarter in 2024, it had reached 15.4 billion quarterly transactions. Its growth was fueled by a high degree of cooperation with the local financial ecosystem, as well as the fact that institutions with over 500,000 transacting accounts were required to participate, creating a network effect.

India developed UPI as a part of its Digital Public Infrastructure (DPI) program and implemented it as a part of a broad tech stack. Its approach to both DPI and UPI has long been for the state to develop the basic infrastructure, including a digital identity pillar, data exchange pillar, and payments pillar, allowing private sector innovation on top of the existing system.

UPI was developed under the National Payments Corporation of India, which is independent of India’s central bank and owned by various private banks. It became India’s most popular digital payment method, processing over 75 percent of the nation’s retail digital payments.

However, UPI’s growth was initially slow. It only reached 10 million monthly transactions in 2017 and took about three years to reach 1 billion monthly transactions. The growth was later expedited due to India’s demonetization, which started in 2016, the COVID-19 transition away from cash, and internationally backed payment providers entering the market.

Both Pix and UPI have significantly increased financial inclusion, supported growth in the fintech sector, and become the payment standards in their respective countries. However, their impact has not been entirely positive. Their use has also increased fraud and reshaped the power balance between different players in their markets.  

Winners and losers: Market impacts in Brazil and India 

Both systems transformed their respective markets, benefitting some players and reducing the market power of others. 

The table below provides a snapshot of the market dynamics, highlighting each of the key players, their initial power and interest mapping (green for high, yellow for medium, and red for low) and the power shifts in the market caused by Pix. Power shifts are categorized into market share and decision-making power—red with a downward-facing arrow indicates a decrease, green with an upward-facing arrow signifies an increase, and yellow represents retained power or a mixed trend.

In Brazil, Pix has transformed the financial sector by benefiting new domestic players while challenging incumbents and credit card schemes. 

Brazilian neobanks and fintech startups have grown significantly by leveraging Pix’s cost model to attract new customers. They take advantage of the optional fee structure for its value offer, including no fees for consumers and bearing the mandatory fees for businesses. Eliminated transaction fees and immediate payments increased consumer trust. It made digital payments more accessible, particularly for the previously unbanked population. Small businesses and micro-entrepreneurs have also gained access to low-cost, instant transactions, fostering financial inclusion and reducing reliance on cash. This, in turn, drove an increase in such banks’ target addressable market (i.e., relevant customer base).

However, traditional banks and credit card networks have been disrupted. Before Pix, Brazilian banks charged significant fees for interbank transfers, but Pix’s free and instant model eroded this revenue stream. As a result of Pix’s launch, traditional banks’ revenue from payments decreased by 8 percent between 2020 and 2021.

Credit card companies are seriously threatened by Pix. In 2022, BCB’s governor predicted that Pix would make credit cards obsolete. However, transaction data tells a more complicated story. With Pix introducing new consumers into the market, banks are leveraging “maturing cohorts” of consumers to offer them credit cards. Before Pix, credit card payment volumes were at a 12.7 percent annual CAGR (compound annual growth rate) between 2018 and 2020. After the launch of Pix, CAGR almost tripled, reaching 31.7 percent between 2020 and 2022.

UPI’s rapid adoption in India similarly transformed the power balance in the market and benefitted payment technology providers. 

Large-scale third-party application providers (TPAPs), particularly Google Pay and PhonePe, dominate the UPI transaction space, accounting together for over 80 percent of UPI transactions. These players leveraged UPI’s no-cost model to gain significant user adoption. Consumers and merchants have also benefited from seamless, real-time payments without additional fees. 

However, traditional banks struggle with UPI’s zero-fee structure, as it increases transaction volumes and associated costs without direct revenue gains. Some banks have pushed for the introduction of transaction fees to compensate for operational costs. For that reason, in 2022 RBI introduced subsidies for small transactions to banks, which they can share with TPAPs. In 2024, these accounted for 10 percent of PhonePe’s annual revenue. Credit card companies have also faced increasing competition. However, similar to Brazil, credit card usage volume has actually increased following UPI’s scaling. From a declining CAGR of 7.3 percent between 2018 and 2020 in payment volume, after UPI scaled, credit card growth reached a 24.2 percent CAGR between 2020 and 2022.

Big tech vs. local tech: Divergent approaches

A key distinction between Pix and UPI is their approach to global technology firms (“big tech”) and multinationals generally.

BCB has actively blocked big tech from entering the market, emphasizing the need for domestic control over digital payments. This approach is part of a general policy to strengthen the domestic ecosystem over incorporating multinational players. In 2020, for example, BCB suspended WhatsApp’s Brazilian immediate payments offering launch. It cited regulatory concerns and the potential risk to financial stability, launching Pix later that year. This strategy has helped the local fintech ecosystem and brought domestic players, mainly neobanks, to the front of the stage. 

In contrast, India’s approach has allowed big techs and multinational players to participate in the UPI ecosystem and often relied on them for last mile delivery, and consumer onboarding, driving its scaleup. Google Pay and PhonePe, respectively backed by Alphabet and Walmart, quickly dominated.They could offer payments as a loss leader (i.e., sell at a loss to attract customers to other, profitable products) while benefiting from other products over time. 

While doing so accelerated lagging adoption rates, it has also led to concerns about data privacy and market concentration. 

The Indian government has since explored regulatory measures, such as imposing a 30 percent market share cap on individual TPAPs, though enforcement has been repeatedly delayed. Another claim voiced by government officials in the debate is that, given UPI’s universal nature, providers are interchangeable, thus eliminating anti-competitive claims.

This divergence in strategies and outcomes reflects the broader debate about whether emerging economies should embrace or limit big tech’s role in financial infrastructure.

Stages of implementation

Based on Brazil and India’s experiences, a three-stage framework emerges for countries considering immediate payment systems adoption.

The first stage of weighting prerequisites involves assessing the need for a state-led payments system based on three factors: the existence of alternatives (e.g., a strong credit card presence), expected change (primarily driven by the level of financial inclusion, development costs, and the size of the economy), and state capacity. As a result, countries with low banking penetration and high reliance on cash are more likely to benefit from such systems. 

The second stage involves getting ready to hit the ground running, focusing on implementation and scaling. Understanding the existing market conditions and the shifts anticipated from the introduction of the system is crucial. Additionally, selecting an appropriate governance model—whether a central bank-led approach like Pix, a consortium-led model like UPI, or a provider model—plays a vital role in determining long-term implications. Lastly, the fee structure will also influence both adoption and market entry and should be actively established at this stage. 

The final stage involves setting up a long-term process by establishing cooperation mechanisms and managing externalities. Policymakers must implement regulatory adjustments based on market responses to address issues such as monopolization and consumer protection against fraud. They should also explore engagement mechanisms for local players through forums and bilateral consultation schemes, focusing on gaining knowledge and legitimacy as well as efficiency considerations. 

While many regions worldwide consider the future of payments, this framework can serve as an initial point of assessment. There is no perfect “one size fits all” solution. However, states’ varied ability to execute and enforce participation, the size of their economies, and the preexisting market structures significantly influence decisions concerning the “what” and the “how” of launching immediate payment systems.

Pix and UPI offer several additional insights into how state-led payment systems can reshape economies. 

While Brazil focused on domestic financial players and regulatory control, India leveraged global technology firms for swift adoption. Consequently, Brazil fostered the expansion of its local fintech ecosystem, while India established an environment with significant multinational involvement. 

In both cases, incentives for private market players aligned to support the growth of credit card provision as a subsequent step after initially introducing consumers to the financial system through Pix and UPI. While there is room for discussion about the implications of this step, it is a definitively critical point to consider when launching such systems and weighing their outcomes.

Lastly, the key lesson from these models lies in the decisions made by policymakers to initiate transformative processes. Both models illustrate the potential of such systems to enhance financial inclusion, disrupt traditional banking, and reshape economies, thereby aiding in their advancement. These lessons from UPI and PIX can be narrowly applied to public sector entities looking to create state-led systems, however, it is important to consider that market structure transformation might not be the ideal solution for every economy, especially more advanced economies which have a larger share of private sector players. Ultimately within a jurisdiction, policymakers bear the ultimate responsibility of acting to launch immediate payment systems.

Polina Kempinsky is a second-year Master of Public Policy student at the Harvard Kennedy School. This paper is part of Polina’s PAE (Policy Analysis Exercise) for her program, which explores the instant payment systems of Brazil and India.

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

Learn more

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Those projections were released at the IMF-World Bank Spring Meetings, where central bank governors, finance ministers, and other economic leaders met. There, many sounded the alarm about the global economy’s trajectory and discussed their plans to cushion their countries from the blow of low growth and high inflation, which are expected to result from US President Donald Trump’s sweeping tariffs.

Amid an economic climate of great uncertainty, we dispatched our experts to the center of the action in Foggy Bottom to share their biggest takeaways from a pivotal week for the global economy. Read what they want you to know below.

This week’s expert contributors

APRIL 26 | 12:01 PM ET

“Those who seek to deconstruct the system… have an obligation to share the vision of what comes next”

Wrapping up the week, GeoEconomics Center Senior Director Josh Lipsky, who is also the chair of international economics at the Atlantic Council, reflects on the founding of the Bretton Woods institutions and calls for visionary leadership to shape what comes next.

Read the remarks

The US dollar has been the global reserve currency for approximately a century, and we can sit here as we did this week and talk about all the macroeconomic factors of why that is—liquidity and capital markets and all the ins and outs that make something a reserve currency or not.

But the fundamental reason something becomes a reserve currency, the world’s leading experts on currency will tell you, including at the Atlantic Council, is the rule of law.

But another way to say that is trust: Trust that, fundamentally, you will be treated fairly, there will be a process if there’s a dispute, that you understand the system, how it works, and how it doesn’t. That trust was hard fought for and hard won by the United States.

We often romanticize the three weeks in New Hampshire in 1944, as when the world came together and set out a new international economic order and created the dollar as the global reserve currency. But the truth is much more complicated. There was wrangling and backstabbing and negotiation and suspicion, countries not wanting to deal with each other, bilateral negotiations just like we see this week.

And what emerged from that meeting was not a consensus. It was a precarious and tenuous agreement to see if the United States, as the leader of an international economic system, could earn the trust of the world. And they did it.

The United States did something that no superpower in the history of the world had ever done before. They shared their power. They built a rules-based international system, and that system benefited the world, but it also benefited the United States. It generated enormous prosperity in this country.

We overlook that history at our own peril. Are there deep flaws in that system? Of course, there are. Have they built up, especially in the past twenty, thirty years to the detriment of American workers and workers around the world in advanced economies? There is no doubt. Is reform needed? Of course, there is absolute unity across the IMF and World Bank about the need for reform.

But those who seek to deconstruct the system that was built over nearly a century have an obligation to share the vision of what comes next.

This world that we have built, this economic order, is imperfect. But it represents the consensus of the citizens of the countries that these ministers and governors represent. And the brilliance of this system is that every country has a voice.

And working together, they build a stronger global economy. We may have forgotten those lessons as a century has moved on, and it may be painful for all of us as we seek to relearn them. But we have to come out of the other end of this, not just in a bilateral world, the way we operated before the Bretton Woods system, but a way that shows we have learned and not forgotten the lessons of history. That is what we will be committed to at the Atlantic Council, and that is what we will continue to work on in the days, weeks, and months ahead.

APRIL 26 | 11:24 AM ET

Thanksgiving in April

Last year at the Annual Meetings, my colleague Martin Mühleisen likened these gatherings to Thanksgiving, as both ‘sides’ of the family come together in good spirits—though there may be a kick under the table. On this, I agreed, noting there is meaningful cooperation, collaboration, and respect between the IMF and World Bank.

Despite the overarching sense of gloom at these Spring Meetings, as the trade war heightens economic uncertainty, there were encouraging signals that much-needed coordination and partnership between these two institutions and beyond can and is happening.

For example, take domestic revenue mobilization and debt, two connected challenges listed prominently on the agenda. That’s the case for good reason: Emerging market and developing economies collectively face a financing shortfall in the trillions. As I discussed on Tuesday with the French Treasury’s William Roos, who is also co-chair of the Paris Club, these countries lack fiscal space to invest in growth or climate resilience, mainly due to declining development assistance and hamstringing debt (at least half of these countries are in or at high risk of debt distress).

The implications for macro stability, economic development, and poverty alleviation give both the Bank and Fund a shared interest in prioritizing action. They have similar tools at their disposal—financing, concessional lending, trust funds, policy advice, and capacity building. But too often these tools are utilized in isolated, fragmented, and (at times) even counterproductive ways.

This is why joint efforts such as the IMF-World Bank Debt Sustainability Framework for Low-Income Countries and the Domestic Resource Mobilization Initiative are so critical. So is the new, much-anticipated “Playbook” for debt restructuring released on Wednesday by the Global Sovereign Debt Roundtable, which the Fund and Bank co-chair along with the Group of Twenty presidency. Ceyla Pazarbasioglu—the director of the Strategy, Policy, and Review department at the Fund—got giddy discussing these collaborations with Pablo Saavedra, vice president of Prosperity vertical at the Bank, and me.

As much as ongoing and strengthened coordination between these two institutions is important, I am even more encouraged by what I heard from them and others, on and off the 19th Street campus, and in front of cameras and behind the scenes. The people I spoke with acknowledged the need to revisit the broader international financial system for better cooperation (including with regional international financial institutions), improved ownership of national policies by and alignment with governments, and ultimately more effectiveness in an era when everyone has to do more with less. Keep an eye out for momentum that can and should enable progress, not only in the lead up to the Annual Meetings in October but also ahead of the fourth Financing for Development Conference in Seville this summer. If you’re curious about what that will entail, watch my conversation with United Nations Assistant Secretary General for Economic Development Navid Hanif and Ambassador of Zambia to the United Nations Chola Milambo.

APRIL 25 | 6:27 PM ET

Dispatch from IMF-World Bank Week: Success, in one underappreciated way

In the meetings and panels I attended this week, the air was thick with existential dread over the Bretton Woods institutions’ very future. Delegates came prepared for the worst, bracing for a difficult set of discussions with the new US administration.

Considering the expectations for these meetings were so low, I would say they wound up a qualified success. The mood had already improved after the United States supported an IMF deal with Argentina, struck the week before, and after US Treasury Secretary Scott Bessent delivered a speech providing reassurance that the United States values the Bretton Woods institutions—as long as major reforms are undertaken.

Even though most people focused on the gloomy outlook for the world economy over the course of the week, some gave in to guarded optimism as markets stabilized on the hope for a US stand-down on several trade fronts.

The shift in mood wasn’t the only sign of success; there were concrete deliverables. One came from the Global Sovereign Debt Roundtable, which issued a roadmap for debt restructuring negotiations, signaling important consensus among major creditor countries. Moreover, the IMF and World Bank announced that they will engage with the new Syrian government to help restore their country’s war-damaged economy.

In addition, the statement by the International Monetary and Financial Committee chair (issued in lieu of a communiqué) struck a tone that was clearly aimed at addressing the United States’ stringent demands—although it did not give any indication of how the IMF would do so, and the real work still lies ahead.

Despite these positive signals, the global financial system faces considerable uncertainty. The Argentina program is a risky bet, the Trump administration could switch its view on the Bretton Woods institutions, and there is now a bigger question mark attached to the dollar’s future as the world’s dominant currency.

This week proved the value of IMF-World Bank meetings in troubled times. In speaking at Atlantic Council headquarters on Thursday, Spanish Finance Minister Carlos Cuerpo told us that the most important deliverable this week, with difficult decisions looming over the next few months, was simply for people to keep “talking to each other.” I couldn’t agree with him more.

APRIL 25 | 3:48 PM ET

The actions needed to support those who are financially underserved in Africa

At World Bank headquarters, the Atlantic Council’s Ruth Goodwin-Groen sat down with Admassu Tadesse, president and managing director of the Trade and Development Bank Group, to talk about the absence of venture capital in Africa and the need to promote inclusive finance.

APRIL 25 | 3:02 PM ET

Egypt’s Rania Al-Mashat on navigating today’s global shocks

APRIL 25 | 1:57 PM ET

This week shifted our understanding of everything from dollar dominance to trade wars

This week’s IMF-World Bank Spring Meetings have only highlighted that no one is coming to save the global economy. There is no rescue committee, no stimulus plan, and no quick Fed cuts around the corner.

Most of the ministers knew this was the state of affairs coming in. But it’s one thing to talk about a trade war. It’s another to see the IMF cut the growth forecast for nearly every country in the world because of a single policy decision.

In the beginning of the week, I sensed gloominess and anxiety in the hallways and in our private conversations with finance chiefs. But by the end, I noticed something else, the same thing I remember back in 2008 during the financial crisis: a steely sense of resolve. These leaders understood that at some level, the tariffs are here to stay, trade deals would take months or longer, and the global economy is being restructured.  It would be, as one minister said privately, just something we have to weather.

That’s true, but how bad will the storm be? No one knows. That doesn’t mean this week didn’t offer clarity, however. Our team walked away from these meetings with a transformed understanding of three issues:

1. There’s a difference between wanting dollars and needing dollars. The dollar’s status as a reserve currency is safe for the time being. That’s what Bloomberg’s Saleha Mohsin told me in our conversation, and she brought the data to back it up. But while the world still needs dollars for a functioning global economy, there were many people this week who wouldn’t mind finding some plan Bs. Do they exist? Not exactly. The European finance chiefs we spoke to were skeptical that a move to the euro would stick—and some, such as the Banque de France governor, weren’t sure it was a good thing given it was a result of instability in the United States, not a vote of confidence in the euro area.
2. The Trump administration is as focused on the IMF as it is on the World Bank. There was chatter going into the week that the administration was more focused on putting pressure on the World Bank than the IMF. But US Treasury Secretary Scott Bessent, in a speech on Wednesday, spent as much time—if not more—talking about the Fund going beyond its mandate than he did on the Bank lending to China. That surprised many, and it means there are fights ahead as the IMF—and the Bank—tries to respond to its largest shareholder in the months ahead without alienating the other 190. Considering the Trump administration has an end-of-July review deadline to decide its policy on US involvement in international organizations, the eighty-first anniversary of the creation of Bretton Woods institutions (July 22) could be one of the most significant since their founding.
3. Emerging markets and developing economies are already getting hit hard. Our conversations made it clear that a range of countries across regions is already feeling the impact of the trade war and economic slowdown in the form of job loss and increased poverty rates. These countries are going to need assistance from the IMF and World Bank in the near future. Even if the US president reversed his policy and slashed tariffs back down as soon as tonight, that wouldn’t fix the problem. It’s the volatility that feeds the uncertainty that pulls back investments. As the old saying goes, trust arrives on foot but it leaves on horseback.

APRIL 25 | 11:03 AM ET

The Bank of England’s Megan Greene: On tariffs, the “risk is now on the disinflationary side”

APRIL 25 | 10:15 AM ET

Slow progress on debt restructuring

Amid the week’s focus on trade tensions and economic uncertainty, the lingering issue of developing country debt has received little attention. However, reports released on Wednesday by the IMF and World Bank’s Global Sovereign Debt Roundtable (GSDR) suggest that the frustratingly slow process of restructuring unsustainable debts—a problem that took center stage amid the economic dislocations of the COVID-19 pandemic—has made important, albeit incremental, gains over the past few years.

A handful of countries have passed through the restructuring process, most of them low-income economies whose debts were supposed to be addressed by the Group of Twenty governments’ Common Framework for debt “treatment.” But some other nations—notably Sri Lanka—did not fit within that framework. What has emerged has been a case-by-case process in which government and private-sector lenders have worked through complex roadblocks, many of which were posed by the world’s largest sovereign lender, China.

The GSDR co-chairs’ Progress Report lays out many of the nuts-and-bolts issues that have been addressed, ranging from “comparability of treatment” across different creditor groups to the restructuring of “non-bonded commercial debt,” which generally means bank loans. It also lists several areas that need to be addressed going forward, including how to enhance coordination of private-sector creditors.

While the reports are careful not to point fingers at any specific lenders, the reality is that many of the issues before the roundtable have been posed by China, which is loath to take write-downs on its massive portfolio of loans. Beijing’s position on these issues has at times been opaque, but a recent paper put out by the Harvard Kennedy School usefully illuminates much of the back and forth that has taken place during the recent restructurings—as well as the work that remains to be done.

APRIL 25 | 9:17 AM ET

Catch up with everything happening at the Atlantic Council on day five

Dispatch from IMF World Bank Week: Why surveillance matters

Why Europe being a “safe haven” for the world is “good news for everyone,” according to Spanish Finance Minister Carlos Cuerpo

Greece’s Kyriakos Pierrakakis: “Unless you create positive tailwinds, you cannot counter the negative headwinds”

Experts and leaders focusing on Central and Southeastern Europe discuss the challenges facing the region

Catch up with everything happening at the Atlantic Council on day four

A common tone among key leaders is a sign for optimism

In defense of “boring”: A European leader’s message to Trump

Read day three analysis

APRIL 24 | 7:57 PM ET

Dispatch from IMF World Bank Week: Why surveillance matters

This morning, I watched as IMF Managing Director Kristalina Georgieva unveiled her Global Policy Agenda (GPA), a biannual document that outlines the managing director’s vision for the IMF’s work over the coming year.

 The most notable part of this year’s GPA is its focus on surveillance—in other words, the IMF’s work to assess the economic health of its members. As part of that focus, the GPA discusses the Comprehensive Surveillance Review, the IMF’s way of setting priorities and updating its processes for conducting bilateral and multilateral surveillance. There are some things to applaud in the outline for the upcoming review, including the emphasis on the IMF’s core areas of expertise: fiscal, monetary, and financial issues—and, most importantly, the persistent theme of external imbalances. 

However, some will not applaud the fact that there were few passing references to climate and no mentions of gender, despite the IMF having increased its budget for these and other emerging topics within the past few years. The GPA proposes instead “adapting surveillance” by setting principles around the topics to be covered. This approach aligns well with US Treasury Secretary Scott Bessent’s remarks from yesterday that the IMF has suffered from “mission creep.” But European partners will no doubt have concerns that the Fund is abandoning its climate strategy, approved just four years ago.  

My own view is that the GPA’s focus on surveillance is a welcome departure from the past. Surveillance may not get as many headlines as the IMF’s lending programs, but it provides an enormously valuable public good, particularly in those countries that do not receive regular market coverage. The IMF’s policy advice can also steer bilateral and multilateral donors and their efforts to prioritize assistance.

Watch this space closely to see whether the Comprehensive Surveillance Review delivers concrete reforms and real modernization efforts to help serve both advanced and developing economies.

APRIL 24 | 4:38 PM ET

Why Europe being a “safe haven” for the world is “good news for everyone,” according to Spanish Finance Minister Carlos Cuerpo

APRIL 24 | 2:56 PM ET

Greece’s Kyriakos Pierrakakis: “Unless you create positive tailwinds, you cannot counter the negative headwinds”

APRIL 24 | 1:42 PM ET

Experts and leaders focusing on Central and Southeastern Europe discuss the challenges facing the region

APRIL 24 | 9:22 AM ET

Catch up with everything happening at the Atlantic Council on day four

APRIL 24 | 8:43 AM ET

A common tone among key leaders is a sign for optimism

All things considered, the IMF-World Bank Spring Meetings are generating surprisingly optimistic and positive messages. 

Weeks of policy volatility, market volatility, and much hand-wringing over the Trump administration’s stated effort to reconsider the multilateral arrangements laid the groundwork for a tempestuous set of meetings. Yet we are just past halftime with no existential crisis (yet) at the IMF or the World Bank.

At this point, the European Commission, World Trade Organization (WTO), and US Treasury have all spoken publicly. They may not have been singing from the same sheet music, but they were all certainly singing in harmony.

EU Commissioner Valdis Dombrovskis, speaking at the Atlantic Council, said that the EU “is not giving up on our closest, deepest, and most important partnership, with the United States… And we will need each other even more in tomorrow’s increasingly conflictual and competitive world.”

His tone matches that of European Commission President Ursula Von der Leyen earlier this month, who declared that “we know that the global trading system has serious deficiencies. I agree with President Trump that others are taking unfair advantage of the current rules. And I am ready to support any efforts to make the global trading system fit for the realities of the global economy. But I also want to be clear: Reaching for tariffs as your first and last tool will not fix it.“

WTO Director-General Ngozi Okonjo-Iweala, speaking at the Council on Foreign Relations, highlighted how there are promising overlaps in looking at the administration’s unilateral objectives and the objectives of multilateral organizations. “In every crisis, there is an opportunity between multilateral objectives and unilateral objectives,” she said. “I do agree with the administration now… when they say there needs to be dynamism in the system, I share that. Some of the criticisms they make, I agree with because I have said the same. We need to get more results. We need to re-dynamize the system. We don’t need to have things cast in cement that may not be relevant to twenty-first-century issues anymore.” 

She also agreed with the White House’s complaint, as stated in an April 2 executive order, that the economic framework supported by the Bretton Woods system “did not result in reciprocity or generally increase domestic consumption in foreign economies relative to domestic consumption in the United States.” In addition, Okonjo-Iweala urged resource-rich African nations to focus more on building value-added enrichment and employment within the region to increase domestic demand, even as she urged China also to increase domestic demand.

US Treasury Secretary Scott Bessent, speaking at the Institute of International Finance, said, “China can start by moving its economy away from export overcapacity and toward supporting its own consumers and domestic demand.” In addition, he said that “the IMF and the World Bank serve critical roles in the international system. And the Trump administration is eager to work with them—so long as they can stay true to their missions.”

Bessent also said that the IMF will need “to call out countries like China that have pursued globally distortive policies and opaque currency practices for many decades” and “call out unsustainable lending practices by certain creditor countries,” adding that “a more sustainable international economic system will be one that better serves the interests of the United States and all other participants in the system.”

In his IMFC-DC Statement, released yesterday, Bessent said, “we need to restore the foundations of the IMF and World Bank. The United States continues to appreciate the value the Bretton Woods Institutions can provide, but they must step back from the expansive policy agendas that stifle their ability to deliver on their core missions.” He added that “for low-income countries in particular, both the IMF and World Bank should promote policy discipline for countries to strengthen their institutions, tackle corruption, and ultimately lay the foundation for sound investment so that they see a future that no longer relies on donor assistance.“

These leaders this week are sending a clear signal that they are not walking away from decades of established relationships and structures that have served the world well. Of course on the other hand, there is no guarantee that China and other countries will agree with the policy trajectory previewed on various stages in Foggy Bottom. Policy volatility will remain a reality for the next few years. But the initial messaging from the first days of the 2025 IMF-World Bank Spring Meetings gives reason for optimism.

APRIL 24 | 8:00 AM ET

In defense of “boring”: A European leader’s message to Trump

Warren Harding, a genial but bland Republican senator from Ohio, won the US presidential election of 1920 behind the campaign slogan “Return to normalcy.” It was a salve for an American electorate, giving him more than 60 percent of the vote, following US President Theodore Roosevelt’s adventurism, American engagement in World War I, then the failed postwar idealism of US President Woodrow Wilson.

“America’s present need is not heroics but healing,” Harding said, “not nostrums but normalcy; not revolution but restoration; not agitation but adjustment; not surgery but serenity; not the dramatic, but the dispassionate…” 

It was certainly unintentional, but I heard echoes of Harding when Valdis Dombrovskis, a Latvian who serves as an executive vice president for the European Commission, came to the Atlantic Council yesterday in defense of “boring” predictability.  While mentioning US President Donald Trump only once in his opening remarks, he underscored what Europe has long seen as its shared virtues with its American partners.  

“You see our fundamental values, individual liberties, democracy, and the rule of law often painted as weakness by authoritarian regimes to prey upon,” said Dombrovskis, who previously served as the European Union’s (EU’s) trade negotiator and is one of Europe’s longest-serving commissioners. “However, in times of turmoil, predictability, the rule of law, and willingness to uphold the rules-based international order become Europe’s greatest assets. We are committed to doing whatever it takes to defend our “boring” democracies, because boring brings certainty and a safe haven when a rules-based order is questioned elsewhere. Our processes allow for debates and consultations to take place, building buy-in from our key stakeholders and enabling us all to pull in the same direction.”

This week’s meetings of the International Monetary Fund (IMF) and World Bank in Washington, DC, are arguably the most important since the financial crisis of 2008-2009, because the Trump administration is seeking fundamental changes to the world trading and financial system not seen since the Bretton Woods agreement of 1944. In that year, the United States and its partners brought down protectionist trade barriers, established a new international monetary system, and laid a foundation for post-World War II global economic cooperation. One of the results was the creation of the IMF and the World Bank.

The last thing the Trump administration appears to want is a return to the normalcy of the eighty years that followed that agreement, arguing that the United States has been taken advantage of by its trading partners and that international system. One can say many things about Trump’s first hundred days in power, but “boring” certainly isn’t one of them. 

Read more

Inflection Points Today

Apr 24, 2025

In defense of ‘boring’: A European leader’s message to Trump

By Frederick Kempe

EU Commissioner for Economy and Productivity Valdis Dombrovskis spoke at the Atlantic Council in Washington on April 23, making the case for greater predictability.

European Union International Financial Institutions

Dispatch from IMF-World Bank Week: Don’t forget the real theme of the week

These meetings mark a milestone for Syria. But more political engagement will be necessary.

How can the IMF return to its core mandate in a vastly different global economy?

Banque de France Governor François Villeroy de Galhau says further rate cuts likely this year

Treasury Secretary Scott Bessent signals conditional support for the IMF and World Bank

Scott Bessent’s calls for reform are reasonable. The IMF should deliver on them.

What ever happened to climate change?

Bloomberg’s Saleha Mohsin: “Everyone wants to talk about the dollar’s reign ending, but no one wants to claim the crown”

EU Commissioner Valdis Dombrovskis on why the EU is “not giving up” on the United States

Catch up with everything happening at the Atlantic Council on day three

Read our day two analysis

APRIL 23 | 6:04 PM ET

Dispatch from IMF-World Bank Week: Don’t forget the real theme of the week

With tariffs and trade continuing to dominate conversations taking place in the halls of these Spring Meetings, it would be easy to forget that there is an official theme, and it isn’t trade: It’s jobs.

That is fitting, in my view. Here’s why:

There are two numbers that I’ve seen over and over again as I dash from building to building on 19th Street. One, of course, is the 2.8 percent global growth forecast, down from 3.3 percent as projected in January. But the other is 1.2 billion: That’s the number of young people set to enter the labor force in emerging markets and developing economies over the next decade. I often see it alongside the number 420 million, which is the estimated number of jobs to be created. Even if the models are way off, the math will not add up.

Beyond this jobs gap equation, jobs are being discussed (including at yesterday’s World Bank flagship event) as a factor, if not a multiplier, in the broader economic growth equation. Jobs are linked to trade and, in many ways, to other dynamics of the global economy. That includes the challenges that many emerging markets and developing economies face, such as debt, demographic pressures, domestic-resource and private-capital mobilization, and facilitating the digital transformation.

You could say we have heard this all before. We have. But in this era of geopolitical fragmentation and geoeconomic tension (some might say “turmoil”), it’s helpful to drive attention and meaningful action toward an agenda that leaders and investors from all regions and income groups can and should rally behind. And job creation is apt for that.

That’s even the case for the United States. US Treasury Secretary Scott Bessent acknowledged as much in his speech this morning, noting that job creation and promoting prosperity are key US interests.

Watch more

APRIL 23 | 4:48 PM ET

These meetings mark a milestone for Syria. But more political engagement will be necessary.

The participation of a Syrian government delegation in the 2025 IMF-World Bank Spring Meetings in Washington, DC, marks a significant milestone in Syria’s efforts to reintegrate into the global economic community. Led by Finance Minister Mohammed Yosr Bernieh and Central Bank Governor Abdelkader Husrieh, this visit represents Syria’s first high-level engagement with these institutions in over two decades.

At the Spring Meetings, Syrian officials are participating in discussions focused on restoring financial support and aid to Syria. Notably, a roundtable hosted by the Saudi Finance Minister Mohammed Al-Jadaan and the World Bank garnered strong international interest in Syria’s reconstruction efforts. Additionally, the United Nations Development Programme (UNDP) has announced plans to deliver $1.3 billion in aid over the next three years to support Syria’s rebuilding initiatives.

One of the critical challenges facing Syria is the existing US sanctions against the country, which have hindered reconstruction efforts. Recent developments indicate a small shift in this dynamic. The UNDP has received a sanctions waiver from the US Treasury Department to raise fifty million dollars for repairing the Deir Ali power plant south of Damascus. Furthermore, Saudi Arabia’s commitment to pay approximately fifteen million dollars in Syria’s arrears to the World Bank is a significant step toward enabling Syria to access funds through the International Development Association, which provides grants to low-income countries.​ Following Syria’s engagements in Washington, the IMF appointed Ron van Rooden as its first mission chief to Syria in fourteen years, signaling a potential revival of economic cooperation aimed at supporting Syria’s recovery.

Despite these steps, more political engagement is necessary to achieve substantive progress. Washington has signaled its hesitancy for more engagement by reportedly limiting Syrian Foreign Minister Asaad Al-Shaibani’s travel visa to New York only and restricting his ability to participate more broadly in meetings in Washington. However, a bipartisan letter issued on Monday by Senators Jeanne Shaheen (D-NH) and Jim Risch (R-ID) of the Senate Foreign Relations Committee reflects a growing bipartisan recognition among US policymakers of the potential benefits of reengaging with Syria under carefully considered conditions. The letter advocates for a strategic approach to US-Syria relations, emphasizing the importance of facilitating dialogue and cooperation to support Syria’s reconstruction and regional stability.

But for momentum to build, both Washington and Damascus must explore more robust diplomatic channels, including incremental confidence-building measures and expanded humanitarian coordination. This could create a framework conducive to deeper economic collaboration, ultimately serving US national security interests while fostering stability in Syria and the region.​ 

APRIL 23 | 3:55 PM ET

How can the IMF return to its core mandate in a vastly different global economy?

At the Institute of International Finance conference today, US Treasury Secretary Scott Bessent said that the United States will exercise strong leadership in the IMF and World Bank to push those institutions to refocus on their core mandates after years of “mission creep.” For the IMF, this means promoting members’ policies that are conducive to sustained and balanced trade. And when trade imbalances occur, the adjustment should be symmetrical for surplus and deficit countries, not aimed only at deficit ones. The IMF’s other critical mission is to provide short-term, temporary assistance to member states in balance-of-payment crises—provided the member in question changes the policies that led to the crisis.

While the push for the Bretton Woods institutions to focus on their core mandates is necessary and timely, many questions remain on how the IMF, in particular, will do that under international conditions drastically different from the ones eighty years ago.

The Bretton Woods Conference in 1944 produced a fixed but adjustable exchange rate system with largely closed capital accounts. Now, many countries want free trade, free capital flows, free exchange rate markets, and monetary sovereignty—even though not all of these can sustainably coexist without tension. So the question is, how can the IMF, with its current toolkit, rectify today’s persistent trade imbalances and prevent them from happening again? It would be a missed opportunity if delegates to this week’s meetings fail to come up with some ideas for how the IMF can accomplish this.

It is also important to clarify the line between the core mandate of short-term temporary assistance and longer-term, structural lending. How should the IMF approach the mandate of giving short-term financing to help members in balance-of-payment crises, given the reality that it can take a long time for countries to make the structural reforms necessary to avoid falling into further crises? At the same time, lending to support structural reforms is a longer and more intrusive process than short-term financing, opening up the IMF to criticisms of mission creep and interfering with borrowing nations’ sovereignty. As the IMF-World Bank Spring Meetings delegates discuss how to best return the IMF to its core mandate, such important issues need to be clarified as soon as possible.

APRIL 23 | 3:39 PM ET

Banque de France Governor François Villeroy de Galhau says further rate cuts likely this year

Read his remarks

Transcript

Apr 24, 2025

France’s François Villeroy de Galhau on a US recession: ‘Bad news for the US is bad news for all, including for Europe’

By Atlantic Council

The governor of the Banque de France, speaking at the Atlantic Council, said that the European Central Bank would likely cut interest rates further this year.

Europe & Eurasia European Union

APRIL 23 | 2:43 PM ET

Treasury Secretary Scott Bessent signals conditional support for the IMF and World Bank

One might be tempted to think—after Treasury Secretary Bessent’s remarks at the Institute of International Finance today—“another US administration, another call for Bretton Woods reforms.” On the surface, the speech does not seem fundamentally different from ones heard during previous administrations, with remarks that reminisce about the original Bretton Woods Conference, convey support for the mission of the institutions, and call upon the institutions to focus on their core mandate.

But it would be wrong to understand these remarks as a signal that the role of the IMF and World Bank will remain unchanged over the coming years. Instead, the secretary’s speech opens up fundamental challenges for the IMF and World Bank, both to their identity and their futures as global multilateral organizations.

First, it is not clear that the continued support of the Bretton Woods institutions expressed today will be the final word of the US administration. The White House is conducting a review of US membership in international organizations, and there are voices in the administration that would prefer the United States withdraw from the IMF and World Bank. While Bessent’s speech is an important opening statement, he will need to be able to point to concrete deliverables in order to win the internal debate against the isolationist wing in the US government.

Second, a return of each institution to its “core mandate” would involve a significant change in activities, running counter to the objectives of a large part of the IMF and World Bank’s membership. Eliminating workstreams on climate policies and social issues would imply a 180-degree turn for the current management of the institutions and the climate-conscious governments that have supported them in recent years; it would also mark such a turn for the constituency of developing countries that benefited from subsidized lending with relatively easy conditionality in recent years.

Third, for the IMF, the Treasury secretary’s missive to “call out countries like China that have pursued globally distortive policies and opaque currency practices” is reminiscent of an episode in the late 2000s, when the IMF was called upon to speak out more forcefully against Beijing’s exchange-rate practices. The result then was a refusal by China to meet its Article IV obligations, a standoff that was only resolved after the IMF softened its stance a few years later.

This is not to say that the United States does not have a valid point. The IMF has been reluctant to call out China for its distorting trade practices and could have been more attentive in looking into accusations that China has also been unduly managing its exchange rate. Given the lack of an explicit mandate on trade policy issues, and the need to work with government-provided data, the IMF will have to think carefully how it can accommodate the demands of the US government, and it will likely run into bitter resistance from Chinese authorities along the way. The ensuing confrontation could well lead to a breakdown of the IMF’s consensus-based way of operating and perhaps a deeper split in the membership of the institution.

Fourth, Bessent also called on the IMF to be tougher in enforcing conditionality for its loans and for the World Bank to cease lending to countries that no longer meet its eligibility criteria. Again, the United States has a valid point here, but it will result in a conflict with European countries that will worry about economic development in African partner countries (due in part to migration pressures across the Mediterranean). And China would, of course, benefit if development lending from multilateral institutions shrinks at a time when official development assistance is already on the decline.

In sum, the secretary’s speech, while providing much welcome support for the IMF and World Bank, has raised a host of issues that will require tough decisions within a relatively short timeframe. Expect intense meetings of financial diplomats to continue long after the flags in front of the IMF building have been put back into storage, awaiting the next formal gathering of the IMF and World Bank in October.

APRIL 23 | 2:11 PM ET

Scott Bessent’s calls for reform are reasonable. The IMF should deliver on them.

Today’s remarks by Treasury Secretary Scott Bessent at the Institute of International Finance were probably more closely watched than many of the IMF-World Bank official events. The remarks represented the first real statement of the Trump administration’s priorities for the Bretton Woods institutions. 

Bessent made clear that the Trump administration remains committed to maintaining its economic leadership in the world and in the international financial institutions. You could almost hear the huge sigh of relief coming from the institutions on 19th Street following this comment. Bessent also steered clear of grandiose proposals to reform the core mandates of the World Bank and IMF. Instead, his remarks made clear that both institutions have “enduring value,” and the focus should instead be on limiting “mission creep.” Another good sign that the Trump administration wants to work with, rather than step back from, the Bretton Woods institutions.

Some of Bessent’s key messages echo points delivered in the IMF managing director’s curtain-raiser last week, another welcome sign of potential alignment between the IMF and its largest shareholder. In short, the current global economic model is not sustainable, and large and persistent external imbalances need to be addressed. Bessent’s call on China to stop relying on overcapacity and exports to grow its economy could have been lifted straight from a speech by former Treasury Secretary Janet Yellen. But Bessent did something more novel by emphasizing that the United States also needs to rebalance and by calling on the IMF to critique both the United States and surplus economies. I could not agree more that the IMF’s External Sector Report needs to be more direct on what countries can do to address unsustainable imbalances. 

Other reforms called for in the speech urge the IMF to execute its mandate of temporary lending, call out unsustainable lending practices, and hold countries to account for not delivering on reforms. Again, these are not new messages from the United States. My question is whether IMF management, alongside its executive board, will feel more urgency to fulfill these types of reforms. I certainly hope so.

APRIL 23 | 1:37 PM ET

What ever happened to climate change?

At the 2024 Annual Meetings, climate change appeared to be front and center on the IMF agenda. Before the gatherings, the Fund released papers with provocative titles such as “Destination net zero: The urgent need for a global carbon tax on aviation and shipping” and “Sleepwalking to the cliff edge?: A wake-up call for global climate action.” The World Economic Outlook (WEO) elevated “combating climate change” to equal status with the task of promoting medium-term global growth.

But at these spring meetings, climate change is not to be seen—no recent papers and only six brief mentions in the first chapter of the WEO, including a single paragraph at the very end of the section on medium-term growth.

The IMF certainly has no hard and fast rules on what should be addressed in the WEO. With global economic and financial uncertainty demanding the attention of world leaders, other pressing issues also get short shrift this spring. For example, “poverty” gets few mentions. But downgrading attention on climate change appears to reflect a conscious decision at a moment when the United States, the Fund’s largest shareholder, is rejecting policies intended to address climate-related issues.

Speaking at the Institute of International Finance today, US Treasury Secretary Scott Bessent made clear the Trump administration’s view of climate issues on the agenda of the IMF. “Now I know ‘sustainability’ is a popular term around here. But I’m not talking about climate change or carbon footprints,” he said. “I’m talking about economic and financial sustainability… International financial institutions must be singularly focused on upholding this kind of sustainability if they are to succeed in their missions.”

The obvious question then is whether the IMF will respond by shifting away from climate-change mitigation in its core work of advising governments and lending.

APRIL 23 | 1:21 PM ET

Bloomberg’s Saleha Mohsin: “Everyone wants to talk about the dollar’s reign ending, but no one wants to claim the crown”

APRIL 23 | 11:10 AM ET

EU Commissioner Valdis Dombrovskis on why the EU is “not giving up” on the United States

Read the full transcript

Transcript

Apr 23, 2025

EU Commissioner Valdis Dombrovskis: With the rules-based order in question, Europe’s ‘boring democracies’ offer ‘certainty and a safe haven’

By Atlantic Council

At an Atlantic Council event on the sidelines of the IMF-World Bank Spring Meetings, the commissioner talked about the EU-US relationship, saying the bloc won’t give up on its transatlantic partner.

European Union Ukraine

APRIL 23 | 9:10 AM ET

Catch up with everything happening at the Atlantic Council on day three

Turkish Minister of Treasury and Finance Mehmet Şimşek: “Global trade fragmentation cannot be good for anyone”

Economy and Finance Minister Felipe Chapman on Panama’s relationship with the United States

Mapping Washington’s and Beijing’s next moves in the trade war

The Global Financial Stability Report highlights strains in the US Treasury bond market

Dispatch from IMF-World Bank Week: Behind the World Economic Outlook’s new call for “rebalancing”

The flagship reports walk a fine line

Ukraine’s Serhiy Marchenko: Why not discuss the seizure of Russian assets?

We’ve seen these risks before

Pakistan’s Muhammad Aurangzeb: Working with the US on commerce and trade is an “opportunity” for constructive engagement

What to know as China’s and the IMF’s forecasts continue to diverge

The IMF released its World Economic Outlook. Let the debate begin.

No recession, says IMF. That’s good news—but perhaps not as good as it sounds.

Catch up with everything happening at the Atlantic Council on day two

Read our day one analysis

APRIL 22 | 9:06 PM ET

Turkish Minister of Treasury and Finance Mehmet Şimşek: “Global trade fragmentation cannot be good for anyone”

APRIL 22 | 6:03 PM ET

Economy and Finance Minister Felipe Chapman on Panama’s relationship with the United States

APRIL 22 | 5:17 PM ET

Mapping Washington’s and Beijing’s next moves in the trade war

APRIL 22 | 5:01 PM ET

The Global Financial Stability Report highlights strains in the US Treasury bond market

The IMF’s Global Financial Stability Report (GFSR), released today, comprehensively describes the market turmoil triggered by the tariff war. So far, financial market conditions have been orderly, but risks of further asset price losses remain elevated.

Yields on US Treasury bonds have risen, lowering bond prices, contrary to their usual behavior when investors have flocked to them as safe haven assets like in previous bouts of market turmoil. The GFSR highlights the growing strains in the intermediation capacity of broker-dealers—which bid for Treasury securities at issuance to distribute to investors—in the Treasury market. In particular, the holding of Treasury securities has overburdened the balance sheets of broker-dealers—rising from just above 100 percent in 2008 to more than 400 percent in 2024. Repo rates’ heightened sensitivity to the volume of issuance also suggests that broker-dealers’ intermediation capacity may approach its limit. This has contributed to the growing illiquidity observed in the Treasury bond market, which will eventually make it less efficient and raise US financing costs.

Moreover, hedge funds have significantly piled into highly leveraged basis trades—taking long positions in Treasury futures contracts while shorting the cash market. Rising bond yields (or falling bond prices) have caused losses, forcing many hedge funds to liquidate their positions, amplifying bond price declines.

Many US banks have attributed the strains on broker-dealers’ balance sheets to regulatory constraints—especially the Supplementary Leverage Ratio (SLR)—and have argued for a relaxation or even removal of the SLR. At present, it looks like banks are making headway in their deregulation push under the Trump administration against a full implementation of Basel III, a proposed international banking regulatory framework. Similar demands have been made by bankers and some officials in the European Union as well.

However, banks’ deregulation efforts, which are enjoying political tailwinds in the United States, are at odds with the GFSR’s recommendations that member countries fully implement international prudential standards, including Basel III and the SLR. It will be interesting to see how the IMF reconciles these differences.

APRIL 22 | 3:19 PM ET

Dispatch from IMF-World Bank Week: Behind the World Economic Outlook’s new call for “rebalancing”

The IMF released its latest World Economic Outlook (WEO) today, downgrading its estimates for global economic growth this year and next, following the beginning of the tariff war and the considerable policy uncertainty surrounding it. Global growth projections for 2025 dropped 0.5 percentage points; US growth estimates are down 0.9 percentage points, while China’s have dropped 0.6 percentage points.

As Managing Director Kristalina Georgieva put it in her curtain-raiser speech last week: “Uncertainty is costly.”

Here at IMF HQ2, people are abuzz with worry about these downgrades. But those downgrades are old news, soft-launched at Georgieva’s speech last week.

Instead, here’s what I’m focused on: To deal with the tariff war and its negative impacts, the IMF—in the WEO—recommends that member countries “reform and rebalance,” sorting out imbalances between saving and investment at home (looking at you, United States) and imbalances between domestic consumption and production (what China needs to work on). It also calls on developing countries to more effectively mobilize domestic resources. Such reforms would balance out trade relationships and make them more sustainable, benefiting all.

Those recommendations are all well and good, but the IMF has not explained how it expects countries to be able to make these reforms. These countries have failed to make recommended reforms in the past when the international environment was much more benign, including during previous eras of low interest rates.

By highlighting the importance of balanced trade, the IMF has harkened back to its original mandate, formulated at the Bretton Woods Conference in 1944. And that is a good thing: Persistent trade imbalances (mainly with countries such as China and Germany posting surpluses while others, mainly the United States, incur deficits) have made the trading system unsustainable, both practically and—as the United States’ unilateral tariff moves show—politically.

Watch more

APRIL 22 | 3:07 PM ET

The flagship reports walk a fine line

The IMF faced some unique challenges in drafting this April’s World Economic Outlook (WEO) and Global Financial Stability Report (GFSR). The recent rapid trade and market developments make it next to impossible to produce a reliable baseline forecast for global growth. The IMF also had to walk a fine line in assessing the impacts of US actions without too overtly criticizing its largest shareholder—not an easy task on both counts. 

In this context, the IMF’s flagship reports do an admirable job of striking a balance between highlighting significant risks to the global economy from recent trade actions while also noting that markets have remained broadly resilient. The WEO’s “reference forecast” downgrades global growth 0.8 percent across 2025 and 2026, and growth forecasts for almost every country are also downgraded. But the WEO does not go so far as to forecast a global recession, and the IMF’s Pierre-Olivier Gourinchas stated in his remarks that financial markets have largely been resilient in the face of recent shocks. Likewise, the GFSR highlights recent volatility and elevated financial-stability risks without declaring a financial crisis to be imminent.

But the flagships do not shy away from laying out risks should trade tensions persist. Scrolling down in the WEO to page 33 (Box 1.1), the IMF lays out a more dire scenario from an extension of the US Tax Cuts and Jobs Act, continued weak domestic demand in China, and the lack of productivity growth in Europe. The GFSR highlights forward-looking vulnerabilities from a correction of asset prices and turbulence in sovereign bond markets.

The real message from both documents is heightened uncertainty. In fact, across the WEO and GFSR, the word “uncertainty” appears more than one hundred times. This message is on point, as uncertainty abounds and poses its own strains on the global economy.  But how countries, including advanced economies, deal with this uncertainty will be the real determinant for future global growth.

APRIL 22 | 2:34 PM ET

Ukraine’s Serhiy Marchenko: Why not discuss the seizure of Russian assets?

APRIL 22 | 2:02 PM ET

We’ve seen these risks before

The IMF’s flagship reports have achieved a remarkable feat—bringing a clear-eyed view to what recent tariff announcements and financial volatility in recent weeks imply for the global economy, without pretending to know much about what will happen in the near future.

The 0.5 percentage-point drop in projections for global growth was expected, following a slowing in the global economy in recent months and the April 2 US tariff announcements. Interestingly, the suspension of many US tariffs, increases in the US tariff rate on China, and Chinese tariff increases in response have not led to a forecast upgrade but rather changed the composition of growth away from the United States and China and toward other countries.

Focusing on specific numbers does not yield much insight, however, as both the World Economic Outlook (WEO) and Global Financial Stability Report are clear on the uncertainty that still prevails. Further asset price corrections in the United States (where share prices still look expensive), coupled with higher interest rates (due to impending fiscal stimulus) and exchange rate fluctuations, have the potential to create significant shocks that could destabilize financial markets. Emerging markets could be in for a rude shock, but the prospects for advanced economies with high debt are not much better, given leveraged balance sheets and strong interlinkages between financial institutions and other market participants that could quickly propagate shocks throughout the system.

Hence, there should be no illusion about the risks facing the world economy. Such risks are reminiscent of the 2008 financial crisis, and continued uncertainty about tariffs and other policies could move markets closer to the abyss. Uncertainty goes in both directions, however. The WEO rightly points out that a resolution of the tariff issue and an end to the Ukraine war, however improbable right now, could provide a major boost for the global outlook. Whether global projections become reality, therefore, depends largely on actions being taken by the White House over the coming months.

APRIL 22 | 1:55 PM ET

Pakistan’s Muhammad Aurangzeb: Working with the US on commerce and trade is an “opportunity” for constructive engagement

APRIL 22 | 1:52 PM ET

What to know as China’s and the IMF’s forecasts continue to diverge

The IMF forecast of 4 percent growth for China both this year and in 2026 probably won’t go over well in Beijing.

The IMF’s World Economic Outlook (WEO) number for China’s projected growth is down from its January forecast of 4.6 percent. That puts the IMF more at odds with China’s official forecast of “about 5 percent” growth, released last month. It also contrasts with last week’s announcement out of Beijing that the Chinese economy grew 5.4 percent during the first quarter as exporters tried to get ahead of US tariffs (a result that was released after the WEO’s drafting ended). The IMF now puts China’s growth last year at five percent, which accords with the government’s figure.

IMF Economic Counsellor Pierre-Olivier Gourinchas told reporters that US tariffs actually will take a 1.3 percentage-point bite out of China’s growth this year, but that fiscal expansion announced by Beijing last month will offset some of that loss in momentum. However, the WEO says that China is still struggling to shift away from export-driven growth: “The rebalancing of growth drivers from investment and net exports toward consumption has paused amid continuing deflationary pressures and high household saving.” Small wonder then that the IMF is now forecasting that “stronger deflationary forces” will result in zero inflation this year, down from the IMF’s earlier forecast of 0.8 percent inflation. The IMF’s China growth forecast is at the midpoint of projections from foreign investment banks. Goldman Sachs and Nomura forecast 4 percent, Citi and Morgan Stanley predict 4.2 percent, while UBS projects 3.4 percent. By contrast, the Rhodium Group is seeing the possibility of China’s growth being stronger than last year’s 2.4 to 2.8 percent growth (according to Rhodium Group’s own estimates).

APRIL 22 | 11:40 AM ET

The IMF released its World Economic Outlook. Let the debate begin.

The latest IMF World Economic Outlook (WEO), released today, has three separate projections for global growth, each based on different outcomes for the Trump administration’s tariffs. The projection the WEO’s authors emphasized in their press conference this morning (which they call a “reference forecast”) is based on the impact of the tariff increases announced between February 1 and April 4 and sees global growth of between 2.8 percent and 3 percent this year. Overall, that represents about a 0.5 percentage point cut in the IMF’s growth forecast from its last WEO update released in January.

There is a cottage industry of economists who dissect WEO forecasts, many of whom view their IMF brethren as being too inclined to accentuate the positive. The latest of these critiques came last weekend from Alex Isakov and Adriana Dupita at Bloomberg Economics. “In the four large crises we studied,” they wrote, “the fund’s initial assessment of the immediate impact on global growth understated it by 0.5 percentage points. However much the IMF may downgrade the growth forecasts to start, history suggests the ultimate blow will be worse.”

That said, the IMF’s take hardly falls into the realm of Pollyannaish forecasting. IMF Economic Counsellor Pierre-Olivier Gourinchas made it clear at the press conference this morning that the risks facing the global economy lean “firmly to the downside,” with the risk of a worldwide recession currently at 30 percent, up from 17 percent at the time of the WEO released in October 2024.

APRIL 22 | 10:03 AM ET

No recession, says IMF. That’s good news—but perhaps not as good as it sounds.

This morning, while launching the new World Economic Outlook, IMF Chief Economist Pierre-Olivier Gourinchas said that “while we are not projecting a global downturn, the risk it may happen this year [has] increased substantially.”

But what is a global downturn or, to use a more ominous term, a global recession?

In an advanced economy, such as the United States, a recession is usually defined as two successive quarters of negative gross domestic product (GDP) growth. Not all countries use that standard, but most include negative GDP growth as part of the definition of a recession. But it’s different when you are talking about the global economy. Because many developing and emerging markets can grow at 5 percent or more during a given year, a global recession can occur even when overall global GDP growth is positive. Think of it like this—if your car only goes 20 mph, going to 0 mph is a major problem.

But it’s also a problem if your car is going 40 mph and you suddenly can only drive at 20 mph.

The IMF has a broad range of criteria it uses to try to determine a global recession, including a “deterioration” in macroeconomic indicators such as trade, capital flows, and employment. Translation? They know it when they see it. When I was at the IMF, there was a debate about whether GDP growth under 2.5 percent would constitute a recession. It seems like today the IMF has made a determination about what this looks like in the current situation—2 percent GDP growth—although they call it a global economic downturn.

Pay close attention to how Georgieva answers this question in her press conference later this week. And just because the global economy isn’t in a recession (or global downturn) by the IMF’s standards at the moment, it doesn’t mean in a few months we won’t cross the threshold.

This post was updated at 1:20 p.m. to clarify the IMF’s position on a global economic downturn.

APRIL 22 | 8:58 AM ET

Catch up with everything happening at the Atlantic Council on day two

How countries are reacting to the trade war

Dispatch from IMF-World Bank Week: The “stealth meetings” kick off

Our experts outline the debates and topics on the minds of global finance leaders this week

Read earlier analysis

APRIL 21 | 8:52 PM ET

How countries are reacting to the trade war

As central bank governors and finance ministers gather in Washington, DC, for the IMF-World Bank Spring Meetings, they will be engaging in some of the most important trade negotiations since the creation of the Bretton Woods institutions in 1944.

History offers some perspective: In July 1930, after US President Herbert Hoover signed the Smoot-Hawley Tariff Act, a range of countries immediately retaliated against the United States, including France, Mexico, Spain, Japan, Italy, and Canada. Others, such as the United Kingdom, chose negotiation instead. 

Today, the GeoEconomics Center has a Trade War Index, tracking countries’ policy actions and rhetoric in response to the Trump administration’s tariffs as central bank governors and finance ministers prepare to meet their US counterparts.

In this index, countries receive scores from -1 to +1 based on their responses. Take Vietnam, for example: It scored a +1 on policy after the country’s officials sent Trump a letter offering to eliminate tariffs on US imports (though this offer has already been rejected by the United States) and followed up by dispatching a special envoy to Washington to keep talks moving.

On the rhetorical front, Vietnamese trade officials called the tariffs “unfair” but focused their comments on domestic impacts rather than directly criticizing the United States—earning the country a -0.5 on the communication scale.

Separating policy from rhetoric reveals how these governors and finance ministers are approaching the negotiation table. Are they feeling domestic pressure to respond? Do they believe they have leverage over the United States? How much economic pain can they withstand?

Countries such as India and Mexico know there is an enormous amount at stake. Their leaders have thus far proven willing to make both conciliatory statements and concessions to Trump in the hopes of securing a deal. Global markets are watching nervously. The outcome of the sideline negotiations at these Spring Meetings will signal whether the White House is truly in deal-making mode or whether, as we have argued at the GeoEconomics Center, many of these tariffs are in fact here to stay.

APRIL 21 | 4:57 PM ET

Dispatch from IMF-World Bank Week: The “stealth meetings” kick off

The IMF-World Bank Spring Meetings have long been marked by pageantry. The Washington headquarters are normally draped with banners. Cultural events have competed with panel discussions on headline economic issues featuring government ministers, captains of finance, and Nobel laureates. Over the years, the event has earned the moniker “Davos on the Potomac” among jaded staffers.

But this year’s gathering is very different. Call it the “stealth meetings.” The signage is gone from outside the building, and inside is a bare-bones schedule of panels. 

The tone is somber—and small wonder why. Just blocks away from the meetings sits the White House, where US President Donald Trump has spent his first one hundred days in office disrupting the global economy with tariffs unseen for a century. The United States is pulling back from international organizations, and its support for issues such as climate-change mitigation and poverty reduction is in question. Its position on the role of the IMF and World Bank in a rapidly changing international economy is unknown.

With the outlook for global growth clouded by the tariffs, all eyes turn to tomorrow’s release of the IMF’s World Economic Outlook (WEO). In last week’s curtain-raiser speech for the meetings, IMF Managing Director Kristalina Georgieva said that the WEO’s growth projections “will include notable markdowns, but not recession,” along with increases in the inflation forecast for “some countries.” Global recessions are relatively rare; the last occurred in the aftermath of the 2008 Global Financial Crisis. But there is plenty of room in a forecast of slower growth for individual countries to fall into recession—including some of the world’s largest economies. 

To break down the WEO and all the other news from the week, keep checking out our analysis throughout the week.

APRIL 21 | 4:31 PM ET

Our experts outline the debates and topics on the minds of global finance leaders this week

Spring Meetings unlike others—and not just because of trade

Why these meetings are existential for the IMF and World Bank

Dispatch from IMF-World Bank Week: A fractured foundation

Three ways to think about Trump’s tariffs

What to make of Argentina’s new $20 billion financial rescue

The true impact of Trump’s tariff war, beyond the stock market

No one is coming to save the global economy

Trump can make the IMF more effective

APRIL 20 | 5:15 PM ET

Spring Meetings unlike others—and not just because of trade

In Washington, DC, the flowers are blooming, the skies are blue, and the streets are filled with finance ministers and central bank governors from around the world.

The scene at the start of this year’s IMF-World Bank Spring Meetings is familiar, but the context could not be more different. Questions about tariffs, trade wars, and the Trump administration’s broader stance on multilateralism abound. IMF Managing Director Kristalina Georgieva kicked off the Spring Meetings with her curtain raiser last week, and she did not shy away from making clear that trade tensions and the on-again, off-again tariff increases generate significant risks for growth and productivity. She rightly pointed out that smaller countries will be caught in the crosshairs and need to put their own houses in order to withstand trade shocks.

But what was more notable was Georgieva’s focus on macroeconomic imbalances, shorthand for the disparity seen between, for example, the massive current account deficits of the United States and the surpluses of China, the European Union, and Japan. These imbalances have gotten scant attention from the IMF in recent years, despite being a persistent issue for decades. The IMF’s latest External Sector Report declared that imbalances were receding.

Yet macroeconomic imbalances represent a key element of US complaints about the unfairness of the international trading system. Surplus countries have relied on US import demand to fuel growth for years, and the United States has played its part by sustaining large fiscal deficits. Last week’s speech rightly brought this issue back to the forefront.

For a sense of how far the IMF will take this message, pay close attention to the World Economic Outlook, Global Policy Agenda, and International Monetary Fund Committee (IMFC) communiqué, which will all be released later this week.

APRIL 20 | 4:52 PM ET

Why these meetings are existential for the IMF and World Bank

While the trade war is top of mind for delegates at the IMF-WB 2025 Spring Meetings, there is also concern about US policy towards the two Bretton Woods institutions.

It isn’t yet clear what that policy will be—it will depend on the conclusions of the review of US participation in multilateral organizations, the findings of which are due in August. From my discussions with individuals who will be participating in the IMF-World Bank meetings this week, I could sense worry about a number of possible US policy stances, ranging from insistence that the two institutions strictly focus on their core mandates (reversing a perceived mission creep going on for some time) to US withdrawal from one or both institutions.

Since the United States is the largest economy in the world and the biggest shareholder of the IMF and World Bank, these institutions can only function effectively with the constructive engagement and leadership of the United States. Thus, this year’s spring meetings are of existential importance to the IMF and World Bank. While going through the public agenda, delegates should spend time to discuss and find ways to address the concerns raised by the US administration with minimal negative spillovers for the rest of the world: including the US concern about persistent trade imbalances, which it attributes to unfair trade practices, including high tariffs and other non-tariff measures, implemented by other countries. Progress in these discussions will be important to retain active US involvement in the two institutions.

For example, as a part of such progress, the IMF could put greater emphasis on its recommendations to countries running persistent current-account surpluses to make adjustments, including by strengthening their currencies, to promote more balanced trade relations over time, instead of putting the burden of adjustment solely on deficit countries.

The open, rules-based trading system—which has promoted aggregate world economic growth but failed to equitably distribute the fruits of free trade—is unraveling. Usual calls for member countries to lower tariffs and walk back other protectionist measures won’t be sufficient to stop it.

APRIL 20 | 3:16 PM ET

Dispatch from IMF-World Bank Week: A fractured foundation

If you’re at Dulles Airport this evening, look around. You might see one of the world’s finance ministers and central bank governors, representing over 190 countries, who are arriving for the most important IMF-World Bank Meetings since the 2008 Global Financial Crisis.

They land in a very different Washington than the one they left in October. US President Donald Trump has launched a global trade war, and, as a consequence, the IMF is set to forecast a major downgrade for the entire global economy. Whether the countries these financial leaders represent end up in a recession—or worse—depends in part on what happens over the next five days.

Usually, delegates’ time at these meetings is focused on a wide range of topics, from sovereign debt to new lending arrangements to financial technology. But this spring, there’s no debate over attendees’ focus: Trade will dominate, as each country looks to meet with the Trump administration to see whether any trade negotiation is viable. The main event will be when senior US and Chinese officials meet, if they do. It would be their first meeting since their countries levied tariffs higher than 100 percent on each other.

But here’s the irony of the week ahead: By engaging in all the bilateral negotiations, these countries are unintentionally undercutting the case for multilateral economic coordination that is the foundation of the Bretton Woods system.

Each country will work to secure the best arrangement for itself and its citizens. None of this would be surprising to the creators of the IMF and World Bank; just look at the minutes from the original conference to see all the wrangling between the forty-four founding nations.

But this is a first: The world’s largest economy, and the one that created the Bretton Woods system in the first place, is trying to completely uproot it.

For every country, the challenge of this week is to not get trapped in the past. There will be time to consider all the successes and failures of the past eighty years. But right now, the international economic order is being reshaped in real time.

That’s what this week is about: not who has complaints about the system—nearly every country has its fair share—but who has the vision for what comes next.

Watch more

APRIL 18 | 2:16 PM ET

Three ways to think about Trump’s tariffs

The second Trump administration has embarked on a novel and aggressive tariff policy, citing a range of economic and national security concerns. Our GeoEconomics Center is monitoring the evolution of these tariffs and providing expert context on the economic conditions driving their creation—along with their real-world impact.

The Trump administration utilizes tariffs in three primary ways, depending on the objectives of any particular action.

1. Negotiation tool: The administration sees tariffs as a way to put pressure on trade partners during negotiations, as well as a potential bargaining chip. Used in this way, tariff rates can increase US leverage and result in new trade agreements, like the US-China Phase One trade deal signed during Trump’s first term.
2. Punitive tool: Trump administration officials have stated that they would like to avoid overuse of financial sanctions as a form of coercive economic statecraft, since they believe it can incentivize countries to reduce their reliance on the US dollar. As an alternative, the Trump administration is relying more on tariffs to “punish” or “sanction,” including for non-trade issues. The administration values the ability to easily escalate the tariff rate and, therefore, its punitive power.
3. Macroeconomic tool: The Trump administration also, more conventionally, wields tariffs in support of a wide range of macroeconomic goals:
   • Protecting domestic industries, such as steel, from unfair trading practices and encouraging domestic manufacturing.
   • Decreasing US trade deficits.
   • Increasing revenue from duties. Of course, the “Catch-22” is that if reshoring is successful, the United States will not be able to increase revenue from import duties.

Explore the full Trump Tariff Tracker

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.

APRIL 16 | 3:52 PM ET

Four questions (and expert answers) about Argentina’s new $20 billion financial rescue

Buenos Aires is getting a boost. On April 11, the International Monetary Fund (IMF) approved a twenty-billion-dollar, four-year loan to Argentina, with the first twelve billion dollars arriving on April 15. The Inter-American Development Bank (IDB) and World Bank followed up by releasing another $22 billion in financing. In response, Argentina lifted large elements of its currency and capital controls, known as the “cepo,” which had long stifled investment and growth. Marking the twenty-third IMF loan to Argentina since the 1950s, the deal comes as libertarian President Javier Milei has dramatically cut Argentina’s spending in an effort to stabilize government finances. Atlantic Council experts answered four pressing questions about Argentina’s latest financial rescue and the road ahead.

Read their answers

New Atlanticist

Apr 16, 2025

Four questions (and expert answers) about Argentina’s new $20 billion financial rescue

By Martin Mühleisen, Jason Marczak

What exactly did the IMF agree to, and what is required of Argentina? Our experts dive into the deal and map what comes next.

Fiscal and Structural Reform International Financial Institutions

APRIL 11 | 7:22 AM ET

To understand the impact of Trump’s tariff war, watch the bond market and the Fed—not just the stock market

The imposition of US tariffs and retaliatory tariffs by some trading partners, combined with a ninety-day pause of most “reciprocal” tariffs by US President Donald Trump, have led to extreme financial market volatility in recent days. While the equity market gyrations have occurred in relatively orderly market conditions so far, some recent developments have signaled that selling pressure may have spread to other markets—particularly US Treasury securities and short-term US dollar funding. 

To understand the financial stability impacts of the current market turmoil, it is important to monitor the pressure on these markets, which are crucial for the smooth functioning of the global financial system. Left unaddressed, these strains could trigger a freezing up of financial markets, raising the risk of a serious financial crisis.

Continue reading

New Atlanticist

Apr 11, 2025

To understand the impact of Trump’s tariff war, watch the bond market and the Fed—not just the stock market

By Hung Tran

The state of the US Treasuries and US dollar funding markets, as well as actions of the Federal Reserve, are where to focus attention.

Economy & Business Politics & Diplomacy

APRIL 8 | 11:46 AM ET

No one is coming to save the global economy

US President Donald Trump has launched a global economic war without any allies. That’s why—unlike previous economic crises in this century—there is no one coming to save the global economy if the situation starts to unravel.

There is a model to deal with economic and financial crises over the past two decades, and it requires activating the Group of Twenty (G20) and relying on the US Federal Reserve to provide liquidity to a financial system under stress. Neither option will be available in the current challenge.

First, the G20. The G20 was created by the United States and Canada in the late 1990s to bring rising economic powers such as China into the decision-making process and prevent another wave of debt crises like the Mexican peso crisis of 1994 and the Asian financial crisis of 1997. In 2008, as Lehman Brothers collapsed and financial markets around the world began to panic, then President George W. Bush called for an emergency summit of G20 leaders—the first time the heads of state and government from the world’s largest economies had convened.

What followed was one of the great successes of international economic coordination in the twenty-first century—the so-called London Moment, when the G20 agreed to inject five trillion dollars to stabilize the global economy. With this joint coordination, the leaders sent a powerful signal to the rest of the world that they would not let a recession turn into a worldwide depression.

Nearly twelve years later, at the outbreak of the COVID-19 pandemic, the same group of leaders convened to work on debt relief, fiscal stimulus, and—critically—access to vaccines.

Now we face the third major economic shock of the twenty-first century. But this one is fully man-made by one specific policy decision. It could, of course, be undone by a reversal of the decision to send US tariff rates to their highest level in a hundred years. But as I have said since November, Donald Trump is serious about tariffs, they are not only a negotiating tool, and that means many of them are likely here to stay.

There will be no “London Moment” this time around. The United States can’t call for a coordinated response to a trade war it initiated—one that is predicated on the idea that the rest of the world is taking advantage of the United States. 

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New Atlanticist

Apr 8, 2025

No one is coming to save the global economy

By Josh Lipsky

Neither the Group of Twenty nor the Federal Reserve should be expected to use their playbook from previous economic crises to respond to economic shocks caused by US tariffs.

China Economy & Business

APRIL 8 | 10:15 AM ET

The IMF is a good deal for the US. Here’s how Trump can help make it even more effective.

US President Donald Trump’s stance on foreign aid has raised questions as to what approach he will take with regard to international financial institutions, and in particular the International Monetary Fund (IMF). But Trump also takes pride in recognizing a good deal when he sees one, and the IMF is indeed a good deal for the United States and the American people. The cost of US participation is low, but the role that the IMF plays in fighting financial crises is invaluable to supporting the US economy. 

After four years representing the United States at the IMF, I can attest that the United States plays an outsized role at the institution. As US executive director, I engaged regularly with counterparts in regions such as Africa, the Middle East, and Latin America to help shape and support IMF lending in a manner that helped advance US interests and reduced Chinese influence. In this era of heightened uncertainty, the IMF could benefit from refocusing on its core priorities and helping countries stand on their own feet. Fortunately, the United States is well positioned to push for such reforms from within the institution. Should the United States instead opt to step back from the IMF, it would not only squander one of its most valuable international economic tools but would also open the door for China to play a lead role in an institution that has long supported US interests. 

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New Atlanticist

Apr 7, 2025

The IMF is a good deal for the US. Here’s how Trump can help make it even more effective.

By Elizabeth Shortino

The institution provides the United States a significant source of economic leverage, helps prevent financial crises, and serves as a counterweight to China’s influence.

Economy & Business International Financial Institutions

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For months, economists and analysts warned of this trajectory. Their forecasts were not based on abstract models but on daily observations: rising inflation, widening budget shortfalls, and the quiet disappearance of public oversight.

The Central Bank of Libya (CBL), long reticent, has now joined that chorus with a rare and public statement. Its warnings are stark: In 2024, the Government of National Unity spent over 109 billion Libyan dinars (LYD), while the parallel government in the east accrued more than forty-nine billion in off-budget obligations. Neither figure reflects coordination or restraint—just the actions of officials either ignorant of or indifferent to the consequences of unchecked spending.

Bracing for financial chaos

Both ledgers lay bare the scale of state capture and fiscal chaos. Alongside these warnings, the CBL also amended the official exchange rate, raising it to 5.48 LYD to the dollar while retaining its fifteen percent surcharge on foreign currency purchases. Framed as a technical adjustment, the move is a stopgap—an attempt to accommodate political excess within a shrinking monetary space. It underscores a deeper truth: Libya’s financial institutions are no longer guiding the economy. They are bracing against its unraveling.

Superficially, Libya still functions. Oil, at least in practice, is still exported. Salaries, though often late, are eventually deposited in the accounts of the country’s bloated public-sector employees.

But beneath the surface, the economy is disassembling. The black-market exchange rate has climbed to 7.8 LYD to the dollar within forty-eight hours of the CBL’s decree, a warranted vote of no confidence in Libya’s fiscal and monetary custodians. Institutions that once stabilized the system—through budgetary checks, revenue cycle audits, regulated foreign exchange, or centralized oversight—have been hollowed out or deactivated. What remains is an economy run on improvisation, backroom deals, and political convenience.

Looking back, the architecture of corruption has evolved in stages. First came the scramble for what Muammar Gaddafi had monopolized the allocation of: budget lines, salary schemes, and procurement deals. Later, transitional authorities waged fights over who wrote those allocations—to control the institutions and the budget pens. Today, that logic has culminated in the complete distortion of the allocation process itself. Libya’s economic crisis is no longer just about who benefits. It is about how benefit is manufactured.

An innovative system of corruption

Over the past several years, opaque and improvised mechanisms have steadily replaced formal revenue channels. At first, these workarounds were viewed as a tolerable compromise—a necessary price for preserving a fragile calm and avoiding renewed conflict. But what was once seen as a temporary accommodation has metastasized into a full-blown system of economic governance, one in which accountability is absent and discretion is unchecked. Crude-for-fuel barter deals, once framed as a pragmatic workaround, have become routine, sidestepping the national budget and brokered through opaque channels with no public oversight. They routinely bypass the national budget entirely and were often negotiated through informal brokers with transnational networks and no public scrutiny. Though the National Oil Corporation (NOC) has pledged to end crude-for-fuel swaps by March 2025, these deals are already being eclipsed by more elaborate and opaque arrangements—the latest evolution in Libya’s system of innovative corruption.

One of the most illustrative examples is Arkenu, a Benghazi-based company originally established for geological research but now repurposed as a vehicle for shadow oil exports. According to the United Nations Panel of Experts, Arkenu is operated by actors aligned with Libyan National Army (LNA) Commander Khalifa Haftar and serves as a financial conduit for eastern military and political interests. In 2024 alone, Arkenu independently exported approximately $460 million worth of crude oil under a GNU-approved deal, absent any transparent bidding, auditing, or publication of terms. As of 2025, it remains active—continuing to lift crude monthly from the National Oil Corporation—and sits at the center of an emerging system in which state-linked assets are repurposed to fund political actors outside formal channels.

The role of armed groups

Meanwhile, armed groups have entrenched themselves deeper into the infrastructure of Libya’s energy economy. In both east and west, militias have embedded themselves in utilities such as the General Electric Company of Libya (GECOL), where operational choices are influenced more by kleptocratic leverage than by institutional standards. Between 2022 and 2024, an estimated 1.125 million tons of diesel—allocated theoretically for power generation—were illicitly exported from Benghazi’s old harbor. These exports were facilitated through inflated supply requests issued via GECOL, the obstruction of audits, and threats of violence against oversight bodies.

The NOC, too, has been drawn into this vortex. Crony contracting has allowed politically connected firms to secure procurement deals and operational privileges, eroding the firewall between national resource management and elite patronage. This dynamic accelerated following the 2022 appointment of Farhat Bengdara as NOC chairman in a power-sharing arrangement between the GNU and eastern authorities. Though intended to ease executive tensions, the move entrenched political influence over the corporation’s operations. Bengdara’s abrupt resignation in early 2025 did not reverse this trajectory. Instead, his tenure left a lasting imprint: a politicized NOC, increasingly leveraged for factional gain rather than safeguarding Libya’s oil wealth.

This erosion of institutional neutrality has a fiscal analog in Libya’s monetary policy, where political imperatives now override sound economic management. At the core of the dysfunction lies the unchecked expansion of the money supply. Independent estimates suggest that the volume of money in circulation now exceeds 170 billion LYD—a level of liquidity that far outpaces productive output or revenue generation. But the deeper concern lies not in the quantity itself, but in how much of it has been manufactured ex nihilo.

Digital monetary creation—the injection of funds into the economy without any corresponding revenue or production—has become the fallback of a political order unwilling to curb spending or enforce discipline. The predictable result has been a cascading erosion of the LYD’s value, a surge in inflation, and a growing public mistrust in the state’s ability to steward its financial future. As foreign reserves shrink and black-market rates spike, Libya’s monetary system is no longer a stabilizing force; it is a mirror of its dysfunction. To call this mismanagement is too generous. This is structural predation, a system designed both to fail and extract. Public wealth is scarcely channeled into services or national development. It is captured, funneled through kleptocratic networks, and increasingly siphoned through untraceable contracts and offshore accounts.

Avenues of reform

Addressing this collapse requires more than fiscal prudence. It demands political realignment. Libya’s economic institutions must be recentered as sites of national governance, not tools of factional financing. The institutions that govern oil revenues, control disbursement, and oversee procurement must be protected, reformed, and in many cases rebuilt, not just with new laws, but with new incentives, protections, and public visibility.

A credible reform strategy must begin with mandatory public disclosure of all oil contracts, real-time publication of state spending, and a ban on off-budget arrangements. Procurement must be regulated through transparent, competitive systems. Revenue distribution must be guided by transparency, equity, and public oversight—not by decentralization for its own sake, nor by external stewardship. Reform must strengthen national institutions while ensuring that public funds reach intended sectors and communities through accountable, legally grounded mechanisms. These are not just technocratic ideals. They are prerequisites for legitimacy and recovery.

International actors—donors, multilateral institutions, and diplomatic envoys—must stop treating Libya’s economic collapse as a mere byproduct of its political fragmentation. Stability manufactured atop corruption is not stability at all. While much emphasis is placed on unifying the government, doing so without reforming its fiscal architecture would merely centralize corruption under a single executive. That may deliver temporary coherence, but it will not constitute progress. In fact, it risks consolidating the very networks that have driven economic ruin. Libya does need a single budget and a unified executive—but one subject to strict and enforceable guardrails on how public money is spent, disclosed, and audited. External engagement must support this principle. Anything less only subsidizes the continuation of state capture under a new administrative label.

Libya is not doomed to economic failure. But its current trajectory is unsustainable—not solely because the price of the oil barrel dropped, but because the political will to govern with integrity has long since evaporated. Recovery will require confrontation, not consensus. And it must begin with reclaiming the institutions that were designed to serve the public, not those who profit from its decline. Tinkering with technical levers like the exchange rate may buy time. But when such adjustments are used to sustain elite corruption rather than correct structural imbalances, they do not stabilize, they provoke. If this continues, the next phase of Libya’s crisis will not be quiet erosion. It will be public revolt.

Emadeddin Badi is a nonresident senior fellow with the Middle East Programs at the Atlantic Council where he advises on US and European policies toward North Africa and the Sahel, focusing on Libya’s conflict.

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Call it piquant editorial juxtaposition.

The Financial Times places an op-ed by Peter Navarro, Trump’s tariff czar, on how his boss’s tariffs “will fix a broken system” directly above columnist Gideon Rachman’s noticing of “a distinct whiff of Don Corleone” in the Oval Office’s approach to trade.

Writes Navarro: “The international trade system is broken—and Donald Trump’s reciprocal tariff doctrine will fix it. This long-overdue restructuring will make both the US and global economies more resilient and prosperous by restoring fairness and balance to a system rigged against America.”

By contrast, Rachman paints Trump as the godfather-in-chief. “Like a movie mob boss,” he writes, “Trump knows how to switch between menace and magnanimity. Treat him with respect and he might invite you to his house, where you can mingle with his family. But the menace never disappears.” 

Nothing could better illustrate the escalating dispute between Trump and much of the rest of the world on tariffs than this Navarro-Rachman divide. 

Navarro senses a unique and historic opportunity to right a wrong, a cumulative US trade deficit since 1976 that has “transferred over $20tn of American wealth into foreign hands. . . . Foreign interests have taken over vast swaths of US farmland, housing, tech companies, and even parts of our food supply.”

Rachman’s response is that Trump won’t prevail in a war where he lacks allies. 

“There are simply too many actors involved for Trump’s mob boss tactics to work,” he writes. “There are all the investors who have rushed to sell their shares, causing stock markets to tank. There are the manufacturers who simply cannot do business under the conditions created by Trump—and who are shutting down production lines. And, as for Chinese President Xi Jinping’s mob, they have decided to fire back rather than buckle. This is getting extremely messy.”

The Atlantic Council’s Josh Lipsky puts it this way today: “US President Donald Trump has launched a global economic war without any allies. That’s why—unlike previous economic crises in this century—there is no one coming to save the global economy if the situation starts to unravel.”

Global markets still hope this is all part of Trump’s “art of the deal,” a strategy that isn’t really about breaking the system, but is instead about getting better trade conditions through negotiations. 

When an unverified post on the social media platform X falsely claimed yesterday morning that Kevin Hassett, director of the White House National Economic Council, had said Trump was considering a ninety-day pause on tariffs, major indexes soared, delivering a two-trillion-dollar gain in value. Markets gave up those gains when the White House refuted the post as “fake news.”

“This is not a negotiation,” Navarro writes. “For the US, it is a national emergency triggered by trade deficits caused by a rigged system. President Trump is always willing to listen. But to those world leaders who, after decades of cheating, are suddenly offering to lower tariffs—know this: that’s just the beginning.” 

In her own column this past Friday, a touching salute to US relations with Canada, the Wall Street Journal’s Peggy Noonan also draws upon the film The Godfather to describe where the United States and the world now stand.

During the peace summit Don Corleone hosts with heads of the five mafia families after the outbreak of a mob war and a string of retaliatory killings, he asks, “How did things ever get so far? . . . It was so unfortunate, so unnecessary.”

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

This edition is part of Frederick Kempe’s Inflection Points newsletter, a column of dispatches from a world in transition. To receive this newsletter throughout the week, sign up here.

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There is a model to deal with economic and financial crises over the past two decades, and it requires activating the Group of Twenty (G20) and relying on the US Federal Reserve to provide liquidity to a financial system under stress. Neither option will be available in the current challenge.

First, the G20. The G20 was created by the United States and Canada in the late 1990s to bring rising economic powers such as China into the decision-making process and prevent another wave of debt crises like the Mexican peso crisis of 1994 and the Asian financial crisis of 1997. In 2008, as Lehman Brothers collapsed and financial markets around the world began to panic, then President George W. Bush called for an emergency summit of G20 leaders—the first time the heads of state and government from the world’s largest economies had convened.

What followed was one of the great successes of international economic coordination in the twenty-first century—the so-called London Moment, when the G20 agreed to inject five trillion dollars to stabilize the global economy. With this joint coordination, the leaders sent a powerful signal to the rest of the world that they would not let a recession turn into a worldwide depression.

Nearly twelve years later, at the outbreak of the COVID-19 pandemic, the same group of leaders convened to work on debt relief, fiscal stimulus, and—critically—access to vaccines.

Now we face the third major economic shock of the twenty-first century. But this one is fully man-made by one specific policy decision. It could, of course, be undone by a reversal of that decision, which if it kicks in at midnight tonight will send US tariff rates from 2.5 percent last year to over 20 percent this year—the highest in a hundred years. But as I have said since November, Donald Trump is serious about tariffs, they are not only a negotiating tool, and that means many of them are likely here to stay.

There will be no “London Moment” this time around. The United States can’t call for a coordinated response to a trade war it initiated—one that is predicated on the idea that the rest of the world is taking advantage of the United States. Some countries actually have an incentive to see the situation in financial markets worsen, in the hope that it puts pressure on the Trump administration to relent. Others may want to make bilateral deals, but a coordinated effort between China, Europe, Russia, and Brazil is off the table. This will make for an especially tense G20 finance ministers meeting in ten days, when Treasury Secretary Scott Bessent meets his colleagues for the first time at the International Monetary Fund-World Bank Spring Meetings in Washington, DC. Bessent can expect to face pointed questions from his counterparts on why the United States is reverting to the very protectionism that led to the creation of the Bretton Woods system eighty years ago.

The second—and more powerful—actor in the global economy has been the US Federal Reserve. In the global financial crisis and during the COVID-19 pandemic, the Federal Reserve slashed rates to zero, injected trillions into the US economy through quantitative easing, and issued swap lines around the world to help countries access dollars when they most needed it.

This time around, Chair Jerome Powell has signaled to the White House the so-called “Powell Put” is a long way off. On Friday, Trump posted on social media, “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates.” This makes sense if you believe tariffs will indeed cause higher prices and put economic stress on millions of US citizens. But Powell said the same day that “we don’t need to be in a hurry.” He wants to see how the crisis unfolds. In a different situation, if the markets had fallen by 20 percent because of, say, a virus or a terrorist attack on the United States, then the Fed would likely have reacted very differently.

Powell, however, understands that a trade war built on high US tariffs could prove to be stagflationary—the dreaded combination of higher prices with slower growth. A stagflationary environment isn’t necessarily the time for pre-emptive rate cuts since lower rates might further fuel inflation. Powell also wants to send the signal that this policy could be undone by the White House—or, of course, by Congress—and show his colleagues in Washington that they can’t rely on the Fed to fix a problem of their own making.

The situation is going to become incredibly complicated for the Fed in the weeks ahead. Economic conditions in the United States could deteriorate quickly. Other central banks, including the European Central Bank, the Bank of England, and the Bank of Canada, may start cutting rates. That’s because they are primarily worried about weaker economic growth, not inflation from higher import costs.

This will leave the US Federal Reserve with higher rates than the rest of the world—and Trump will likely grow increasingly frustrated with a Fed chair whom he has clashed with over and over again since he appointed Powell back in 2017. Trump is likely to feel that the Fed is undercutting him in his trade war while other central banks are supporting their political leadership. The truth will be more nuanced.

Don’t expect the pressure to get to Powell.

Powell has exactly one year left on his term, and he appears committed to leave a legacy as a Federal Reserve chair who fiercely protected the institution’s dual mandate and independence. So, while there may be an economic pain point where the Fed has to step in—it’s further away than both Trump and the markets are hoping.

In the past week analysts have been trying, understandably, to compare the market reaction to what happened during the global financial crisis and the COVID-19 pandemic. But the reality is that these are both poor barometers for the situation. In both previous economic crises this century, the toolkit of international coordination and central-bank firepower were deployed to stabilize the situation. This time, the same tools won’t fix what’s being broken. 

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

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The “rally ‘round the flag” effect—a surge in public support for a government in times of international crisis—is a well-documented phenomenon in politics. In an increasingly unpredictable world, Europeans are now rallying around the EU flag in Brussels. This growing confidence in the EU as a political and economic actor matters—not just for Europeans, but also for Americans, who should recognize that Europeans have started to prepare for a world in which the United States is no longer a central part of the continent’s security.

The message from Europeans is clear: They still want allies. But at the same time, they are getting ready to stand on their own feet in an uncertain world.

Sweden offers a striking example. Historically, Sweden is a transatlantic-leaning country with deep cultural and political ties to the United States. And it has often maintained a cautious stance toward EU integration. Yet in this latest poll, 79 percent of Swedes say that EU membership has been good for the country. At the same time, a separate survey conducted the same month by Sweden’s largest newspaper, Dagens Nyheter, shows a dramatic shift in Swedish public opinion toward the United States. Only 10 percent of Swedes hold a positive view of the United States, down from 23 percent just two years ago. The shift correlates with US President Donald Trump’s return to office in January. A full 86 percent of Swedes express a negative opinion of him. This dislike is not just personal; Trump is seen as a symbol of a declining US commitment to democratic norms and multilateralism, which many Swedes value highly. A striking two-thirds of Swedes surveyed in the Dagens Nyheter poll say that the United States has lost its role as leader of the free world. This sentiment had already taken root before Trump’s April 2 announcement of major global tariffs, which included a 20 percent tariff on the EU.

Across Europe, 66 percent of respondents in the Eurobarometer poll say that the EU should play a stronger role in protecting citizens from global crises and security threats. Three out of four respondents want the EU to be equipped with more tools, financial or institutional, to tackle these challenges. That said, this surge in pro-EU sentiment is not uniform. In countries led by more Trump-friendly or Euroskeptic governments, such as Hungary and Slovakia, support for deeper EU integration remains more tempered. Yet even in these contexts, the broader shift is visible. In Hungary, where Prime Minister Viktor Orbán has long been critical of Brussels, an April 2024 Eurobarometer survey found that more than two thirds of Hungarians view EU membership as beneficial, marking an increase from previous years. In Slovakia, public frustration with Prime Minister Robert Fico’s pro-Russian stance has sparked mass demonstrations in the past few months, with tens of thousands protesting under the slogan “Slovakia is Europe” expressing their support for democratic values and closer ties to the EU and NATO. These developments suggest that even where political leadership leans Euroskeptic, citizens are increasingly looking to the EU to safeguard their security and sovereignty.

The EU has responded in unprecedented ways to the call from its citizens to step up on defense and security. In January, European Commissioner for Defense and Space Andrius Kubilius called for a “Big Bang” in European defense spending and policy changes to face the Russian threat. This was an uphill task, with frugal nations such as Sweden, Germany, and the Netherlands opposing initiatives to take out loans and raise debt ceilings, while other nations refused to make commitments to increase defense spending.

But with the push provided by the Trump administration’s clear signaling in recent weeks that Europe will become less of a US security priority, Kubilius got his wish. The ReArm Europe/Readiness 2030 program, presented by the European Commission on March 18, outlines a new era in European security. It should not be understood merely as a short-term reaction to the Trump administration, but a necessary response to a changing global order—one in which the United States pivots to the Indo-Pacific while Europeans can no longer fully rely on US protection to counter the existential threat posed by Russia. As Kubilius put it in a speech on March 20: “450 million Europeans should not ask 340 million Americans to defend us from 140 million Russians who can’t even defeat 38 million Ukrainians.”

The ReArm Europe/Readiness 2030 program marks a historic shift in EU defense policy, mobilizing up to €800 billion through a mix of new and adapted financial instruments. What sets this initiative apart is not just its ambition but how the funding is being unlocked. For the first time, the EU’s Stability and Growth Pact has been loosened to allow member states to undertake defense-related borrowing beyond national debt limits via the escape clause. The initiative also launched a new €150 billion joint-borrowing mechanism, comparable in scale to the EU’s COVID-19 pandemic recovery fund, to support collective procurement and help ramp up the defense industry, including cooperation with Ukraine.

In another radical departure from past practice, the European Investment Bank, which was previously prohibited from military financing, can now fund defense industries. These steps would have been politically impossible just a short while ago. Even Sweden, which has long been resistant to debt-financed EU initiatives, and other traditionally frugal countries are now prepared to take on loans to fund defense modernization. For example, Germany’s recent €100 billion national rearmament plan reflects a sea change in Berlin’s approach to military spending. These developments underscore that Europe is not merely responding to US disengagement but is building real capacity to act.   

The tendency for the EU to integrate during crises is not new. For instance, the COVID-19 pandemic resulted in the pan-European procurement of vaccines and the first issuance of an EU eurobond. Still, it is remarkable that no EU government outright blocked the path toward greater defense integration, as far-right parties that are sympathetic to Trump hold power in Hungary, Italy, Slovakia, and the Netherlands. To be sure, European unity on defense is neither unanimous nor uncontested. Some governments remain wary of surrendering sovereignty over defense policy, and debates over funding mechanisms and the scope of joint procurement highlight enduring divisions among member states. These reservations underscore that while the trend is significant, it remains fragile and a range of questions on the implementation of further defense integration remain unsolved. Even so, this is a moment the United States should watch closely. The renewed push for a European Defense Union is a strategic counterweight to the uncertainty coming from Washington. Rather than retreating into nationalism or disengagement, Europeans are choosing to strengthen the EU as a geopolitical actor.

Anna Wieslander, PhD, is director for Northern Europe and head of the Atlantic Council Northern Europe Office in Stockholm.

Louise Blomqvist is a project assistant at the Northern Europe Office.

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As Turkey navigates a shifting global order, economic transformations, and regional conflicts, considering diverse perspectives from informed, visionary leaders—including women—will be crucial.

On March 6, the Atlantic Council Turkey Programs hosted a private roundtable to honor women’s leadership in Turkey in the days leading up to International Women’s Day. The event brought together women thought leaders, diplomats, and heads of businesses in Turkey to discuss global and regional developments, focusing on effective solutions to current challenges. These powerful women spoke under Chatham House Rule about their experiences navigating an increasingly complex world, and specifically about Turkey’s relations with the United States and European Union (EU), Turkey’s role in NATO and the Middle East, and the future of the Turkish economy.

US-Turkey relations amid a changing international order

Participants agreed that US President Donald Trump’s return to office has significantly altered the international order. Given its strategic geopolitical position, Turkey plays a key role in this shifting landscape, which presents Ankara with both challenges and opportunities, the participants said. Concerns were raised regarding the United States losing its status as a diplomatic reference point due to sudden foreign policy changes. Participants emphasized Turkey’s potential to become a full-fledged regional leader but warned against indecisiveness, drawing parallels to the start of the Syrian civil war in 2011, when some felt Turkey missed an opportunity to strengthen ties with the EU through its response to the migrant crisis.

Turkey’s increasing significance in the Middle East

Speakers emphasized Ankara’s evolving role in the Middle East and beyond. For example, as some participants pointed out, Turkey has managed to strengthen ties with Gulf nations while looking beyond their historical disagreements. One participant noted that Turkey has shifted from direct competition with Gulf states to a more utilitarian strategy, improving diplomatic relations across the region. Turkey’s position on Israel and regional security was also debated, with participants mentioning concerns over rising tensions since Hamas’s October 7, 2023 terrorist attacks on Israel. Additionally, Turkey’s influence in shaping the future of Syria was a critical point of discussion. Participants agreed on the difficulty of maintaining sway over the Damascus government without jeopardizing Syria’s legitimacy as an independent state.

EU-Turkey defense relations and implications for NATO

Participants welcomed signs of a more constructive EU-Turkey relationship in light of developments in Syria, cooperation in Ukraine, and the recent discussions of joint defense initiatives. However, skepticism remained regarding whether these bilateral ties can translate into broader EU-wide support for Turkey. The conversation highlighted Turkey’s strong relationships with key European nations such as Spain and Italy and also addressed the failure to leverage these relationships for more extensive regional backing. Some criticized the EU’s reluctance to deepen ties with Turkey due to Turkey’s historical tensions with France and Greece, urging Europe to recognize Turkey as an indispensable ally due to its military, geographic, and economic significance.

One participant underscored the necessity of rethinking NATO’s framework to better integrate Turkey’s interests and security concerns while addressing broader tensions between global powers. The participant reminded the roundtable that Turkey has historically been a bridge between the East and the West, and this role has only become more significant as global tensions rise. She said that Turkey has actively engaged with both Western allies and Russia, seeking to maintain a delicate balance in its foreign policy.

Turkey’s role in the new Syria

In discussing the future of Syrian refugees in Turkey, which currently hosts 3.1 million Syrians under temporary protection, participants noted how many Syrian immigrants have had opportunities in Turkey to establish their own businesses. This echoed the stories presented to the roundtable in a screening of an excerpt from the Atlantic Council Turkey Programs’ documentary, Do Seagulls Migrate?, which explores the experiences of four Syrian women refugees in Turkey.

Some speakers noted the social tensions prevalent in refugee-dense regions such as Kilis and neighborhoods in Istanbul, where the large influx of refugees has contributed to rising rents, decreased job availability, and strains on infrastructure. The discussion acknowledged that while refugees have played a significant role in certain sectors of the economy, the rapid demographic changes have also led to challenges for local populations. The women leaders emphasized the need for holistic policies to address these challenges.

Beyond economic repercussions, participants expressed caution regarding the leadership of Hayat Tahrir al-Sham, given its former ties to al-Qaeda, and acknowledged the apprehension many Syrian immigrants—especially women—feel about returning to an uncertain and potentially dangerous environment. The women leaders also raised concerns about long-term integration challenges; while many refugees have settled in Turkey and are unlikely to return to Syria, the refugees’ repatriation remains a key talking point for politicians. The discussion also highlighted the growing presence of a new generation of Syrian children raised in Turkey, underscoring the need to consider their future role and representation within Turkey’s democracy.

Trade, tariffs, and the economy

Several speakers noted that Turkey’s economic trajectory remains closely tied to Europe. One of the most critical concerns raised was the impact of US tariffs and sanctions, which can add to the pressure on Turkey’s economy. Additionally, the participants noted, new EU environmental regulations such as the Carbon Border Adjustment Mechanism could further strain Turkish exports. However, there was also a sense of cautious optimism, with some speakers pointing to the potential for increased trade volume between Turkey and the United States; in 2024, that trade volume was $32 billion. The participants argued that in the face of global economic shifts, Turkey’s ability to maintain a balanced foreign policy will be essential for safeguarding its economic stability and fostering long-term growth. Striking a careful equilibrium between the United States and Europe—and between these Western allies and regional partners—will be key in mitigating economic uncertainties and capitalizing on new trade opportunities, the participants added.

Investing in Turkey’s human capital

Speakers noted that Turkey has a strong private sector capable of cutting-edge innovation. However, they added that if Turkey wants to maintain and strengthen its relevance in an increasingly competitive global market dependent on new technologies, it should focus on developing a highly skilled workforce. Therefore, speakers at the roundtable extensively discussed the need for aligning educational initiatives with labor market demands, particularly in sectors such as digital innovation, renewable energy, and advanced manufacturing. Speakers noted that university partnerships and investments in vocational training will be crucial in ensuring the continuous development of Turkish human capital. On the other hand, concerns were also raised about the impact of brain drain on Turkey’s innovation potential, with many young professionals seeking opportunities abroad. As one speaker put it, Turkey must focus on developing a highly skilled workforce to maintain its economic relevance in an increasingly competitive global market.

Zeynep Egeli is the project assistant of the Atlantic Council Turkey Programs.

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Global investors’ repeated miscalculation of US President Donald Trump’s far-reaching intentions regarding tariffs has left them playing a chaotic game of catch-up. The result has been four trillion dollars in value wiped off the S&P 500 since its peak in February.

That was before the further losses that will come now, as investors come to terms with the president’s determination to undo an eighty-year era of globalization and replace it with, as today’s lead Wall Street Journal editorial put it, “Trump’s New Protectionist Age.”

Trump’s Rose Garden announcement Wednesday of “liberation day” tariffs of 10 percent on all foreign nations—with higher levies on many top trading partners—marks one of the most significant US economic policy moves in decades, perhaps the most dramatic shift since the protectionist-busting 1944 Bretton Woods agreement itself. If the plan goes into effect next week as scheduled, then it will result in the highest effective US tariff rate in a century.

It’s long past time to understand what’s driving the president—and what’s liberating him.

Here’s a short list of what most investors missed until recently:

1. Trump’s approach in his second term, similar to the logic DOGE has brought to federal spending, is that the global trading system wasn’t working for the United States, couldn’t be reformed, and therefore needed to be broken. Short-term stock market pain would be an acceptable price for wholesale change.
2. Drawing on the experience of Trump’s first term, investors expected Trump’s tariffs to be primarily a tactic to negotiate better trade deals, which still might be the case regarding China. But overall, Trump’s new tariffs appear instead to be aimed, over the short term, at bringing in more federal revenue to offset tax cut renewals. Over the longer term, the US president said he wants tariffs to encourage companies to reshore manufacturing and other businesses, creating jobs and generating corporate taxes. To complicate matters further, Trump is also using some tariffs as punishment, like sanctions, against countries for reasons that range from not controlling immigration to failing to stop fentanyl trafficking.
3. Investors also overlooked the liberating impact on Trump’s freedom of decision through a new set of advisers who are more likely to encourage than to second guess him. During Trump’s first term, Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn seem to have acted as a brake on Trump’s tariff passions. Today, however, Treasury Secretary Scott Bessent and National Economic Council Director Kevin Hassett appear to play more of a background role to trade advisor Peter Navarro and Commerce Secretary Howard Lutnick, who encourage the president’s course.
4. Global investors were thinking incrementally, calculating how best to trade on each day’s news, instead of recognizing the president’s audacious ambitions. “Assuming the policy sticks—and we hope it doesn’t,” wrote the Wall Street Journal editorial board, “the effort amounts to an attempt to remake the US economy and the world trading system.”        

Investors are not the only ones who have taken note. World leaders are reeling from Trump’s actions, and more than a few are concluding that the president, intentionally or not, could undo all the good that the Bretton Woods agreement did against the rampant protectionism that preceded World War II.  

As Josh Lipsky, senior director of the Atlantic Council GeoEconomics Center, told me, “The protectionism of the 1930s led to rival trade blocks, which unfortunately only ended with the calamity of war and the creation of the Bretton Woods system. Not to overstate the stakes, because we need to see what happens and how countries respond after Wednesday’s announcements, but the risks of miscalculation and escalation are high.”

The Trump administration is betting that countries won’t retaliate because it is not in their economic interest, given the massive economic leverage of the US economy. After a period of disruption, the Trump administration is calculating that its tariff approach will lead to the greater stability of a fairer trading system with benefits for the US economy and the American worker.

To encourage foreign partners not to retaliate and escalate, Bessent said this week that the new tariffs would be a ceiling, from which they could be lowered over time. “One of the messages that I’d like to get out tonight,” Bessent told CNN on Wednesday, “is everybody sit back, take a deep breath, don’t immediately retaliate, let’s see where this goes. Because if you retaliate, that’s how we get escalation.”

Other countries aren’t buying this message that the United States is starting at a ceiling, and some will likely retaliate both for economic and for domestic political reasons. “The US certainly has economic leverage,” said Lipsky. “But countries are looking at where they can hurt the US in ways not commonly thought of in a trade war. They’ve had six years to think about this.”

So, watch China go after US tech companies, and watch the European Union go after tech and services, where the United States has a considerable surplus.

With Wednesday’s announcement by Trump, the world is returning to pre-World War II protectionism—but at a time when the United States is much more exposed than it was then to the global economy. Imports today are nearly 15 percent of US gross domestic product, compared to only 5 percent then.

History’s lessons are clear. Trade wars are costly and nobody wins. Trump has a habit of confounding critics, so there’s always a risk in betting against him. That said, global investors did just that today, driving markets down, chastened by the mistakes they’ve made thus far in underestimating how far the president was determined to go. 

One sign of this has been how the US dollar fell against most other currencies in Asian and European markets today. The WSJ Dollar Index, which is based on a basket of global currencies, is down 5 percent this year and below where it was before Trump’s November 2024 election. Some investors argue that “US economic aggression against allies is eroding the dollar’s ‘global reserve’ status,” explained the Wall Street Journal’s Jon Sindreu. 

Trump called Wednesday’s tariff announcement “our declaration of economic independence.”

World leaders and investors can continue to ignore the president’s revolutionary intentions if they’d like, but it will be at their own ever-growing expense. 

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

This edition is part of Frederick Kempe’s Inflection Points newsletter, a column of dispatches from a world in transition. To receive this newsletter throughout the week, sign up here.

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.

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“It’s our declaration of economic independence.” That’s how President Donald Trump described Wednesday’s Rose Garden announcement that the United States will levy 10 percent baseline tariffs on all imported goods. Trump also announced “reciprocal tariffs” on dozens of other countries, including steep rates on major trading partners such as China (54 percent in total), the European Union (20 percent), and Japan (24 percent), though Canada and Mexico were spared from new tariffs. How will these tariffs upend US trade partnerships, international financial markets, and the global economy? And how might the countries hit the hardest retaliate? Our experts at the GeoEconomics Center, which is following each move in its Trump Tariff Tracker, declare their independent assessments below. 

• Josh Lipsky (@joshualipsky): Senior director of the Atlantic Council’s GeoEconomics Center and former adviser to the International Monetary Fund
• L. Daniel Mullaney: Nonresident senior fellow with the Europe Center and GeoEconomics Center, and former assistant US trade representative
• Barbara C. Matthews: Nonresident senior fellow at the GeoEconomics Center and former US Treasury attaché to the European Union

Zooming out

• The historic significance of Wednesday’s actions are clear, Josh tells us: “The United States said the global trading system we helped create no longer works for us.” He notes that these new levies, scheduled to go into effect next week, would raise overall US tariff rates to north of 20 percent—their highest level in a century, exceeding even the Smoot-Hawley era of the 1930s.
• Trump’s tariff announcements underscored that he “sees the world less in terms of allies and adversaries than in terms of countries that run trade deficits with the US versus countries that run trade surpluses,” Josh says. 
• Josh points out that Japan will be tariffed at a much higher rate than Iran. “These decisions are not based on systems of government or military alliances or historical relationships. They are based on a new formula—where trade is the organizing principle behind Trump’s engagement with the world.”

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Zooming in

• The difference in rate assigned to each country “suggests that the tariffs are actually motivated by perceived imbalances in trade relationships” rather than a simple desire to “erect a tariff wall around the United States,” says Dan. For example, he notes that the European Union, which has a $200 billion goods trade deficit with the United States, was tariffed much more than the United Kingdom, which has none.
• An additional executive order closing tariff exemptions for low-value goods from China underscores the national security concerns motivating the tariffs, Barbara tells us. She notes that the administration justified the move “on the grounds that those low-value imports facilitate the fentanyl trade.”
• The especially high tariffs on China are a major reason for the negative overnight market reaction to the announcements, says Josh, as 54 percent is “above and beyond” what Beijing can manage through currency maneuvers. Potential alternative Southeast Asian trading partners such as Vietnam were hit hard as well. “From your Airpods to your Air Jordans, hundreds of products Americans use in day-to-day life are set to get more expensive.”

Response time

• Dan has some advice for European leaders as they deliberate how to respond: “It is unhelpful to castigate the United States for imposing tariffs” and then vow to “strike back” on politically sensitive targets such as Kentucky bourbon and Florida orange juice. He argues that “a more constructive” reaction would be to “rebalance” transatlantic trade obligations by taking an approach similar to a World Trade Organization dispute and withdrawing equivalent concessions with respect to the United States.
• At the same time, Dan adds, European officials should work with the Trump administration to reach accommodations in lieu of tariffs. This could include, for instance, renewing “work on a steel and aluminum arrangement,” cooperating on nonmarket economy policies and practices, and reducing regulatory trade barriers. “We’re in an unprecedented and disruptive era, but there are avenues for restoring balance and building up the transatlantic trade relationship.”
• While countries may opt to impose retaliatory tariffs on the United States, Barbara notes that tariff rates are only part of the picture. “No one wins a trade war,” she cautions, adding that “negotiations based merely on tariff levels will not be sufficient” to address the Trump administration’s other economic and security concerns, such as value-added taxes, currency manipulation, and drug trafficking. Instead, she says, talks with Washington must address “a broad range of security and geoeconomic issues beyond trade policy that the United States has been raising for a number of years.”
• All of these tariff announcements remain subject to change based on negotiations. “Markets need to be ready for a steady stream of policy volatility and adjustments,” says Barbara, “as the terms of trade shift to reflect a new geopolitical balance of power as defined by the United States.”

The post How Trump’s ‘liberation day’ tariffs will transform global trade appeared first on Atlantic Council.

Americans are a patriotic lot, even in matters of trade and economics. One recent US-based industry poll found that 77 percent of respondents preferred to buy products that were “Made in America” compared to foreign-made products. Multiple surveys from major media organizations have found that more Americans support tariffs on China than oppose them, while another poll suggests that the public is more concerned about China’s unfair trade practices than they are about starting a trade war. 

These statistics suggest that the public could get behind a plan to rebalance trade in the United States’ favor and revive its manufacturing sector, even if it brought some economic turbulence along with it. 

However, before a Mar-a-Lago Accord could accomplish these goals (if it could at all) the deal would first have to achieve a sustained devaluation of the dollar. Predicting how Americans would react to a depreciating currency is more complicated.   

A less-valuable dollar could trigger higher inflation, undermining US President Donald Trump’s campaign promise to bring prices down. Given how wildly unpopular rising prices are among the US public today, this would not be a public-opinion winner for the White House. 

Another downside of a weaker greenback is that it would make dollar assets “less attractive in the eyes of foreign investors”—this according to the policy paper that introduced the roadmap for a Mar-a-Lago Accord. For eighty years, the US dollar has reigned as the global economy’s preeminent reserve currency—a ranking Trump has said he refuses to relinquish. Yet, if foreigners find holding dollars less appealing because the currency loses value, they could invest elsewhere, eroding the dollar’s dominance. 

Just days before the 2024 US presidential election, we surveyed a large, nationally representative sample of Americans. We asked them a series of questions about the dollar’s global role with the aim of better understanding how they think about their currency. Here’s what we learned. 

First, when it comes to the dollar’s value, we do not find evidence that Americans favor a devaluation. When asked if they agreed that the United States should weaken the dollar to promote exports, only 16 percent of respondents did so, compared to 42 percent who disagreed, and another 42 percent who neither agreed nor disagreed with this proposal. In sum, the public is not enthusiastic about a depreciating currency, even if that means more exports. This implies that a core component of a Mar-a-Lago Accord—a sustained weakening of the dollar—could pose political risks for Trump.

Conversely, Americans are very enthusiastic about the dollar’s international dominance. Overall, 72 percent of respondents agreed with the statement that the dollar’s global role is good for America, compared to just 6 percent who disagreed, and 22 percent who expressed neither agreement nor disagreement. Notably, this is a rare issue upon which Americans agree across the political spectrum: opinions were nearly identical among those who voted for Trump and those who did not. 

Relatedly, a clear majority of Americans in our survey also expressed concern about the prospect of the dollar losing its preeminent status in the future. When asked if they are concerned that other countries are trying to shift away from the dollar, a clear majority (65 percent) agreed. Indeed, it is the president’s own supporters who are most worried about this possibility, with 76 percent of Trump voters expressing concern about a loss of status for the dollar compared to 58 percent of individuals that did not vote for Trump.

Taken together, these numbers suggest that Americans of all political persuasions like their dollar to be strong and value its prominence in the world. Thus, pursuing dollar depreciation within the framework of a Mar-a-Lago Accord is a potentially risky path for the Trump administration, especially if it triggers fears about a loss of status for the United States’ currency. 

The president may already understand these risks, which would explain why he has worked to publicly defend the dollar’s reserve currency role. On two occasions, Trump has used his Truth Social platform to threaten 100 percent tariffs on any country that attempts to move away from the dollar. Similarly, one potential component of a Mar-a-Lago Accord framework is that the Trump administration could use the threat of tariffs to coerce and cajole foreign governments to hold on to their dollar assets, even as their value falls. 

While most Americans are sympathetic to Trump’s preoccupation with the dollar’s global standing, this does not mean that they agree with the president’s proposed solution. On the contrary, our survey shows that there is very little support among the American public for using economic coercion to maintain dollar dominance.  

When asked if the government should punish countries if they shift away from the dollar, less than 20 percent agreed. By contrast, 46 percent disagreed with this proposal, while more than one-third of our subjects neither agreed nor disagreed. Surprisingly, even Trump voters were not enthusiastic about these tactics: Only 28 percent of the president’s own voters favored the use of coercion to protect the dollar. Opposition is even higher among non-Trump voters. 

Our polling raises serious questions about how Americans would react to key elements of a Mar-a-Lago Accord. Dollar dominance is popular, and a weaker greenback, or one that loses international status, raises concern among a large share of Americans—including among Trump’s own voters. The possibility of using economic threats to sustain dollar dominance does not win broad support either, suggesting that Americans are uneasy about the president’s coercive instincts in this case. 

In the long run, Americans could come around to a weaker dollar if a Mar-a-Lago Accord delivered on the promises some in the White House appear to believe in. However, getting to that point could require pushing through a political minefield of stiff public resistance. The US public appears pleased with the dollar’s current value and international role, and it will need a lot of convincing to support moves to upend the status quo. 

Daniel McDowell is the Maxwell Advisory Board professor of international affairs at the Maxwell School of Citizenship and Public Affairs at Syracuse University and a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center. 

David Steinberg is an associate professor of international political economy at Johns Hopkins University’s School of Advanced International Studies.

Dollar Dominance Monitor

The Dollar Dominance Monitor analyzes the strength of the dollar relative to other major currencies across the world. The project presents interactive indicators to track China’s progress in developing an alternative financial infrastructure.

The post Do Americans want a Mar-a-Lago Accord? appeared first on Atlantic Council.

That review could put the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO) in the crosshairs, raising doubts about the United States’ commitment to the stability and predictability these institutions were designed to uphold. The Trump administration reportedly paused contributions to the WTO this month, after targeting the organization in his first term. And though Trump engaged with the World Bank and IMF in his first term, he has not revealed his plans for these institutions in his second term. The Heritage Foundation’s Project 2025, from which Trump at times has distanced himself but which has formed a blueprint for much of the administration’s early agenda, calls for withdrawing from both.

Concerns are growing—particularly among policymakers and experts in “New South” countries in the Mediterranean and South Atlantic basins—about the direction in which the international financial system is heading. The coming months and years will reveal the consequences of these evolving dynamics for global economic governance.

Multilateral institutions under siege

The IMF, World Bank, and WTO have provided the backbone of post-World War II global financial stability. But if Trump’s review of multilateral organizations leads to the United States reducing its contributions or withdrawing its leadership entirely, that could render these institutions ineffective, leaving emerging markets vulnerable to soaring borrowing costs and financial instability.

The IMF’s effectiveness hinges on US backing. A disengaged Washington would severely weaken the institution’s ability to manage global financial shocks—or to see them coming in the first place. Without access to US fiscal data and financial support, the IMF’s early-warning system would be significantly impaired, leaving emerging economies particularly exposed to unforeseen economic crises. A diminished World Bank, meanwhile, could create space for alternative lenders, such as China’s Asian Infrastructure Investment Bank.

In the event of a US withdrawal from the Bretton Woods institutions, other major players such as China, India, and European countries may push for reforms, but any new framework would likely be marked by deep internal divisions and a departure from consensus-driven governance.

From rules-based to power-based trade

Even before the apparent pause in US funding, the WTO has suffered under US pressure, with its dispute-settlement mechanism effectively sidelined by Washington’s refusal to appoint appellate judges. The result? Global trade is increasingly governed by bilateral deals, where economic power, rather than rules, dictates outcomes.

At best, this shift accelerates the rise of plurilateral trade arrangements, where smaller groups of nations set the terms of trade outside the WTO framework. At worst, it heralds a chaotic trade environment where power politics replace consensus-driven rulemaking, fragmenting the global trading system into competing blocs.

If nations are forced to align with either a US-centric order or alternative economic blocs, that would heighten the risk of fragmentation and global instability.

A shattered order—or the dawn of a new system?

As the United States considers pulling back from the global financial system, countries in Latin America, Africa, and Asia are seeking greater financial independence and constructing alternative frameworks for trade, investment, and crisis management. These trends were evident before Trump’s return to the White House, and his approach is likely to only accelerate them. Among the key developments:

• De-dollarization initiatives: Nations from the BRICS grouping of emerging economies, including Brazil and India, are working to expand trade in local currencies, while China and Russia increasingly settle deals in yuan and rubles.
• New development banks: Institutions such as the African Export-Import Bank (Afreximbank) and the New Development Bank (commonly known as the BRICS bank) are emerging as real—albeit far from optimal—alternatives to the IMF and World Bank. They offer financing without the traditional Western-style conditionalities, reflecting a growing desire among some countries for options that align more closely with their own political and economic priorities.
• Alternative payment systems: Russia’s System for Transfer of Financial Messages (SPFS) and China’s Cross-Border Interbank Payments System (CIPS) platforms are attempting to serve as substitutes for the globally dominant, Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging service, though both SPFS and CIPS are still a long way from becoming true alternatives to SWIFT. Meanwhile Iran and India are exploring digital-payment linkages to bypass Western financial restrictions.
• Regional trade agreements: The African Continental Free Trade Area and Latin America’s growing Mercosur bloc are shifting economic dependencies away from Western-led structures.

These developments signal a significant and, in many ways, regrettable development: The world is moving beyond the dominance of Western financial institutions toward a more fragmented and less coordinated economic order. While this new landscape may be more regionally responsive, it also risks undermining the coherence, predictability, and standards that global institutions—however imperfect—once aimed to provide.

The road ahead

The coming months—particularly April’s IMF and World Bank Spring Meetings in Washington, DC—will provide crucial insights into the trajectory of global economic governance. The Trump administration’s review of US membership in international organizations also will be a defining moment: Will US actions and global reactions bring about a complete retreat from multilateralism, or will international financial institutions adapt to new geopolitical realities?

One thing is clear: The global financial order is at a tipping point, and the choices made today will shape the economic landscape for decades to come.

Ferid Belhaj is a senior fellow at the Policy Center for the New South. He served as World Bank vice president for Middle East and North Africa from 2018 to 2024.

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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The post How Trump could upend global finance—and how the world might respond appeared first on Atlantic Council.

While the agreement remains under negotiation, the US-India Joint Leaders’ Statement—issued after US President Donald Trump met with Indian Prime Minister Narendra Modi in mid-February—suggests that the countries are looking to partner more deeply on artificial intelligence (AI), semiconductors, and critical minerals in the new trade deal. Meanwhile, continents away, the United Kingdom is also weighing a trade agreement with the United States, one reported to focus on advanced technologies.

Such negotiations demonstrate how Washington is pivoting toward a new sectoral trade policy, aiming to protect the United States’ dominance in energy, defense, and advanced technologies by securing essential inputs such as semiconductors, batteries, and critical minerals—resources that China either tightly controls or seeks to leverage. Recognizing the need to fortify the United States’ competitive position, Trump directed the US trade representative to pursue bilateral or sector-specific plurilateral agreements. US Trade Representative Jamieson Greer, in his confirmation testimony, made clear that semiconductors and critical minerals are priorities for sector-specific trade deals.

Sectoral trade agreements are nothing new, but a fresh approach is emerging, one that puts advanced technologies and their critical inputs front and center with an eye toward countering geoeconomic rivals. Past negotiated sectoral agreements—such as the Environmental Goods Agreement, Peru Timber Annex, or the Information Technology Agreement—were not focused on securing supply chains from geopolitical threats but rather on market access, tariff reductions, or sustainability. One exception is the US-Japan Critical Minerals Agreement, finalized by the Biden administration in March 2023, which allowed Japan to become eligible for benefits under the Inflation Reduction Act. In addition, the Biden administration intended to pursue additional critical mineral deals with the European Union, United Kingdom, and Indonesia. However, when a potential Indonesia critical minerals deal was announced, members of the US Congress responded with their concerns over weak labor and environmental standards and ties to Chinese investment in certain countries. Such backlash halted these deals from progressing.

But this time, momentum is building, and with growing bipartisan support for reducing reliance on China, the push for new sectoral agreements may finally break through. Here is how the new administration can successfully shape a sectoral trade policy that strengthens US dominance in key competitive industries.

First, a new sectoral trade policy should prioritize sectors in which the United States still holds a competitive advantage over China and in which China seeks to gain more ground. Beijing’s Made in China 2025 Initiative makes it clear that China is striving to become a world leader in ten critical industries, including semiconductors, AI, and advanced computing—all sectors in which the United States is a leader. To meet its ambitions, China is flooding global markets with subsidized tech, acquiring foreign expertise, and restricting exports of inputs that other nations need to compete. Some members of the US Congress warn that China’s approach could erode US technological leadership, accelerating the transfer of advanced research and manufacturing to China to bolster its technological capabilities.

One industry in China’s direct line of sight is the semiconductor sector. While the United States remains at the forefront of semiconductor design and advanced chip production—alongside leaders Taiwan and South Korea—China is rapidly closing in. With massive investments in semiconductor manufacturing, China is projected to control 32 percent of the world’s semiconductor production capacity by 2027, surpassing Taiwan’s and South Korea’s shares combined. The United States currently has an advantage in the advanced semiconductors needed to power AI, quantum computing, advanced robotics, and automation. A sectoral trade agreement with key strategic and economic allies in emerging technology industries could help align protections against economic coercion, intellectual property theft, unfair trade practices, and forced technology transfers. At the same time, such agreements could open markets and strengthen supply chain resilience by diversifying sources of inputs.

Second, a new sectoral trade approach should also go on the offensive and target industries in which China has a clear competitive advantage, such as battery production and critical minerals. China currently leads battery production: For example, it produces over 75 percent of all batteries globally. Meanwhile, the United States still lacks battery independence along its supply chain. While battery production is predominantly driven by demand for electric vehicles, batteries are also used in critical defense applications such as weapons and sensors. The US military annually procures over $200 million of batteries.

Critical minerals are an essential input for a range of sectors, from batteries to semiconductors to advanced technologies. But critical-minerals sourcing is increasingly vulnerable as China tightens its grip through export bans and dual-use export controls. China controls 99 percent of the world’s low-grade gallium production and 94 percent of its germanium, both essential for semiconductor production. In December 2024, China banned the export of these minerals to the United States, a move widely seen as an effort to cripple US chip manufacturing. China’s dominance extends beyond semiconductors, as the country also wields control over key battery minerals such as lithium and cobalt. While these materials currently face no export restrictions, China processes more than half of the global supply of lithium and cobalt. China holds an even tighter grip on cobalt, owning 80 percent of the mines in the Democratic Republic of Congo, the world’s largest supplier.

China is expanding beyond raw critical minerals to impose export restrictions on mineral processing technology. On January 2, China fired a clear warning shot, announcing potential export controls on lithium and gallium processing equipment and also equipment used to make battery components. This move would not be unprecedented as China already imposed export controls on rare-earths processing technology in December 2023.

In a world of heightened Chinese export restrictions, the United States must take a dual-track approach—playing the long game by expanding domestic mining and processing, despite permitting hurdles, while playing the short-term game of securing critical mineral agreements to bridge supply gaps. These deals need not be permanent but can serve as a strategic lifeline, ensuring stability while the United States builds resilient critical minerals, battery, and semiconductor industries.

Third, a new sectoral trade policy should ensure that company voices are considered and potential industry risks are objectively assessed before agreements are finalized. Sarah Stewart and I previously proposed a Mineral Security (MinSec) Trade Policy Framework that advances two administration-backed strategies: bilateral critical mineral agreements and sector-specific plurilateral agreements such as a critical-minerals “club” or alliance. The framework calls for objective economic assessments and stakeholder consultations to safeguard domestic mineral and downstream industries while tightening access to the US market for Chinese imports or companies.

Fourth, for a new sectoral trade policy to succeed, the White House should actively incorporate congressional input throughout the negotiation process, ensuring a unified national strategy in sectoral agreements, something that past efforts have sorely lacked. While the White House can advance sectoral agreements without Congress’s approval if such agreements don’t involve tariff reductions, securing congressional support remains crucial to ensuring their long-term viability. Fostering early collaboration, as Stewart and I suggest in the MinSec Framework, would strengthen both the credibility and durability of future sectoral deals.

Fifth, the United States must seek out creative trade tools; outdated ones won’t win today’s economic war. One option, as highlighted in the latest US-China Economic Security Review Commission report to Congress, is a trade defense coalition—an alliance of key partners to counter China’s flood of subsidized, underpriced exports that destabilize global markets. Another option could be establishing a mineral trade defense pact fusing trade and defense policy in a way that would create a collective response mechanism among partner nations for critical minerals and their downstream industries. This pact could empower allies to coordinate export restrictions or increased tariffs, ensuring that China’s weaponization of trade is met with a united and strategic counterforce.

Undoubtedly, the trade winds are shifting. With them come challenges: rising tariffs, export restrictions, and unpredictable economic tensions with geoeconomic rivals. Yet, these shifts also present a rare opportunity for Washington to redefine its trade policy. The United States is now seeing the dawn of a new sectoral trade policy—one that, if harnessed effectively, has the potential to strengthen US economic resilience and fortify the United States’ most critical supply chains alongside its chosen partners.

Mahnaz Khan is a nonresident fellow at the Atlantic Council’s GeoTech Center and the vice president of policy for critical supply chains at Silverado Policy Accelerator, a bipartisan geopolitical think tank.

The views expressed are solely those of the author and do not necessarily reflect the views of the Atlantic Council or Silverado Policy Accelerator.

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The post Trump’s sectoral-trade pivot: What it will take to succeed appeared first on Atlantic Council.

It’s an open question whether the United States, whose natural gas producers now rely on European liquefied natural gas (LNG) sales to boost profits and support investments, would ultimately cede that market—and the political influence that comes with it—to Russian pipeline exports. Perhaps Washington will concede its newfound dominance in Europe’s energy system as a cost of attaining peace in Ukraine—and extricating itself from the continent to focus on the Indo-Pacific theater.  

But for Europe, allowing Russia back into its gas market through Nord Stream would be a costly mistake. It would furnish the Russian war machine with an additional $5 billion, open the temptation for German manufacturers to extract a 1.5 percent competitive advantage over other Europeans, and leave 100 million Europeans in geopolitical limbo. 

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No reason for Nord Stream nostalgia 

There is an obvious temptation for Europe to try to return to the seemingly halcyon world before COVID-19 and war in Ukraine. Elevated gas prices have threatened the continent’s long-term industrial competitiveness. In 2023—after the price spikes of 2022 subsided—industrial gas prices remained a whopping four-and-a-half times higher than in the United States. The European average in 2019, by contrast, was a modest 70 percent higher than US prices. 

But Europeans should not view the pre-war status quo through rose-colored glasses. Europe was vulnerable to supply shutoffs, such as happened during Russo-Ukrainian disputes in 2006 and 2009. And supposedly cheap Russian gas proved to be very expensive in the end—mitigating the energy crisis cost Europe a historic price of nearly €700 billion just by mid 2023, on top of nearly €250 million in aid to Ukraine by 2025. All in all, the cost of dependence amounted to more than €1 trillion.   

Europe can neither forget the lessons learned from Russia’s weaponization of gas supply in the lead up to and during the war; nor can it ignore the new geopolitical realities that define its relationship with Russia.  

Paying off the arsonist

First, if Europe were to restore Russian pipeline imports, that would greatly increase cash flow to Gazprom. Currently, Russia is selling gas mostly to China, supplying the country with 30 billion cubic meters (bcm) of gas in 2024 and aiming to hit 38 bcm in 2025 with the opening of a new eastern pipeline. But those volumes pale in comparison to the record 179 bcm shipped by pipeline to Europe in 2019. Even the amount of gas exported via the now-destroyed Nord Stream 1 alone—which had the same nameplate capacity as its successor—totaled 58.5 bcm in 2019, far more than total Russian pipeline and LNG shipments to China in 2024.  

Chinese buyers can’t make up for the loss of European markets. There exists no infrastructure to bring the gas from Russia’s massive European fields to Asian consumers. China has slow walked completion of the 50 bcm Power of Siberia 2 pipeline and appears to be hesitant about becoming too reliant on Russian gas. Losing the European market has severely hurt Gazprom, which posted a net loss of $12.9 billion in 2024—after seeing record profits of $29 billion in 2021. 

This has profound implications for Russia’s ability to wage war in Ukraine—and elsewhere. If Gazprom were to attain an additional $15 billion from Nord Stream 2 sales—based on a pre-war estimate of the pipeline’s potential revenue generation—and another $15 billion from restarting the damaged Nord Stream 1 pipeline, one might assume that half would go to Russia’s state budget. Of that $15 billion, one third would go to the military, based on the proportion of Russia’s 2025 budget dedicated to defense. This would mean $5 billion more to Russia’s military, a 4 percent increase in the Russian war chest. 

Distorting European competition 

Moreover, making Germany the primary entry point for Russian gas into Europe would provide German industry with a temptation to take advantage over its neighbors, as was the case in the early 2000s, constantly threatening European unity at a trying time. A primary reason why other Western European countries had opposed Nord Stream 2 even before the war was fear that Germany monopolizing Russian gas flows would give it a competitive advantage over manufacturers in Italy and France. 

Indeed, a 2012 investigation by the European Commission into Gazprom found that Russian gas was cheaper for Germany than it was for the average European country by at least 15 percent. Data released by Russian news agency Interfax in 2010 revealed that Gazprom was charging France 10 percent and Italy 25 percent more than Germany for gas. Further, the Commission found in 2018 that Gazprom had violated European Union (EU)  antitrust rules to divide national markets, potentially allowing it to overcharge five Central European member states—countries which paid even more than France and Italy.  

For the most energy-intensive sectors in Europe, energy can account for over 10 percent of manufacturing costs—so if German industry gets a 15 percent discount, the country gains up to 1.5 percent advantage in profitability over the European average.  

A dagger at the heart of European unity 

Last but not least, Nord Stream 2 would deliver Russian gas in a route that bypasses most of the Central European transit states, allowing Russia to leverage energy supplies to these countries separately from Western Europe and leaving 100 million Europeans in geopolitical limbo.  

Whereas Moscow’s disputes with Kyiv in the 2000s over gas supply meant that cutting off Ukraine would cut off the rest of Europe, Nord Stream 2’s reopening would allow Russia to more effectively divide and conquer the continent. In a new era of full-scale war to readjudicate the political borders of Europe, this would leave substantial portions of the EUand NATO at the mercy of the Kremlin’s imperial whims. 

Three numbers that should frighten Europe 

Ultimately, regardless of how Washington decides to proceed on Nord Stream 2, Europe must take responsibility for its own decisions on whether to buy gas from the pipeline or not. In weighing that choice, it must remember three key numbers: $5 billion in additional money for the Russian military; 1.5 percent of additional profitability for German industry over its EU neighbors; and 100 million Europeans left vulnerable to renewed Russian aggression. 

Michał Kurtyka is a distinguished fellow with the Atlantic Council Global Energy Center and was formerly Poland’s minister of energy, climate, and environment. 

EnergySource

EnergySource is the Global Energy Center’s (GEC) online publication providing commentary and analysis on developments in the energy and climate sector from a wide-array of thought leaders, politicians, and experts.

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EnergySource Mar 7, 2025

The US can reduce Russia’s nuclear energy—and geopolitical—influence

By Marina Lorenzini

As the Trump administration outlines its energy priorities, strengthening the US nuclear industry remains a point of bipartisan agreement. Revitalizing this sector will lead not only to domestic economic growth, but also a reduction in Russia’s dominance in global nuclear markets and its geopolitical leverage.

Energy & Environment Energy Markets & Governance

EnergySource Feb 27, 2025

Can the EU’s Clean Industrial Deal cut carbon and restore competitiveness? 

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Atlantic Council experts share their analysis on the EU’s new industrial policy, its implications for European energy security, and how key partners may respond to the bloc’s evolving regulatory landscape.

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EnergySource Feb 24, 2025

US energy dominance is Putin’s worst nightmare as Russia enters its fourth year of war crimes

By Olga Khakova, Haley Nelson

Three years of Russia’s senseless aggression in Ukraine have caused monumental, unnecessary human suffering but also an irreversible impact on Russia’s energy sector. Sanctioning Russian LNG at the source is the most effective way to prevent future supply blackmail from Moscow.

Central Europe Eastern Europe

The Global Energy Center develops and promotes pragmatic and nonpartisan policy solutions designed to advance global energy security, enhance economic opportunity, and accelerate pathways to net-zero emissions.

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The post Nord Stream could divide Europe yet again  appeared first on Atlantic Council.

This infographic reflects on trade balances in the broader context of supply chain interdependence. Research shows that Mexico is deeply reliant on US intermediate goods, which means that it imports US inputs that go into more finalized products that are then exported through the USMCA back to the United States. This places Mexico, in particular, in a separate category from all other major US trade partners.

The post Americas economies in-depth: The US-Mexico trade balance in context appeared first on Atlantic Council.

Colombia is the top US trading partner in South America—for now

The diagnosis: US exporters benefit from trade with Colombia

In recent weeks, US-Colombia commercial ties attracted attention amid increasing frustration in Washington over Colombian President Gustavo Petro’s missteps at home. Under his watch, Colombia’s security situation has worsened dramatically, the economy has seen sluggish growth, and his ill-advised initial resistance to cooperating with the United States on repatriation flights have set US-Colombia relations back significantly. While Petro backpedaled quickly and is now signaling he will cooperate with US migration policy, the January diplomatic crisis provides an opportunity to take a closer look at the trade relationship with Colombia. These dynamics go beyond just dollars and cents—they have serious implications for the projection of US influence in our hemisphere. According to Colombia’s National Administrative Department of Statistics (DANE), Chinese imports in the month of January outpaced US imports. If this trend continues the United States could lose ground to China with a key US partner.

Though Colombian imports of goods like crude oil, coffee, cut flowers, bananas, avocados, and precious metals are all important to the US economy, the true value of the relationship from a US perspective lies in Colombia’s market for US exports. Last year, the total value of US exports to Colombia exceeded the value of imports by $1.3 billion, meaning the United States has a trade surplus with the country.

The export market in Colombia is especially crucial to US agricultural producers. In fact, Colombia has long represented a significant opportunity due to its sizable consumer base, relatively higher income levels compared to other countries in the region, and its proximity to other key markets. One product that has benefited from the TPA in particular is yellow corn. Prior to the free trade agreement, Colombia imported yellow corn primarily as raw material for animal feed in industries such as poultry and pork production. But before the agreement took effect, Colombia sourced this corn from Brazil, Canada, and other countries—often at higher prices and not necessarily with the same quality standards as those offered by US producers.

Today, US exports of yellow and white corn to Colombia exceed $1 billion in annual sales. This has contributed significantly to the growth of Colombia’s poultry, pork, and inland fishing industries, and it has benefited US farmers in states like Iowa, Kansas, Illinois, and Nebraska.

This is win-win trade. Cheaper animal feed means broader availability of protein and improved nutrition in developing areas of Colombia. It’s also true that Colombian corn cannot serve as a viable raw material for balanced animal feed, which means that US exports of corn are meeting a need that Colombia can’t address on its own. Consequently, the development of a domestic industry in this sector does not necessarily depend on restricting imports.

Beyond yellow corn, several other US agricultural exports would be affected by any worsening of trade relations with Colombia. These include soybeans, soybean cakes, wheat, rice, cotton, apples, grapes, strawberries, and processed livestock products such as pork and beef. The US exports nearly $3 billion in total agricultural exports to Colombia. Exposing these exports to reciprocal tariffs or effectively ending the TPA could severely impact US producers in these sectors.

The prescription: Keep trade relations on track

It is a safe bet that the US-Colombia relationship will encounter more turbulence. Petro’s missteps will continue, and US frustration with his administration is a bipartisan sentiment. But the US-Colombia relationship—from security and counternarcotics interests to US commercial interests—has value for both nations. Opening the TPA to renegotiation is unlikely to move forward in the US Congress, and it could very well hand a political victory to Petro himself. A longtime critic of free trade with the United States, the Colombian president may see ending the trade agreement as a win—at the expense of US exporters. Similarly, a trade war may ultimately harm American interests. 

If US policymakers are interested in adjusting the terms of the agreement, they can do so through the joint Free Trade Commission (FTC), where representatives from both countries propose new interpretations of key provisions following discussions with respective stakeholders, particularly the private sector and lawmakers. Most recently, in January 2025, the FTC convened after months of bilateral negotiations and announced updated interpretations of investment protection standards. The FTC also issued interpretive notes in 2013 and 2018 on other matters of interest, including agricultural trade, services, and intellectual property.

Bottom lines

• Though bilateral relations at the government level may sour, there is a clear role for the private sector in de-escalating diplomatic tensions between Colombia and the United States. For many US agricultural exporters, finding an alternative market abroad like Colombia—its size, proximity, and possession of an active FTA—is no easy task.
• While the economic consequences of a trade war are likely to be more severe for Colombia than for the United States, it would not come without a cost. US states with key producers of agricultural goods are at risk in a potential trade dispute. The origin states for these exports include Nebraska, Iowa, Kansas, Ohio, Louisiana, Missouri, and Texas. And Florida, New Jersey, New York, and California play essential roles as hubs (i.e., seaports, airports) facilitating trade with Colombia.
• The good news is that a trade war is not inevitable. The United States has leverage to prevent trade tensions from escalating by using diplomatic channels and fostering cooperation. Through the public and private sectors, the United States can work to maintain stability and protect mutual economic interests. 

Staff

Geoff Ramsey

Senior Fellow

Adrienne Arsht Latin America Center

Civil Society Democratic Transitions

Staff

Enrique Millán-Mejía

Senior Fellow, Economic Development

Adrienne Arsht Latin America Center

Americas Colombia

Report Nov 30, 2023

Advancing US-Colombia cooperation on drug policy and law enforcement

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

Civil Society Colombia

New Atlanticist Nov 13, 2023

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The Colombian government recently unveiled a new ten-year drug strategy, attempting to break from a half-century of policies that have failed to curb coca production.

Americas Colombia

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 Trade with Colombia is big business for US exporters—amid growing Chinese influence in Latin America appeared first on Atlantic Council.

Earlier this month, Hong Kong-based CK Hutchison Holdings announced that it would sell a range of global port assets, including the ones operating in the Panama Canal, to the US private equity firm BlackRock. The deal stunned officials in Hong Kong and their counterparts on the mainland, and not just for the deal’s nearly twenty-three-billion-dollar price tag.

Daily front page headlines in the South China Morning Post detailed the latest twists and turns of the unfolding drama. At the center is the company’s founder, Li Ka-shing. The ninety-six-year-old billionaire began his career selling plastic flowers in the 1950s and helped turn Hong Kong into a hub of global finance. In 2000, he was knighted by Queen Elizabeth and, according to press reports at the time, was considered more powerful than China’s then president, Jiang Zemin. Li took that influence and made a series of brilliantly timed investments in the Chinese mainland, understanding where the economic opportunity would be in the years ahead.

So it’s understandable why Chinese authorities felt blindsided by his decision to sell the port operations to an American company, right after US President Donald Trump claimed in his inaugural address that China was operating the Panama Canal and “we’re taking it back.” But the level of anger is perhaps what is surprising. An op-ed in the pro-Beijing Ta Kung Pao newspaper (which was then republished by Beijing’s Hong Kong and Macau office) called the sale an act of “betrayal of all Chinese people.” More commentaries have followed, which have called it an act of “submission” and “spineless groveling.” The fact that the deal was announced on the eve of the “two sessions,” China’s most important economic and political event of the year, just added insult to injury for Chinese President Xi Jinping and the Chinese Communist Party.

The entire situation puts both Hong Kong authorities and Chinese officials in a difficult spot. If they make any moves to block the sale—and it’s not even clear whether they could—it would confirm some of the worst concerns about the way Western businesses will be treated in Hong Kong following the passage of the National Security Law in 2020. Right now, Hong Kong is working hard to convince the West that it is still one of the world’s most important financial hubs. As a newspaper report the day I left proudly touted, Hong Kong was “still” the number three financial city behind New York and London. That effort becomes more difficult if this sale is a blocked.

On the other hand, Hong Kong has to show that it’s responsive to Beijing’s concerns. That’s likely why Hong Kong’s chief executive, John Lee Ka-chiu, has taken a balanced approach so far, issuing a statement on the need to weigh the legitimate concerns of society and the importance for businesses to follow the legal process. One of his predecessors, Leung Chun-ying, was less diplomatic, saying: “Do merchants have no motherland?”

Now, Hutchison is working to ensure the deal doesn’t get torpedoed. A report in the South China Morning Post last week said Hutchison would offer twenty-five Hong Kong dollars (about three US dollars) per share as a bonus to shareholders if the deal goes through. The news, unsurprisingly, sent the stock soaring.

At stake here is more than just ports. The challenge facing Hutchison is a microcosm of the tension between finance and national security that is about to play out around the world. Consider the facts. After his inauguration in January, Trump made clear that Chinese companies’ ownership of portions of the Panama Canal was unacceptable. At the same time, he launched a trade war that threatened to slow down global commerce—and hurt the profitability of major port operators such as Hutchison. Weeks later, BlackRock negotiated a deal for a range of assets held by Hutchison. Chinese media have been keen to highlight the longstanding friendship between Trump and BlackRock CEO Larry Fink.

So, what is a veteran businessman like Li supposed to do in a situation like this? He can sell his operations at a profit or wait until the situation deteriorates and he has to sell at a potentially lower rate. He (or members of his family now overseeing the day-to-day operations) likely knew the sale would upset the Chinese authorities, but he also couldn’t ask for permission in advance—likely believing that it wouldn’t be given. If Beijing pushed Hutchison to reject the deal, it would only confirm the suspicions Trump has about the national security priority China puts on port operations. It is truly a tangled geoeconomic web. 

The predominant sense in our private conversations during the week was that BlackRock and Hutchison will find a way to seal the deal. There’s too much money at stake, too many aligned interests, and the risks of it failing are too high both for Hutchison and, more importantly, for Hong Kong’s future.

But expect China to find ways to tighten its grip on these kinds of deals going forward. Xi has stated that the world’s reliance on advanced technologies from China would give his country leverage in an economic conflict in the years ahead. Just as important as new technology is hard infrastructure—and Xi knows that, as well. Beijing does not want to be caught blindsided again. The outrage about the ports deal communicated from Beijing in both Chinese and Western media is meant in part to stop any other company from considering something similar. In Hong Kong last week, I could tell that message was being received loud and clear. 

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

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Rubio will find a region undergoing profound changes both negative and positive. Crime and violence are on the rise, which is hurting the private sector, especially tourism, a main lifeline for many economies in the region. At the same time, the Caribbean is poised to become an energy powerhouse by the end of the decade thanks to recent discoveries and energy development.

This week, Caribbean leaders will welcome Rubio’s visit, as they are eager to influence US policy toward the region over the next four years. On the US side, Rubio has an opportunity to come away from the trip with a new strategy for the region that can yield tangible benefits and protect US and Caribbean interests alike. This new strategy should have two priorities:

• lowering barriers to US investment in Caribbean energy, which can bolster energy security for the wider region, including the United States, and
• helping countries in the region reduce crime and violence, which can protect US citizens traveling abroad.

Untapped potential

The Caribbean’s proximity to US shores has earned it the nickname “the United States’ third border.” As with the countries on its land borders, the United States shares strong trade, commercial, and people-to-people ties with Caribbean nations. More than twenty million US citizens travel to the Caribbean each year for overnight stays, and the United States remains the Caribbean’s top trading partner. Five of Taiwan’s twelve remaining diplomatic allies are in the Caribbean. And Guyana, Suriname, and Trinidad and Tobago collectively house enough hydrocarbon resources to make them active players in global oil and gas markets.

Yet despite the importance of the Caribbean for US interests, the region has long suffered from inattention and inconsistent US foreign policy. The result is a relationship that relies on ad-hoc engagement and has forced countries to look elsewhere for assistance, from China to India to African nations. While in office, former US Vice President Kamala Harris sought to rectify this by launching the US-Caribbean Partnership to Address the Climate Crisis 2030, but it did not have enough time to take root and it failed to deliver long-lasting benefits. Now, early in the second Trump administration, Rubio can use this week’s trip as a starting point to design, build, and implement a Caribbean strategy that serves US and regional interests alike over the next four years and beyond.

What a US Caribbean strategy needs

Two points are critical to any successful US strategy in the Caribbean. First, it must be a whole-of-government effort that uses and amplifies existing diplomatic, economic, and security partnerships with the Caribbean. Fortunately, there are various forms of active US cooperation with Caribbean nations in all three of these areas. For example, US embassy officials across the region have built trust among locals and the private sector, making the United States a first-choice partner. US Southern Command’s defense partnerships with Caribbean militaries (except The Bahamas) has significantly enhanced capacity building and training for pre- and post-natural disaster events as part of its annual Tradewinds exercise.

The challenge will be to coordinate these various activities into one coherent strategy. In practice, this first means creating a new framework that can house current US policy initiatives in the Caribbean across different US agencies, identifying opportunities to scale engagement. Next, Washington will need to allocate the resources needed to in-region US embassies and other US policy instruments, such as US Southern Command and the State Department’s Caribbean office, to implement these measures.

Second, while Rubio’s trip is an important sign from administration that it takes the Caribbean seriously, US policy must go beyond high-level government-to-government engagement to succeed. There are five national elections set to take place in the Caribbean by the end of this year. Relying solely on interactions with the region’s national governments, some of which could change soon, limits the local private sector and regional institutions’ ability to help implement US-Caribbean policy decisions. Institutionalized partnerships with local business chambers and more engagement with development institutions, such as the Caribbean Development Bank, can offset any political uncertainty associated with upcoming general elections.

With these two principles in mind, where should the United States focus its attention? Reducing crime and violence should take precedence. In 2024, nine of the top ten countries in Latin America and the Caribbean with the highest homicide rates were in the Caribbean, primarily due to increasing gang proliferation and the illegal trafficking of small arms originating from the United States. The recent reintroduction of the Caribbean Basin Security Initiative Authorization Act by the US Congress—which allocates $88 million annually through 2029—is expected to help address the region’s security challenges, but the appropriated resources alone are insufficient given the scale of the problem. Caribbean countries also need increased technical assistance from the Pentagon and US Southern Command to increase police and military capacity to address the transit of illicit arms and drugs. Doing so would ensure greater stability for Caribbean countries and help protect the millions of US citizens traveling abroad to the region.

Next, Caribbean countries are uniquely positioned to welcome increased US investment in the region’s energy market. Trinidad and Tobago, Guyana, and Suriname’s natural gas potential provide a hub for future investment. Each of those countries already has US and Western operators, but the derivatives from natural gas usage—such as ammonia, urea, plastics, and aluminum—also provide opportunities for US companies. For example, building and operating new ammonia and urea plants—which will have a ready-made market for export in the Caribbean—would enable US companies to invest at scale in a region where project size is on the smaller end. There are also energy investment opportunities in the eastern Caribbean, which houses significant geothermal reserves. New technological advances in geothermal exploration and financial backing from Wall Street could reduce costs and risks enough to entice US companies to consider making investments.

Since the power generation projects in the Caribbean are small relative to those in Latin America, Rubio should consider working with the US International Development Finance Corporation to subsidize pre-project costs for US companies willing to take the time to determine the viability of energy projects in the Caribbean. Moreover, given that potential geothermal projects reside in some of the countries with diplomatic ties to Taiwan, and the region’s future natural gas producers already have large-scale Chinese investments in the energy sector, increasing US competitiveness in this industry could go a long way toward counterbalancing potential Chinese engagement.

If the Caribbean truly is the United States’ “third border,” then it is important to US national security and economic interests to invest the resources and time in strengthening relations with the region. Rubio’s trip is the second Trump administration’s first real opportunity to do this. Resources, assistance, and institutionalized engagement will be needed—all of which can yield tangible benefits for the United States over the next four years and beyond.

Wazim Mowla is the fellow and lead of the Caribbean Initiative at the Atlantic Council’s Adrienne Arsht Latin America Center.

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The Suez Canal is both a maritime choke point and a vital waterway for global trade and energy security. The 193-kilometer canal connecting the Red Sea and the Mediterranean:

• Attracts about 12 percent to 15 percent of worldwide trade and about 30 percent of global container traffic—with more than $1 trillion in goods transiting annually.
• Includes roughly 9 percent of global seaborne oil flows (about 9.2 million barrels per day in early 2023) and around 8 percent of liquefied natural gas (LNG) volumes.
• Averages fifty to sixty ships transiting the canal daily, carrying an estimated $3 billion to $9 billion in cargo value.
• Generates toll revenue—a major economic lifeline for Egypt—with a record of $9.4 billion set in 2022–2023.

Given its strategic role as the fastest sea route between Asia and Europe, any disruption to the Suez Canal can have outsized impacts on global commerce and energy markets, which have occurred in recent years. Minimizing such disruption is an international concern. It requires diplomacy and collaboration to bolster Suez area security and capacity building to protect trade flows and supply chains, reduce shipping and insurance costs, and foster a stable supply of energy.  

Historical conflicts and impacts

The canal’s strategic importance has repeatedly made it a flash point during geopolitical conflicts. In late 1956, after Egypt’s President Gamal Abdel Nasser nationalized the canal, an invasion by Britain, France, and Israel led to the Suez Crisis, during which the canal was closed from October 1956 until March 1957. Though the closure lasted only about five months, it disrupted shipping significantly; hundreds of vessels were forced to reroute around the Cape of Good Hope, increasing transit times and costs. The crisis underscored the canal’s leverage in Cold War geopolitics and ended with Egypt retaining control, but only after international pressure forced invading forces to withdraw.

A decade later, as the Six-Day War began in June 1967, Egypt closed the Suez Canal again as it became the frontline between Egyptian and Israeli forces. This time the waterway remained shut for eight years—the 1967–1975 closure—a disruption unprecedented in the canal’s history. At the time, a large share of Europe’s oil imports depended on the Suez, so the closure forced a massive diversion of trade. Global shippers again opted for the long alternate route around Africa, adding roughly 8,000 to 10,000 kilometers to voyages. This led to higher freight costs and transit delays on a global scale. The prolonged closure spurred structural changes in the industry: Shipping companies turned to larger “supertanker” oil vessels capable of economizing on the longer route around the Cape of Good Hope, and Egypt, in turn, built the Sumed pipeline (completed in 1977) to transfer oil from the Red Sea to the Mediterranean as a substitute link. The canal finally reopened in June 1975 after extensive mine-clearing and salvage operations, and plans got underway to expand the canal. By then, global trade patterns had partly adjusted—for example, new oil fields outside the Middle East and alternate routes had reduced reliance on the Suez route—but the reopening restored a critical artery for Europe-Asia trade.

Figure 1: The extended economic impact of incidents in the Suez Canal

In the decades since 1975, the Suez Canal has largely stayed open amid regional conflicts, though security has been tested at times. During the 1973 War, the canal zone itself was a battleground, delaying its clearance and reopening until a peace accord was in place. More recently, unrest during the Arab Spring and insurgency in Egypt’s Sinai Peninsula raised concerns. In 2013, for instance, militants attempted a terrorist attack on a passing container ship (the COSCO Asia) in the canal, firing rockets in an effort to disrupt traffic. Egyptian forces foiled that attack. No damage was done and transits continued uninterrupted—but the incident highlighted persistent security concerns. Overall, historical episodes show that geopolitical conflicts can rapidly threaten the Suez Canal’s operability, leading to costly rerouting of ships and prompting defensive measures to safeguard this vital corridor.

Recent Middle East conflicts and disruptions

Ongoing conflicts in the Middle East have recently impacted the Suez route, including the Red Sea attacks (2023–2024). In late 2023, the Israel-Gaza war triggered a wave of attacks on commercial shipping in the Red Sea/Bab el-Mandeb region by Yemen’s Houthi rebel movement. The Iran-aligned Houthis openly portrayed their attacks as retaliation in solidarity with Palestinians amid the Gaza war. Starting in November 2023, they launched scores of missile and drone strikes targeting ships bound to or from the Suez Canal, and even seized a cargo vessel in the southern Red Sea. Houthi militants claimed to have attacked more than 130 ships in the Red Sea and Gulf of Aden after the war in Gaza erupted in October 2023. This campaign saw several merchant ships damaged—and some crew members injured or killed—by anti-ship missiles. By mid-2024, the assaults had escalated to the point of sinking at least one commercial vessel and igniting others, dramatically underscoring the threat to shipping.

The immediate impact of these attacks was a widespread reassessment of the safety of the Suez route. Many global shipping companies reacted by diverting or suspending routes that would normally transit the Red Sea and Suez Canal. Between mid-December 2023 and late December, at least thirteen major shipping operators, including the world’s largest container lines, announced they were indefinitely suspending voyages via the Red Sea or to Israeli ports. Shipping disruptions included MSC (the world’s biggest container carrier) and others stating they would temporarily avoid the Suez Canal path due to the security risks. The Suez Canal Authority (SCA) reported that from November 19 to mid-December, fifty-five ships had rerouted around the Cape of Good Hope instead of using the Suez Canal, although more than 2,100 ships still transited the canal in that period. This indicated that while a core of traffic continued, a growing number of shipowners chose the longer but safer route around Africa, requiring additional capacity to provide key services for the longer route and ultimately increasing costs and travel time. Notably, certain vessel categories virtually vanished from the canal at the height of the crisis. By June 2024, Suez transits of dry bulk cargo ships were down nearly 80 percent on a year-to-year basis as operators rerouted grain and ore shipments to avoid the Red Sea stress zone. Major energy companies were also alarmed. In December 2023, oil major BP paused all tanker transits via the Red Sea until the situation stabilized.

The Red Sea attacks prompted unprecedented international responses to protect the Suez waterway’s approaches. The United States, European nations, and regional allies stepped up naval patrols and even carried out strikes on Houthi launch sites to deter attacks. By late 2023, a US-led coalition (including forces from the United Kingdom, France, and other nations) was conducting retaliatory strikes against Houthi missile and drone infrastructure in Yemen. Several nations moved to escort shipping directly: China’s navy, for example, began providing armed escort to Chinese commercial vessels through the Red Sea starting in January 2024. Despite these efforts, sporadic attacks continued into late 2024, creating a climate of high alert. Only after a tentative ceasefire in Gaza, and amid international diplomatic pressure, did the Houthi group ease its campaign. In early 2025, the Houthis announced a halt to attacks on vessels not linked to Israel, leading the Suez Canal Authority to urge shipping lines to return to their normal routes amid signs of stabilizing conditions. By February 2025, no new attacks had been reported for several weeks, but these episodes served as a stark reminder of how quickly a regional conflict can threaten the security of a global trade artery.

Impact on global trade and economy

The disruptions arising from conflict around the Suez Canal have had immediate and far-reaching economic effects, including on trade flows and supply chains. Vessel attacks and rerouting in the Red Sea effectively throttled Suez traffic in late 2023 and early 2024. In fact, the volume of trade passing through the Suez Canal dropped by about 50 percent in the first two months of 2024 compared with a year earlier. Dozens of ships that would normally use the canal instead took the long way around Africa, causing the volume of goods shipped via the Cape of Good Hope to surge by about 74 percent as shippers improvised alternate paths. This detour adds roughly ten or more days to Asia-Europe voyages on average, straining just-in-time supply chains. Companies that rely on fast turnarounds—from electronics manufacturers to retail suppliers—suddenly needed to cope with extended transit times and uncertain delivery schedules. By January 2024, port call data showed ripple effects: Weekly ship transits through the Bab al-Mandab Strait, for example, plunged to roughly nineteen per day, down from a normal level of seventy or more in prior months. Such a sharp decline in Red Sea traffic implies a significant temporary loss of global shipping capacity, as a large share of the world’s container and bulk fleet was pushed onto longer routes.

One immediate consequence of these longer routes and convoy delays was a spike in transportation costs. Industry analysts estimated that the effective global shipping capacity shrank by about 20 percent during the crisis (as ships spent far longer in transit). This capacity crunch drove up freight rates on major trade lanes. Container spot rates for Asia-Europe routes, which are heavily dependent on Suez, began rising as carriers needed to deploy more vessels to maintain schedules and as available space tightened. Rerouted ships also experienced congestion in alternate ports (e.g., in South Africa and Southeast Asia) as traffic patterns shifted. All these factors increased operating costs for carriers, which were passed on to shippers–and ultimately to consumers. Studies by the International Monetary Fund have noted that if such disruptions persist, they can put upward pressure on inflation in affected economies due to costlier imports and shipping delays. European importers, for instance, faced both longer lead times and surcharges on freight in late 2023, complicating inventory management and production schedules.

The security situation also led to soaring marine insurance costs for voyages via the Red Sea and Suez. Insurers designated much of the Red Sea as a high-risk war zone, imposing additional premiums on hull and cargo coverage. War-risk insurance premiums—which had previously been a nominal 0.05-0.1 percent of a vessel’s value—surged to as high as 1-2 percent of ship value per transit in late 2023. Likewise, cargo insurance rates for shipments through the region spiked. Policies that typically cost about 0.6 percent of cargo value climbed to roughly 2 percent in the aftermath of the attacks. These hikes meant that a large container ship (or its cargo) faced millions of dollars in extra insurance costs for a single Suez passage. Such expenses made the Suez route financially unviable for many vessels at the height of the conflict—further incentivizing detours around Africa despite the longer journey. Even as of early 2024, some insurers remained reluctant to cover Red Sea transits at all, requiring shippers to seek specialized coverage or government guarantees. The net effect was sharply increased operating costs for any ships brave enough to continue through the canal during the hostilities, adding to the economic toll.

Geopolitical strife affecting the Suez area also reverberates through energy markets and influences trade patterns. The canal and its associated pipelines (like Sumed) are key conduits for Middle Eastern oil and LNG exports to Europe. Disruptions here can contribute to oil price volatility: For example, news of the Red Sea attacks in late 2023 helped push Brent crude oil prices up as markets priced in potential supply delays. During the recent conflict, southbound oil transit through the Suez fell by half, from about 7.9 million barrels per day (bpd) in 2023 to only about 3.9 million bpd in 2024, as many tankers rerouted or deferred voyages. Some mitigation came from rebalancing flows. Notably, Russia shifted large volumes of crude to Asia via the Suez Canal (after the European Union imposed sanctions), which kept certain Suez oil traffic robust despite the turmoil. However, other petroleum streams were heavily disrupted. Virtually all jet fuel shipments to Europe stopped using the Suez route once the attacks began (only about 2 percent of global seaborne jet fuel now transits the canal). Instead, tankers opted to go around the cape or use alternative pipelines. These shifts illustrate a broader point: extended conflicts can trigger higher risk for an extended period. Certain cargoes might not immediately return to the Suez route even after tensions ease, especially if insurers and shippers perceive lingering risks. Additionally, the mass diversion of ships around Africa has an environmental cost—longer voyages mean higher fuel burn and emissions. It’s estimated that rerouted ships traveling 50-60 percent farther produced roughly 40 percent more carbon dioxide emissions per voyage than traveling via the Suez Canal, highlighting a climate impact alongside economic costs.

Conclusion and outlook

Ensuring canal security

The recent disruptions underscore that the Suez Canal’s strategic vulnerability is an international concern. Stability in the waterways connecting to the canal (e.g., the Red Sea, Bab el-Mandeb, and the Eastern Mediterranean) is critical for uninterrupted commerce. A key policy lesson is the importance of proactive security and diplomatic measures to protect this choke point. Egypt already maintains a robust military presence to secure the canal itself, but the Red Sea attacks revealed the need for a broader cooperative security framework—potentially involving regional states and global naval powers—to ensure safe passage in surrounding seas. Going forward, multinational maritime patrols or convoy arrangements in the Red Sea could be considered during periods of high risk (such as past anti-piracy operations or the tanker convoys in the Persian Gulf during the 1980s).

Enhanced intelligence sharing and early-warning systems could help merchant fleets avoid danger. Diplomatically, addressing the root conflicts is paramount: a temporary ceasefire in the Israel-Palestine arena helped directly reduce attacks on shipping. International mediation in Yemen and dialogues with Iran are likewise crucial to prevent future flare-ups that threaten Suez traffic. Policy coordination, whether through the United Nations International Maritime Organization (IMO) or coalitions of concerned nations, will be needed to bolster the security of global shipping lanes in this region. Treaties and agreements, such as the UN Convention on the Law of the Sea (UNCLOS), provide a legal foundation for international collaboration in maritime security efforts. By adhering to these frameworks, countries can formulate joint strategies, share best practices, and coordinate response mechanisms to maritime insecurity.

Table 2: Examples of key collaborative maritime security initiatives

Other maritime routes are emerging, but they remain insufficient. Climate change is gradually opening the Northern Sea Route (NSR) along the Russian Arctic, which raises the prospect of an Asia-Europe sea route that circumvents the Suez Canal. However, Arctic routes are not yet commercially viable for mainstream shipping: seasonal ice, specialized vessel needs, and a lack of infrastructure pose significant challenges. In the foreseeable future, the NSR will remain a limited-use route for specific ships and seasons, rather than a full alternative to the Suez Canal.

Meanwhile, the Cape of Good Hope route will continue to be the primary backup when the Suez is impassable, despite its longer distance. This reality was underscored during the Red Sea crisis. When faced with danger, the shipping industry’s only immediate large-scale alternative was essentially to go around Africa. While effective as a stopgap, that solution carries significant economic, logistical, and environmental costs, reinforcing why maintaining the Suez’s accessibility is so crucial.

Strengthening the canal’s infrastructure resilience

There is a policy impetus to build infrastructure resilience into existing trade corridors. The Suez Canal itself has undergone upgrades: For example, the 2015 expansion created a second channel section to allow two-way traffic and reduce transit time. Further investments by Egypt aim to increase the canal’s capacity and enable it to handle even larger vessels. Additionally, ports and logistics hubs on alternative routes are being enhanced to handle diverted traffic during emergencies. Such investments, often with support from development banks, seek to alleviate bottlenecks when trade shifts unexpectedly due to conflict or crisis.

Investment in technological solutions, training, and capacity building

International cooperation in maritime security can also extend to technological advancements. Countries can work together to develop and deploy surveillance systems, maritime domain-awareness tools, and advanced communication networks to monitor shipping activities effectively. For example, the Automatic Identification System (AIS) allows vessels to broadcast their location in real time, helping authorities to track maritime traffic and respond to security threats proactively. Joint investments in such technologies can enhance situational awareness and risk assessment, ensuring swift and effective responses to potential emergencies.

Investment in international training programs for naval forces and coast guards can further bolster maritime security. Collaborative efforts such as joint exercises, workshops, and exchange programs can equip personnel with the skills and knowledge needed to respond effectively to maritime challenges. For instance, the US Navy’s Partnership for Peace Program promotes military-to-military cooperation and training among countries, enhancing their ability to manage maritime responsibilities and contingencies. This collaborative effort can be further developed.

Policymakers and industry leaders will need to collaboratively safeguard the Suez Canal’s continuity, through security cooperation and contingency planning, to ensure that geopolitical conflicts do not again choke off one of the world’s most important trade arteries. The recent disruptions serve as a call to action to reinforce the resilience of global supply chains against such shocks.

Staff

Racha Helwa

Director, empowerME Initiative

empowerME Rafik Hariri Center & Middle East programs

Arabic Economy & Business

Fellow

Perrihan Al-Riffai

Nonresident Senior Fellow

empowerME Rafik Hariri Center & Middle East programs

Arabic Economy & Business

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In reality, of course, the party—and increasingly the strongman at the top—makes the real decisions, while the NPC largely serves as a performative rubber stamp. The pageantry is important, however, as it demonstrates what the party believes it needs to signal to its people and the world. Five notable signals stood out at this year’s two sessions.

1. Chinese President Xi Jinping is at the apex of his power

For all the pageantry—which, as always, included heartwarming footage of people from across China marching into plenary sessions, some in colorful indigenous costumes—this was a one-man show. The signaling was as much about paying homage to Xi as it was about presenting the NPC. Throughout the NPC—which included work reports from major government agencies—major successes were attributed primarily to Xi. In contrast, major challenges were attributed to China’s outside environment, which is often code for US actions that constrain Beijing. For example, the National Development and Reform Commission, China’s major economic agency, made sure to give Xi credit for its economic achievements in 2024, stating (in bold): “We owe these achievements to General Secretary Xi Jinping, who is at the helm charting the course . . .” Beijing sees no need to pretend that Xi himself is part of the consultative pageantry. He sits high above it.

2. There are two Chinese economies, and Beijing is betting on the stronger horse to pull the country through

At the macro level, if you look at Chinese consumer sentiment or at the Chinese industries suffering from overcapacity, the situation is dire. But, just as in any economy, there are always winners in the mix somewhere. Several high-tech companies are innovating, have access to capital, and are experiencing rapid growth. DeepSeek is one such company, and Beijing has milked that example to the max. When asked at a press conference on March 7 about DeepSeek and US efforts to hold China back in technological innovation, Chinese Foreign Minister Wang Yi responded: “Where there is blockade, there is breakthrough; where there is suppression, there is innovation; where there is the fiercest storm, there is the platform launching China’s science and technology skyward like the Chinese mythological hero Nezha soaring into the heavens.” Beijing is betting on bright lights in the tech sector to pull its economy through its current slump.

Advancing science and technology were major themes present throughout the NPC. Chinese leaders announced the launch of a new high-tech “state venture capital guidance fund” and committed to maintain high research and development spending. But what did not appear, as my colleague Jeremy Mark noted earlier this week, was any serious, trend-bending movement toward supporting Chinese consumers and ramping up domestic spending.

3. Beijing sees US President Donald Trump’s strongman-style foreign policy as an opportunity to paint China as the kinder, better partner

Beijing is facing foreign policy headwinds. China recently became the world’s largest creditor—and an increasingly unforgiving one—at the same time as its outbound investment flows fell. That combo is painting China as an unpopular debt collector across the Global South. Chinese economic coercion is triggering a wave of de-risking. So-called “wolf warrior” diplomacy has scored multiple own goals.

Now, however, Beijing sees Trump’s style as an opportunity to wipe that slate clean. This was clear throughout the Chinese foreign minister’s press conference on March 7, where he framed China as the responsible leader “providing certainty to this uncertain world” and “safeguarding the multilateral free trade system.” In a clear dig at the United States, he stated “those with stronger arms and bigger fists should not be allowed to call the shots.” He left nothing on the shelf, calling out US rhetoric on Gaza and Latin America, stating on the latter that: “What people in [Latin American and Caribbean] countries want is to build their own home, not to become someone’s backyard; what they aspire to is independence and self-decision, not the Monroe Doctrine.”

From Washington’s perspective, it is easy to view this as empty rhetoric given the reality of Beijing’s global bullying. But this is likely what Chinese diplomats are saying behind closed doors in every capital around the world, too. It will resonate in many. Washington should take heed and avoid scoring own goals itself.

4. Combating climate change is not a priority

The NPC work report continued the trend seen since at least 2019, when Beijing began to shift from shutting down and cleaning up its coal plants to viewing coal as its primary stable source of energy. In the report, China committed to “implement a coal production reserve system, continue to increase coal production and supply capacity, and consolidate the basic supporting role of coal.” The report treats coal production as a resource security issue, separate from China’s clean energy, environment, and climate goals.

5. Chinese leaders see no reason to change course

Throughout the two sessions, Chinese leaders applauded 2024 successes and previewed a 2025 plan that is largely a steady onward course with some modifications at the margins. To the extent they acknowledge challenges—particularly economic challenges—they did not tie those to Beijing’s own policies. Instead, they blamed the United States and other outside forces, including a sluggish global economy. That does not bode well for Chinese consumers or the overseas manufacturers struggling to compete with the outbound flow of goods China’s factories are producing at overcapacity and unable to sell at home.

The Trump administration is rolling out wave after wave of tariffs on US imports from China, ostensibly to build leverage for some type of grand bilateral bargain. Throughout the two sessions, Xi and other Chinese leaders signaled they are sticking to their state-managed economic approach and view the United States as their biggest external political risk. If anyone in Washington is still hoping China will put meaningful economic concessions on the table to buy its way out of US tariffs, those folks are not paying close attention to the signals coming out of Beijing.

Melanie Hart is the senior director of the Atlantic Council’s Global China Hub and a former senior advisor for China at the US Department of State.

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“We will take a people-centered approach and place a stronger economic policy focus on improving living standards and boosting consumer spending,” declared Premier Li Qiang in his work report to the gathering.

A close look at the spending plans unveiled at the NPC suggests far less than full bore support for consumers and businesses that are trying to keep their heads above water after several years of desultory demand and falling prices. The plans are unlikely to restore the household wealth destroyed by China’s real estate crash or provide jobs to millions of unemployed college graduates.

The announced government outlays won’t exactly light a fire under an $18 trillion economy.  There will be $41 billion for an enhanced trade-in program for consumers and businesses. That initiative was introduced last year and lifted sales of cars, household appliances, and business equipment. The additional subsidies will cover new smartphones and home renovations. In addition, seniors will receive an additional twenty renminbi ($2.76) a month in old-age benefits—the same increase they received last year—and two subsidies for healthcare will rise by a combined thirty-five renminbi. This, in a society where high hospital costs can ruin a family’s finances.

Certainly, the overall spending plan is expansionary, with plenty of infrastructure investment. The budget deficit has been raised to four percent of gross domestic product from three percent in 2024, and one estimate that includes off-budget spending and borrowing shows the deficit totaling 9.9 percent of gross domestic product. Beijing insists that this will keep China’s economic growth at “about five percent” this year—the same level it claimed last year. However, many economists take that achievement with a grain of salt. Rhodium Group colleagues estimate that last year’s growth was actually between 2.4 and 2.8 percent.

The 2025 budget again includes vast sums for high-tech industries. About 11.9 trillion renminbi of “special funds” is earmarked to “support the high-quality development of key manufacturing sectors,” an increase of 14.5 percent from 2024, according to the budget report to the NPC—although the time frame for those expenditures is not specified. There will be expanded credit for exporters hit by US tariffs, and a 7.2 percent increase in spending on China’s military—a number that the US government says significantly understates the real level of military expenditures. In addition, the government announced  several trillion renminbi of special purpose bonds to continue restructuring local governments’ vast debt burden over the next three years. There is also 500 billion renminbi dedicated to state-owned banks to shore up capital reserves depleted by the country’s property crisis. On top of that, the central bank has announced that it is prepared to continue cutting interest rates and bank reserve requirements at the “appropriate time,” and the Ministry of Finance  has said it has the ability to increase spending as needed. Both of those statements have been made regularly since last September.

A lot of the planned spending—for example, the local government bailout—will be unproductive since it will go to restructure debts. Admittedly, the rising fiscal tide inevitably will lift some boats, especially businesses with ties to Xi’s high-tech dream for China. But most Chinese citizens earn their livings outside of these industries, and their immediate prospects remain far more uncertain. One-third of white-collar workers told a recent poll that their wages fell last year.

Indeed, the daily problems facing China’s citizenry have become severe enough that the government was forced to acknowledge them before the NPC—no small admission for a communist party whose propagandists normally offer a steady diet of hubris. The premier’s reference to “weak public expectations” in his work report, and the decision to spotlight the importance of consumption, were a bow to public opinion in a country where the public normally has no way of expressing itself.

However, Xi clearly remains deeply committed to his core economic policies—a point underlined on the eve of the NPC with the publication of a speech he delivered in December. While also acknowledging “consumption shortcomings,” he made clear that the highest priority must remain “more world-class enterprises and leading technologies.” The speech also insisted that the government’s response to China’s economic problems had already “boosted the property market, stock market, market expectations, and social confidence,” suggesting that China’s paramount leader is skeptical about opening the taps too much for those struggling to make ends meet. Xi is well known for his criticism of policies that encourage “welfarism.”

Xi’s laser focus on technology can only be heightened by rising US-China tensions. President Donald Trump’s imposition of twenty percent tariffs on Chinese exports, continued restrictions on semiconductor sales to China, and a recent presidential memorandum outlining policies that would further restrict investment flows between the two countries all point to greater pressure on Beijing to pursue economic and technological self-sufficiency. As the Wall Street Journal’s Lingling Wei and Alex Leary reported last week, Xi is privately concerned that Trump’s policies could isolate China. So, while stronger domestic demand would make the Chinese economy more resilient, the signals from the NPC suggest that the many unfunded social safety net programs outlined at the NPC likely will remain that way.

In the meantime, Beijing may be betting that public sentiment already has started to return to optimism—just somewhat later than the shift in “social confidence” that Xi claimed was underway back in December. Last month’s unveiling of the DeepSeek artificial intelligence program shook global markets and caused Chinese technology stocks to go on a bull run.

How much this shot in the arm for China’s artificial intelligence (AI) development ends up affecting the whole economy remains to be seen. Some investment banks are raising their forecasts for the country’s “potential growth,” at least in the short term. But the government certainly made every effort to talk up AI at the NPC.

All that helped fuel the premier’s optimism when he declared that the “giant ship of China’s economy will continue to cleave the waves and sail steadily toward the future.” But for now, China’s consumers appear to be stuck in steerage.

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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As the United States abandons international treaties and organizations, including the 2015 Paris Agreement, the World Health Organization (WHO), and the United Nations (UN) Human Rights Council, its apparent disdain for the G20 has raised concerns about the role of the United States in the group. These anxieties are especially salient with the United States scheduled to assume the G20’s presidency next year.

A G20 without the United States or its constructive engagement and leadership will be much weaker. It will struggle to sustain broad representation and multilateral cooperation, as well as effective policy coordination and resource mobilization to address pressing global challenges. Even if the rest of the member countries try to carry on, they will struggle to do so on their own.

Tension between the United States and the G20

The current Trump administration has proved to be more ideological than the purely transactional first Trump presidency. During his first term in office, President Trump used the G20 to complain about unfair trade practices by other countries vis-a-vis the United States. He promoted reciprocal dealing under threats of tariffs to rectify persistent US trade deficits as well as implementing policies of tax cuts and deregulation.

In his second term, the Trump administration has actively pushed its anti-DEI (diversity, equality, and inclusion) and anti-climate change agenda, both domestically and internationally. Furthermore, the Trump administration has suspended all its foreign aid pending review, while drastically downsizing the US Agency for International Development’s budget, operations, and staffing. In addition, other major Western countries such as the United Kingdom (UK) have also reprioritized their budgets away from international aid in favor of increased defense spending. The UK alone decided to cut its aid budget from 0.5 percent of its gross national income (GNI) to 0.3 percent by 2027. These actions have left many developing and low-income countries facing sharp funding shortfalls in their development and climate efforts, triggering a health care financing crisis in many of them.

Moreover, according to Project 2025, which the administration has faithfully implemented so far, the United States would consider withdrawing from most international organizations. Republican Senator Mike Lee has already introduced a bill to withdraw from United Nations entirely, and Project 2025 also suggests withdrawing from the International Monetary Fund and the World Bank. Each of these institutions is commonly considered as being under US influence and carrying out activities primarily consistent with US interests. The Project’s authors, instead, believe that these organizations have done more harm than good to the world and the United States.

Guided by this belief, Secretary of State Marco Rubio boycotted the G20 foreign ministerial meeting. He criticized host country South Africa for “doing bad things” by using the G20 to promote DEI and climate activities, adding that his “job is to advance America’s national interests, not to waste taxpayer money or coddle anti-Americanism.” If the United States is serious about promoting its agenda of opposing “solidarity, equality, and sustainability” and resisting mobilizing climate finance to help developing countries—among the core objectives of the G20—it would undermine the effectiveness and relevance of the group. If the United States were to withdraw from the G20, that would seriously dent the group’s aspiration to be the premier international forum for policy coordination in the interests of the global economy. If the remaining countries were to carry on despite the United States’ withdrawal, the relative influences in the G19 would change significantly. Global south countries, driven by China and the BRICS, would gain influence at the expense of the West minus the US.