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

Profitable economic relationships

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

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

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

Complexity, not obstructionism

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

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

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

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

A strategic imperative: Latin America vs. Southeast Asia

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

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

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

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

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

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

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

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

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

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

1. What is a “golden share”?

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

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

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

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

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

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

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

3. How will it be enforced?

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

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

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

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

5. How can the US government mitigate these concerns?

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

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

Semiconductors and dual-use imports

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

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

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

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

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

Unintended tariff consequences on the Chinese tech sector

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

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

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

 If not tariffs, then what?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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.

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

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

US dominance in the global bond market

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

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

No good alternatives to US Treasuries

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

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

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

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

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

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

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

Conclusions

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

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

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

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

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

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

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

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

How does Section 301 work?

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

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

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

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

What Section 301 tariffs would mean for bilateral negotiations?

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

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

What about other authorities to impose tariffs?

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

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

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

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

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

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

Trump Tariff Tracker

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

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

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

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

A season of change

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

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

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

A changing climate

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

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

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

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

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

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

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

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

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

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

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

Kazakhstan’s rare earths

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

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

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

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

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

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

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

The way forward

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

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

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

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

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

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

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

The rise of trade corridors

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

The Middle Corridor: A strategic alternative

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

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

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

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

Corridor wars through connectivity

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

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

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

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

The Middle Corridor serving Russia, China, and Iran

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

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

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

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

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

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

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

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

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

Honorary advisory board

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

Gen. Wesley K. Clark

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

Amb. Paula J. Dobriansky, Ph.D.

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

Gen. James L. Jones

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

Franklin D. Kramer

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

Lt. Gen. Douglas E. Lute

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

Dov S. Zakheim

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

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Click to jump to an expert analysis:

China: There is no cooling off this trade war

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

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

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

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

China

European Union

United Kingdom

Mexico, Canada, and the Americas

India

Trump Tariff Tracker

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

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

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

Case law

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

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Backup plans

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

Trade war and trade peace

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And those comfortable assumptions have been shattered.

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

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

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

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

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

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

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

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

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

So, where do we go next?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Today, we face our own historical inflection point.

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

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

Peter Mandelson is the British ambassador to the United States.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Learn more

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

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

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

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

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

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

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

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

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

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

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

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

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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.

Learn more

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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.

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This is Haiti’s fourth year without a president, its ninth year without holding presidential elections, and its second year without a single democratically elected official in power. Since the assassination of President Jovenel Moïse in July 2021, the country has witnessed a litany of crises—security, humanitarian, and political—that have internally displaced over one million Haitians, more than half of whom are children. Weakened state institutions and an under-resourced national police force have left Haitians to confront these challenges with little to no support from their government. While resilience has long been a defining trait of the Haitian people, forged through more than two centuries of adversity, the past several months have tested that endurance to its limits. Gangs have made staggering advances into densely populated areas of the capital and previously sheltered rural regions, driving a surge in violence that has claimed over 1,500 lives since January 1.

Experts warn that the total collapse of Port-au-Prince is now closer than ever. What happens if the capital falls to the gangs? Beyond a seismic humanitarian crisis, the Transitional Presidential Council—a provisional governing body formed in April 2024 with the support of the Caribbean Community and the United States—would likely unravel, taking with it any remaining hope for constitutional reform, credible elections, and a functioning central government. And as gangs expand their control beyond urban strongholds and into the countryside, the entire nation would teeter on the edge of state collapse.

While there are no immediate solutions to the crisis in Haiti, there are several tangible steps the United States can take to ameliorate the suffering of the Haitian people and help facilitate the country’s recovery. Failing to do so risks allowing the crisis to not only worsen, but spill over into the United States and throughout the region.

Ripple effects

The paramount consequence of Haiti’s potential collapse into a failed state would be the devastating loss of life and the shattered futures of hundreds of thousands of Haitians. But this fallout would not be contained within the country’s borders—the United States and the broader Caribbean Basin will inevitably feel the ripple effects of the crisis as well.

A humanitarian disaster of this scale would trigger a dramatic surge in migration to countries across the region, including to the US southern border. This coincides with the Trump administration’s revocation of Temporary Protected Status for 200,000 Haitian refugees, forcing deportations at a moment of maximum instability. The Dominican Republic, Haiti’s closest neighbor and a key US ally, would also face intensified pressure—both from refugee flows and the risk of cross-border violence. In the total absence of a functioning state, Haiti could become a staging ground for terrorist activity, drug markets, and transnational criminal networks already active in the region, further destabilizing the Caribbean Basin. With this level of insecurity just miles from the United States’ shores, the situation represents a five-alarm fire for US national security.

US foreign policy in Haiti has long been marked by intervention, mismanagement, and short-term fixes. Many experts fear that the designation of Haiti’s gangs as foreign terrorist organizations falls into the same pattern—failing to address the root causes of gang violence or consider the impact on civilians who rely on aid. And as the failure of the Kenyan Multinational Security Support mission to restore security to Haiti has made clear, even efforts with significant US backing have proved inadequate to the challenges of the moment. Past US interventions and policies toward Haiti have fueled suspicion among many Haitians and hopelessness among many US policymakers. Yet while the US government bears significant responsibility for this skepticism, it also possesses the influence to effect positive—even if incremental—change for Haiti.

How the US can help right now

The US government can take several steps in the near term to bring back a modicum of stability and prepare the nation for “the day after.” Many of the necessary policies already exist—they simply require reauthorization or targeted revisions to be effective.

Although Haiti is widely recognized as the poorest country in the Western Hemisphere, the United States remains the largest market for its most profitable sector: textiles. Thanks to bipartisan legislation passed by Congress in 2006 and 2010, known as the HOPE and HELP acts, which established preferential trade terms for the sector, Haiti’s apparel exports to the United States surged from $231 million in 2001 to $994 million in 2021. Although the crisis has severely undermined textile production, these exports provide a resilient economic lifeline for what remains of Haiti’s formal economy. However, unless reauthorized, these trade preferences are set to expire in September. Rather than imposing tariffs that further destabilize Haiti’s fragile manufacturing sector, Congress should move quickly to preserve the near-shoring of US manufacturing imports by passing HR 1625—the Haiti Economic Lift Program Extension Act of 2025, sponsored by Representative Gregory Murphy (R-NC).

The withdrawal of the US Agency for International Development (USAID) raises many questions about the future of development organizations in Haiti, as hundreds of life-saving programs are put on indefinite hold. Several voices within the Haiti policy community note that the agency’s work, despite its best intentions, sometimes created an overreliance on foreign aid within Haitian institutions. Over a century of this dynamic led Haiti to become, in the words of Haiti expert Jake Johnston, an “aid state.”

In the wake of USAID’s departure, the United States has the opportunity to sculpt a more effective aid strategy that puts the onus of development work in the hands of an ever-resilient Haitian civil society, not just foreign contractors. This strategy proved successful in the implementation of the President’s Emergency Plan for AIDS Relief program. And this approach serves as the foundation of the Global Fragility Act (GFA), a law passed by Congress during US President Donald Trump’s first term that prioritizes localization and reorients US foreign policy strategy in fragile states toward preventing conflict rather than reacting to it. Haiti was designated one of the GFA’s ten priority countries and the Biden administration made meaningful strides toward developing a strategy that prioritizes engagement with a broad range of trusted local partners. Renewing the GFA could build on this groundwork by channeling substantial resources into empowering local partners, thus fostering greater self-reliance within Haitian institutions. Representatives Sarah Jacobs (D-CA) and Michael McCaul (R-TX) have introduced a bill to reauthorize and strengthen the GFA. Yet despite the Trump administration’s support for aid localization, momentum for renewing this policy has faltered in both the legislative and executive branches, leaving its future in peril.  

A whole-of-government approach

As Georges Fauriol, an expert on the Caribbean, has described US policy toward Haiti, “the challenge is not so much the absence of a strategy as its disaggregated character.” Whether it be the State Department, the Office of the US Trade Representative, or the Department of Defense’s US Southern Command, the US government possesses no shortage of entities that conduct Haiti policy—not to mention the influence of external interest groups such as those in the US Haitian diaspora.

Although working toward the same mission, these initiatives tend to operate in silos and do not come together to form a cohesive strategy for the long-term stability of the country. This dynamic was evident during the US response to Haiti’s devastating 2010 earthquake, as US Southern Command-led military relief operations and USAID disaster initiatives often struggled with unclear divisions of responsibility, resulting in operational inefficiencies. The GFA and policies such as the Caribbean Basin Security Initiative aim to establish a whole-of-government approach to address this issue. Rather than launching new initiatives for each emerging crisis, the Trump administration should also appoint a special envoy to coordinate and leverage existing Haiti policies within the various branches, helping to shape a more coherent foreign policy for the island and the broader region.

The severity of Haiti’s ongoing crisis makes envisioning “the day after” a challenge. Yet, for countless Haitians, whether living in Haiti or abroad, this vision is worth fighting for, just as it has been during past periods of turmoil. The United States has a strategic interest in advancing a Haiti policy focused on long-term stability rather than short-term fixes. No single policy or initiative will solve the security, humanitarian, and economic challenges that have engulfed Haiti for the past four years. But failing to act at all would further jeopardize the stability of Haiti, the United States, and the region as a whole.

Camilla Reitherman is a young global professional with the Atlantic Council’s Millennium Leadership Program.

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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. 

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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.

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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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Labor’s resounding election victory is now being viewed as a mandate for the sensible center of Australian politics and a rejection of Trump-style politics in Australia. One Australian political commentator saw the results as rebuffing “bunyip Trumpism,” a reference to a mythical Aboriginal creature that inhabits waterholes, which is colloquially used to describe something that is seen as an imposter or pretender. But this election was a rejection of not just hard-right policies but also of the hard left. The Australian Greens Party ran a campaign on cost-of-living measures but also identity politics, Gaza, and anti-Israel sentiment. The party lost two of its previous four lower house seats, while Adam Bandt, the party leader, lost his seat. The party made no gains in the Senate, and its hopes of a “Greenslide” were demolished.

Labor now looks set to claim up to ninety of the 150 seats in the House of Representatives, as well as up to three additional senators. The conservative opposition looks set to be reduced to forty seats or less in the House.

But while Australian voters made clear their rejection of Trump, they still are remarkably pro-United States. The Albanese government will have to balance those two notions as it maps out its foreign policy in the months ahead.

How Labor won

Albanese is the first Australian prime minister to be re-elected since John Howard in 2004, and he is the first premier in one hundred years to increase their party’s majority after the first term. Albanese is now set to lead the largest Labor majority in history. The scale of Labor’s election win almost guarantees the party a third term in government in three years’ time. Meanwhile, the conservative coalition was defeated so soundly that even Dutton lost his parliamentary seat, leaving the conservative opposition leaderless and rudderless. 

But this was not a pre-ordained outcome. From late 2024 through early this year, Dutton’s coalition was ahead in the opinion polls. Albanese and his government were seen to be struggling in the face of cost-of-living pressures and global uncertainty. Media outlets were calling the election a tight race, predicting a minority Labor government that would be dependent on a large cross bench of independents and Greens in the House of Representative and the Senate in order to govern.

But Dutton’s coalition made significant missteps in the five-week campaign, including several proposals reminiscent of Trump policies. Dutton failed to develop policies to win back seats lost at the last election to the center-right independents known as the Teals. He proposed unpopular policies on nuclear power, healthcare, and cost-of-living relief. Moreover, Dutton proposed massive cuts to public service jobs, which echoed the Trump administration’s Department of Government Efficiency (DOGE). A key moment for the campaign was when Jacinta Nampijinpa Price, a controversial conservative senator, vowed to “make Australia great again,” and accused the media of being “Trump-obsessed.”

These nods to Trump policies and slogans did the conservative coalition no favors. Since the beginning of Trump’s second term, Lowy Institute polling has recorded that Australians’ trust in the United States to act responsibly in the world fell by 20 percent, with only 36 percent of the public expressing any level of trust. Almost two thirds of the public (64 percent) say they hold “not very much” trust (32 percent) or no trust “at all” (32 percent) in the United States to act responsibly. Australians widely disapprove of several aspects of Trump’s policy agenda, including his proposal for a Ukraine peace deal that would cede territory to Russia (74 percent) and using tariffs to pressure other countries (81 percent). A majority of Australians also oppose the United States withdrawing from the World Health Organization (76 percent) and exiting from international climate change agreements (74 percent). 

What will Labor do with this mandate?

The results leave the Labor Government with a strong mandate domestically and internationally. Albanese will likely continue with his steady, incremental reform agenda at home and abroad, focused on stability and pragmatism. Foreign policy was a carefully crafted balance among deepening the alliance with the United States; engaging in regional minilateralism, focused on Southeast Asia, Pacific Island nations, and India; and deepening security relations with Japan, both bilaterally and trilaterally with the United States.

Albanese’s brand of pragmatism will continue to drive how he engages with Trump and the United States. His government has refused to respond with reciprocal tariffs on the United States and has focused on dealing with the US president on the basis of Australia’s advantages in critical minerals, the US trade surplus with Australia, and a broader commitment to international free trade. Support for the Australia-UK-US (AUKUS) security partnership was bipartisan in the campaign. Defense spending is set to rise, even if modestly, and the alliance remains core to Australian strategy. One of the key features of Labor’s last terms in office were advances in US force posture in Australia and the alignment of strategic posture around denial and deterrence in the Indo-Pacific, which will continue to be a core focus over the next three years.

In addition, key areas such as shipbuilding, nuclear-powered submarine production, defense industrial collaboration, and the manufacture of guided weapons are priorities both of the Labor government and the Trump administration. This provides a strong foundation for defense cooperation. However, Australia and the United States diverge on key issues around international trade and the rules-based international order. This means there will be points of friction, and the Albanese government should be expected to carefully and tactfully point out policy differences on these issues.

Crucially, Australian dislike of the Trump administration should not be mistaken for antipathy toward the United States. The same Lowy Institute poll that showed a rejection of Trump’s policies shows that the Australian public is rock-solid in its support of the United States. Eighty percent of Australians continue to support the alliance with the United States (only a 3 percent drop from 2024) and they are evenly split on Trump’s demand that allies spend more on defense.

Labor will continue to focus on the Indo-Pacific, working closely with the United States and its regional allies and partners. It will keep dealing cautiously with, and balancing against, China and doubling down on ties with Southeast Asia, Pacific Island nations, Japan, India, and South Korea. With Albanese ascendant, expect more of the steady hand of Australia’s center-left government over the next three years rather than any policy radicalism.

Peter J. Dean is a nonresident senior fellow at the Atlantic Council’s Indo-Pacific Security Initiative, within the Scowcroft Center for Strategy and Security, and director of foreign policy and defense at the United States Studies Centre at the University of Sydney.

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In the first vote, Merz missed the required support of 316 members of the Bundestag by just six votes, although the coalition of Merz’s Christian Democrats (CDU/CSU) and Social Democratic Party (SPD) theoretically holds a slim majority of 328 in parliament. In the second round, Merz received 325 votes. Dissent is not unusual among coalition parties, of course. Dozens of members of the Bundestag refused to vote for Chancellor Angela Merkel in years past, too. The current coalition, however, promised to restore Germany’s predictability and credibility in Europe, a promise that has taken some damage now.

It may be impossible to figure out why Merz lost those votes in the first round. Members of the Bundestag elect the chancellor in a secret ballot. The fact that he is a polarizing figure, however, was well known beforehand. Shortly after winning the snap elections in February, some in the SPD and even the CDU/CSU began to question whether Merz had what it takes to be chancellor. On the SPD’s side, many were annoyed by the personal attacks against outgoing Chancellor Olaf Scholz and the CDU’s anti-migration campaign. In particular, young, left-leaning members of the SPD’s Bundestag group may have felt sidelined by Lars Klingbeil, the SPD’s co-chairman and Merz’s designated vice chancellor, and some of them may have withheld their support for Merz in the first round.

The euphoria surrounding Merz was also muted in his own party. Some conservatives criticized Merz for doing an about face on central campaign promises, including his push for a massive special fund for infrastructure and debt brake reforms even before he entered office. Some moderate party members were apparently displeased by Merz’s populist style and fierce criticism of Merkel. Many felt he gave up too much ground on critical CDU issues in the coalition negotiations. The question is whether those members of parliament who voted against Merz in the first round simply meant to send a warning shot or whether the resistance is more deep-seated. If it is the latter, then it could destabilize the government every time controversial issues and complex compromise deals are up for a vote.

Germany’s incoming foreign minister, Johann Wadephul, described the day’s voting as “an obstacle, but not a catastrophe.” That is true, but the unexpected first-round defeat will affect how many Germans and foreign capitals view Merz and his coalition.

Merz promised to govern with professionalism and strength, to reassure markets, and assume the international leadership necessary for navigating current crises. On Monday, upon presenting the signed coalition agreement, Merz tried to project that strength, saying “this government is determined to move Germany forward through reforms and investments.” He added that Germany’s voice would be “heard in Europe and the world.” Instead, Tuesday’s vote and the dissension against Merz from his own ranks suggests Germany’s next leadership will continue to struggle with fragility, division, and indecisiveness. This will not go unnoticed in Moscow, Beijing, or Washington. Markets took note as well; the DAX 40 fell on news of the first vote, only to claw back most of its losses following the second vote.

The concern is that Tuesday’s votes may be a sign of things to come for the coalition’s ability to drive difficult reforms. More to the point, it raises questions of trust between the chancellor and his vice chancellor. Merz and Klingbeil displayed a united front in recent weeks, but they have shown that they are not in full control of their parliamentary groups. Both parties have already blamed each other publicly, and the coalition peace has become passé on day one, pointing to rocky years ahead.

At best, this is a blip, soon to be forgotten as Merz takes over the chancellorship. He will certainly try to frame it as such when he visits his counterparts in France and Poland on Wednesday. But at worst, an uncertain majority in parliament means Merz and the government risk becoming a lame duck immediately. This is bad news for Europe, which needs unity and strength to avoid paralysis on critical issues, including a potential transatlantic trade war and a much-needed European response to the war in Ukraine. Much will depend on Germany’s defense spending, its leadership in Europe, and its relationship with China.

One risk is clear: the next government will have the weakest mandate in modern history at a moment when strength is needed the most, and the instability of previous years could continue, to the detriment of Germany and Europe.

Merz should quickly move beyond Tuesday’s embarrassing start and keep his focus on what comes next. “The most important thing for me is that ten years from now, we are still a country that enjoys freedom and peace,” Merz said in his first interview as chancellor. “But freedom and peace are in danger,” he warned. His first priority, he added, would be to restore both. Merz also said that his government will move swiftly to address deep structural changes the economy is undergoing and restore its industrial power. But after Tuesday’s events, Merz must provide more concrete, ambitious measures to reassure markets and allies that he can govern with a more stable hand than his predecessor. Merz can reassert himself on foreign and security policy, on which the coalition agreement remained unexpectedly thin, with a joint Franco-German-Polish initiative in support of Ukraine, for example. A quick-action agenda for the first hundred days, driving forward the coalition’s, Leuchtturmprojekte, or key “lighthouse” initiatives, can restore confidence that German leadership is back under Merz. This way, it is not the start of the new government that is remembered but its subsequent successes.

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

Jurek Wille is a student of international relations at Johns Hopkins SAIS. Before joining SAIS, he worked for the German government.

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Perhaps surprisingly, “running up the score” did not originate from any of the candidates in the run-up to Australia’s May 3 election, which saw Prime Minister Anthony Albanese and his Labor Party score a comfortable victory. Instead, the phrase was a retort on April 8 by US Trade Representative Jamieson Greer, who is tasked with overseeing the implementation of the new global tariff regime.

Asked by US Senator Mark Warner why the Trump administration’s tariffs apply to US ally Australia, despite a free trade agreement and a trade deficit, Greer said that the United States “should be running up the score on Australia.” The phrase embodies everything that many Australians now perceive as the new reality of the alliance with the United States: that it is no longer about “mateship,” shared sacrifice, and mutual fondness. Instead, the United States now sees Australia as simply another lackey to squeeze.

It is not the first time the relationship has been seen this way. Leave aside the romanticized image of US and Australian soldiers fighting alongside each other in every conflict since the 1916 Battle of Le Hamel. The reality is that the US-Australia relationship was predominately transactional until the 1950s, as is illustrated by the United States offering the creation of the Australia-New Zealand-United States security alliance, or ANZUS, in part to secure Australia’s military support for the Korean War.

Today, the US-Australia alliance is deep and multi-faceted. In fact, it is one of the most integrated US alliances in the world. The AUKUS partnership (also including the United Kingdom) and the Five Eyes intelligence alliance (also including Canada, New Zealand, and the United Kingdom) might be the most well-known. But there is a deep network of interdependencies that make this relationship vital to the national security of both countries. 

But that doesn’t mean the United States is irreplaceable for Australia. Britain remained Australia’s security guarantor after federation in 1901, with Australia sending vast military support to British wars throughout the first half of the twentieth century. Not only were all facets of the Australian military built on the foundations of British doctrine, culture, and equipment. The two countries were also more economically, politically (still sharing a head of state), and culturally integrated than the United States is with Australia today.

Despite this, when Britain was unable to continue to support Australian security interests after the fall of Singapore in World War II, Australia made the pragmatic decision to pivot to the United States as its security partner of first choice. 

If Australia were to pivot again today, then where might it turn?

I can tell you where Australians will not turn: China. The idea that China could realistically displace the United States as Australia’s primary security partner is delusional. It would take decades and billions—perhaps trillions—of dollars to transition Australia’s military equipment, doctrine, laws, and institutions for this to work. And it would still lack the shared history, language, and culture required to build the trust needed for a relationship approaching that of the one between Australia and the United States. 

While there will always be segments of the population wanting Australia to pivot to China, no serious security analyst believes it is possible or beneficial. If they do, then perhaps their affiliations and financial arrangements should be examined.

However, there is a plethora of secondary military relationships Australia shares with like-minded nations that Canberra could elevate. Australia and Britain remain close, and in a post-Brexit world there may be mutual benefits to renewing increased engagement. Canada and Australia share many military and societal similarities. They are economically, geographically, and demographically comparable in size and nature. Australians and Canadians also share many cultural, political, and military values and systems, and there is already scope for increased cooperation. There has long been talk of an Australia-European Union Free Trade Agreement, and Australia worked hand in hand with NATO forces in Afghanistan. Not to mention that Australia already purchases a significant amount of military equipment from European countries, including many of Australia’s modern naval surface combatants. Moreover, Australia’s relationships and cooperation with Japan, South Korea, and Singapore grow apace, and there are even burgeoning links with Middle Eastern nations, such as the United Arab Emirates.  

While Australia values the “interoperability” of utilizing US equipment, like many nations it has sourced equipment elsewhere due to cost, availability, and logistics considerations. None of these relationships alone could replace the role the United States plays, but a constellation of like-minded countries just might. 

If US policies continue in the spirit of “running up the score” on allies, then they risk not just eroding US leadership, respect, and standing abroad. They potentially also weaken US relevancy—not in every aspect, but in important ones. Will tariffs erode the foundations of Australia’s alliance with the United States? No. At least not in isolation. But it is a piece of a puzzle that will raise questions in Australians’ minds—including in Albanese’s government—about who to focus their limited resources for cooperation with and who to rely on to source military equipment from. 

John T. Watts is a nonresident senior fellow in the Forward Defense practice of the Atlantic Council’s Scowcroft Center for Strategy and Security.

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Public Event Thu, May 1, 2025 • 3:00 pm ET

French Foreign Minister Jean-Noël Barrot on Europe and the new world order

AN #ACFRONTPAGE EVENT—French Minister for Europe and Foreign Affairs Jean-Noël Barrot will share his vision of Europe’s role for the future of transatlantic relations.

Europe & Eurasia Politics & Diplomacy

“Multilateralism will survive whether or not the US quits multilateralism, and so someone will fill the void,” said French Minister for Europe and Foreign Minister Jean-Noël Barrot at an Atlantic Council Front Page event on Thursday. China, he warned Washington, is already preparing to “become the new hegemon of this new era of multilateralism” if the United States were to “decide to let them play this role.”

Speaking against the backdrop of the Trump administration’s sweeping tariffs that have upended the global trading system and strained relations with US allies, Barrot cautioned the United States from pulling back from the multilateral system it helped build. Instead, he said, “a better route” would be “reforming, reshaping multilateralism.” 

He said this would require being willing to “share the power in order not to lose it” by expanding representation in the United Nations Security Council (UNSC) and international financial institutions. It will also require being “ready to build coalitions of the willing to overcome obstruction” in international institutions such as the United Nations and the World Bank. “This is the new era of multilateralism,” he said, a route “that Europe is hoping to take alongside the United States of America.”

The French foreign minister also laid out his vision of European strategic autonomy. While Europe should be committed to the rules-based international order, in a more “brutal world,” he said, “you’re going to need to be much stronger, much less dependent on other regions” to uphold the values of freedom and democracy. “We see our strategic autonomy as a way to defend” the rules-based multilateral model.

Below are more highlights from Barrot’s remarks and discussion moderated by Atlantic Council President and CEO Frederick Kempe. 

Ukraine negotiations

• Barrot praised the US-Ukraine critical minerals agreement signed Wednesday, calling it “a very good agreement for Ukraine and also for the US.” 
• Barrot noted that by signing the agreement and by earlier agreeing to a US-proposed thirty-day cease-fire, Kyiv had met the Trump administration’s demands in Ukraine-Russia peace negotiations. Meanwhile, he said, Russian President Vladimir Putin has not shown “any signal, any sign of willingness to comply with the requests” of the Trump administration. “Right now, the main obstacle to peace is Vladimir Putin,” he said.
• Barrot said that Europe understands that the United States is “counting on us to bear the burden” of providing security guarantees to Ukraine after the war ends. But he added that this “coalition of the willing” led by France and the United Kingdom will “need to be honest” with the United States “once we’ve done our homework” and know what capabilities only Washington can provide to deter Russia from further aggression against Ukraine.

Iran nuclear talks

• Barrot said France has been coordinating with the United States “from day one” on the Trump administration’s negotiations with Iran, whose nuclear program he called a “major threat to our security interests.”
• He said that there is “no military solution to this issue” of Tehran’s nuclear program and that it can only be resolved diplomatically. He added that if there is no deal “sufficiently protective of our security interests” by the summer, then France will “not hesitate to reapply all the sanctions” it lifted against Iran a decade ago when Tehran signed the Joint Comprehensive Plan of Action.

Trade and tariffs

• The Trump administration’s tariffs “are not good news, are not a good idea,” Barrot said. He added that the tariffs “will make us Europeans, as well as Americans, poorer” and warned that the United States’ and Europe’s adversaries would “benefit massively from this trade war if we choose confrontation over cooperation.”
• Barrot recalled jokingly telling US Secretary of State Marco Rubio that the “one positive aspect” of the tariffs is that by lowering NATO members’ gross domestic products (GDP), it would make it easier to meet the Alliance’s 2 percent of GDP defense spending target.
• Since the Trump administration announced blanket tariffs on most countries in the world last month, Barrot says that he “cannot count the number of countries that are knocking at the EU’s door to strike a trade deal or even to become a candidate,” noting that “it’s not only Iceland and Norway that seem to be interested.”

Reshaping multilateralism

• France’s position on reforms for the UNSC, Barrot said, is that a permanent seat should be given to India, Germany, Japan, Brazil, and two African countries.
• In pushing for greater representation for Global South countries at the UNSC and international financial institutions, Barrot added, “some of them are no longer developing countries” and are now “major powers.” This means “they should have a seat at the table, but they should also behave as major powers,” he said.
• While Barrot said he takes Chinese Foreign Minister Wang Yi’s claims that Beijing is a champion of multilateralism “with lots of grains of salt,” Barrot added that be believes China will “consider filling the void at the World Health Organization” and other global institutions where China “see some pullback” from the United States. 
• Barrot said that he thinks “there can be a trade agenda with China” for Europe, but he added that discussions with Beijing “cannot only touch upon trade.” Noting China’s support for Russia, North Korea, and Iran, he said that if China wants a trusting relationship with Europe, “it will have to show also that it takes our security interests into account.”

Daniel Hojnacki is an assistant editor on the editorial team at the Atlantic Council.

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Public Event Thu, May 1, 2025 • 3:00 pm ET

French Foreign Minister Jean-Noël Barrot on Europe and the new world order

AN #ACFRONTPAGE EVENT—French Minister for Europe and Foreign Affairs Jean-Noël Barrot will share his vision of Europe’s role for the future of transatlantic relations.

Europe & Eurasia Politics & Diplomacy

Speaker

Jean-Noël Barrot
Minister for Europe and Foreign Affairs of the Republic of France

Moderator

Frederick Kempe
President and CEO, Atlantic Council

Event transcript

Uncorrected transcript: Check against delivery

FREDERICK KEMPE: Good afternoon to those joining us in our headquarters, our relatively new global headquarters here in Washington today. Good evening to those watching online from Europe. Hello to everyone joining us from throughout the world. My name is Fred Kempe. I’m president and CEO of the Atlantic Council. And I’m delighted to welcome you to Atlantic Council Front Page. This is our premier platform for global leaders. And it’s an honor to host today the Minister for Europe and Foreign Affairs of the French Republic Jean-Noël Barrot. Today’s discussion turns our attention to one of the most enduring and consequential bilateral relationships in US history.

In the nearly two-and-a-half centuries since France became the first country to formalize diplomatic relations with the newly born United States—and next year, Mr. Minister, is the anniversary of the revolution here—France became the first country to formalize diplomatic relations with the newly born United States. Since that time, this pillar of the transatlantic relationship has seen moments of triumph and moments of trial. From Lafayette and Washington to the beaches of Normandy, the United States and France have forged a partnership unlike any other, based on common values and history.

However, this relationship goes beyond just sentiment. At each major inflection point in recent history, our countries have stood together. Not just because of friendship, but because of shared interests. And now, facing a war on European soil, facing an unfolding trade war, potentially, rapidly evolving technological disruptions, and more, the United States and France must consider how to recalibrate and perhaps how to reinvent its partnership, and the broader Atlantic alliance with it, in order to achieve our common goals of security, prosperity, and freedom.

As we think through how best to address these challenges, we are delighted to welcome Minister Barrot for today’s event, and on the occasion of his first visit to the United States in his current role. The minister has held numerous positions in the French government, including most recently minister delegate for Europe, and then minister delegate for digital affairs, making him well-placed to share the French perspective on the political dynamics at the EU level, as well as critical issues of digital and tech policy. And it may help in these times also to be an economist. Minister Barrot, so, welcome to the Atlantic Council.

Before we begin, let me just say to our audience that we will be taking questions. First Minister Barrot will make some opening comments, then I will join him on the stage and ask a few questions, and then turn to the audience for questions. For those in person, we’ll have a microphone to pass around. For those online, please go to AskAC.org, AskAC.org, to send your question in virtually.

Minister Barrot, it’s always a pleasure to have someone speak at the end of meetings in Washington instead of the beginning of meetings of Washington. So we look very much forward to your reflections.

JEAN-NOËL BARROT: Thank you very much, Mr. President. Hello, everyone.

One week from now on May 8 we’ll mark an important anniversary, the eightieth anniversary of the end of World War II in Europe. This was the starting point of an extraordinary endeavor, a formidable building—the building of rule-based international order, the building of multilateralism.

Who was the architect of this formidable building? Well, the architect of this building were the United States of America. They did not do this out of charity. They did this as—out of enlightened self-interest. They collected substantial dividends from multilateralism throughout the eight decades that have just passed by. The dividends of multilateralism—think about security. Thanks to the nonproliferation treaty, we collectively have avoided a race to the nuclear bomb that would have caused so much instability and raised the cost of defense for all our countries. NATO has allowed the US, alongside its European partners, to ensure security in the North Atlantic, but also a tool for major investment opportunities for its defense industry.

Think about trade. WTO has allowed the US economy to grow, has allowed US services to thrive—digital services, financial services, around the world.

Think about currency. The Bretton Woods Institution, the Bretton Woods framework have made the dollar a global reserve currency. What does it mean to be a global reserve currency? It means that everyone wants to hold you so that the yields on your Treasury bonds are the lowest on earth. And even more than that, when there is a crisis—even when there is a crisis in the US, people rush to buy your Treasury bonds, and the cost of borrowing goes down.

This exorbitant privilege, as a French president coined it, is part of the dividends of multilateralism that the US brought to the world and that they also benefitted from.

This formidable building, the building of multilateralism, was designed eighty years ago for a unipolar war, where a benevolent hegemon, the United States of America, was the guarantor of rule-based international order. A world in which US leadership was unchallenged, untested.

But eighty years later, indeed, the world has changed. It has become multipolar. US leadership is challenged, and sometimes multilateralism seems powerless or unfit for purpose. And therefore, and gradually, a temptation arises for the US to perhaps let go of multilateralism, quit multilateralism, to pull back, to restrain. This is a sovereign choice that belongs to the American people. But this would be a major shift—a major shift for the US, who would not be able to collect the dividends of multilateralism any longer; a major shift for the world, because the multilateralism will survive whether or not the US quit multilateralism.

And so someone will fill the void, starting with China, who is already getting ready to step up and to become the new hegemon of this new era of multilateralism, in the case where the US would decide to let them play this role.

Now, there is another route. There is an alternative route. Rather than quitting multilateralism, reshaping it, adjusting it, making it fit for the twenty-first century. The first step—and this is a difficult step—is accepting to share the power in order not to lose it altogether. This means reforming the UN and its Security Council, reforming the financial infrastructure to make space for big emerging countries, and share the burden with them, but also hold them responsible because they have part of the burden to share in handling the global issues and challenges.

The second step when building multilateral for a multipolar world is to be ready to build coalitions of the willing to overcome obstruction in multilateral fora like the UN Security Council when they arise. It’s not because something won’t happen at the UN or the IMF or the World Bank that you cannot design a coalition of the willing with willing and able countries in order to overcome this obstruction.

This is the new era of multilateralism and this is the route that Europe is willing to take and that Europe is hoping to take alongside the United States of America. One week from now we’ll celebrate another anniversary, not on May 8th but on May 9th, the seventy-fifth anniversary of the birth of Europe.

On May 9th of 1950 my distant predecessor Robert Schuman woke up in a country, France, that was five years past World War II but where tensions were arising with the neighbor and rival Germany.

Germany was recovering from the war faster than France was and so what was the tendency in Paris on that day in that year? Well, the tendency was protectionism, was raising tariffs, raising barriers, to prevent Germany from thriving and fully recovering.

And so Robert Schuman, as he was heading to the council of ministers, he had this crazy idea in mind to put in common steel and coal across France and Germany, swimming against the tide to favor cooperation over confrontation.

At the council of ministers he barely mentioned this initiative for his prime minister not to prevent him from announcing it, and at 6:00 p.m. in a 1:30 speech he made this unilateral offer to create the European steel and coal community and laid the foundation of a multilateral cooperative European Union.

So, you see, when times are hard and when the tendency is to restrain, pull back, raise barriers, those visionary men that brought us prosperity and that brought us peace in European continent they swam against the tide and offer innovative models for cooperation.

So let us find inspiration in the great work of these visionary people. Thank you very much.

FREDERICK KEMPE: Minister Barrot, that was a—I feel that was a very important statement, and I’m going to start with that. You see by the audience and standing room only that there’s a lot of interest in this conversation and what you had to say.

The seventy-fifth anniversary of the birth of Europe, the eightieth anniversary of VE Day all next week—thank you for calling attention to that—and it seemed really to be a call to your American allies and to the current administration to stay the course on multilateralism and transatlantic engagement, et cetera.

So, A, do you intend it as that? And it’s no accident no one in this audience who’s following the news, everyone knows that there are doubts right now in the transatlantic stream. Not all of them do I share. But I just wonder if you could give us a little bit more of the context for your statement.

JEAN-NOËL BARROT: Well, we deeply care about the rule-based international order, multilateralism. So I spent two days in New York at the Security Council as we were wrapping up our presidency. You know, the fifteen members of Security Council, they get a one-month presidency every fifteen months. And so you try and make the most of your month’s-long presidency. And to give you a sense of what our commitment is, I am—we are very committed to the three fundamental missions of United Nations—peace and security, human rights, sustainable developments.

That’s why we had three important security meetings, Ukraine, Middle East, but also nonproliferation, in a closed-door Security Council meeting that was on proliferation that was first convened in fifteen years—was last convened fifteen years ago. On human rights, we brought together—I was mentioning coalitions of the willing. International humanitarian law is under attack, let’s say. And we brought together countries from all around the world—east, south, west, and north—in a coalition of the willing to support politically and better implement in practice the rules of international humanitarian law.

And then third, on sustainable development, we took this opportunity to bring together the countries that are the most committed, like we are, to the preservation of oceans, forty days ahead of the third United Nations Conference on Oceans that will take place in Nice, south of France, and is—and that is aimed to be the equivalent for ocean as what the Paris accord has been for carbon emissions. So we’re very ambitious with this event. We need as many countries as possible to rally some of the key deliverables of this conference. And so I decided I would spend some time at the UN talking about that.

So we think this is the right way to go, adjusting multilateralism to make it more efficient in the multipolar world that we’re—that we’re living in. And I hear that the new leadership in the—in the US is considering what its course of action is going to be. And I think amongst friends that have—that are actually the oldest friends, we owe each other, you know, an honest discussion on what we see our common interests to be. And I think that was the sense of my introductory remarks.

FREDERICK KEMPE: Thank you so much. And I think you’re seeing a signal of commitment today, I think, toward the United Nations, with the nomination of National Security Advisor Mike Waltz, to be the UN ambassador. So also an interesting piece of news.

Speaking of news, you have had meetings here. We do have media. French, US, other here. And I wonder whether you could tell us your perspective on what you take away from your conversations with Secretary Rubio, with others. Anything specific that we can take away from that? And then in that context, as you’re looking at what your greatest challenges are, what were the priorities in your conversations with US leadership?

JEAN-NOËL BARROT: Well, I mentioned the ninth of May and seventy-fifth anniversary of this declaration by Robert Schuman. This year will be in Ukraine, because I think a very important—a significant chunk of our future, and I’m not talking about the future of Europeans only, depends on how this war of aggression is going to end. So we’ll be with my fellow European ministers of foreign affairs there to express our support to Ukraine and our willingness for this war to end in accordance with the UN Charter and international law. So that was clearly an important topic that I discussed with US leadership at the State Department, as well as Capitol Hill.

But we also discussed the Middle East, where France and the US have been leading the effort to put an end to the war that was basically destroying Lebanon eight months ago. We managed to broker a ceasefire five months ago, to monitor the ceasefire through a joint mechanism. We managed to create the conditions for the end of a political crisis, with the election of President Joseph Aoun, that then appointed a government that is now at work trying to implement the reforms that are long due in Lebanon.

And we want to do the same thing—same fruitful cooperation—in Syria, where this—after overturning the dictatorship of Bashar al-Assad there is an opportunity to build a strong, sovereign country that will be a source of stability rather than instability for the region.

I cannot let aside Gaza and the Israel-Palestinian conflict, where, again, we converge on the necessity to bring back stability and peace to the region. We have praised the Abraham Accord logic. And we are working in the same direction, bringing Muslim and Arabic countries in the region and Israel towards a security architecture that would ensure the security of all peace and stability.

We also discussed Africa, where the US made a breakthrough in handling or in sort of moving towards a cessation of hostilities in the Great Lakes regions in the east of the Democratic Republic of Congo, where the second-worst humanitarian crisis is happening right now. This is good. And after they were received or they were hosted by the Department of State a few days ago, the ministers of DRC and Rwanda gathered in Qatar with France and with the United States.

So, as you can see, on some of the major, major issues, major crises, France and the US are working together, you know, to find the right solutions. Sometime we’ll disagree. Sometime we don’t start from the same point. But look at Lebanon. It’s because of our complementary, because of different history in the region, because of the different nature of our partnership/relationship/friendship with the stakeholders of that crisis that we were able to broker a ceasefire and a political solution.

FREDERICK KEMPE: Thank you for that answer.

Let’s start with Ukraine. News yesterday about a critical minerals deal with Ukraine. Almost more interested in the political side of this than the economic side of this. Talking to Ukrainian officials over the last few months, they’ve been concerned that the US had gone more from being an actual partner of Ukraine in trying to counter Russian threat and the Russian attack and more of an arbitrator, more of a moderator. This critical mineral deal, if you read the language of it, suggests a little bit of a change of direction. And I just wonder—and that is an area where, you know, France and the US have not always been entirely singing from the same song sheet. What did you hear during your trip there? How do you assess this new agreement and its political meaning?

JEAN-NOËL BARROT: Well, I think it’s a very good agreement. I think it’s a very good agreement for Ukraine and also for the US.

But I also think that it tells us something very important about what’s happening right now. Let’s go back to the Oval Office when President Zelensky was there. What was the expectation by President Trump with respect to Ukraine? Well, actually, there were two expectations: ceasefire and sign a minerals deal. Since then, on March 9 in Jeddah, Saudi Arabia, Ukraine accepted a comprehensive ceasefire. And yesterday night, they agreed to a minerals deal with the United States of America. They’ve done their part of the job. They’ve walked their part of the talk.

But in the meantime, we haven’t seen Vladimir Putin send any signal, any sign of its willingness to comply with the requests of President Trump. To the very contrary. So let’s face it: Right now the main obstacle to peace is Vladimir Putin.

So what I found very interesting my meetings here in Washington is the efforts—the commendable efforts by Senator Lindsey Graham, who put together a massive package of sanctions that he—that he collected bipartisan support for, with almost seventy senators now signing the bill, which is aimed at threatening Russia into accepting a ceasefire or else those sanctions will apply. And here again, we agreed that we would try to coordinate because we, Europeans, are in the process of putting together a seventeenth sanction package that we are going to try on substance and timing to coordinate with Senator Graham’s own package.

That was perhaps a bit of a long answer, but in summary, it’s good news that this deal was struck. It’s good news that the US—and I heard Secretary Bessent express what he had in mind, that the US are considering deep economic cooperation with Ukraine. It goes in the right direction. It’s the right course that they should—that should be taken, basically.

FREDERICK KEMPE: And Secretary Bessent also said this is meant to be a signal to Putin, and you see it as that, as well?

JEAN-NOËL BARROT: Yeah. Put together this deal, the package by Lindsey Graham—who last time I checked is not a political adversary of President Trump—as well as the pressure that Europe is building up on Russia, and you get a sense of—well, the fact that it’s now basically Putin’s fault if we don’t yet have a ceasefire in Ukraine.

FREDERICK KEMPE: So, you’ve—in recent discussions with US Envoy Steve Witkoff, what divergences existed between France and the United States, and how do you hope to close those divergences? I guess part of this has to do with European troops, American backstop, but it also gets to the conditions behind a peace deal.

JEAN-NOËL BARROT: Now, listen. If Ukraine was to capitulate, this would have long-lasting, wide-ranging consequences for the entire world, because it would basically replace rule-based international order by the law of the strongest. It would create massive incentives for countries around the world that have borders issue with their neighbors to consider that they can invade or they can use military threat or force to obtain territorial concessions. This would be major. And this would be very costly for all of us, at least for responsible powers like the US and France that tend to get involved when there are issues around the world, where we would see issues exploding all around the world. It would be major instability.

In addition to that, should Ukraine capitulate after Ukraine has agreed to let go of its nuclear weapons in exchange for security guarantees, this will send a signal that the only ultimate security guarantee is the possession of nuclear weapons. And there, you have a nuclear proliferation crisis which, again, raises global instability at levels that we haven’t seen for the past eighty years, and will increase the cost massively of security in the US, security in Europe. And I think this view is shared between the US and France.

But, of course, there is one difference between the perspective of the US and the European perspective on this crisis, which is that our own security is at stake because we are neighbors of Russia, or because we don’t want to be neighbors of this Russia that is now spending 40 percent of its budget on its military spending, 10 percent of its GDP, that just conscribed 160,000 additional soldiers, the largest conscription in fourteen years. I’ve heard many, many times Russia say that they don’t want NATO at their borders. Well, we don’t want this Russia at our borders either.

And that’s why we are so serious about what’s happening, about how the war will end. And that’s why we’ve been insisting so much about the security guarantees. And I think our message went through. And I think the US are counting on us to build the security arrangements such that when the peace deal is struck that we can provide those security arrangements in order for the peace to be lasting and durable. But I think it’s well understood. And I’ve heard President Trump, but also officials from the US, clearly say that, of course, they want this peace to be lasting. And of course, this means that there is security guarantee for Ukraine.

FREDERICK KEMPE: And can it work without an American backstop? Are you getting closer to a conversation about that? Or, alternatively, is this critical minerals deal a security guarantee, in a different form?

JEAN-NOËL BARROT: So you should put things into perspective. We are—we have been supporters of the Euro-Atlantic integration of Ukraine. Namely, we’ve said that we were open to extend an invitation, a NATO invitation, to Ukraine. We understand that NATO members—not all NATO members agree with our view. And so we have to find an alternative path. This alternative path is the sense of this coalition of the able, of the willing, that France and the UK has been putting together in order to design those security arrangements. This is ongoing work. This starts with making the Ukrainian army strong enough to be able to deter any further aggression by Russia, but it also very likely means some form of military capacity as a second layer of such a guarantee.

When those detailed discussions will have been wrapped up, they’re currently ongoing, it will appear whether or not, and how much, any contribution or backstop by the US is needed. It’s possible that it is needed. Why? Well, because as far as Europeans are concerned, we’ve been working—we’ve been—we’ve been working and planning for our defense. It’s a little bit—little bit different for France, the UK, and Poland. But for the rest of European armies, we’ve been working within NATO frameworks. So if—you know, if you’re going to work on a security arrangement outside of a NATO framework, then at some point you might need some kind of NATO-like enablers, or, you know, make items that are going to make sure that the security arrangement is robust.

But that being said, in the same way we fully understand that the US have decided that they will—they will likely reduce their commitment within NATO. We also understand that they are counting on us to bear the burden of providing the security arrangements. But we also need to be honest with them, once we’ve done our homework, if there are pieces of these security arrangements that cannot be replaced—you know, that can be—cannot be found outside of, you know, US contribution. We’ll just be honest.

FREDERICK KEMPE: Excellent answer. Thank you so much.

The one thing you didn’t mention in your opening comments is you didn’t talk about—you didn’t talk about tariffs. You knew I was going to say tariffs. And I wonder if it came up at all in your discussions. And also, I wonder if you could talk a little bit about what—you know, this ninety-day pause gives a potential for an agreement. What sort of agreement can you imagine, or what is the direction of agreement with the European Union and the United States? How concerned are you about the tariffs driving a more lasting wedge across the Atlantic?

JEAN-NOËL BARROT: Well, the good thing, when you’re a foreign minister—the foreign affairs minister for France, is that you’re not responsible for tariffs. It’s the European Commission. That being said, you’re allowed to have your own view on things. And indeed, as an economist, I have to say, otherwise I would be a traitor to my profession, that tariffs are not good news. Are not a good idea. President Trump wants to bring jobs back to America. And this is a perfectly legitimate ambition. In fact, we have the same in Europe. We want to bring jobs back to Europe. But tariffs are probably not the best way to achieve this objective.

Tariffs are in tax on our economies. It’s a tax on the middle class. And it will make us, Europeans as well as Americans, poorer. We do have research on what happened during the last trade war, the 2018 trade war. What happened? Well, the effect on the economy on this side of the Atlantic was limited. It’s basically a seven billion loss—a seven-billion-dollar loss on the economy. That’s not big, but it led to a massive transfer from the US consumer middle class of fifty billion [dollars]. So a loss for the US consumer of fifty billion [dollars]; transferred to producers nine billion [dollars], to the government 35 billion [dollars], and the rest is what’s lost from US economy. So it’s a mild loss but it’s a massive transfer from the US consumers to the US government. That’s what happened last time around, and those numbers are small because the trade war at the time was very limited.

Multiply this, right, by ten and you’ll get the kind of effects that you’re going to see on European economies, US economies, and so on. So our hope is to reach the same type of outcome that we got the last time around. The US applied tariffs, we retaliated, and then at some point we suspended those. We lifted those tariffs.

It was not the same administration that did it but still those tariffs were lifted, and I really hope that we’ll get to this objective because, again, we’re very closely intertwined economies so we have a lot to lose while we have major rivals, adversaries, competitors, that are going to benefit massively from this trade war if we sort of choose confrontation over cooperation.

FREDERICK KEMPE: So let me ask one quick follow-up there and then I’ll go to the audience. On the tariffs, you know, did you raise this issue when you were here—you are the foreign minister but it is a political as well as an economic issue—and did you get any indications of what direction the agreement could go?

JEAN-NOËL BARROT: Well, the good thing about being Marco Rubio is that you’re not in charge of tariffs either. But when we met in NATO I told him that if there was only one positive aspect of those tariffs is that by lowering GDPs that would allow us to reach our NATO targets faster.

FREDERICK KEMPE: That’s on the record, everybody.

Let me take a first question from Bill Drozdiak.

Q: William Drozdiak, author and journalist.

We seem to be entering a phase—a new intensive phase of big-power rivalry with the United States retreating from security commitments in Europe, Russian military militarizing its society and having designs on other neighbors besides Ukraine, and China seeking economic domination of the world. President Macron has spoken often about the need for Europe to achieve greater strategic autonomy. Do you think Europe should seek to constitute a fourth bloc even at the risk of putting greater space between its principal—with its principal ally, the United States?

And a quick follow-up. You spoke about the need to share power in a multilateral context. In terms of UN Security Council reform is France prepared to fold its seat into the European Union presence or would you also agree to the idea of expanding the Security Council to have ten to twelve nations?

JEAN-NOËL BARROT: Well, thank you. So you mentioned Russia. You mentioned the four blocs. That was your first question.

I wouldn’t call Russia a bloc. Russia has a GDP that is twenty times smaller than the EU. I wouldn’t call that a bloc. Russia is a big country geographically. It is, you know, one of the winning nations of the Second World War so it has a—you know, there are a number of consequences coming with that including the permanent seat at the Security Council. But I wouldn’t call Russia a bloc.

And we don’t see the—we don’t see ourselves—when we speak about strategic autonomy we don’t see ourselves as entering into a logic of blocs or spheres of influence and stuff like that. We remain committed to multilateralism, rule-based international world order, balance.

The only thing is that in a more brutal world—brutal world—if you want to be heard and be respected when you’re upholding the values that Europe and the EU are upholding—freedom, democracy, free speech, and so on—you’re going to need to be much stronger, much less dependent on other regions.

And so we see our strategic autonomy as a way to defend a model which is an open model, which is a balanced model, which is a multilateral model of governance for the world. And we see a lot of sort of appetite for this approach, because since those trade wars started we cannot count the number of countries that are knocking at EU’s door to strike a trade deal or even to become a candidate. And it’s not only Iceland and Norway that seem to be interested; I heard that on this side of the Atlantic there are people considering it. And you know that there is one geographical criteria, but I just want to mention that even though it’s a very, very, very, very tiny island in the middle of the Atlantic Ocean—no one lives there; I think it’s, like, twenty meters long—but this island is split between Canada and Denmark, which gives Canada an actual border with the European Union.

And the second question is about reform. So I want quickly because I was told that remarks should not be long in introduction of those conversations, but I really think that if we want to adjust those institutions—Security Council and so on—to the new era, we need to accept that others have grown over the past eighty years and they need to—they need to be represented, but they also need to take their responsibility. Some of them are no longer developing countries; they are actual major economies, major powers. So they should have a seat at the table, but they should also behave as major powers.

So what’s our position? Our position is a permanent seat at the Security Council for India, Germany, Japan, Brazil, and two African countries, with all associated prerogatives. This is what we want for the reform of the Security Council.

But we also want the same kind of thing to happen with the international financial institutions. And this is the spirit of what President Macron has called the Paris pact for all, the pact for the people and the planet, where the idea is the following: No country in the south should have to choose between fighting against poverty and fighting against climate change. So it should be more balanced, more equal, sort of equitable funding for southern countries. But those emerging countries for the south—from the south that are now developed economies should also bear their responsibilities with respect to the least-developed countries, with the poorest countries on the planet. Because right now some of them are sort of bunching with the least-advanced countries to not sort of take their responsibility with respect to the poorest countries. So that’s the spirit in which we’re pushing. And in fact, I had a meeting dedicated to Security Council reform on Monday in New York with some of the African countries that are working on it.

FREDERICK KEMPE: Thank you for that clear answer.

Well, we’re got a lot of questions now. I saw this gentleman first, and then we’ll go—I’ll figure it out. We’ll figure it out. Where have I got—I want to turn to the French press here at some point. If there’s anyone here that wants to—there we go. That’s what I’m going to do next. There we go. Please.

Q: Thank you, Foreign Minister.

In context with President Macron’s call to Prime Minister Modi of India in solidarity after the terror attack in Pahalgam, Kashmir, India, do you see a justifiable response by India against this attack as another roadblock to ensuring the India-Middle East corridor gets off the ground? Of course, it was set back after the Israel-Hamas war. And did that conversation come up in your discussion with Secretary Rubio today? And if not, then what do we need to do, collectively as the international community, to make sure this gets off the ground?

FREDERICK KEMPE: Could you identify yourself too?

Q: Oh yes. Jay Kansara. Jay Kansara, independent analyst.

FREDERICK KEMPE: Great.

JEAN-NOËL BARROT: Thank you. So President Macron has been in touch with Prime Minister Modi. I’ve been in touch on the phone two times with Dr. Jaishankar, my fellow foreign affairs minister from India. We expressed solidarity. We’ve expressed that we stand alongside India to fight against terrorism. Of course, we hope for restraint on both sides, for the tensions not to escalate. And I heard Secretary Rubio called Pakistan to formally recognize the terrorist nature of this attack, and to condemn it in the strongest possible way. And I would happily join his call to Pakistan to recognize the terrorist nature of this—of what happened. And we’ll keep in touch with Marco Rubio, but also with my fellow minister David Lammy from Great Britain, the UK, and my Indian colleague in order to ensure or to try and avoid an escalation in the region.

FREDERICK KEMPE: Please?

Q: Good afternoon, Minister. Piotr Smolar from the French newspaper Le Monde.

I have two questions, the first one regarding security guarantees for Ukraine. For months France supported the idea of a deployment of a sort of international monitoring force in Ukraine but with very strong American security guarantees. The Trump administration doesn’t seem to see eye-to-eye on this. They don’t—they are not inclined to offer any sort of serious security guarantees. So what’s the plan B? Have you given up on this two-fold idea or not?

And the second question, regarding Iran. There are currently very important discussions between the Trump administration, direct and indirect with the Iranian representatives. For a very long time France was in favor of putting on the table as well with Iran the ballistic issue. That doesn’t seem the case at all right now. The Trump administration is basically considering a sort of JCPOA—revisit it, or maybe an interim agreement. So what’s your view exactly on the current discussions?

JEAN-NOËL BARROT: Thank you. So on the first question, let me just clarify, because I think it’s important that everyone gets this right. There are two things. First there is a ceasefire, and the ceasefire needs to be monitored. And the coalition of the able and willing, put together by France and the UK, have been working on proposals so that the minute a ceasefire is brokered that the US have in their hands—because they will be sort of the guardians of the ceasefire—solutions for this ceasefire to be monitored. And this might involve some European capacity just to, you know, to check what’s happening and the line of contact and to be able to attribute violations. So that’s one thing.

But the ceasefire is only one step towards what’s our end goal, which is a full-fledged peace treaty or peace agreement. This peace agreement that the Ukrainians and Russians will be discussing—but that was President Trump’s intuition—this discussion cannot happen while the war is happening in Ukraine. That’s why you need a ceasefire for the discussion to start.

It will end up with discussions on territories and discussions on security guarantees. And with the same coalition of the able and willing, we’re working on this second piece, which is security guarantees. But security guarantee has nothing to do with monitoring the ceasefire. Security guarantee is deterrence against any further aggression. How do you do that? Well, as I was saying earlier, the first layer is to porcupine the Ukrainian army, for it to be deterrent enough for anyone to try and invade. But then you probably have in other layers—so, military capacity, deployed in Ukraine or around Ukraine, and that’s what we’re working on. And when the moment is ripe, we will get to the Americans and ask them or tell them what is it we need for this security guarantee to be. And we’re working on this, and we’re confident. And again, as I was saying, I’ve heard President Trump on several occasions speak in a way that shows that he understands the importance of this security guarantee.

And then on Iran—very important topic that I should have mentioned in response to your first question, Mr. President, because this is a topic on which we’ve been coordinating with Marco Rubio on day one—from day one.

We are supporting, encouraging the discussion that the US opened with Iran. Why? Because Iran is posing a major threat to our security interests because we, France—Marseilles—are within reach, and because our partners—close partners in the region are also within reach. So we are very serious about this question. But we believe that there is no other route, no other path than a diplomatic path to solve this issue. That there is no military solution to this issue, and that any form of military attempt to solve this issue would have very large costs that we would not like to bear.

So in order for this discussion to be as successful as possible, we’ve been coordinating with the US on substance and timing. Substance, because our teams have been working over the past few months ahead of the expiration of the JCPOA, of the nuclear agreement that was struck ten years ago and is that is expiring in the fall. So we were getting ready for this expiration. And we have a clear idea of, indeed, what might be a robust and protective deal for us. And this would include, indeed, some of the ballistic components, but also the regional activities, components. And the substance is what is sort of at the disposal of US negotiators, because it’s for free and there is no copyright. And I was very transparent with that.

But we also coordinated on timing, because we will not hesitate to reapply all the sanctions that we lifted ten years ago when JCPOA was struck in the case where the IAEA confirms that Iran has violated its obligations under JCPOA, and if it happens that by the summer we don’t have a protective—or, a deal that is sufficiently protective of our security interests.

FREDERICK KEMPE: So we—this has got to be the last question. I really apologize to others, but I saw that gentleman’s hand up first right here in the middle. So—no, no. There we go. Yes, please. Thank you. Yes. Yeah, thank you. Thank you.

Q: Mr. Minister, thank you for being here. I’m Alex Saint-Jemi from Transfer Paris and Georgetown University.

You mentioned very clearly the fact that the PRC will fill the void caused by US disengagement during your opening speech. I’d like to know what’s your opinion, what’s your take on what will—how France will balance its relationship with the US and at the same time with China, in light of the fact that France needs new partners, and also in light of the fact that President Trump openly asked European leaders to break ties with the PRC. Thank you.

FREDERICK KEMPE: And since this is the last question, let me add to it. Let me add to it on the tariff front, because, you know, in your conversations here—and you’ve spoken before about the relationship between the European Union and China on the trade front—does this tariff policy drive Europe more into the hands of trade and economic relationships with China? And if you believe that, have you said that to your interlocutors here in Washington during your visit?

JEAN-NOËL BARROT: I mean, it’s obvious, no? We were—I mean, you know, whether you want it or not, look at what happened. I mean, read economic research. The numbers I quoted earlier are from a paper in the Quarterly Journal of Economics called the Return to Protectionism. It’s the best paper on the 2018 trade war, best economic paper, research paper. But any paper will tell you that what happened last time is that it was—you know, during the 2018 trade war it’s not like suddenly factories moved from one country to another. It was a reshuffling of international trade. So you’re going to see a lot of reshuffling.

You mentioned the—or, you recalled what I said up there on China and filling the void. Listen to Chinese official speeches now. And, again, we take all of this with lots of grains of salt, but my colleague, Wang Yi, minister of foreign affairs, now in all his speeches is saying how much he cares about multilateralism. And I’m sure—no, but he seriously is saying this constantly. And he will—I mean, I’m pretty sure that they will consider filling the void at the World Health Organization. I’m pretty sure that they will—anytime they will see some pullback, they will try to step in. Because they have two—there are two possible strategies. Either the US are there filling the void, and then they will try to build sort of formats outside of the established formats, as we’ve seen them do; or they will see US pullback and then they will try and fill the void.

Now, what’s our relationship with China, as far as Europe is concerned? Again, we’re lucid. We are—we’re not blind. And so we think there can be a trade agenda with China, so long as some of the issues that we’ve had are solved, which is not quite the case now. Because we’ve also had our trade war with China those past few years, with us sanctioning Chinese EVs and them sanctioning European brandies, which mean cognac and armagnac. So this is dear to our heart, and we—of course, it’s going to be difficult to engage into an actual trade agenda with them until those sort of contentious issues are solved. Then we can.

But of course, our discussion cannot only touch upon trade. And when China is supporting Russia’s war of aggression, when China is on the side of DPRK, on the side of Iran, proliferating countries that are threatening this Non-Proliferation Treaty and sort of the global stability, it’s difficult to build trust. And so if China wants to establish sort of a trusted relationship with European countries, it will have to show also that it takes our security interests into account. Otherwise, it will—it might—it might be challenging.

FREDERICK KEMPE: Thank you for—you have your answer? . . . Yes. Great. Thank you.

So, look, this—Minister Barrot, on behalf of the audience, on behalf of the Atlantic Council, thank you for three things: First of all, for your visit to the United States, a very timely visit, very crucial moment; second of all, for taking so much time with us at the Atlantic Council and talking so frankly and clearly in your opening statement, and in this fascinating engagement; and then, most of all, for our enduring alliance. So thank you so much.

JEAN-NOËL BARROT: Thank you.

Watch the full event

The post French Foreign Minister Jean-Noël Barrot on US tariffs, European security, and risks from Russia, China, and Iran appeared first on Atlantic Council.

On April 25th, 2025, Global China Hub and Scowcroft Center for Strategy and Security Indo-Pacific Security Initiative nonresident senior fellow Dexter Tiff Roberts spoke to South China Morning Post about China weaning itself off of US agricultural products.

The post Global China Hub and Scowcroft Center for Strategy and Security Indo-Pacific Security Initiative nonresident senior fellow Dexter Tiff Roberts in South China Morning Post appeared first on Atlantic Council.

From April 25th to 28th, 2025, Global China Hub nonresident fellow Wen-Ti Sung spoke to three media outlets about Beijing’s responses to tariffs:

• The Guardian: “Xi announces plan for Chinese economy to counter impact of US trade war“
• Reuters: “Amid Trump tariffs, China’s trade and economy tsar steps into spotlight“
• 联合早报：“中美有没有就关税谈判直接接触成罗生门“

The post Global China Hub nonresident fellow Wen-Ti Sung on Beijing’s response to tariffs appeared first on Atlantic Council.

It was a state-ment. Canadian voters returned the Liberal Party to power on Monday after a stunning political comeback fueled by tensions with the United States—including an election-day message from US President Donald Trump calling for Canada to become the “fifty-first state.” Prime Minister Mark Carney declared in his victory speech that the United States will never “own” Canada. “But we also must recognize the reality that our world has fundamentally changed.” Our Canada-watchers are here to diagram what this new world looks like as Carney prepares to form a government.

• Christopher Sands (@USCanada_Sands): Adjunct lecturer and the director of the Hopkins Center for Canadian Studies at the Johns Hopkins School of Advanced International Studies
• Imran Bayoumi (@BayoumiImran): Associate director at the Atlantic Council’s Scowcroft Center for Strategy and Security
• Maite Gonzalez Latorre: Program assistant at the Atlantic Council’s Adrienne Arsht Latin America Center

Flag waving

• The election was essentially a referendum on the Canada-US relationship, Chris tells us, as “a surge of nationalist sentiment swept the country, including in Quebec,” which historically has maintained its own identity.
• Carney, who took over from Justin Trudeau in March, and the Liberal Party appear to have fallen short of a hoped-for majority of 172 seats. Meanwhile, the Conservative Party stumbled—with its leader Pierre Poilievre losing his own seat. “Carney outperformed expectations, but the appetite for change remains strong. Canadians are still divided on who should lead,” Chris says.
• The Trump administration, Chris says, could view a minority government as “weak.” Therefore it could ratchet up “pressure on Canada to meet NATO’s 2 percent of gross domestic product defense spending target, strengthen border security, and unlock its critical minerals—goals first promised by Trudeau in 2019 with little progress.”

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Let’s make a deal

• Given Ottawa’s ongoing tensions with Washington, Imran says we should expect Carney “to look beyond the traditional defense partnership with the United States and to forge new, smaller defense deals with a variety of nations.”
• We got a few hints during Carney’s first overseas trip, when he went to Paris and London rather than Washington and said Canada was reconsidering its decision to purchase F-35 fighter jets from the United States. Imran also points to a radar deal with Australia, a potential submarine deal with South Korea, and a proposed closer partnership with Nordic countries. 
• Carney’s Ottawa will distance itself from Washington on defense, “except where needed,” Imran predicts, “such as on North American Aerospace Defense Command (NORAD) modernization.”

Rocky Mountain low

• Though Carney called for unity in his victory speech, that will be put to the test in the Conservative stronghold of Alberta, Maite notes, where the Liberals won just two ridings. “With blue-collar Albertans significantly impacted by US tariffs, Carney now faces a critical opportunity to demonstrate his commitment to all Canadians, not just Liberal supporters or Ontario residents.”
• Carney and Trump-aligned Alberta Premier Danielle Smith, Maite points out, “have not started their relationship on solid footing.” But the Edmonton native Carney “may leverage his Alberta connections to build bridges with Smith and provincial voters.” 
• Alberta will also be the site of global intrigue in June, when Canada hosts Trump and other world leaders for the Group of Seven (G7) Summit in Kananaskis. That trip to the Canadian Rockies, followed by a flight to the Netherlands for the NATO Summit, represent “two defining tests” for Carney, Chris says: “How he performs will shape Canada’s standing abroad—and at home.”

The post Canada’s voters send a message to Washington—and the world appeared first on Atlantic Council.

Click to jump to an expert analysis:

Christopher Sands: The results show a Canada both united and divided

Diane Francis: The election was a referendum on joining the United States. Canadians rejected it.

Michael Bociurkiw: Canadians voted for a steady hand in turbulent times

Imran Bayoumi: Expect Carney to pursue defense deals with new partners

Maite Gonzalez Latorre: Conservative wins in Alberta reveal the political divide in Canada

Kimberly Donovan, Maia Nikoladze, and Lize de Kruijf: Next, Carney will need to strengthen coordination among Canada’s provinces

Reed Blakemore: Energy and infrastructure will be core to managing the US-Canada relationship

Mark Scott: Expect Carney to push ahead on AI and social media regulation

Layla Mashkoor: Meta’s news blackout in Canada creates a troubling precedent

The results show a Canada both united and divided

Canada’s April 28 federal election was a referendum on the country’s relationship with the United States. Both the governing Liberals and opposition Conservatives campaigned against pressure from the Trump administration—tariffs, border demands, and jabs about Canada as the “fifty-first state.” A surge of nationalist sentiment swept the country, including in Quebec. Canadians appeared more united than ever.

Yet the result was a divided verdict: a Liberal minority government, with 162 seats—ten short of a majority in the 343-seat House of Commons. It’s a gain from the 153 seats held before the election but not the majority Carney hoped for. Carney, elected as a member of parliament for the first time, will now be invited by the governor general to form a government.

Canada has elected only two majority governments since 2004. Minority governments typically govern by negotiating support vote by vote. The New Democratic Party’s poor showing in 2025 makes another formal “supply and confidence” agreement unlikely.

Conservative leader Pierre Poilievre lost his seat, and a party that led in polls for over a year failed to adjust its message after Trudeau’s exit. Carney outperformed expectations, but the appetite for change remains strong. Canadians are still divided on who should lead.

This result may be seen in Washington as weak. The Trump administration is expected to renew pressure on Canada to meet NATO’s 2 percent of gross domestic product defense spending target, strengthen border security, and unlock its critical minerals—goals first promised by Trudeau in 2019 with little progress.

June will bring two defining tests for Carney: hosting the Group of Seven (G7) summit in Kananaskis—Trump’s first visit to Canada in his second term—and attending the NATO summit in The Hague. How he performs will shape Canada’s standing abroad—and at home.

—Christopher Sands is an adjunct lecturer and the director of the Hopkins Center for Canadian Studies at the Johns Hopkins School of Advanced International Studies.

The election was a referendum on joining the United States. Canadians rejected it.

Canada’s political landscape shifted to a two-party system for the first time in years, giving the Liberals a slight advantage. But the man not even on the ballot, Trump, influenced the outcome more than did any of the Canadian party leaders. As such, the election of 2025 could be considered a referendum on joining the United States that was roundly rejected by Canadians.

Canadians fled into one of the two mainstream parties as Trump waded directly into the campaign. On election day, the US president broke the unwritten rule that US and Canadian leaders won’t interfere directly in elections in one another’s countries. Trump posted that Canadians should vote for him in order for Canada to become the fifty-first state.

It didn’t work.

—Diane Francis is a nonresident senior fellow with the Atlantic Council’s Eurasia Center. She is a well-known journalist, author, broadcaster, and editor-at-large at the National Post.

Canadians voted for a steady hand in turbulent times

OTTAWA—Canadians have never had much appetite for dramatic change, especially in turbulent times—a fact underscored by yesterday’s election results and record turnout in advance polls. Voters appeared to be looking for a steady, capable hand in Carney, a former banker: someone with the backbone to confront Trump, who seems intent on turning Canada into a de facto fifty-first state, and the competence to undo nearly a decade of economic mismanagement under Trudeau.

Trump’s belligerence helped the Liberals erase a twenty-one-point deficit and avoid a return to the opposition benches. But in the final days of the campaign, domestic concerns reclaimed center stage—housing affordability, the inflation of food prices, a crumbling health system, immigration, and crime. A tragic vehicle attack at a Filipino festival in Vancouver on the campaign’s final day may have briefly boosted support for Poilievre, who campaigned on tough-on-crime policies. Nevertheless, Poilievre lost his Ottawa seat and now faces political purgatory.

Carney’s ability to enact his agenda will depend largely on how quickly he builds working relationships with opposition parties—notably the Bloc Québécois, which secured at least twenty-three seats. It also hinges on whether the Conservatives cooperate in a “Team Canada” approach or spend the next six months trying to bring down the government.

On the global stage, Carney must work to reestablish Canada as a respected middle power in a world where the rules-based order is unraveling. With the world’s largest Ukrainian diaspora outside Russia, the Liberals face pressure to maintain strong support for Kyiv—including calls to transfer twenty-three billion Canadian dollars in frozen Russian assets to help fund Ukraine’s war effort and reconstruction. Canada’s upcoming G7 summit offers Carney an opportunity to rally allies against returning $300 billion in frozen Russian central bank reserves to Moscow.

In style as well as substance, Carney marks a stark shift from his predecessor. Gone are the flashy socks, selfies, hobnobbing with Hollywood celebrities, and empty virtue signals. Though he has the charisma of an icicle in a Canadian winter, Carney brings confidence, competence, and a steady hand—the qualities Canadians seem to value most right now.

—Michael Bociurkiw is a nonresident senior fellow at the Atlantic Council’s Eurasia Center.

Expect Carney to pursue defense deals with new partners

Both Carney and Poilievre made foreign policy and defense a central pillar of their campaigns, with both calling for increased investment in the Arctic and increased defense spending. For Carney to achieve this, expect him to look beyond the traditional defense partnership with the United States and to forge new, smaller, defense deals with a variety of nations.

In Carney’s first trip abroad as prime minister, he visited Paris and London, spurning the traditional initial stop in Washington, DC. On the trip, the prime minister said that Canada was reconsidering its commitment to purchase F-35 fighter jets from the United States, and he announced the framework for a new security and intelligence partnership with France.

As Canada faces an increasingly volatile world, expect Carney to continue to pursue deals and new partnerships like the decision to purchase the JORN over-the-horizon radar from Australia. Closer ties between Canada and South Korea are also possible, with a Korean delegation visiting Ottawa early in March to pitch Canada on the purchase of submarines. Canada’s Arctic Foreign Policy white paper, released in December 2024, called for closer cooperation with the Nordic states (Denmark, Finland, Iceland, Norway, and Sweden), leveraging the security challenges and NATO membership shared by these nations.

With Carney declaring that Canada’s old relationship with the United States is “over,” expect the new government to look away from furthering closer defense ties with the United States, except where needed, such as on North American Aerospace Defense Command (NORAD) modernization. Ottawa will instead be seeking to forge relationships with other countries that have a shared threat perception and possess valuable technology and insights that can strengthen Canada.  

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

Conservative wins in Alberta reveal the political divide in Canada

Elbows up for Carney, but elbows down for Liberals in Alberta. This morning’s results confirmed Conservative dominance across the province, with the New Democratic Party managing to hold just one seat and the Liberals securing only two. The province has sent a large team of Conservative wins to Ottawa, though a handful of city ridings hosted tight races, highlighting Alberta’s persistent rural-urban divide.

While Conservatives and Liberals battled fiercely at the national level, Alberta presented a simpler equation: guaranteed Conservative victories with only potential New Democratic Party upsets in select ridings. Canadians clearly recognized this election’s importance with over seven million advance ballots cast nationwide, setting a record. Alberta saw turnout exceeding 63 percent, with Elections Canada counting 2,064,167 votes from 96 percent of polls out of 3,234,505 registered voters.

The election results have definitively answered whether Alberta voters would choose the New Democratic Party or the Liberals for provincial representation in competitive races against Conservatives. During his victory speech, Carney emphasized national unity: “Who’s ready to stand up for Canada with me? And who’s ready to build Canada strong?” With blue-collar Albertans significantly impacted by US tariffs, Carney now faces a critical opportunity to demonstrate his commitment to all Canadians, not just Liberal supporters or Ontario residents.

Alberta Premier Danielle Smith, who has aligned closely with Trump, and Carney have not started their relationship on solid footing. As an Edmonton native, however, Carney may leverage his Alberta connections to build bridges with Smith and provincial voters despite the overwhelming Conservative victory in the province. 

—Maite Gonzalez Latorre is a program assistant at the Atlantic Council’s Adrienne Arsht Latin America Center.

Next, Carney will need to strengthen coordination among Canada’s provinces

With Canada’s federal election now behind us, Carney and his Liberal government face an important task: consolidating the country’s economic power to respond more effectively to global challenges.

Unlike the United States, where the federal government can regulate nearly all economic activity, Canada’s Constitution grants provinces broad authority. This fractured structure can hamper the federal government’s ability to respond swiftly and with a unified strategy to external economic pressures.

The recent US imposition of tariffs on Canadian goods highlighted this vulnerability. Instead of presenting a coordinated national response, Alberta, Canada’s largest oil-producing province, broke ranks with Ottawa. While Canadian oil is a critical energy source for US refineries, Alberta refused to support leveraging this as a bargaining tool. This divergence weakened Canada’s negotiating position and underscored how regional interests can undermine national cohesion.

The United States-Mexico-Canada (USMCA) trade agreement adds further complexity. Article 32.10 requires Canada to notify the United States and Mexico if it seeks a trade deal with a nonmarket economy—potentially allowing them to withdraw from the agreement. This restricts Canada’s trade flexibility and reinforces its dependence on US policy.

To secure its economic future, the next federal government must prioritize a more unified approach to economic governance. Strengthening coordination with the provinces is no longer optional—it is essential. Without it, Canada will remain a collection of competing regional interests, ill-equipped to respond to external pressures or shape its own global economic path. As the 2026 USMCA review approaches, Canada needs a clearer, united voice—not only to protect existing partnerships but to ensure it can build new ones. Strategic alignment—at home and abroad—is the only way forward.

—Kimberly Donovan is the Director of the Atlantic Council’s Economic Statecraft Initiative.
—Maia Nikoladze is an associate director at the Atlantic Council’s Economic Statecraft Initiative.
—Lize de Kruijf is a project assistant at the Atlantic Council’s Economic Statecraft Initiative. 

For more on Canada’s need for economic consolidation, read the Economic Statecraft Initiative’s report:

Issue Brief

Mar 27, 2025

Canada needs an economic statecraft strategy to address its vulnerabilities

By Kimberly Donovan, Maia Nikoladze, Lize de Kruijf

To address threats from Russia and China and reduce trade overdependence on the United States, Canada’s federal government will need to consolidate economic power and devise an economic statecraft strategy that will leverage Canada’s economic tools to mitigate economic threats and vulnerabilities.

China Cybersecurity

Energy and infrastructure will be core to managing the US-Canada relationship

The Liberal Party’s victory is a profound change from just six months ago, when the Conservatives held a 20 percentage point lead in the polls. That the Liberal Party will now find a relatively simple pathway to building a majority coalition, while Poilievre lost his own seat in Parliament to a Liberal candidate, underscores how adverse the reaction in Canada has been to the Trump administration’s rhetoric around Canada’s sovereignty and to the disruption of US-Canadian economic integration through tariffs. Rather than a Conservative government in Ottawa that may have been philosophically aligned if not collaborative with its agenda, the White House will now have a Canadian counterpart with a clear mandate to assert its strength and independence while beginning a process of economic diversification. 

But now the hard work begins, with energy and infrastructure playing a key role in the months ahead. Energy—specifically crude oil and electricity—is one of the foundational pieces of the US-Canada relationship. Tariff exemptions on Canadian crude reflect this reality, given their connection to refineries in the US Midwest and as a reliable, secure source of heavy crude. From oil and gas to minerals and electricity, expanding Canadian energy resources are a core part of managing US energy prices, and they are worthwhile contributions to the idea of American (or North American) Energy Dominance. 

A Carney-led government will have to embrace this opportunity. During his campaign, Carney spoke about revisiting Canada’s carbon price regime, which was a major part of the Conservative platform and has to-date been an obstacle to unlocking investment in Canadian energy. However, Carney has committed to sustaining legislation on infrastructure impact assessments, which has been a pain point for energy companies to expand their own infrastructure. Those specific policy measures aside, Carney has largely communicated that his government will seek broad-based energy investment, including for critical minerals and next-generation nuclear.

The details of the Canadian energy agenda will be fulcrum issues for any of Ottawa’s ambitions to diversify energy exports away from the United States and toward global markets. Energy resources remain largely the jurisdiction of Canada’s individual provinces, and how Carney navigates a federal energy platform will be critical to building the cross-provincial partnerships necessary to reach new export markets. The negotiation of those partnerships has been a longstanding obstacle to east-west energy infrastructure in Canada. With that in mind, Carney’s diversification strategy is as much a function of internal diplomacy as it is external.

—Reed Blakemore is a director with the Atlantic Council Global Energy Center.

Expect Carney to push ahead on AI and social media regulation

In the build-up to this week’s election, there were widespread efforts across social media to undermine political candidates and Canada’s democratic institutions. Those tactics have now become a mainstay in many votes worldwide, and Canada was no exception. Ahead of the April 28 vote, local officials coordinated with outside researchers to flag potentially harmful online content. That included content by foreign actors, including some from the United States, seeking to influence how Canadians voted.

Yet despite these digital political messages, the online conversation around the election was dominated by offline events, especially Canada’s ongoing strained relationship with the United States. It is almost impossible to quantify the impact of online influence operations. But on the day after election day, it is hard to say such tactics played a meaningful role ahead of the Liberal Party’s victory because offline events—and not digital narratives—appear to have driven many voters’ choices.

In the weeks ahead, Ottawa will likely double down on tech policy issues that had stalled under Trudeau’s leadership. Efforts around artificial intelligence (AI) governance and greater checks on social media are likely as Carney sets out his policy objectives to reposition the country in the wake of its deteriorating relationship with the United States.

—Mark Scott is a senior resident fellow at the Digital Forensic Research Lab’s (DFRLab) Democracy + Tech Initiative within the Atlantic Council Technology Programs.

Meta’s news blackout in Canada creates a troubling precedent

During Canada’s short-lived thirty-five-day election cycle, candidates took their campaigns to cities, towns, and online platforms to win over voters. One distinguishing feature of Canada’s information ecosystem is the absence of news content on Facebook and Instagram, following Meta’s decision to block it in response to the Canadian Online News Act. This is particularly noteworthy as Facebook was reported to be the platform most used by Canadians.

Exacerbating the issue was Meta’s January 2025 decision to end its fact-checking programs, which played an important role in maintaining protective safeguards against information manipulation—safeguards that are even more necessary in the face of proliferating AI-enabled deceptions.

Canadian Meta users were left to navigate an uncertain landscape, one without adequate protections but rife with potential risks and deliberate harms. This creates a concerning precedent, suggesting that platform resistance may create information vulnerabilities that can be exploited during critical democratic processes. 

As the tactics of information manipulation evolve, democratic societies must foster adaptable, evidence-based responses that protect electoral integrity and preserve the principles of open, free discourse. This requires ongoing innovation in both policy and technology to stay ahead of emerging threats while upholding the values of democracy. 

—Layla Mashkoor is a deputy managing editor at the Atlantic Council’s Digital Forensic Research Lab.

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The Trump administration has raised tariffs against major trading partners such as China, and framed these steps as protecting US economic and security interests. But so far, Russia has been left off the US tariff regime despite the clear threats that it poses to US security interests. 

Russian President Vladimir Putin’s full-scale war of aggression against Ukraine has killed tens of thousands of Ukrainians and displaced millions, marking Europe’s largest refugee crisis since World War II. Russia’s destruction of civilian infrastructure in Ukraine has been widespread and systematic, including the targeting of hospitals, residential buildings, schools, and critical infrastructure. Torture, apparent war crimes, and the kidnapping of thousands of Ukrainian children have marked a multifaceted terror campaign waged by the Kremlin against a sovereign country, threatening the rules-based international order and the security of the region.

The Trump administration has justified the lack of tariffs on Russia as due to existing sanctions imposed by the United States over Putin’s war in Ukraine. These sanctions, added during the Biden administration, significantly reduced trade between the two nations. In 2021, before many of the sanctions were in place, US-Russia trade was $35 billion. Last year, due to the restrictions, US-Russia trade amounted to only $3.5 billion.

“Russia and Belarus, we don’t trade with. They’re sanctioned,” US Treasury Secretary Scott Bessent said on April 2. But that overlooks the fact that the United States does import enriched uranium and other goods from Russia. North Korea and Cuba were also exempted from reciprocal tariffs, but not Iran, another heavily sanctioned country that was subjected to 10 percent tariffs. Moreover, both Iran and Russia are in the middle of negotiations with the United States over different issues, which logically negates a potential justification that the Trump administration did not put tariffs on Russia because of cease-fire talks.

The volume of US-Russia bilateral trade, although low, is still markedly higher than that of other countries that have fallen under the Trump administration’s reciprocal tariffs. Lesotho was initially hit with 50 percent reciprocal tariffs, despite only having $240.1 million of bilateral trade with the United States. Saint Pierre and Miquelon, Laos, and Madagascar, among many others, were also subjected to similarly high tariffs, despite them all having bilateral trade with the United States worth far less than the $3.5 billion of US-Russia trade.

Even with sanctions in place, there is more that could be done to restrict US trade with Russia. The Trump administration has the tools at its disposal to increase tariffs or implement other trade restrictions on Russia, addressing ongoing geopolitical concerns around Russian aggression while aligning more broadly with the administration’s policy objective of reducing trade deficits. 

The United States continues to import and export select goods to and from Russia in sectors not entirely covered by current sanctions restrictions. For example, the United States imports approximately $1.3 billion in fertilizer from Russia. It also imports some precious metals and stones, inorganic chemicals, machinery, and nuclear equipment. Exports from the United States to Russia include aircraft parts and vehicles, as well as pharmaceuticals and medical supplies. 

Moreover, even though US trade with Russia has diminished significantly in the past few years, there is still a trade imbalance. Russia exports significantly more to the United States than it imports from it. If the Trump administration were to apply the same formula it used to justify its sweeping “Liberation Day” tariffs, which was based on bilateral US trade deficits, Russia would meet the criteria for reciprocal tariffs.

Trump’s willingness to impose sanctions on countries deemed a security threat should also be taken into consideration when evaluating whether the United States should enact tariffs on Russia. For example, China, which the Trump administration has characterized as a national security threat in executive orders, presidential memorandums, and rhetoric, has faced significant US tariffs and other economic measures aimed at restricting Chinese economic activity in the United States. 

In 2025, Trump declared a national emergency aimed at boosting US competitiveness, stating that the United States must “protect its sovereignty and national and economic security” in response to China’s trade practices, cyber intrusions, and industrial espionage. The Trump administration has also enacted restrictions on the export of some US technology, including advanced artificial intelligence chips and semiconductors, to China due to concerns that Beijing will use them for military activities and surveillance.

Compared to his policies toward China, Trump’s approach to Russia is lenient, with Trump even expressing interest in a thaw in bilateral relations, including easing certain restrictions on some Russian exports. There is little value in the Russian trading market relative to China and many other countries. Russia’s market is a long way from recovering from what is now a wartime economy, meaning that Russia has diverted a significant portion of its budget toward weapons production, defense, and military expenses. Moreover, sectors supporting trade and consumer growth, such as agriculture, technology, infrastructure, education, and healthcare, have been neglected in favor of bolstering Russia’s military industrial complex—offering little market innovation or viable opportunities for Western enterprise. The unpredictability that stems from the state capture of major industries, the threat of arbitrary seizures and contract violations, and a weak rule of law make foreign investment and trade high-risk, regardless of Russia’s economic capacity. 

Meanwhile, Russia continues to pose a significant threat to US security interests. Russia’s full-scale invasion of Ukraine has undercut European security and challenged the rules-based international order. Russian aggression has tested the durability of US resolve in Western security alliances by conducting hybrid warfare tactics, such as cyberattacks, espionage, and the sabotage of NATO infrastructure. Its tactics in Ukraine have tested US security, with Putin repeatedly employing nuclear saber-rattling to deter US military aid to Ukraine. 

As Putin continues his brutal war of aggression against Ukraine, Russia’s ongoing threat to US security and global stability warrants further action from the Trump administration. In light of Trump’s willingness to impose tariffs on countries with a lower bilateral trade volume than Russia and its unyielding economic posture toward China, Trump’s relative leniency in economic policy toward Russia undermines the administration’s broader trade agenda. To protect US interests, the Trump administration should ensure that Russia is no longer an exception to its tariff policies. 

Olivia Yanchik is an assistant director at the Atlantic Council’s Eurasia Center.

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At the heart of economic security is a straightforward goal: The United States wants to work with partners in Latin America and the Caribbean to create reliable supply-chain environments for critical industries. This approach builds on what US President Donald Trump did during his first term: advance policies aimed at reshoring US investment, particularly from Asia. The COVID-19 pandemic and rising geopolitical tensions in the years since Trump’s first term have only underscored the vulnerabilities of long-distance supply chains.

Pragmatically speaking, however, not all sectors can benefit from reshoring. Structural differences in wages, utility costs, and, in some US states, a disparity in business tax rates are obstacles to moving some supply-chain elements to the United States. When reshoring is not feasible, nearshoring—relocating production to neighboring countries—often serves as an alternative strategy.

An additional complexity is that the administration has other goals in the region as well. The White House, for example, also wants to work with partners on preventing the sources of illegal immigration, enhancing security and defense cooperation, and targeting drug trafficking routes and transnational crime. Therefore, as the Trump administration moves forward, choosing viable economic-security partners will require balancing industrial capacity, defense, border-protection cooperation, and political alignment. 

Mexico, for example, offers scale and experience. As a member of the United States-Mexico-Canada Agreement (USMCA), Mexico avoided a major blow in the “Liberation Day” global tariffs announced on April 2. The country kept zero tariffs for products meeting USMCA rule of origin requirements, meaning goods obtained or produced entirely from materials sourced from the United States, Mexico, or Canada. USMCA-reliant goods production is creating momentum for more competitive sourcing and even for investment expansion. The immediate adjacency of Mexico to the United States lowers some logistics costs and creates clear economic interdependencies within sectors such as automobiles, electronics, and aerospace. 

But Mexico also faces growing headwinds: Organized crime threatens business operations. Rising labor costs reduce competitiveness. And bureaucratic inefficiencies hamper investment. These limitations open space for alternatives in the relocation of critical supply chains within the region.

The Dominican Republic’s strategic opportunity

The Dominican Republic, with its strategic location, favorable trade conditions, and demonstrated commitment to shared security goals, offers an increasingly attractive alternative—if it can move swiftly to close its infrastructure and human capital gaps. Seizing this moment could anchor Santo Domingo firmly within the next phase of the US economic security strategy in the Caribbean and beyond.

The Dominican Republic has:

• A longstanding partnership with the United States: Over a century of close ties in trade, investment, and security cooperation.
• Robust trade frameworks: A twenty-year-old free trade agreement supporting a US trade surplus and granting the Dominican Republic privileged market access. Notably, the Dominican Republic was subject to only a 10 percent reciprocal tariff during “Liberation Day,” a lower rate than many countries in the region.
• Growing investment appeal: Advanced free-trade zones, a modernized investment regime, and leadership in sectors such as tourism, financial services, light manufacturing, and emerging semiconductor assembly

Moreover, the Dominican Republic has collaborated with the United States on immigration control and security operations. For example, over thirty tons of cocaine were seized in coordination between Dominican armed forces and US agencies last year, and the Dominican Republic has increased its border defense deployment with Haiti to cooperate on the prevention of illegal migration to the United States. It has also taken on greater regional leadership, including through hosting the tenth Summit of the Americas this coming November. All these initiatives signal strategic alignment with US policy goals.

Challenges on the road to the relocation of supply chains

Despite its promise, the Dominican Republic must address several critical gaps:

• Infrastructure constraints: Although the Dominican Republic has made notable improvements, significant gaps remain, particularly in logistics and energy infrastructure. The Dominican seaport system has expanded to handle greater cargo volumes, but in the case of terrestrial transportation, internal road networks still suffer from congestion and maintenance issues, causing inefficiencies in the domestic movement of goods. Similarly, electricity outages are still present, especially outside urban centers, and have raised concerns among manufacturers seeking reliable operations.

• Skilled labor shortages: While the country boasts a young and growing workforce, there is a mismatch between available labor and the specialized skills needed for high-value manufacturing industries like electronics or semiconductors. For instance, despite interest from major tech investors, the Dominican Republic has had to rely on imported technical expertise for some advanced manufacturing projects.
• Slow pace, red tape: Slow permitting and regulatory bottlenecks frustrate investors. In pre-pandemic rankings, the Dominican Republic trailed regional peers such as Chile and Colombia in the World Bank’s Ease of Doing Business indicators.
• Regional competition: The Dominican Republic is not alone in seeking to capitalize on the nearshoring boom. Countries like Costa Rica, which offers a well-developed tech sector and a reputation for political stability, and Panama, with its logistics advantages via the Panama Canal, are strong competitors. Both are aggressively courting foreign investment in similar sectors, adding pressure on the Dominican Republic to further differentiate itself. 

How the Dominican Republic can seize the moment

To solidify its position as a hub for relocating supply chains and deepen economic security ties with the United States, the Dominican Republic should:

1. Streamline customs and regulatory processes to accelerate business setup and supply chain integration.
2. Expand public-private partnerships in infrastructure to address logistics and energy-reliability gaps, while offering an alternative to Chinese-backed projects, particularly in critical supply chains such as rare minerals, cybersecurity, and fintech.
3. Invest in workforce development focused on high-value manufacturing skills to attract and retain global investors.

Ultimately, both Mexico and the Dominican Republic, as well as other Latin American countries, offer distinct advantages and disadvantages as supply chain relocation destinations. Mexico’s established industrial base and USMCA membership provide a strong and solid foundation, though security concerns, rising labor costs, and bureaucratic inefficiencies pose real challenges. The Dominican Republic’s strategic alignment with the United States and proactive investment strategies are promising, but addressing infrastructure needs and economic diversification will be crucial.

Choosing a viable economic security partner for the United States depends largely on the specific needs and priorities of individual businesses and industries. The Dominican Republic offers an interesting potential in the complexities and opportunities inherent in the US strategy in the Western Hemisphere. Its strategic positioning and economic strengths provide a promising foundation for deeper US collaboration, but fully realizing this potential requires confronting and overcoming the present challenges.

Enrique Millán-Mejía is a senior fellow for economic development at the Atlantic Council’s Adrienne Arsht Latin America Center.

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April 23, 2025

Banque de France’s François Villeroy de Galhau on strengthening Europe

Banque de France Governor François Villeroy de Galhau discussed the challenges of safeguarding the euro amid global economic uncertainty with Charles Lichfield, deputy director of the Atlantic Council’s GeoEconomics Center.

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Transcript of remarks

Uncorrected transcript: Check against delivery

Thanks to all of you for welcoming me in the Atlantic Council. We sit just a few blocks from Franklin Park and Lafayette Square. And if necessary, Washington’s geography reminds us of the enduring bond between our two nations.

As the Marquis de Lafayette, probably as famous in the US as in France, hero of the two worlds, once wrote to George Washington, I quote him: “Humanity has won its battle. Liberty now has a country.” From the very start, the cause of liberty, of freedom, has been one we have carried together, across the Atlantic, and I strongly wish it is still today, despite very troubled waters we are sailing through.

Let me also remind you with gratitude that Dean Acheson, who played a key role in the creation of your Atlantic Council, was also instrumental in the early steps of European integration. This is perhaps less well known, but he urged the French government in 1949 and 1950 to take the bold step leading to the Schuman Declaration of 9th of May 1950, and hence of what would become the European Union.

For Dean Acheson, as for many Americans, the EU was not designed, and sorry for the quotation, was not designed to “screw the US,” on the contrary. And let me, by this opportunity, also pay tribute to his French counterpart, Robert Schuman, at that time French Foreign Affairs Minister. He came from the French-German border, Jenna, which you alluded to, and it’s a legacy I feel personally connected to, having grown up like him in that very region where our two nations meet.

Hence, I will highlight that the transatlantic partnership has been so far strong and balanced, as no other worldwide. Second, nevertheless, the US trade policy shift will harm the global economy, starting at home. Lastly, and more positively, I will trace out a path for this possible European moment you mentioned, if, I stress, if we seize the opportunity.

Let me try to state the obvious first, but telling the truth means sometimes reminding the obvious at present. The US and the EU are the world’s two largest economies, maintaining one of the largest bilateral economic relationships. Then there is this question of the trade surplus.

Let me give some figures. If I look at the surplus in goods, obviously, there is a European surplus of $234 billion. But there is a services deficit which has significantly widened in the last years and which is at the advantage of the US for $125 billion. If I add a third element, which is a net primary income flows in favor of US firms, this leads ultimately to a balanced current account.

Can I also add that the effective applied tariffs between the EU and the US were close before recent developments, 3.95 percent for the EU on US products, 3.5 percent for the US on European products. Let me remind also the obvious: Value-added tax, VAT, is not a customs duty. It is levied on the final value of imported and domestically produced goods equally like the sales tax in the US. And nobody would argue in Europe that the sales tax is a customs duty.

European majority-owned affiliates directly employed an estimated [5.3 million] US workers in 2023, and European-based investors represent close to 50 percent of all foreign holdings of US securities that same year.

Last figure, and I will stop there, but only to show how deep, old, and balanced our relationship is: Today, 120,000 European researchers are working in the US universities, labs, and firms.

I must unfortunately go to my second point about the US policy shift and its harmful consequences.

Let me be honest: I don’t mean that the latest globalization wave was a fairy tale. It had its problems. It had its imbalances, both social and financial. But the current lose-lose game will obviously increase these problems and in no way solve them. The new trade measures, tariffs announced, as well as the increasing unpredictability which affects confidence, constitute without any doubt a major negative shock, and self-indicted, to the global economy, but first and foremost, to the US economy. I say that with sadness.

According to all analyses by most US and international banks and yesterday by the IMF, the American economy could suffer this year from an average estimated loss of around 1 percentage point in annual growth less and a similar-sized, 1 point rise in underlying inflation. There could even be a US recession, which was unthinkable, unthinkable, three months ago. But bad news for the US is bad news for all, including for Europe.

According to our preliminary assessments, there could be a direct negative impact of 0.25 percent to euro area GDP growth this year. The impact on inflation remains more uncertain but could be as a whole on the downside. And this is a significant difference; our inflation would diminish while the US one would increase. That said, our baseline scenario for France and the euro area remains that of an exit from inflation without a recession.

Financial markets, as we all know, they reacted very negatively to these trade announcements with a very unusual combination—let me stress that—of a sharp drop in US equity indexes, a rise—very surprisingly—in US long term bond yields, and a broad-based decline in the US dollar. The economic uncertainty may possibly threaten financial stability. I say it with some gravity. And I add that such deeply disruptive effects would also result from attacks on the independence and credibility of central banks. Let me on this occasion express again my gratitude to Fed’s Chair Jay Powell, who admirably shows how a central banker must behave.

One word about monetary policy, if you allow me. Independent from political impatience, our monetary policies are also autonomous from one another across the Atlantic. This in no way precludes—and this is my commitment to you—this in no way precludes a continuous, trusted, and indispensable dialogue, which is more necessary than ever for global financial stability.

But this autonomy is precisely what allows each of us to fulfil our domestic price stability mandate. In Europe, this is made possible by one of the greatest institutional achievements of the [1990s]: the creation of the euro. I am old enough, I must confess, to have been personally in Maastricht thirty-three years ago, and much more recently, I was in Frankfurt last week, for our latest decision to cut interest rates.

There is currently, as I said, no inflationary risk in Europe. And we can almost say “mission accomplished” when it comes to bringing inflation back to our 2 percent target. The significant deceleration of wages is another proof thereof. It is therefore both fair and appropriate that, compared to the US Fed or the Bank of England, the ECB has started cutting rates earlier—last June—faster, and likely further this year.

While this supports activity in the short term, the key to strengthening European growth remains structural through a broader mobilization of our internal resources.

And this brings me to my last and more positive considerations about Europe. Can I first say hope that we use the ninety-day pause to seriously talk across the Atlantic.

The least economically harmful option would be indeed to negotiate and then deescalate the situation rather than setting off a transatlantic spiral of tariff hikes. So far, Europeans, and you could witness it, Europeans have reacted in a remarkably united and calm manner.

Furthermore, I strongly wish Europe and the US can still commit together to what I call a pragmatic multilateralism. I mean a pragmatic multilateralism that is focused on some practical themes of common interest.

Let me name just a few: financial stability, cross-border payments and crypto-assets, cybersecurity, or the fight against financial crime and the prevention of extreme climate events. I insist: Let us resolutely preserve and support the multilateral institutions such as the IMF and World Bank, born and hosted in this great country—and this great city of Washington.

Let me express one final hope. If this difficult current situation has a silver lining, it is to possibly usher the European moment: Europe, despite its limitations—and we are aware of these limitations—as a safe haven of economic predictability and confidence, of rule of law, of social cohesion. But this will not happen without bold moves.

We can already see the impressive shift of the next German government. And these moves are obvious on defense, but let me focus today on economy, as the other pillar of this European moment. We need what I would call a “general mobilization” focusing on three imperatives, three “I”s, taking the best of the impressive economic success of America—or if you prefer, rather than three “I”s, size multiplied by muscle multiplied by speed. What do I mean? And I will be very short, but this is a sum up of the Draghi report, so to say—four hundred pages.

First, we need to integrate, the first “I”, the single market more. This means making the most of its size—as large in GDP terms as the US—by removing internal barriers in several areas such as services and energy. We also need, second “I”, to invest better, giving priority to the most promising breakthrough innovations, particularly those related to AI. And to succeed there, we need to build financial muscle through a genuine Savings and Investments Union, fostering more our abundant private savings—we don’t lack private savings, no the contrary—but we must force them towards equity and venture capital, again, US type. And third “I”: We need to innovate faster. Europe needs simplification, obviously. Less bureaucracy, fewer procedures, and shorter deadlines, while stressing—and this is one of our messages—that simplification is not deregulation, and we will come back to that.

Can I add a general consideration on this European agenda and this European moment: To successfully implement these three “I”s, these three imperatives, we urgently need a binding, visible, and not too distant calendar: Such a calendar will mobilize all our political and economic forces, as did in the past the 1st of January 1993 for the single market, also 1st of January 1999 for the single currency.

Let me conclude, in quoting the great French writer Victor Hugo. He wrote, almost two centuries ago, “A day will come when there will be no other battlefields but markets opening to trade and minds. . .  A day will come when these two great groups, the United States of America and the United States of Europe, will stand face to face, reaching out across the seas, exchanging their products, their commerce, their industries, their arts, and their genius.”

That day, alas, has grown more distant in recent times, but we need such nice utopias. The transatlantic sky has darkened considerably. But even in the storm, we must not lose sight of our long-term course. You, the American people, will decide what must be said and what must be fought for on your side of the Atlantic, as loud and clear as necessary. As Europeans, our task is clear: to strengthen our own side of the ocean. Let us, in the very name of the Atlantic spirit this Council embodies, let us seize the European moment.

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“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.  

Many of the world’s economic elites in town for this week’s IMF-World Bank meetings appear to be yearning for the first Trump administration, during which the rhetoric was often more extreme than the policies that emerged. Investors appear to agree with them, driving up markets Tuesday when Trump said that he wasn’t planning on removing Federal Reserve Chair Jerome Powell from office and US Treasury Secretary Scott Bessent signaled that the United States wanted a trade deal with China.

Yesterday brought fresh reports, most notably in the Wall Street Journal, of Trump’s willingness to dial back China tariffs, while Bessent had harsh words for China’s export-driven economic model even as he hinted at a deal. “China needs to change,” he told the Institute of International Finance. “Everyone knows it needs to change. And we want to help it change—because we need rebalancing too.” 

As I’ve argued previously in Inflection Points, the Trump administration this time around is more determined to bring about lasting changes than most investors and trading partners recognize. “The revolution,” I wrote, “is about breaking what Trump administration officials believe needs to be fixed, whether it is foreign assistance or international trade, because previous experience has shown that reforms aren’t possible.”

In his Atlantic Council remarks, Dombrovskis showed that he understands the European status quo also needs to change, but that it should be achieved by building upon the rules-based system that has served it so well since World War II. 

He spoke of accelerating efforts to build European defense and about the need to support Ukraine against Russian aggression as “Ukraine is central to Europe’s security considerations.” He spoke about deepening the European single market (“our main economic asset”) of 450 million consumers and about tackling “a longstanding problem of bureaucracy and red tape” by reducing administrative costs for European companies by 25 percent.

He also spoke about expanding the EU’s growing network of economic partnerships and about tapping growing international demand for euro-denominated assets. First and foremost, he played up European predictability as a core strength. What was understood, but not said, was that the EU now sees its “boring” predictability as a competitive advantage when measured against the United States.

Make no mistake: the EU would much prefer to do a damage-reducing deal with the Trump administration, but Dombrovskis’s tone was that of someone who knows he’s entered a time of transatlantic uncertainty when that’s not an outcome he can bet on.

The wording Dombrovskis chose was telling, saying that the EU “isn’t giving up on our closest, deepest, and most important partnership,” with an economic and trade relationship of $9.5 trillion per year, including a services trade estimated at $475 billion in 2024.

He spoke about the EU’s readiness to buy more US liquefied natural gas and offered to negotiate down to zero tariffs on all industrial goods. At the same time, he reminded the audience that the EU would escalate, if necessary, and that a first, 21-billion-euro package of countertariffs was put on hold following the Trump administration’s ninety-day pause on its own “reciprocal” tariffs.

Dombrovskis’s message was a clear one: that the EU “is determined not to let this crisis go to waste,” and it wants to make “inroads to help shape new strands of the global economy.” As for how the EU can reach a deal with the country that was both the host and at the heart of the Bretton Woods agreement eighty years ago, he regretted that “so far we also don’t have clear responses” to EU offers on a path forward.  

It’s far too early to know whether “boring” can win the day and whether American voters will return to Warren Harding territory. That said, Dombrovskis yesterday laid out a sound—and even compelling—approach for a continent where rules-based international order has been an antidote to its bloody past.

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.

Note: An earlier version of this article inaccurately referred to Dombrovskis as the EU’s current trade negotiator. This essay has been updated to note that he is a former EU trade negotiator, as Dombrovskis left that position in December 2024.

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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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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.

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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.

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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. 

Continue reading

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. 

Continue reading

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

The post Inside the IMF-World Bank Spring Meetings as leaders navigate the global trade war appeared first on Atlantic Council.

The post Lipsky quoted by the Chattanooga Times Free Press on the US-China trade war appeared first on Atlantic Council.

The post McDowell interviewed by DW News on the Plaza Accord appeared first on Atlantic Council.

The post Dollar Dominance Monitor cited by the Financial Times on dollar denominated trade appeared first on Atlantic Council.

The post Lipsky quoted by Reuters on the IMF and the global trade war appeared first on Atlantic Council.

The post Busch interviewed by DW News on Europe’s potential reactions to tariffs appeared first on Atlantic Council.

On April 15, 2025, Atlantic Council Senior Advisor Harlan Ullman published an op-ed in the Hill on how three of US President Donald Trump’s core priorities—tariffs, tax cuts, and government efficiency—may affect the domestic economy. He argues using a gradual approach “that encompassed a cost-benefit analysis of likely and unlikely consequences” from the outset may have advanced the administration’s goals while easing economic strain on US citizens.  

International Advisory Board member

Harlan Ullman

Senior Advisor

The post Ullman in the Hill on competing economic interests in the Trump administration   appeared first on Atlantic Council.

The United States is over 50 percent import-reliant on forty of fifty designated critical minerals. With China dominating many mineral supply chains from extraction to processing to finished products, US policymakers have spent years trying and largely failing to effectively de-risk supply chains. US critical mineral suppliers face a complex set of challenges: volatile and opaque price signals, Chinese market manipulation through subsidies and dumping that undercut other projects, and the inherently higher costs of US projects due to stricter environmental and labor standards.

Now, the Commerce Department has 180 days to assess how imports create vulnerabilities in US critical mineral supply chains, investigate foreign market distortion, and strategize how to boost domestic processing. Tariffs could be highly effective tools in addressing these challenges—but optimal results require a scalpel, not a chainsaw.

After all, at the heart of the US critical minerals challenge lies project economics. The administration can streamline permitting processes and prioritize mining on federal land, but investment will still struggle to reach the levels needed for a robust domestic mining sector without increased market certainty. De-risked supply chains need massive capital investment, which only flows when investors can count on predictable returns, reliable and cost-competitive contracts for securing future inputs (intake) and outputs (offtake), and consistent federal support.

Mineral tariffs should be precise and predictable

As the government investigates how tariffs can strengthen domestic supply chains, strategic floor tariffs should be top of mind. Setting price floors through tariffs can directly counter Chinese market manipulation and boost producer confidence without reducing incentives to become increasingly cost-competitive.

Precision is critical in these complex and fragile markets. Blanket tariffs across all mineral and metal imports would distort markets and do more harm than good. For starters, the United States simply does not have domestic reserves of many minerals, and tariffs can’t change the composition of the earth’s crust. Even for minerals the United States has in abundance, building up mining and processing capacity is a lengthy process. Recent administration efforts to streamline processes will help, but it will still be years before they bear fruit—leaving the United States exposed as vulnerabilities deepen. Exemptions from blanket tariffs for key allies and free-trade partners would alleviate pressure, but for many minerals, robust alternatives to Chinese suppliers just don’t exist yet.

There are no tariff shortcuts here; hard work and long-term commitment to developing and growing supply chains are prerequisites for success. The question of investor confidence is key. Blanket tariffs exacerbate market volatility, which alone is enough to scare off capital. Instead, tariffs should be used with precision to provide more market transparency and predictability.

How floor tariffs can help de-risk rare earths

Floor tariffs are an ideal tool. Coordinated floor tariffs can diversify mining and processing among strategic partners by de-risking project development, unlocking critical private financing, helping sustain existing mines, and offering a clear signal to invest in new processing initiatives. Floor tariffs effectively function as a form of offtake support that largely pays for itself. Particularly volatile and opaque markets that would benefit most from other forms of offtake support are the best candidates here. The dramatic price swings for critical materials oversupplied by China have grabbed headlines—lithium collapsing 85 percent, nickel up 90 percent, and so on. Despite erratic prices, however, these markets have generally avoided a huge reduction in offtake demand due to their market maturity, sustained demand confidence, or strong US policy support.

Rare earths, however, have largely slipped between the cracks—and present a great opportunity for floor tariffs to have a huge impact. These seventeen elements are key to the permanent magnets, heat-resistant coatings, and other high-tech components that keep missiles precise and data centers humming. Since rare earths are often secured as byproducts of other mining activities, extraction and processing have particularly high upfront costs and long development timelines. With investor confidence low and demand signals unsteady due to manipulated prices, demand guarantees are key to catalyzing rare earths retrieval projects, while supply confidence is crucial to incentivizing new rare earths separation facilities.

Notably, the United States has one active rare earth mine in Mountain Pass, California—but it has historically sent its raw materials to China for processing since it could not process locally cost-competitively. The mine’s new owner, MP Materials, aims to ramp up production and send its outputs to a new refining and magnet facility in Texas that will supply General Motors. This is an important first step to reducing dependence on Chinese processors, which currently produce over 90 percent of the world’s refined rare earths—yet the Texas facility is only expected to produce in a year what China produces in a day at full capacity. With Chinese restrictions on rare earths and permanent magnets progressively tightening, it is crucial to give companies the confidence to help address this strategic vulnerability.

No quick fixes

While floor tariffs on rare earths can help secure one piece of the United States’ critical mineral supply chains, the Trump administration should adopt distinct mineral-by-mineral tariff strategies. Lumping all fifty critical minerals into a blanket tariff will likely do more harm to US industry than good. Thoughtful tariff policy needs to be part of a larger conversation about improving the United States’ understanding of relative criticality among the nearly fifty minerals Washington has designated as critical.

Moreover, tariffs cannot successfully improve US supply chain security without a comprehensive suite of supportive policies. Recent efforts to empower the International Development Finance Corporation and use the Export-Import Bank to secure global feedstocks for domestic processing are powerful steps toward US supply chain security, but even more ambitious actions are required. The Trump administration should introduce innovative financing mechanisms, invest in workforce development, and consider establishing a strategic resource reserve. These complementary tools can help tariffs work by ensuring market signals are backed by capital inputs and reliable demand.

Finally, the Trump administration cannot pursue this strategy in isolation. At a moment when partners, allies, and resource-rich nations are similarly eager to develop alternatives to China’s dominance over critical minerals, coordinated tariffs and vigorous supply chain diplomacy—such as crafting mineral deals and investing in mines and refining infrastructure abroad—can be a force-multiplier toward wider supply chain diversification. Not only would this help alleviate stress on minerals that the United States cannot produce affordably or in sufficient quantities, it could also help coordinate technology and knowledge transfer at a moment when allies are entering unfamiliar economic territory.

The turbulence surrounding recent tariff implementation should not scare policymakers away from this tool altogether. When implemented precisely and strategically—such as floor tariffs on rare earths—tariffs can be a powerful force for market stabilization and supply chain security. This Section 232 investigation provides an opportunity to address one of Washington’s most serious strategic vulnerabilities—and the United States can’t afford to squander it.

Reed Blakemore is the director of research and programs at the Atlantic Council Global Energy Center.

Alexis Harmon is an assistant director at the Global Energy Center.

The post Tariffs can help secure US critical mineral supply chains—if they’re done right appeared first on Atlantic Council.

From April 11th to 17th, 2025, Global China Hub and Scowcroft Center for Strategy and Security Indo-Pacific Security Initiative nonresident senior fellow Dexter Tiff Roberts spoke to six media outlets about US-China tariffs:

• Fortune: “Trump’s ‘punitive’ China tariffs could end trade between the world’s two largest economies — and that would be painful, volatile, and dangerous“
• Al Jazeera: “As US and China escalate trade war, the world asks, ‘Who will blink first?’“
• Politico Pro Morning Trade: “What’s holding up a US-China trade deal”
• NBC Montana: “Local expert discusses US-China tariffs“
• BBC News: “Trump exempts smartphones from tariffs“
• Asharq Business TV

The post Global China Hub and Scowcroft Center for Strategy and Security Indo-Pacific Security Initiative nonresident senior fellow Dexter Tiff Roberts on tariffs appeared first on Atlantic Council.

After Russia’s illegal full-scale invasion of Ukraine in February 2022, Western partners imposed unprecedented financial sanctions and export controls against Russia. These measures aim to achieve three objectives:

1. Significantly reduce Russia’s revenues from commodities exports;
2. Cripple Russia’s military capability and ability to pursue its war;
3. Impose significant pain on the Russian economy.

The Atlantic Council’s Russia Sanctions Database tracks the restrictive economic measures Western allies have placed on Russia and evaluates whether these measures are successful in achieving the stated objectives.

The Database also centralizes the financial designations of more than five thousand Russian entities and individuals sanctioned by the Group of Seven (G7) jurisdictions, Australia, and Switzerland. The Database is updated quarterly and can be queried to determine if an individual or entity is designated. Please refer to the appropriate designating jurisdiction’s websites and platforms for additional information and confirmation. The data provided in the Database is intended for informational purposes only.

How to use this database to reveal sanctions gaps: Click on the check mark () and cross mark () filters at the top of each column. Doing so will build a list of entities/individuals that are sanctioned by one country but not by another.

The seven jurisdictions covered in this database are the United States, the United Kingdom, the European Union, Switzerland, Canada, Australia, and Japan. Data in the database was last updated on November 8, 2024

Objective 1: Significantly reduce Russia’s revenues from commodities exports

Lengthening of global oil trade routes

Restrictive economic measures against Russia’s energy sector have caused major restructuring of the global oil market and lengthening of oil trade routes, but Russia is still generating revenue from oil exports to India and China. 

When the European Union (EU) banned seaborne Russian oil imports, the United States stepped in and became the largest supplier of crude oil to Europe. US crude oil exports to Europe increased by 23 percent in June 2024 year on year. However, as the United States became the top oil exporter to Europe, it lost half of its share of the Indian market. India opted for cheaper Russian oil as a result of the oil price cap and cut US crude oil imports by 47 percent in 2023. 

This reshuffling in the global energy market resulted in the lengthening of oil trade routes: The United States and the Middle East are shipping oil to Europe, while Russia is shipping oil to India and China, which in some cases re-export refined Russian oil to Europe. 

Longer oil trade routes created new loopholes in the Group of Seven (G7) sanctions regime. For example, since the G7 does not have import restrictions on refined Russian oil from third countries, Europe has been buying Russian oil products such as fuel from India, lengthening the supply chain even more. Between December 2022 and December 2023, the price cap coalition members imported about nine billion dollars worth of Russian-origin oil products from India and other third countries.

Additionally, longer, multiparty trade routes are also ultimately related to enforcement issues. In response to the oil price cap, Russia has built up a shadow fleet of tankers that can easily take advantage of these routes. At the same time, Russia has developed a multiparty blending market against which sanctions are proving more complicated to enforce. 

Russia seems to be repeating Iran’s sanctions evasion playbook, which has been to re-export blended and refined crude oil through third countries. It might be time for the G7 to take a more comprehensive step and replace the oil price cap with sanctions on Russian oil. The price cap leaves much room for maneuvering both for Russia and third countries to profit from re-exporting. Sanctioning Russian oil would significantly increase global oil prices and negatively impact the global economy. However, if India were to stop importing Russian oil, Russia would lose a significant market for its crude oil, perhaps even becoming fully dependent on China just like Iran, who has to sell oil at a much lower price than Russia.

The Treasury Department’s November 21 action designating Gazprombank demonstrates the Biden administration’s resolve to restrict Russia’s ability to generate revenue from commodity exports. Gazprombank was previously designated by the United Kingdom, Australia, New Zealand, and Canada.

Proposed G7 restrictions could irreversibly damage the global diamond industry  

The G7 has introduced phased prohibitions on the imports of Russian-origin non-industrial diamonds. They are likely to cause shock waves in the global diamond industry, but it is unclear whether they would weaken Moscow’s ability to finance the war on Ukraine. Russia’s diamond industry generates about $3.8 billion in revenue annually, a minuscule amount compared to the about $100 billion Russia received in oil and gas revenues last year. While not being a critical commodity exporter for Russia, the Russian state-owned diamond mining company Alrosa has the largest share of the global diamond market (31 percent) and produces 35 percent of the world’s rough diamonds. This asymmetry implies that diamond restrictions will not impact Russia’s war chest, but will negatively impact the $100 billion global diamond industry. 

Russia still continues to profit from diamond sales despite sanctions. For example, in 2023, Hong Kong imported $657.3 million worth of diamonds from Russia, a dramatic 1,700 percent increase from the previous year. However, countries at the low end of the supply chain, such as India, that refine and polish diamonds and other precious gems, will no longer be able to re-export polished Russian diamonds to the G7. This will especially impact India which will have to either export polished Russian diamonds to other markets or import rough diamonds from other countries. In either case, India’s diamond industry will suffer from major supply chain restructuring. 

The G7 countries are in the process of creating new requirements for tracing the origins of all diamonds before they enter G7 and EU countries. The “mandatory traceability program” will go into effect on March 1, 2025 and will likely increase compliance costs across the diamond industry. In particular, the EU will require all non-Russian diamonds to go through Antwerp, Belgium to verify their origins. Industry leaders have expressed concerns about bottlenecks and the advantage Antwerp would be getting over other sellers in case this mechanism is approved. 

The World Federation of Diamond Bourses has acknowledged the need to trace diamonds’ origins but raised concerns about the plan the G7 has suggested. The cost of compliance with sanctions, including the cost of shipping diamonds to Belgium while paying for freight insurance will likely increase the price of non-Russian diamonds, ultimately making Russian diamonds comparatively less expensive and therefore more attractive to consumers. 

The G7 governments should take into consideration concerns from the world’s diamond industry and African stakeholders, and create the space for diamond experts to present an alternative plan for traceability that meets the G7’s intent.

Objective 2: Cripple Russia’s military capability and ability to pursue its war

Can India manage to enjoy the benefits of trading with Russia without facing the consequences?

After the United States pressured the United Arab Emirates and Turkey to comply with critical technology export controls on Russia, India has emerged as a primary transshipment hub and the second largest supplier of restricted technology to Russia. As it turns out, Russian authorities began finding solutions to transact with Indian companies through clandestine channels shortly after Russia invaded Ukraine. 

When the G7 imposed sanctions on Russia, India increased imports of cheap Russian oil. India was paying Russia in rupees for a portion of these imports, resulting in Moscow accumulating a considerable amount of rupees it could not spend anywhere else, similar to the phenomenon with China that we discussed in our analysis of the “axis of evasion.” 

According to the Financial Times, by October 2022, Russia’s Industry and Trade Ministry made a secret plan that would kill two birds with one stone: Russia would buy sensitive electronic components from India with the 82 billion rupees (about one billion dollars) the Russian banks had accumulated from oil exports. The payments would take place in a “closed payment system between Russian and Indian companies, including by using digital financial assets”, and outside of Western oversight. It is difficult to determine if the plan worked because the Financial Times obtained the information about this plan from leaked Russian documents. However, given that India is now the second largest sensitive technology provider to Russia and Russian banks maintain branches in several Indian cities, it is safe to assume that it did. 

If everything follows the current trajectory, India will increase technology exports to Russia to address the massive trade imbalance with Moscow. Specifically, in the fiscal year ending in March 2024, New Delhi imported $65.7 billion worth of crude oil from Russia and exported only $4.26 billion worth of goods. To restore the trade balance, India exported items such as microchips, circuits, and machine tools worth more than $60 million both in April and May, and $95 million in July. Thus, it is now in India’s interest to export more electronics to Russia so it can correct the trade imbalance before the end of the fiscal year. 

The United States is aware of India’s increasing role in supplying Russia’s military-industrial complex with critical technology. The Treasury Department included nineteen Indian entities in its latest tranche of designations of Russia’s military procurement networks. At the same time, the State Department sanctioned more than 120 additional entities and individuals supporting Russia’s military-industrial complex, and the Commerce Department imposed export controls on forty foreign entities to prevent them from obtaining US technologies. One of the designated companies is Shreya Life Sciences, an Indian drugmaker that, according to the Treasury Department’s sanctions designation, has exported restricted high-end servers optimized for artificial intelligence to Russia. Indian authorities’ cooperation with the United States and G7 allies will be significant in ensuring Indian companies such as Shreya Life Sciences stop undermining the sanctions and export controls regime against Russia. 

As a starting point, the United States and its G7 allies should increase engagement with Indian authorities and encourage India’s Financial Intelligence Unit to share information through Egmont Group channels that may shed light on the closed payment channel that Indian companies supposedly used to transact with Russian companies, and whether this channel is still operational. Western allies should strongly encourage India to consider the exposure risk Indian financial institutions have with Russian banks that have been sanctioned or removed from the SWIFT messaging system and have branches in India, such as Sberbank, VTB Bank, and Promsvyazbank, as Indian financial institutions transacting with these Russian banks are subject to US secondary sanctions. 

Indian banks should consider their exposure to and risk of connecting with Sistema Peredachi Finansovykh Soobscheniy or “System for Transfer of Financial Messages” (SPFS). The Treasury recently warned foreign financial institutions that SPFS is considered part of Russia’s financial services sector. As a result, banks that join Russia’s financial messaging system may be targeted with sanctions.

Finally, the G7 partners should take into account India’s high dependence on imported energy. India imports 88 percent of its oil and is working toward increasing the role of renewables in the energy mix. Engaging with Indian authorities on finding alternative energy resources and suppliers would be a recommended next step for the G7 allies. This would also help India address the payment challenges it has experiencing with Russian authorities, who have been demanding that Indian companies pay Russian companies in renminbi instead of rupees.

Objective 3: Impose significant pain on the Russian economy

G7 countries issued unprecedented coordinated sanctions on Russia following Russia’s invasion of Ukraine in 2022. Western sanctions have significantly impacted Russia’s ability to fight its war and have made it more difficult for Russia to operate. There are indications that Russia’s economy is struggling. For example, the Central Bank of Russia recently increased the interest rate to 21 percent. Russia’s National Welfare Fund is declining as well as its export revenues as a result of sanctions. However, after nearly three years of war and sanctions, Western partners have not fully achieved their objectives. 

As the war continues on, the effects of restrictive economic measures are waning as Russia has created workarounds and mechanisms to transact and trade with its partners outside the reach of Western sanctions. Russia has adapted and evolved into a wartime economy. Measures such as export controls are making it more difficult for Russia to import battlefield technology and materials. However, Russia is finding solutions such as partnering with Iran and North Korea to obtain missiles, unmanned aerial vehicles, and other military equipment. 

Further, Russia is not the only country affected by Western sanctions. Russia’s neighboring countries are struggling to comply with sanctions as they have historically relied on economic ties and trade with Russia and have few opportunities to develop alternatives. Meanwhile, entire industries, including oil and precious gems, have had to develop and implement new ways of doing business and adjust to sanctions compliance. Technology companies also continue to have trouble complying with export controls. Their sensitive Western technology and dual-use goods continue to end up on the battlefield in Ukraine.

Going forward, Western partners must continue economic pressure on Russia in concert with military assistance to Ukraine. Sanctioning Russian oil will be critical in imposing pain on the Russian economy since oil and gas revenues filled one-third of Russia’s budget in 2023. However, if the United States and its G7 allies continue to leverage economic measures to change the course of wars and behaviors of states, they will need to have clearly outlined objectives and measures of assessment before pulling the trigger on sanctions. Developing a comprehensive understanding of the industries such measures will target will be critical for managing expectations of what sanctions can achieve, and what ramifications they will have for the global economy. 

Above all, the United States and G7 allies need to recognize that the use of economic tools comes at a cost, such as oil price increases and supply chain reshuffling. Economic tools avoid the damage of human deaths, but they require economic and financial sacrifice. It is now up to the G7 allies to decide what is a bigger priority: Oil prices or international security. 

Authors: Kimberly Donovan and Maia Nikoladze

Contributions from: Mikael Pir-Budagyan

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Meloni’s Washington visit is the first for a European leader since President Donald Trump’s “Liberation Day” tariffs, and it represents a litmus test for the future of US-European Union (EU) relations in an evolving global landscape.

Headwinds for trade ties

With two-way trade in goods and services with the United States exceeding $126 billion, Italy’s economy is among the most vulnerable in Europe to US trade retrenchment. The United States is now Italy’s top non-EU export market, valued at $76 billion in 2024 and representing 10 percent of the country’s total exports. Italy is also the third-largest EU exporter to the United States after Germany and France. But that interdependence between “unshakable allies” is a double-edged sword.

Much of the recent growth in Italy’s trade surplus with the United States—marked at $43.75 billion, the third-highest among EU member states—stems from sectors now in Washington’s crosshairs: industrial machinery, pharmaceuticals, chemicals, textiles, and food exports such as cheese, pasta, and wine. For instance, industrial exports alone accounted for roughly $27 billion, and Italy sends a quarter of its wine exports to the United States—about $2.16 billion annually. Similarly, a quarter of Italy’s pharmaceutical exports, valued at $14.6 billion, cross the Atlantic.

Confronted with three tariff regimes—25 percent on automobiles, 20 percent on steel and aluminum, and all-encompassing “reciprocal” tariffs at 10 percent (temporarily reduced from 20 percent)—Italy could see its gross domestic product contract by 0.4 to 0.6 percentage points over the next two years, risking the loss of over fifty thousand jobs, according to an early report by Confindustria. For an economy heavily reliant on signature exports and deeply embedded into Germany’s industrial supply—and with limited fiscal leeway for countermeasures—the contraction would not only hit hard at home but also stoke unease in Brussels, where Italy’s poor economic performance linked to its immense public debt are a perennial concern for the European Union’s stability. As a further indication of the mounting pessimism about the country’s ability to absorb such shocks, Italy’s stock market was the hardest hit among Western economies in the days after April 2.

A calculated balancing act

Since taking office in 2023, Meloni has sought to brand herself as a pragmatic conservative—capable of bridging European priorities with her electoral base, all while remaining unexpectedly closely aligned with Washington’s evolving agenda. In a recent Financial Times interview, she dismissed the notion of choosing between the United States and the EU as “childish,” instead advocating for strategic engagement with both. She took a similar approach to recent Ukraine talks, offering cautious support for defense initiatives while avoiding moves that could alienate Washington—a reflection of Meloni’s broader strategy to engage without provoking.

That approach is now evident in her government’s response to US tariffs. While Paris has called for triggering the EU’s anti-coercion mechanism, Rome has prioritized dialogue. Foreign Minister Antonio Tajani underscored the “existential” urgency to avoid “a transatlantic trade war that would destroy our companies.” While there is logic in this approach, it risks weakening Italy’s ability to adapt to a fragmenting global trading system. While others begin exploring what an EU with a less involved United States might look like, Italy continues to advocate for a slower approach, one that seemingly does not yet accept that these changes are here to stay.

Advancing Italy by elevating Europe

Meloni’s visit is not just about Italy—it’s about Europe. As the first EU leader to travel to Washington since April 2, she has a unique opportunity to serve as a conduit between a strained EU and a transactional US administration. But that role is fraught with risk. A purely Italy-centric approach would play into Trump’s preference for country-by-country dealmaking, weakening the continent’s leverage and exacerbating its divisions.

Meloni should then frame European unity not as a threat to Trump’s agenda, but as a force multiplier for the transatlantic partnership, or the “West,” one of Meloni’s favorite terms. A “zero-for-zero” agreement on industrial tariffs could be a symbol of renewed cooperation, or at least a new baseline for broader adjustments, and drive home how much easier and efficient it is to deal with one bloc at the negotiation table, instead of twenty-seven individual countries.

Arriving in Washington shortly after EU Trade Commissioner Maros Šefčovič, Meloni has the chance to double down on Europe’s commitment to reducing intra-EU non-trade barriers, so the single market can “level the playing field.” This includes unleashing further investment opportunities for US export-driven sectors such as energy, tech, and defense, while defusing escalation over irritants concerning value added tax or digital service taxes. It will be essential to frame Europe as a trusted alternative to dependence on China, thereby aligning with Trump’s priority of repositioning industrial and economic policies to tackle those that have exploited the global trading system and address nonmarket practices, overcapacities, and intellectual property theft.

This meeting is not just about Italian exports. If tariffs escalate, Europe may retaliate, imperiling cooperation on broader issues and leaving Italy worse off. The transatlantic relationship has weathered trade spats before, but today’s stakes are higher. Ironically for a leader who rose to prominence in nationalist and Euroskeptic circles, a strong, united, EU-wide message may now be Meloni’s best chance at defending Italian interests. Meloni has a complex task ahead of her, presenting to Trump a unified, nonthreatening EU open to dialogue—but one with the tools to counter a prolonged tariff regime. Failure to achieve this balance risks backfiring, angering all of her constituencies on both sides of the Atlantic.

A strategic crossroads

The Italian leader has a history of defying expectations, especially in her foreign policy decisions. For example, upon taking office, she continued Italy’s support for Ukraine and did not renew Italy’s membership in China’s Belt and Road Initiative. Yet, this moment calls for more than tactical diplomacy. Meloni must resist the temptation of short-term wins and instead articulate a long-term vision of Italy—and Europe—as indispensable partners even in a reimagined global playing field. It would work in Italy’s favor, as well as that of the United States and the entire EU.

Rome has long punched below its weight on the international stage. This visit offers Meloni the chance to change that, and she has long wanted this moment to prove her leadership and leverage her established political capital. But she will succeed only if she steps onto the stage not just as Italy’s leader, but as a credible steward of transatlantic unity.

Nicholas O’Connell is a nonresident fellow at the Atlantic Council’s Europe Center.  

Jacopo Pastorelli is a program assistant at the Europe Center.

Correction: This article was updated on April 15, 2025, to reflect the fact that one quarter of Italy’s wine exports go to the United States. A previous version incorrectly stated that one quarter of Italy’s cheese exports go to the United States.  

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In contrast with Noboa, González had signaled a drift from Western allies, including with statements that she would not recognize Edmundo González’s electoral win over dictator Nicolás Maduro in Venezuela and with her party’s flirtation with removing the dollar as Ecuador’s currency. Noboa’s win, despite his policy-light campaign, embodies steadiness and predictability, two aspects that are key for international cooperation.

Ecuador desperately needs international cooperation with partners such as the United States to curb the country’s crime wave and spur economic growth. Here’s what to expect for US-Ecuador relations now that Noboa will maintain his post in Quito.

Mano dura—but backed by American muscle?

Security will be the foundation of any strengthened partnership for the future of Ecuador. Noboa’s government has been firmly rooted in a “mano dura” (iron fist) policy, declaring an internal armed conflict against twenty-two criminal gangs in January 2024 and classifying them as terrorist organizations. Many of these groups work directly with transnational drug cartels including Mexico’s Sinaloa and Jalisco Nueva Generación, and even Albanian mafias; in addition. The intensifying operations of these groups has led to a spike in violence, including a staggering 1,300 homicides in just the first fifty days of 2025. Recurrent states of emergency and military deployments have become commonplace, especially in port cities such as Guayaquil, as the government fights to reclaim control of strategic trade routes. As the government has expanded its drug interdiction efforts, these criminal groups have diversified into other illicit markets including arms and human trafficking as well as illegal mining and logging to sustain their operations and increase their resilience.

Noboa is signaling a willingness to bring Ecuador’s security doctrine into alignment with Washington’s. He has done so by proposing the use of drones on borders and by requesting the assistance of US forces, reportedly preparing the port of Manta (which used to host a US air base, shut down by Correa in 2009) for their arrival. This commitment aligns well with US regional priorities. In the wake of rising transnational crime and drug trafficking across the hemisphere, the Trump administration—greatly concerned with border security and containing narcotrafficking—is keen to support governments willing to take action. Thus, Noboa’s openness to cooperation with the United States, particularly his willingness to integrate US intelligence and surveillance technology into domestic operations, could be met with interest.

Yet, the backdrop for Noboa’s second term will not lack of challenges. Ecuador remains stalled in a multidimensional crisis. The economy contracted in three out of four quarters in 2024, with the third posting a 1.5 percent decline in the gross domestic product. Ecuador had a $726 million fiscal deficit in the first quarter of 2025, marking the third largest deficit in a decade, and severe electricity shortages have caused blackouts of up to fourteen hours, further dampening economic prospects. Add to that the challenges of governing a polarized constituency—44.35 percent of whom voted for his opponent—and a country still traumatized by the assassination of presidential candidate Fernando Villavicencio during the 2023 election.

But opportunity also knocks. While Ecuador’s country risk, as measured by the investment bank JP Morgan, reached a fifteen-month high of 1,900 points in the days ahead of the elections, Ecuadorian sovereign bond prices soared following Noboa’s win, indicating strong investor confidence. This is telling: markets, outside observers, and potential allies see Noboa as a stabilizing force. Despite a fragmented National Assembly—where the opposition party, Citizen Revolution, holds sixty-seven seats compared to the sixty-six held by Noboa’s party—the significant margin in the election results suggests that many voters who supported other candidates in the first round backed Noboa in the second. This may pave the way for political alliances and cooperation, enabling the passage of key security and pro-investment legislation. For Washington, that is an open door for broadened strategic cooperation at the economic, political, and military levels.

Teasing out trade

Trade will also be on Noboa’s agenda for cooperation with the United States. The Trump administration has imposed a 10 percent tariff on Ecuadorian goods; however, it is important to note that, unlike other countries in the region, such as Peru and Colombia, Ecuador does not have a free trade agreement with the United States. This means the 10 percent tariff will be added to existing tariffs on other products, while goods that previously entered duty-free will now face a 10 percent tariff. Ecuador currently holds a negative trade balance of $644.5 million with the United States, but Ecuador’s economic vulnerability makes the United States a vital partner. The US market takes a significant portion of Ecuador’s nonpetroleum exports, mainly agricultural products such as shrimp, cacao, bananas, and flowers. If tariffs increase on countries that compete in providing these products to the United States—such as Vietnam and Cambodia, which Trump planned to hit with much higher tariff rates before a recent ninety-day pause—Ecuadorian exporters could capitalize on their comparative advantage. Yet, Ecuador is still at a disadvantage on other products that face higher levies such as roses, broccoli, and tuna. Therefore, Ecuador will likely bring up trade as an essential component of cooperation—provided Washington and Quito can establish predictable, rules-based trade arrangements.

On this note, Noboa’s apparent alignment and closeness with the Trump administration is significant. At a time when US migration policy is tightening and the hemisphere is shifting toward more pragmatic leadership on this front, Noboa’s actions signal that the bilateral relationship will be built on strategic alignment rather than ideological affinity. While Noboa’s visit to Mar-a-Lago on March 29 (deemed “friendly”) was faulted in some circles, it earned Noboa political capital at home. The Trump meeting also put González at a disadvantage, given her coalition’s association with anti-US rhetoric, including Correa’s statements after the United States imposed visa bans on him, his vice president, and their immediate families for corruption. Noboa built a victorious coalition in large part with older voters, some of whom expressed fear about the unpredictability that accompanies populist choices.

What change will take

The list of tasks ahead for Noboa is significant: His administration will need to balance a $36 billion budget amid rising crime and violence, declining petroleum revenues, and rising debt payments. The promise of better security, economic reactivation, and infrastructure modernization cannot be fulfilled without outside support and financing from multilateral lenders and foreign investment, including the United States.

Furthermore, there is the risk that any long-term alignment with Washington in pursuit of improving security and the economy will not be able to withstand Ecuador’s volatile domestic political landscape. The composition of the National Assembly, depending on how alliances and seats shake out before inauguration day, will be key to determining the difficulties or opportunities Noboa will face. At the same time, he must demonstrate his ability to navigate an increasingly polarized environment. To succeed, he will need to strike a careful balance between domestic legitimacy and external engagement, backing up his rhetoric with consistent action.

Noboa’s presidency may not have started with a master plan, but his second term will begin with a unique set of geopolitical alignments. The question now is whether he can turn them into tangible gains for Ecuador. For the United States, this is a rare chance to engage with a willing, democratically elected government in a region beset by instability. For Ecuador, it is a chance not only to restore domestic stability but also to continue combating the security crisis with the United States as a partner.

In a region where friendships blow with the political winds, Ecuador under Noboa can chart a course of pragmatic collaboration and strategic partnership—if both sides are willing to make it work.

Isabel Chiriboga is an assistant director at the Atlantic Council’s Adrienne Arsht Latin America Center.

The post What Noboa’s reelection means for US-Ecuador ties appeared first on Atlantic Council.

But there’s a bigger picture to the exchange as well: Ankara’s approach to its relationship with Jakarta is demonstrative of its overall strategy toward the members of the Association of Southeast Asian Nations (ASEAN). Such a strategy is portrayed in Ankara’s Asia Anew Initiative, launched in 2019, which prioritizes economic engagement with Asian countries.

The last time Prabowo visited Turkey—in July 2024, then the president-elect and minister of defense—he underscored Turkey’s significance as a strategic partner for Indonesia. There, Prabowo and Erdoğan also reportedly discussed the possibility of expanding the Indonesia-Turkey partnership, including in the defense sector.

The countries have a history of defense collaboration: For example, they signed an industry cooperation agreement in 2010. Indonesian state-owned firm PT Pindad and Turkish armored-vehicle manufacturer FNSS worked together in the 2010s to produce a medium-weight tank, the Kaplan MT. The two countries have also intensified their collaborative efforts in intelligence and combating terrorism. In 2023, Indonesia bought twelve reconnaissance drones, worth $300 million, from Turkey.

Considering Turkey’s military might—it has the second largest military force in NATO—it makes sense that Prabowo (a former defense minister and a retired army general) and a number of Indonesian stakeholders are continuing to prioritize defense cooperation with Turkey. This is demonstrated by a drone agreement that the countries signed this February, which will see Turkish company Baykar export sixty Bayraktar TB3 and nine Bayraktar Akıncı drones to Indonesia. Baykar also agreed to a joint venture with Republikorp, an Indonesian defense company, to construct a drone factory in Indonesia.

The countries have collaborated in other ways. In 2021, Dirgantara Indonesia (a company that makes military and civilian aircraft) signed a memorandum of understanding with Turkish Aerospace to cooperate on the production of the N219 aircraft and the modernization of the Turkish CN235 aircraft fleet.

Trade between the two nations in 2024 amounted to $2.4 billion, representing an increase of over 12 percent from the previous year. In addition, Indonesia and Turkey have been working since 2017 on the Indonesian-Turkish Comprehensive Economic Partnership Agreement. At Erdoğan’s meeting with Prabowo this February, the two leaders reportedly agreed to work on finalizing the agreement and thus widen the market for products produced in each country. They also signed thirteen agreements in the fields of energy, health, agriculture, defense, communication, and education.

In addition, as Indonesia prepares to move its capital city from Jakarta to Nusantara—located in East Kalimantan—Erdoğan said during his February trip that he would like Turkish construction companies to take part in building the new capital. Erdoğan and Prabowo also emphasized, during the visit, that the two-state solution is the most viable approach to achieving peace in Gaza, and Erdoğan said he intends to work with Indonesia on the reconstruction of Gaza.

In the education sector, the Turkish government has offered a scholarship program for Indonesian students to study in Turkey; the number of students enrolled has increased from 2,500 in 2019 to 4,662 as of 2023. These students are offered a one-year Turkish language course in preparation, which represents one facet of Ankara’s soft power.

All of this highlights how the Indonesia-Turkey bilateral relationship has developed over time and across multiple sectors and issues. These two countries’ collaboration is in alignment with Turkey’s Asia Anew Initiative and also with Indonesia’s goals to engage in free and active foreign policy—and to avoid excessive dependence on any major powers.

In addition, Turkey has pursued a more active relationship with ASEAN members as Asia has accounted for more and more of the global economy and as the region has become the epicenter of global trade. ASEAN countries produced 7.2 percent of the global gross domestic product in 2024, and they boast a combined population of 692 million. 

In order to revitalize Turkey’s economy by diversifying its trade, it is foreseeable that Ankara will seek to strengthen its economic relationship with ASEAN members, including Indonesia. Ankara has signed free trade agreements with ASEAN members Malaysia (in 2015) and Singapore (in 2017), and it is currently in negotiations with Indonesia and Thailand as part of its broader strategy to enhance cooperation with countries in the region. Additionally, it is likely that Turkish companies will increase their investments and involvement in infrastructure initiatives throughout the ASEAN region in light of ongoing infrastructure needs across Southeast Asia.

The Turkey-ASEAN relationship also stretches across sectors and issues, touching everything from the economy to education. For example, in 2023, Turkey and ASEAN offered a joint scholarship to students in ASEAN countries enabling them to attend master’s-degree and Turkish-language programs.

As for what lies ahead: Turkey and ASEAN countries will likely continue to strengthen their people-to-people connections as a result of Turkey’s Asia Anew Initiative. As ASEAN member states look to avoid becoming overly dependent on any major powers, they are likely to expand cooperation with middle-power countries, such as Turkey.

But don’t expect this to result in Turkey turning entirely eastward, abandoning the West. In a 2024 speech, Erdoğan contended that Turkey’s various geographical, human, economic, and historical connections globally render it incapable of being contained within a bloc. In addition, countries on the outskirts of the Turkey-ASEAN relationship—including the United States and China—will play a role in shaping the future of these ties, as such larger powers impact how Turkey and ASEAN members manage their economic interests and navigate the geopolitical landscape.

Nevertheless, Turkey and ASEAN countries can deepen their mutually beneficial partnership in a way that assists the former in overcoming its economic challenges and unlocks new markets and opportunities for ASEAN members.

Adinda Khaerani Epstein is a former political communication researcher at the Istanbul-based research institute Turkish-Asian Center for Strategic Studies. She is also a specialist on Southeast Asia and US-Turkey relations at Geopolitical Intelligence Services and an adjunct fellow at the Gold Institute for International Strategy.

The views expressed in TURKEYSource 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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On April 8th, 2025, Global China Hub senior director Melanie Hart was quoted in a Bloomberg article on Beijing’s response to tariffs.

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On April 9th, 2025, Global China Hub senior director Melanie Hart spoke to AP about Beijing’s response to tariffs.

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From April 4th to 10th, Global China Hub nonresident fellow spoke to several news outlets about Beijing’s response to tariffs, including:

• Bloomberg: “China Hits Back at Trump Tariffs with 34% Duties on All US Goods“
• Sydney Morning Herald: “China fires back with 34 per cent tariffs on American goods“
• The Guardian: “China vows to ‘fight to the end’ against latest Trump tariff threat“
• BBC Radio 4: https://www.bbc.com/news/live/cvg52gjwg91t?page=2&xtor=AL-73-%5Bpartner%5D-%5Bmicrosoft%5D-%5Blink%5D-%5Bhindi%5D-%5Bbizdev%5D-%5Bisapi%5D

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Though a major and sustained trade spat between Beijing and Washington would undoubtedly inflict major damage on the global economy, it could also provide limited, discrete opportunities for other actors. For example, Brazil could increase exports of soybeans to the People’s Republic of China, while Taiwan and South Korea could find it economically useful and politically convenient to ramp up purchases of US soybeans. Meanwhile, the US battery-storage sector faces profound uncertainty due to the tariffs, but it could emerge stronger over the long term.

Imposing large tariffs on China carries undeniable risks—and any decoupling of the two massive economies will bring pain, especially in the short term. Yet the crisis also presents opportunities to draw the United States and its allies and partners closer on discrete issues, even as broader, US-driven uncertainty continues to persist.

US-China trade is unbalanced

The US-China trade war doesn’t come from nowhere. Due to China’s export promotion policies, including subsidies, and the United States’ low savings rate, the bilateral goods trade deficit has exploded in recent years, peaking at $418 billion in 2018.

In order to reduce the bilateral goods trade deficit, the United States has imposed several waves of tariffs on Chinese exports. In response, China has, among other measures, targeted specific goods, such as soybeans, which are a major import it receives from the United States. China is betting that targeting soybeans will be a pain point for the White House: US soybean farmers are an important political constituency, about half of all their production is shipped abroad every year, and China is the largest single purchaser.

At the same time, China cutting its soybean imports from the United States could also present opportunities for other buyers and markets. Brazil, already China’s largest source of soybeans, could expand its exports. On the other side, the European Union, South Korea, and Taiwan could make politically useful and showy purchases of US soybeans as a way of trying to earn favor with the White House before or during their own negotiations on trade or other issues. 

—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and Indo-Pacific Security Initiative; he also edits the independent China-Russia Report. This article reflects his own personal opinions.

Storage battery markets

Just as the US-China trade war could curtail or even halt soybean trade, the US battery complex could face severe disruptions if the United States and China continue down the road of decoupling. China is, by far, the largest exporter of batteries to the United States, accounting for over 70 percent of the United States’ lithium-ion battery energy storage system imports in 2024. These batteries, a single module of which can be as big as a truck, store electricity from the grid (often solar) and discharge power during peak demand periods. 

If 145 percent US tariffs on Chinese goods remain in place, Chinese-produced lithium-ion batteries may be priced out of the market, especially since South Korean-made batteries are highly competitive and face only a 10 percent tariff (as of April 10). Accordingly, US tariffs may see a reorientation of storage-battery supply chains, with fewer imports from China and more from treaty allies such as South Korea, Japan, and Canada. 

Without commenting on the other disruptions of the trade war, the reshoring and friendshoring of battery supply chains would hold significant national security benefits. Advanced batteries are strategically important: in addition to commercial uses, they hold military applications for drones, electronic warfare systems, and submarines.

But it won’t be easy to shift battery supply chains, at least not in the near term. US allies have limited spare capacity. The international battery workforce disproportionately consists of Chinese nationals. China controls critical parts of the supply chain, such as graphite. And new factories—built in the United States or in friendly countries—will take years to complete. Significantly, the United States has no domestic manufacturing capacity for lithium iron phosphate batteries, which are highly suitable for grid-scale storage. It will take time for supply chains to reorient themselves. 

If the United States and China move forward with hard decoupling, the US battery-storage sector will face immediate pain. At the same time, higher tariffs on Chinese-made batteries would incentivize greater manufacturing capacity in the United States and its allies and friends. In order to compete with China, the United States should pair any tariffs on China with investments in research, development, and manufacturing for batteries and other dual-use, militarily relevant energy technologies.

—Joseph Webster

The post Want to understand the US-China trade war? Start with soybeans and batteries. appeared first on Atlantic Council.

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.

Safe haven asset status of US Treasuries in doubt

When financial markets come under stress, investors usually shift money into safe haven assets—which until now have been the US dollar and US Treasury securities. This time around, these markets have behaved differently from expectations. On April 2, when Trump announced higher than expected “reciprocal” tariffs, triggering sharp stock market selloffs, the ten-year US Treasury yield stood at 4.17 percent. Yields indeed fell (which means bond prices increased) in the next few days to reach 3.96 percent on April 4. But then yields rose in the following week to hit 4.34 percent (seventeen basis points higher than on April 2) at the end of April 9 when the stock market rallied after Trump announced the ninety-day reprieve. This is contrary to expectations. Usually, US Treasury yields decline during market turmoil as investors move to US Treasury securities as safe haven assets.

Similarly, the US dollar index (representing its value against the Group of Ten major trading partners) weakened from 104.2 on April 2 to 103.2 on April 9, instead of strengthening, as usually happens during market routs when international investors tend to flock to the US dollar for safety. 

The lackluster performance of US Treasuries and the US dollar have raised questions about their status as safe haven assets. These questions are relevant in the context of the decline in the share of foreign holders of US Treasury securities—from more than 50 percent in 2008 to around 30 percent at present.

Strains in US dollar funding markets

In addition, the rise in US Treasury yields amid great volatility has caused hedge funds to unwind the basis trade. The basis trade consists of buying US Treasuries in the cash market while shorting US Treasury futures contracts, hoping to profit from the expected convergence of futures prices to cash Treasuries prices. Since the price differentials between the two instruments are quite small, hedge funds have to leverage their positions by fifty to one hundred times, usually borrowing money in the repo markets, to achieve decent returns. When the price of Treasuries fall amid great volatility, generating losses and margin calls by their brokers, hedge funds are forced to liquidate their positions to raise cash, reinforcing the downward price movements. While markets have been orderly despite these great price swings, the rush for cash has caused some strains in the US dollar funding markets. Take, for instance, the secured overnight financing rate (SOFR), a metric established in 2022 that reflects the cost of borrowing cash overnight, collateralized by Treasury securities. On April 8, the thirty-year SOFR swap spread fell to a record low of around -100 basis points.

Heightened volatility in the US Treasury market has spilled over to global bond markets, increasing volatility there as well. For example, yields on two-year German Bunds jumped by twenty basis points before subsiding. At one point in the past week, ten-year Japanese government bonds rose by thirteen basis points. These are unusually large rises for these government bond markets. The spikes in yields amid great volatility in both US and international bond markets, and the strengthening of major currencies such as the yen and euro so far this year, have generated losses in carry trades, where international investors borrow in low-interest-rate currencies like the yen or euro to invest in higher-yielding US Treasuries. These developments have led many investors to unwind their carry trades in search of cash, adding to selling pressure and strains in the cross-currency swap markets. For example, the three-month yen/dollar and euro/dollar cross-currency basis swap spreads have widened noticeably.

Focus on the Fed

The emerging strains in US dollar funding markets—both domestic and international—while not in crisis proportions, have started to focus market attention on the US Federal Reserve (the Fed). Global financial market participants have gotten used to the role of the Fed as the supplier of US dollar liquidity of last resort—adding ample liquidity to the financial system to stabilize severe financial crises. This time around, with a tariff war amid heightened geopolitical tensions, questions have been raised about whether such a Fed rescue can be taken for granted.

The high tariff rate in the United States—estimated to be around 24 percent, taking into account all the tariff actions in recent weeks—will likely have an impact on US price inflation, though the extent is still not fully clear. Fed officials have said that they would like to wait for more clarity on how tariffs will impact inflation and inflation expectations before easing. Having stressed that point, the Fed would likely be hesitant to move even though the latest consumer price index for March (which does not take into account last week’s tariff announcements) showed a larger than expected slowdown to 2.4 percent inflation on a year-over-year basis. The Fed will be especially reticent to act if such a move can be interpreted by investors as a preemptive easing to put a floor under the market turmoil.

Besides cutting key rates, the Fed has used other tools at its disposal, such as supplying financial markets with liquidity through purchases of Treasury securities or via the repo markets. The Fed has also made dollar liquidity available to international investors through currency liquidity swap arrangements with foreign central banks. Currently, the Fed has standing liquidity swap lines with the central banks of Great Britain, the eurozone, Japan, Canada, and Switzerland. These lines can be supplemented with temporary and limited swap agreements with a wider range of foreign central banks like in the case of the global financial crisis in 2008. These actions by the Fed have been criticized by some US lawmakers as “bailouts” to financial firms and speculators that create a moral hazard and weaken market discipline. Under present political circumstances, some doubt has arisen about the Fed’s willingness to use these tools—unless the market turmoil starts to seriously threaten global financial and economic stability. Furthermore, there has been speculation that the United States could leverage the Fed’s financial safety net for political purposes—by being more selective and requiring compensation. These emerging doubts about the reliability of the Fed’s financial safety net will likely heighten the uncertainty in global financial markets. 

As the tariff war continues and equity markets fluctuate with each new announcement, the state of the US Treasuries and US dollar funding markets, as well as actions of the Federal Reserve, will help indicate whether market turmoil risks tipping into a financial crisis.

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

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“The US threat to escalate tariffs on China is a mistake on top of a mistake and once again exposes the blackmailing nature of the US,” China’s commerce ministry said on Tuesday. “China will never accept this. If the US insists on its own way, China will fight to the end.”

Almost exactly one year ago, in discussions I had in Beijing on the prospect of a US-China trade war under a future US president, officials repeatedly mentioned a secret weapon they held ready to wield: the ability of China and its people to “eat bitterness” or chiku. 

What does that mean? Chiku is regularly raised by Chinese to describe their ability to endure hardships during difficult times, including in service of a supposed greater national goal. During the Mao Zedong era it was on display during the Great Leap Forward, the horrendously misguided policy that aimed to see China surpass the United Kingdom in steel production and that ultimately led to famine. More recently, this attitude was seen during China’s national campaign to stop the spread of COVID-19. And the fact is not lost on the authoritarian leaders in Beijing that the Trump administration will have to deal with growing pushback from the American people if, as expected, the trade war leads to inflation and job losses, while China will likely face less public pressure. 

In a sign of how seriously China is taking the prospect of a trade war, an official compared China’s resolve—albeit indirectly—to that shown during armed conflict. On April 9, Liu Pengyu, spokesperson for the Chinese embassy in Washington, shared a video of Chinese President Xi Jinping solemnly saying that “intimidation or pressure will never work on the Chinese nation,” a clip from a speech that Xi gave in 2020 on the occasion of the seventieth anniversary of China’s entry into the Korean War (official Chinese name: “The War to Resist US Aggression and Aid Korea”). 

Another reason Beijing is unlikely to come rushing to Washington with concessions: Many Chinese officials share a strong belief that they are engaged in an existential struggle with the United States, with both countries vying for economic, political, and military supremacy. While that contest began years ago, they see the trade war as the latest iteration and believe that any concessions would be inevitably met with more pressure. To give in to US demands, they seem to believe, would likely undermine Xi’s carefully constructed reputation as a forceful global leader, which is important for his standing both at home and abroad.

China has been preparing for this conflict for a long time, including by diversifying its trade away from the West. Chinese exports to the United States account for 14.7 percent of China’s total in 2024, down from 19.2 percent in 2018, while overseas shipments to Southeast Asian and Belt-and-Road countries have grown, according to Beijing. Overall, about 30 percent of China’s exports last year went to Group of Seven (G7) wealthy countries, down from 48 percent in 2000, says San Francisco-based Matthews Asia. At the same time, China’s share of global exports actually has grown by a percentage point, to 14 percent, since Trump’s first term. 

Beijing too has strategically lessened its reliance on important commodities from the United States, such as soybeans, the majority of which are now bought from Brazil, and it has pushed for greater food self-reliance. “We have been engaged in a trade war with the US for eight years and have accumulated rich experience in this struggle,” the official mouthpiece newspaper People’s Daily said in a front-page commentary on Monday. “We have not closed the door to negotiations, but we will not take chances either. Instead, we have made all kinds of preparations to deal with shocks.”

In recent days, Beijing has strategically targeted industries such as agriculture that are located largely in Trump-supporting red states, with new tariffs on wheat, beef, pork, and soybeans. And it has slapped restrictions on the export of more rare-earth minerals, which are used to manufacture everything from smartphones and automobiles to advanced semiconductor chips and anti-ballistic missile systems. At the same time, China has added a host of new US companies, including drone maker Skydio, to its export control list, expanded its unreliable entities list, and strengthened its anti-foreign sanctions law—all part of a growing toolkit for economic retaliation. Meanwhile, US firms that are deeply reliant on China for global sourcing, such as Walmart, have been called in and warned to not exert pressure on Chinese suppliers to cut prices, while China’s state planning agency has told Chinese firms to delay any planned investments in the United States.

Finally, Beijing may see an abrupt decoupling from the United States as unpleasant, but it also fits in with China’s long-term goal of rebalancing its economy toward one that is far more reliant on domestic consumption, an objective stressed repeatedly at the annual “two sessions” legislative meetings in March. 

“In the face of high tariffs that continue to shrink the trade space with the US, we must take expanding domestic demand as a long-term strategy, strive to make consumption the main driving force and ballast of economic growth, and give play to the advantages of our large market,” said the People’s Daily in its commentary.

With Beijing digging in, the question for Washington becomes: How much bitterness are Americans prepared to swallow in return?

Dexter Tiff Roberts is a nonresident senior fellow at the Atlantic Council’s Global China Hub and the Indo-Pacific Security Initiative, which is part of the Atlantic Council’s Scowcroft Center for Strategy and Security. He previously served for more than two decades as China bureau chief and Asia News Editor at Bloomberg Businessweek, based in Beijing.

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He’s hitting the brakes and the gas. On Wednesday, US President Donald Trump announced that he would suspend until July many of the “liberation day” import tariffs that had gone into effect hours earlier, but also raise the tariff on China to a whopping 145 percent—while keeping the 10 percent global tariff in place. The news caused markets to jolt upward, after having lost trillions of dollars in value in the past week, but they plunged again on Thursday as the full details became clear. Below our experts dig into what these changes mean for the global economy—and American consumers.

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

Bond bust

• While the US stock market has shed trillions of dollars in value since Trump announced the “reciprocal” tariffs on April 2, stocks did not move the US president to react. Instead, Josh tells us, “Trump saw the massive disruptions in the bond market and decided risking the entire US—and global—financial system was too high a price to pay for the reciprocal tariffs.” 
• Rising bond yields and a falling US dollar were too alarming for Trump to ignore. “The president prioritized the reserve currency over a trade war waged using a particularly flawed calculation mechanism and rhetoric that inflamed anti-US sentiment even among the United States’ longest and most trusted allies,” says Barbara.
• While allies will feel at least temporary relief, it’s unlikely American consumers will, Josh concludes. The GeoEconomics Center team calculates that the overall tariff rate for the United States is nearly as high as it was before Trump’s Wednesday reversal because of the higher levy on China. “Trump launched a global trade war and then decided—at least for now—to zero in on China,” Josh says. “But don’t expect the rest of the world to rush to help the US given the whipsaw of the past week and tariffs they are facing. Remember: if Chinese goods can’t come into the US market, they’ll quickly flood other economies.”

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The next ninety

• “Expect US-China tensions to escalate before they de-escalate,” Josh predicts. “China has been preparing for this for six years. And while their economy is already struggling, they can handle the loss of revenue from these tariffs through a range of fiscal and currency maneuvers.”
• Meanwhile, other nations will likely feel pressure to choose between the United States and China, says Barbara. With some fifty governments apparently seeking to open bilateral negotiations with the United States, the next ninety days will launch the “technical, asymmetric negotiation phase” of the tariff war.
• Barbara is paying close attention to countries with upcoming elections, such as Australia and Canada: “Populist politics will incentivize those running for elective office to make promises regarding trade retaliation, but governing after the election may require immediate compromises.”
• We will also see a flurry of attempted dealmaking at the IMF-World Bank Spring Meetings in Washington in ten days. “Expect economies like Japan and India to move to the front of the line while the European Union likely will have to wait, given the president’s long-standing complaints about the single market” Josh tells us.

Post-pause predictions

• So what’s Brussels’s next move? Barbara argues that “if the EU were to take a stronger stance regarding China” in the coming months, it could become a model for many countries in this attempted global trade rebalancing. “The most optimistic scenario here would see the EU emerge publicly as an equal partner to the United States in the geoeconomic battle against China.”
• But it’s unclear where that US-China battle is heading. Josh interprets Wednesday’s market surge as investor optimism about a deal between the world’s two largest economies, given Trump’s willingness to back off in this instance. “But just like the original market bet that Trump would only be in negotiating mode, that hope may be misplaced.”
• Josh also points to the newly created massive tariff imbalance in Asia raising the “trans-shipment risk” that cropped up during Trump’s first term, when Chinese goods were rerouted to the United States via lower-tariff countries. Vietnam and Malaysia are well positioned to benefit this time, he adds.
• More advanced economies in the Pacific region such as Australia and India will also experience increased trade pressures from expected forthcoming US trade measures on pharmaceuticals. Barbara observes that “trade diversification solutions that prioritize Europe at the expense of China could be viewed as a positive outcome by the White House if they are accompanied by concessions to the United States regarding non tariff barriers.”
• Amid a “head-spinning” week, Dan advises to pay attention to the Trump administration’s underlying consistency: “Tariffs are primarily a tool to achieve specific objectives, among them to counter perceived imbalances in the trading system,” says Dan, and the Trump administration has laid now out those objectives in detail.
• Since tariffs can often be a “blunt tool that inflicts self harm,” Dan says, it would make sense to seek “alternate arrangements in lieu of tariffs that achieve the objectives, without the adverse consequences.” What’s needed now, he argues, are “calm discussions over trade and investment packages and initiatives that address the underlying concerns.”

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