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How Russia’s winter warfare strategy targets Ukrainian civilians

Conflict Europe & Eurasia Geopolitics & Energy Security Human Rights

There is a degree of uncertainty in Ukraine’s expanding defense tech sector that can be seen in inconsistent terminology, unclear boundaries, and undefined red lines. A shared vocabulary and published strategic framework, co‑developed by the public and private sectors, could help reduce this uncertainty.

Different priorities lead to diverging visions. Defense tech industry executives and investors tend to view the issue of economic security primarily through the lens of scalability, competitiveness, and speed. Their key assumptions include the notion that innovation thrives in predictable, transparent environments.

Many also argue that Ukraine’s combat‑tested technologies represent a unique global opportunity, while cautioning that excessive controls risk pushing talent, capital, and IP abroad. With this in mind, industry representatives and investors generally support targeted security measures but fear blanket restrictions that treat all technologies and companies as equally sensitive.

Ukrainian officials tend to frame economic security primarily as a defensive necessity. They warn that adversaries actively use markets, investment, and technology transfer as weapons. Many are also concerned that under‑regulation could result in irreversible strategic losses. Naturally, their perspective prioritizes caution, monitoring, and alignment with allied security frameworks, even at the cost of slower growth.

The central tension here is time-based and risk‑based. Businesses operate on market timelines and accept calculated risk, while governments operate on security timelines and seek to minimize worst‑case scenarios. Without structured dialogue, these differences manifest as mistrust rather than complementary roles.

If managed effectively, wartime Ukraine’s approach to economic security in the defense tech and dual-use sectors could become a model for the country’s broader postwar reconstruction. Ukraine has the opportunity to redesign institutions in a strategic sector that already commands global attention. Success may depend on whether government policy is seen by businesses as a partnership or as an obstacle.

Constructive cooperation grounded in transparency, risk‑based policy, and continuous dialogue can transform economic security from a constraint into a catalyst for Ukraine’s long‑term strength and sovereignty, providing significant security benefits for allies and partners along the way. This is a realistic objective. After all, industry, investors, and government all ultimately seek the common goal of a resilient, innovative Ukrainian economy integrated with democratic allies and protected from adversarial exploitation.

Bridging the gap between perspectives is less a matter of ideology than of process, trust, and execution. Ukraine is currently in a period of transition that is marked by many significant challenges but no irreconcilable obstacles. Industry and investors are ready to scale globally while the government is racing to build safeguards against unprecedented threats. The task now is to synchronize these efforts.

Eric K. Hontz is director of the Accountable Investment Practice Area at the Center for International Private Enterprise.

Many of China’s current economic problems can be traced, at least in part, to this collapse: weak retail spending, nonexistent consumer and business confidence, declining investment, and falling prices. Without at least a partial recovery in the real estate market, the Chinese government will be hard pressed to make meaningful progress on its much-trumpeted goal of boosting domestic demand. That problem was underscored in the growth numbers for the fourth quarter of 2025, released last week, that showed weak consumer demand continuing to drag on the economy.

Zombie companies threaten the banking system

There is still a great deal that could go wrong—starting with China’s financial system. Banks so far have withstood the fallout from the defaults of several of the country’s largest private-sector developers. Many of these collapses have been well-documented, as more than sixty developers have either defaulted on offshore debt or entered restructuring negotiations, some of which have played out in Hong Kong courts. But focusing on these high-profile cases obscures a deeper and more pervasive problem. Beyond the major firms headquartered in Shanghai, Shenzhen, and other megacities lies a vast ecosystem of lower-tier developers and construction companies in smaller urban centers that are unable to service their debts—a dynamic that poses mounting risks to banks and shadow lenders alike. Recent research shows that many state-backed developers are being kept afloat with government support, including favorable funding and privileged access to undeveloped land in the biggest cities.

Researchers at the Dallas Federal Reserve Bank recently estimated that in 2024, roughly 40 percent of bank loans to the real estate sector were to companies whose operating earnings could not cover their interest obligations—up from just 6 percent in 2018. Most of these loans are being rolled over rather than recognized as losses, effectively turning the borrowers into “zombie” companies. Across the broader economy, the Dallas Fed researchers estimate, the share of such zombie firms reached 16 percent in 2024, up from 5 percent in 2018.

The shadow network behind China’s property bubble

Many of the loans weighing on the banks are tied to the massive buildup of local government debt, which has forced the central government to pony up some $1.4 trillion in refinancing over the past year. “The intricate and [tight] interconnections between financial institutions, the real estate sector, and local and central governments create a fragile environment,” AXA Investment warned in a prescient 2024 report. “In such a context, even a minor disturbance could potentially trigger a chain reaction, destabilizing the entire banking system.”

Unlike offshore debt restructurings, the troubles of most zombie firms are rarely visible. That opacity, however, has begun to crack. Bloomberg reported last month on a crisis in Hangzhou involving a shadow lender that failed to make $2.8 billion in payments to investors in wealth-management products. The underlying assets that the lender was relying on to generate income were loans to real-estate developers, at least ten of which had defaulted on commercial paper obligations. A nationwide web of such arrangements fueled the expansion of China’s property bubble—and now poses a systemic threat as it unwinds.

China’s six largest commercial banks, all of them state-owned, are widely regarded as financially sound, even as their profit margins have been squeezed by government-mandated interest-rate cuts. Analysts, however, are increasingly concerned about the health of regional banks and thousands of smaller rural institutions. These lenders have extensive ties to local government financing vehicles (LGFVs), which were established across the country to generate revenue for provincial, city, and county authorities. Many LGFVs became deeply enmeshed in real estate, often buying property at local government land auctions as private demand dried up in the latter stages of the bubble. At a recent roundtable organized by S&P Global, the chief Asia-Pacific economist for Natixis, Alicia Garcia Herrero, warned that these state-owned enterprises, “unable to generate adequate cash flows,” would force banks “to keep lending to them.” That dynamic is not a recipe for recovery. Instead, it risks locking the system into prolonged stagnation.

Hiding the numbers, facing the fallout

To make matters worse, the Chinese government has resisted opening its books to provide a clearer picture of the financial system’s true condition. In its periodic assessment of China’s financial system, released last year, the International Monetary Fund (IMF) reported that its “systemic analysis of risk in small banks (many of which are considered the most vulnerable) is hampered by lack of publicly available data and access to supervisory data. In addition, the authorities did not share institution-specific exposures to LGFV and property developers—which present the most conjunctural risk.” In recent months, Beijing has increasingly restricted information on the state of the real estate market by blocking the release of once publicly available sales data. This decision came right after the statistics for October showed the largest decline in home sales in eighteen months. Since last month, censors have also begun scrubbing social-media posts deemed “doom-mongering” about the real estate market and housing policy.

Chinese officials insist—including in their response to the IMF findings—that banking risks are well under control. And in the long run it is conceivable that the bureaucracy will muddle through and eventually restore a measure of stability to the property sector. But even in that best-case scenario, the likely outcome is a prolonged drag on the financial system and the broader economy.

Recent government plans do, for the first time, broach the possibility of developer bankruptcies, but they largely sidestep how the authorities intend to confront the full scale of household and institutional property losses. The Dallas Fed study draws an explicit comparison to Japan’s real estate-driven debt crisis of the 1990s, warning that “when there are few constraints on rolling over bad loans, the inefficient allocation of capital can lead to decreased productivity.” Similarly, Harvard economist Kenneth Rogoff—co-author of the definitive book on financial crises—and IMF economist Yuanchen Yang see troubling parallels with past episodes of financial instability. “Like many other countries in the past,” they write, China “too is facing the difficult challenge of countering the profound growth and financial effects of a sustained real estate slowdown.”

Even if the shockwaves from China’s collapsed property bubble eventually recede, the task of rebuilding will be daunting. It requires not only replacing a major pillar of Chinese economic dynamism, but also the revitalization of homeowners’ deeply damaged sense of financial security.

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

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To boost Venezuela’s economic recovery, the US should lean into Colombia

Enrique Millán-Mejía — Wed, 28 Jan 2026 14:49:48 +0000

WASHINGTON—The recent arrest of Nicolás Maduro following a US-led operation has created a fundamentally new geopolitical scenario in Latin America. Beyond its political symbolism, the event may mark the beginning of a structural reconfiguration of Venezuela’s economy, particularly its energy sector, which has historically been the backbone of the country’s productive capacity and external revenues.

After years of production collapse, underinvestment, infrastructure degradation, and international sanctions, any meaningful economic opening in Venezuela would require a large-scale reconstruction effort. This would encompass not only oil fields, refineries, and export infrastructure, but also electricity, transportation, logistics, and basic public services. The magnitude and complexity of this task suggest that the United States, while central to any reconstruction framework, will need reliable regional partners with operational experience, market knowledge, and logistical proximity.

The role Colombia can play

Within this context, Venezuela’s neighbor Colombia emerges as a potentially critical partner, despite recent diplomatic frictions between Washington and Colombian President Gustavo Petro. Colombia’s relevance is grounded less in political alignment and more in structural and economic factors that make it uniquely positioned to support a Venezuelan recovery process. A recent example is the unexpected call between Petro and US President Donald Trump, which official readouts described as constructive. The conversation reportedly paved the way for an official visit by the Colombian president to the White House on February 3, with Venezuela’s economic recovery and cross-border security coordination among the issues slated for discussion.

First, Colombia has functioned for years as a regional operational hub for US and multinational firms with historical exposure to Venezuela. Following Venezuela’s economic collapse, many of these companies relocated personnel, assets, and regional headquarters to Colombia, maintaining limited but continuous engagement with Venezuelan markets. In a scenario of gradual liberalization, Colombia could serve as a low-risk platform for re-entry.

Second, geographic proximity and existing transport links give Colombia a natural logistical advantage. These connections significantly reduce transaction costs for the movement of raw materials, machinery, equipment, and technical personnel required for reconstruction efforts, positioning Colombia as a gateway economy rather than a direct competitor.

Third, Colombia’s productive structure complements US industrial capabilities. Its intermediate manufacturing base and professional services sector, spanning food processing, chemicals, textiles, electrical equipment, engineering, and logistics, could integrate into binational or trinational value chains supporting Venezuela’s recovery.

Fourth, Colombia’s long-standing Free Trade Agreement with the United States provides a stable regulatory framework for US firms operating from Colombian territory. This legal certainty reduces investment risk and facilitates the structuring of supply chains linked to Venezuelan projects.

Recent trends in Colombia–Venezuela trade reinforce this potential. Despite political volatility, bilateral commerce has rebounded, with Colombian exports reaching almost one billion dollars in 2024, led by food products and manufactured goods. This recovery suggests that commercial channels can expand rapidly if political and security conditions improve.

Constraints and risks ahead

Despite these advantages, Washington faces legitimate concerns regarding Colombia’s reliability as a strategic partner. The Petro administration’s foreign policy signals, domestic political dynamics, and perceived ideological proximity to certain Venezuelan actors introduce uncertainty into long-term planning.

More critically, border security remains a binding constraint. The Colombia–Venezuela border has long been characterized by weak state presence and the activity of nonstate armed actors, including the National Liberation Army (ELN), Revolutionary Armed Forces of Colombia (FARC) dissident groups, and criminal organizations involved in narcotics trafficking and smuggling. Without credible improvements in territorial control, any reconstruction strategy involving Colombia would face elevated operational and reputational risks.

From a US policy perspective, meaningful Colombian participation would likely require demonstrable progress in border governance. This includes expanded military and law enforcement presence, improved intelligence-sharing, and the deployment of advanced surveillance and cybersecurity capabilities, potentially supported by US assistance. Enhanced maritime control could further strengthen confidence among private investors, as well.

What’s in it for Washington

If these constraints are addressed, then closer US–Colombia coordination could yield substantial strategic benefits:

It would lower barriers to private investment in Venezuelan reconstruction, enabling US and Colombian firms to participate in energy rehabilitation, infrastructure development, logistics services, and light manufacturing.
It would expand US exports to northern South America, particularly in high-value sectors such as pharmaceuticals, technology, agribusiness, and professional services, reinforcing US economic influence in the region.
It would facilitate the reactivation of regional value chains that historically linked Venezuela, Colombia, and the Caribbean, enhancing overall regional productivity and resilience.

Venezuela’s reopening represents one of the most consequential opportunities in Latin America in decades. Realizing this opportunity will require not only political change in Caracas, but also a coordinated regional strategy anchored in security, institutional credibility, and economic integration.

Colombia can serve as a pivotal intermediary in this process, not as a substitute for US leadership, but as a regional platform that reduces costs, mitigates risk, and accelerates implementation. For US policymakers, the central question is not whether Colombia should play this role, but under what conditions and with what safeguards. Clear benchmarks on security and governance will be essential to transforming potential alignment into a durable strategic partnership.

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The ‘mother of all’ trade deals in the time of Trump

Frederick Kempe — Wed, 28 Jan 2026 12:00:00 +0000

Indian Prime Minister Narendra Modi and European Commission President Ursula von der Leyen have both dubbed their new trade agreement as “the mother of all deals.” Whatever you want to call it, it is one of the most dramatic markers yet of how the global system is reorganizing itself in the time of Trump.

For decades, Brussels and New Delhi circled each other with caution—too many regulatory barriers, too much agricultural protection, and too little urgency held them apart. What brought down the obstacles, a senior Indian official told me as their negotiations advanced, was above all US President Donald Trump and the upset on both sides about his tariffs.

“The EU-India trade deal is part of the European Commission’s diversification strategy, which is a direct response to increasing pressures from the United States and China on the global trading system,” writes Jörn Fleck, senior director of the Atlantic Council’s Europe Center, in a smart roundup of expert reaction.

Michael Kugelman, senior fellow for South Asia at the Atlantic Council, adds, “With all the strain and uncertainty that characterize India’s ties with Washington, the EU is a logical space to embrace.” Kugelman points to shared EU-Indian interests, including the need to counterbalance China, and the fact that France and Germany are already among India’s leading trade partners.

The deal—covering trade, investment, digital rules, supply chains, climate standards, and technology—also reflects a shared EU-India conclusion: the United States may still be an indispensable economic and political partner for both of them, but it has at the same time become an increasingly unpredictable one. Both sides, for now, have given up on the notion that Washington can anchor the global trading system. It was time to look hard for alternatives.

Together, the EU and India are building something that looks less like old globalization and more like what comes next: large, values-adjacent economies knitting themselves together to hedge against volatility from all sides—China’s product-dumping scale, the United States’ tariff-tinged uncertainties, and, from Europe’s side, Russia’s geopolitical volatility.

What makes this moment an inflection point is that the gravitational center of global trade architecture, once greatly determined by the United States and its democratic allies, is shifting, but where it lands is uncertain. Today, the United States talks more about deal leverage than global leadership. Europe and India are adapting, having learned that excessive dependence invites risk and diversification breeds resilience.

The Atlantic Council’s Mark Linscott, who served as assistant US trade representative for South and Central Asian Affairs, scoffs at talk about the “mother of all trade deals” as hyperbolic. “The results are incomplete and will require follow-up action,” he writes, noting that both sides set aside the most complicated issues to close the deal in time for von der Leyen’s visit on India’s Republic Day this week. His analysis is worth reading.

Still, concludes Linscott, “When two of the biggest economies of the world agree to eliminate a significant proportion of their trade barriers . . . governments and stakeholders around the world should take notice.”

No one should take more notice than Trump, whose tariffs on Europe and India without any doubt have been the accelerator for this deal. It’s time to start tallying up the unintended consequences of Trump’s trade policies, and whether the result will be more or less American influence and revenues globally.

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

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

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The India–EU trade deal is worth watching, but not overhyping

Mark Linscott — Tue, 27 Jan 2026 20:51:03 +0000

WASHINGTON—References to the “mother of all deals” are a clear case of political hyperbole, but there should be no doubt that the India–European Union (EU) free trade agreement (FTA) warrants attention. When two of the biggest economies in the world agree to eliminate a significant proportion of their trade barriers, particularly at a time when almost any trade deal captures news headlines, governments and stakeholders around the world should take notice.

The EU and India have been at this negotiation for roughly two decades, although with several long pauses. This negotiating duration is the clearest indicator of how complex and difficult it was to conclude this agreement. The United States and the EU have their own failed experiment in the form of the Transatlantic Trade and Investment Partnership (TTIP), which collapsed after several years of negotiations during the Obama administration.

But observers also shouldn’t rush to conclusions about the deal redirecting global trade, speeding up economic integration, or jump-starting economic growth. In the end, the India–EU FTA may have only a modest impact using all these yardsticks.

More to follow

First things first: The results are incomplete and will require follow-up action. Many of the early press reports breezily skip through this reality. As forecast by both sides in the closing months of negotiations, there will be unfinished business to attend to soon after the signing ink is dry. It’s always the most sensitive issues that take the longest, and India and the EU have conveniently set some of these aside in the rush to conclude an agreement in time for the bilateral summit and European Commission President Ursula von der Leyen’s visit on India’s Republic Day.

For example, there are likely to be follow-up negotiations on agriculture, intellectual property rights, and the EU’s Carbon Border Adjustment Mechanism, among other issues. That said, the fact that there is unfinished business should not diminish the accomplishment of reaching agreement on preferential tariff schedules and a large number of detailed rules chapters, such as Technical Barriers to Trade.

Additionally, each trading partner must jump through domestic approval hoops. In the case of the EU, that involves obtaining a “qualified majority” (essentially, a double majority of member states and the represented population) through the Council of the European Union and separate approval from the European Parliament.

Acknowledging the limits

The India–EU FTA will not significantly alter existing supply chains, although it can make the India–EU ones more resilient. Nor is it likely to result in trade diversion from other major trading partners. Although the FTA will include a number of new disciplines for persistent and difficult non-tariff barriers, the headline numbers from the announcement will be tariff reductions on both sides. In fact, EU tariffs are already low in general, and the benefits to India in those sectors where EU tariffs are high may be offset by the EU’s action earlier this month to eliminate preferential treatment for India under its Generalized System of Preferences (GSP) program. For example, the GSP program kept India competitive with the likes of Bangladesh in the EU market for textiles and apparel. Now, the FTA may simply replace a low GSP tariff with a new bilateral FTA tariff.

For the EU, its benefits from tariff reductions are likely to emerge slowly, and transition periods for tariff reductions suggest that there will not be immediate substantial increases in exports. That said, an FTA provides a degree of certainty, stability, and predictability in market access that is absent with no trade agreement in place. Existing supply chains between the EU and India can be reinforced in the short term and even grow over the longer term.

The view from Washington

While the agreement may be interpreted as a response to the Trump administration’s tariffs and tariff threats, there is no reason it should undermine the US trade relationships with either the EU or India. Indian and EU trade negotiators have been pushed to their limits by the agendas of political leaders and responded impressively, even in orchestrating work-arounds in areas, such as geographical indications and sustainability commitments, that have long been part of the immutable template for EU FTAs with other countries.

No doubt, journalists and many other commentators will pronounce cause and effect between the Trump administration’s tariffs and the India-EU FTA, but the history of the negotiation suggests otherwise. The current push to the finish line actually began during the Biden administration. While the Trump administration’s predictable unpredictability on tariffs has been important context for the accelerated timetable, the EU and India have long understood the economic and strategic value of striking a substantial trade deal between the two of them.

The EU–India deal could even light a fire under efforts to conclude a US–India trade deal and help to move negotiations forward on a comprehensive bilateral trade agreement, as US President Donald Trump and Indian Prime Minister Narendra Modi discussed last year.

Time will tell how consequential this FTA will be. It seems unlikely that it will be as transformational as the US-Mexico-Canada Agreement and its predecessor, the North American Free Trade Agreement. However, that does not mean it won’t eventually be viewed as a game changer as the rules-based order, in the form of the World Trade Organization, continues to decline in relevance and new structures emerge to fill the vacuum.

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The EU and India are creating a free trade area of two billion people. What’s next?

Atlantic Council experts — Tue, 27 Jan 2026 18:37:19 +0000

The superlative description—“the mother of all deals”—is unmistakably Trumpian, but it didn’t involve the United States. On Tuesday, Indian and the European Union (EU) leaders announced the completion of a major trade deal. “We have created a free trade zone of two billion people, with both sides set to benefit,” European Commission President Ursula von der Leyen said in a statement that also included the description above. “It represents 25 percent of the global [gross domestic product] and one-third of global trade,” Indian Prime Minister Narendra Modi added. Below, Atlantic Council experts answer five pressing questions about this big agreement.

Why is this deal happening now?

The EU-India trade deal is part of the European Commission’s diversification strategy, which is a direct response to increasing pressures from the United States and China on the global trading system. The turmoil caused by the Trump administration’s tariff policies and China’s unfair trade practices have clearly sharpened minds, increased flexibility, and accelerated both sides’ push to come to a deal after years of stalled negotiations.

—Jörn Fleck is the senior director of the Atlantic Council’s Europe Center. He previously served as chief of staff for a British member of the European Parliament.

***

This deal has been in negotiations, with pauses, for almost twenty years, and there have been several pushes to complete it. So, the agreement is not entirely a response to the Trump administration’s tariffs and trade threats. But clearly, they provided the immediate impetus to get it done now, so that both countries can diversify their trade relationships in response to uncertainty, if not antagonism, from the United States.

The deal will not be entirely easy sledding, since there remain difficult areas to work out, including agricultural market access, geographical indications, and the EU’s Carbon Border Adjustment Mechanism (CBAM). Each side still also has domestic legal processes to complete. Getting major trade deals through the European Parliament has proven challenging, most recently with respect to the bloc’s trade deal with Mercosur. The full story is not yet over.

Still, free trade agreements (FTAs) are difficult to negotiate, and the parties are to be commended for getting this one done.

—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 in the Office of the United States Trade Representative.

***

The real question is: Why didn’t it happen earlier? The two sides have been at it for roughly two decades, and they’ve seen trade negotiators come and go during that period. The latest sprint to the finish actually started during the Biden administration. My take is that both sides have been motivated at top levels in recent years for a host of geopolitical and economic reasons, and the politicians pushed their negotiators to get it done, even if it meant cutting some corners. In the end, it’s truly a consequential FTA, even if I wouldn’t describe it as the “mother of all deals!”

—Mark Linscott is an Atlantic Council nonresident senior fellow on India. He previously served as the assistant US trade representative for South and Central Asian Affairs.

What impact will this have on Europe?

The EU-India trade is first and foremost a strategic win for both partners, having come under increased US and Chinese pressure. The European Commission can clock another political win in its trade diversification strategy, while the Modi government can add to leverage against the US president’s 50 percent tariff punishment.

Economically, the deal will have a modest impact at first. India accounted for only 2.4 percent of EU total goods trade in 2024, small change compared to the US share of 17.3 percent or China’s 14.6 percent. But Brussels hopes to double that piece of the trade pie over the next seven years of implementation, and India agreed to greater tariff reductions than many expected.

India is not only seen as an important growth market for European sectors from autos to machinery and chemicals. Europe also sees the potential in building the softer connective tissue between the combined markets of two billion consumers. Brussels and Delhi are expected to agree to a framework affording greater access to Indian labor and expertise from healthcare to information technology services. European universities are keen to ride recent trendlines and attract more Indian students in science, technology, engineering, and mathematics. And intensifying defense tech and broader technology cooperation with India could reap not just economic but geopolitical benefits for Europe.

—Jörn Fleck

What impact will this have on India?

The deal highlights two significant recent trends in Indian foreign policy. The first is New Delhi’s ongoing push for more trade deals, as India looks to shed its image as an overly protectionist economy. India has signed a series of trade accords in recent years, including with some non-EU European states.

Second, the deal reflects an Indian inclination—at least for now—to pull back from the United States and push more toward Europe. With all the strain and uncertainty that characterize India’s ties with Washington, the EU is a logical space to embrace. They have a wealth of shared interests—from increasing trade to countering China—and the EU includes some of India’s closest partners, including France and Germany. These strong convergences can overcome areas of divergence—from relations with Russia to differences over intellectual property. In effect, this FTA could constitute the opening salvo of an Indian play to broaden its ties with one of its closest commercial and strategic partners, with the United States left on the outside looking in.

—Michael Kugelman is a resident senior fellow for South Asia at the Atlantic Council.

***

India is likely to benefit more concretely in the immediate term, when it starts to see increases in exports, particularly in labor-intensive industries, which were the Indian priority for cementing this deal. However, India just recently lost certain preferential tariff benefits under the EU’s Generalized System of Preferences (GSP) program, which affected important sectors, such as textiles and apparel. The FTA, then, may just substitute new low tariffs to replace the previous GSP ones.

—Mark Linscott

What additional geopolitical implications are there?

The geopolitical consequences of the EU-India free trade deal extend well past economics. During the Cold War, India led an initiative to create a “nonaligned movement” that refused to choose sides between the United States and the Soviet Union. In Davos last week, Canadian Prime Minister Carney sought to revive a similar coalition of “middle powers” that seek to strike pragmatic economic and political alliances with a range of strategic rivals to the United States, starting with China. The EU-India deal fits well within this geopolitical tradition.

It is not clear whether the strategy will succeed. Whether for climate-related reasons (through the CBAM) or for geopolitical responses (through tightening economic sanctions), Europe will likely be just as dedicated as the United States is to weaning India off of Russian oil purchases. The trade deal announced this week suggests that the EU strategy will be to reward climate-friendly initiatives that increase India’s already significant shift to support rooftop solar and electric vehicles, rather than penalize India as the United States has done.

If the positive economic incentives in the trade deal succeed in reducing India’s dependence on Russian oil, it will likely come at a cost: increased dependence on China to supply solar panels and other renewable energy equipment. Thus, over the medium term, the EU trade deal could benefit China and its export-led economy, potentially at the expense of US strategic interests in the Indo-Pacific region.

—Barbara C. Matthews is a nonresident senior fellow at the GeoEconomics Center. She previously served as the first US Treasury attaché to the European Union.

What should the US take away from this deal?

This deal is very consequential, a meaningful destination after a long road, and it will give both Europe and India confidence in their ability to deepen their trade integration outside of the United States.

The United States should similarly take note of the impact of its policies on trading partners’ willingness and ability to deepen their ties with each other. Long term, this will ultimately reduce their reliance on the United States and diminish US leverage in negotiations. But there are also shorter-term consequences for the United States. This is especially true in some areas, like geographical indications, where EU agreements may have a negative impact on the United States’ ability to sell agricultural products abroad using their common names. Additionally, deals that align regulations, such as the EU’s agreement with the United Kingdom, can effectively export EU regulatory barriers to its trading partners.

—L. Daniel Mullaney

***

The United States should not see this agreement as a threat. It’s consequential but not a dramatic game changer—at least not yet. A more important takeaway is that big deals can be done with India as long as there’s some flexibility to accommodate New Delhi’s political sensitivities. India is a democracy, and what voters think about its trade agreements matters. This deal can also provide new momentum to US and Indian negotiators to get their deal done. They really are very close, and the stakes are high.

—Mark Linscott

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Markets, monetary policy, and central bank independence

The GeoEconomics Center — Tue, 27 Jan 2026 15:58:50 +0000

In this episode of Guide to the Global Economy, the Atlantic Council’s GeoEconomics Center team assess the significance of the US Justice Department’s investigation into Federal Reserve Chair Jerome Powell and growing tensions between the White House and the Fed over interest rates, diving into why markets aren’t reacting to the clash and what’s at stake for US economic credibility and the US economy as a whole. They discuss the impacts of Turkish President Recep Tayyip Erdoğan’s latest actions to exercise influence over Turkey’s central bank and whether there are any lessons that US leaders can learn from Turkey’s years-long effort to rebuild credibility.

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About the podcast

Guide to the Global Economy is your go-to podcast for navigating the increasingly busy intersection of global economics, finance, national security, and geopolitics. Through interviews with leading experts and behind-the-scenes insights from the Atlantic Council’s GeoEconomics Center, we break down the storylines that matter most for the global economy—from major news everyone’s talking about to developments few have noticed. These days, if you don’t get economics, you don’t get Washington. From tariffs to crypto to sanctions and beyond, our team is here to guide you. Watch and listen wherever you get your podcasts.

Guide to the Global Economy Podcast

These days, if you don’t get economics, you don’t get Washington. From tariffs to crypto to sanctions and beyond, our team is here to guide you. Watch and listen wherever you get your podcasts.

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

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Inside the biggest Davos debates (other than Greenland)

Josh Lipsky, Alisha Chhangani — Mon, 26 Jan 2026 21:47:35 +0000

DAVOS—This week Davos, Switzerland, returns to being a charming ski town. The shops and restaurants—temporarily rented by every major tech company on the planet to host events and receptions—return to their owners and will soon be filled with tourists on holiday.

But what happened at the 2026 World Economic Forum won’t soon be forgotten. This was the year the forum changed policy. As one attendee told us on her way off the mountain, “Imagine what would have happened this week if Trump didn’t have to meet the Europeans face to face.” It’s an intriguing, if chilling, thought.

While Trump’s speech this past Wednesday and his subsequent decision to backtrack on Greenland threats drove the roller coaster news cycle of the week, there were several other notable moments that may have much longer term—and more important—policy repercussions. Here’s what we saw on the ground:

The two Davoses

Davos is always two different things at once. “Business Davos” is the place where executives huddle in Swiss office buildings negotiating deals far away from the TV cameras. This is, actually, what brings most people to the mountain year after year. That Davos traditionally operated independently from “geopolitical Davos.” That’s the Davos most people are familiar with—leaders from around the world speaking in the Congress Center, and academics, journalists, and think tankers debating on panels.

Most years, those two Davoses can operate in their own spheres. But not this year. Last Monday, as markets swung sharply negative on the Greenland news, business Davos had its eyes glued to the Congress Center. Leaders of some of the largest companies in the world lined up and waited just like everyone else to get a seat. Suddenly, everyone was an expert on Nuuk, the Arctic, and whether military leases were a viable compromise. It was a reminder of a big lesson of the past few years—from the COVID-19 pandemic to Russia’s invasion of Ukraine—that finance and national security are deeply interconnected. In fact, there’s a good word for that—geoeconomics.

The new reality of tariffs

One year ago Davos attendees watched Trump’s inaugural address and then listened to him virtually address the forum. He hardly said the word “tariffs” once between the two speeches, and the delegates decided that his threats during the campaign were just threats. What a difference a year makes. After twelve months of the biggest shock to the global trading system in decades, which left the world facing the long-term prospect of the US economy having a 10 percent or higher tariff rate, reality settled in on the mountain. Gone was the optimistic talk about how deregulation was going to lead to an investment boom. In its place was chatter about finding new trade arrangements with emerging markets, and forecasting what would happen if the Supreme Court rules against Trump in the tariff case.

The risk and rewards of artificial intelligence

Few topics were more in the air in Davos than artificial intelligence (AI). Almost every billboard and storefront had a reference to AI—whether for supply-chain efficiency or content creation. On the surface, businesses wanted to project confidence, with AI positioned as the engine of future growth. But step inside these company events and a different picture emerged. Many featured chief risk officers or chief ethics officers, titles that barely existed a few years ago, grappling with questions around the different types of “risks,” whether those were geopolitical risks, economic risks, or climate risks. There was a stark contrast between the glossy AI optimism outside and the sober risk assessment on the inside of these conversations, and a reminder that for all the promise of growth, the industry knows the hard questions are just beginning.

More than a transatlantic affair

On the main stage and in the global news cycle, this Davos felt like a US–Europe affair. Tariffs announced and abandoned on European allies. French President Emmanuel Macron responding directly. US Treasury Secretary Scott Bessent outlining the health of the US economy. California Governor Gavin Newsom sparring rhetorically with Washington. For audiences watching from afar, it was easy to conclude this was a narrow, transatlantic Davos.

On the ground, however, the picture was far more global. Brazil House, India House, Indonesia House, and a dozen country pavilions were packed with programming all day. A large Pakistani delegation arrived on its own official shuttle bus. Philippines House ran cultural programs, including concerts featuring traditional music, alongside policy panels.

India, in particular, projected quiet confidence. Officials framed the country as a durable pillar of global growth, especially on AI. China maintained a low profile, with Chinese Vice Premier He Lifeng offering brief remarks about Beijing’s willingness to buy more foreign goods and services—a notably muted presence compared to previous years.

Yet the US footprint on the promenade was impossible to miss. The US delegation was one of the largest in Davos, anchored by a sprawling USA House with a dense schedule of events and receptions. From the number of officials and security on the ground to the symbolic bald eagle overlooking the promenade, the message was clear: US influence loomed over nearly every discussion. For all the activity in country pavilions, this remained a global forum shaped by great-power rivalry.

From Canada, a clarion call

Canadian Prime Minister Mark Carney delivered one of the most consequential addresses during Davos, declaring that the post–Cold War rules-based international order is “in the midst of a rupture, not a transition.” Carney argued that great-power rivalry, economic coercion, and unilateral actions by dominant states (not mentioning Trump by name) have weakened longstanding global norms and institutions. He called on middle powers to work together to protect their interests and build new cooperative frameworks rooted in shared values. Simply going along to get along is no longer the answer, he argued. Whether other middle powers respond to that message may be the single most important question from this year’s forum.

Descending the mountain

As delegates packed their bags and headed down the mountain, few were under any illusions. The convergence between business Davos and geopolitical Davos is the new reality. The tightrope that companies are walking is not getting any less precarious. And the question of whether economic cooperation can survive an era of rising geopolitics remains very much unanswered.

Next year’s forum may face these same tensions. The key question is whether the world will have found ways to navigate them successfully or whether the rupture Carney described will have deepened further.

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Africa enters 2026 facing a debt crisis. The answer lies in regional solutions.

Juliet Lancey — Mon, 26 Jan 2026 17:13:08 +0000

Last year’s Group of Twenty (G20) Summit in Johannesburg, the first ever held in Africa, put the continent’s prosperity at the top of the agenda. Accordingly, Africa’s mounting debt crisis featured prominently. Today, many countries on the continent are trapped in a vicious cycle: shocks beyond their borders and domestic economic challenges force higher expenditures despite low revenue, driving increased borrowing amid rising interest rates and falling credit ratings.

But that is just the beginning. As money is paid out to service this debt, it is diverted from social services and the stimulation of economic activity, which can lead to fewer jobs, lower tax revenue, and slower growth. In 2026, borrowing across the continent will continue to rise, and with it, the impact of debt crises on citizens’ lives. What, then, is the state of debt across Africa, and what can be done to address it? With the African Union as a core member, part of this answer may lie with the G20—and the other part, with homegrown strategies.

Understanding debt distress in Sub-Saharan Africa

The situation in the region is, in short, concerning. Currently, twenty-two low-income countries in Sub-Saharan Africa are in or at high risk of debt distress, as designated by the World Bank. This assessment is based on a variety of structural and economic factors and measures a country’s debt-carrying capacity and debt-burden indicators against country-specific thresholds.

But debt is not an abstract concept, and a country that struggles to service its debt faces consequences beyond the disdain of foreign creditors. When a country stops paying, its reputation in global financial markets takes a hit. Large debt obligations may discourage new investment and economic growth—a phenomenon known as debt overhang. In these instances, creditors lose confidence in the country’s ability to repay its debts in full, making it harder to obtain new, affordable financing.

At the same time, a reliance on borrowing leads to a reliance on rating agencies that view African nations as far more risky than local or regional credit agencies suggest. This can cause a country’s ratings to plummet during times of struggle, making it even more difficult for countries to access financing, even as they recover. In other words, heavier debt loads in African nations are associated with weaker sovereign credit ratings, which in turn raise borrowing costs, creating a cycle that makes it harder for countries to stimulate the growth needed to reduce debt in the long run. Today, African nations often face interest rates topping 10 percent, whereas many Group of Seven countries borrow at rates closer to 2 to 3 percent.

Why this debt matters

There are two compelling reasons why debt in Africa warrants particular attention from the global community. The first is that Africa’s debt is largely external. Yes, countries such as Japan and the United States maintain debt-to-GDP ratios much higher than those of Sudan, Guinea, and Malawi. But with debt denominated in foreign currencies, African governments are forced to spend far more on servicing their debt if exchange rates fluctuate and domestic currencies weaken. By contrast, a weaker US dollar can provide breathing room for countries, as their domestic currencies gain value against it.

The external nature of Africa’s debt also makes it difficult to restructure. China has come to the forefront as a creditor for African nations, but its selective participation in international debt relief efforts complicates coordinated efforts to restructure and diminishes the effectiveness of the Paris Club process. African nations have also seen a nearly 15 percent increase in debt held by private creditors from 2010 to 2021—a rate faster than any other developing region—which further complicates efforts to reach restructuring agreements by adding more, differing actors to coordination efforts.

The second reason for paying close attention is that many countries in debt distress are classified as low- or lower-middle income. This presents a significant challenge. Low-income countries are designated as such by the World Bank due to a gross national income below a certain threshold. Low income leads to a lowered ability to fund social services and infrastructure, which is particularly harmful for countries that are already fiscally constrained by high debt loads, limiting their ability to deliver services to their citizens. In fact, according to the United Nations Conference on Trade and Development, more than half of Sub-Saharan Africa’s population lived in countries that spent more on interest payments than on education and health in 2023.

The impact of the global community—and its limits

Let’s go back to Johannesburg for a moment. As a high-level convening body, the G20 mostly engages in agenda-setting through acknowledgments and rhetoric regarding debt conversations. During the last summit in late November 2025, host nation South Africa highlighted debt sustainability as one of its four core priorities—a focus reflected in the G20 Leaders’ Declaration. By elevating this notion to the global stage, the G20 moved debt higher up on the agenda.

Moreover, the G20 has considerable convening power. Through its G20-Africa High-Level Dialogue on Debt Sustainability, which was held two weeks before the G20 Summit itself, the G20 brought together finance ministers, central bank governors, and African Union officials to identify practical solutions to excessive debt burdens. Additionally, the Africa Expert Panel on Debt—composed of senior African economic and financial leaders—produced a report on a new debt refinancing initiative and a borrower’s club for debtor countries.

The G20 is also capable of taking action through concrete measures and critical commitments—though this has proved the exception rather than the rule. In May 2020, for instance, the G20 implemented the Debt Service Suspension Initiative (DSSI), which suspended $12.9 billion in debt-service payments for eligible countries to allow governments to focus resources on saving lives and adapting rapidly to the COVID-19 pandemic. Of the seventy-three low-income countries eligible for the pause, only forty-eight participated in the initiative before its expiration in December 2021—accounting for just a quarter of the debt the G20 initially pledged to suspend.

Following the DSSI, the G20 established the Common Framework for Debt Treatments, aimed at providing coordinated debt relief for countries facing unsustainable debt by bringing together official bilateral creditors and requiring comparable treatment from private creditors. The initiative coalesces creditors in a so-called “official creditor committee” before negotiations with private creditors, acknowledging the changing creditor landscape beyond the Paris Club. But so far, only four countries have made requests for debt relief under the framework. And criticism is loud regarding its slow pace, procedural complexity, insufficient debt relief, and its preference for debt reprofiling over outright reduction.

The Common Framework for Debt Treatments requires urgent reform to account for the mismatch between lengthy restructuring timelines and the urgent need for immediate financing, as well as China’s role in debt negotiations. To address debt sustainability over the long term, discussions must shift focus from debt levels alone to the structural features of domestic economies and the international financial system that transform manageable debt into distress.

At last year’s G20 Summit, broad acknowledgment of the mounting debt crisis marked a step in the right direction, but commitments on debt remained largely rhetorical. While much was said about the issue, actionable steps proved elusive. With limited enforcement mechanisms and a reliance on consensus, the G20 is only as strong as the collective commitment behind it, and the lack of reform to its own processes left many observers disappointed.

Debt relief requires growth and homegrown strategies

To address the debt crisis, the answer cannot just be to spend less money. After all, it is nearly impossible to reduce debt through austerity measures alone. The G20, led by the African Union, must prioritize growth in countries facing debt distress, and a first step toward this is economic diversification.

As shown in the graph below, many countries in debt distress already struggle to sustain economic growth due to high levels of commodity dependence. While commodity exports are not inherently bad for growth, reliance on energy, agricultural, or mining exports exposes economies to volatile international prices that are largely beyond national control. When prices surge, revenues increase. When they fall, however, growth slows—and in the worst cases, economies can tip into recession. This dynamic played out between 2013 and 2017, when falling commodity prices triggered slowdowns in sixty-four commodity-dependent countries. For countries already in debt distress, stimulating growth precisely as revenues decline poses a particularly acute challenge.

For a country such as the Republic of the Congo, for instance, where 94 percent of exports are commodities, debt repayment is complicated not only by exchange-rate volatility but also by exposure to commodity price shocks that undermine steady growth.

Efforts have also focused on addressing the economic extractivism that has plagued African nations by shifting toward domestic processing and reducing reliance on raw-material exports—particularly as debt-servicing costs rise faster than countries’ ability to acquire foreign currency.

Against this backdrop, African leaders remain confronted with politically unpopular choices, including austerity measures and tax increases—decisions that risk deepening domestic grievances amid already difficult economic conditions. Yet continental and regional institutions have begun advancing strategies to foster growth, generate wealth, and build a financial architecture better suited to a rapidly developing continent.

African nations are not poor—and they are far from monolithic. Across the continent, countries continue to grapple with their own unique political, economic, and social dynamics; however, there exists immense human-capital, natural-resource, and infrastructure potential. As debt outpaces growth and shrinking fiscal space threatens progress, the solution to debt crises in African nations lies in global and regional cooperation. The G20 must support the African Union as it steps up to help countries manage and service their debt and must listen to homegrown strategies related to credit rating and growth promotion to secure a more stable and prosperous future.

Development needs remain urgent—and shortfalls in funding for health, education, and social services continue to impact citizens’ everyday lives. The global debt system must shift away from prioritizing wealthy lenders over the development and well-being of citizens. As African governments and regional institutions continue working to reduce heavy debt burdens and promote sustainable growth, the international community must listen to—and act on—the reforms and recommendations emerging from the continent, ensuring countries are not forced to choose between paying for the past and investing in a better future.

Juliet Lancey is a consultant and a former young global professional with the Atlantic Council GeoEconomics Center.

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At Davos, Trump’s ‘shock therapy’ leaves Europe shaken but healthier

Frederick Kempe — Sun, 25 Jan 2026 12:00:00 +0000

A senior European official, who was in Davos this past week for the World Economic Forum, refers to US President Donald Trump’s approach to Europe as “shock therapy.” After enduring several tough doses in the first year of Trump’s second term—on Ukraine, on tariffs, on Europe’s so-called “civilizational erasure,” and then on Greenland—the patient’s condition is shaken, the official says. But it is stronger.

I asked this European official for further explanation. Shock therapy, after all, is more commonly a description of electrical currents treating mental illness than a theory of international affairs. In the context of European-US relations in 2025 and 2026, he said, shock therapy refers to the “rapid, disruptive, and painful transitions” forced on Europe by Trumpian jolts to the traditional transatlantic security and trade partnership.

Europe isn’t enjoying the treatment, he said, but it is responding to it—more consequentially with every shock. Europeans have long spoken somewhat helplessly about the chronic conditions they suffer: a lack of economic competitiveness, an inability to provide for their own security, and insufficient political unity. Together these conditions have resulted in the continent’s inability to translate the weight of its 450 million people, $22 trillion-plus gross domestic product (GDP), and advanced market into geopolitical heft.

This diagnosis hasn’t changed. But European leaders now recognize that, in the face of Trump’s United States, the continent must fundamentally treat its maladies or further surrender global relevance. What’s also changed for Europe is a growing recognition that it can no longer rely on the post–World War II global order, whose institutions and rules provided the safe context for the creation and growth of the European Union (EU).

Trump’s dramatic climbdown this week from his ultimatum that Europe either give him Greenland or face tariffs had many sources, ranging from market jitters over EU countermeasures and congressional opposition to a lack of popular American support. Most significant in Europe was that it triggered greater unity among the EU’s twenty-seven members against Trump, even among the right-wing parties that usually back him, than at any time previously.

Even after the immediate crisis was defused in Davos on Wednesday, EU leaders still met at an emergency summit in Brussels on Thursday. The Atlantic Council’s Jörn Fleck and James Batchik write about how that meeting signaled “a quiet yet dogged determination . . . to strengthen Europe’s ability to withstand US pressure in any future scenarios.”

If this change is permanent

It took a Canadian in Davos to best describe the abrupt changes unsettling European countries—and other nations that he referred to as middle powers. “We are in the midst of a rupture, not a transition,” said Prime Minister Mark Carney. Great powers, he continued, “have begun using economic integration as weapons, tariffs as leverage, financial infrastructure as coercion, supply chains as vulnerabilities to be exploited.” His conclusion: “You cannot live within the lie of mutual benefit through integration, when integration becomes the source of subordination.”

However, it was European Commission President Ursula von der Leyen who captured the historic moment at Davos for a continent whose current boundaries, ideologies, and collaborative structure have been forged by the previous shocks of World War I, World War II, and the Cold War. Where she agreed with Carney, without mentioning Trump by name, is that his administration is sweeping away the nostalgia of common cause that has helped hold together the transatlantic alliance for eight decades.

“Of course, nostalgia is part of our human story. But nostalgia will not bring back the old order,” she said in a speech less celebrated than Carney’s but just as consequential. “And playing for time, and hoping that things will revert soon, will not fix the structural dependencies we have. So, my point is, if this change is permanent, then Europe must change permanently, too.”

The will to match the ambition

What many in the Trump administration have missed, with their focus on Europe’s weaknesses, is that the EU has been seizing upon the Trump moment for new trade deals. Von der Leyen came to Davos from Paraguay, where she signed the EU-Mercosur trade agreement, through which the EU and Latin American countries have created what she called “the largest free trade zone in the world, a market worth over 20 percent of global GDP; thirty-one countries with over 700 million consumers.”

Her next lines were aimed at Trump, without naming him. “So, this agreement sends a powerful message to the world that we are choosing fair trade over tariffs, partnership over isolation, sustainability over exploitation, and that we are serious about de-risking our economies and diversifying our supply chains.”

For those paying attention, that was something new. De-risking has been a term that Europe has associated with China until now, but in Davos this past week European political and corporate leaders increasingly applied it to the United States. A few US companies complained privately in Davos that European officials cancelled meetings—presumably to send a message. US companies with big business and investments in Europe sound more alarmed than ever that their European partners will look for ways, wherever they can, to operate without them. One US business leader told me that EU regulators are talking openly about more aggressively reducing their reliance on US technology, social media, and payment giants over the next three to five years.

Though misgivings about dealing with China remain substantial, European leaders believe they must hedge, if only to signal to Washington that they have alternatives. As evidence of this, European leaders are lining up to visit Beijing to drum up business. Carney was there just before Davos. British Prime Minister Keir Starmer and German Chancellor Friedrich Merz will each visit in the coming days. French President Emmanuel Macron, who visited China in December, said in Davos that Europe needs to seek more Chinese foreign direct investment.

In her Davos speech, von der Leyen spoke about new trade agreements in the past year alone with Mexico, Indonesia, and Switzerland (while Trump has been slapping tariffs on them) and a new arrangement soon with Australia. The EU is also “advancing,” she said, with the Philippines, Thailand, Malaysia, and the United Arab Emirates. This weekend, she is in India, whose officials prioritized the EU after Trump’s tariff hit on them.

“There’s still work to do, but we are on the cusp of a historic trade agreement” with India, von der Leyen said. Then, channeling Trump-like language that no EU leader would have used previously, she said, “Indeed, some call it the mother of all deals. One that would create a market of two billion people, accounting for almost a quarter of global GDP and, crucially, that would provide a first-mover advantage for Europe with one of the world’s fastest-growing and most dynamic countries.”

At the same time, European Union countries have launched a surge in defense spending of some €800 billion through 2030. That pledged surge, von der Leyen said, had helped triple the market value of European defense companies since January 2022, making them one of the best global investments anywhere in that time.

“All of this would have been unthinkable even a few years ago,” she said. “This now only shows how economy and national security are more linked than ever, but also what we can do when Europeans have the will to match the ambition.”

Interrupting the equilibrium

One of the other quiet takeaways from Davos was just how serious European policymakers are about economic integration. “The long-debated savings and investment union is now on a fast track, and Trump is a major factor,” says Josh Lipsky, chair of international economics at the Atlantic Council, who was in Davos this past week. “The stark realization that the US can’t always be relied on as an economic partner put new urgency in the minds of every finance official. I expect this is finally going to get done.”

NATO Secretary General Mark Rutte, the European who negotiated the deal that defused what might have been the worst transatlantic crisis in decades, gave Trump credit in Davos for a more determined Europe. “I’m not popular with you now because I’m defending Donald Trump,” he said, “but I really believe you can be happy that he is there. He has forced us in Europe to step up.” He added, “Without Donald Trump, this would never have happened.”

Whether Europe’s new steeliness endures beyond Davos remains to be seen. As a life-long Atlanticist, one who runs an institution dedicated to shaping the global future alongside US partners and allies, I regret the nature of the therapy but hope the eventual outcome will be a stronger and more confident Europe within a restored and resurgent transatlantic community, one up to the challenges of the coming century.

One can only hope that it won’t require an ever more severe shock to get there, more than likely administered by autocratic powers such as Russia and China, sensing a moment of opportunity provided by weaknesses among democratic allies.

Shock therapy succeeds in medicine not because it heals but because it interrupts a potentially fatal equilibrium and creates a window for recovery. Applied to Europe, Trump’s shock has broken decades of strategic complacency and forced long-postponed decisions on defense, trade, and autonomy. Both in medicine and politics, a jolt can restart the system, but only sustained care determines whether it survives.

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

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

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2026 will be a big year in the Western Balkans. Here’s what to watch.

Amanda Thorpe, Stuart Jones — Fri, 23 Jan 2026 21:07:45 +0000

WASHINGTON—The past year was a dynamic one for transatlantic relations, and the Western Balkans were no exception. In 2025, countries in the region continued to look to the United States, the European Union (EU), and each other for increased economic investment, expanded infrastructure connectivity, and greater regional stability. At the same time, Washington delivered several mixed signals about the scope and durability of its future engagement with Europe, while Brussels remained ambiguous about the timeline for EU accession for several Western Balkan countries.

If the trends evident in 2025 persist into the year ahead, then Western Balkan countries may increasingly need to assume greater agency in shaping their own trajectories. What follows is an overview of key developments in the past year and the issues to watch in the year ahead in this important region.

Bosnia and Herzegovina

For Bosnia and Herzegovina, 2025 was in part about looking to the past, as leaders marked the thirtieth anniversary of the US-brokered Dayton Peace Agreement that ended the Bosnian War. There were several notable commemorations of the anniversary, including in Dayton at the NATO Parliamentary Assembly Spring Session, as well as in Sarajevo and Washington. These events were marked by gratitude but also uncertainty over the country’s future. The agreement was never intended to be Bosnia and Herzegovina’s lasting constitutional framework, but it has served that function for the past three decades.

The past year also raised questions about the future, with the White House and Congress bringing a sense of uncertainty to this region by sending mixed and, at times, conflicting signals. Take, for example, the Western Balkans Democracy and Prosperity Act, which was attached to the Fiscal Year 2026 National Defense Authorization Act and signed into law in December. The act calls for sanctions on those who have “undertaken actions or policies that threaten the peace, security, stability or territorial integrity of any area or state in the Western Balkans.” But just weeks earlier, the US Treasury lifted sanctions on Milorad Dodik, Republika Srpska’s Kremlin-friendly former leader, as well as his associates, even though he has long threatened secession from Bosnia and Herzegovina.

More broadly, the 2025 US National Security Strategy (NSS) cast doubt on the US commitment to Europe going forward. If the United States reduces its engagement and presence in Europe, then Bosnia and Herzegovina, which has relied on international support since the 1990s for its institutional stability and capacity for effective governance, could be affected. Furthermore, the NSS created more than slight anxiety in Europe with the veiled threat of US intervention in domestic European politics.

As it adjusts to any US changes in the year ahead, Bosnia and Herzegovina should also advance its own agenda. Sarajevo should, for example, aim to advance major constitutional reforms and demonstrate its ability to complete major infrastructure projects. One such project that will test Bosnia’s capacity for governance is a proposed US-Bosnia southern interconnector pipeline, which would reduce the country’s dependence on Russian energy by importing gas via Serbia, terminating in Croatia. The pipeline is perhaps the best near-term example of a project that, if properly structured, can strengthen Bosnia’s institutions and take account of ethnic minority concerns but not be beholden to their demands.

Serbia

Serbia has been rocked by student protests since November 2024, when a railway station canopy collapsed in Novi Sad, killing sixteen people in what the protesters view as a preventable tragedy resulting from state corruption. Whether the protesters will be successful in their demand for early elections is uncertain, though President Aleksandar Vučić has publicly alluded to the possibility.

While the EU has long shown greater patience with Vučić than many in Serbia may have hoped, the bloc’s statements in 2025 were increasingly stern regarding Belgrade’s arguably antidemocratic handling of the protests. Expect this European concern to continue in 2026 should Vučić fail to meaningfully address these protests and their underlying causes. However, Washington’s perspective toward Belgrade may diverge from that of Brussels, as the Trump administration in September 2025 committed to a new US-Serbia strategic dialogue, which signals a willingness to find common ground and work together.

Another key issue to watch in 2026 is Serbia’s move to force Russian state oil company Gazprom to divest from the Naftna Industrja Srbje (NIS) refinery in Pančevo after it became the target of US energy sanctions on Russia in October 2025. Removing Gazprom’s control from NIS is critical for Serbia’s energy and security agenda. Failure to divest would allow Russia to continue its effective control of Serbian energy and keep Serbia in US and European crosshairs when it comes to energy sanctions. Washington gave Serbia until March 24 to find an alternate owner; Hungary’s MOL Group on January 19 reached a provisional agreement to buy Gazprom Neft’s majority stake.

Albania

Albania will likely continue to make headlines in 2026 as one of the frontrunners for EU accession alongside Montenegro, and hopes are high in Tirana that it could finish negotiations by 2027. Albania is also preparing to host the 2027 NATO Summit.

However, corruption scandals among Albania’s governing elite threaten to stall the country’s accession progress. Last year, Tirana Mayor Erion Veliaj was convicted of corruption and money laundering, and corruption charges against former Deputy Prime Minister Belinda Balluku led to her temporary removal from office. Further, the National Agency for Information Society (AKSHI), the government’s main digital and information technology body, is under investigation for allegedly rigging public tenders.

These developments underscore Albania’s corruption challenge and the deepening contest between the country’s anti-corruption institutions and its entrenched political and economic interests. While Prime Minister Edi Rama’s negotiations with the EU have been effective, these recent scandals will put his government under more pressure from Brussels and could potentially slow the country’s accession timeline.

Kosovo

Prime Minister Albin Kurti has presided over an increasingly calcified caretaker government and worsening relations with Washington. In September 2025, the United States suspended the US-Kosovo strategic dialogue, the key platform for US engagement with Pristina. According to the Trump administration, it suspended the dialogue for two reasons: First, Kurti’s government failed to make measurable progress toward creating an Association of Serb Municipalities in northern Kosovo, one of the terms of the 2023 EU-brokered Ohrid Agreement between Pristina and Belgrade. Second, Kurti has proved unable to form a governing coalition after his party’s electoral victory last February.

In the aftermath of snap parliamentary elections this past December, Kurti’s Vetevendosje party will still need the support of coalition partners to form a government, but his increased share of seats in the new parliament will make this easier than after the parliamentary election in February 2025. The upcoming presidential election in March of this year will be another opportunity to help end the political paralysis in Pristina. The incumbent president, Vjosa Osmani, who is known for her positive efforts to align and cooperate with the international community, is running for reelection.

Montenegro

In 2025, Montenegro drew closer to Europe, expanded economic development, and strengthened its security and defense posture. It closed multiple EU accession chapters, welcomed a European Investment Bank office, and contributed to NATO and European efforts to push back on Russian aggression in Ukraine.

Among Western Balkan countries, Montenegro is widely seen as the frontrunner for the next EU accession. While the European Commission’s reports on the Western Balkans in 2025 highlighted more challenges than cause for praise, Montenegro continues to advance structural reforms, increase investment opportunities, and modernize its military capabilities. The next EU Enlargement Package, expected in late 2026, will be another opportunity for Brussels to assess Podgorica’s progress.

Looking ahead, Montenegro will likely continue to project a European and regional leadership role. In June, it will host the EU-Western Balkans Summit, which focuses on EU enlargement and accession. And throughout 2026 Montenegro will chair the meetings and events for the Berlin Process, the German-led initiative advancing economic integration in the Western Balkans. Beginning in November, it will also chair the Committee of Ministers of the Council of Europe, an influential post enabling Montenegro to set the Council of Europe agenda, promote initiatives, and provide leadership on sensitive political issues.

North Macedonia

North Macedonia made incremental, if limited, progress toward EU accession in 2025. According to the 2025 Enlargement Package report, North Macedonia made some gains in rule of law, public administration reform, and the functions of democratic institutions. However, Skopje continues to hold an understandably pessimistic view of the EU accession process as driven more by political leverage than technical sufficiency.

In 2019, the country implemented the Prespa Agreement, changing its official name to the “Republic of North Macedonia” in exchange for Greece dropping its threat to veto Skopje’s accession. But North Macedonia is still bound by a 2022 agreement levied by the French adding additional requirements to overcome Bulgarian concerns by amending its constitution to recognize the Bulgarian minority in the country.

The results of the municipal runoff elections in late 2025, including in Skopje, solidified the political momentum behind Prime Minister Hristijan Mickoski. Given this momentum, Skopje is unlikely to make the unpopular changes to its constitution in the year ahead. While the political instability in Bulgarian does not help, as snap parliamentary elections will be held in early 2026 for the eighth time in five years, there is little prospect of significant changes or willingness to move on this issue in North Macedonia.

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Trump may move on from Greenland. Europe won’t.

Jörn Fleck, James Batchik — Thu, 22 Jan 2026 23:23:14 +0000

WASHINGTON—Relief and exasperation may have been the initial reactions across European capitals as US President Donald Trump folded the cards on his Greenland gamble from Davos on Wednesday. NATO Secretary General Mark Rutte excelled once again as the unrivaled Trump whisperer, helped by a combination of financial market jitters and an unexpectedly united Europe holding its ground. Rutte’s framework deal with Trump, however scarce the details, seemed to vindicate those arguing for Europe to “engage, not escalate” with the US president.

But a day after the news of the Arctic deal from the Alps, the mood among European policymakers is shifting away from mere relief. It was Trump who threatened to remember if he didn’t get his way on Greenland, but it is the Europeans who will remember this dispute even as Trump moves on. Few are celebrating the de-escalation because of how pointless and reckless they view this latest test of the Alliance’s credibility and cohesion. And because they know it’s likely only a temporary reprieve and hardly the last transatlantic crisis they can expect from this US administration. As a result, a quiet yet dogged determination is emerging to strengthen Europe’s ability to withstand US pressure in any future scenarios brought on by a US president who is seen as unpredictable, if not erratic. In a sign of the impression the last few days and weeks have left, European Union (EU) leaders still met at a special summit in Brussels on Thursday despite the immediate issue having been defused.

Trump’s speech in Davos made an impression on European decision makers. The US president appeared to be setting the terms for negotiations, forcing Europe to choose between acquiescing on his acquisition of Greenland and maintaining US support for NATO. While doing away with any potential military action, Trump outlined a nebulous rationale of US control of Greenland: No one else could supposedly defend it, and the United States needed it to protect against adversaries. He reminded Europeans of their dependencies on the United States from energy and trade to security and Ukraine. It all looked like an attempt to boost his leverage in any of these areas. But by the evening Davos time, Trump had struck a preliminary deal with Rutte.

Europeans will want to better understand the details of that agreement and what it means for Greenland, Denmark, and Europe. As long as military options and tariffs are off the table, Nuuk’s and Copenhagen’s sovereignty are respected, and the White House’s sharp rhetoric and threats subside, then NATO and EU capitals will hold back on their criticism for now. Some may even be going back to the pretense of transatlantic dialogue, cooperation, and partnership.

But beyond the diplomatic protocol and time bought, Trump’s ready willingness to engage in brinkmanship with the alliance, Europe’s economy, and personal relationships with key leaders will have a lasting impact. Trump’s approach toward Greenland has destroyed much of the domestic political space for those arguing that Europe has a weak hand and therefore few options but to engage, assuage, and accommodate Trump. That same argument, which led the EU to accept a lopsided trade deal with the United States this past summer in pursuit of “stability and predictability” in the relationship, has taken a major hit, even if few European leaders say this out loud for now.

There are clear lessons here for Europe. Over the past few days, European resolve had been building to stand tall and stay united. Markets took note of the potential costs of that cohesion, including retaliatory tariffs and a “Sell America” turn away from US assets. Europe fared better than many expected in raising the complexity for Trump in Greenland, including by swiftly deploying even just small numbers of troops to prepare joint exercises. Denmark proved resilient and built more effective rapport with Greenlanders over historically difficult relations and, together with Europe, it made important commitments to the territory and Arctic security.

Whatever time the de-escalation over this latest rift has bought Europe, it better use that reprieve effectively. It likely won’t be the last such episode under this president. Europe will have to swiftly translate the lessons from the past few weeks into building greater resilience and sovereignty, if not strategic autonomy. Efforts to strengthen defense capabilities, defense industrial capacity, and long-term support for Ukraine are well underway. But much like Europe’s initiatives at boosting its competitiveness, intensifying trade diversification, and deepening its capital markets, these efforts require greater speed, ambition, and follow-through.

Europeans will be well advised to do even more contingency planning on how to resist economic coercion, even from partners, and make unwieldy tools such as the Anti-Coercion Instrument more effective politically. Other areas to watch in the coming months are progress on new trade and critical raw materials deals or breakthroughs on long-standing initiatives such as the savings and investment union. Front and center for European decision makers’ thinking will be the problem described in Canadian Prime Minister Mark Carney’s Davos speech of a “rupture, not a transition” in the world order. Whether they can act on his remedies of “strength at home [and] diversifying abroad” remains to be seen.

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When will Wall Street’s tolerance for uncertainty run out?

Jessie Yin, Josh Lipsky — Thu, 22 Jan 2026 21:02:57 +0000

On Tuesday, stock and bond markets fell sharply—then rebounded on Wednesday and Thursday, following US President Donald Trump’s statements at Davos on Greenland. The first signs of stress this week, however, did not originate in Switzerland or the United States, but in the Japanese bond market. There, a snap election called by Prime Minister Takaichi Sanae sparked expectations of a spending spree, reviving debt sustainability concerns. That early tremor set the tone. By the time trading moved west, fears of a breakdown in the transatlantic relationship mounted, particularly after Trump threatened additional tariffs on countries unwilling to support a US acquisition of Greenland.

The S&P 500 dropped 2 percent, the dollar weakened, and Treasury yields rose to their highest level since September. While it’s rare for stocks and bonds to fall sharply on the same day, a similar pattern last emerged in April and was seen as one of the reasons why the Trump administration ultimately deferred its “Liberation Day” tariffs.

It was a stark contrast to last week, when we were scratching our heads as to why Wall Street barely reacted to escalating tensions involving Venezuela and Iran, or the Department of Justice’s investigation into Federal Reserve Chair Jerome Powell. There are plenty of reasons why this might be. For one, the capture of strongman Nicolás Maduro and protests in Iran, however dramatic politically, did not pose an immediate threat to global trade flows or major supply chains. Meanwhile, had Trump followed through on his tariff threats, it would likely have marked the end of the United States-European Union trade deal, which was only announced in July 2025 and has since become a partial model for other countries negotiating with the Trump administration.

Why markets have shrugged off most shocks

Over the past decade, markets have weathered a steady stream of geoeconomic shocks—Brexit, trade wars, sanctions, pandemics, and bank failures, to name only a few. And yet, nothing has truly shaken investor confidence. The chart below shows eight major shocks since 2016 and highlights in red the few that coincided with a market contraction of more than 20 percent, triggering a bear market in the United States.

The common thread among those truly market-shaking moments is that they posed a direct disruption to the global economy: supply chains seizing up, trade flows collapsing, or energy prices spiking. But once a credible signal of stabilization emerged—whether through vaccine rollouts or a temporary ninety-day tariff pause—Wall Street quickly went back to business. That is, in part, because markets have internalized a powerful lesson: look past the immediate headlines. Investors have learned that most shocks inflict far less lasting damage than initially feared. That belief has become a guiding heuristic.

This week, however, investors responded forcefully to the renewed risk of a trade war between the United States and the European Union. The transatlantic economic relationship is far denser than the ties between Washington and Caracas or Tehran, totaling roughly $1.5 trillion in goods and services trade in 2024. A sustained escalation would have struck at the core of global commerce. Had tensions continued to rise, there was a real risk that market reactions would have intensified. Instead, as Trump pulled back from his tariff threats on Wednesday, markets recovered swiftly.

The dangers of taking volatility for granted

The risk of the markets adopting a “nothing ever happens” mentality is that it lowers sensitivity to increased political volatility. There are plenty of reasonable explanations for why the Trump administration’s investigation of the Federal Reserve chair failed to move markets, while the prospect of economic conflict with the world’s largest trading bloc has. One reason may be that the issue of central bank independence in the United States has not yet crossed the threshold from concern to crisis, which investors seem to require for a reaction. But if the job of markets is to look ahead and price future risks, then Wall Street may be too complacent about the accumulating cost of shocks.

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

Josh Lipsky is chair of international economics at the Atlantic Council and the senior director of the Council’s GeoEconomics Center. He previously served as an advisor at the International Monetary Fund.

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

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As markets turn volatile, leverage is back in the spotlight

Hung Tran — Thu, 22 Jan 2026 14:35:23 +0000

The relative calm of financial markets at the beginning of 2026 has been shattered this week, triggered by tensions between the United States and Europe over Greenland and fears of widening budget deficits following the announcement of snap elections in Japan. US equities dropped sharply, wiping out year-to-date gains, and forty-year Japanese government bond yields rose above 4 percent. Meanwhile, instead of gaining value—as in previous episodes of market turmoil—the US dollar weakened and ten-year US Treasury yields climbed to 4.3 percent, reinforcing concerns that both assets may no longer serve as “safe havens.” Financial markets recovered on Wednesday when President Donald Trump said there was a framework for a deal with NATO over Greenland

The market volatility highlights growing fragility in the financial system—a development shaped in large part by a buildup of leverage across financial institutions and market activities, as well as their increasing linkages to the banking sector. This situation demands careful monitoring and stronger risk-management measures by financial authorities and market participants to reduce vulnerabilities and mitigate potential shocks.

From retail traders to hedge funds, leverage is rising

Leverage starts with retail investors using margin debt—borrowing from their brokerage firms to buy securities, using their existing investments as collateral. The amount of margin debt in the United States reached a record $1.2 trillion by late December 2025. At the same time, investors have added another $250 billion in leveraged exchange-traded funds (ETFs). While still a relatively small share of total ETF assets under management (AUM)—estimated at $13.4 trillion at the end of 2025—leveraged ETFs account for around 12 percent of daily ETF trading volume.

Leveraged ETFs reset their exposure daily to maintain their target leverage. In volatile markets, this practice causes the fund’s value to erode over time—making leveraged ETFs a risky instrument for investors with holding periods longer than a single day. In essence, the high degree of leverage embedded in these retail investments can multiply both gains and losses. The problem is that the latter can trigger margin calls from brokerage firms, forcing fire sales of securities and further amplifying market turmoil. More importantly, hedge funds—with $12.5 trillion in AUM—have significantly increased their leverage across a range of trading strategies to the highest levels since comprehensive data collection began in 2013. Specifically, their mean gross leverage ratio—defined as total market exposure, including long and short positions and derivatives, relative to net asset value (NAV)—has climbed to eight times NAV, up from around five times in 2016 (see chart).

In particular, the volume of Treasury basis trades—long positions in cash Treasuries combined with short positions in futures to exploit small pricing discrepancies—has risen markedly. Hedge funds’ long US Treasury exposure has reached a new record of $2.4 trillion, equivalent to around 10 percent of all US Treasuries held by the private sector. In recent years, hedge funds have also used the interest-rate swap market to implement these basis trades, with current exposures estimated at $631 billion.

When interest rates and securities prices move contrary to expectations, hedge funds incur losses, prompting them to unwind positions and generating stress in those markets. This dynamic was evident in April 2025, when hedge funds unwound their basis trades following adverse market movements following Trump’s announcement of reciprocal tariffs.

Notably, hedge funds—largely based in the United States—have expanded their basis-trade strategies to the larger and more liquid government bond markets of the euro area, particularly Germany, France, and Italy. Hedge funds face the same challenges in their euro area basis trades, including a potential lack of euro funding and adverse price movements, both of which could trigger fire sales of underlying bonds and cause stress in affected markets. Moreover, hedge funds themselves have become potential transmission channels, spreading stress from the US Treasury market to other sovereign bond markets if losses force them to raise liquidity by selling assets elsewhere.

Private credit introduces new vulnerabilities

Leverage has also risen in the rapidly growing private credit market, with the debt-to-earnings ratio of some borrowers reportedly reaching a historic high. According to the New York Fed, the private credit market has expanded from $500 billion in 2020 to $1.3 trillion by late 2025. Some observers even expect it to reach $5 trillion by 2029.

The private credit market has increasingly relied on covenant-lite loans, a worrisome development reminiscent of the practices that were widespread prior to the global financial crisis. Taken together, these trends raise the risk that private credit could become a source of financial instability if overall conditions deteriorate.

Beyond direct borrowing, private credit funds also invest in leveraged instruments such as collateralized loan obligations (CLOs) to enhance returns. This essentially amounts to a less transparent—or “hidden”—form of leverage. CLOs issue debt and equity tranches to investors and use the proceeds to purchase diversified portfolios of roughly two hundred loans or corporate bonds, structuring cash flows into tranches with varying risk-return profiles. The CLO market has grown to approximately $1.4 trillion, forming part of a broader $13.3 trillion structured credit-fixed income market, which also includes asset-backed and mortgage-backed securities.

Driven in part by their participation in the private credit market, life insurance companies have also increased leverage, with asset-to-equity ratios approaching the top quartile of their historical range—now nearly twelve times.

Nonbank–bank linkages heighten systemic risk

Commercial banks—while remaining profitable and well capitalized—have increasingly funded leveraged nonbank financial entities and activities. Bank lending to nonbank financial institutions—such as special purpose vehicles, CLOs, asset-backed securities, private equity funds, and business development companies—has grown at a robust pace, reaching $2.5 trillion.

In addition, banks themselves have originated $1.5 trillion in leveraged loans, reflecting an average annual growth rate of 12.2 percent since 1997. While such exposures account for roughly 14 percent of total bank assets, stress among these highly leveraged nonbank entities—or in the leveraged loan market—could generate losses and distress at individual institutions, if not across the entire banking system.

As a result, the Federal Reserve concluded in its November 2025 Financial Stability Report that “when taken together, the overall level of vulnerability due to financial sector leverage was notable.” This assessment underscores the importance of leverage as a key issue for regulators and risk managers when evaluating financial stability risks in 2026—and especially in responding to the current bout of market turbulence.

Elevated leverage increases the fragility of financial institutions and markets and amplifies the severity of potential market corrections. This reality calls on financial authorities to adopt measures commensurate with the risks identified in the November 2025 FSR—particularly steps aimed at reducing the vulnerability of the financial system. Meanwhile, private investors should exercise greater caution to limit exposure and mitigate the fallout from future market disruptions.

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, a former executive managing director at the Institute of International Finance, and a former deputy director at the International Monetary Fund.

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The future of Greenland and NATO after Trump’s Davos deal

Atlantic Council — Thu, 22 Jan 2026 00:51:42 +0000

GET UP TO SPEED

Today started with ice and ended with a thaw. Shortly after a speech at the World Economic Forum in Davos, Switzerland—in which he made his case for why the United States should own the “big, beautiful piece of ice” that is Greenland—Donald Trump announced that he had reached a “framework of a future deal” on the issue. The breakthrough came after Trump met with NATO Secretary General Mark Rutte, and led to the US president dropping his tariff threats against European nations that had opposed the US acquisition of the semiautonomous Danish territory. According to Trump, the deal will concern potential US rights over Greenland’s minerals, as well as the island’s involvement in his administration’s proposed “Golden Dome” missile defense system. Below, our experts shed light on all the transatlantic tumult.

TODAY’S EXPERT REACTION BROUGHT TO YOU BY

Josh Lipsky (@joshualipsky): Chair of international economics at the Atlantic Council, senior director of the GeoEconomics Center, and former International Monetary Fund advisor
Matthew Kroenig (@MatthewKroenig): Vice president and senior director of the Scowcroft Center for Strategy and Security
Tressa Guenov: Director for programs and operations and senior fellow at the Scowcroft Center for Strategy and Security, and former US principal deputy assistant secretary of defense for international security affairs
Jörn Fleck (@JornFleck): Senior director of the Europe Center and former European Parliament staffer

Tariff troubles

Now that Trump appears to have backed down from both his military and economic threats, “Europe is breathing a sigh of relief,” Josh reports from the World Economic Forum, but it’s one that “will be short-lived.”
Don’t expect Europe to jump back in to last year’s US-EU trade deal, which Brussels paused in recent days. European leaders “feel like they’ve been burned by the volatility, paid a political price at home, and want commitments that next weekend they don’t wake up to new tariff threats,” Josh tells us. “Businesses, many of which said as much privately to the Trump administration this week in Davos, want the same” sort of commitments.
“Markets had their say” as well, Josh writes, noting that fears of a US-EU trade war drove up bond yields in recent days. That’s “the exact kind of pressure point that made Trump relent” in April 2025 when he paused his “Liberation Day” tariffs. “With mortgage rates shooting up” in response to the volatility, says Josh, “Trump showed that he can be especially sensitive to the bond markets.”

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NATO’s next steps

“The idea that Trump would attack a NATO ally was always hard to imagine,” says Matt, who argues that “Trump’s threats were clearly part of his now-trademark style of building leverage to force a negotiation.”
Matt now expects a future deal to include “increased military presence in Greenland from Denmark and other NATO allies and increased access and basing for the United States.”
The “hard work” ahead for negotiators, he explains, will be “hammering out an agreement that addresses Trump’s legitimate security concerns while also respecting the sovereignty of NATO allies.”
Matt identifies several cases that could provide “creative solutions,” including “the United Kingdom’s ‘sovereign base area’ in Cyprus, the bishop of Urgell and the president of France’s ‘shared sovereignty’ over Andorra, and the United States’ possession of a perpetual lease in Guantanamo Bay, Cuba.”

The bigger picture

But even if a deal gets done, says Tressa, Trump’s pressure campaign against Europe over Greenland could have consequences for security issues that must be solved on both sides of the Atlantic: “A sustained atmosphere of crisis has the potential to detract from Trump’s own success in getting NATO countries to spend 5 percent of gross domestic product on defense and, he hopes, buy American products.” She points out that “many of the countries that he threatened with tariffs are the ones who have stepped up defense spending the most.”
Jörn agrees on the lasting impact of “Trump’s willingness to engage in brinkmanship with the Alliance, Europe’s economy, and personal relationships with key leaders.” The approach “has destroyed much of the domestic political space in Europe for those arguing that Europe has a weak hand and therefore few options but to engage, assuage, and accommodate” the US president, “even if few European leaders will say this out loud for now.”
Still, while “Davos is sometimes criticized for a lot of talk but little action, this year no one can doubt the forum mattered,” Josh adds. “Having Trump meet in person with leaders—privately—is where the US-European alliance was, at least temporarily, put back on track.”

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Why US markets are betting on Saudi Arabia

Khalid Azim — Wed, 21 Jan 2026 19:54:43 +0000

While the world watched events unfold in Venezuela during the first week of January, Saudi Arabia quietly returned to the US debt capital markets, raising $11.5 billion of senior unsecured debt across four tranches.

Shortly thereafter, Saudi Arabia’s minister of finance approved the kingdom’s 2026 borrowing plan, projecting total financing needs of $57.9 billion. The proceeds are intended to fund a projected fiscal deficit of $44 billion, equivalent to 3.3 percent of Saudi Arabia’s gross domestic product (GDP).

This financing was highly successful, but as detailed in this report, the markets do not price Saudi Arabia as AA credit. In fact, Saudi Arabia trades at a discount to single A-rated sovereign debt, suggesting that the kingdom has work to do to build confidence in the country’s ambitious economic transformation plans, while showing the marketplace that this nation has the ability to generate accretive value generating returns.

Notably, while the Saudi Ministry of Finance constructed the 2026 budget on assumptions of slowing aggregate global demand for crude oil, the revenue outlook embedded in the projections implies a more constructive view on oil prices. As detailed in the table below, oil revenue, captured within “Other Revenue,” is budgeted at 64 percent of total revenue in 2026, unchanged from 2025. This suggests that hydrocarbons remain the dominant fiscal pillar, even as diversification accelerates.

By contrast, Goldman Sachs, in a December 2025 report titled “Saudi Arabia: FY2026 Budget Targets Significant Consolidation,” takes a more skeptical view of the kingdom’s fiscal outlook, driven largely by oil revenue assumptions. Goldman estimates a budget deficit of 6 percent of GDP, compared with the government’s projection of 3.3 percent, implying that Saudi Arabia may ultimately need to borrow additional capital to finance its growth ambitions.

Saudi Arabia’s widening fiscal deficit, alongside a growing current account deficit, reflects an economy firmly in investment-led growth mode. This is simply a function of a government that is spending more on expenditures than revenues, the definition of an expansionary fiscal policy. In addition, a widening current account deficit is by definition an economy investing more than it has in savings. Taken together, this showcases the government’s commitment to funding growth. Sustaining this trajectory will require continued access to both domestic and external financing markets. During the first week of January, the kingdom demonstrated precisely that access by issuing $11.5 billion of senior unsecured bonds, drawing reported demand in excess of $20 billion from global fixed-income investors, particularly for longer-duration tranches.

The transaction underscored Saudi Arabia’s strong market standing, supported by moderate debt levels, manageable debt-service ratios, and substantial foreign reserve buffers. In addition, Saudi Aramco’s partial public listing has created an additional channel through which the state can access and monetize future oil cash flows, enhancing fiscal flexibility alongside sovereign borrowing. Assuming borrowing remains aligned with economic growth and fiscal discipline, access to capital markets should remain durable.

The diversification of the Saudi economy over the past decade has been significant. Non-oil GDP has risen from approximately 56 percent of total GDP in 2016 to roughly 65 percent in 2026, according to data compiled by the Saudi General Authority for Statistics and International Monetary Fund estimates. Nonetheless, oil revenues remain the primary fiscal driver, and any assessment of Saudi Arabia’s budget outlook is incomplete without considering global energy market dynamics.

In its Global Energy Perspective 2025, McKinsey & Company notes that while fossil fuels are likely to retain a meaningful share of the global energy mix beyond 2050, demand is expected to plateau between 2030 and 2035.

Neal Shear, founder of Morgan Stanley’s commodities platform and former global head of sales and trading, observes that “it is hard to accurately predict peak global demand for energy.”

“However, it is much easier to come to a consensus that the secular trend line for fossil fuel demand is downward over the next decade,” he told me.

Shear further argues that today’s crude oil market is increasingly demand-driven rather than supply-driven, rendering global supply dynamics closer to a zero-sum game. Incremental barrels from countries such as Venezuela may displace production elsewhere, rather than expand overall consumption. Over time, absent commensurate supply discipline, a downward-shifting demand curve implies secular downward pressure on prices.

The year 2026 marks the tenth anniversary of Vision 2030, Saudi Arabia’s ambitious economic transformation strategy. The program’s core objective of diversification away from hydrocarbons into sectors such as petrochemicals, tourism and hospitality, mining, healthcare, manufacturing, retail, construction, and finance has materially reshaped the kingdom’s economic landscape over the last decade.

Looking ahead, policymakers could further strengthen market confidence in two key areas. First, financial markets and more broadly investors would welcome greater fiscal transparency, particularly a clearer breakdown of oil-related revenue assumptions and the treatment of Saudi Aramco dividends within the budget framework. As it stands, the Saudi budget does not delineate this dividend in full, so it is not readily transparent to investors how much of the budget is being driven by oil revenues. Second, as investment scales, there should be a stronger emphasis on capital efficiency and risk-adjusted returns. Transparency around outcomes, including those that underperform, would likely enhance, rather than diminish, investor confidence.

The chart below shows that Saudi sovereign bonds trade at wider spreads than those of AA-rated peers, consistent with the kingdom’s split credit ratings. More notable, however, is that spreads also exceed those of single-A sovereign benchmarks, suggesting that markets continue to apply a degree of caution beyond what headline ratings alone would imply. Part of this reflects technical factors, including index inclusion, but it also points to a broader question of confidence as Saudi Arabia advances its Vision 2030 agenda. As the scale of public investment rises, sustained fiscal transparency, clearer articulation of oil-revenue assumptions, and demonstrable capital efficiency will be critical in translating economic transformation into tighter sovereign risk premiums.

Source: Vaneck, JPM Indices (Saudi Arabia Sovereign Spread JPGCSASS Index, EMBIGD A Spread JPSSGDCA Index, EMBIGD AA Spread JPSSGDAA Index)

Markets do not demand perfection; they value clarity, discipline, and resilience. Saudi Arabia’s long-term strategy is coherent, ambitious, and increasingly credible. If executed with continued transparency and fiscal prudence, it has the potential not only to transform the kingdom but to reshape the broader region. The US debt capital markets, for now, appear to agree.

Khalid Azim is the director of the MENA Futures Lab at the Atlantic Council’s Rafik Hariri Center for the Middle East.

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How Trump’s ‘TRIPP’ triumph can advance US interests in the South Caucasus

Andrew D’Anieri and Joseph Epstein — Tue, 20 Jan 2026 22:04:54 +0000

WASHINGTON—A twenty-seven-mile stretch of land running through southern Armenia is poised to reshape the geopolitics of the South Caucasus. On January 13, US Secretary of State Marco Rubio and Armenian Minister of Foreign Affairs Ararat Mirzoyan announced a detailed framework to implement the Trump Route for International Peace and Prosperity (TRIPP). This US-brokered corridor, which promises to become a vital connectivity link between Europe and Asia, could go down as one of US President Donald Trump’s most impressive foreign policy achievements of his second term.

TRIPP’s connectivity potential

The idea for a US-brokered transport route in southern Armenia that would link the main part of Azerbaijan to Baku’s Nakhchivan exclave grew out of 2025 peace talks between the two countries coordinated by US officials. Azerbaijan wanted to implement a crucial element of its 2020 cease-fire agreement with Armenia—unfettered transport access to Nakhchivan. At the same time, Armenia sought to maintain control over its sovereign territory along the proposed twenty-seven-mile route across its land.

In stepped Trump and his team with a creative solution: a US-led consortium would construct and manage the route, in concert with Armenian authorities, that would in turn safeguard Azerbaijani access to Nakhchivan. At a summit at the White House this past August, Armenian Prime Minister Nikol Pashinyan, Azerbaijani President Ilham Aliyev, and Trump agreed to implement TRIPP with a view toward a comprehensive Armenia-Azerbaijan peace deal. This was a significant achievement: Armenia and Azerbaijan had clashed for more than thirty years, and they had fought a handful of wars in that time that killed tens of thousands.

But no details about how TRIPP would be built and managed were made public officially until this past week. In a joint statement, Rubio and Mirzoyan announced a new TRIPP Development Company (TDC) to construct the initial rail and road elements of the project, with the United States taking a 74 percent controlling stake for forty-nine years, which will revert to a 51 percent stake for the following fifty years. The agreement envisions the United States government providing upfront capital to develop the route and making a financial return via the TDC over the life of the project through transit fees and commercial opportunities along the route, in addition to construction contracts to US companies. Armenia will earn revenue based on its minority stake in the TDC, plus taxes and customs duties along TRIPP.

It’s an arrangement that should work well for both parties. The White House can tell Americans that they are getting an economic return for US diplomatic engagement in the South Caucasus and opening new opportunities for US companies. At the same time, Pashinyan can sell the agreement as a means of attracting high-quality Western infrastructure investment—something he had pursued through his Crossroads of Peace initiative—that can help position Armenia as a regional transport hub, all while maintaining control over Armenian territory.

TRIPP could provide spillover benefits to Washington, Yerevan, and the broader Caspian region, as well. The US government has been quietly supportive of the Middle Corridor, a multi-modal trade route that connects Central Asia to Turkey and Europe via the Caspian Sea and infrastructure chokepoints in Azerbaijan and Georgia. Washington and its European partners see the Middle Corridor as a way for overland trade with Asia to bypass Russia, including the potential export of critical minerals and rare earths from Central Asia. The South Caucasus and Central Asian countries seek prosperity through better integration with global markets. TRIPP provides another route across the Caucasus, increasing transport volume capacity as Azerbaijan and Kazakhstan work to build port capacity to meet trade demand.

The successful implementation of TRIPP would make it cheaper and faster to ship products and critical raw materials from Central Asia to Europe and beyond.

But cheaper, faster, better connectivity also carries some risks. The South Caucasus has at times swelled into a hotbed for sanctions evasion to both Russia and Iran, and possibly even evasion schemes between Moscow and Tehran. TRIPP can be a success as a regional trade route, but realizing its full potential relies on demand for trade between Europe and Asia. High transport costs along the Middle Corridor due to geopolitical instability or project economics—or an unforeseen increase in willingness to ship goods via Russia or Iran—could derail TRIPP’s prospects.

Pashinyan looks west

The finalization of TRIPP is not only an achievement of the Trump administration, but also a new peak of Pashinyan’s shift away from Russia. For thirty years, Armenia relied solely on Moscow for its security, leading to Russian domination of the country’s internal and foreign politics. When Russia failed to intervene during the 2020 Karabakh War, Pashinyan made a change. Understanding that a peace deal with Azerbaijan was the only way to remove Russian leverage and therefore achieve true independence, the Armenian prime minister staked his political future on such a deal. Simultaneously, he inked major defense deals with India, France, Greece, and Cyprus, among others.

But the United States is the only power capable of truly offering Armenia an exit ramp from Russian domination. By conducting peace negotiations under US auspices and placing US interests directly over TRIPP, Pashinyan and Aliyev have protected the most sensitive part of the deal with a US deterrent. But more than that, they tied the success of the peace process to closer relations with Washington. As Aliyev attested at the peace summit, “If any of us—Prime Minister Pashinyan or myself—had in mind to step back, we wouldn’t have come here.”

Yet Russia is not the only neighbor disturbed by a growing US presence in the South Caucasus. Iran has consistently called any change of the status quo to its northern border with Armenia a “red line.” In 2022, Tehran even staged large-scale military exercises on the Azerbaijani border when it thought Baku may try to take over the area by force. Recently, Ali Velayati, a senior advisor to Ayatollah Ali Khamenei, threatened to turn the South Caucasus into a “graveyard for the mercenaries of Donald Trump.” However, Iran is weaker than it has been in decades, and Pashinyan has taken advantage. As protests threaten the stability of the Iranian regime, Tehran weakly voiced concern that Washington could use TRIPP “within the framework of its security policy,” a far cry from red lines, graveyards, and military exercises.

Last month, Pashinyan sent Deputy Foreign Minister Vahan Kostanyan, responsible for TRIPP coordination with Washington, to Israel to discuss the corridor. Kostanyan’s visit showed that Pashinyan would not make the same mistake with Iran as it did with Russia, instead choosing to align with the US-backed regional order.

Such moves come at a key time. With parliamentary elections set for 2026, Pashinyan needs to show that his pursuit of peace and ties with the West have been successful. Already, there are some signs. Azerbaijan has begun to ship oil and gas to Armenia, driving fuel prices down by 15 percent. Meanwhile, incoming stability and regional integration with Azerbaijan and Turkey have the potential of transforming Armenia into a transit country and providing easy access to the European market.

Russia has organized against Pashinyan ahead of the elections in the way it knows best—information operations. Last month, Armenian outlet Civilnet reported a spike in fake news targeting Armenian authorities, often spreading through anonymous social media accounts and Russian-language Telegram channels. Moscow will almost certainly seek to expand these efforts ahead of the election.

Nonetheless, the coming implementation of the TRIPP route looks like a major success in the Trump administration’s commercially focused foreign policy, and it is a model of constructive partnership that the White House should use elsewhere around the world. The project promises openings for American companies to build a small but crucial link to knitting the Middle Corridor together, a boon for the United States, as well as its partners in the South Caucasus and Central Asia. Sidelining Russia and Iran in the process may also decrease their ability to exert economic pressure in the region, giving leaders such as Pashinyan and Aliyev a freer hand to exercise their sovereignty and pursue their countries’ best interests.

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Three charts that show the long shadow of Maduro’s economic disaster in Venezuela

Ignacio Albe, Enrique Millán-Mejía — Tue, 20 Jan 2026 15:05:09 +0000

WASHINGTON—Nicolás Maduro is out, but the economic legacy of his policies, and of Chavismo more broadly, remains. In the more than ten years he was in power, inflation soared, businesses collapsed, investment fled and withered, and the overall output of the economy fell by over two-thirds.

The Venezuelan people will feel the effects of these policies for decades. The data available, albeit limited by the regime’s international isolation and autocratic nature, leads to one conclusion: Under Maduro, Venezuela experienced one of the most dramatic economic collapses of modern history.

Below are three charts that show the depth of Venezuela’s economic collapse and the challenge ahead for the country to recover.

Having induced the destruction of Venezuela’s productive sectors, fueled the migration of millions, and aggressively intervened in the economy, the regime triggered what we authors calculate to be the deepest drop in GDP per capita anywhere in the world since 2013. While Venezuelans’ economic woes began under Maduro’s predecessor Hugo Chávez, the full extent of the pain came after his death in March 2013. In the decade after Maduro came to power, Venezuelans lost some two-thirds of their per capita wealth.

The collapse in economic activity made Venezuelans poorer, but in addition, the regime’s policies spurred the deterioration of the average Venezuelan’s overall well-being and the country’s human development. Since 2013, Venezuela’s score has fallen on the United Nations’ Human Development Index, which factors in life expectancy at birth and education, in addition to economic figures. While most of the world, especially developing countries, saw development indicators improve over the past thirteen years, Venezuela moved in the opposite direction, with major drops in indicators even beyond economic figures.

A good way to illustrate the challenge of Venezuela’s economic recovery is by comparing GDP per capita levels with those of regional peers. Venezuela has gone from far outpacing its neighbors in per capita wealth (before Chávez came to power) to becoming one of the region’s poorest countries. Making up this lost ground should be a priority for Venezuela’s future leaders, an objective that will require a monumental economic reconstruction effort and potentially one of the most significant recovery programs of this century.

Multiple scenarios exist, but for Venezuela to catch up with its neighbors and bring its income levels back up to upper-middle income status will require concerted efforts to jumpstart its energy sector, diversify its economy, attract its diaspora, boost foreign investment, and build trust with investors and Venezuelans more broadly. As the chart above shows, catching up to the region (which itself has a lot of work to do to boost its own growth) will require half a century of above-average growth rates.

Maduro and his regime’s policies have left a long shadow, but there is a path forward for the country. Venezuela’s future leaders must set the foundations for a lasting recovery for the country.

This piece is part of “Economic pulse of the Americas,” a series of explainers about the latest trade trends in Latin America and the Caribbean, written by the Atlantic Council’s Adrienne Arsht Latin America Center. To get notified about future editions and other related work on the region, sign up here.

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At Davos, Trump’s 19th-century instincts will collide with 21st-century uncertainty

Frederick Kempe — Tue, 20 Jan 2026 05:00:00 +0000

It’s hard to imagine a more discordant way for Donald Trump to mark the first anniversary of his second inauguration than by attending the World Economic Forum’s annual gathering of global leaders in Davos. When he speaks in the Swiss Alps on Wednesday, the US president will be contesting—whether intentionally or not—the very notions of global common cause Davos was designed to advance.

Klaus Schwab founded the World Economic Forum in 1971, a decade after the Atlantic Council’s own birth, with a post-World War II premise that held until recently: that greater security cooperation, economic interdependence, institutional cooperation, and shared rules could prevent another global catastrophe and advance more lasting peace and prosperity in a manner that also served US interests.

Trump travels to Switzerland this week as perhaps the most forceful skeptic of that internationalist assumption ever to occupy the Oval Office. He set the stage on Saturday by threatening new 10 percent tariffs on European nations that stood in the way of his heightened efforts to acquire the Danish territory of Greenland.

Trump has pledged to slap those tariffs on NATO allies Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland on February 1. If those countries don’t yield, Trump wrote on his Truth Social platform, he will jack up the tariffs to 25 percent—presumably atop the tariffs he has already put on Europe—on June 1 “until such time as a Deal is reached for the Complete and Total purchase of Greenland.”

For their part, European leaders are considering a number of possible economic counterstrikes. The Financial Times reports that the European Union (EU) is considering €93 billion of new tariffs, while the French are reportedly pushing for the first-ever use of Brussels’s “Anti-Coercion Instrument.” Known as ACI, it is regarded as the nuclear option in that it could put limits on foreign direct investment, restrict US suppliers’ access to the EU market (excluding them from public tenders), and place export and import restrictions on goods and services.

That turns Davos, whose theme this year is “A Spirit of Dialogue,” into the epicenter of the worst transatlantic economic conflict in memory. European leaders hope they can still reach yet another deal with Trump. That said, one senior allied official told me it is hard to imagine common ground given Trump’s “absolutist” position that the only outcome he will accept is Greenland becoming US property. Another European official described Trump to me as an aberrational bully willing to risk eighty years of accumulated transatlantic trust to achieve territorial ambitions.

A nineteenth-century president in a twenty-first-century world

To better understand who they’re dealing with, a long-time friend of Trump’s suggested to me that European leaders should look less to the past eighty years and more to the time before the world wars. He calls Trump a nineteenth-century US president governing in a twenty-first-century world—a leader who combines the expansionism of US President James Polk, pushing to enlarge the United States’ territorial realm as part of a “Modern Manifest Destiny,” with the twenty-first-century nationalism of current counterparts like Russian President Vladimir Putin (whom the Kremlin claims has just been asked to join Trump’s Gaza peace board), China’s Xi Jinping, India’s Narendra Modi, and Turkey’s Recep Tayyip Erdoğan.

While it was journalist John L. O’Sullivan who coined the term “Manifest Destiny,” it was Polk who popularized and implemented the notion that the United States was divinely ordained to expand its realm and spread democracy, capitalism, and American values across the entire North American continent.

To refresh your history: Polk, the eleventh US president, presided over Texas’s formal entry into the United States on December 29, 1845, though President John Tyler and Congress had initiated the process before Polk took office. That helped trigger the Mexican-American war that resulted in Mexico’s ceding of the entire American southwest to the United States. After a negotiation fraught with the risk of war, Polk acquired the Oregon Territory from Great Britain in 1846, giving the United States land for the future states of Washington, Oregon, and Idaho, along with parts of Montana and Wyoming, while Britain kept Vancouver Island.

That history lesson won’t hearten the leaders of Denmark or its Europeans allies, who presumably believed the nineteenth century was, well, history. Polk’s era was an age not of global governance but of sovereign states, great power competition, mercantilism, and jealously guarded spheres of influence, followed by two world wars. Diplomacy was personal and transactional—just as Trump likes it. Leaders wielded commitments as conditional and trade as an instrument of power, as was the case this week when Trump upended trade deals he had negotiated with European states to open a new fight over Greenland.

What’s further capturing conversation in Davos is Trump’s military-judicial operation that brought Venezuelan leader Nicolás Maduro to New York to face criminal charges, part of a heightened focus on the Western Hemisphere through his “Trump Corollary” to the Monroe Doctrine; his on-again, off-again threats to strike Iranian targets in response to Tehran’s killing of protesters; the US Department of Justice’s criminal investigation into Federal Reserve Chair Jerome Powell; and a series of domestic events that have made global headlines, most significantly the death of Renee Good in Minneapolis at the hands of an Immigration and Customs Enforcement agent.

A world-historic figure—but in what sense?

Many in Trump’s electoral base charge that he’s paying far too much attention to global affairs at the expense of their own economic struggles. However, don’t expect Trump’s focus to shift—not even in a mid-term electoral year when the Republican hold on Congress is in doubt. Trump’s eye is on history, not congressional seats.

“The world, he thinks, is where a political figure makes his mark,” writes Wall Street Journal columnist Peggy Noonan. “He desires a big legacy, still wants to show Manhattan (not to be too reductive, but there’s still something in it) that the outer-borough kid you patronized became a world-historic figure.” If that’s true regarding Manhattan, it is even more so for Davos, given that it symbolizes for Trump the club of first-tier global business leaders to which he never previously belonged.

If Trump’s aim is to be a world-historic figure—and that’s increasingly beyond dispute early in his second term—then what’s most important to ask is: world-historic in what sense? For that reason alone, it will be worth listening closely to how Trump describes himself this week in Davos and comparing that to his previous three appearances.

In 2018, early in his first administration, he declared in Davos, “America first doesn’t mean America alone. When the United States grows, so does the world.” In 2020, ten months before his electoral defeat, he highlighted two trade deals he had just closed, one with China and the other with Mexico and Canada. “These agreements represent a new model of trade for the twenty-first century—agreements that are fair, reciprocal, and that prioritize the needs of workers and families.”

Then in 2025, three days after his second inauguration, he set a far feistier tone. Appearing remotely via video, Trump declared the beginning of “a golden age of America,” speaking of the most significant US election in 129 years, lambasting his predecessor President Joe Biden, and announcing a storm of executive orders to address a “calamity,” particularly regarding immigration, crime, and inflation. He said little about the tariffs that would follow. “They say that there’s a light shining all over the world since the election,” Trump told the Davos crowd.

The big question chasing Trump this week, as I asked earlier this year in this space, is: “What sticks?”

It’s still uncertain whether Trumpism will usher in a new and enduring ideology of some sort. US President Franklin Delano Roosevelt brought the world New Deal liberalism, an ideology that has remained until this day; US President Ronald Reagan ushered in an era of internationalist conservatism that won the Cold War alongside allies, and it still lingers. When American presidents break with the past and usher in new eras, those trends tend to stick.

Many argue that Trump’s emergence underscores and advances a new nationalist era, one of nineteenth-century tenets laced with twenty-first-century technologies and geographies, even though those who know him best say Trump is not a student of history himself.

If it’s a new nationalism that’s emerging, what brand of nationalism might that be? Autocratic or democratic? Isolationist or internationalist? Realist or imperialist? The range of possibilities is immense.

A new vocabulary

What has stuck over the past year—a shift that’s palpable in Davos—is the erosion of old certainties. Trump’s emphasis on tariffs, industrial policy, and economic security has redrawn global trade rules and attitudes. His skepticism about multilateral arrangements has forced allies and partners to question systems they’ve depended upon since World War II. Trump’s blunt focus on borders, energy dominance, and the Western Hemisphere has global partners rethinking their own concepts of geography and leverage.

Davos matters this week not in terms of whether Trump will convert his listeners to his worldview, but rather because the world has already begun to change around those gathering there. The Davos vocabulary of cooperation and convergence coexists now with the new language of fragmentation, national interest, and strategic autonomy.

When he appears at Davos this week, Trump arrives with the ambitions of a nineteenth-century president confronting leaders with a twentieth-century mindset inadequate to the uncertainties of a twenty-first-century world. At this inflection point, all three eras are colliding. There’s no settled script for what comes next.

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

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

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Greenland, Davos, and a week that could redefine the transatlantic alliance

Josh Lipsky and Jörn Fleck — Mon, 19 Jan 2026 23:35:30 +0000

DAVOS and WASHINGTON—In Davos, where Josh recently landed, preparations are underway to welcome US President Donald Trump, French President Emmanuel Macron, German Chancellor Friedrich Merz, European Commission President Ursula von der Leyen, and dozens of other global leaders under this year’s theme: “A Spirit of Dialogue.”

But the truth is there is very little spirit—and even less dialogue—between Trump and his European counterparts right now.

Relations between Washington and Brussels were upended this weekend after Trump said on social media Saturday morning that he would impose a 10 percent tariff on France, the Netherlands, Denmark, Norway, Sweden, France, and the United Kingdom—presumably on top of the existing tariffs— “until such time as a Deal is reached for the Complete and Total purchase of Greenland.” In the same post, which targeted countries that recently sent troops to Greenland, Trump threatened to raise these tariffs to 25 percent if such a deal has not been agreed to by June 1. For all the Wall Street analysts who argued that the second year of Trump’s term would bring more stability on the tariff front, Saturday morning should have been a wake-up call. Trump is not abandoning his favorite economic weapon anytime soon—unless, that is, the Supreme Court forces him to, as the court is set to rule on the legality of many of the administration’s tariffs as soon as this week.

This all adds up to an incredibly volatile situation: a US president seemingly willing to seize the territory of a NATO ally or force its sale, a Supreme Court that may dramatically alter the tools the president has to levy tariffs, and a European Union (EU) asking itself whether it made a mistake by agreeing to a lopsided trade deal just six months ago in Scotland—and increasingly questioning the future of the US-European alliance.

Below, we break down each of these dimensions—and how they could escalate or deescalate in the week ahead.

Europe’s scramble for a united response

If Wall Street underestimated the president’s use of tariffs, so did Europe. Fresh off the successful signing of the EU-Mercosur trade deal on Saturday in Paraguay, the new threats brought von der Leyen and European Council President António Costa back to the harsh realities of Trump-era power politics.

Their initial reaction in true Brussels style: coordinate a European response among the twenty-seven EU countries.

Macron went further, declaring the tariffs “unacceptable” and calling for the EU to deploy its so-called “big bazooka” against economic blackmail: the much-touted but never-used Anti-Coercion Instrument (ACI). This stood in contrast with the response from Italian Prime Minister Giorgia Meloni, a Trump ally. She said that the US tariffs would be a mistake but characterized the dispute over Greenland as a misunderstanding and called for dialogue and de-escalation.

To equip European leaders with greater leverage, the Commission is dusting off a €93 billion package of retaliatory tariffs that it prepared during the trade negotiations following Trump’s “Liberation Day” global tariff announcement but suspended after the bloc brokered the Turnberry trade deal with Washington last July. The threat of these tariffs, however, will hardly strike fear into the US president. This White House knows full well that it has the upper hand in pressuring a low-growth EU with a a $236 billion trade surplus with the United States and divergent member state interests.

The ACI also is likely disappearing into back pockets in Brussels, despite bluster from Paris and the European Parliament. Designed to counter economic coercion from China and give the EU more flexibility and leverage in trade talks, its potential use has generated strong reservations from member states that are more dependent on the United States for security and trade. Much depends too on what position Germany will take and whether Berlin and Paris can align on the use of the instrument.

Another missed opportunity for Europe is the absence of a done deal on US-EU trade. While Washington and Brussels agreed the Turnberry deal last July, the EU has yet to fully ratify the framework agreement. Opposition to the deal in the European Parliament has been building for months. But it reached a boiling point on Saturday when the largest political group in the European Parliament, von der Leyen’s center-right European People’s Party, announced that it will not vote to approve the deal in the face of Trump’s threats.

Without the Turnberry deal implemented, the EU will have a harder time countering Trump’s punitive Greenland tariffs and preventing him from reopening a trade dispute that many hoped had been closed.

Many leaders in Europe would still prefer to avoid an open confrontation or rupture with the Trump administration. But the US president’s more brazen approach on Greenland is testing the limits of Europe’s hugging-the-bear strategy–efforts to continue engagement with the US president amid volatility and manifest disagreements while avoiding open confrontation. Trump’s aggressive push risks robbing European leaders of what political space is left at home to maintain their carefully calibrated balancing act vis-à-vis the United States. Geopolitical sparring over Greenland alone will not push Europe into collective opposition to the United States. But with the Trump administration refusing to rule out military options and levying economic threats over the president’s personal ambitions for the Arctic island, that dynamic might just change.

The Supreme Court, tariffs, and Trump’s next move

All of the above assumes that the US Supreme Court does not tell the president—possibly as soon as Tuesday—that he can no longer use the International Emergency Economic Powers Act to impose tariffs. The threat issued against Europe would almost certainly rely on that authority if Trump were to follow through with it.

If the court ends up siding with the president, expect Trump to double down. The last meaningful check on his tariff authority would be gone, and there is little chance Congress would muster the support needed to rein him in.

The more likely scenario, however, is that the court either rejects or sharply limits his powers. In that case, Trump will need a Plan B.

That plan has been contemplated before—with Europe in mind. While Trump has been surprisingly disciplined in dealing with the European Commission rather than individual member states, he has previously threatened specific countries, including Spain, with sector-specific tariffs. If the court rules against him, expect to see a wave of French, Dutch, and Danish agricultural and industrial products being targeted under Section 232 and Section 301 authorities. Regardless of the court’s ruling, those authorities will remain firmly in the president’s power.

Trump also would likely turn to Section 122 authority, which allows tariffs of up to 15 percent for 150 days. But that would merely replace existing EU tariff levels—not add to them—which appears insufficient for the kind of leverage he wants to exert.

The deeper problem: no deal space

The larger issue—to use the favorite buzzword in Davos—is the lack of deal space between Trump and Europe.

On trade, the path to a deal for the two sides has been much clearer. As both the United Kingdom and the EU have shown, an agreement can be reached with Trump if the other side is willing to cut tariffs on US goods and pledge hundreds of billions of dollars in investment in the United States. It’s a model that has been followed around the world.

But Greenland is different. It is unclear what compromises Europe could offer—military, security, economic, or otherwise—that would satisfy Trump. It is even less clear whether he will be satisfied by anything short of Greenland coming into US possession. This is the most troubling dimension of the threat. Among the people Josh has spoken with on the ground in Davos so far, few see an obvious off-ramp. And that is what makes escalation more likely than at any other time since Trump’s return to the White House.

In Davos, the “spirit of dialogue” may quickly give way to a moment of decision. European leaders will try to “engage, not escalate” one more time—an approach that helped stabilize US support for NATO and Ukraine and got them a truce on trade. But political space on their hugging-the-bear strategy is running out fast. Leaders may face difficult strategic and tactical decisions about whether to pursue a deal based on the practical realities of what Trump wants out of Greenland or opt for economic confrontation with the United States and draw a hard line on sovereignty, international law, and, ultimately, Europe’s credibility. The approach they take will, in turn, inform Trump’s response—and the future direction of transatlantic relations.

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Why Portugal’s upcoming presidential election has echoes of 1986

Andrew Bernard — Fri, 16 Jan 2026 20:43:41 +0000

Another year, another election in Portugal. In a country that has weathered three parliamentary elections since 2022, the Portuguese will again go to the polls on Sunday, January 18, to elect their next president. Current president Marcelo Rebelo de Sousa will finish his second five-year term this spring and, under the Portuguese Constitution, cannot run for a third consecutive term. This year’s campaign has been the most unpredictable presidential race that Portugal has seen in the past three decades.

Foundations of the Portuguese presidency

Portugal, a parliamentary democracy under the nation’s constitution, also elects a president to serve as head of state. While many presidential functions are semi-ceremonial, the Portuguese system bestows on the country’s president several important responsibilities. These include veto powers, the role of supreme commander of the nation’s armed forces, and oversight of the country’s democratic institutions. While not a requirement, most candidates from established political parties renounce their party membership to show a commitment to the entire Portuguese population. However, this does not prevent Portugal’s political parties from supporting certain candidates.

Portugal’s presidents serve a five-year term, as compared to a four-year mandate for the government in power. If one candidate does not secure greater than fifty percent in the initial vote, then the top two candidates will compete in a runoff election. This has only happened once since Portugal’s transition to democracy in the mid-1970s, with a runoff election taking place in 1986. Since then, a candidate has captured the necessary majority to be elected president in the first round. But it looks unlikely that this will be the case this time.

Who are the leading candidates?

Although there are eleven candidates for the presidency, it has been primarily a five-candidate race among the following politicians:

António José Seguro is a senior voice of the center-left Portuguese Socialist Party (PS). Seguro served as a member of the Portuguese Parliament, the European Parliament, and was the PS secretary general from 2011 to 2014 until he lost an election for party leadership to former Prime Minister (and current European Council President) António Costa. Following the loss to Costa, Seguro stepped away from politics to teach and became a regular commentator on Portuguese television. His candidacy is still supported by the PS, but he vows to serve independent of party interests should he be elected, promising to lead a “modern and moderate” presidency.

João de Cotrim Figueiredo is a businessman and a relative newcomer to Portuguese politics. In 2019, he joined the newly formed, pro-business Liberal Initiative (IL) party. Cotrim (as he prefers to be addressed in the media) served as IL’s first member of Parliament following its creation, and he subsequently held the position of party leader from late 2019 to 2023. He is currently a member of the European Parliament, with his national IL party aligned with the Renew Europe group in the Parliament. Cotrim has appealed to younger voters, and his sustained and strong performance in the presidential campaign demonstrates changing dynamics within the Portuguese electorate. However, a late-breaking sexual harassment allegation from a former adviser to the IL’s parliamentary group could derail his campaign.

André Ventura is the president of the far-right populist Chega party (“Enough” in Portuguese). Ventura founded Chega in 2019 and has guided its meteoric rise. The party went from having only one member of Parliament in 2019 to becoming the second largest force in Portuguese politics during the 2025 parliamentary elections. He unsuccessfully ran for the presidency in 2021 and continues to use anti-corruption and anti-immigration as the foundations of his political platform.

Luís Marques Mendes is a long-time member of the center-right Social Democrat Party (PSD), serving in various capacities throughout his career since the 1980s. Marques Mendes, who was deputy prime minister from 1992 to 1995 and led the PSD from 2005 to 2007, still garners strong support from Portugal’s center-right parties. His candidacy, though, has not attracted a larger slice of the Portuguese electorate despite the center-right’s current minority government. Marques Mendes’s campaign has emphasized his political experience and his ability to build consensus.

The candidacy of Henrique Gouveia e Melo, a retired admiral in the Portuguese Navy, is one of the more fascinating stories of the campaign. Gouveia e Melo was a career naval officer, serving in the Portuguese Navy’s submarine fleet and rising to lead the Navy from 2021 to 2024. He gained national popularity when he was chosen to lead the government’s COVID-19 vaccination task force during the pandemic. Under his leadership, Portugal had one of the highest vaccination rates in Europe. As a result, Gouveia e Melo gained national popularity practically overnight, and he hoped to ride this momentum once he declared his candidacy for president following his retirement from military service. The admiral is not supported formally by any political party and claims to be above “partisan disputes.” Critics cite Gouveia e Melo’s lack of political experience as a major weakness, while the admiral champions his problem-solving experience and his ability to serve independent of political influence.

A fractured political field with a likely runoff to come

For most of the campaign, the top five candidates were in a virtual tie, with polling showing each within the margin of error of the others in the polls. But as the campaign draws to a close, there are signs of a divergence within the top five. According to CNN Portugal, the PS-supported Seguro, Chega’s Ventura, and the liberal Cotrim are all polling above 20 percent as of January 15, with Seguro polling the highest at 24.2 percent. Polls show the candidacies of the center-right Mendes and the independent Gouveia e Melo falling to the low-to-mid teens. The rest of the candidates are polling below two percent.

For most observers, it is a near certainty that the presidential election will move to a second round on February 8, but it’s not yet clear which two candidates will advance to the likely runoff. However, polling does show, that should the populist Ventura progress to the second round, he would lose to each of the other four top candidates in the various runoff scenarios.

Impact on foreign policy and transatlantic relations

Although Portuguese presidents’ responsibilities are principally semi-ceremonial, they can still influence foreign policy. While there is some divergence among the top candidates on issues such as European Union integration, defense spending, and immigration, none of them would be likely to divert from the nation’s preference for a strong US-Portuguese relationship.

What to watch for

Portuguese presidents have been a stabilizing force in the country’s politics since the creation of the republic, with the five previous presidents winning two consecutive five-year terms. The Portuguese electorate has historically chosen presidents that balance against the dominant political force of the day. In this light, it is not surprising that the Socialist-supported Seguro is leading the polls despite the party’s massive loss during the 2025 parliamentary elections. But with three candidates coming from outside the traditional center-left and center-right parties, the field is wide-open. With such a large slate of candidates, the Portuguese will likely have two opportunities to refine their preference for the next president of the Republic and occupant of the Palace of Belém.

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Is the U.S. Back in the Western Balkans? A Debrief with Congressman Mike Turner

sjones — Fri, 16 Jan 2026 17:00:00 +0000

IN THIS EPISODE

In this special #BalkansDebrief interview, Congressman Mike Turner, co-chair of the Congressional Bosnia Caucus and head of the U.S. delegation to the NATO Parliamentary Assembly, discusses whether the United States is truly re-engaging in the Western Balkans under its new national security strategy released in late 2025.

The Republican Representative of Ohio’s 10th District – and former mayor of the city of Dayton, Ohio – Mike Turner speaks candidly with Ilva Tare, Resident Senior Fellow at the Europe Center, about U.S. sanctions, the Western Balkans Democracy and Prosperity Act included at the National Defense Authorization Act (NDAA), and Washington’s long-term commitment to peace, stability, and democratic institutions in the region. He reflects on 30 years since the Dayton Peace Accords, arguing that while Dayton ended the war, it was never meant to be a permanent governing framework.

The conversation also addresses Bosnia and Herzegovina’s fragile political balance, including concerns over Milorad Dodik’s secessionist rhetoric. Rep. Turner notes that sanctions remain a tool on the table if destabilizing behavior continues, while emphasizing the need for renewed international engagement to support reform and reconciliation.

The Debrief also discusses Serbia–Kosovo normalization and U.S. diplomatic leverage, Russian influence in the Balkans, NATO and EU enlargement, Montenegro as an EU frontrunner, U.S. cooperation with Albania and North Macedonia, and a message to young people who feel the region’s democratic transition is taking too long.

ABOUT #BALKANSDEBRIEF

#BalkansDebrief is an online interview series presented by the Atlantic Council’s Europe Center and hosted by journalist Ilva Tare. The program offers a fresh look at the Western Balkans and examines the region’s people, culture, challenges, and opportunities.

Watch #BalkansDebrief on YouTube and listen to it as a Podcast.

SUBSCRIBE TO #BALKANSdebrief

listen to #bALKANSDEBRIEF as a podcast

MEET THE #BALKANSDEBRIEF HOST

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Ilva Tare

Resident Senior Fellow

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

Emerson Brooking: AI poisoning goes mainstream

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Eight ways AI will shape geopolitics in 2026

Atlantic Council experts — Thu, 15 Jan 2026 23:35:20 +0000

The events of 2025 made clear that the question is no longer whether artificial intelligence (AI) will reshape the global order, but how quickly—and at what cost.

Throughout the year, technological breakthroughs from both the United States and China ratcheted up the competition for AI dominance between the superpowers. Countries and companies raced to build vast data centers and energy infrastructure to support AI development and use. The scramble for cutting-edge chips pushed Nvidia’s valuation past five trillion dollars—the first company to reach that milestone—even as concerns mounted over circular financing and the question of how much the AI boom is founded on hype versus reality. Meanwhile, policymakers grappled with the balance between safety, security, and innovation and how to manage possible labor disruptions on the horizon.

As 2026 begins, rapid AI integration threatens to inject even more unpredictability into an already fragmented global order. Below, experts from the Atlantic Council Technology Programs share their perspectives on what to expect from AI around the globe in the year ahead.

Click to jump to an expert prediction:

Tess deBlanc-Knowles: The US pushes AI tech exports to counter China

Konstantinos Komaitis: AI governance turns global

Ryan Pan: The US-China AI race intensifies in a multipolar world

Esteban Ponce de León: AI challenges human judgment

Trisha Ray: Countries go all in on ‘sovereign AI’

Mark Scott: The battle of the AI stacks escalates

Kenton Thibaut: China doubles down on AI-powered influence operations

AI poisoning goes mainstream

Russia’s Pravda network of websites has published millions of articles targeting more than eighty countries. These sites launder and amplify content from Russian state media, seeking to legitimize Russian military aggression while casting doubt on Western support for Ukraine. Most of these articles will never be viewed by a human. Instead, they seem intended to target the web crawlers that scour the internet for training data to feed to insatiable AI models.

And the strategy is working. Last year, the Atlantic Council’s Digital Forensic Research Lab (DFRLab) and CheckFirst demonstrated how mass-produced Pravda articles were cited in Wikipedia, X Community Notes, and responses from major chatbots. Parallel research by Anthropic and the United Kingdom’s AI Safety Institute has shown how trace amounts of faulty data can effectively “poison” even very large models. People increasingly turn to AI systems to understand current events. If an AI model’s knowledge has been altered by sources intended to deceive, then the users’ will be, too.

In 2026, the issue of AI poisoning will break into the mainstream. Because of a roughly two-year lag in AI training data (many AI models are still waiting for the results of the 2024 US presidential election, for instance), these AI-targeted propaganda campaigns are about to start manifesting more often. And because one cannot reliably audit what’s inside a deployed AI model, the result will be a staggering research and policy challenge.

Digital policy experts, including the DFRLab, have spent a decade learning to identify, explain, and expose online disinformation where people can see it. This is online disinformation where they can’t.

—Emerson Brooking is the director of strategy and a resident senior fellow with the Atlantic Council’s Digital Forensic Research Lab.

The US pushes AI tech exports to counter China

In 2026, the United States will double down on exporting the US tech stack as the cornerstone of its international AI strategy. In December 2025, US President Donald Trump set the tone with his decision to allow Nvidia to export its advanced H200 chips to China, a clear endorsement of the view that the United States wins when the world builds and deploys AI using US technology.

Published days before the Nvidia decision, the Trump administration’s National Security Strategy makes this explicit: “We want to ensure that US technology and US standards—particularly in AI, biotech, and quantum computing—drive the world forward.” This framing echoes the AI Action Plan the administration released in July 2025, which stated that the “United States must meet global demand for AI by exporting its full AI technology stack,” warning that a failure to do so would be an “unforced error.”

In 2026, expect to see the United States sign more AI-focused partnerships like those forged with Saudi Arabia and the United Arab Emirates in 2025, alongside efforts to counter China’s growing influence in emerging markets. But as the United States makes this push, China holds some key advantages. Its lead in open-source AI models and focus on applied AI could prove to be the winning formula for capturing global market share with free models and deployment-ready technologies.

—Tess deBlanc-Knowles is the senior director of Atlantic Council Technology Programs.

AI governance turns global

In 2026, AI governance enters its first truly global phase with the United Nations–backed Global Dialogue on AI Governance and Independent International Scientific Panel on AI. For the first time, nearly all states have a forum to debate AI’s risks, norms, and coordination mechanisms, signaling that AI has crossed into the realm of shared global concern.

Yet this ambition unfolds amid acute geopolitical tension: The European Union pushes a rights- and risk-based regulatory model, while the United States favors voluntary standards to preserve innovation and security flexibility. For its part, China promotes inclusive cooperation while defending state control over data and AI deployment. Smaller and developing states gain a voice but remain structurally dependent on the major powers that control the bulk of AI talent, capital, and computing power.

The result is a fragile, uneven global framework. States converge on scientific assessments, transparency norms, and voluntary principles, but they avoid binding limits on high-risk AI uses such as autonomous weapons, mass surveillance, or information manipulation. Coordination emerges, but the core strategic competition remains unresolved, producing a governance architecture that manages risks at the margins while leaving rival models largely intact.

By the end of 2026, the Global Dialogue will likely have made AI governance global in form but geopolitical in substance—a first test of whether international cooperation can meaningfully shape the future of AI or merely coexist alongside competing national strategies. This juncture offers states an opportunity to demonstrate leadership by strengthening institutional capabilities and collaborative mechanisms, fostering a global AI governance framework that is more coherent, equitable, and universally engaged.

—Konstantinos Komaitis is a resident senior fellow with the Atlantic Council’s Democracy + Tech Initiative.

The US-China AI race intensifies in a multipolar world

The year ahead will see an even fiercer competition over AI dominance between the world’s two largest powers—the United States and China—while middle powers gradually close the gap in the race. China’s DeepSeek started off this year with a research paper on a new AI training method to efficiently scale foundational models and reduce costs. This publication comes almost exactly a year after the headline-making paper it released in January 2025, which was followed by the launch of DeekSeek-R1. The timing of this year’s new publication signals that the company will launch new models and continue shaping the world’s AI industry this year.

In 2026, expect China to double down on its open-source AI strategy to influence the world’s AI infrastructure. (Several major US tech companies are already using Chinese large language models in their applications.) The United States and China may also engage in further trade retaliation in the AI supply chains in light of recent developments in Venezuela, from which Chinese companies had gained access to rare earth minerals crucial to developing the AI stack. The Trump administration’s recent claims regarding Colombia, from which China also sources rare earth elements, could make Latin America the next technology battleground between the two powers.

But what about powers beyond the United States and China? In 2026, look for Europe to increase its AI defense investments even more than it did in 2025. Middle powers, notably India, will see their AI capability greatly improved this year, as US tech giants have recently pledged billions in investments in India’s AI capabilities.

The AI race in 2026 will still be defined by a multipolar order. Nevertheless, the United States and China will continue to yield the greatest influence.

—Ryan Pan is a program assistant with the Atlantic Council’s GeoTech Center.

AI challenges human judgment

In 2026, human–AI interaction will likely challenge human judgment and identity more deeply than in any year to date. This is not only because AI models are demonstrating increasingly complex capabilities, but also because AI-generated content can be so emotionally charged in today’s polarized information environment.

Online sources and social media have shown how polarization can be deliberately targeted, and the use of AI to generate fabricated or distorted content adds a new layer to how social and political events are interpreted. AI content is reshaping the dynamics of both manipulation and what could be described as a “misinformation game,” in which techniques such as the deployment of AI slop and the memeification of events are used to mock adversaries and amplify key propaganda narratives. For example, in June 2025, amid the Israel-Iran escalation, AI became the new face of propaganda. This included graphic and sensational AI-generated fake content, such as fabricated missile strikes, military hardware, religious and national symbols, and memes. But it also included more sophisticated fabrications of CCTV footage that became increasingly difficult to debunk.

In the first days of 2026, as the Trump administration captured Venezuelan strongman Nicolás Maduro, the use of AI to generate media content increased drastically. While much of this content was humorous or satirical in nature, it nonetheless illustrates emerging usage patterns, as playful AI-generated media can still shape perceptions of power and blur the line between satire, manipulation, and propaganda. Whether fabricated content aims to provoke humor or confusion, human judgment will face new challenges in the year ahead.

This challenge to human judgment and identity extends beyond misinformation. In 2026, the AI landscape may begin to show early signs of benchmark saturation, in which models converge at near-maximum scores on established capability tests, collapsing the measurable differences between them. This matters for the information environment because the same logic applies: If distinguishing real from fabricated content becomes difficult, then so too does distinguishing what humans uniquely contribute from what AI can replicate. The implications extend to professional identity and how to understand individual value and competence.

—Esteban Ponce de León is a resident fellow with the Digital Forensic Research Lab.

Countries go all in on ‘sovereign AI’

There are unprecedented amounts of capital flowing in to meet the anticipated demand for AI. Last year, for instance, kicked off with Trump’s announcement of Stargate, with the aim of investing $500 billion in AI infrastructure over five years. The principle driving this trend is straightforward: Countries think they must control AI before it controls them. Consequently, there was a wave of sovereign AI announcements in 2024 and 2025.

That momentum will only grow in 2026, starting with the launch of India’s sovereign large language model at the AI Impact Summit in February. Nations are seeking sovereign AI to strengthen their domestic economies, protect national security, mitigate geopolitical shocks, and reflect national values. However, there’s a catch: Not every country can, or should, try to build every part of the AI stack on its own. Trying to recreate from scratch everything from data centers to models is expensive, redundant, and impractical. Nations will need to choose what to build, what to buy, and where partnerships make more sense than going solo.

—Trisha Ray is an associate director and resident fellow with the GeoTech Center.

The battle of the AI stacks escalates

As AI becomes more central to countries’ economic prospects, national policymakers will likely seek to impose greater control over critical digital infrastructure. This infrastructure includes compute power, cloud storage, microchips, and regulation, and it is central to how emerging AI technology will develop in 2026. For the world’s largest digital powers—the United States, the European Union, and China—the push to control this infrastructure will likely evolve into a battle of the “AI stacks”—increasingly opposing approaches to how such core digital AI-enabling infrastructure functions at home and abroad.

The White House’s AI Action Plan, published in July 2025, made it the stated policy of the federal government to export the US stack to third-party countries, including via potential funding support from the US Department of Commerce for other governments to purchase offerings from the likes of Microsoft, OpenAI, and Nvidia. The European Commission has earmarked billions of euros for so-called AI gigafactories, or high-performance computing infrastructure, from Estonia to Spain, while national leaders also vocally called for a “Euro stack.” The Chinese Communist Party is urging local firms to forgo Western AI know-how and rely instead on domestic alternatives from companies such as Alibaba or Huawei.

The rest of the world will have to navigate these increasingly rivalrous approaches to AI infrastructure at a time when all countries seek greater control of so-called digital public infrastructure—that is, the underlying hardware and, increasingly, software needed to power complex AI systems. How these different AI stacks interact with each other will be critical to how the technology develops over the next twelve months.

—Mark Scott is a senior resident fellow with the Atlantic Council’s Democracy + Tech Initiative.

China doubles down on AI-powered influence operations

In 2026, the People’s Republic of China’s (PRC’s) AI-enabled disinformation efforts are likely to intensify in scale, persistence, and technical sophistication, particularly those targeting Taiwan. PRC actors are already using AI-generated audio, video, and text, distributed through networks of fake accounts and contracted private firms, to conduct “cognitive warfare” campaigns aimed at shaping political perceptions and voter behavior. These campaigns prioritize volume, localization, and algorithmic exploitation, and they are increasingly designed to be continuous rather than episodic. As AI-generated content is blended with human-curated messaging and commercial infrastructure, PRC-linked operations will become harder to detect and attribute, reflecting a shift toward more deniable, adaptive, and professionalized influence operations.

At the same time, Beijing is expected to pair these activities with defensive diplomatic messaging that rejects allegations of PRC-linked disinformation or cyber operations and reframes such claims as politically motivated attacks. This pattern reinforces a broader hybrid strategy in which AI-enabled influence operations, cyber activity, and diplomatic signaling are tightly integrated. In 2026, PRC disinformation campaigns are likely to focus less on overt propaganda and more on shaping narratives around crises and cyber incidents, contesting blame, eroding trust in attribution, and influencing strategic decision-making outcomes.

—Kenton Thibaut is a senior resident fellow with the Democracy + Tech Initiative.

The post Eight ways AI will shape geopolitics in 2026 appeared first on Atlantic Council.

What to watch as China prepares its digital yuan for prime time

Alisha Chhangani — Thu, 15 Jan 2026 17:58:01 +0000

China continues to advance its digital yuan project, implementing new features, and is pushing forward on the cross-border payments platform Project mBridge. Here are the top lines to know:

China’s digital yuan (the e-CNY) has grown over 800 percent since 2023, becoming the world’s largest live central bank digital currency experiment, with cumulative transaction value exceeding $2.3 trillion by late 2025.

To increase domestic adoption of the e-CNY, China has adopted a strategy of combining interest-bearing features and stablecoin-like functionality—while keeping the digital yuan sovereign and regulated.

Meanwhile, Project mBridge transaction volume has surged to $55.49 billion, a 2,500-fold increase over early-2022 pilots, with the e-CNY making up over 95 percent of total settlement volume.

For years, the prevailing assumption among policymakers and market observers was that central bank digital currencies (CBDCs), especially China’s digital yuan (e-CNY), would struggle to gain traction. Slow adoption, limited use cases, and public skepticism were expected to constrain their impact. New data from China, however, tell a different story.

Five years after its first pilot, the e-CNY remains the world’s largest live central bank digital currency experiment. By the end of November 2025, it had processed more than 3.4 billion transactions worth roughly 16.7 trillion renminbi (about $2.3 trillion). That represents a more than 800 percent increase from 2023, according to new data released by the People’s Bank of China (PBOC) at the end of December.

But this wasn’t the only news out of Beijing around the turn of the year. On January 1, a new management and measurement framework for the e-CNY took effect. Officials framed the adoption of this framework as a shift from the pursuit of “digital cash” toward deeper integration with the regulated financial system. Combined with China’s continued investment in wholesale CBDC infrastructure, most notably Project mBridge, these changes signal a more mature phase for the digital yuan. The question is no longer whether China wants a CBDC but what economic role Beijing expects the e-CNY to play at home and abroad—and how the e-CNY fits into a financial landscape increasingly shaped by stablecoins, cryptocurrency, a rise in gold holdings, and geopolitical tension.

What the e-CNY is—and what China wants to do with it

The digital yuan is often mischaracterized as a state-run competitor to private payment platforms such as Alipay or WeChat Pay. In practice, it serves a different function. The e-CNY is sovereign digital money: legal tender issued by the central bank, distributed through commercial banks, and designed to operate both online and offline. After five years of piloting, the e-CNY has not displaced private payment platforms; instead, it has been integrated selectively into public-sector payments, into government disbursements, and in controlled commercial settings. In many ways, the objective is not superior convenience but the preservation of a public digital money option as cash usage declines and private platforms dominate daily payments.

Institutional changes have also reinforced this shift. In October last year, PBOC Governor Pan Gongsheng announced the establishment of an E-CNY Operations and Management Center in Beijing to oversee the digital yuan’s systems and domestic infrastructure, complementing the Shanghai-based International Operations Center, which officially launched in September 2025 and is focused on cross-border use cases. Both centers fall under the jurisdiction of the PBOC’s Digital Currency Research Institute and are expected to operate in tandem—one focused on domestic system development and the other on international applications—to form what Pan described as a “two-winged” architecture supporting the digital yuan’s growth. Staff working on the e-CNY project grew from around forty to approximately three hundred in 2022, reflecting Beijing’s commitment to building robust operational capacity.

The proliferation of coordinating bodies signals a shift in priorities toward governance, supervision, and scale, but also toward a much broader geopolitical ambition. In his landmark June 2025 speech at the Lujiazui Forum, Pan placed the e-CNY within China’s vision for a “multipolar international monetary system,” arguing that such a system “can prompt sovereign currency issuers to strengthen policy constraints, enhance the resilience of [the] international monetary system, and more effectively safeguard global economic and financial stability.” Without naming the dollar explicitly, Pan warned that in times of geopolitical tension, “the global dominant currency tends to be instrumentalized or weaponized.” The e-CNY plays a key role in China’s ambitions on these fronts, especially for the internationalization of the renminbi and as a strategic counterweight to dollar hegemony.

In short, all these initiatives and messages show that China is getting the e-CNY ready for prime time.

From domestic aims . . .

At home, Beijing’s priority is adoption. This has been pursued primarily through incentives and the gradual integration of the e-CNY into public-sector and platform-based payment ecosystems. The digital yuan has been used for tax rebates, subsidies, medical insurance payments, and other public disbursements.

These applications allow the government to send money directly to specific recipients, track how it is spent in real time, and set rules on where it can be used. The same e-CNY features that improve efficiency, however, allow the state to have more visibility into transactions, raising persistent concerns about privacy and financial autonomy.

The most consequential shift is the introduction of interest-bearing features to the e-CNY. This moves the e-CNY beyond a pure payment instrument and closer to a savings-adjacent asset. By making the digital yuan interest-bearing, the PBOC clearly aims to make the CBDC more attractive and increase domestic adoption.

The move could be a game-changer. Other central banks have explored similar concepts on paper (the European Central Bank has discussed tiered remuneration for a potential digital euro, and Israel’s central bank has highlighted the importance of holding limits on user balances and of interest-rate tools). But China is the first major economy to operationalize such features at scale. An interest-bearing CBDC directly affects household saving behavior, bank funding, and monetary transmission, placing the digital yuan closer to the core of macro-financial policy.

The e-CNY may also serve as Beijing’s answer to stablecoins. While cryptocurrency trading and mining remain banned in mainland China, dollar-denominated stablecoins have emerged as an important source of liquidity and a growing tool for cross-border payments. But from China’s perspective, these instruments represent private digital monies operating outside direct state visibility. In many ways, the PBOC response has been to absorb the appealing functions of stablecoins, such as speed, programmability, real-time settlement within a sovereign, and a tightly regulated framework. Making the e-CNY interest-bearing may be a central part of this approach. It allows the digital yuan to compete not by mimicking crypto markets but by offering deposit-like features within the formal financial system. This is an interesting contrast to the debate currently playing out in Washington over whether stablecoins can be yield-bearing.

. . . to international ambitions

In 2025, China pursued an expansive strategy internationally, making the digital yuan one of the most prominent cross-border CBDC experiments to date. At the retail level, China is now testing the e-CNY in cross-border use in border regions and tourism-oriented economies such as Hong Kong, Macau, Laos, Thailand, Cambodia, and Singapore. Chinese tourists pay local merchants using e-CNY wallets issued by Chinese banks, with transactions executed through QR code. The PBOC has also experimented with limited foreign-user access, including pilot programs allowing foreign visitors to open capped e-CNY wallets in China and top them up using foreign bank cards.

At the wholesale level, China continues to develop Project mBridge, a cross-border payments platform designed to enable direct settlement between central bank digital currencies. Originally incubated under the Bank for International Settlements Innovation Hub, the project brings together the PBOC, the Hong Kong Monetary Authority, the Bank of Thailand, the Central Bank of the United Arab Emirates, and the Central Bank of Saudi Arabia. Early pilots led by the Bank for International Settlements (BIS) in 2022 processed just 164 transactions totaling roughly $22 million. In October 2024, the BIS stepped back from direct involvement, transferring governance fully to participating central banks.

Since then, activity on the platform has accelerated sharply. Under the partner central banks’ leadership, mBridge has processed more than four thousand cross-border transactions with a cumulative value of approximately $55.49 billion—representing a roughly 2,500-fold increase in transaction value since 2022. The digital yuan accounts for approximately 95.3 percent of total settlement volume. In November last year, the United Arab Emirates Ministry of Finance and the Dubai Department of Finance executed the first government financial transaction using the wholesale digital dirham on the mBridge platform. The transaction tested operational readiness and direct integration between government payment systems, settling funds without intermediaries. The pilot marked the formal launch phase of the United Arab Emirates’ wholesale CBDC and demonstrated mBridge’s viability for real-world public-sector payments. Looking ahead, mBridge is increasingly oriented toward trade settlement, particularly in energy and commodity-linked transactions, where China already plays a central commercial role.

Taken together, these developments point to a gradual expansion of the yuan’s internationalization through digital infrastructure. Rather than seeking to displace the dollar outright, China is building parallel settlement rails that reduce reliance on dollar-based systems. Project mBridge is unlikely to challenge dollar dominance directly, but it may incrementally erode it across specific corridors, sectors, and use cases.

What to watch in 2026

The PBOC’s priorities for the e-CNY in 2026 are likely to include deeper integration with the banking system, expanded use in trade settlement, and more direct competition with stablecoins by offering returns comparable to demand deposits. At the same time, Beijing is strengthening the institutional and technical foundations of the e-CNY as part of its broader goal of “steadily developing the digital [yuan]” under the country’s fifteenth five-year plan.

The e-CNY raises many of the same policy questions confronting other CBDC pilots, from privacy and oversight to technology and infrastructure. China stands out not for redefining these debates but for the speed at which it executed the e-CNY: few jurisdictions have moved as quickly or as comprehensively from experimentation to deployment, and if the PBOC continues at this pace, it is possible to see a full-scale launch this or next year. Given its scale, sophistication, and integration into national strategy, the digital yuan is likely to remain a central feature of China’s economy and of the global future of money debate for years to come.

Alisha Chhangani is the associate director for future of money at the Atlantic Council’s GeoEconomics Center.

Central Bank Digital Currency Tracker

Our flagship Central Bank Digital Currency (CBDC) Tracker takes you inside the rapid evolution of money all over the world. The interactive database now tracks over 135 countries— triple the number of countries we first identified as being active in CBDC development in 2020.

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China’s latest naval moves in the Western Hemisphere put Brazil in the diplomatic spotlight

Thayz Guimarães — Thu, 15 Jan 2026 01:11:04 +0000

BRASÍLIA—Brazil’s decision to allow a Chinese military hospital ship to dock in Rio de Janeiro could provide a case study of how Beijing is expanding its naval presence in the Western Hemisphere. It also demonstrates how regional powers are dealing with the pressures arising from the intensifying competition between the United States and China.

This past fall, China requested authorization from the Brazilian government for the People’s Liberation Army Navy hospital ship Ark Silk Road to dock in Rio de Janeiro from January 8 to 15. The request seemed, at first glance, to be just another routine stop on a humanitarian mission.

But in Brasília, the request triggered unusual discomfort. The Chinese diplomatic note, sent on September 15 last year, omitted any reference to Harmony Mission 2025, Beijing’s first global humanitarian naval operation. And it offered few details beyond a statement that no research activities were planned in Brazilian waters and that the vessel would not use any radio equipment. In fact, the note did not explain why the ship wanted to dock in Rio de Janeiro at all.

The lack of clarity raised concerns within Brazil’s Ministry of Foreign Affairs and among some Brazilian Navy officers who spoke with me on the condition of anonymity. These officials were especially concerned because of the geopolitical context that served as the visit’s backdrop: China’s growing presence in a region traditionally perceived by Washington as part of its security sphere, just as the Trump administration is prioritizing Latin America and asserting itself with military force to impose its interests there.

Brazilian officials’ concerns over the Ark Silk Road, which have so far been raised only behind the scenes, highlight a structural tension in the country’s foreign policy: Brazil is economically dependent on China but has maintained a solid security partnership with the United States for decades. This duality is currently on full display. The US oceanographic vessel Ronald H. Brown is scheduled to dock at the Port of Suape, in northeastern Brazil, from January 14 to 21, for a scientific mission approved by the Navy General Staff. This means the US Navy mission will overlap with that of the Ark Silk Road, which arrived in Rio de Janeiro on January 8 as scheduled.

The coincidence of these maritime visits makes Brazil a reluctant arena for US-China competition. But it also offers Brazil an opportunity to demonstrate that the country wishes to act as a partner to both powers, without allowing itself to be instrumentalized by either of them.

Instrument of power projection

The Ark Silk Road is the second-largest ocean-going hospital ship designed and built by China. Weighing ten thousand tons and equipped with fourteen clinical departments, seven diagnostic units, and the capacity to perform more than sixty types of medical procedures, the ship is among the most visible faces of Chinese “smart power”: the deliberate combination of soft power and hard power that China’s defense doctrine increasingly relies on.

The humanitarian results so far, according to statistics publicized by Chinese officials, are impressive:

3,330 patients treated in Fiji, with 426 surgeries in just one week;
3,995 local patients treated, 679 surgical procedures, and 2,718 medical tests in Tonga;
771 consultations and 177 surgeries in Montego Bay, Jamaica, weeks after Hurricane Melissa devastated the country;
2,769 local patients treated and 207 surgeries completed in only three days in Kingston, Jamaica.

The Ark Silk Road, or the “ship of hope and envoy of peace” as Chinese authorities describe it, represents smart power in its purest form: It projects benevolence and technical capability, but this humanitarian narrative coexists with clear strategic calculations.

When I spoke with Rafael Almeida, a retired Brazilian Army colonel and defense and strategy analyst who holds a master’s degree from the National Defence University of China, he suggested that the Ark Silk Road’s capabilities extend well beyond medical functions for a hospital ship. For instance, he pointed to the ship’s unusually large number of sensors, antennas, and radar systems.

The ship’s itinerary included stops in need of humanitarian assistance, but it was also carefully designed with diplomacy in mind: With the exception of Mexico and Brazil, all of the Latin American countries included in the mission are part of China’s Belt and Road Initiative. In some countries, such as Nicaragua, the ship was received with military honors. The Nicaraguan National Assembly formally approved the ship’s visit as part of an exchange with its national army, marking the first time the People’s Liberation Army Navy has docked in the country.

The implicit message is unequivocal: China is gradually expanding its naval presence in the Western Hemisphere, and it is doing so under the banner of a humanitarian ship.

The South Atlantic enters the geopolitical arena

The Ark Silk Road’s passage along the Brazilian coast is occurring in an increasingly disputed region. In recent months, Washington has reinforced its presence in the Caribbean, following the resurgence of tensions between the United States and the regime of Venezuelan leader Nicolás Maduro, which culminated in Maduro’s extraction and arrest on January 3.

But the United States’ maritime military actions have gone beyond its policy toward Venezuela. Since September 2, the United States has destroyed more than thirty vessels in dozens of attacks carried out in the Caribbean and the Pacific Ocean against ships that, according to the White House, were transporting narcotics, though the administration has not presented any conclusive evidence linking these boats to drug trafficking.

Meanwhile, the Chinese humanitarian mission in the South Atlantic highlights the region’s growing strategic importance. The Ark Silk Road normalizes the Chinese navy’s presence in areas it was seen as unlikely to operate in until recently. Additionally, China has invested in ports in these areas for years, especially the mega-port of Chancay in Peru. This investment reinforces Beijing’s logistical capacity on the Pacific coast of South America. With Beijing’s humanitarian missions now reaching the Caribbean and the Atlantic, an arc of Chinese strategic infrastructure, naval diplomacy, and political influence is emerging.

It is no coincidence that China released an official document explaining its policy toward Latin America and the Caribbean less than a week after the United States unveiled its latest National Security Strategy, which places Latin America at the center of US foreign policy concerns.

Brazil’s discomfort

China’s request for the Ark Silk Road to visit Brazil thus comes at a sensitive moment for Brazilian foreign policy. This timing, as well as the opaque nature of the request, have caused discomfort in Brasília.

When I reached out to Mauricio Santoro, a political scientist who specializes in Sino-Brazilian relations and collaborates with the Brazilian Navy’s Center for Political-Strategic Studies, he told me that Brazil does not require the kind of humanitarian support that China is offering to other countries with its mission. The Brazilian Navy has its own disaster response capabilities, Santoro noted, including the Multipurpose Atlantic Aircraft Carrier, the largest warship in Latin America. Moreover, Brazil’s United Health System is recognized as the largest public health system in the world. Free and universal, it serves a population of more than 200 million Brazilians.

But rejecting the Chinese request would have been politically and perhaps economically costly. China is Brazil’s largest trading partner and a significant investor in the country’s infrastructure. An explicit “no” could have been interpreted as a pro-Washington geopolitical signal.

Given these factors, Brazil opted to buy time for a few months, but in November authorized the Ark Silk Road to dock in Rio de Janeiro on the requested dates. The announcement was made with little fanfare. Unlike in other countries in which the Ark Silk Road has operated, the Brazilian government has not yet issued a public statement on the matter and has refused to answer questions about the visit.

When I reached out to ask questions about the Ark Silk Roads’s visit, the Brazilian government passed the buck. The Ministry of Foreign Affairs recommended that questions be directed to the Brazilian Navy and the Chinese embassy in Brazil. The Navy stated that it is only responsible for the technical and logistical aspects of the request. The Chinese embassy did not respond. I also contacted the Brazilian Ministry of Defense, which pointed me back to the Foreign Ministry. Documents obtained through the Access to Information Act confirm that official messages were exchanged only between the Ministry of Foreign Affairs and the Navy.

Even after the Ark Silk Road docked in Rio de Janeiro on January 8, the Brazilian government has not commented on the matter, in contrast to the Chinese Embassy in Brazil and the Chinese Consulate in Rio de Janeiro.

Meanwhile, the Regional Medical Council of Rio de Janeiro (CREMERJ) formally notified the state health department, requesting clarification as to whether the ship would be providing medical services to the local population. Citing Brazilian law and Federal Medical Council regulations, the CREMERJ emphasized that any medical act performed within Brazilian territory—even during humanitarian or diplomatic missions—must be subject to oversight. However, there is no official authorization for the Ark Silk Road to provide medical care to Brazilians.

An ‘embarrassing’ situation

On January 10, a Brazilian Navy delegation, led by Captain Gustavo Sant’anna Coutinho, chief of staff of the 1st Naval District Command, met with People’s Liberation Army Navy officers aboard the Ark Silk Road. Brazilian Navy musicians also performed on the ship’s deck. According to a senior Brazilian military officer I spoke with, the visit was accompanied by a series of confidence-building activities, including courtesy calls, invitations to tour the vessel, and a friendly football match at the Navy’s Physical Education Center. Beyond these engagements, the same officer told me, there was little substantive interaction, and the agenda remained largely routine—consistent with standard naval diplomacy.

However, this routine contrasted sharply with the level of control surrounding access to the vessel. Spontaneous visitors were not permitted. According to multiple sources I spoke with, entry required prior authorization from the Chinese consulate, and visitor lists closed in December. The Chinese Consulate General in Rio de Janeiro did not respond when I contacted it.

Despite these restrictions, the ship’s arrival was met with a visible public reception. Chinese citizens gathered at Pier Mauá to welcome the vessel, waving Brazilian and Chinese flags—scenes reminiscent of organized demonstrations during the 2025 BRICS summit in Rio de Janeiro. Brazilian media outlets have reported that similar groups at previous events were coordinated by intermediaries and accompanied by private security.

The tightly controlled access and carefully managed optics have fueled unease among some Brazilian military analysts and officers. Speaking on condition of anonymity, several of them described the visit to me as “embarrassing.” A Brazilian Navy officer told me that there had been pressure from Brazilian diplomats to ensure the Chinese were well received. However, the military did not know how to proceed since the visit had not been properly publicized.

Port visits routinely allow foreign navies to update their knowledge of port infrastructure, logistics, and coastal conditions. Such practices are common among long-established naval powers operating under bilateral frameworks. But according to Almeida, the retired Brazilian Army colonel, this marked the first time a Chinese military vessel conducted such an exercise in Brazil without a formal defense agreement in place.

Against this backdrop, Brasília’s refusal to provide more detail or otherwise draw attention to the Ark Silk Road’s docking, unlike several other countries on the itinerary, demonstrates that it is seeking maximum discretion to prevent any unwelcome geopolitical interpretations.

At the same time, this posture reflects an awareness that the convergence of Chinese and US naval presence creates a limited but significant opportunity for Brazil to reaffirm its longstanding preference for strategic autonomy. This means engaging both powers as partners, while making clear that such engagement does not amount to alignment and that Brazil does not intend to be instrumentalized in a dispute it did not choose.

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How the IMF can help Venezuela stabilize its economy

Martin Mühleisen — Wed, 14 Jan 2026 16:22:16 +0000

WASHINGTON—Without US support, Venezuela’s post-Maduro government stands little chance of stabilizing its shattered economy. The United States is the main customer for Venezuela’s oil, US creditors hold the bulk of Venezuela’s debt, most bonds were issued under New York state law, and the White House has strong political influence over the new government. But even with US support, an economic recovery will be difficult. It’s too early, for example, to tell whether the United States has sufficient levers to initiate a successful recovery in Venezuela, and it’s unclear whether the government in Caracas is capable and willing to do what’s necessary to make a recovery stick.

What’s needed first is clear, however. Economic stabilization requires a reduction of Venezuela’s massive debt obligations, which likely exceed $150 billion and are owed to a tangled web of bondholders, arbitration claimants, Russia, and—most problematically—China. Venezuela’s debt is where the Trump administration should start, and it should do so while working with the International Monetary Fund (IMF).

A debt crisis of staggering proportions

Venezuela’s external debt represents roughly 180–200 percent of its gross domestic product, making it one of the world’s largest unresolved sovereign defaults. The $60 billion in defaulted bonds once issued by the government and the state-run oil company Petróleos de Venezuela, SA have ballooned past $100 billion as a result of accumulated interest. International arbitration awards from companies expropriated by the Chávez regime add another $20 billion. And among other creditors, China holds at least $10 billion in bilateral debt, collateralized by oil shipments that give Beijing secured creditor status and operational leverage over Venezuela’s petroleum sector.

Without addressing this debt overhang, Venezuela will find it difficult to attract the massive foreign investment needed to revive its oil production. There are differing assessments of what Venezuela can realistically service while rebuilding its economy, but substantial debt reductions will be necessary. Citigroup, for example, estimates that restoring debt sustainability requires principal haircuts of at least 50 percent. Other estimates suggest even deeper reductions—down to a 30 percent recovery value—to avoid a cycle of repeated defaults that would cause permanent economic dysfunction.

Why the IMF matters

It has been encouraging to see US Treasury Secretary Scott Bessent engage with IMF and World Bank leadership to discuss Venezuela’s economic reconstruction. Given the IMF’s expertise in resolving complicated debt situations and restoring macroeconomic stability, support by the Bretton Woods institutions will be critical.

At the same time, the IMF must be careful to preserve its independence and its legitimacy. Especially in cases of sovereign arrears, the fund needs to be seen as an impartial arbiter that adheres to its legal mandate and its rules-based framework. For example, the decision to recognize a new government in Caracas as a legitimate counterpart—which is necessary for Venezuela to negotiate access to the IMF’s financial resources—is up to the IMF’s executive board and to it alone.

What follows assumes that this prerequisite is met and that the IMF can embark on what is likely to be an extraordinarily complex restructuring effort. The fund has not conducted an economic assessment of Venezuela since late 2004, representing a twenty-one-year gap in formal relations. Moreover, the capacity of the government and central bank to implement necessary policies will need to be demonstrated, and statistical processes will likely have to be substantially rebuilt.

Nevertheless, an IMF program offers something no bilateral arrangement can provide: a multilateral framework that legitimizes deep debt restructuring and provides Venezuela with the financing and technical assistance to implement reforms. While designing a program that gives confidence that future claims on Venezuela will be honored, the IMF can bring credibility to debt sustainability analyses, work closely with diverse creditor groups, and impose program conditionality that prevents preferential treatment of powerful creditors, particularly China.

Who gets paid first?

In this regard, it is important to recognize that the large investment and economic needs of Venezuela should take precedence over short-term payouts to official or private creditors. Neither the IMF nor other creditors will be able to provide fresh funds without being assured that Venezuela has the capacity to repay such loans.

This means that creditors will likely need to agree to substantial deferments on interest and principal repayments. It will take time for creditor committees to form, however, and the negotiations will need to identify different options that ensure broad compatibility of treatment, including oil‑linked debt instruments and bond exchanges with different coupons and maturities.

The Trump administration will play an important role in this process. The administration’s stated goal of kickstarting Venezuela’s oil industry is dependent on a speedy debt resolution, which it can facilitate, for example, through executive orders that protect Venezuelan assets from litigating creditors. At the same time, the administration should avoid the impression that it uses its policy leverage and legal powers to help US creditors without ensuring comparable terms for foreign creditors, whether private or official.

The latter principle will be important for the position of China. Under traditional IMF rules, Beijing could until recently effectively veto a Venezuelan program by refusing to provide upfront restructuring commitments and, instead, engaging in multiyear negotiations that would leave the country in limbo while economic conditions deteriorate further. In this scenario, China would retain its secured position through oil-for-loan agreements while Venezuela remained shut out of multilateral support.

The strategic opening: Lending into Official Arrears

Fortunately, the IMF reformed its Lending into Official Arrears (LIOA) policy in April 2024 specifically to address coordination problems with large creditors in debt restructurings. The new mechanism allows the IMF to lend even as official bilateral creditors refuse to commit to restructuring—provided that the fund implements enhanced safeguards.

These safeguards are powerful: phased disbursements, program conditionality prohibiting preferential creditor payments, and quarterly reviews monitoring restructuring progress. Most importantly, once an IMF program is operational, Venezuela would be contractually bound not to provide official holdout creditors better treatment than bondholders and other creditors receive. The oil-for-loan arrangements that currently give Beijing privileged access to Venezuelan revenues would be explicitly prohibited under program terms.

As a result, China would have to choose between two options: It could participate constructively in restructuring on terms comparable to other creditors, or it could watch from the sidelines while Venezuela receives IMF support, stabilizes its economy, and implements rules preventing Chinese preferential treatment.

Should it be necessary to enact the new policy, Venezuela’s case would resonate well beyond the country itself. China is now the world’s largest bilateral creditor, but recent debt restructurings in Zambia, Sri Lanka, Ethiopia, and Ghana faced lengthy delays, with months or years passing from staff-level IMF agreement to financing assurances. The LIOA reforms were designed precisely to give the IMF leverage in such situations. Venezuela would become the highest-profile test yet of whether these reforms achieve their intended purpose.

Charting a path forward

The Trump administration’s best path forward is to pursue a sequenced strategy to achieve broad international buy-in while minimizing the potential for Chinese obstruction. To do this, the administration should:

First, clarify government recognition and lift sanctions. Acting President Delcy Rodríguez governs under a ninety-day mandate that lacks European Union recognition. Washington should work with other countries to establish a transitional framework—likely requiring elections—that provides the legitimacy necessary for IMF engagement.

Second, unlock Venezuela’s frozen special drawing rights (SDRs). The approximately five billion dollars in SDRs are Venezuela’s own reserves, not new lending. Releasing them provides immediate liquidity for stabilization and humanitarian assistance while IMF program negotiations proceed. If properly executed under international supervision, this would demonstrate US commitment to Venezuela’s economic recovery rather than merely extracting oil resources.

Third, coordinate creditor groups early. Representing major bondholders, the Venezuela Creditor Committee has already expressed willingness to negotiate a restructuring. The administration should facilitate such discussions to quickly establish realistic recovery expectations, including by discouraging holdout creditors.

Fourth, encourage Venezuela to formally request Chinese participation in restructuring on terms comparable to other creditors. When it does this, Caracas should give Beijing a four-week window to respond, as required under IMF policies. If China provides constructive commitments, then these should be incorporated into the program framework. But if China holds out, then the United States should direct its IMF executive director to support enhanced safeguards under the IMF’s LIOA policy, proceeding with program approval despite Chinese resistance.

Fifth, design robust program conditionality. Besides identifying appropriate macroeconomic policies, along with governance and other structural reforms, the IMF program should include strict caps on debt service payments to ensure comparability of treatment, prohibition of secured lending arrangements such as oil-for-loans, and transparent reporting on all creditor interactions. These safeguards would protect both IMF resources and the integrity of the restructuring process.

The strategic imperative

The Trump administration’s Venezuela intervention raised profound questions about US power projection in the post–Cold War era. Answering those questions requires more than military force—it requires strategic sophistication in wielding economic and institutional tools. An IMF program deploying the new LIOA mechanisms, if necessary, to ensure China’s active participation while delivering consensual and sustainable debt relief would offer precisely that opportunity. The question is whether Washington possesses the diplomatic patience and multilateral discipline to see it through.

The post How the IMF can help Venezuela stabilize its economy appeared first on Atlantic Council.

A three-billion-person challenge: The rising global market for financial leaders

Ruth Goodwin-Groen — Wed, 14 Jan 2026 14:30:00 +0000

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Executive summary

Financial-sector policymakers and financial service providers are facing both a real challenge and unique opportunity to drive economic inclusion for about three billion people and spur growth toward the Sustainable Development Goals (SDGs).

The good news from the World Bank’s Global Findex Database 2025 is that 79 percent of adults globally and 75 percent in low- and middle-income economies (LMIEs) now have a financial account of some kind. Mobile phones are even more ubiquitous, with 86 percent of adults globally and 84 percent in LMIEs having one, which in most contexts can be used to access financial services. This means about four out of every five people have the potential to save safely and borrow prudently to meet their financial needs and the potential to pay and be paid digitally. This is good news for the individuals, their families, and for these economies because, as the IMF has found,
financial inclusion serves as a catalyst for both economic participation and inclusive growth.

However, the majority of adults in LMIEs that have a financial account do not yet fully engage with the formal financial sector. Only 40 percent of adults in LMIEs (on average) saved formally and only 24 percent of adults in LMIEs (on average) borrowed from a formal financial service provider in the last year and even they do not necessarily have the type of credit they need.¹ There are, therefore, about three billion people who could actively engage in the formal financial sector, and they present both a challenge for financial sector leaders and an opportunity for accelerating inclusive growth.

The main reasons adults in LMIEs do not use formal digital financial services are affordability, lack of trust in service providers, and lack of products to meet their needs. Rapid advances in digital public infrastructure (DPI) and artificial intelligence (AI) have the potential to directly tackle these challenges. Together they can reduce costs, increase trust, and tailor products for individuals, thereby improving lives and driving growth:

DPI has been endorsed by the Group of Twenty since India’s presidency in 2023.² Ninety-seven countries now have DPI-like digital payments; sixty-four countries have digital IDs, and 103 have data exchange—together reducing costs and increasing trust.³
AI, by cheaply analyzing massive data sets, is turbocharging cost reduction and product tailoring, which translates into greater affordability and access for people on lower incomes.⁴

Yet, there are potentially problematic aspects to these exciting innovations. DPI has the potential for loss of data privacy (if privacy by design is not embedded), for rent extraction (if not an open-source platform), and for government surveillance (if DPI safeguards are not central).⁵ AI has the potential to turbocharge fraud, scams, and identity theft and compromise trust.⁶

Therefore, government financial-sector regulators and policymakers have urgent and important decisions to make about how to enact and enforce responsible guardrails in the financial ecosystem. These guardrails are essential so new customers have affordable, appropriate products, can trust their money and data are safe, and have effective recourse mechanisms if problems occur. National coordination at the highest level is essential, regional approaches including policy harmonization can be cost-effective, and urgency is imperative. Financial-service leaders also have key decisions to make about how to design affordable and responsible financial products that build trust, enable resilience, and foster financial well-being and economic growth. There is now a unique opportunity for financial-sector leaders to unleash economic potential for three billion people and accelerate inclusive growth.

Read the full report

About the author

Ruth Goodwin-Groen is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. Goodwin-Groen brings thirty years of strategic and technical leadership in financial-sector development and financial inclusion in emerging markets to her current consulting practice, Goodwin-Groen Consulting. Her focus is on responsible digital financial inclusion and equality in financial services for women.

Goodwin-Groen is best known as the founding managing director of the United Nations-hosted Better Than Cash Alliance, which created a global movement from cash to responsible digital payments to achieve the Sustainable Development Goals. Alliance members and partners include over 113 governments, 229 companies, and most of the UN—accounting for over 90 percent of global gross domestic product.

Goodwin-Groen has a PhD in financial-sector development from the University of Bath, an MBA with distinction from Harvard Business School, and a Bachelor of Science with Honors from the University of Western Australia.

Acknowledgements

The author extends special thanks to those providing expert input on this paper: Isabelle Carboni, Expert Consultant; Eric Duflos, CGAP; Nicole Goldin, United Nations University-Centre for Policy Research & Atlantic Council; Leora Klapper, World Bank; David Porteous, Integral: Governance solutions; and Camilo Tellez-Merchan, Gates Foundation. She also deeply appreciates the input of Atlantic Council colleagues Josh Lipsky, Sophia Busch, and Juliet Lancey as well as those who contributed to the findings and recommendations of this report through their participation in two roundtable discussions at the Atlantic Council in April and October of 2025. See the Appendix for a list of the participants. This report was made possible in part by a grant from Tala.

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1 Klapper et al., The Global Findex Database 2025, xxxiii, 152, 154, 218.

2 Solly Malatsi, “Opening Address G20 Digital Economy Working Group,” Minister, South African Government, September 29, 2025, https://www.gov.za/news/speeches/minister-solly-malatsi-opening-address-g20-digital-economy-working-group-29-sep-2025; and Global Digital Public Infrastructure Repository, Initiative of the Indian Group of 20 Presidency, https://www.dpi.global/.

3 “The Digital Public Infrastructure Map,” DPI Mapping Project, https://dpimap.org/.

4 Sophie Sirtaine, “AI’s Promise: A New Era for Financial Inclusion,” CGAP Leadership Essay Series blog, CGAP, April 4, 2025, https://www.cgap.org/blog/ais-promise-new-era-for-financial-inclusion.

5 Zoran Jordanoski, “Safeguarding Digital Public Infrastructure: A Global Imperative for Sustainable Development,” United Nations
University Operating Unit on Policy-Driven Electronic Governance, July 9, 2025, https://unu.edu/egov/article/safeguarding-digital-public-infrastructure-global-imperative-sustainable-development.

6 Eric Duflos, “AI and Responsible Finance: A Double-Edged Sword,” AI and the Future of Financial Inclusion blog series, CGAP,
April 29, 2025, https://www.cgap.org/blog/ai-and-responsible-finance-double-edged-sword.

The post A three-billion-person challenge: The rising global market for financial leaders appeared first on Atlantic Council.

Digital sovereignty: Europe’s declaration of independence?

Frances Burwell, Kenneth Propp — Wed, 14 Jan 2026 14:27:11 +0000

Bottom lines up front

In 2025, the Trump administration’s open hostility to the EU and close connections with tech CEOs brought long-simmering transatlantic tensions over how to regulate Big Tech to a boil.
The effect so far has been to accelerate the EU’s quest to break its dependence on Silicon Valley and China.
Washington’s combative posture toward EU tech regulation sets the stage for more conflict that could imperil the $1.5-trillion trading relationship.

Defining the terms of the debate
Europe’s missing Silicon Valley
Geopolitics and the rise of tech sovereignty
Trump actions spur renewed calls for greater independence
Key issues:
Looking ahead: Transatlantic tensions will persist
Seven recommendations for Brussels and Washington

Introduction

Over the past several years, the concept of digital sovereignty has become ever more central to European notions of competitiveness and economic resilience. Formerly a niche idea within the digital policy community, it has now gone mainstream with major European leaders, from European Commission President Ursula von der Leyen to former head of the European Central Bank Mario Draghi, calling for the European Union to achieve digital sovereignty.¹ It has also become integral to European debates about technological sovereignty and strategic autonomy, and even to trade policy. And as digital sovereignty has become more prominent in European discussions, it has shifted from being a vague aspiration to a concept that EU policymakers increasingly seek to put into operation—raising the possibility of future EU restrictions on procurement from companies outside Europe, as well as other regulatory measures.

Yet, despite its growing centrality in European digital debates, digital sovereignty still does not have a clear definition.² At times, it seems to have been encompassed by the broader term of tech sovereignty, which reflects the EU’s desire to boost its industrial capabilities—not only in the digital space, but also in renewables and other green and future technologies. European policymakers also regularly refer to data sovereignty and cloud sovereignty, which can be seen as focused on particular aspects of digital sovereignty.

What all these definitions share, however, is the notion that Europe and its economy should be less dependent on others and more capable of protecting its own interests, including its interests in the digital sphere. That leads to the key unresolved questions at the heart of digital sovereignty. Does sovereignty require an economic approach that is exclusively European or, at minimum, favors European companies? Is ownership or effective control over key companies important, or is a risk-based system more appropriate? Is it desirable to limit sovereign requirements to certain sectors of the economy? Can Europe achieve a measure of sovereignty as part of a common enterprise among international partners? And if the partnership model is acceptable, who are the partners?

The transatlantic relationship is, in turn, entangled with Europe’s internal debate about digital sovereignty. Until recently, this has been an evenly divided contest, with some European experts calling for Europe to strategically decouple from the dominance of US companies, while others—including most member-state governments—have noted the lack of local alternatives and hesitated to discriminate against US and other non-EU companies.

But the Trump administration’s initial open hostility to the EU and continuing general unpredictability have caused even the most transatlantic of EU leaders to question the reliability of the United States. The July 2025 US-EU trade deal provided some temporary clarity and predictability in transatlantic commercial relations, although digital issues were addressed in only limited ways. President Donald Trump’s Truth Social post a few weeks later, threatening additional tariffs on countries with “Digital Taxes, Digital Services Legislation, and Digital Markets regulations [that] are all designed to harm, or discriminate against American Technology,” was immediately criticized by the European Commission, France, Germany, and others as a violation of Europe’s sovereignty.³ Nevertheless, during a November 2025 visit to Brussels, Commerce Secretary Howard Lutnick directly linked the removal of EU digital regulation with a potential US-EU agreement on steel and aluminum tariffs.⁴

Given Trump’s close connections with leading tech executives, the US administration’s combative posture toward European tech regulation is likely to continue being a point of transatlantic friction. Whether a continued focus by the Trump administration on Europe’s digital rules will create an even stronger push in Europe for an exclusive form of digital sovereignty is not yet evident. What is clear is that without some guidelines, such as those offered in the conclusions to this report, the European Union and United States might find that their differences regarding digital sovereignty and digital rules make creating and maintaining an open transatlantic digital marketplace much more challenging.

Defining the terms of the debate

One reason why digital sovereignty has become an increasingly inflammatory label across the Atlantic is that the lack of a clear definition allows everyone to define it in ways that support their own arguments. Its rise has also coincided with the European embrace of strategic autonomy in foreign and security policy—a notion that has predictably ruffled some US feathers, especially in the defense community. Further confusion has developed as similar terms (i.e., tech sovereignty, cloud sovereignty) have emerged in related areas. To introduce some clarity into this discussion, it can be useful to categorize these different notions.

Strategic autonomy: First arising in the context of foreign and security policy, strategic autonomy refers primarily to Europe developing defense and foreign policy capabilities that would allow the EU to play a more independent geopolitical role. Aside from a few defense funding efforts, the idea has not yet inspired major legislative initiatives. To indicate that partnership and autonomy were not contradictory, the EU later adopted the related idea of open strategic autonomy in trade policy. More recently, the EU has begun to embrace the concept of regulatory autonomy—the idea that “the Union’s values, interests, and regulatory autonomy underpin EU action, including in the digital sphere.”⁵ In these notions, autonomy is a more ambiguous and flexible concept than sovereignty, which implies a legal order backed by legislative initiatives.
Technological sovereignty: While the first European Commission headed by von der Leyen focused largely on legislation related to the online world, the importance of technologies—and Europe’s reliance on Chinese and US technologies—had come to the fore by the end of that mandate. This was not only about the digital world, but crucially about the European Green Deal. While the commission argued that carbon reduction would be key to the future EU economy, it became woefully clear that Europe remained dependent on others for many essential technologies: solar panels, wind turbines, semiconductors, electric vehicle batteries, etc.

Thus, in the second von der Leyen commission, the position of executive vice president for tech sovereignty, security, and democracy was created to oversee the development of EU capabilities to support the digital agenda. Others in the commission, including Executive Vice Presidents Teresa Ribera and Stéphane Séjourné, were tasked with strengthening EU technological capabilities across the Green Deal and industrial strategy generally. In June 2025, a key European Parliament committee defined tech sovereignty as “the ability to build capacity, resilience and security by reducing strategic dependencies, preventing reliance on foreign actors and single service providers, and safeguarding critical technologies and infrastructure.”⁶ Unlike strategic autonomy, however, tech sovereignty underlies significant legislative initiatives, from the Net Zero Industry Act and the Critical Raw Materials Act to the Public Procurement Directives. It also entails a strong focus on industrial policy, including state aid, competition policy, and other means of boosting key tech-related industries.
Digital sovereignty: While often used interchangeably with tech sovereignty, digital sovereignty focuses primarily on the online world. Legislation such as the General Data Protection Regulation (GDPR), Digital Services Act (DSA), Digital Markets Act (DMA), and Artificial Intelligence Act (AIA) have sought to establish a comprehensive system of governance for the online world, especially by regulating corporate behavior vis-à-vis individual or business users. With the exception of semiconductors and the EU Chips Act, much less attention has been paid to the technologies that enable the online world. However, recent proposals for a Eurostack—a European capacity to provide all elements of digital infrastructure, from cables to cloud—are indications of growing European concern about both governance and technologies.⁷

Data sovereignty: This subset of digital sovereignty—one of the earliest variants—initially focused primarily on protection of personal data under the GDPR. However, with the Data Act and other initiatives, increased attention is now paid to the re-use of industrial data that are either sensitive or commercially valuable, and to safeguarding the capacity of EU businesses and governments to exploit data generated in Europe.
Cloud sovereignty: The proliferation of data requires enhanced storage capabilities and increased focus on cloud storage and the security of data stored in the cloud. An increasingly sharp debate has centered on whether Europeans’ data should be stored exclusively within the EU, or whether they can be stored outside the EU by non-EU providers considered trustworthy and secure. This discussion has accelerated with the growth of artificial intelligence (AI) and its enormous requirements for cloud services and data centers. Cloud sovereignty also poses questions about how Europeans’ data can be accessed by foreign law enforcement and intelligence agencies.
Sovereignty over speech: Users of online services today confront a wide array of illegal or undesirable content, from child sexual abuse material to advertisements for illegal products to political disinformation. EU efforts to regulate platforms’ responsibility for illegal content and systemic risks have recently sparked criticism from the Trump administration, which regards aspects of these efforts as violations of free speech.⁸ Who has the right to determine allowable speech available online in a jurisdiction other than where it was produced?
Cybersecurity: Given the ever-growing number of cyberattacks, both in Europe and globally, the protection of the online world has become a growing element in digital sovereignty. In the past, cybersecurity had not been central to the debate about digital sovereignty, but since the Russian full-scale invasion of Ukraine in 2022 there has been a rapidly growing understanding that resilience against such attacks is an essential part of sovereignty. Europe in particular has faced numerous attacks from Russia and related online actors. The EU effort to establish standards for cybersecurity has already led to US-EU tensions, but there will likely be even more attention paid to cyber-proofing as the EU operationalizes its concept of sovereignty.

An increasingly sharp debate has centered on whether Europeans’ data should be stored exclusively within the EU.

As part of the growing effort to operationalize digital sovereignty, both EU institutions and member states have initiated efforts to elaborate the meaning of this elusive concept. The European Council, in formal conclusions to its October 23 meeting, declared, “It is crucial to advance Europe’s digital transformation, reinforce its sovereignty, and strengthen its own open digital ecosystem,” adding that “this requires reinforced international partnerships and close collaboration with trusted partner countries.”⁹

On November 18, 2025, the French and German governments convened a Summit on European Digital Sovereignty. The summit identified several areas for building digital sovereignty, including AI, data, and public infrastructure, and launched a joint task force on European digital sovereignty to report in 2026.¹⁰ Its final declaration underscored the EU member states’ “shared ambition to strengthen Europe’s digital sovereignty in an open manner as a cornerstone of our economic resilience, social prosperity, competitiveness and security.”¹¹

The European Commission, for its part, issued a Cloud Sovereignty Framework in September 2025 that identifies eight types of sovereignty-related objectives to be considered in the government procurement context. In a stab at precision, the framework encourages contracting authorities to assign each objective a sovereignty effective assurance level (SEAL). The results of that assessment should provide a mathematically derived sovereignty score.¹² But as EU discussions on this topic progress, there are still key differences among the member states about the choice between strict autonomy or international partnerships, and whether the model should be based on exclusive EU control or on risk management.

European officials at the Summit on European Digital Sovereignty in Berlin, November 18, 2025. REUTERS/Nadja Wohlleben.

The EU’S Cloud Security Framework, published in October 2025, lays out eight “sovereignty objectives” for procurement authorities to score as they decide what cloud services and products to buy. Source: Cloud Security Framework, European Commission.

Europe’s missing Silicon Valley

While many non-European observers would say that the EU’s regulatory power already gives it significant influence domestically and externally, the EU’s sovereignty in the European digital arena is vulnerable at best. Despite its role as a regulatory superpower, Europe finds itself reliant on non-EU companies for many essential elements of the digital world. A European Parliament report estimates that “the EU relies on non-EU countries for over 80% of digital products, services, infrastructure, and intellectual property.”¹³ This perception of dependency is at the heart of the EU push for digital sovereignty.

The EU has failed to develop a tech sector with either the vibrancy of Silicon Valley or the growing capabilities of China’s industry. In particular, Europe has not seen the emergence of world-leading new companies based on digital technologies. Indeed, while the US industry has created six companies with a market capitalization of €1 trillion or more, the EU has created none.¹⁴ In 2021, three US cloud companies supplied 65 percent of the EU cloud market, while EU-headquartered companies had less than 16 percent.¹⁵ As a consequence, European consumers and businesses must rely on non-EU companies—mostly US and some Chinese enterprises—for basic digital services. Initially, this largely applied to software, social media, search engines, and a wide array of shopping services. More recently, the importance of cloud, encryption, and AI, along with the prospective emergence of super-fast quantum computing, has made Europeans realize that this dependence on others has significant and potentially long-lasting effects on their own industries and economies, including those far beyond the tech sector.

Despite its role as a regulatory superpower, Europe finds itself reliant on non-EU companies for many essential elements of the digital world.

Of course, a few European companies are exceptions to these trends. Nokia and Ericsson were already leaders in the cables and fiber optics that are key to connectivity. They became even stronger in the market as concerns rose about the security of Chinese components. The Dutch company ASML has been a leader in the machines required to make the semiconductors that guide and manage so much of the digital world. SAP is the world’s largest vendor of enterprise resource planning software. But these European companies are not in the same league as their US equivalents in terms of market capitalization. For example, ASML has a market capitalization of $376 billion, while Nvidia is at $4.3 trillion and Microsoft is at $3.8 trillion.¹⁶

One consequence of Europe’s struggle in the digital marketplace has been the emergence of an EU-wide debate on competitiveness, as represented most prominently by the reports by former Italian Prime Minister Enrico Letta and former head of the European Central Bank Mario Draghi.¹⁷ Draghi specifically underlined the importance of Europe’s failure to develop an innovative tech sector by noting the increasing productivity gap between the EU and the United States, with European labor productivity falling to 80 percent of US productivity. He concluded that this was mainly due to “Europe’s failure to capitalise on the first digital revolution led by the internet—both in terms of generating new tech companies and diffusing digital tech into the economy.”¹⁸

The competitiveness debate has also sought to identify the causes of Europe’s lack of digital champions. Europe has a vibrant startup community, as demonstrated by the growing role of venture capital.¹⁹ But many of these innovative enterprises end up moving to the United States or elsewhere, while others fail to commercialize entirely. The most popular rationale for this failure to scale—cited by US and European analysts, including Draghi—is overregulation.²⁰ Other suggested reasons include a chronic lack of indigenous capital, overly strict bankruptcy laws, and a culture that fears failure.²¹ Whatever the reason, Europe’s inability to provide the resources and capabilities for its innovative companies to become continental champions, let alone world leaders, means it must rely on companies from elsewhere.

US Ambassador to the EU Andrew Puzder discusses disparities between major companies founded in the United States and the EU at the 2025 Transatlantic Forum on GeoEconomics, in Brussels, on September 30, 2025. Nicolas Lobet, PRYZM photography.

European Commission President Ursula von der Leyen holds former head of the European Central Bank Mario Draghi’s report on EU competitiveness at a September 2024 press conference in Brussels. Draghi’s report concluded that Europe failed to capitalize on the emergence of the internet to increase productivity. REUTERS/Yves Herman.

This was already the case in 2018, when the GDPR—the first major piece of EU digital legislation—came into force. During the next five years of von der Leyen’s first term as commission president, the EU passed several other pieces of digital legislation, most notably the DSA, DMA, and AIA. These measures made progress in harmonizing diverse member-state laws, both existing and anticipated. But while EU leaders saw this body of legislation as protecting their citizens from the excesses of data collection and illegal social media content, many outside the EU, especially in the US tech community, viewed these laws as overly burdensome at best and discriminatory at worst. Some EU policymakers, such as Member of the European Parliament (MEP) Andreas Schwab, early on were open about their desire to counter the dominance of US firms.²² Others, however, saw Europe as offering a positive alternative to the lightly regulated environment tech companies faced elsewhere. EU rules inevitably had the most impact on US companies, which provided the overwhelming majority of digital services in the EU market. Chinese companies also came to feel the impact of EU regulations as their market share grew over time, especially in shopping and social media.

Throughout this period of intense legislative activity, there were clear voices calling for greater digital sovereignty in Europe. The body of legislation passed in the first von der Leyen commission can certainly be viewed as an effort to place limits on the US companies that dominate Europe’s digital space—and as a way for Europe to regain some control, or sovereignty, over that market. But as competitiveness emerged as a top EU priority in 2023, the discussion about digital sovereignty became part of a much broader discussion about innovation and economic security.

Geopolitics and the rise of tech sovereignty

The earliest indication of a geopolitical element to EU digital sovereignty came during the first Trump administration, when the United States protested the use of Huawei components in European digital networks. Reluctantly at first, Europeans came to understand the risk of a Chinese capability to disrupt those networks and developed the EU Toolbox for 5G Security, a list of best practices released in January 2020. The toolbox identified states and state-backed actors as the most serious threats. It also set out criteria for identifying trusted versus untrusted vendors, including closeness to a foreign government, lack of democratic accountability in that government, lack of a data protection agreement with the EU, and ability of the third country to exercise pressure on the EU.²³

The toolbox was the first real effort to identify foreign companies and governments that might threaten Europe’s digital sovereignty and those that might not. There was clearly a focus on China and Chinese companies, as demonstrated by the criteria for vendors. But it should be noted that the toolbox is primarily voluntary guidance developed by the member states for themselves, with progress tracked by regular EU Commission reporting.

In 2019, the EU identified China as both an economic competitor and a “systemic rival,” but initially with little consequence, especially in terms of economic relations.²⁴ Over the next few years, the EU would increasingly focus on China and the dangers posed by its investments in the European economy, especially in critical European infrastructure. By March 2023, when von der Leyen called for de-risking Europe from China,²⁵ commission officials had identified a number of EU dependencies on China—including in critical raw materials, solar panels, and batteries—that had the power to disrupt European industry.²⁶ In June 2023, the commission reported that it considered Huawei and ZTE “materially higher risks” than other fifth-generation (5G) suppliers.²⁷

The EU also initiated a few measures to address those vulnerabilities: heightened screening of inward foreign investment, primarily at the member-state level; enactment of the European Chips Act, providing funding for advanced semiconductor manufacturing in Europe; adoption of the Critical Raw Materials Act, which established goals for EU production of key materials; and passage of the Net Zero Industry Act, which sought to build EU manufacturing capacity in clean technologies such as solar, batteries, and hydrogen. While these measures were not aimed only at China, concerns about that country’s ambitious global plans were a main motivation. Moreover, they had the effect of broadening the initially limited discussion of digital sovereignty beyond the realm of digital governance to include both digital and green technologies, resulting in a broader focus on technological sovereignty.

This European debate regarding the geopolitical dimensions of sovereignty—both digital and tech—intensified significantly following the Russian invasion of Ukraine in February 2022. Along with a focus on territorial security, as seen in the increased defense spending of most EU member states, the EU realized that it needed to address other vulnerabilities. Most urgently, the invasion led to a swift and drastic shift in Europe’s energy supply, as Russia went from providing 45 percent of Europe’s oil and gas in 2021 to 19 percent in 2024.²⁸ But the digital arena was also vulnerable: Russian cyberattacks and apparent sabotage against undersea cables demonstrated the dangers facing Europe’s digital infrastructure, while Russian-origin disinformation flooded European social media.

Perhaps the most important consequence of the Russian invasion, however, was the realization that Europe was vulnerable and that preserving its sovereignty—digital and otherwise—would require concrete actions. Many of the green technology initiatives mentioned above were still in the legislative process when the invasion began but moved to enactment by mid-2023 as the commission’s term began to close and as Europeans became even more conscious of those vulnerabilities. Competitiveness, resilience, and sovereignty became linked together in the concept of economic security as the EU sought to reduce its external dependencies, especially on Russia and China.

By the end of 2024, the tech sovereignty impulse in Europe had become a key policy priority, as demonstrated by the appointment of Henna Virkkunen to the new position of European Commission executive vice president for tech sovereignty, security, and democracy. But before the second von der Leyen commission could get its program under way—or make progress in implementing the Draghi report—Trump’s reelection as US president pushed the impulse toward European digital sovereignty into hyperdrive.

Trump actions spur renewed calls for greater independence

European suspicions about US intentions and capabilities in the digital world have existed since 2013, when Edward Snowden revealed the extent of US National Security Agency interception of Europeans’ communications. Nevertheless, the United States and EU enjoyed relatively open trade in digital services. The advent of the second Trump administration, however, has energized the transatlantic debate over digital sovereignty. While Trump’s focus during the 2024 campaign was on the EU’s trade in goods surplus with the United States, once back in office he frequently criticized the EU’s digital regulations as a whole, despite the US surplus in services trade driven by the success of US tech companies.

Only a month after Trump’s January 2025 inauguration, the White House issued a memorandum on “Defending American Companies and Innovators from Overseas Extortion and Unfair Fines and Penalties,” calling for tariffs and other responses in cases “where a foreign government, through its tax or regulatory structure, imposes a fine, penalty, tax, or other burden that is discriminatory, disproportionate, or designed to transfer significant funds or intellectual property.”²⁹ The memo specifically highlighted “regulations imposed on United States companies by foreign governments that could inhibit the growth or intended operation of United States companies.”³⁰ It also called for the US trade representative to determine whether to renew Section 301 investigations of several digital service taxes (DSTs), including those adopted in France, Austria, Italy, and Spain. The fact sheet accompanying the memo made clear that the target was the European Union and specifically “regulations that dictate how American companies interact with consumers in the European Union, like the Digital Markets Act and the Digital Services Act, will face scrutiny from the Administration.”³¹

Such an aggressive approach brought the issue of digital sovereignty to the fore, as it seemed to disregard the EU’s right to regulate its own market. As the United States and EU pursued a trade agreement, there were conflicting reports as to whether the DSA and DMA (as well as other EU regulations) were on the negotiating table.³² In the end, the joint statement published on August 21, 2025, did not mention either regulation or the DSTs adopted by several EU member states.

But the joint statement was hardly the last word. On August 25, Trump posted on Truth Social: “As the President of the United States, I will stand up to Countries that attack our incredible American Tech Companies. Digital Taxes, Digital Services Legislation, and Digital Markets Regulations are all designed to harm, or discriminate against, American Technology.”³³ Meanwhile von der Leyen, in her September 2025 State of the Union speech, defended the trade deal but also stated: “Whether on environmental or digital regulation, we set our own standards. We set our own regulations. Europe will always decide for itself.”³⁴

The Trump administration has continued criticizing EU digital regulation. For example, on December 16, US Trade Representative Jamieson Greer posted on X (formerly Twitter) that the EU had “persisted in a continuing course of discriminatory and harassing lawsuits, taxes, fines, and directives against U.S. service providers,” and suggested that the United States would retaliate.³⁵ It would be relatively easy for the administration to renew the Section 301 investigations of DSTs. The US government might also look for a mechanism to counter the impact of the DSA and DMA, especially if US companies are fined significantly under those laws. On April 23, 2025, the European Commission fined Apple and Meta €500 million and €200 million, respectively, for noncompliance with the DMA.³⁶ In September, Google was fined €2.95 billion for “distorting competition in the advertising technology industry,” although this case was pursued under the European Commission’s long-time competition authorities rather than under the DMA.³⁷

The commission is also investigating X as well as Meta’s Facebook and Instagram for alleged violations of the DSA, along with separate probes of the Chinese firms AliExpress, Temu, and Tiktok, and several European-based online pornography platforms. On December 5, 2025, the Commission fined X €120 million under the DSA for issues related to its blue checkmarks and advertising repository.³⁸ Beyond these specific cases, the growing criticism of Europe from the US executive branch and parts of Congress, which claim it is censoring “free speech,” is an indication that an influential segment of the Republican Party in the United States will continue to push for action against European efforts to moderate digital content. The EU has been a key target, as has the United Kingdom with its Online Safety Act.

US Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer speak after a meeting with the EU Trade Ministers Council in Brussels on November 24, 2025. Lutnick suggested that the EU “reconsider” some digital regulations if the bloc wanted the United States to reduce tariffs on EU steel and aluminum. REUTERS/Piroschka van de Wouw.

At the same time, the European Commission has embarked on a process of simplifying some regulations as part of an effort to make the EU economy more competitive. A digital omnibus—a legislative package designed to amend several regulations across a sector simultaneously—was presented on November 19, 2025.³⁹ As with other commission proposals for simplifying regulations, the digital omnibus focuses on reducing requirements for small and medium-sized enterprises (SMEs), along with streamlining reporting in cases of cybersecurity incidents. It also proposes delaying implementation of AIA requirements for high-risk systems until relevant guidance has been issued and calls for “targeted amendments” to the GDPR to boost innovation, including that related to AI training.⁴⁰ While simplification is likely to reduce the regulatory burden on tech companies in Europe—including large US companies—it has not yet addressed issues related to digital sovereignty.

Apart from potential revisions to existing legislation, the commission plans to move forward on two tracks. First, the second von der Leyen commission anticipates deploying more financial resources to support research on emerging technologies such as AI and quantum. Early in 2025, von der Leyen announced InvestAI, an initiative to raise €200 billion in investment capital.⁴¹ The EU also plans, through the 2025 EU Startup and ScaleUp Strategy, to support startups in their search for the funding that will allow them to grow.⁴² While these funds should be viewed with some caution—it is unclear whether sufficient private funds will join this public-private effort—they demonstrate the EU’s commitment to building its own capabilities.

Second, the commission has made clear that it will continue to pursue new rules governing activities and companies in the digital arena. The Financial Data Access (FiDA) regulation, now in the final stage of negotiations, is intended to allow greater sharing of financial data among financial institutions in order to develop new digital financial products for consumers. European legacy banks have launched an effort to exclude those companies designated as gatekeepers under the Digital Markets Act from participation in FiDA; this effort will primarily affect US tech companies.⁴³

The EU Cloud and AI Development Act (CADA) will attempt to address the EU’s shortcomings in cloud and AI capacity by encouraging the permitting of new data centers and other infrastructure, and by providing greater computational capacity and resources to startups, especially those focused on AI. But it is also expected to establish EU-wide eligibility requirements for cloud service providers, along with harmonized procurement processes, in ways that could restrict participation by non-EU companies. It is not clear yet whether CADA will address concerns through risk-based assurance models or ownership restrictions. It has reportedly been delayed until the first quarter of 2026 as the commission considers the concept of European effective control as a way of supporting EU digital sovereignty.⁴⁴

The Digital Fairness Act, expected to be introduced in mid-2026, will be the EU’s flagship legislation for business-to-consumer relations and will address protection of minors online, transparent online pricing, the abuses of manipulative and addictive design, and marketing by influencers—all of which are likely to be of significant interest to US platforms. Other initiatives expected to be launched in the next eighteen months include the ICT Supply Chain Toolbox, the Quantum Europe Strategy, and the Digital Networks Act. Finally, the European Data Union Strategy, released on November 19 along with the digital omnibus, establishes the ambition of “safeguarding the EU’s data sovereignty through a strategic international data policy.”⁴⁵ It aims to do this by “making fair conditions for data access and cross-border transfer . . . protecting sensitive EU non-personal data . . . and deepening cooperation with trusted partners.”⁴⁶ While a strategy is not a legislative document, we can expect that it will help guide EU policy on international data flows.

The European Parliament is also active in the digital sovereignty debate. MEP Axel Voss, one of the parliament’s leaders on these issues, wrote in an October 2025 post on LinkedIn: “We need immediate decisions to regain a digitally competitive and sovereign EU. Eurostack, deregulation, venture capital, chips, energy, access to quality data and a flourishing environment for Start Ups and creators are crucial for our sovereignty.⁴⁷ He proposes a number of measures, from digital special economic zones to using only EU programs within EU institutions to integrating “buy and deploy European tech” in public procurement.⁴⁸

These initiatives will undoubtedly continue to have an impact on the transatlantic relationship, as they will affect the major actors in the market, most of them American. Even with the best of intentions—and no ambition to exclude those companies—EU adoption and implementation of such rules will likely raise questions about the openness of its future market and the participation of non-EU firms.

The next section explores how the United States and EU have wrestled with the competing pressures of sovereignty and open markets, as presented by a set of key issues relating to government access to data.

Snowden’s relevations and the ‘kill switch‘

More than a decade has passed since the Snowden revelations, but the topic continues to shadow transatlantic digital relations. Many in Europe hailed Snowden as a hero for revealing Europe’s vulnerability to US signals intelligence, and the European Parliament invited him to appear and speak at a plenary meeting. The Obama administration, which charged Snowden under the Espionage Act, objected vehemently to the invitation and, in the end, Snowden addressed the parliament only by video link.⁴⁹ Now, however, US domestic sentiment regarding Snowden’s actions has begun to shift, at least in Republican circles, as several of Trump’s advisers have called for him to be pardoned.⁵⁰

Snowden’s disclosures started a chain of legal proceedings in Europe that generated substantial uncertainty among companies about the legality of their indispensable transfers of personal data to the United States. The Court of Justice of the European Union (CJEU) twice invalidated EU-US international transfer arrangements, judging them insufficient to protect Europeans’ fundamental rights. In 2015, the court struck down the EU-US Safe Harbor Framework, and a successor arrangement, the Privacy Shield, met the same fate in 2020.⁵¹ Meta, the object of the litigation both times, took the issue seriously enough that it publicly conceded to US securities regulators that it might need to withdraw Facebook and Instagram from Europe if it could not legally transfer data to the United States.⁵²

A third arrangement, the EU-US Data Privacy Framework (DPF), concluded in 2023, put significant additional safeguards in place for Europeans’ personal data when they are transferred to the United States. It has stabilized the situation, at least for the time being. On September 3, 2025, the EU General Court rejected a challenge to the DPF brought by Philippe Latombe, a French parliamentarian.⁵³ The case tested the sufficiency of US legal reforms made to overcome the CJEU’s 2020 judgment on the Privacy Shield. The court rejected claims that a redress mechanism created by the agreement lacked independence within the US legal system. It also validated the sufficiency of US safeguards relating to the collection of bulk data for intelligence purposes. Latombe has appealed the General Court verdict to the Court of Justice, however, so a definitive verdict on the fate of DPF has yet to be issued.⁵⁴

The European privacy advocacy organization None of Your Business (NOYB)—headed by well-known Austrian privacy activist Max Schrems, who brought the 2015 and 2020 CJEU cases—reacted with disbelief to the Latombe ruling. Schrems drew attention to Trump administration actions against the independence of the US Privacy and Civil Liberties Oversight Board (PCLOB) and the Federal Trade Commission (FTC). He also said that he is mulling bringing a second challenge to the DPF in EU courts.⁵⁵

US cloud service providers, including Amazon Web Services and Microsoft, have responded to European unease over data transfers to the United States by introducing service features that allow enterprise customers to store certain types of data exclusively on servers located on the continent.⁵⁶ Offering to localize data in this fashion can reassure European customers concerned about the long arm of US government’s potential access to their data.

However, the Trump administration exacerbated European anxiety over data flows to and from the United States by briefly cutting off Ukraine from US intelligence sharing in early 2025.⁵⁷ The specter of a US government kill switch—in the form of an order to US cloud providers to stop commercial data transfers to Europe—has spurred further efforts by US cloud providers to reassure their European customers. Brad Smith, Microsoft’s vice chair and president, went so far as to issue a public statement in April that, “In the unlikely event we are ever ordered by any government anywhere in the world to suspend or cease cloud operations in Europe, we are committing that Microsoft will promptly and vigorously contest such a measure using all legal avenues available, including by pursuing litigation in court.”⁵⁸

In the unlikely event we are ever ordered by any government anywhere in the world to suspend or cease cloud operations in Europe, we are committing that Microsoft will promptly and vigorously contest such a measure using all legal avenues available, including by pursuing litigation in court.
Brad Smith, “Microsoft Announces New European Digital Commitments,” Microsoft, April 30, 2025, https://blogs.microsoft.com/on-the-issues/2025/04/30/european-digital-commitments.

In response, some European companies have spied a business opportunity. For example, the German company Ecosia and its French counterpart Qwant announced their intention to build a European web index called European Search Perspective (ESP) to compete with Google’s search engine.⁵⁹ Ecosia’s chief executive officer (CEO) cited concern about the political winds blowing in the United States: “With the US election turning out as it has, I think there is an increased fear that the future US president will do things that we as Europeans don’t like very much . . . We, as a European community, just need to make sure that nobody can blackmail us.” He also emphasized Europe’s current dependence on Google’s services: “If the US turned off access to search results tomorrow, we would have to go back to phone books.”⁶⁰

The European dream of regaining data sovereignty by generating companies that can compete with the US cloud giants has a long history of failure. Our 2022 report chronicled the ambitious Franco-German effort to develop GAIA-X, a federated data and cloud ecosystem.⁶¹ In the years since, the vision of an interoperable network of trusted European cloud providers has had limited success. Its major output is a series of standards, specifications, and labels for European cloud providers, rather than a transformation of the commercial landscape.⁶²

Draghi’s 2024 report on the single market effectively conceded defeat in this area of endeavor. “It is too late for the EU to . . . develop systematic challengers to the major US cloud providers,” Draghi wrote.⁶³ Nonetheless, European anxiety over the possibility, however small, that dominant US platform services could withdraw from the continent, be blocked from serving it by the US government, or be a mechanism for channeling EU data to the US government, will continue to power a push for European sovereign alternatives.

A second continuing impetus is an awareness in Europe—thanks to Snowden—that the dominance of US digital services in Europe offers US intelligence agencies a strategic advantage. The Biden administration even boasted of this during the 2023 congressional debate to reauthorize Section 702 of the Foreign Intelligence Surveillance Act (FISA), a principal authority for collecting intelligence information on non-Americans. The pervasiveness of US digital service providers worldwide, the administration noted, allows US intelligence agencies to “leverage this national advantage to collect foreign intelligence information . . . in order to protect America from its adversaries.”⁶⁴

US law enforcement access to data on European servers

US intelligence collection in Europe is not the only challenge to data sovereignty that the EU sees emanating from the United States. Another is the Clarifying Lawful Overseas Use of Data Act (CLOUD Act), a 2018 US law. This statute confirmed that US law enforcement can unilaterally order cloud service providers with a presence in the United States to turn over personal data they host on servers in Europe and other foreign locations for criminal investigations and prosecutions. Although several EU countries, including Belgium, give their law enforcement authorities similar extraterritorial criminal evidentiary powers, this part of the CLOUD Act is seen in Europe as singularly intrusive. When EU legislators call for companies to be immune to foreign law, they are often referring to the CLOUD Act.

However, the CLOUD Act also contains a conciliatory dimension. Part II of the act authorizes the US Department of Justice to negotiate binding international agreements under which criminal investigators and prosecutors can obtain foreign-located electronic evidence directly from providers. Because CLOUD Act agreements are consensual, they do not violate a foreign state’s judicial sovereignty by commanding that a legal measure be taken on its territory. Instead, they remove legal obstacles that companies otherwise face in voluntarily assisting foreign law enforcement. This new type of international agreement can substantially reduce reliance on mutual legal assistance treaties (MLATs), which can be too slow and cumbersome for obtaining e-evidence in fast-moving investigations.

The United States has concluded CLOUD Act agreements with the United Kingdom (UK) and Australia, and negotiations are under way with Canada, all of which are members of the Five Eyes intelligence collective.⁶⁵ The UK agreement, the first to be concluded, has had a positive effect for that country’s law enforcement agencies.⁶⁶ According to the US Department of Justice, UK agencies have already made more than twenty thousand direct requests to companies holding electronic evidence in the United States, including many for real-time interception of communications.⁶⁷ The results “provided UK Law Enforcement and Intelligence Agencies with critical data to tackle the most serious crimes facing UK citizens including terrorism; child sexual exploitation; drug trafficking; and organised crime,” a UK government minister said in late 2023.⁶⁸

Prosecutors from EU member states have looked across the channel jealously as their UK counterparts have made use of this powerful new investigative tool. In 2019, the EU authorized negotiation of an e-evidence agreement with the United States.⁶⁹ Talks began in earnest after the EU finalized its controversial counterpart to the CLOUD Act, the 2023 E-Evidence Regulation.⁷⁰ Progress has been slow and painstaking. In June 2024, senior EU and US home affairs and justice officials issued an optimistic joint statement welcoming “further progress” in the negotiations and looking “forward to advancing and completing” them.⁷¹

Source: US Department of Justice

The Trump administration has paused EU-US negotiations without explanation. It might have concluded that CLOUD Act agreements operate overwhelmingly to the advantage of foreign partners—the inevitable consequence of most relevant data being housed on servers located in the United States. As the Trump administration has demonstrated in trade negotiations with foreign countries, it is singularly focused on agreements that it can present as bringing more benefits for the United States. However, such a narrow focus overlooks other benefits of CLOUD Act agreements—sparing cloud providers conflicts of law, deterring data localization measures, and reducing the burden on the mutual legal assistance process.

The EU-US Data Privacy Framework and an e-evidence agreement would neutralize much of the political tension that has prevailed in these realms for more than a decade.

In mid-2025, the UK government added an element of controversy to the use of CLOUD agreements by allegedly serving a request to Apple that it globally disable security features on its products.⁷² If the UK successfully required Apple to remove security from a product (for example, by building in a backdoor to data that would otherwise be end-to-end encrypted), it could then use the CLOUD Act agreement to request the now-vulnerable data directly from the company. Apple challenged the request in a UK administrative court proceeding and issued a public statement warning customers about the measure’s impact.⁷³ In addition, the White House and Congress sharply criticized the reported UK measure.⁷⁴ In August, the UK government withdrew its demand for access to Apple US customers’ encrypted data, effectively conceding to the US objection.⁷⁵ It recently confirmed that the order had been reissued to apply only to UK users.⁷⁶ The US government could well demand that any EU e-evidence agreement include a similar commitment safeguarding US persons’ data from surveillance by member states’ authorities.

A US-EU e-evidence agreement would be an important advance in calming Europe’s sovereign sensitivities about how US law enforcement authorities collect foreign-located evidence, just as the Data Privacy Framework has at least temporarily allayed Europe’s concerns about US national security agencies’ collection practices. Taken together, the two agreements would neutralize much of the political tension that has prevailed in these realms for more than a decade.

The US u-turn on data flows

After decades of the United States propounding unrestricted international commercial data flows—and bemoaning Europe’s privacy impediments to them—the Biden administration made a dramatic course correction in late 2023.⁷⁷ Through parallel legislation (the Protecting Americans from Foreign Adversary Controlled Applications Act) and executive action, it imposed controls on certain categories of data exports to China, Russia, and other “foreign adversaries” citing national security reasons.⁷⁸ Subsequently, the Department of Justice issued a final rule and guidance to companies on compliance and enforcement.⁷⁹ Both the legislation and regulatory actions were spurred by reports that data brokers were collecting publicly available bulk data on US persons and selling them to foreign governments, which could enable them to—among other things—track the location of US military personnel.⁸⁰

In addition to enacting domestic measures to limit certain international commercial data flows, the United States reversed course internationally. In the fall of 2023, the Office of the US Trade Representative withdrew its proposal to include in the Joint Statement Initiative on Electronic Commerce (JSI)—a World Trade Organization negotiation—a guarantee of the free flow of data across borders.⁸¹ The final text of the JSI, announced in July 2024, not only lacks such an obligation but allows parties essentially unlimited scope to restrict data flows for data protection reasons, precisely as the EU had sought.⁸² Even with these changes, the United States declined to join the JSI because it regarded the agreement’s national security exception as insufficiently flexible, a move that some European Commission officials found puzzling.⁸³

In contrast to the United States—and despite its long history of controlling data exports through the GDPR—the EU has moved slowly to evaluate the risks of data transfers to authoritarian states such as China and Russia. In 2021, the European Data Protection Board commissioned an outside report from academics that confirmed both countries’ governments have access to individuals’ personal information without commensurate rule-of-law protections, but it took no further action.⁸⁴ Even Russia’s full-scale invasion of Ukraine has not served to entirely staunch the flow of European data to Russia. The Finnish and Dutch data protection authorities investigated data transfers by Yango, a subsidiary of the Russian search engine Yandex, but have not yet imposed restrictions.⁸⁵

The data dynamics are a microcosm of Europe’s larger dilemma with China—deep commercial dependency, but also a recognition that a degree of sovereign control is needed.

The past year, however, has seen a gradual shift in European regulators’ thinking regarding data transfers to China. In May 2025, the Irish Data Protection Commission (DPC) fined TikTok €530 million after discovering it was transferring data to China without requisite data protection safeguards.⁸⁶ In July, the DPC broadened its TikTok inquiry into whether the Chinese government could access such data when they are stored in China.⁸⁷ The Finnish data protection authority began a separate investigation into possible Chinese government access to health data that a Finnish university had shared with a Chinese genetic analysis company.⁸⁸

Even Schrems, who has long challenged European data transfers to the United States, has turned his attention to China. Early in 2025, he filed complaints with European data protection authorities against six major Chinese consumer companies, including Shein, Temu, and WeChat, alleging government access to Europeans’ personal data by an “authoritarian surveillance state.⁸⁹

Recent moves by European data protection authorities to question whether China’s government has impermissible access to Europeans’ personal information mirror the rise in geopolitical tensions between Brussels and Beijing. Ireland’s inquiry into TikTok data transfers, for example, can be read as asserting European data sovereignty against a geopolitical rival. The data dynamics are, in effect, a microcosm of Europe’s larger dilemma with China—deep commercial dependency, but also a recognition that a degree of sovereign control is needed.

A single European data market

Brussels has recently expanded its laws promoting the secondary use of data for commercial, research, and government purposes, in hopes that these innovative legal measures will give homegrown companies a much-needed advantage in competing with data-rich foreign tech giants. However, the transfer of such data to non-EU companies has raised concerns about potentially protectionist restrictions. The Data Governance Act, the Data Act, and the European Health Data Space regulation—all enacted during the first von der Leyen commission—seek to stimulate a market for the secondary use of European data for commercial purposes.⁹⁰ These measures are based on the recognition that data collected by—and locked within—governmental or commercial organizations can have societal and economic benefits if made available for reuse by other entities.

The 2022 Data Governance Act grew out of a post-pandemic recognition of the potential for reuse of government-held data. It facilitates reuse by the private sector, for both commercial and non-commercial purposes, of government-held data (G2B), including data originally collected by public health, environmental, and transport authorities. Then Commissioner Thierry Breton hailed it as a step toward “an open yet sovereign European Single Market for data.”⁹¹

The Data Governance Act was followed a year later by the even more ambitious Data Act, which concentrated on expanding business-to-business sharing of non-personal data, such as the industrial data generated by connected devices. The Data Act sought to ease legal issues that arise with reuse by third parties, such as intellectual property protection and trade secret rules. Both laws insisted upon additional safeguards for transferring data to companies in third countries, such as the United States, where that data could become subject to governmental access. The European Commission further envisaged a series of sector-specific European data spaces, each requiring separate legislation.⁹² They would cover sectors—from agriculture to energy to transportation—that generate large amounts of industrial data ripe for reuse. The European Health Data Space regulation is the first of this series to be enacted.

At the start of the current commission mandate, von der Leyen’s mission letter to Virkkunen instructed her to deepen focus on the reuse of data. She was asked to “present a European Data Union Strategy drawing on existing data rules to ensure a simplified, clear and coherent legal framework for businesses and administrations to share data seamlessly and at scale, while respecting high privacy and security standards.”⁹³ The commission duly launched a public consultation process, articulating as its aim “expanding the availability and use of data to support AI development.”⁹⁴ Published on November 19, 2025, the Data Union Strategy seeks to safeguard the EU’s data sovereignty by ensuring fair conditions for cross border flows of non-personal data; “linking EU data ecosystems with those of like-minded partners;” and “boosting the EU voice in global data governance.”⁹⁵ This is intended to build a comprehensive legal regime for secondary data access that will enable European industry to catch up with the US tech giants that already enjoy access to vast pools of proprietary data.

EU content moderation and free speech

One of the EU’s proudest recent legislative accomplishments is the 2023 Digital Services Act, a sprawling and complex framework regulating online platforms’ accountability for illegal content, including illegal hate speech.⁹⁶ It imposes the most onerous requirements on very large online platforms, half of which are US companies. The Trump administration and the Republican-led Congress have sharply criticized the DSA, viewing it as a tool for the suppression of right-wing populist political speech.⁹⁷ On the contrary, the EU views certain DSA provisions, such as transparency tools and safeguards against arbitrary content moderation, as intended to protect free speech.

Trump singled out the DSA for criticism in the February 2025 official memorandum on preventing the “Unfair Exploitation of American Innovation,” while the Republican chair of the Federal Communications Commission called it “incompatible with both our free speech tradition in America and the commitments that these technology companies have made to a diversity of opinions.”⁹⁸ The US State Department began a diplomatic campaign, alleging, “In Europe, thousands are being convicted for the crime of criticizing their own governments.”⁹⁹ A leaked August 2025 cable to European posts directed US diplomats to advocate for a narrowing of the DSA’s definition of illegal content, among other ambitions. The European Commission firmly pushed back, describing the censorship allegations as “completely unfounded” and insisting that its digital legislation “will not be changed.”¹⁰⁰

The Republican majority on the House of Representatives Judiciary Committee also weighed in with a strongly worded staff report describing the DSA as an “anti-speech, Big Brother law.”¹⁰¹

The report identified a handful of examples of how the act could function to restrict speech extraterritorially. For example, in an August 2024 letter, then Commissioner Breton warned Elon Musk’s X platform that the effects of a campaign interview it hosted with Trump could spill over into the EU and spur commission retaliatory measures under the DSA.¹⁰² The committee also cited a request to X by the French national police that the platform remove a post originating from a US-based account suggesting France’s immigration and citizenship policies were to blame for a 2023 terrorist attack a Syrian refugee committed in that country.¹⁰³

Reform UK party leader Nigel Farage before a House Judiciary Committee hearing entitled “Europe’s threats to American speech and innovation” in Washington, DC, September 3, 2025. REUTERS/Nathan Howard.

The chairman of the US FTC launched a further salvo in August, warning US companies that their very compliance with the EU’s DSA, or with the UK’s similar Online Services Act or its surveillance authorities, could constitute a violation of the FTC Act, which prohibits unfair or deceptive commercial acts or practices. FTC Chairman Andrew N. Ferguson suggested, “It might be an unfair practice to subject American consumers to censorship by a foreign power by applying foreign legal requirements, demands, or expected demands to consumers outside of that foreign jurisdiction.”¹⁰⁴

This transatlantic dispute over the DSA and similar content moderation laws reflects differing US and European historical traditions on speech regulation.¹⁰⁵ The US Supreme Court has identified only speech creating a “clear and present danger” of inciting violence or other illegal conduct as suitable for restriction. Many European judiciaries, informed by their countries’ twentieth century histories of hate speech, take a more cautious view. For example, Germany bans speech glorifying or denying the Holocaust, while Denmark makes it illegal to burn the Quran. The DSA is the EU’s attempt to ensure that platforms remove content deemed illegal, both offline and online, but the act’s lack of definitions leaves a door open to abuse.

On December 23, 2025, the Trump administration raised the stakes in its free speech campaign against European content moderation laws. Secretary of State Marco Rubio issued determinations under the Immigration and Nationality Act barring from entry into the United States five Europeans associated with content moderation.¹⁰⁶ The headliner was Thierry Breton, an architect of the DSA; the others hail from European non-governmental organizations that track hate speech and disinformation on the internet. The European Commission quickly issued a statement that it “strongly condemns” the US actions, reiterating its “sovereign right to regulate economic activity in line with our democratic values.”¹⁰⁷ As the Trump administration continues its ideological campaign against the DSA, the transatlantic dispute over free speech seems bound to escalate.

Cybersecurity and cloud services

In 2022, the European Union Agency for Cybersecurity (ENISA) began an effort to harmonize member-state cybersecurity requirements for government data processing contracts. The European Commission averred that cloud services were a “strategic dependency” on a handful of large providers headquartered in the United States.¹⁰⁸ Several EU member states, led by France, argued for including sovereignty requirements in the envisaged EU Cybersecurity Scheme (EUCS).

A leaked 2023 ENISA draft proposed that the EU impose sovereignty requirements similar to those in France’s domestic security certification and labeling program, SecNumCloud, for contracts involving the most sensitive government data. SecNumCloud has an announced goal that, in order to obtain a trust certificate, cloud service providers must be “immune to any extra-EU regulation.”¹⁰⁹ ENISA proposed incorporating this requirement into EU law as well, adding restrictions on foreign ownership and insisting on localization of cloud services operations and data within the EU.

EU member states divided over whether to adopt such cybersecurity requirements, which could have the effect of disqualifying large foreign cloud service providers from sensitive government data processing contracts. In addition, some European companies, especially in the financial sector, argued that the foreign providers offered greater cybersecurity as well as a superior technical product.¹¹⁰ The Office of the US Trade Representative formally questioned whether the potential EUCS restrictions were consistent with the EU’s obligations under the World Trade Organization’s Government Procurement Agreement (GPA).¹¹¹

In 2024, the Belgian EU presidency put forward a compromise proposal that discarded the foreign ownership restrictions in favor of data labeling and localization requirements.¹¹² French authorities and technology companies expressed dismay at the prospect of EU-level cybersecurity certification rules weaker than France’s own.¹¹³ ENISA has yet to issue the final implementing measure, and this debate could well reemerge in the context of the anticipated CADA.

Looking ahead: Transatlantic tension will persist

The European debate over digital sovereignty—now firmly linked to the wider debate over technological sovereignty—is likely to be a continuing point of tension in the US-EU relationship. For many years, this has been a rhetorical exercise with few real consequences for non-EU firms, especially US companies. But the shift in geopolitics and the increasing drive to support EU industries to build a more competitive economy have led many European policymakers to conclude that now is the time to act. Moreover, the geopolitics are not just about Russia’s aggression or China’s export domination. They are also about the shifts and inconsistencies in US policy that have made many in Europe believe that it must now begin to fend for itself, in terms of both defense and the economy.

As a result, the debate over digital sovereignty has moved from a discussion of whether there should be limits on non-EU companies to a discussion of how many restrictions there will be, and of what type and in what sectors of the economy. That discussion is likely to be pursued through several key legislative initiatives planned for late 2025 and 2026. CADA is already expected to identify requirements—including sovereign requirements—for cloud services.

The geopolitics are not just about Russia’s aggression or China’s export domination. They are also about the shifts and inconsistencies in US policy that have made many in Europe believe that it must now begin to fend for itself.

Perhaps most relevant, the public procurement directives are already under internal review, with a proposal for revision expected from the commission in 2026.¹¹⁴ Because much of the debate is about who can sell which products and services to whom (including to governments), procurement policy will be a key instrument in imposing sovereign requirements. EU and member-state procurement rules currently privilege price as the key selection criteria but, in the Net Zero Industry Act and other new measures, other considerations have been introduced into the procurement calculation.

As the EU pursues these initiatives, it will face a dilemma: To what degree does sovereignty require autarky? Or does the EU require partnerships, despite the risk of dependencies, because of the current lack of key capabilities? Some in Europe have argued that the right way forward is to develop end-to-end EU capabilities in the form of a Eurostack.¹¹⁵ From fiber-optic networks and computing hardware to software development and cybersecurity capabilities, all would be provided by EU companies.¹¹⁶ Others have pointed to the difficulties with this, asking whether the lack of EU-owned capabilities in cloud, AI, search, and other key functions would doom such an effort to be inferior and thus push Europe farther behind in the race to innovate essential digital technologies for the future. They also fear that European companies will not be able to compete internationally if they are cushioned by sovereign requirements.¹¹⁷ Some see no contradiction between sovereignty and being open to non-EU firms; indeed, they see access to the most innovative global companies as essential, especially given Europe’s competitiveness challenge.¹¹⁸ For others, the key element is timing. The EU tech sector currently lags in innovation but, with proper support and time, it should be fully capable of growing world-leading firms and technologies.¹¹⁹ Indeed, the EU’s International Digital Strategy emphasizes the importance of partners in boosting EU competitiveness and innovation, and the EU’s ambitions in global governance for data can hardly be accomplished without cooperative partners.¹²⁰

But in all these versions of digital sovereignty, as well as in the larger arena of tech sovereignty, there is a central question: who owns the companies involved, and does it matter if they are not EU firms as long as they abide by EU laws and regulations? The recent negotiations over an EU-wide cloud certification system stalled on exactly this point (see the above discussion of EUCS). The Toolbox for 5G Cybersecurity put forward the concept of a “high-risk supplier” to warn against non-EU companies that were insufficiently independent of their home governments. While this was aimed at Chinese companies—especially Huawei—concerns have more recently focused on the United States and its companies.

The EU’s concerns are not only about the dominant position of US platforms in the European digital market, but also the potential actions of the US government—especially the Trump administration. The administration’s inconsistency on Ukraine, highlighted by its threats in July 2025 to cease sending weapons and other military supplies to Ukraine (reversed shortly after), alarmed many in Europe.¹²¹ Reports that the Trump administration threatened to block Ukraine’s access to the vital communications network Starlink during negotiations over critical minerals also raised European concerns.¹²² While these instances were primarily about defense, not the digital arena, they have created a heightened sense of insecurity in Europe. Coupled with the experience of the trade negotiations, they put into question the reliability of the United States as a partner in any undertaking.

In this environment, the EU will need to make choices about how best to ensure it has sufficient sovereignty over its digital market. Will the answer be found in more restrictions on non-EU companies, or with a more open arrangement that also boosts European economic growth and competitiveness?

Seven recommendations for Brussels and Washington

Given the economic stakes involved for both parties, the EU should engage the United States as it moves forward, and should keep the following guidelines in mind.

Competitiveness is key to innovation and economic success.

Throughout the coming debates over sovereign requirements, the EU must balance the need for security and for its own industrial and digital capabilities with the efficiencies and productivity required for a globally competitive economy. Settling for a more expensive and less capable product or service because it is European owned is not the way to grow the economy. There are times when it is necessary, but these instances should be rare and well considered, not routine.¹²³

Heated rhetoric on either side does not help the economy.

As the EU moves forward with legislation, both Washington and Brussels should seek to lower the temperature. While some US executive orders and statements from top officials have seemed to decry any EU regulation that impedes US companies, the reality is that Europe has the right to regulate as it sees fit in its own market, as does the United States. At the same time, European threats of broad sovereign restrictions do not encourage needed investment. It should not be forgotten that the US-EU trade and investment relationship is the largest such partnership in the world, worth around $1.5 trillion in goods and services trade in 2024, and with mutual investment worth several times that.¹²⁴ As both parties establish regulatory or investment requirements intended to boost domestic capabilities and add resilience to their economies, there will inevitably be tensions and misunderstandings. Creating barriers to trade and investment is sometimes necessary in limited circumstances, but careful consultations can ameliorate their impact.

Agreed legal frameworks in key areas can ease the need for sovereign protections.

A proposal that the trusted circle of cybersecurity providers be based on NATO membership might be appropriate.

As the discussion of data policy demonstrates, the transatlantic economy is not just about products and services, but also the data generated by them. Sharing those data—and being able to use them to generate revenues—is key to success in the digital economy. Of course, those transferring and using data must comply with local laws, including the GDPR. But the US and EU regulatory regimes collide at times, offering inconsistent or even conflicting requirements. Negotiated arrangements, such as the US-EU Data Privacy Framework, can overcome those differences and provide a stable context for business. A US–EU agreement on law enforcement access to data likewise could provide the protections and access both parties need. Similarly, an agreement that facilitates transfers of non-personal data might be useful in response to the Data Act and Data Union Strategy. Now is the time to make sure the United States and EU are developing compatible regimes.

Ringfencing can be a valuable strategy, as can trusted vendors.

Not all suppliers and customers are equal. Arrangements among allies and partners can lessen risks while preserving as much of the open, prosperous economy as possible, even in sensitive sectors. It makes no sense for Europeans to focus more on the transfer of data to the United States than to Russia or China. Using criteria such as those in the EU Toolbox for 5G Cybersecurity to identify foreign companies that can partner in key sectors will provide clarity and ease transactions. Similarly, a proposal floated in the EUCS negotiations that the trusted circle of cybersecurity providers be based on NATO membership might be appropriate. The Group of Seven (G7) could also offer a starting point for developing a set of compatible, interacting regulatory regimes in the digital economy, as it has done to some degree through its discussion of data free flow with trust and the AI principles and code of conduct.¹²⁵

Certain sectors of the economy are more sensitive than others.

Digital sovereignty requirements should not be imposed on broad swaths of the economy. There are two main reasons for such requirements: national security and creating an indigenous capability in those areas where national economic resiliency is required. Policymakers should carefully identify the areas of the economy where these two reasons apply. Cybersecurity for essential government operations and protecting critical infrastructure are good examples. Management of more prosaic, but still sensitive government data—including where they are stored and who has access—might not need such stringent requirements. Because digital elements—data, cloud, software, and increasingly AI—exist across the economy, it might be more helpful to think about specific functions and make a risk-based assessment of the consequences of failure. Sovereign requirements should be limited to those areas in which a failure or breach will have consequences across society and the economy.

The type of sovereign requirement can vary with the economic sector and even particular conditions.

Among European policymakers, the sovereign requirements currently under discussion can be divided into two types: those that require a supplier to adhere to specific rules and those that involve restrictions relating to the ownership of the company supplying a particular service or product. The first might involve data localization or restricting access to data or use of a particular technology, such as AI. The second, which has been applied in the French SecNumCloud, is far more restrictive and affects the ability of any US-based company to provide the service in question. In some cases, an ownership restriction might exclude companies with the best capabilities from providing the service, and could even expose those using the service to more risk. Thus, ownership restrictions are unlikely to be worthwhile except in rare cases. In the United States, these exist in areas of defense contracting, in which companies dealing with US classified material must set up a US company with US governance and employees. But most government digital contracts, both in the United States and in Europe, are not defense related and would not require such far-reaching ownership rules.

Instead, for those functions in which a breach or disruption would cause significant harm, creating a category of trusted vendors might be appropriate. This could apply to sensitive government functions, as well as to critical infrastructure provided by private-sector enterprises. A system based on trusted vendors could balance the desire to boost local providers while also securing access to top-quality services from non-EU companies. The EU might consider whether there are lessons to be learned from the US government’s FedRAMP system, which certifies companies (including non-US companies) to provide cloud services to different government customers. Companies need to meet criteria that become more restrictive and complex through the three levels of certification (low, moderate, and high).¹²⁶ While FedRAMP applies across most of the US government, individual agencies have the ability to impose their own requirements, allowing national security and intelligence agencies to impose further restrictions on those involved in classified functions. Despite these exceptions, FedRAMP’s graduated approach—matching certification level to sensitivity of the data—is much more tailored than some European proposals in matching certification requirements to the risk level of the cloud service required.¹²⁷

Sovereign requirements should be implemented in a consistent manner, including at the member-state level.

One of the persistent challenges of EU policy is ensuring that implementation is the same throughout the union. Both the Draghi and Letta reports cited differences in member-state requirements for businesses (or implementation of those requirements) as a key factor slowing EU competitiveness. The US trade representative has cited as trade barriers numerous instances of different requirements among EU member states, meaning that companies must follow multiple sets of rules even within the single market.¹²⁸ The European Commission recognized this problem when it decided that, under the DSA, very large online platforms (VLOPs) should be regulated at the EU level, not by member-state authorities. As the EU develops sovereign requirements in the digital sphere, it should be alert to efforts by member states to toughen criteria in ways that add unwarranted restrictions.

While the EU certainly has the right to decide on its own digital sovereignty requirements, those measures will undoubtedly affect access of non-EU companies to the market as well as the capabilities that are accessible to the EU and its member states. There will be costs for the EU, especially as it tries to build a more competitive economy. For that reason, any restrictions should be focused on those circumstances in which risks are high and security is necessary. This exercise should not be about denying access to non-EU companies, but instead about building a secure digital environment and resilient European capabilities. The EU should engage with its partners—not only the United States, but also Japan, South Korea, the UK, and others—to ensure that the fewest possible frictions arise. This will be a test for the transatlantic relationship, but one that can lead to greater cooperation rather than continued angst.

About the authors

Fellow

Frances Burwell

Distinguished Fellow

Nonresident Senior Fellow

Central Europe Digital Policy

Fellow

Kenneth Propp

European Union Digital Policy

Acknowledgements

The authors would like to thank James Batchik, Emma Nix, and Jack Muldoon for their tireless support on the report’s editing, research, and data visualization.

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1 See, for example: “Von der Leyen Puts Digital Sovereignty at the Heart of EU’s 2025 Agenda,” Council of European Informatics Societies, September 16, 2025, https://cepis.org/von-der-leyen-puts-digital-sovereignty-at-the-heart-of-eus-2025-agenda/.

2 See the earlier work of the authors: Frances G. Burwell and Kenneth Propp, “The European Union and the Search for Digital Sovereignty: Building ‘Fortress Europe’ or Preparing for a New World?”Atlantic Council, June 2020, https://www.atlanticcouncil.org/wp-content/uploads/2020/06/The-European-Union-and-the-Search-for-Digital-Sovereignty-Building-Fortress-Europe-or-Preparing-for-a-New-World.pdf; Frances Burwell and Kenneth Propp, “Digital Sovereignty in Practice: The EU’s Push to Shape the New Global Economy,” Atlantic Council, November 2, 2022, https://www.atlanticcouncil.org/in-depth-research-reports/report/digital-sovereignty-in-practice-the-eus-push-to-shape-the-new-global-economy/.

3 Donald J. Trump, Truth Social post, August 25, 2025, https://truthsocial.com/@realDonaldTrump/posts/115092243259973570; Elena Giordano, “EU Resists Trump: Tech Regulation Is Our ‘Sovereign Right,” Politico,August 26, 2025, https://www.politico.eu/article/eu-resists-trump-tech-regulation-is-our-sovereign-right/.

4 “Lutnick Talks EU Tech Rules, Nvidia H200 Chips, SCOTUS Tariff,” Bloomberg, November 24, 2025, https://www.bloomberg.com/news/videos/2025-11-24/lutnick-talks-eu-tech-rules-nvidia-h200-chips-tariffs-video.

5 “European Council Meeting (23 October 2025) Conclusions,” European Council, October 23, 2025, https://www.consilium.europa.eu/media/d2nhnqso/20251023-european-council-conclusions-en.pdf.

6 Sarah Knafo, “Report on European Technological Sovereignty and Digital Infrastructure,” European Parliament, Committee on Industry, Research and Energy, June 11, 2025, https://www.europarl.europa.eu/doceo/document/A-10-2025-0107_EN.html.

7 Cristina Caffarra, et al., “Deploying the Eurostack: What’s Needed Now,” Eurostack Initiative, May 19, 2025, https://eurostack.eu/wp-content/uploads/2025/08/eurostack-white-paper-final-19-05-25-3.pdf.

8 Kenneth Propp, “Talking Past Each Other: Why the US-EU Dispute over ‘Free Speech’ Is Set to Escalate,” Atlantic Council, August 15, 2025, https://www.atlanticcouncil.org/blogs/new-atlanticist/us-eu-dispute-over-free-speech-is-set-to-escalate/.

9 “European Council Meeting (23 October 2025) Conclusions.”

10 “Summit on European Digital Sovereignty Delivers Landmark Commitments for a More Competitive and Sovereign Europe,” Élysée, November 18, 2025, https://www.elysee.fr/en/emmanuel-macron/2025/11/18/summit-on-european-digital-sovereignty-delivers-landmark-commitments-for-a-more-competitive-and-sovereign-europe.

11 “Declaration for European Digital Sovereignty,” Council of the European Union, December 5, 2025, https://data.consilium.europa.eu/doc/document/ST-15781-2025-INIT/en/pdf.

12 “Cloud Sovereignty Framework,” European Commission, October 2025, https://commission.europa.eu/document/download/09579818-64a6-4dd5-9577-446ab6219113_en?filename=Cloud-Sovereignty-Framework.pdf.

13 Knafo, “Report on European Technological Sovereignty and Digital Infrastructure.”

14 Mario Draghi, “The Future of European Competitiveness,” European Commission, September 9, 2024, https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en.

15 Ibid.

16 “Largest Tech Companies by Market Cap,” CompaniesMarketCap, last visited September 27, 2025, https://companiesmarketcap.com/tech/largest-tech-companies-by-market-cap/.

17 Enrico Letta, “Much More than a Market,” European Council, April 2024, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf.

18 Draghi, “The Future of European Competitiveness.”

19 Ivan Levingston, “European Start-up Valuations Boom on Investor Frenzy,” Financial Times, September 5, 2025, https://www.ft.com/content/5cd37cea-87e7-4648-b85b-f77091dd4558.

20 Draghi, “The Future of European Competitiveness.”

21 Ramsha Jahangir, “What’s Behind Europe’s Push to ‘Simplify’ Tech Regulation?” Tech Policy Press, April 24, 2025, https://www.techpolicy.press/whats-behind-europes-push-to-simplify-tech-regulation/.

22 Javier Espinosa, “EU Should Focus on Top 5 Tech Companies, Says Leading MEP,” Financial Times, May 31, 2021, https://www.ft.com/content/49f3d7f2-30d5-4336-87ad-eea0ee0ecc7b.

23 “Cybersecurity of 5G Networks: EU Toolbox of Risk Mitigation Measures,” European Commission, January 23, 2020, https://digital-strategy.ec.europa.eu/en/library/cybersecurity-5g-networks-eu-toolbox-risk-mitigating-measures.

24 “EU–China—A Strategic Outlook,” European Commission and European External Action Service, March 12, 2019, https://commission.europa.eu/system/files/2019-03/communication-eu-china-a-strategic-outlook.pdf.

25 “Speech by President von der Leyen on EU-China Relations to the Mercator Institute for China Studies and the European Policy Centre,” European Commission,March 29, 2023, https://ec.europa.eu/commission/presscorner/detail/en/speech_23_2063.

26 “Strategic Dependencies and Capacities,” European Commission, May 5, 2021, https://commission.europa.eu/system/files/2021-05/swd-strategic-dependencies-capacities_en.pdf.

27 “Commission Announces Next Steps on Cybersecurity of 5G Networks in Complement to Latest Progress Report by Member States,” European Commission, press release, June 14, 2023, https://ec.europa.eu/commission/presscorner/detail/en/ip_23_3309.

28 “Roadmap Towards Ending Russian Energy Imports,” European Commission, May 12, 2025, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52025DC0440R(01).

29 “Defending American Companies and Innovators from Overseas Extortion and Unfair Fines and Penalties,” White House, February 21, 2025, https://www.whitehouse.gov/presidential-actions/2025/02/defending-american-companies-and-innovators-from-overseas-extortion-and-unfair-fines-and-penalties/.

30 Ibid.

31 “Fact Sheet: President Donald J. Trump Issues Directive to Prevent the Unfair Exploitation of American Innovation,” White House,February 21, 2025, https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-issues-directive-to-prevent-the-unfair-exploitation-of-american-innovation.

32 Alice Hancock, Paola Tamma, and James Politi, “EU Push to Protect Digital Rules Holds Up Trade Statement with US,” Financial Times, August 17, 2025. https://www.ft.com/content/3f67b6ca-7259-4612-8e51-12b497128552.

33 Truth Social, August 25, 2025.

34 “2025 State of the Union Address by President von der Leyen,” European Commission, September 9, 2025, https://ec.europa.eu/commission/presscorner/detail/ov/SPEECH_25_2053.

35 U.S. Trade Representative, X post, December 16, 2025, https://x.com/USTradeRep/status/2000990028835508258.

36 “Commission Finds Apple and Meta in Breach of the Digital Markets Act,” European Commission, press release, April 23, 2025, https://digital-strategy.ec.europa.eu/en/news/commission-finds-apple-and-meta-breach-digital-markets-act.

37 “Commission Fines Google €2.95 Billion over Abusive Practices in Online Advertising Technology,” European Commission, press release, September 4, 2025, https://ec.europa.eu/commission/presscorner/detail/en/ip_25_1992.

38 “Commission fines X €120 million under the Digital Services Act,” European Commission, press release, December 5, 2025, https://digital-strategy.ec.europa.eu/en/news/commission-fines-x-eu120-million-under-digital-services-act.

39 Mark MacCarthy and Kenneth Propp, “The European Union Changes Course on Digital Legislation,” Lawfare, December 15, 2025, https://www.lawfaremedia.org/article/the-european-union-changes-course-on-digital-legislation.

40 “Simpler EU Digital Rules and New Digital Wallets to Save Billions for Businesses and Boost Innovation,” European Commission, press release, November 19, 2025, https://ec.europa.eu/commission/presscorner/detail/en/ip_25_2718.

41 “EU Launches InvestAI Initiative to Mobilise €200 Billion of Investment in Artificial Intelligence,” European Commission, press release, February 10, 2025, https://ec.europa.eu/commission/presscorner/detail/en/ip_25_467.

42 “Commission Launches Ambitious Strategy to Make Europe a Startup and Scaleup Powerhouse,” European Commission, press release, May 27, 2025, https://ec.europa.eu/commission/presscorner/detail/en/ip_25_1350.

43 Barbara Moens and Paola Tamma, “EU to Block Big Tech from New Financial Sharing Data System,” Financial Times, September 21, 2025, https://www.ft.com/content/6596876f-c831-482c-878c-78c1499ef543.

44 Luca Bertuzzi, “‘Effective control’ concept for cloud sovereignty eyed by EU Commission,” MLex, September 4, 2025, https://www.mlex.com/mlex/articles/2384011/-effective-control-concept-for-cloud-sovereignty-eyed-by-eu-commission?trk=public_post_comment-text.

45 “European Data Union Strategy,” European Commission,November 19, 2025, 18–20, https://digital-strategy.ec.europa.eu/en/policies/data-union.

46 Ibid.

47 Axel Voss, “Regaining Europe’s Digital Sovereignty: Ten Immediate Actions for 2025,”EPP Group at the European Parliament, October 7, 2025, https://www.axel-voss-europa.de/wp-content/uploads/2025/10/AVoss-10-Steps-Digital-Sovereignty.pdf.

48 Ibid.

49 Peter Finn and Sari Horwitz, “US Charges Snowden with Espionage,” Washington Post, June 21, 2013, https://www.washingtonpost.com/world/national-security/us-charges-snowden-with-espionage/2013/06/21/507497d8-dab1-11e2-a016-92547bf094cc_story.html; Dave Keating, “European Parliament to Hear Snowden testimony,” Politico, January 9, 2014, https://www.politico.eu/article/european-parliament-to-hear-snowden-testimony/.

50 Michael Scherer, “Trump Advisers Renew Push for Pardon of Edward Snowden,” Washington Post, December 4, 2024, https://www.washingtonpost.com/politics/2024/12/04/trump-pardon-edward-snowden-gaetz/.

51 Schrems v. Data Protection Commissioner, CASE C-362/14 (Court of Justice of the EU 2015), https://curia.europa.eu/juris/document/document.jsf?text=&docid=169195&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=2522200; Data Protection Commissioner v. Facebook Ireland & Schrems, CASE C-311/18 (Court of Justice of the EU 2020), https://curia.europa.eu/juris/document/document.jsf?text=&docid=228677&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=4010715.

52 “Meta Platforms, Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1933 for the Fiscal Year Ended on December 31, 2022,” US Securities and Exchange Commission, 2022, https://www.sec.gov/Archives/edgar/data/1326801/000132680123000013/meta-20221231.htm.

53 “Data Protection: The General Court Dismisses an Action for Annulment of the New Framework for the Transfer of Personal Data between the European Union and the United States,” Court of Justice of the European Union, press release, September 3, 2025, https://curia.europa.eu/jcms/upload/docs/application/pdf/2025-09/cp250106en.pdf.

54 Claudie Moreau and Théophane Hartmann, “Latombe to Appeal EU-US Data Transfer Court Challenge,” Euractiv, October 29, 2025, https://www.euractiv.com/news/exclusive-latombe-to-appeal-eu-us-data-transfer-court-challenge/.

55 “EU-US Data Transfers: First Reaction on ‘Latombe’ Case,” Noyb, September 3, 2025, https://noyb.eu/en/eu-us-data-transfers-first-reaction-latombe-case.

56 Matt Garman and Max Peterson, “AWS Digital Sovereignty Pledge: Announcing a New, Independent Sovereign Cloud in Europe,” AWS Security Blog, October 24, 2023, https://aws.amazon.com/blogs/security/aws-digital-sovereignty-pledge-announcing-a-new-independent-sovereign-cloud-in-europe/; Julie Brill and Erin Chapple, “Microsoft Announces the Phased Rollout of the EU Data Boundary for the Microsoft Cloud Begins January 1, 2023,” Microsoft EU Policy Blog, December 15, 2022, https://blogs.microsoft.com/eupolicy/2022/12/15/eu-data-boundary-cloud-rollout/.

57 Emily Benson, Max Bergmann, and Federico Steinberg, “The Transatlantic Tech Clash: Will Europe ‘De-Risk’ from the United States?” Center for Strategic and International Studies, May 2, 2025, https://www.csis.org/analysis/transatlantic-tech-clash-will-europe-de-risk-united-states.

58 Brad Smith, “Microsoft Announces New European Digital Commitments,” Microsoft, April 30, 2025, https://blogs.microsoft.com/on-the-issues/2025/04/30/european-digital-commitments.

59 Alex Matthews, “Can Europe Build Itself a Rival to Google?” Deutsche Welle, December 9, 2024, https://www.dw.com/en/european-search-engines-ecosia-and-qwant-to-challenge-google/a-70898027.

60 Ibid.

61 Burwell and Propp, “Digital Sovereignty in Practice.”

62 Mathieu Pollet, “Anatomy of a Franco-German Tech Misfire,” Politico, November 17, 2025, https://www.politico.eu/article/anatomy-franco-german-tech-misfire-american-dependence/.

63 Draghi, “The Future of European Competitiveness,” 34.

64 “President’s Intelligence Advisory Board (PIAB) and Intelligence Oversight Board (IOB) Review of FISA Section 702 and Recommendations for Reauthorization,” White House, July 2023, 3, https://int.nyt.com/data/documenttools/presidents-intelligence-advisory-board-and-intelligence-oversight-board-review-of-fisa-section-702-and-recommendations-for-reauthorization/4d2d3218303fc702/full.pdf.

65 “Landmark U.S.-UK Data Access Agreement Enters into Force,” US Department of Justice, press release, October 3, 2022, https://www.justice.gov/archives/opa/pr/landmark-us-uk-data-access-agreement-enters-force; “United States and Australia Enter CLOUD Act Agreement to Facilitate Investigations of Serious Crime,” US Department of Justice, press release, December 15, 2021, https://www.justice.gov/archives/opa/pr/united-states-and-australia-enter-cloud-act-agreement-facilitate-investigations-serious-crime; “United States and Canada Welcome Negotiations of a CLOUD Act Agreement,” US Department of Justice, press release, March 22, 2022, https://www.justice.gov/archives/opa/pr/united-states-and-canada-welcome-negotiations-cloud-act-agreement.

66 Robert Deedman and Kenneth Propp, “The U.K.-US Data Access Agreement,” Lawfare, June 20, 2025, https://www.lawfaremedia.org/article/the-u.k.-u.s.-data-access-agreement.

67 “Report Concerning the Attorney General’s Renewed Determination that the United Kingdom of Great Britain and Northern Ireland, and the Agreement between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland on Access to Electronic Data for the Purpose of Countering Serious Crime, Satisfy the Requirements of 18 USC. § 2523(B),” US Department of Justice, November 2024, https://www.documentcloud.org/documents/25551978-doj-report-to-congress-on-us-uk-cloud-act-agreement/.

68 Tom Tugendhat, “UK-US Data Access Agreement: First Year of Use,” UK Parliament, December 19, 2023, https://questions-statements.parliament.uk/written-statements/detail/2023-12-19/hcws152?source=email.

69 “Recommendation for a Council Decision Authorizing the Opening of Negotiations in View of an Agreement between the European Union and the United States of America on Cross-Border Access to Electronic Evidence for Judicial Cooperation in Criminal Matters,” European Commission, February 5, 2019, https://eur-lex.europa.eu/resource.html?uri=cellar:b1826bff-2939-11e9-8d04-01aa75ed71a1.0001.02/DOC_1&format=PDF.

70 “Council Adopts EU Laws on Better Access to Electronic Evidence,” Council of the European Union, press release, June 27, 2023, https://www.consilium.europa.eu/en/press/press-releases/2023/06/27/council-adopts-eu-laws-on-better-access-to-electronic-evidence/.

71 “Joint Press Release Following the EU-US Ministerial on Justice and Home Affairs, 21 June 2024 (Brussels),” US Department of Homeland Security, June 28, 2024, https://www.dhs.gov/archive/news/2024/06/28/joint-press-release-following-eu-us-ministerial-justice-and-home-affairs-21-june.

72 Richard Salgado and Kenneth Propp, “Patching the U.K.’s Zero-Day Security Exploit With the US-U.K. CLOUD Act Agreement,” Lawfare, July 31, 2025, https://www.lawfaremedia.org/article/patching-the-u.k.-s-zero-day-security-exploit-with-the-u.s.-u.k.-cloud-act-agreement.

73 Zoe Kleinman, “UK Demands Access to Apple Users’ Encrypted Data,” BBC, February 7, 2025, https://www.bbc.com/news/articles/c20g288yldko; “Apple Can No Longer Offer Advanced Data Protection the United Kingdom to New Users,” Apple, September 23, 2025, https://support.apple.com/en-gb/122234.

74 Deedman and Propp, “The U.K.-US Data Access Agreement.”

75 Annabelle Timsit and Joseph Menn, “U.K. Drops ‘Back Door’ Demand for Apple User Data, US Intel Chief Says,” Washington Post, August 19, 2025, https://www.washingtonpost.com/technology/2025/08/19/uk-apple-backdoor-data-privacy-gabbard.

76 Christophe Domec, “Home Office Orders Apple to Allow Access to UK Users’ Data,” Times, October 2, 2025, https://www.thetimes.com/uk/technology-uk/article/home-office-orders-apple-to-allow-access-to-uk-users-data-tn3wlmhxq?gaa_at=eafs&gaa_n=AWEtsqdsukISl3YWsv-OUFyP7S089T8e9EKaG–AY8onCxlbZei75ihDzjEfC_udtDU%3D&gaa_ts=695c0a2c&gaa_sig=35Ar1Xp304ize5_GRX2Gw4XVlD1VwyhVrWph_ApqbvZ53m8PgSK_1S27vfEYkfYMBS0EYM8CP22z5g-1iGUY4Q%3D%3D.

77 Kenneth Propp, “Transatlantic Digital Trade Protections: From TTIP to ‘Policy Suicide?’” Lawfare, February 16, 2024, https://www.lawfaremedia.org/article/transatlantic-digital-trade-protections-from-ttip-to-policy-suicide.

78 “Protecting Americans from Foreign Adversary Controlled Applications Act,” in emergency supplemental appropriations, Pub. L. No. 118–50, 118th Cong. (2024), https://www.congress.gov/bill/118th-congress/house-bill/7520/text; “Executive Order on Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern,” White House, February 28, 2024, https://bidenwhitehouse.archives.gov/briefing-room/presidential-actions/2024/02/28/executive-order-on-preventing-access-to-americans-bulk-sensitive-personal-data-and-united-states-government-related-data-by-countries-of-concern/.

79 “Fact Sheet: Justice Department Issues Final Rule to Address Urgent National Security Risks Posed by Access to USU.S. Sensitive Personal and Government-Related Data from Countries of Concern and Covered Persons,” US Department of Justice, December 27, 2024, https://www.justice.gov/archives/opa/media/1382526/dl; “Data Security Program: Compliance Guide,” US Department of Justice, April 11, 2025, https://www.justice.gov/opa/media/1396356/dl.

80 Justin Sherman, et al., “Data Brokers and the Sale of Data on US Military Personnel: Risks to Privacy, Safety, and National Security,” Duke Sanford Tech Policy Program, November 2023, https://techpolicy.sanford.duke.edu/data-brokers-and-the-sale-of-data-on-us-military-personnel/.

81 Propp, “Transatlantic Digital Trade Protections.”

82 “Joint Statement Initiative on Electronic Commerce,” World Trade Organization, July 26, 2024, https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/INF/ECOM/87.pdf&Open=True.

83 Kenneth Propp, “Who’s a National Security Risk? The Changing Transatlantic Geopolitics of Data Transfers,” Atlantic Council, May 29, 2024, https://www.atlanticcouncil.org/wp-content/uploads/2024/05/Whos-a-National-Security-Risk-The-Changing-Transatlantic-Geopolitics-of-Data-Transfers_Final.pdf.

84 Government Access to Data in Third Countries: Final Report,” Milieu Consulting, November 2021, https://www.edpb.europa.eu/system/files/2022-01/legalstudy_on_government_access_0.pdf.

85 “The Data Protection Ombudsman’s Decision Does Not Address the Legality of Data Transfers to Russia—the Matter Remains under Investigation,” Office of the Data Protection Ombudsman, September 27, 2023, https://tietosuoja.fi/en/-/the-data-protection-ombudsman-s-decision-does-not-address-the-legality-of-data-transfers-to-russia-the-matter-remains-under-investigation#:~:text=The%20Office%20of%20the%20Data%20Protection%20Ombudsman%27s%20decision,Protection%.

86 “Irish Data Protection Commission Fines TikTok €530 Million and Orders Corrective Measures Following Inquiry into Transfers of EEA User Data to China,” Data Protection Commission of Ireland, May 2, 2025, https://www.dataprotection.ie/en/news-media/latest-news/irish-data-protection-commission-fines-tiktok-eu530-million-and-orders-corrective-measures-following.

87 “DPC Announces Inquiry into TikTok Technology Limited’s Transfers of EEA Users’ Personal Data to Servers Located in China,” Data Protection Commission of Ireland, July 10, 2025, https://www.dataprotection.ie/en/news-media/press-releases/dpc-announces-inquiry-tiktok-technology-limiteds-transfers-eea-users-personal-data-servers-located.

88 Kristof Van Quathem and Anna Sophia Oberschelp de Meneses, “Finnish Supervisory Authority Investigates Health Data Transfers to China,” Covington, March 19, 2025, https://www.insideprivacy.com/cross-border-transfers/finnish-supervisory-authority-investigates-health-data-transfers-to-china/.

89 “TikTok, AliExpress, SHEIN & Co Surrender Europeans’ Data to Authoritarian China,” Noyb, January 16, 2025, https://noyb.eu/en/tiktok-aliexpress-shein-co-surrender-europeans-data-authoritarian-china.

90 “Regulation (EU) 2022/868 of the European Parliament and of the Council of 30 May 2022 on European Data Governance and Amending Regulation (EU) 2018/1724 (Data Governance Act),” Official Journal of the European Union, May 30, 2022, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022R0868 ; “Regulation (EU) 2023/2854 of the European Parliament and of the Council of 13 December 2023 on Harmonised Rules on Fair Access to and Use of Data and Amending Regulation (EU) 2017/2394 and Directive (EU) 2020/1828 (Data Act),” Official Journal of the European Union, December 13, 2023, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202302854; “Regulation (EU) 2025/327 of the European Parliament and of the Council of 11 February 2025 on the European Health Data Space and Amending Directive 2011/24/EU and Regulation (EU) 2024/2847,” Official Journal of the European Union, February 11, 2025, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202500327.

91 “Commission Proposes Measures to Boost Data Sharing and Support European Data Spaces,” European Commission, press release, November 24, 2020, https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2102.

92 “Common European Data Spaces,” European Commission, October 27, 2025, https://digital-strategy.ec.europa.eu/en/policies/data-spaces.

93 “Mission Letter: Henna Virkkunen, Executive Vice-President-Designate for Tech Sovereignty, Security and Democracy,” European Commission, September 17, 2024, https://commission.europa.eu/document/download/3b537594-9264-4249-a912-5b102b7b49a3_en?filename=Mission%20letter%20-%20VIRKKUNEN.pdf.

94 “Public Consultation on the Use of Data to Develop the Future of AI: The European Data Union Strategy,” European Data, June 25, 2025, https://data.europa.eu/en/news-events/news/public-consultation-use-data-develop-future-ai-european-data-union-strategy.

95 “Communication from the Commission to the European Parliament and the Council: Data Union Strategy: Unlocking Data for AI,” European Commission, November 19, 2025. https://digital-strategy.ec.europa.eu/en/policies/data-union.

96 “Regulation (EU) 2022/2065 of the European Parliament and of the Council of 19 October 2022 on a Single Market for Digital Services and Amending Directive 2000/31/EC (Digital Services Act),” Official Journal of the European Union, October 27, 2022, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022R2065 .

97 Jeanna Smialek and Adam Satariano, “Something Else for Europe and the US to Disagree About: ‘Free Speech,’” New York Times, April 4, 2025, https://www.nytimes.com/2025/04/04/world/europe/european-union-free-speech-x-facebook-elon-musk.html.

98 “Fact Sheet: President Donald J. Trump Issues Directive to Prevent the Unfair Exploitation of American Innovation”; Supantha Mukherjee, “US FCC Chair Says EU Digital Services Act Is Threat to Free Speech,” Reuters, March 3, 2025, https://www.reuters.com/technology/eu-content-law-incompatible-with-us-free-speech-tradition-says-fccs-carr-2025-03-03/.

99 Department of State (@StateDept), “In Europe, thousands are being convicted for the crime of criticizing their own governments. This Orwellian message won’t fool the United States. Censorship is not freedom,” X post, July 22, 2025, https://x.com/statedept/status/1947755665520304253.

100 Humeyra Pamuk, “Rubio Orders US Diplomats to Launch Lobbying Blitz against Europe’s Tech Law,” Reuters, August 7, 2025, https://www.reuters.com/sustainability/society-equity/rubio-orders-us-diplomats-launch-lobbying-blitz-against-europes-tech-law-2025-08-07.

101 “The Foreign Censorship Threat: How the European Union’s Digital Services Act Compels Global Censorship and Infringes on American Free Speech,” Committee on the Judiciary of the US House of Representatives, July 25, 2025, https://judiciary.house.gov/sites/evo-subsites/republicans-judiciary.house.gov/files/2025-07/DSA_Report%26Appendix%2807.25.25%29.pdf.

102 Mark Scott, “EU Takes Shot at Musk over Trump Interview—and Misses,” Politico, August 13, 2024, https://www.politico.eu/article/eu-elon-musk-donald-trump-interview-thierry-breton-letter-social-media/.

103 “The Foreign Censorship Threat.”

104 “Model Letter sent to Tech Companies from Chairman Andrew N. Ferguson,” US Federal Trade Commission, August 21, 2025, https://www.ftc.gov/system/files/ftc_gov/pdf/ftc-unfair-security-letter-ferguson.pdf.

105 Propp, “Talking Past Each Other.”

106 “Announcement of Actions to Combat the Global Censorship-Industrial Complex,” US Department of State, press release, December 23, 2025, https://www.state.gov/releases/office-of-the-spokesperson/2025/12/announcement-of-actions-to-combat-the-global-censorship-industrial-complex/.

107 “Statement by the European Commission on the U.S. Decision to impose travel restrictions on certain EU individuals,” European Commission, press release, December 23, 2025, https://ec.europa.eu/commission/presscorner/detail/en/statement_25_3160.

108 “EU Strategic Dependencies and Capacities: Second Stage of In-Depth Reviews,” European Commission, February 22, 2022, https://www.wec-italia.org/wp-content/uploads/2022/02/STRATEGIC-DEPENDENCIES-2022.pdf.

109 “Doctrine ‘Cloud au Centre’ sur l’Usage de l’Informatique en Nuage au Sein de l’État,” Government of the Republic of France, July 5, 2021, https://www.transformation.gouv.fr/files/presse/Circulaire-n6282-SG-5072021-doctrineuutilisation-informatique-en-nuage-Etat.pdf.

110 Laura Kabelka, “Sovereignty Requirements Remain in Cloud Certification Scheme Despite Backlash,” Euractiv, July 16, 2022, https://www.euractiv.com/news/sovereignty-requirements-remain-in-cloud-certification-scheme-despite-backlash.

111 “2024 National Trade Estimate Report on Foreign Trade Barriers,” Office of the US Trade Representative, March 2024, https://ustr.gov/sites/default/files/2024%20NTE%20Report_1.pdf.

112 Floris Hulshoff Pol, “EU Drops Sovereignty Rules for US Cloud Providers,” Techzine, April 4, 2024, https://www.techzine.eu/news/privacy-compliance/118401/eu-drops-sovereignty-rules-for-u-s-cloud-providers/.

113 Reynald Fléchaux, “EUCS, la Certification Cloud Européenne qui Menace de Désarmer SecNumCloud,” CIO, September 12, 2024, https://www.cio-online.com/actualites/lire-eucs-la-certification-cloud-europeenne-qui-menace-de-desarmer-secnumcloud-15856.html.

114 Francesco Nicoli, “Mapping the Road Ahead for EU Public Procurement Reform,” Bruegel, March 21, 2025, https://www.bruegel.org/first-glance/mapping-road-ahead-eu-public-procurement-reform.

115 Théophane Hartmann, “European Industry Big Win: Germany, France Both Support Sovereign EU-Based Tech Infrastructure,” Euractiv, April 10, 2025, https://www.euractiv.com/news/european-industry-big-win-germany-france-both-support-sovereign-eu-based-tech-infrastructure/.

116 Michal Kobosko, “A European Recipe for Tech Sovereignty,” Parliament, July 30, 2025, https://www.theparliamentmagazine.eu/news/article/oped-a-european-recipe-for-tech-sovereignty.

117 For a detailed discussion of the challenges facing Eurostack and the more exclusionary version of EU digital sovereignty, see: Zach Meyers, “Can the EU Reconcile Digital Sovereignty and Economic Competitiveness?” Centre on Regulation in Europe, September 2025, https://cerre.eu/wp-content/uploads/2025/09/CERRE_Issue-Paper_EU-Competitiveness_Can-the-EU-reconcile-digital-sovereignty-and-economic-competitiveness.pdf.

118 “Clearing the Cloud,” Implement Consulting Group in collaboration with Google,November 2025, https://cms.implementconsultinggroup.com/media/uploads/articles/2025/European-digital-sovereignty/2025-Clearing-the-cloud.pdf.

119 See, for example: “Open Letter: European Industry Calls for Strong Commitment to Sovereign Digital Infrastructure,” Euro-Stack, March 14, 2025, https://euro-stackletter.eu/wp-content/uploads/2025/03/EuroStack_Initiative_Letter_14-March-.pdf. The letter, signed by numerous European companies, argues for increased support to European industry to build a Eurostack, while not restricting access by non-EU companies.

120 “Joint Communication on an International Digital Strategy for the EU,”European Commission and EU High Representative for Foreign and Security Policy, June 5, 2025, https://digital-strategy.ec.europa.eu/en/library/joint-communication-international-digital-strategy-eu.

121 Amy Mackinnon, Jamie Dettmer, and Paul McLeary, “Europe Scrambles to Aid Ukraine after US Intelligence Cutoff,” Politico, March 8, 2025, https://www.politico.com/news/2025/03/08/europe-scrambles-to-aid-ukraine-after-us-intelligence-cutoff-00219678.

122 Andrea Shalal and Joey Roulette, “US Could Cut Ukraine’s Access to Starlink Internet Services over Minerals, Say Sources,” Reuters, February 22, 2025, https://www.reuters.com/business/us-could-cut-ukraines-access-starlink-internet-services-over-minerals-say-2025-02-22/.

123 For a discussion of the relationship between digital sovereignty and competitiveness, see: Christian Klein, “The Boss of SAP on Europe’s Botched Approach to Digital Sovereignty: It’s Time to Prioritise Code over Concrete,” Economist, August 25, 2025, https://www.economist.com/by-invitation/2025/08/25/the-boss-of-sap-on-europes-botched-approach-to-digital-sovereignty

124 “European Union,” Office of the United States Trade Representative, last visited December 11, 2025, https://ustr.gov/countries-regions/europe-middle-east/europe/european-union.

125 “G7 Roadmap for Cooperation on Data Free Flow with Trust,” Group of Seven, 2021, https://assets.publishing.service.gov.uk/media/609cf5e18fa8f56a3c162a43/Annex_2__Roadmap_for_cooperation_on_Data_Free_Flow_with_Trust.pdf;“G7 Leaders’ Statement on the Hiroshima AI Process,” Group of Seven,October 30, 2023, https://digital-strategy.ec.europa.eu/en/library/g7-leaders-statement-hiroshima-ai-process.

126 For details on the FedRAMP program, see: “FedRAMP Provides a Standardized, Reusable Approach to Security Assessment and Authorization for Cloud Service Offerings,” FedRAMP, last visited December 11, 2025, https://www.fedramp.gov.

127 For a discussion of the differences between FedRAMP and EUCS, see: Kenneth Propp, “Oceans Apart: The EU and US Cybersecurity Certification Standards for Cloud Services,” Cross Border Data Forum, June 27, 2023, https://www.crossborderdataforum.org/wp-content/uploads/2023/07/Oceans-Apart-The-EU-and-US-Cybersecurity-Certification-Standards-for-Cloud-Services.pdf.

128 “2025 National Trade Estimate Report on Foreign Trade Barriers,” Office of the US Trade Representative, 2025, https://ustr.gov/sites/default/files/files/Press/Reports/2025NTE.pdf.

The post Digital sovereignty: Europe’s declaration of independence? appeared first on Atlantic Council.

Transatlantic cooperation on protecting minors online

Michèle Ledger — Wed, 14 Jan 2026 05:00:00 +0000

Bottom lines up front

While US and EU policies differ in their approaches to the regulation of the internet, recent policy roundtables made clear that there is agreement on the need to protect children online.
Areas of commonality include the use of primary legislation, an emphasis on platform design rather than censoring content, and the need to balance protection of children with other fundamental rights.
Further dialogue between the United States and the EU on these questions could help facilitate faster and more efficient rollout of services and technologies to protect users.

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Executive summary

While US and European Union (EU) policies differ in their approaches to online safety and the regulation of the internet, there is agreement about the need to protect children online. That is one high-level takeaway from a recent round of US-EU dialogue hosted by the Centre on Regulation in Europe (CERRE) and the Atlantic Council.

Such dialogue helps to identify common policy approaches for the protection of minors and common approaches to enforcing rules. Ultimately, it can also help facilitate faster and more efficient rollout of technologies to protect users. Dialogue will also help global platforms develop services to comply with rules and expectations on both sides of the Atlantic.

At the recent roundtable hosted by CERRE and the Atlantic Council, the synergies and differences in regulatory approaches and philosophies on both sides of the Atlantic centred on four themes. For each theme, some common threads seemed ripe for further discussion and cooperation.

New legislation and approaches to enforcement: In terms of the overall governance landscape, legislation has a key role to play in Europe and in the United States, where long-standing federal rules have been supported by an increasing number of state laws.The bulk of legislation in the EU—such as the Digital Services Act (DSA)—is adopted at the EU level, while some member states are adopting supplementary rules. In the United States, most legislation is now being adopted at the state level. Public enforcement by regulators plays a big role in the EU and the United Kingdom (UK). In the United States, state attorneys general are taking action to enforce rules, with powers similar to those of regulators in Europe. More alignment and cooperation on enforcement would be beneficial. Private enforcement through courts is also possible but, while this is already widespread in the United States, it is just emerging in Europe.
The harms from which children should be protected: On both sides of the Atlantic, there is a large degree of alignment on the harms from which children need to be protected. A strong commonality is that rules in Europe and the US both require compliance by design to avoid particularly harmful conduct, such as unwanted contact by unknown adults. Other common design elements include data minimization, which is a central component of the European Commission’s guidelines on protecting minors under Article 28 of the DSA and in the UK Office of Communication’s (Ofcom) age-appropriate design code and guidance under the Online Safety Act (OSA).
Balancing rights: To balance the protection of fundamental rights (in particular, privacy and freedom of expression) against the need to protect children, there is widespread agreement that everyone—not just children—deserves protections online. The EU, UK, and United States are all cautious about dictating which content is acceptable online and are instead converging on approaches that require platforms to use processes and systems to ensure safety by design. Ensuring the protection of fundamental rights is a common concern and, ultimately, a matter of balance, including at the enforcement level.
Age verification: Current debates about banning access to social media and about age verification are critical in Europe and in the United States, both in general and in relation to certain types of platforms (particularly those that host pornographic content). There is no agreement on a single type of technology that should be used, but there are prototypes and guidance on the high-level principles that the technologies should reflect. There are similar discussions on both sides of the Atlantic about how to attribute responsibility for age assurance across the supply chain—i.e., where in the supply chain age verification should take place—and how the division of responsibilities between players in supply chains could work in practice.

Introduction

The EU has put in place important legal building blocks to protect children online. These include the DSA and the European Commission’s guidelines on Article 28 of the DSA, which require providers of platforms accessible to minors to “put in place appropriate and proportionate measures to ensure a high level of privacy, safety, and security of minors.”¹ They also include the Audiovisual Media Services Directive (AVMSD), which contains rules to safeguard minors’ personal data and to protect children online, and the General Data Protection Regulation (GDPR), which provides rules on collection and processing of minors’ data. Other proposals yet to be finalized include the pending Digital Fairness Act (DFA) proposal and the Regulation on Child Sexual Abuse Material (CSAM).² Member states retain certain powers to enact national laws to protect minors online.³

In the United States, the protection of minors online is an important consideration at both the federal and state levels. At the federal level, the Kids Online Safety Act (KOSA) proposal, the Children’s Online Privacy Protection Act (COPPA) and the COPPA 2.0 proposal all seek to address certain aspects of children’s safety online (in particular, privacy, advertising, and CSAM).⁴ At the state level, California’s Age-Appropriate Design Code (CAADCA) has been challenged in court on First Amendment grounds.⁵ Other states, including Nebraska and Vermont, have recently adopted similar codes that they hope will withstand First Amendment scrutiny.⁶ Utah has also recently enacted a law to protect content-creating minors from financial exploitation and privacy violations.⁷

News headlines focus on apparent differences between US and European policies, which are spiraling into growing transatlantic tension. However, there is a large degree of alignment on the need to protect children online while also safeguarding fundamental rights such as privacy and freedom of expression.

The overall governance landscape

The European and US approaches are fairly aligned on some governance aspects of regulating child protection online. Since the adoption of its rules for video sharing platforms in 2018, the EU has embraced a legislative path to protect minors online.⁸ This legislative framework was strengthened in 2022 with the adoption of the DSA. Both the video sharing platform rules and the DSA are largely principle based and rely on a form of collaboration with the industry,placing the onus on the platforms themselves to decide what constitutes an appropriate and proportionate level of protection for minors. The UK has also adopted a legislative path with the OSA and the detailed guidance produced by Ofcom.⁹ Like the DSA, the OSA adopts a risk-based approach, with the larger and riskier platforms subject to stricter measures. The UK regulator, Ofcom, has supplemented the legislation with detailed guidance.

The European Commission recently adopted guidelines to help online platforms understand and comply with their obligations under Article 28 of the DSA, including setting out a list of recommendations for platforms, but these are nonbinding. Safety by design is at the heart of the guidelines. The EU’s legislative approach focuses on ensuring platforms put in place systems and processes, while steering away from regulating the type of content that should be outlawed.

So far, the EU’s legislative framework has not led to a full harmonization of approaches to protect minors, and some member states have adopted more restrictive approaches. For example, France, Germany, Ireland, and Italy have adopted supplementary legislation to protect minors from harmful content such as online pornography.¹⁰

In the United States, the federal government has adopted legislation such as the COPPA to tackle some problematic areas such as the need to protect minors’ personal data.¹¹ Despite heightened partisanship in Congress, leaders of both the Republican and Democratic Parties have expressed interest in supporting additional bipartisan legislation to protect children online.¹² Although there is less appetite for federal legislation with binding obligations on platforms in terms of platform liability, there is appetite at the state level to embrace the legislative path, and safety by design is the cornerstone of many of these initiatives.¹³ That being said, the Kids Online Safety Act (a federal initiative) received the support of sixty co-sponsors at the federal level, which shows that this is an area with some bipartisan support. The EU and the United States are also converging on some important aspects: more obligations are placed on larger platforms; there is an emphasis on protection and safety by design; and there is no “one size fits all” solution.

There is broad consensus among experts that, irrespective of geopolitical tensions, there has never been so much space for alignment at the policy level between different jurisdictions—and between Europe and the United States in particular. This is partly because Europe (with the DSA at the EU level and the OSA in the UK) takes a systemic risk approach and does not focus on moderating individual pieces of content. That places responsibility on the platforms to have processes and systems in place to design safe spaces at the outset.

There are also similarities in public and private enforcement of norms. In the EU and the UK, regulators play an important role in making sure that industry complies with the DSA, the AVMSD, and the OSA. In the United States, even if new federal laws are adopted, the creation of a dedicated federal regulator to publicly enforce the legislation is unlikely, though existing agencies such as the US Federal Trade Commission already have a remit over some of these issues. At the state level, attorneys general are empowered to enforce COPPA via civil actions despite it being a federal law. State attorneys general have many enforcement tools at their disposal, including the power to undertake industry-wide investigations. These are broadly in line with the enforcement powers of national competent authorities and the European Commission under the DSA (and Ofcom under the OSA). On both sides of the Atlantic, private enforcement through courts is also set to play an important role, though, to date, it has been more common in the United States than in either the EU or UK.

Harms against which children should be protected

In the EU, the harms against which children should be protected are potentially very wide and are not specifically defined in the DSA, which refers only to protecting minors’ “privacy, safety and security.”¹⁴ Furthermore, member states are free to set their own rules provided they are in the line with EU legislation.

Some harms are outlawed at the EU level, such as the sharing of child sexual abuse material, dark patterns (i.e., deceptive techniques used by online platforms to manipulate users’ behavior), the processing of minors’ personal data without the consent of parents, and the sending of targeted advertising to children based on profiling.¹⁵ US policy initiatives at the state and federal levels also identify these harms as targets for regulation. The dissemination of child sexual abuse material, for example, is already a criminal offense.

A strong focus of legislation to protect minors on both sides of the Atlantic is to make sure that children cannot be contacted on platforms by unknown adults. At the state level (Vermont in particular) lawmakers frame these as safety bills to avoid framing them as content regulation, which could bring challenges on First Amendment grounds. These design architecture elements, such as default settings that prevent children being findable, are also central in the European Commission’s guidelines on Article 28 of the DSA in the UK Information Commissioner’s Office’s age-appropriate design code and in Ofcom guidance under the OSA.¹⁶

Data minimization (meaning only a minimum amount of data can be gathered and processed) is seen as critical to mitigating harms in general, because there is a strong correlation between collecting vast amounts of data about children’s behavior online and using the data to target minors with harmful content. Also, data minimization could lead to stronger protection for all users. While enforcing data minimization principles is a challenge, it can be done. In the UK, for example, Ofcom is required to work closely with the data protection authority. Operational coherence and cooperation between regulators are crucial in this area.

Balancing fundamental rights

The debate about balancing the need to protect children against the protection of certain fundamental rights (especially privacy, freedom of expression, and the rights of the child) is critical in the United States and in Europe. Initiatives in Europe and the United States tend to focus on tools and processes to protect minors, but steer away from regulating content on the platforms. Despite this, there is mounting debate regarding whether laws are creating a form of censorship or unlawfully constraining free speech, limiting users’ choices, or infringing on the rights of children. The question is wider than the need to protect children online, in the sense that some content can be inherently dangerous for some individuals whereas that same content might not be harmful for another person (minor or adult). This need to protect users from harmful (but legal) content is the most difficult to reconcile with the need to protect freedom of speech and the need for data minimization.

In the United States, the question is being argued in court. Some federal courts have ruled that laws requiring age verification are unconstitutional because they undermine the US Constitution’s First Amendment and threaten privacy rights.¹⁷ Age verification laws are being challenged by NetChoice (a coalition of tech companies) and by free speech coalitions. The Supreme Court recently ruled that the age verification law in Texas does not violate the First Amendment because it only requires proof of age to access content that is obscene to minors; it does not directly regulate adults’ speech.¹⁸ In both the EU and the United States, a considerable amount of policy work and research is being conducted on how to balance safety and privacy, especially in the context of age assurance requirements.¹⁹

At the EU level, the debate about balancing rights was not prominent while the DSA and the AVMSD were being adopted, probably because the rules were principles based and did not mention bans or age verification per se. Furthermore, the DSA contains safeguards to protect fundamental rights, such as giving users’ the right to challenge content moderation decisions (such as removals of posts, demotions of content, and account suspensions). The central article on the protection of minors in the DSA (Article 28) assumes that there cannot be safety for minors unless other rights, such as privacy, are protected as well.

Now that the DSA is being enforced, the protection of minors has become an enforcement priority for the European Commission, and some member states are calling for bans on children accessing social media platforms, some political parties are questioning the legislation and the push for age verification solutions on free speech grounds. This debate is particularly intense in the context of the regulation on the fight against CSAM, which the European Parliament and the Council of the EU are amending in an attempt to reduce the impacts of CSAM detection mechanisms on privacy, particularly in the context of end-to-end encryption.

The ultimate goal should be to protect everyone online, not just minors. This would avoid the need to put in place age assurance and age verification.

The debates on getting the balance right on the need to protect minors online and the need to protect some fundamental rights are crystallizing on age verification and on proposals for an outright ban on access to social media for children.

To date, there is no outright ban at the EU level on children accessing social media. Commission President Ursula von der Leyen had pledged to examine the questionwith the help of a panel of experts originally scheduled to be set up before the end of 2025.²⁰ Some member states are also discussing the option of a social media ban for children.²¹ There is a strong call in the commission’s recently adopted guidelines under the DSA for certain platforms (such as adult content platforms) to prevent children from accessing them. Also, the Danish presidency of the EU and ministers from twenty-five member states recently adopted the Jutland Declaration, which welcomed “assessments” of a digital majority age.²² This assessment could help to determine the age at which minors should be allowed access to social media and other digital services—“giving them more time to enjoy life without an invasive online presence.”²³ This question is also high on the agenda in the United States, with some states requiring social media to ban minors from accessing them (or requiring parental consent for a minor to have an account).²⁴

On age verification, there is no mandatory technology at the EU level, but the EU guidelines on the protection of minors adopted under the DSA set out principles that age verification technology used by online platforms should meet.²⁵ In particular, the systems should be based on the “double anonymity” principle. According to this principle, the platform knows the age of users without identifying them, whereas an external site—which carries out the age verification by issuing a token—does not know which site the user will visit. The EU is also about to launch an EU mini-wallet as a temporary solution, pending the adoption of national solutions.²⁶ Some member states have also set requirements on age verification that are enforced by national regulators.

In the UK, the OSA has just entered into force, and the biggest and most popular adult platforms such as Pornhub must now deploy age checks for users based in the UK. Other platforms—including Bluesky, Discord, Reddit, and X—have also announced that they will deploy age assurance in the UK as a result of the act. This has led to a surge in virtual private network (VPN) downloads, which shows the importance of global alignment where possible.

In the United States, as noted above, state legislation imposing age verification is subject to frequent court challenges.²⁷ As in Europe, there is little agreement among the states on the methods and tools to use when verifying the age of online users. Also, like in Europe, states seem to recognize that age assurance alone is not the solution.

On both sides of the Atlantic, the debates are similar in practice, including debates regarding how to attribute responsibility for age assurance across the supply chain (i.e., at what level age verification should take place, whether at the app store layer or by individual applications or websites). Questions about where verification happens raise additional questions about the extent to which other players in the chain can rely on this, or whether relying on a single point of verification could undermine safety by discouraging applications and websites from making their own assessments.

About the author

Michèle Ledger is a researcher at the Research Centre in Information, Law and Society (CRIDS) of the University of Namur where she also lectures on the regulatory aspects of online platforms at the postmaster degree course. She has been working for more than twenty years at Cullen International and leads the company’s Media regulatory intelligence service.

This issue brief benefits from the insights of discussants at an online roundtable on EU-US regulatory co-operation hosted jointly by CERRE and the Atlantic Council. However, the contents of this brief are attributable only to the author.

About CERRE

Providing high-quality studies and dissemination activities, the Centre on Regulation in Europe (CERRE) is a not-for-profit think tank. It promotes robust and consistent regulation in Europe’s network, digital industry, and service sectors. CERRE’s members are regulatory authorities and companies operating in these sectors, as well as universities.

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the direct relevance and timeliness of its contributions to the policy and regulatory development process impacting network industry players and the markets for their goods and services.

CERRE’s activities include contributions to the development of norms, standards, and policy recommendations related to the regulation of service providers, to the specification of market rules, and to improvements in the management of infrastructure in a changing political, economic, technological, and social environment. CERRE’s work also aims to clarify the respective roles of market operators, governments, and regulatory authorities, as well as contribute to the enhancement of those organizations’ expertise in addressing regulatory issues of relevance to their activities.

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1 “Regulation (EU) 2022/2065 of the European Parliament and of the Council of 19 October 2022 on a Single Market for Digital Services and Amending Directive 2000/31/EC,” European Union, October 19, 2022, https://eur-lex.europa.eu/eli/reg/2022/2065/oj; “Communication from the Commission—Guidelines on Measures to Ensure a High Level of Privacy, Safety and Security for Minors Online, Pursuant to Article 28(4) of Regulation (EU) 2022/2065,” European Union, 2025, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:C_202505519.

2 “Proposal for a Regulation of the European Parliament and of the Council Laying Down Rules to Prevent and Combat Child Sexual Abuse,” European Union, May 11, 2022, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:52022PC0209; “Digital Fairness Act,” European Commission, last visited December 22, 2025, https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/14622-Digital-Fairness-Act_en.

3 Miriam Buiten, Michèle Ledger, and Christoph Busch, “DSA Implementation Forum: Protection of Minors,” Centre on Regulation in Europe, March 25, 2025, https://cerre.eu/publications/dsa-implementation-forum-protection-of-minors/.

4 A new version of the KOSA has been introduced in Congress with changes in an attempt to clarify that KOSA does not censor, limit, or remove content from the internet. “Blumenthal, Blackburn, Thune & Schumer Introduce the Kids Online Safety Act,” Office of Senator Richard Blumenthal, press release, May 14, 2025, https://www.blumenthal.senate.gov/newsroom/press/release/blumenthal-blackburn-thune-and-schumer-introduce-the-kids-online-safety-act; “Children’s Online Privacy Protection Rule,” Federal Trade Commission, April 22, 2025, https://www.federalregister.gov/documents/2025/04/22/2025-05904/childrens-online-privacy-protection-rule; “S.1418—Children and Teens’ Online Privacy Protection Act,” US Congress, July 27, 2023, https://www.congress.gov/bill/118th-congress/senate-bill/1418/text.

5 “AB-2273: The California Age-Appropriate Design Code Act,” California Legislative Information, November 18, 2022, https://leginfo.legislature.ca.gov/faces/billCompareClient.xhtml?bill_id=202120220AB2273&showamends=false; “NetChoice v. Rob Bonta, Attorney General of the State of California, D.C. No. 5:22-cv-08861- BLF,” US Court of Appeals for the Ninth Circuit, August 16, 2024, https://cdn.ca9.uscourts.gov/datastore/opinions/2024/08/16/23-2969.pdf.

6 For a comparison between both initiatives see: Bailey Sanchez, “Vermont and Nebraska: Diverging Experiments in State Age-Appropriate Design Codes,” Future of Privacy Forum, June 4, 2025, https://fpf.org/blog/vermont-and-nebraska-diverging-experiments-in-state-age-appropriate-design-codes.

7 “Child Actor Regulation,” State of Utah, 2025, https://le.utah.gov/Session/2025/bills/enrolled/HB0322.pdf.

8 “Directive (EU) 2018/1808 of the European Parliament and of the Council of 14 November 2018 Amending Directive 2010/13/EU on the Coordination of Certain Provisions Laid Down by Law, Regulation or Administrative Action in Member States Concerning the Provision of Audiovisual Media Services (Audiovisual Media Services Directive) in View of Changing Market Realities,” Article 28b, https://eur-lex.europa.eu/eli/dir/2018/1808/oj/eng.

9 “Online Safety Regulatory Documents and Guidance,” Ofcom, last updated December 15, 2025, https://www.ofcom.org.uk/online-safety/online-safety-regulatory-documents.

10 Michèle Ledger, “Protection of Minors: Age Assurance,” Centre on Regulation in Europe, March 2025, https://cerre.eu/wp-content/uploads/2025/03/CERRE-DSA-Forum-Age-Assurance.pdf.

11 “Part 312—Children’s Online Privacy Protection Rule (COPPA Rule),” Code of Federal Regulations, last updated April 22, 2025, https://www.ecfr.gov/current/title-16/chapter-I/subchapter-C/part-312.

12 “Chairmen Guthrie and Bilirakis Announce Legislative Hearing on Protecting Children and Teens Online,” Office of Energy and Commerce Chairman Brett Guthrie, press release, November 25, 2025, https://energycommerce.house.gov/posts/chairmen-guthrie-and-bilirakis-announce-legislative-hearing-on-protections-for-children-and-teens-online.

13 “Public Interest Privacy Center Releases Updated State Law Maps,” Public Interest Privacy Center, press release, May 29, 2025, https://publicinterestprivacy.org/state-law-maps.

14 “Article 71 Commitments—the Digital Services Act,” European Union, last visited January 3, 2025, https://www.eu-digital-services-act.com/Digital_Services_Act_Article_71.html.

15 The European Commission defines dark patterns as unfair commercial practices deployed through the structure, design, or functionalities of digital interfaces or system architecture that can influence consumers to take decisions they would not have taken otherwise. “Questions and Answers on the Digital Fairness Fitness Check,” European Commission, October 2, 2024, https://ec.europa.eu/commission/presscorner/detail/fi/qanda_24_4909.

16 “Age Appropriate Design: A Code of Practice for Online Services,” Information Commissioner’s Office, last visited December 22, 2025, https://ico.org.uk/for-organisations/uk-gdpr-guidance-and-resources/childrens-information/childrens-code-guidance-and-resources/age-appropriate-design-a-code-of-practice-for-online-services/.

17 Ibid.

18 Texas Legislature, Relating to the publication or distribution of sexual material harmful to minors on an Internet website; providing a civil penalty, HB 1181, Passed June 12, 2023, https://capitol.texas.gov/billlookup/History.aspx?LegSess=88R&Bill=HB1181; “Free Speech Coalition, Inc., et al. v. Paxton, Attorney General of Texas,” US Supreme Court, June 17, 2025, https://www.supremecourt.gov/opinions/24pdf/23-1122_3e04.pdf.

19 Stephen Balkam and Andrew Zack, “Balancing Safety and Privacy: A Proportionate Age Assurance Approach,” Family Online Safety Institute, October 10, 2025, https://fosi.org/policy/balancing-safety-and-privacy-a-proportionate-age-assurance-approach/.

20 “2025 State of the Union Address by President von der Leyen,” European Commission, September 9, 2025, https://ec.europa.eu/commission/presscorner/detail/ov/SPEECH_25_2053.

21 In particular, these states include Denmark, Greece, France, Spain, Italy, Ireland, and Poland.

22 “The Jutland Declaration: Shaping a Safe Online World for Minors,” Danish Presidency, Council of the European Union, October 10, 2025, https://www.digmin.dk/Media/638956829775203140/DIGMIN_The%20Jutland%20Declaration%20Shaping%20a%20Safe%20Online%20World%20for%20Minors%20101025.pdf.

23 Ibid., 2.

24 These states include Arkansas, Florida, Georgia, Ohio, and Utah.

25 These principles concern accuracy, reliability, robustness, privacy and data protection safeguards, and non-discrimination.

26 “Communication from the Commission.”

27 “Age Assurance & Age Verification Laws in the United States,” Centre for Information Policy Leadership, September 2024, https://www.informationpolicycentre.com/uploads/5/7/1/0/57104281/cipl_age_assurance_in_the_us_sept24.pdf.

The post Transatlantic cooperation on protecting minors online appeared first on Atlantic Council.

Five trends to watch in the global economy in 2026

Josh Lipsky, Sophia Busch — Tue, 13 Jan 2026 23:23:57 +0000

WASHINGTON—US President Donald Trump shocked—and re-shocked—the global economy in 2025, but growth powered through. Thanks to the surge in artificial-intelligence (AI) investment and limited inflation from tariffs, it’s clear that many economists’ doomsday predictions never materialized.

By the end of 2025, forecasts across Wall Street predicted “all-time highs” for the S&P 500 in 2026. Many investors believe that the AI train won’t slow down, central banks will continue cutting rates, and US tariffs will cool down in a midterm year.

But markets may be confusing resilience for immunity.

The reality is that several daunting challenges lie ahead in 2026. Advanced economies are piling up the highest debt levels in a century, with many showing little appetite for fiscal restraint. At the same time, protectionism is surging, not just in the United States but around the world. And lurking in the background is a tenuous détente between the United States and China.

It’s a dangerous mix, one that markets feel far too comfortable overlooking.

Here are five overlooked trends that will matter for the global economy in 2026.

The real AI bubble

Throughout 2025, stocks of Chinese tech companies listed in Hong Kong skyrocketed. For example, the Chinese chipmaker Semiconductor Manufacturing International Corporation (known as SMIC) briefly hit gains of 200 percent in October, compared to 2024. The data shows that the AI boom has become global.

Everyone has been talking about the flip side of an AI surge, including the risk of an AI bubble popping in the United States. But that doesn’t seem to concern Beijing. Alibaba recently announced a $52 billion investment in AI over the next three years. Compare that with a single project led by OpenAI, which is planning to invest $500 billion over the next four years. So the Chinese commitment to AI isn’t all-encompassing for their economy.

Of course, much of the excitement around Chinese tech—and the confidence in its AI development—was driven this past year by the January 2025 release of the DeepSeek-R1 reasoning model. Still, there is a limit to how much Beijing can capitalize on rising tech stocks to draw foreign investment back into China. There’s also the fact that 2024 was such a down year that a 2025 rebound was destined to look strong.

It’s worth looking at AI beyond the United States. If an AI bubble does burst or deflate in 2026, China may be insulated. It bears some similarities to what happened during the global financial crisis, when US and European banks suffered, but China’s banks, because of their lack of reliance on Western finance, emerged relatively unscathed.

The trade tango

In 2026, the most important signal on the future of the global trading order will come from abroad. US tariffs will continue to rise with added Section 232 tariffs on critical industries such as semiconductor equipment and critical minerals, but that’s predictable.

But it will be worth watching whether the other major economic players follow suit or stick with the open system of the past decades. As the United States imports less from China, but Chinese cheap exports continue to flow, will China’s other major export partners add tariffs? The answer is likely yes.

US imports from China decreased this past year, while imports by the Association of Southeast Asian Nations (ASEAN) and European Union (EU) increased. In ASEAN, trade agreements, rapid growth, and interconnected supply chains mean that imports from China will continue to flow uninhibited except for select critical industries.

But for the EU, 2025 is the only year when the bloc’s purchases of China’s exports do not closely resemble the United States’ purchases. In previous years, they moved in lockstep. In 2026, expect the EU to respond with higher tariffs on advanced manufacturing products and pharmaceuticals from China, since that would be the only way to protect the EU market.

The debtor’s dilemma

One of the biggest issues facing the global economy in 2026 is who owns public debt.

In the aftermaths of the global financial crisis and the COVID-19 pandemic, the global economy needed a hero. Central banks swooped in to save the day and bought up public debt. Now, central banks are “unwinding,” or selling public debt, and resetting their balance sheets. While the US Federal Reserve and the Bank of England have indicated their intention to slow down the process, other big players, such as the Bank of Japan and the European Central Bank, are going to keep pushing forward with the unwinding in 2026. This begs the question: If central banks are not buying bonds, who will?

The answer is private investors. The shift will translate into yields higher than anyone, including Trump and US Treasury Secretary Scott Bessent, want. Ultimately, it is Treasury yields, rather than the Federal Reserve’s policy rate, that dictate the interest on mortgages. So while all eyes will be on the next Federal Reserve chair’s rate-cut plans, look instead at how the new chair—as well as counterparts in Europe, the United Kingdom, and Japan—handles the balance sheet.

Wallet wars

By mid-2026, nearly three-quarters of the Group of Twenty (G20) will have tokenized cross-border payment systems, providing a new way to move money between countries using digital tokens. Currently, when you send money internationally, it can go through multiple banks, with each taking a cut and adding delays. With tokenized rails, money is converted into digital tokens (like digital certificates representing real dollars or euros) that can move across borders much faster on modern digital networks.

As the map below shows, the fastest movers are outside the North Atlantic: China and India are going live with their systems, while Brazil, Russia, Australia, and others are building or testing tokenized cross-border rails.

That timing collides with the United States taking over the G20 presidency and attempting to refresh a set of technical objectives known among wonks as the “cross-border payments roadmap.” But instead of converging on a faster, shared system, finance ministers are now staring at a patchwork of competing networks—each tied to different currencies and political blocs.

Think of it like the 5G wars, in which the United States pushed to restrict Huawei’s expansion. But this one is coming for wallets instead of phones.

For China and the BRICS group of countries in particular, these cross-border payments platforms could also lend a hand in their de-dollarization strategies: new rails for trade, energy payments, and remittances that do not have to run through dollar-based correspondent banking. This could further erode the dollar’s international dominance.

The question facing the US Treasury and its G20 partners is whether they can still set common rules for this emerging architecture—or whether they will instead be forced to respond to fragmented alternatives, where non-dollar systems are already ahead of the game.

Big spenders

From Trump’s proposal to send two-thousand-dollar checks to US citizens (thanks to tariff revenue) to Germany’s aim to ramp up defense spending, major economies across the G20 have big plans for additional stimulus in 2026. That’s the case even though debt levels are already at record highs. Many countries are putting off the tough decisions until at least 2027.

This chart shows G20 countries with stimulus plans, comparing their projected gross domestic product (GDP) growth rates for 2026 with their estimated fiscal deficits as a percentage of GDP. It’s a rough metric, but it gives a sense of how countries are thinking about spending relative to growth and debt in the year ahead. Countries below the line are planning to loosen fiscal taps.

Of course, not all stimulus plans are created equal. Ottawa, for example, is spending more on defense and investments aimed at improving the competitiveness of the Canadian economy, while keeping its estimated fiscal deficit at around 1 percentage point of projected 2026 GDP growth. US growth isn’t bad, coming in at a little over 2 percent, but the government plans to run a fiscal deficit of at least 5.5 percent. Russia is attempting to prop up a wartime economy, while China is pursuing ambitious industrial policies and pushing off its local debt problems. And on China, while the chart above shows International Monetary Fund and other official estimates for China’s GDP growth, some economists, including ones from Rhodium Group, argue that China’s real GDP growth could be as low as 2.5 percent for 2026, which would push China below the line displayed.

Within this group, emerging economies are experiencing stronger growth and may have more room to run deficits next year. For advanced economies, that spending tradeoff is much harder to justify.

When Trump captured Nicolás Maduro on the first Saturday of the year, there was speculation that when markets opened the following Monday, they might react negatively given a possible geopolitical shock or positively in anticipation that new oil would be coming online. But markets were muted, and they took the news in stride. That has been the modus operandi of markets ever since Trump took office—trying to see past the immediate news and ask what actually matters for economic growth. In 2025, that strategy paid off. But 2026 may look very different.

The post Five trends to watch in the global economy in 2026 appeared first on Atlantic Council.

To unlock growth, Argentina should reduce its export taxes

Ignacio Albe, Achilles Tsirgis — Tue, 13 Jan 2026 18:35:30 +0000

The midterm victory for Argentine President Javier Milei’s ruling party in October expanded its legislative authority and provided a renewed mandate from voters to continue the country’s transformative economic reforms. Since the election, headlines have largely focused on how the Milei administration will approach much-needed fiscal and labor reforms. But Argentina should also focus on further liberalizing its foreign trade. As part of the Milei administration’s efforts to optimize efficiency and broaden the domestic tax base while lowering tax pressure on the economy, Argentina should reduce its unusually burdensome taxes on exports, known as the retenciones.

Over the past few months, the Milei administration has taken some steps on the right track. On December 9, for instance, the administration lowered the export tax on soybeans from 26 percent to 24 percent. This and other recent steps are welcome, but further reforms of the export tax are needed. Failing to reduce these taxes further could cost Argentina a sizable share of its export potential in key sectors, trapping the economy in a disequilibrium.

The history of distortive fiscal dependence

Argentina’s current system of taxes on exports is the result of a tumultuous history of measures imposed to fill fiscal shortfalls. The problem is that these export taxes uniquely punish the country’s most efficient, globally competitive industries by forcing capital and labor away from competitive sectors—a problem economists around the world have long recognized. These taxes have been imposed, adjusted, rescinded, and reintroduced time and again, particularly targeting Argentina’s highly competitive agribusiness products in a recurrent dynamic that has discouraged production and overseas sales. The loss of overseas sales creates further problems: it limits the inflow of foreign currency, primarily US dollars, into the economy, making it more difficult for Argentina to meet its foreign currency debt obligations.

Tellingly, several Argentine administrations have altered or canceled these taxes altogether to boost languishing production and sales. Argentina has also been an outlier in charging these export tariffs, with almost none of its regional peers charging these except for very limited and targeted exemptions.

The distortive effects that these taxes have had on Argentina’s exports are clear: Comparing export volumes (rather than export values, which are subject to price fluctuations in commodities) shows that Argentina’s exports have stagnated in recent years. At the same time, its peers in the Mercosur trade agreement (Brazil, Paraguay, and Uruguay) saw their export volumes grow considerably in the same period while charging only limited duties on certain exports. This loss of potential exports costs Argentina economic growth and stifles its agricultural sector.

Although the problem is clear, solving it is not as simple as it sounds. Argentina’s duties on agricultural exports, which had been mostly eliminated in 1992, were reintroduced in 2002 as an emergency fiscal stopgap measure following the country’s historic 2001 debt crisis and subsequent default. No government since then has been able to remove all of these taxes because of how important they have become for the country’s often overstretched finances.

Famously, Argentina has run budget deficits through most of the past two decades, as well as the better part of the twentieth century. Once these duties are imposed, they then experience fiscal inertia—the fiscal cost of removing them prevents governments from doing so. Argentina relies on taxes on international trade (both imports and exports) for over 10 percent—and sometimes as much as 20 percent—of its federal government revenue. As our research shows, this makes it an outlier among its peers. The 2022 average for Latin America, for example, was slightly under 4 percent, while the upper-middle income country average stood at around 3.5 percent.

Since coming into office in December 2023, the Milei administration has made great strides to bring government spending back under control. In its first year in office, it achieved and sustained a consolidated fiscal surplus for the first time in almost two decades. The government achieved this by implementing spending cuts and freezes, as well as eliminating several subsidies, all measures that were politically costly. At the same time, the government has eliminated other distorting taxes, including the PAIS tax on foreign currency purchases.

There has been some progress on export taxes. In 2025, the administration reduced and eliminated export duties on certain agricultural products, as well as several import duties. In September, the government approved a temporary suspension of duties on grain exports as part of a drive to accrue much-needed foreign currency reserves. In October, it temporarily suspended export duties on aluminum and steel to assist the sector following the United States’ imposition of universal tariffs on these products earlier in the year.

Nevertheless, the latest available data show that Argentina still relies on taxes on taxes on international trade (6 percent of total federal government income comes from export taxes, while at least 4 percent comes from duties on imports). Any major reduction of taxes on international trade could have serious implications for the government’s goal of keeping its deficit under control. According to the latest International Monetary Fund projections, which are largely based on Argentina’s current tax system, the government is expected effectively to break even fiscally in 2026, with little, if any, surplus space left after accounting for upcoming debt repayments.

The case for accelerating the reduction of export taxes

Reducing these taxes should be a priority for Argentina because of two well-known challenges. First, Argentina’s export tariffs are so high that they have discouraged production and exports, in turn reducing the size of the taxable export base, which reduces the tax’s efficacy. That is why an export duty reduction is likely to yield a greater increase in exports. However, to do this responsibly the government would need to work in stages, steadily replacing taxes from exports with other fiscal income sources, even as it continues to rein in overall spending. Some of the replacement tax revenue could come, for example, by increasing tax collection efficiency and broadening the tax base by including larger shares of the informal economy into the mainstream.

Second, Argentina operates on a tight currency band and has debt obligations denominated in US dollars that are due early this year and next year. This means that to maintain economic stability, the country needs dollar reserves, which have become increasingly scarce. Indeed, the lack of dollar reserves necessitated the US-Argentina swap line that the Trump administration instituted in October.

Argentina generates reserves through a conversion system that requires exporters to repatriate and sell dollar earnings to the central bank at the official rate. However, this mechanism, which would otherwise mechanically generate reserves, is undermined by the high export duties’ stifling effect on overseas sales.

Additional reforms are needed

As the Milei administration goes into the second half of its term, it should double down on its reform agenda, accelerating the pace of the country’s incremental liberalization. This means committing unambiguously to a liberal program that anchors expectations for, and delivers on, gradual export and import duty reductions that give room for the economy to grow—but also to adjust—in the process. The reduction of export duties should be gradual to account for the country’s tightly kept and necessary budget surplus. Import duties, which also generate revenues, should be reduced in a gradual process that eases the purchase of goods, especially those that are needed for Argentina’s own productive sectors. However, Argentina’s import duties are governed in part by Mercosur, so this will need to be done in close coordination with the country’s partners in the bloc.

To further boost exports as an engine of growth, Argentina needs to move toward a more orthodox economic and fiscal model that does not punish exports and does not rely on export duties for an inordinately large share of its total tax revenues.

The moment to move in that direction is now. The next general election will take place in October 2027. Any signal that the Milei administration’s fiscal consolidation agenda is stalling, that currency reserve issues persist, or that productivity is static may reignite capital flight once again. For its economic reform agenda to succeed, the Milei government must achieve what previous administrations could not: fiscal discipline with a sustainable export-driven growth model.

The post To unlock growth, Argentina should reduce its export taxes appeared first on Atlantic Council.

How will the Trump-Powell clash shake the global economy?

Josh Lipsky — Mon, 12 Jan 2026 18:33:07 +0000

GET UP TO SPEED

There’s a high level of interest in what happens next. The US Justice Department is undertaking a criminal investigation into Federal Reserve Chair Jerome Powell, following a year of sparring between Powell and US President Donald Trump over interest rates. On Sunday night, Powell went public with his response to “this unprecedented action.” He called questions about the costs of the Fed’s headquarters renovation and Powell’s testimony to Congress “pretexts” for the administration’s ongoing pressure campaign. “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” he said.

How will these developments affect US and global markets, and what future actions should we expect from the White House and the Fed? We turned to our chair of international economics to make sense of it all.

TODAY’S EXPERT REACTION BROUGHT TO YOU BY

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

The backstory

The clash between president and Fed chair “was a shocking escalation,” Josh tells us. “Until now, Powell had done everything possible to avoid an outright confrontation. That is what made his comments last night so powerful.”
Trump would prefer lower interest rates to boost consumer spending, but the Powell-led Fed, Josh says, has “remained cautious [about reducing rates], wary of sticky inflation and the potential inflationary impact of tariffs.”
“What is particularly surprising is the timing” of the Powell probe, Josh says, since his term as chairman expires in May, and the Fed has been cutting rates gradually in recent months.
“Without having to fire the Fed chair, Trump was already getting the policy outcome he wanted—and would soon have the opportunity to appoint a new ally,” Josh tells us. Still, he predicts that neither the White House nor the Fed will back down.

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The markets

On Monday, US and global markets were basically flat. Josh thinks this is likely due to the relatively limited economic fallout from Trump’s “Liberation Day” tariffs and other major events such as the US strike on Iran’s nuclear facilities.
“Markets are choosing to wait and see rather than overreact, and they have data from Trump’s first year that suggests this strategy has worked,” he explains.
But Josh says this dynamic “creates a strange tension: Markets believe they can constrain the president through negative reactions, and therefore often don’t react [to Trump’s economic actions]—while the president, seeing little immediate financial cost, believes he can continue to push forward.”

The fallout

Since Sunday’s announcement, two US Senate Republicans have pledged to block Trump’s Fed nominees until the case is resolved. Josh predicts it will be hard to confirm a new chair while the case is pending, so it’s possible Powell could continue as temporary chair past his scheduled departure—not the result Trump desires.
While all this drama is unfolding, the US Supreme Court will hear arguments this week on the case of Trump’s attempted firing of Fed governor Lisa Cook over allegations of mortgage fraud. And as soon as Wednesday, the court will decide the fate of many of Trump’s tariffs, potentially putting the president at odds with the Fed and the high court at the same time.
“Even Wall Street will not be able to ignore” the impact of a Supreme Court tariff decision, Josh tells us. “While markets are hoping that year two looks like year one, Trump is signaling—from Venezuela to the Federal Reserve—that this time is different.”
Global central bankers and finance ministers are watching with concern, Josh reports, given the Fed’s role as a “global model of an independent central bank” that makes decisions for the sake of economic health rather than as a result of political pressure.
“This is not academic,” Josh says. The Fed “has repeatedly stabilized both the US and global economy in moments of crisis,” and “independent central banks are proven to deliver stronger growth, more jobs, and better economic outcomes. Trillions of dollars and millions of jobs are at stake.”

The post How will the Trump-Powell clash shake the global economy? appeared first on Atlantic Council.

The EU and Mercosur are creating one of the world’s largest free trade areas. What’s next?

Atlantic Council experts — Fri, 09 Jan 2026 21:09:50 +0000

Is free trade making a comeback? European Union (EU) member states voted on Friday to approve a trade deal with South America’s Mercosur trade bloc, which will create one of the world’s largest free trade areas when the two sides formally sign the agreement in the coming days. The deal—which has been under negotiation since 1999—passed over objections from several member states, including France, that raised concerns over how lowering trade barriers with Mercosur nations will affect domestic agriculture.

What impact will this deal have on European competitiveness and South American export markets? And what details remain to be ironed out as the deal moves onto the European Parliament for final approval? Our experts provide their insights into this decades-in-the-making trade pact below.

1. Why is the EU-Mercosur deal happening now?

Those European farmers and others opposed to the EU-Mercosur deal can blame US President Donald Trump for the conclusion of this significant free trade agreement. Negotiations between the EU and Mercosur were essentially on hold after the basic agreement, finalized in 2019, was met with serious opposition by key EU member states. During 2024 and 2025, the European Commission and Mercosur negotiated an “additional instrument” with protections on labor, human rights, and environmental issues. With Trump’s tariffs in effect by summer 2025, pressure mounted for the EU to diversify its trading partners. Last year, the EU finalized a new trade agreement with Indonesia and updated an existing agreement with Mexico. The bloc also made significant progress on an EU-India trade deal.

Nevertheless, the Mercosur deal still faced near-fatal opposition until it received two final pushes: First, the European Commission proposed safeguards to protect agricultural interests from import surges. Second, the new US National Security Strategy made clear for the EU that trade relations with Latin America were a geopolitical imperative. Nevertheless, Italian Prime Minister Giorgia Meloni refused to provide her country’s needed vote until the European Commission promised additional agricultural support in the next EU budget. With Italy’s support today—and in the wake of a US operation in Venezuela that left Europe on edge about Greenland—the EU-Mercosur agreement finally made it over the finish line.

—Frances Burwell is a distinguished fellow at the Atlantic Council’s Europe Center.

***

The EU–Mercosur trade deal comes at a moment of growing pressure to diversify export markets and trade partners amid heightened geopolitical uncertainty, particularly in light of US tensions with China and the imposition of US tariffs. For Mercosur, this urgency has been especially acute for Brazil, the bloc’s largest economy, which has faced an additional 40 percent US tariff on top of baseline duties and whose number one trading partner is China.

—Valentina Sader is a director at the Atlantic Council’s Adrienne Arsht Latin America Center, where she leads the Center’s work on Brazil, gender equality and diversity, and manages the Center’s Advisory Council.

***

The European Commission has sought to expand the EU’s network of trade relations to compensate for pressures from US tariffs, aggressive challenges from China, and the need to secure access to critical materials. Whether that diversification strategy is credible hinged in no small part on this trade deal—not just on the substance of market access and comparative advantages but also on the geopolitical feasibility of such a major agreement. The shifts in US trade policy under Trump, the challenges to the global trading system that Europe’s export-oriented economies depend on, and the demonstration of China’s stranglehold on critical resources clearly accelerated the decadeslong negotiations between the EU and Mercosur, which first opened in 1999 and were only finalized in 2024.

Last-minute additions were made by the EU in 2025 to provide more protections for European farmers. European Commission President Ursula von der Leyen hoped to sign the deal in Brasília in December 2025 after the initial safeguards were agreed upon in September, but Italy threw an unexpected wrench in those plans until further guarantees were made to protect domestic producers. Dramatic protests by farmers in Brussels in December solidified the momentum against signing the deal before Christmas.

On Wednesday, the safeguards Italy wanted were agreed upon by the EU’s agricultural minister and Rome lifted its veto. This paved the way for the European Council to vote in favor of the deal today by qualified majority—despite France voting against it, amid fresh farmer protests in Paris and increased political pressure on French President Emmanuel Macron—and for von der Leyen to officially sign the deal with Mercosur leaders in Paraguay as soon as January 12.

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

Tractors are seen parked in front of the Arc de Triomphe during a demonstration of French agricultural union Coordination Rurale in Paris on January 8, 2026. (Adnan Farzat/NurPhoto via Reuters Connect)

2. What impact will this have on Europe?

Europe worked hard to reach consensus on how to assuage doubts from European farmers about any negative impacts on their livelihoods. The additional measures added to the deal include “safeguards” for sensitive agricultural sectors, such as poultry, beef, eggs, citrus, and sugar, which would “suspend tariff preferences” in the case of “serious injury” to EU farmers. Serious injury is defined as an increase in import volume or a decrease in prices by more than 8 percent compared to the three-year average. The European Commission also introduced a slew of regular monitoring instruments, which will have to report to the European Council and European Parliament for increased accountability on enforcement. The Commission will be able to suspend imports from Mercosur in sensitive sectors if it deems this to be necessary. The final concessions agreed this week to bring Italy on board also include a revision to the 2028-2034 EU budget to allow farmers early access to roughly €45 billion in subsidies, as well as lowering import duties on fertilizers, the unaffordability of which was a major sticking point for protesters.

Economically, the agreement will remove approximately four billion euros worth of tariffs between the two trading blocs, which is significant for several key EU sectors that were previously subject to high tariffs when exporting to Mercosur. European exporters will no longer face 35 percent tariffs on car parts, 28 percent tariffs on dairy, and 27 percent tariffs on wine. The Commission estimates that the agreement could increase EU exports to Mercosur by 39 percent each year and support more than 440,000 jobs in Europe. However, not everyone shares this rosy assessment. Macron, in his announcement that France would not support the deal, stated that the economic gains would be minimal and that the agreement is “from another age.”

—Jörn Fleck

***

Despite the very visible and sometimes violent protests by European farmers, the Mercosur pact is likely to make a positive contribution to the European economy. The agreement removes most Mercosur tariffs for industrial goods (currently set at rates ranging from 15-35 percent), opening the market for European machine tools, cars, pharmaceuticals, and other products. Mercosur tariffs on most food and agriculture products (ranging from 20-35 percent) will also be removed.

While EU farmers have expressed concerns about Mercosur agricultural products, especially meat, flooding the EU market, that is very unlikely in reality. The agreement includes limited tariff-free quotas for Mercosur products, and once those quotas are reached, current tariffs are reimposed. For beef, the quota allows in only an additional 1.5 percent of total EU production, and for poultry, only 1.3 percent. Moreover, if there are sudden, sharp rises in imports, the EU can impose measures to limit them. Despite the rhetoric, agriculture remains a well-protected sector under the EU-Mercosur accord. And for European industry, this agreement opens an important new market.

—Frances Burwell

3. What impact will this have on South America?

Covering countries with a combined population of more than 700 million people, the trade deal promises to expand South American access to the European market, boosting exports and attracting greater EU investment. At the same time, it will pressure Mercosur industries to modernize, digitize, and improve efficiency to remain competitive amid increased exposure to European manufactured goods.

Politically, the deal strengthens Mercosur’s credibility and cohesion at a moment of internal fragmentation, signaling that the bloc remains a viable platform for collective trade policy and diplomacy despite ideological differences among its members. As the bloc turns thirty-five this year, it is reasserting its strategic purpose, having finalized a deal with the European Free Trade Association, restarted negotiations with Canada, and now locked in a landmark agreement with the European Union.

—Valentina Sader

4. What should the US take away from this?

The Trump administration is unlikely to provide any public support for this agreement, but it is also unlikely to make it a significant issue in the US-EU relationship, despite its current emphasis on Latin America as its sphere of influence. This is a serious underappreciation of the importance of this accord. The EU will now have free-trade agreements with close to eighty countries, while the United States has free trade agreements with only twenty. While Trump has signed additional “deals” with many countries, they have generally raised trade barriers, rather than opening markets, and US demands for inward investment and other conditions have left many trading partners bruised and resentful.

The EU is certainly a tough negotiator, and the Mercosur accord will make some constituencies on both sides unhappy, but it is likely to raise trade levels between two significant economic blocs. The reduction in high Mercosur tariffs for EU goods will mean more exports for European industries, luxury goods, and other products. EU companies will be able to bid on public tenders in Mercosur countries on an equal basis with local firms. The agreement also safeguards the branding of more than three hundred traditional EU food products, such as champagne and parmesan cheese, meaning that US products with those same names must be rebranded to enter the Mercosur market. This is not only an economic loss for the United States, but a geopolitical one as well. EU and Mercosur businesses will generate more partnerships, and these growing economic ties are likely to lead to more political alignment at a time when many in the Southern Hemisphere are balancing their interests between China and the United States.

For Mercosur leaders and their citizens, the contrast could not be starker: In the same week that the United States conducted a military operation against a neighbor, the EU has finally agreed to a significant trade pact based on the rule of law.

—Frances Burwell

***

As the EU and Mercosur double down on a multilateral, rules-based free trade geopolitical reality, the United States appears to be moving in the opposite direction. Given the current geopolitical context and in the wake of a new US National Security Strategy that places the Western Hemisphere at the center of US foreign policy, this deal is an opportunity for Mercosur member countries to reduce their economic reliance on the United States.

—Valentina Sader

***

On a symbolic level, and perhaps most importantly, the deal demonstrates Europe’s willingness to adapt to an increasingly volatile global economy, the headwinds from US tariffs, and a new China challenge in critical sectors. For those in Brussels who call for the EU to stand more on its own footing economically, this is a strategic win. Moreover, if EU leaders had once again failed to reach internal consensus on the deal, it could very well have closed the door to any future deal with Mercosur and proven correct Washington’s doubts about Europe’s ability to act decisively on the world stage.

—Jörn Fleck

The post The EU and Mercosur are creating one of the world’s largest free trade areas. What’s next? appeared first on Atlantic Council.

Singapore must shift from state-led expansion to productivity-led growth

Linda Y.C. Lim — Fri, 09 Jan 2026 14:44:37 +0000

Bottom lines up front

The “Singapore model” of a market economy under heavy government direction has led to strong headline numbers that obscure signs of significant stress.
High land and housing costs, extreme inequality, and a very low fertility rate suggest that everyday life feels precarious for many in one of the world’s richest cities.
Singapore needs a new playbook—otherwise the model may start to look more like a warning.

This is the fourth chapter in the Freedom and Prosperity Center’s 2026 Atlas. The Atlas analyzes the state of freedom and prosperity in ten countries. Drawing on our thirty-year dataset covering political, economic, and legal developments, this year’s Atlas is the evidence-based guide to better policy in 2026.

Evolution of freedom

Singapore’s post-independence development strategy was clear and, for a long time, well suited to the country’s advantages and constraints. A free port under British colonial rule since 1819, Singapore separated from Malaysia in 1965, which made continued outward orientation an existential necessity for the city-state’s survival. Developed-country trade liberalization encouraged offshore sourcing by multinationals, enabling Singapore’s government to build an export-oriented economy anchored in foreign direct investment. It prioritized manufacturing, later adding high-end services, and used targeted industrial policy to achieve its priorities. The strategy was reinforced by disciplined macroeconomic management, public investment in world-class infrastructure, and efficient public administration.

But what made the approach distinctive was not just openness to trade and investment—it was also the degree to which the state integrated regulatory, proprietorial, and allocative power. The government planned land use, owned most of the land base, channeled compulsory savings, and exercised strategic ownership through sovereign wealth funds and government-linked companies. This tight coupling of state and market produced order and speed and made full use of a global economic environment that favored openness. At the same time, however, it embedded government discretion at the center of daily life.

The economic engine was an extensive growth model, which expanded output by adding capital and labor to a fixed land base, rather than by sustained gains in total factor productivity. Singapore incentivized multinationals to produce in the country, scaled public investment, and—critically—liberalized foreign labor inflows to keep costs predictable. That choice made sense when the priority was to build a platform economy quickly. It is less convincing as a path to future prosperity. Heavy reliance on lower-wage foreign workers depresses incentives to automate, redesign jobs, and raise productivity. At the same time, large inflows of higher-skilled foreigners add to demand for scarce urban resources and amenities, especially housing, putting pressure on prices and widening social distance. Such social distance is seen where differences in income, opportunities, and daily living conditions deepen divides between groups. In such a system, the state can point to impressive aggregate outcomes while households at the lower end experience stagnant real wages and rising costs.

Households at the lower end experience stagnant real wages and rising costs.

Institutionally, Singapore has combined strong commercial rule of law and administrative capability with persistently narrow political competition. Elections are regular and cleanly administered, but contestation is constrained. The playing field is shaped by districting changes implemented shortly before each election; official campaign periods that last just nine days; and a long tradition of filing defamation actions against critics, including for statements made during the hustings. Mainstream media is not fully independent—there is substantive state ownership and oversight—and online speech is governed by broad statutes that give the executive sweeping, fast-acting powers. Passage of POFMA (Protection from Online Falsehoods and Manipulation Act) in 2019 and FICA (Foreign Interference [Countermeasures] Act) in 2021 was justified by the government as defenses against misinformation and foreign interference, but the measures have also generated uncertainty about what is out of bounds. In practice, the fear and reality of punishment lead risk-averse citizens and institutions to overcomply. The effect is anticipatory discipline, more than visible coercion, engendering a climate in which people self-censor and where policy debate narrows.

The legal environment reinforces this equilibrium. Singapore courts are efficient, free from corruption, and commercially reliable—central reasons investors locate there. But the same state that regulates also owns land, large companies, and the largest pools of domestic savings. Political appointments, the use of civil defamation in political contexts, and the fusion of political and administrative authority create ambiguity for anyone engaged in contentious public speech or organizing. For most commercial actors, rules are clear and enforcement swift; for citizens considering robust political contestation, the boundaries are less legible and the costs potentially high. That asymmetry lowers the expected return on civic initiative and removes information the state needs for timely course correction.

The tight state-economy nexus is particularly visible in land, housing, savings, and capital allocation. Because the government owns nearly all the land and leases public housing on 99-year terms, “market prices” are necessarily shaped by policy. The Central Provident Fund (CPF) holds employees’ mandatory savings (currently amounting to 37 percent of employee compensation) and links a very large share of it to housing purchases and other government-defined uses. The sovereign wealth funds Temasek and GIC intermediate large public assets and maintain strategic holdings in major enterprises, while government-linked companies dominate substantial portions of the corporate landscape. This architecture has delivered order, speed, and scale. It has also raised economy-wide prices, encouraged rent extraction through asset inflation, and tilted returns toward capital and land rather than labor. When the state is everywhere—as de facto landlord, employer, investor, banker, business partner, regulator, customer, supplier, and even competitor in the provision of goods and services beyond public goods—experimentation by private enterprise narrows, not by prohibition but by crowding out, and by the rational impulse to align with official priorities, especially when reliant on the state for incentives or sales.

These facts sit awkwardly with conventional measures of “economic freedom,” such as those produced by the Fraser Institute or Heritage Foundation, which reward contract enforcement, low tariffs, and investment openness, have historically placed Singapore at top positions in their indexes. The economic pillar of the Freedom Index, mainly based on these same external sources, consequently ranks Singapore as the eighth most economically free country among the 164 nations covered. Those measures capture real policy strengths, but rankings such as these cannot capture how a directed ecosystem works on the ground when the state chooses where investment is most desired, sets the volume and terms of labor inflows, prices land it largely controls, and deploys large public capital to back favored sectors. Under such conditions, entrepreneurship is not forbidden, but it is less central to the model than in economies where the state is smaller and competition wider. A rules-based marketplace can coexist with discretionary steering from above. The visible results—macro stability, fast approvals, coordination in areas the state prioritizes—are valuable. But hidden costs—muted productivity incentives, lower household consumption, and limited diffusion of capability—accrue slowly and become apparent only when the external environment turns unfriendly.

Some might argue that Singapore’s example indicates that political freedom is unnecessary for economic development. After gaining independence, the government justified expanded restrictions on labor, media, and freedom of association as necessary to ensure political stability and attract foreign direct investment (FDI). But these restrictions remain in place even as South Korea and Taiwan, formerly authoritarian regimes, showed that political liberalization and a more participatory system could reinforce and enhance, not undermine, stability as economies mature (see Figure 1). In Singapore, constraints on expression—including in academia—reduce the diversity and depth of policy discussions. When dissent is costly and information selectively released, the system hears less from those who see problems first: low-wage workers, squeezed middle-class families, independent researchers, and small firms facing rising costs. This is not an abstract normative concern but rather a practical handicap in a complex, rapidly changing economy.

Figure 1. Political liberalization did not slow economic growth in South Korea or Taiwan

Gross domestic product per capita (purchasing power parity-adjusted, in 2021 constant international dollars) was obtained from the IMF data portal. The Political Rights component has been extended back to 1980 using V-Dem data and the same methodology as in the Freedom and Prosperity Indexes.

Evolution of prosperity

Singapore’s achievements on headline income are undeniable. Gross domestic product per capita has tripled since 1990, placing the country among the richest in the world. The Prosperity Index also records the country’s high levels of life expectancy and educational attainment. Singapore joined the world’s most developed countries several decades ago. These are the peers with which it should be compared, not its lower-income regional neighbors, particularly since the Singapore model of growth is clearly distinct from that of other high-income nations. An extensive growth model powered by factor accumulation leaves characteristic fingerprints. Singapore runs large current-account surpluses (over 20 percent of GDP annually since 2005) and builds fiscal buffers (persistent large budget surpluses); public investment is high; private consumption is low by advanced-economy standards; and productivity growth has been episodic outside a few frontier activities. This is the logic by which the system operates: Singapore prioritizes external competitiveness, recycles surpluses into foreign assets, and leans on a managed exchange-rate regime to hold down imported inflation and to maintain credibility. The main questions behind the numbers are how broadly they translate to all social strata and whether the current model is sustainable in the long run.

When dissent is costly and information selectively released, the system hears less from those who see problems first: low-wage workers, squeezed middle-class families, independent researchers, and small firms facing rising costs.

The inequality component of the Prosperity Index gives a visual answer to the first question. Compared to the Nordic European countries, Singapore has a much higher level of income inequality (see Figure 2). Other distributional measures, such as an estimated 0.7 Gini coefficient in terms of wealth inequality, point to the same conclusion. What’s more, these numbers most likely underestimate the actual level of inequality in Singapore. Most OECD countries include all legal immigrants (permanent and temporary residents) when estimating inequality, but Singapore excludes non-permanent immigrants, though they account for 39 percent of the labor force and are concentrated at the lower end of the income distribution. The country’s official measures of inequality (a 2024 Gini coefficient of 0.435 before and 0.364 after taxes and transfers) also exclude non-labor income, more than half the total. The real inequality gap in Singapore, compared with other developed countries, is probably much wider than estimated, while Singaporeans’ share of national income has almost certainly shrunk since 2014, the last time this number was released. Socioeconomic inequality is a direct product of the Singapore model, which generates costs borne by households through higher local-currency prices, crowding out of small and medium enterprises, thin wage growth at the base, and a muted share of national income going to labor and citizens.

Figure 2. Income inequality is higher in Singapore than in Scandinavian countries

Labor-market design is central to these outcomes. Liberal foreign-worker inflows have long been used to match demand cycles, contain wage pressures, and deliver what has been referred to as “labor peace.” Over time, this has reduced the incentive for employers to automate or redesign low-productivity work. A dual structure persists. At one end, a sizeable segment of the economy depends on low-paying, physically demanding and risky jobs that do not lead to productivity ladders for residents. At the other end, inflows of professionals and executives meet genuine skills needs but also fuel demand for scarce urban resources and amenities, especially housing, raising costs and intensifying competition for positional goods and elite educational tracks. The structure widens the gap between those at the lower and upper ends of the economy without building domestic capability commensurate with the country’s income level.

The real inequality gap in Singapore, compared with other developed countries, is probably much wider than estimated.

Housing and savings amplify the distributional effects. Singapore links a very large share of forced savings to Housing and Development Board (HDB) purchases on 99-year leases, with 76 percent of the population (down from 85 percent) housed in these government-run properties. When home values rise, owners enjoy wealth effects; when leases age and policy signals shift, uncertainty grows for households that cannot easily diversify. Land prices—set in a market the state effectively controls—ripple through business costs and wages. The expectation of continuing asset inflation encourages rent-seeking over entrepreneurship and leads families to shoulder significant leverage. A model that relies on rising asset prices to sustain consumption in a city of high living costs is one that exposes households to policy-driven valuation risk. It also depresses fertility (the 0.97 total fertility rate is among the world’s lowest) by increasing the cost of raising children in an expensive, dense, competitive urban environment.

Singapore’s 37 percent labor share of national income has been low relative to its peers, while gross operating surplus and property-related incomes loom large, at 54 percent. Government-linked firms and multinationals dominate many input and output markets, crowding out smaller domestic enterprises. Private consumption’s share of GDP (36 percent in 2024, down from 49 percent in 2001) is strikingly low for an advanced economy. These features set Singapore apart from the most prosperous and inclusive societies, where thicker wage floors, broader diffusion of capability, and less reliance on asset inflation anchor the social contract.

Education and health present a complex picture. Attainment is high and standardized test scores in math and science rank among the world’s best. But in a relentlessly competitive school system, there are concerns that heavy reliance on private tuition (70 percent of students) contributes to unequal educational outcomes and diminished social mobility by giving an advantage to those whose families can afford the extra expenditure. Additionally, translating education into broad-based opportunity is uneven since the economic structure does not generate enough high-productivity, middle-income jobs for residents outside elite tracks. Without stronger productivity growth at the firm level—driven by job redesign, automation, and diffusion of best practice—credentials do not guarantee commensurate wages. On the health front, a technocratic system achieves strong population outcomes (in terms of average life expectancy) at relatively low public cost, but it deliberately shifts financial risk to households through compulsory savings and copayments. In a city with high living costs and thin wage growth at the base, that risk burden is felt keenly even when headline indicators look strong.

Externalities are increasingly salient. Sustaining growth through population increases and construction intensifies congestion and environmental stress in a tropical, high-density city increasingly beset by climate change (high temperatures, frequent floods, rising sea level). Industry clusters that anchor the export platform—energy-intensive manufacturing, petrochemicals, aviation-related services, data centers—carry emissions and transition risks that will be costlier to manage as climate policy tightens globally. Meanwhile, the shift to attracting family offices and private wealth poses reputational and security risks—from money-laundering and accusations of “Singapore-washing” (intermediating funds through Singapore to disguise their origin or destination) to international criminal syndicates and scammers who use Singapore as a hub for their illicit activities. The result of this shift is to concentrate purchasing power in neighborhoods and assets where residents already feel priced out, with only modest spillovers to domestic capability building and financial-market depth.

When the cost of dissent is high and data releases are selective, independent journalists, researchers, and civic groups struggle to map distributional outcomes in real time. That deprives policymakers of useful feedback, early warnings, and good ideas from outside the official complex. It also erodes trust. Citizens are more likely to accept difficult adjustments when they believe the system listens to their concerns and shares risk fairly. Today, too much downside is borne by households, which face rising prices and policy-shaped asset risks while being told that government largesse through periodic non-entitlement transfers will cushion the blow. Such discretionary transfers—conditional, temporary, inadequate, and uncertain—are inferior to market wages that rise with productivity and distort political preferences by making the citizenry beholden to the governing party.

The path forward

Singapore will not succeed in the next decade by doing more of what worked in the last half-century. The world has changed. Globalization is retrenching, the international tolerance for mercantilist policies is narrowing, and great-power rivalry is intensifying with increased willingness to use economic pressure to exact political concessions. Regional competitors—from China to Vietnam and Indonesia—combine improving infrastructure and skills with labor costs Singapore cannot match. Subsidy races in major economies are reshaping value chains and contesting investment decisions with tools Singapore cannot or should not emulate at scale. The uncertain impact of technological disruption by artificial intelligence makes investment decisions difficult and complicates long-term planning. In this environment, doubling down on a model optimized for inflows of foreign labor and capital will yield diminishing returns and increasing vulnerabilities, while wasting scarce resources.

The first imperative is to move decisively from extensive to intensive growth. That means closely linking firm survival to productivity improvement. A credible path would temper reliance on lower-wage foreign labor in ways that raise the payoff from automation, process innovation, and job redesign—especially in service sectors where productivity lags and resident employment is concentrated. It will close some firms and raise costs for others in the short run, but without this shift, wages at the base will remain thin and inequality will worsen, no matter how many transfers the government can deploy. Complementary reforms should ensure that inflows of higher-skilled foreigners are aligned with building domestic capability rather than simply satisfying short-term demand and bidding up urban resource costs.

The political-legal setting must evolve in tandem with the economy.

Second, the scale and use of surpluses and reserves should be revisited, especially as the sovereign wealth funds which invest reserves have underperformed. A stronger exchange rate and slower reserve accumulation would lower imported inflation and relieve cost-of-living pressures. A larger share of fiscal resources can be redirected from broad corporate inducements and opaque industrial bets toward social spending that reduces household risk without dulling work and investment incentives. None of this implies fiscal profligacy or acting imprudently. It reflects a recognition that the opportunity cost of very large buffers, in a rich and aging society, includes foregone domestic investment in human capital, diffusion of capability, and life-cycle security.

Third, land and housing policy must be reoriented to lower systemic costs and reduce dependence on asset inflation. More retirement savings should be decoupled from housing, the long-term treatment of aging leases clarified, and the state’s control of land used to dampen, not amplify, economy-wide price pressures. Greater transparency around land pricing and HDB cost structures would improve trust and policy effectiveness, and enable better planning of investment decisions by households and businesses. Lower land costs would cascade through wages and prices, reduce the attraction of rent-seeking, and shift capital toward productive enterprise. It would also promote family formation by lowering the cost and uncertainty associated with housing, childcare, and eldercare.

Fourth, the growth playbook should move from picking winners at scale to catalyzing broad-based experimentation by private actors. Singapore has spent heavily, over decades, on research parks and sectoral “bets” that delivered mixed results. In a world where value is increasingly created in ideas, services, and intangibles, the priority should be to lower entry barriers, democratize access to data and infrastructure, and crowd in private risk-taking outside state-linked incumbents. Public capital can be powerful when it is allocated with discipline: to back competitive markets, not sustained rents; to fund diffusion of capability, not trophy projects; and to hold itself accountable to transparent criteria and sunset clauses.

Fifth, the political-legal setting must evolve in tandem with the economy. Removing the conflation of government and ruling party interest with the public interest, strengthening checks and balances on the executive’s exercise of powers, normalizing robust debate, and making distributional data routinely available would lower the implicit tax on civic initiative and improve policy through better feedback. Complex societies govern better when they listen widely and when the rules are clear and contestable—as evidenced by other Asian countries that have shown that political liberalization can coexist with order and strengthen legitimacy. Confidence in performance should reduce, not increase, the state’s reliance on ambiguity and speed in controlling speech and association.

Building institutions that allow competition in markets and ideas and that trust and empower ordinary citizens … is the surest way to keep Singapore exceptional.

Geopolitics adds urgency. Singapore cannot count indefinitely on frictionless access to foreign capital, technology, and markets. Practices once tolerated may be penalized. If the country continues to rely primarily on incentive-led FDI and imported labor in a city with high costs and rising environmental constraints, it will confront sharper trade-offs: either slower growth with rising inequality and social tension, or continued growth with greater external exposure and domestic fragility. Neither is an optimal strategy for the future.

The better alternative is a new “social compact” that matches the high-income status Singapore has achieved. It would place productivity and diffusion of capability at the center of economic strategy; align immigration and industrial policy with those goals; share risk more fairly with households; and widen the channels through which citizens can speak, organize, and help solve problems. It would move society from discretionary benevolence toward institutionalized confidence that rules are predictable and fair. It would sustain high income without leaning on ever-rising asset prices, grow wages at the base faster than the cost of essentials, and ease the pressures that make everyday life feel precarious to many in one of the world’s richest cities.

Singapore possesses the administrative capacity, fiscal resources, and human talent to make this transition. The PAP government, which has ruled for 66 years, faces no short- or even medium-term threat to its overwhelming hegemony. It recognizes the external and domestic challenges the economy faces, expresses concern about social mobility and social cohesion amid a “foreign-local divide,” and is attempting to “listen more” (albeit through channels and processes it controls). The government has even acknowledged that the model that got the country to where it is today is not the model that will take it further, because the world will not arrange itself to suit the old playbook. What it has not done is change the playbook. Instead, it is ratcheting up growth acceleration by placing bigger bets on “industries of the future” while holding on to established ones as a hub for “leading global firms.” Recognizing that “not everything will succeed,” the government argues that “if just one or two do, they can transform our economy and carry Singapore to the next level.” It is not moving toward political and intellectual liberalization, insisting instead that maintaining “social harmony”—given economic openness, racial and religious diversity, divisive social media and geopolitical tensions—requires holding fast to the tight rules of the past.

If Singapore changes its playbook, its freedom profile will become less lopsided—still strong on commercial rule of law and execution but balanced by more open contestation and clearer legal protections for speech. Its prosperity will be more inclusive and sustainable. Without the change, the headline numbers may stay impressive for a while, but the trade-offs will sharpen, and the miracle will appear less as a model to emulate and more as a cautionary warning. In the long run, a city-state’s greatest asset is the capability and confidence of its people. Building institutions that allow competition in markets and ideas and that trust and empower ordinary citizens, rather than domestic and foreign elites, is the surest way to keep Singapore exceptional.

about the author

Linda Y.C. Lim, professor emerita of corporate strategy and international business at the Stephen M. Ross School of Business, University of Michigan, has studied the Singapore economy for 50 years, and published other research on international trade and investment, women in the labor force, and overseas Chinese business in Southeast Asia. She co-edits AcademiaSG, an academic blog promoting scholarship “of/for/by Singapore.”

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2026 Atlas: Freedom and Prosperity Around the World

Against a global backdrop of uncertainty, fragmentation, and shifting priorities, we invited leading economists and scholars to dive deep into the state of freedom and prosperity in ten countries around the world. Drawing on our thirty-year dataset covering political, economic, and legal developments, this year’s Atlas is the evidence-based guide to better policy in 2026.

2025 Atlas: Freedom and Prosperity Around the World

Twenty leading economists, scholars, and diplomats analyze the state of freedom and prosperity in eighteen countries around the world, looking back not only on a consequential year but across twenty-nine years of data on markets, rights, and the rule of law.

2024 Atlas: Freedom and Prosperity Around the World

Twenty leading economists and government officials from eighteen countries contributed to this comprehensive volume, which serves as a roadmap for navigating the complexities of contemporary governance.

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The Freedom and Prosperity Center aims to increase the prosperity of the poor and marginalized in developing countries and to explore the nature of the relationship between freedom and prosperity in both developing and developed nations.

The post Singapore must shift from state-led expansion to productivity-led growth appeared first on Atlantic Council.

Russia’s war on Ukrainian farmers threatens global food security

Oleksandr Tolokonnikov — Thu, 08 Jan 2026 22:10:44 +0000

Ukrainian farmer Oleksandr Hordiienko was a well known figure in southern Ukraine’s Kherson region, where he was widely viewed as a symbol of the local agricultural community’s wartime resilience. During the first three-and-a-half years of Russia’s invasion, Hordiienko was credited with shooting down dozens of Russian drones and helping de-mine thousands of hectares of farmland. On September 5 last year, he was killed in a Russian drone strike.

Hordiienko’s death was part of a broader Kremlin campaign to methodically target and destroy Ukraine’s agricultural industry. Since the beginning of Russia’s full-scale invasion, at least fifteen farmers have been killed in the Kherson region alone.

Meanwhile, vast quantities of farmland remain inaccessible due to mining or have sustained damage as a result of fires caused by Russian military actions. Ukrainian agricultural workers face a daily threat of drone, artillery, or missile strikes. Some farmers have responded to the danger by taking measures to defend themselves, their land, and their livestock, such as investing in drone monitoring equipment and hiring military veterans.

Over the past year, Russian attacks on Ukraine’s agricultural sector have escalated alarmingly. According to research conducted by the University of Strasbourg, the University of Maryland, and NASA’s Harvest program, the number of farmland fires identified in Ukrainian-controlled areas of the Kherson region during 2025 rose by 87.5 percent.

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The Kherson farming community’s wartime experience is mirrored throughout Ukraine, particularly in areas close to the front lines of the invasion. By attacking agricultural infrastructure, Russia seeks to undermine Ukraine’s food security, just as it targets the country’s energy infrastructure to deprive Ukraine’s civilian population of access to electricity and heating.

The implications of Russia’s war on Ukrainian farmers are international in scope. Known historically as the breadbasket of Europe, Ukraine is home to around one quarter of the world’s black soil, the most fertile farmland on the planet. This makes Ukraine a potential agricultural superpower and a key contributor to global food security. Ukrainian farmers are among the leading exporters of foodstuffs to the European Union, with Ukrainian produce also playing a prominent role in aid programs to counter hunger throughout the developing world.

Russia’s invasion has had a devastating impact on Ukrainian agricultural output. In addition to mined fields, burned crops, and bombed facilities, large numbers of Ukrainian farms are currently in Kremlin-controlled regions, leading to seized harvests.

Kherson region farmers received a further blow in summer 2023 when a suspected Russian sabotage operation destroyed the Kakhovka Dam in Russian-occupied southern Ukraine. This act of ecocide undermined one of Europe’s largest irrigation systems, leaving hundreds of thousands of hectares without access to water. The impact on the environment was catastrophic, leading to drought conditions, failed crops, and the loss of farmland.

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How Russia’s winter warfare strategy targets Ukrainian civilians

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Despite the unprecedented challenges posed by Russia’s ongoing invasion, Kherson’s farmers continue to work. In 2025, they managed to harvest a remarkable quantity of the watermelons that serve as the region’s unofficial calling card. Other key Kherson crops include wheat and potatoes.

Since 2022, domestic and international support programs have proved instrumental in bolstering the resilience of the Kherson agricultural industry. Initiatives in recent years have included subsidies for farmers and technical assistance focused on areas such as irrigation, with the goal of helping farmers adapt to the new wartime realities.

Kherson agricultural businesses are also responding to the changing conditions. Due to water scarcity and rising temperatures, some farms have reduced planting areas and turned to cultivating crops that utilize soil moisture more efficiently. Research is also underway to develop additional drought-resistant crops better suited to the current environment.

Further international support for Ukrainian farmers will be critically important during 2026. Ukraine’s agricultural industry is one of the cornerstones of the national economy and a major exporter to global markets. By targeting farmers and their land, Russia aims to make Ukraine unlivable and break the country’s resistance. This strategy poses a significant threat to international food security and must be addressed.

Oleksandr Tolokonnikov is Deputy Head of the Kherson Regional Military Administration.

Recommendations for the United States and its partners

Pause all major non-protest-related policy initiatives. Now is not the time for renewed nuclear negotiations or military strikes. The Biden administration famously paused negotiations about resuming the Joint Comprehensive Plan of Action during the protests in response Mahsa Amini’s death. This does not mean diplomacy is dead, but any hypothetical nuclear talks between Washington and Tehran need to be postponed indefinitely. This is also not the time for Israel (or the United States) to restart military attacks. The Iranian people deserve the time and space to see these protests through. In June, the Iranian government benefited from an ill-conceived Israeli strike on Evin prison that attempted to liberate, but ended up killing, a number of prisoners. It is vital to not give the government a similar propaganda victory.
The US government should designate a new Iran envoy. The Trump administration should immediately name or designate an envoy or senior official to engage with the Iranian diaspora and to more broadly focus on all aspects of Iran policy full-time. Regular engagement with this community and other Iran-focused government and nongovernment contacts is important to emphasize that the administration is serious about the Iranian people. This individual would not replace US Special Envoy to the Middle East Steve Witkoff but would report to him and other senior officials who remain focused on wider-ranging issues. Full-time attention on the portfolio would also help provide an internal advocate within an administration focused on budget cuts for low-cost, high-reward spending to advance a broader Iran policy, such as internet circumvention funding.
Partner governments should fund Iran initiatives that the administration ended. At the height of the Mahsa Amini protests, thirty million Iranians used US-funded circumvention services. Some of these services are being temporarily funded by private enterprises. Over the long-term, they require consistent support from a government entity. The same is also true of the Iran human rights programs that the current administration proposed cutting in its entirety in the Congressional Budget Justification. If the administration does not reconsider its cuts, other foreign governments would have an opportunity to pick up the technical and moral leadership that the United States has relinquished.
The international community should unite in backing the Iranian people. We authors have heard directly from Iranians who participated in past protests that a unified signal from the international community not only helped buoy sentiment within the movement but also served as a deterrent against human rights abuses by the regime. For instance, Iran significantly decreased its executions of drug offenders following sustained international pressure. Joint statements, including those issued by the Group of Seven and United Nations, have the best chance of impacting Iranian behavior.
Create a nimble emergency funding mechanism. During the Mahsa Amini protests, several Iranian advocacy groups suggested to us that there was need for urgent funding, and they proposed possible emergency initiatives such as setting up funds to help pay striking workers living wages. Although we supported these ideas, the Biden administration was not nimble enough to fully evaluate and fund them in a timely manner. The United States or other partner nations should consider establishing a fund or program to explicitly facilitate crisis response operations. If the United States is unable or unwilling to fund it, the Treasury Department should, at a minimum, issue (or reissue) guidance to allow private individuals and organizations quick and legal ways to send money to protestors.
Increase human rights sanctions. The United States and partner governments should move quickly to issue targeted sanctions against human rights abusers and those involved in the crackdown against protestors. The 2024 bipartisan MAHSA Act provides the Treasury and State Department with new sanction authorities. To date, not a single designation has been imposed under this authority. Implementing MAHSA sanctions now—ideally in coordination with actions from our foreign partners—would send a symbolic, but powerful, message that the international community condemns Iran’s crackdown on protestors.

Recommendations for nongovernmental actors

Minimize partisan politics. Iran policy has long been a victim of brutal partisan politics in Washington. Support for the Iranian people should be an approach that both parties should be able to get behind, as it aligns with US interests and values.
More constructive engagement with the diaspora. As admittedly non-Iranian Americans involved in Iran policy, we authors will never fully understand the intricacies of the diaspora. From our past experiences, the online and in-person abuse directed at other members of the diaspora and at proposed policies limited government-diaspora engagement, and hindered the diaspora’s ability to effectively advocate for policy changes.
Provide clear and tangible recommendations. During the Biden administration, then-Vice President Kamala Harris led efforts to support the Iranian people’s call for the regime to be removed from the UN Commission on the Status of Women. This was a direct result of lobbying by civil society. Once the Harris team had a clear recommendation and knew it aligned with US policy priorities and values, the United States successfully led the campaign to remove Iran from the Commission.

A final recommendation for everyone: Keep the focus on Iran

The Iranian people themselves are bravely leading the current protests. It is essential to keep the focus on them, rather than on Washington politics and social media, to ensure the Iranian people get the support they need at this critical juncture.

Abram Paley is an incoming nonresident senior fellow at the Atlantic Council. He most recently served as acting special envoy for Iran from 2023 to 2025 and, before that, Middle East advisor to Vice President Kamala Harris.

Nate Swanson is a resident senior fellow and director of the Iran Strategy Project at the Atlantic Council. He most recently served as director for Iran at the National Security Council in the Biden White House and a member of the Trump administration’s Iran negotiating team.

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US-Brazil trade dashboard

the Adrienne Arsht Latin America Center — Wed, 07 Jan 2026 18:52:26 +0000

The United States and Brazil have a long-standing trade relationship and decades of robust economic ties. The United States runs a persistent bilateral trade surplus with Brazil and has emerged as Brazil’s primary source of foreign direct investment. But new US tariffs on Brazil in 2025 have altered that relationship. This tracker monitors the evolving trade dynamics between the United States and Brazil, providing essential context on the underlying effects of tariffs and how they are reshaping the trajectory of US-Brazil commerce and trade dynamics more broadly.

How US trade with Brazil is evolving

In April 2025, US President Donald Trump imposed a 10 percent tariff on Brazil as part of the administration’s “Liberation Day” tariffs on nearly every country in the world. Then in July 2025, Trump imposed an additional 40 percent tariff on Brazil specifically, which further raised tariffs on products not affected by the Trump administration’s other Section 232 duties on certain industrial goods. Our analysis of both US and Brazilian trade data shows that initially, since the implementation of these new tariffs, US imports of Brazilian products have deviated significantly from the pre-tariff trend line. At the same time, US exports to Brazil have remained consistent with the pre-tariff trend line

US purchases of products in which Brazil plays a key role as a supplier have also decreased significantly since the imposition of the new tariffs. Brazil supplied at least 20 percent of US imports for a number of goods in 2024, including coffee, orange juice, cane sugar, iron ore, aluminum oxides and hydroxides, vanadium products, various tropical woods, pig iron, fuel ethanol, meat, and a range of agricultural byproducts.

Our analysis shows that US imports of these products declined dramatically through September 2025; however, as of November 13, 2025, several categories, including coffee, orange juice, and meats, were granted exemptions from both the reciprocal and Brazil-specific tariffs, and we await the release of new trade data to assess the impact of these measures.

What these evolving trade dynamics look like in practice

This section analyzes a subset of specific products for which Brazil is a key supplier to the US market.

The bigger picture

The United States has consistently posted trade surpluses with Brazil.

In goods, US exporters have seen strong Brazilian demand for machinery, chemicals, aircraft, and high-value manufactured products, helping sustain a steady merchandise trade surplus over many years. The US advantage is even more pronounced in services, where American firms lead in sectors such as finance, technology, and professional services, generating a reliable services surplus. Tourism flows further reinforce this trend as part of the services trade: Brazilian travelers visiting the United States typically spend significantly more than US visitors to Brazil, adding to the overall US surplus.

How Brazil’s international trade partners are changing

Since the imposition of new US tariffs on Brazil, Brazil’s export markets have changed significantly, while the source of its imports, particularly from the United States, has remained relatively stable.

The US export market share declined 5.3 percent in October 2025 compared to October 2024, while China’s rose by 5.2 percent. Meanwhile, the US market share of Brazil’s imports grew 1.2 percent year over year in October 2025.

Acknowledgements and data

Authors: Ignacio Albe, assistant director, and Valentina Sader, Brazil lead, from the Adrienne Arsht Latin America Center.

Data: All data used in this dashboard can be found here.

The research team would like to thank Apex Brazil, the Brazilian Trade and Investment Agency, for its support for this research project.

Global China Hub report featured in CNA

Kitsch Liao, Nik Foster, Santiago Villa — Mon, 05 Jan 2026 17:05:22 +0000

On December 16th, 2025, a report by Global China Hub Associate Director Kitsch Liao and nonresident fellows Nik Foster and Santiago Villa was featured in CNA.

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Caroline Costello in the China in Africa Podcast

Caroline Costello — Mon, 05 Jan 2026 17:04:58 +0000

On December 19th, 2025, Global China Hub Assistant Director Caroline Costello appeared on the China in Africa Podcast to discuss China’s outsized role in West Africa’s illegal resource trade.

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Caroline Costello in the New York Times

Caroline Costello — Mon, 05 Jan 2026 17:04:48 +0000

On December 12th, 2025, Global China Hub Assistant Director Caroline Costello spoke to the New York Times about what the Trump Administration’s National Security Strategy means for the values-based dimension of US-China competition.

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Caroline Costello in Foreign Policy

Caroline Costello — Mon, 05 Jan 2026 17:04:37 +0000

On September 9th, 2025, Global China Hub Assistant Director Caroline Costello published an op-ed in Foreign Policy about China’s role in fueling illegal logging in Africa.

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Zoltán Fehér and Valbona Zeneli in The National Interest

Zoltán Fehér, Valbona Zeneli — Mon, 05 Jan 2026 17:04:26 +0000

On November 24th, 2025, Global China Hub nonresident fellow Zoltán Fehér and Europe Center nonresident fellow Valbona Zeneli published an article titled “Europe’s China Awakening” in The National Interest.

The post Zoltán Fehér and Valbona Zeneli in The National Interest appeared first on Atlantic Council.

Zoltán Fehér on Bloomberg TV

Zoltán Fehér — Mon, 05 Jan 2026 17:04:20 +0000

On December 4th, 2025, Global China Hub nonresident fellow Zoltán Fehér appeared on Bloomberg TV’s “The Asia Trade” to talk about French President Macron’s visit to China on their episode “Macron Arrives in China for Three-Day State Visit.”

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Zoltán Fehér in Courthouse News

Zoltán Fehér — Mon, 05 Jan 2026 17:04:03 +0000

On November 15th, 2025, Global China Hub nonresident fellow Zoltán Fehér was quoted on France’s policy on China in an article by Courthouse News on the “Great Expo of Made in France” at the Èlysee Palace. The article also cited his chapter in his Atlantic Council report with Valbona Zeneli.

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Zoltán Fehér in The Nightly

Zoltán Fehér — Mon, 05 Jan 2026 17:03:52 +0000

On October 29th, 2025, Global China Hub nonresident fellow Zoltán Fehér was quoted in Australian newspaper The Nightly in their article about G7 coordination on critical minerals: “‘Team West’ told to go global on rare earth deal”

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Zoltán Fehér in Démarche

Zoltán Fehér — Mon, 05 Jan 2026 17:03:40 +0000

On October 29th, 2025, Global China Hub Nonresident Fellow Zoltán Fehér gave an in-depth interview about US-China, EU-China, and Turkey-China relations to Turkish diplomatic magazine Démarche.

Explore the #BALKANSDEBRIEF series

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Zoltán Fehér in Delfi

Zoltán Fehér — Mon, 05 Jan 2026 17:03:28 +0000

On October 9th, 2025, Global China Hub nonresident fellow Zoltán Fehér gave an interview to Latvian news portal Delfi titled “‘You can’t be our friend and fund a war that threatens us’ – researcher on EU-China relations”

Original source

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The most significant question for Trump’s America in 2026: What sticks?

Frederick Kempe — Mon, 05 Jan 2026 12:00:00 +0000

Following the US military operation that captured Venezuelan dictator Nicolás Maduro and flew him to New York to face narcoterrorism charges, Secretary of State Marco Rubio said this about Donald Trump: “This is a president of action . . . If he says he’s serious about something, he means it.”

As 2026 opens, the most significant question facing the United States and its global partners is not what Trump has accomplished thus far, up to and including the Maduro ouster. The year ahead will be about something more consequential: What sticks? What actions get lasting traction, and what historic legacy will this peripatetic man of action leave behind?

Today’s action is not always tomorrow’s legacy

The first year of Trump’s second term was tumultuous by his own design. It stretched presidential authority, challenged constitutional norms, unsettled many allies, drove global market volatility, and dominated news cycles with a relentlessness that none of the other forty-four US presidents ventured.

Trump’s first year back dramatically altered the weather, but 2026 will indicate whether Trumpism marks a climactic shift that permanently changes the nature of US leadership both domestically and abroad. What’s at stake isn’t just whether the United States, working alongside partners and allies, will build on its global leadership of the past eighty years. It’s what sort of America will celebrate the 250th anniversary of its independence.

Trump likes to show important visitors around the White House, comparing himself to the greats in the portraits that decorate its walls and wondering where he will rank among them. Where he may pay too little attention, write professors Sam Abrams and Jeremi Suri in a must-read Wall Street Journal op-ed, is to the fact that “Presidents are assessed by their legacy: institutions they create, coalitions they form and governing assumptions they stamp on America. By that standard, Mr. Trump’s second term remains unsettled at best.”

Here’s a sampling of what Trump’s leadership has brought the world in the past year: NATO allies agreed to a record increase in defense spending. Iranian despots suffered direct US attacks on three nuclear sites. Gaza has a peace plan (albeit a fragile one) endorsed by the United Nations Security Council. US tariff rates reached their highest level in a century. A new US National Security Strategy warned Europe of “civilizational erasure.” And the United States removed a Venezuelan dictator, while Russian despot Vladimir Putin continued his murderous war on Ukraine with relative impunity.

A scan of recent news, however, reveals Trump’s unfinished business: Trump has said the United States will “run” Venezuela, but details regarding what that means are few. Shortly before the new year, Ukrainian President Volodymyr Zelenskyy paid Trump a visit at Mar-a-Lago to ensure US peace efforts don’t reward Putin’s criminal revanchism. Around the same time, Chinese President Xi Jinping mobilized his naval, air, and missile forces around Taiwan, in a live-fire drill showing off Beijing’s growing ability to encircle the free and democratic island after the announcement of an eleven-billion-dollar US arms package to Taipei. And Iranian students joined expanding anti-regime protests, with Trump promising to protect them if shot upon (“We’re locked and loaded and ready to go”).

Trump is “the most ubiquitous president ever,” historian Douglas Brinkley recently noted. “He plays to win the day, every day.” Yet history remembers presidencies not by that measure, but rather by what outlasts them. If Trumpism proves more personal than institutional, then its effects may fade over time. If Trumpism embeds itself in how the United States defines its interests, exercises its leverage, and understands its obligations, then allies and adversaries alike will further correct course to adjust for a permanently altered America.

So will Trumpism endure or fade? There are signs pointing in both directions. Here’s what I’ll be watching over the next twelve months to sort the noise from the signal.

Venezuela and the Western Hemisphere

No US commander-in-chief has paid more attention to the daily choreography of leadership and the political theater of the presidency than Trump has. So it is fitting that he would launch the second year of his second term with his most audacious foreign policy decision yet—something The Washington Post editorial board called “one of the boldest moves a president has made in years”—though one executed as a domestic judicial matter based on a criminal indictment.

Before the 2003 Iraq War, then-US Secretary of State Colin Powell popularized the “Pottery Barn rule” that “if you break it, you own it”—a warning about the long-term costs and obligations of military intervention. Trump’s convictions against democracy promotion and nation-building suggest he’ll want to stabilize Venezuela and deliver on US interests without doing either of those things.

How he does that will do much to define US foreign policy in 2026. Can he deliver in Venezuela in a manner that advances the country’s freedom and stability without signaling to China and Russia an endorsement of “spheres of influence” that would encourage their own regional ambitions?

The early hours show how complicated the Venezuela effort will be. Trump appears to be relying on Delcy Rodríguez, Maduro’s vice president who became the country’s de facto leader on Saturday, rather than turning to the opposition, which is widely recognized to have won Venezuela’s 2024 election before it was stolen by the Maduro regime. For her part, however, Rodríguez shot back, “Never again will we be slaves, never again will we be a colony of any empire. We’re ready to defend Venezuela.”

And what other actions might the Trump administration take to deliver on the vision set out in its National Security Strategy to restore preeminence in the Western Hemisphere through a “Trump corollary” to the Monroe Doctrine? Its stated aims, among others, are to prevent and discourage mass migration, ensure governments cooperate with the United States against transnational criminal activity, maintain a hemisphere “that remains free of hostile foreign incursion of ownership of key assets,” and protect “continued access to key strategic locations.”

Alliances, Ukraine, and Taiwan

Trump has strengthened and weakened US alliances simultaneously. He’s prompted allies to spend more on defense and accept more of their own security burdens, but he’s also left them hedging against US unpredictability. Meanwhile, Russia and China have emerged from 2025 more confident that they can achieve their geopolitical goals: in the case of Moscow, to expand its sphere of influence by reversing its setbacks after the Cold War, starting with Ukraine; and in the case of Beijing, to gain greater control over its own region with an emphasis on Taiwan and a bid to assume the mantle of global leadership.

Trump could take steps in 2026 that reinforce US alliances, or he could give autocratic adversaries even more reason to test US resolve. Through his interactions with Russian and Chinese leaders—Trump talks with Putin frequently and at length, and he is scheduled to meet with Xi at least twice in 2026—he could inadvertently encourage them to press for whatever gains are possible during his remaining three years in office, introducing a period of increased geopolitical volatility.

Trump inherited a global situation where a group of aggressors—China, Russia, Iran, and North Korea—have been working more closely together than any group of autocratic countries since Nazi Germany, Fascist Italy, and Imperial Japan ahead of World War II. Trump’s advisers blame previous presidents for allowing the unnatural bond between China and Russia to deepen, and they still seem to hope that they can draw Moscow away from Beijing. Thus far, however, Trump has emboldened both Putin and Xi. Their countries’ military and intelligence coordination has deepened, allowing Russia’s war on Ukraine to continue.

Global trade, markets, and economics

In 2025, Trump transformed tariffs from a last resort to a preferred economic weapon with multiple aims: gaining trade leverage, raising federal revenues, incentivizing domestic manufacturing, and punishing miscellaneous misbehavior. Economic nationalism crossed from taboo to mainstream, and protectionism became modern mercantilism.

In a recent Wall Street Journal op-ed, titled “Prepare for More Tariffs in 2026,” the Atlantic Council’s Josh Lipsky argued that Trump is more likely to continue his current approach than to amend it, even if Supreme Court decisions expected early this year temporarily set him back. “The second year of the second Trump administration is likely to look much like the first in trade policy,” Lipsky wrote, laying out several reasons why.

Perhaps, but global markets and American voters will also have a say, and they are likely to push back. I’m less sanguine than others are that the inflationary aspects of Trump’s tariff approach and the market response will continue to be muted. In particular, look for signs of eroding US dollar dominance. (You can access our own Atlantic Council tracker on that matter here.)

No one quite knows when global investors and sovereigns will tire of financing US debt, which now stands at more than $38 trillion, or nearly 125 percent of US gross domestic product, with roughly $6 billion added every day. Even at current financing levels, the United States is paying more in interest on its debt than it spends on defense. Something must give—but how and when?

It’s true that the US stock market held up fine in 2025, with the S&P 500 up an impressive 16 percent. Still, that outcome far undershot the 32 percent gain for the MSCI All-Country World ex-US index, the widest such margin since the global financial crisis in 2009. The S&P 500 also trailed both the DAX (Germany) and the FTSE 100 (United Kingdom), in addition to many emerging market indices. In a front-page report in The Financial Times, journalist Emily Herbert wrote that this rare year of Wall Street underperformance came due to “worries about high valuations, a Chinese artificial intelligence breakthrough and Donald Trump’s radical economic policies.”

It’s true that even a Democratic president in 2029 is unlikely to roll back Trump’s tariffs dramatically, given that both parties currently lack a free-trade consensus. But it’s also unlikely that the trade system going into the future will be so driven by one individual and his preferences.

Watch to see whether Trump can continue to press US economic advantage in the coming year without greater economic or political blowback than he has experienced thus far. Will rising investments in artificial intelligence continue to buoy markets? Or will slowing growth, consumer concerns about affordability, and global worries about US debt levels weigh the economy down? Expect 2026 to be a year of continued economic and market volatility—but not necessarily the lasting, wholesale change of the international trading system some are forecasting, as other actors advance trade deals.

The president and his Republican Party

Perhaps the most important “What sticks?” question of 2026 is whether Trump will move toward more strategic consistency or instead double down on the improvisational approach that he believes served him so well in 2025.

His unpredictability, which his son Don Jr. praised in Doha late last year, wins him leverage at key moments, and he certainly caught Maduro off guard over the weekend. But there’s no indication that he has built a governing system or a sustainable national security strategy around that unpredictability. Durable legacies require repetition, delegation, and follow-through by a cadre of intellectual and ideological acolytes.

“Successful political movements outlive their founders,” Abrams and Suri wrote in the Wall Street Journal. “New Deal liberalism outlasted Roosevelt. Postwar conservatism survived Reagan. Trumpism appears to be dependent on Mr. Trump’s personal authority, media dominance and capacity for conflict.” The president, who is confronting actuarial tables as he turns eighty this year, could face a starkly different Congress a year from now. That means the next several months could present a major test of both Trump and Trumpism.

Watch in 2026 to see whether any Republican leaders translate Trump’s instincts into a more lasting doctrine—on alliances, on relations with autocratic adversaries, and on trade. Potential Republican presidential candidates such as Vice President JD Vance, Secretary of State Marco Rubio, and Senator Ted Cruz of Texas will have to gauge whether Trumpism is a winning ideology for the future.

One recent cautionary sign for Trump acolytes was the decision by more than a dozen employees of the Heritage Foundation think tank to jump ship to the previously little-noticed Advancing American Freedom (AAF), which former US Vice President Mike Pence set up in 2021. “The debate over the direction of the post-Trump right is underway,” the Wall Street Journal editorial board wrote, with Pence explaining that what attracted the individuals to AAF was finding “a consistent, reliable home for Reagan conservatism.”

In the year ahead, I will be seeking to sort spectacle from substance regarding the actions and reactions of US adversaries and allies, global markets, and Trump himself. The president changed the political and geopolitical weather in 2025—dramatically but not irreversibly. Not every shock becomes a structure, and not every provocation determines an enduring policy change. When it comes to what sticks, the stakes are both global and generational.

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

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

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One year of Trump 2.0 for the Western Balkans | A Debrief with Europe Center experts

sjones — Tue, 23 Dec 2025 17:45:09 +0000

IN THIS EPISODE

As we close out 2025, in this special edition of #BalkansDebrief, Ilva Tare, Resident Senior Fellow at the Europe Center, is joined by five distinguished experts from the Europe Center to unpack the most consequential changes in US policy toward the Western Balkans in decades and to look ahead to the risks and breakthroughs that could define 2026.

Ambassador Christopher Hill, Ambassador Jonathan Moore, Maja Piscevic, Valbona Zeneli, and Amanda Thorpe join Ilva Tare to address key questions on US policy toward the Balkans.

• What does the new National Security Strategy and the NDAA for 2026 mean for deterrence, sanctions, and stability in the region?
• Is Washington moving from democracy promotion to a more transactional approach?
• Can Kosovo–Serbia normalization still succeed and on whose terms?
• And ultimately: will the US use its leverage decisively—or let this moment pass?

A candid, high-stakes discussion on power, credibility, and the future of the Western Balkans.

ABOUT #BALKANSDEBRIEF

Watch #BalkansDebrief on YouTube and listen to it as a Podcast.

SUBSCRIBE TO #BALKANSdebrief

listen to #bALKANSDEBRIEF as a podcast

MEET THE #BALKANSDEBRIEF HOST

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Ilva Tare

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

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Serbia’s future depends on rebuilding rule of law and EU credibility

Richard Grieveson — Tue, 23 Dec 2025 14:00:00 +0000

Bottom lines up front

Serbia’s reform drive has lost steam, with corruption and political centralization eroding the rule of law and limiting growth.
The student-led protests that began in late 2024 signal renewed civic pressure for fairer elections and stronger institutions—if they succeed, Serbia could return to its reform trajectory of the early 2000s.
Restoring a credible path to EU accession would be the single most powerful external incentive for change, with potential spillover benefits for stability and governance across the Western Balkans.

This is the third chapter in the Freedom and Prosperity Center’s 2026 Atlas, which analyzes the state of freedom and prosperity in ten countries. Drawing on our thirty-year dataset covering political, economic, and legal developments, this year’s Atlas is the evidence-based guide to better policy in 2026.

Evolution of freedom

Serbia’s freedom trajectory since 1995, according to the Freedom and Prosperity Indexes, falls into three distinct periods. The first is the dismal 1990s, defined by war, sanctions, and international isolation; institutions hollowed out, and the political sphere narrowed to the point of collapse. The second begins with the fall of Slobodan Milošević in 2000 and runs to roughly 2011, when the country reopened to the world and took the first steps toward European integration. The third starts around 2012, when the political environment tightened again and the gains of the previous decade began to erode. This pattern is visible in the Freedom Index: a sharp improvement after 2000, followed by a gradual downturn driven overwhelmingly by the political subindex after 2012.

The post-2000 rebound was immediate and dramatic in terms of politics and economics, but the rule of law took a more gradual turn. The political opening—competitive elections, wider latitude for civil society and media, and normalization of international relations—was the most visible change. Serbia signed bilateral investment treaties and free-trade agreements with neighbors and, in 2008, concluded a Stabilization and Association Agreement with the European Union. Even though domestic politics remained turbulent—Prime Minister Zoran Đinđić was assassinated in 2003, nationalism continued as a potent force, and Kosovo’s 2008 declaration of independence sparked a backlash—the trajectory differed markedly from the 1990s. European integration acted as the anchor that pulled politics and policy toward a more open equilibrium.

In 2010, the balance of incentives changed. After the global financial crisis, the EU’s enlargement energy waned; for the Western Balkans, accession increasingly looked theoretical rather than imminent. Without a credible “carrot and stick,” the reform push slowed across the region, while in Serbia, the political environment hardened against EU integration. The timing aligns with the ascent of the Serbian Progressive Party (SNS) and the rise of Aleksandar Vučić—first as prime minister in 2014 and later as president—under whom power centralized and media pluralism came under pressure. International observers like the Organization for Security and Co-operation in Europe (OSCE) became increasingly critical of the country’s internal dynamics. Civic activism—still very present—operated in a tighter space.

European integration acted as the anchor that pulled politics and policy toward a more open equilibrium.

Over the past thirteen years, the cumulative effect has been systemic: Corruption has eroded the rule of law and turned key institutions into instruments of incumbency. Elections remain formally competitive but are marked by recurrent irregularities that leave little chance for alternation. Ruling party-aligned media dominate the information space, public advertising is allocated opaquely, and the security services have targeted civil society organizations on dubious grounds. The result is a shrinking political arena in which checks and balances are increasingly performative rather than constraining.

Media pluralism has faced sustained pressure. Journalists and associations report smear campaigns, threats, and pervasive self-censorship, while access to advertising and public funds tracks political alignment. Civil society is larger and more professional than two decades ago, but its operating space has narrowed—foreign funding is stigmatized, senior officials attack prominent NGOs, and procedural burdens sap time and resources. The situation is not one of outright closure, but the cumulative friction is real.

Within the political subindex, the steepest, most persistent deterioration is in political rights—freedom of association and expression—while the elections and legislative-constraints components also weaken. The contour is recognizable: After the 2000 break, political rights jump, remain broadly stable until the early 2010s, and then trace a clear decline that, while significant, does not return to 1990s levels. Elections remain formally competitive, but the tilt in media access and state resources has grown; the legislative constraints on the executive ebb as power concentrates in the presidency.

The legal subindex tells a different story: It starts at a low point, followed by early reforms and then stasis. The first post-Milošević years saw the establishment of baseline prosecutorial and judicial reforms, but two hard problems persisted: a lack of genuine independence from the executive and the capacity to process cases in a timely, professional way. Both remain binding constraints. Serbia’s legal profile improves off its post-conflict trough and then plateaus, reflecting institutions that function day-to-day but buckle at the most sensitive interfaces with politics. The causes are structural: Building effective, impartial courts is far harder and slower than opening political space, and where EU conditionality is weak or distant, momentum lags.

The steepest, most persistent deterioration is in political rights—freedom of association and expression.

The legal upswing in the 2000s reflected real change—new courts, stronger constitutional guarantees, prosecutorial reforms, and a framework closer to European norms—and informality fell as tax bases modernized and customs enforcement improved. But judicial independence and effectiveness remained the weak links: External pressure, slow case resolution, selective enforcement in high-profile economic cases, and gaps in accountability and conflicts-of-interest rules kept trust low. Those frictions continue to drag on the economy.

Within the legal subindex, Serbia’s early-2000s bump is consistent with a shift from conflict to basic legal normalcy—laws regularized, courts reopened, and administration stabilized—with only minor oscillations later. The 2019–20 dip likely reflects the major protests triggered by the murder of opposition politician Oliver Ivanović in 2018, which led many opposition parties to boycott the 2020 elections. It also reflects setbacks in judicial reform and popular distrust in legal institutions. Constitutional amendments were eventually adopted in 2022, a move that modestly improved formal judicial independence even though implementation remains contested.

The economic subindex improves steadily from the early 2000s until the pandemic, then levels off. Its composition helps explain why. Women’s economic freedom—largely driven by statutory changes captured in the World Bank’s Women, Business and the Law global report—rises markedly in the mid-2000s. Investment freedom and trade freedom also strengthen as Serbia deepens its commercial integration with the EU and broadens ties with Russia, China, Turkey, and others. Regulatory reform—streamlined procedures, clearer company law, and liberalized capital flows—improved the investment climate, while the accession process nudged alignment on services and market-access rules. New firms entered and integrated into regional supply chains in manufacturing and agribusiness, even as legacy incumbents persisted in some sectors. This is the one domain where policy has been consistently outward-oriented over the past quarter-century, even as rule-of-law reforms slowed. In effect, Serbia decoupled economic integration from institutional convergence: It became a more open, investor-friendly production platform without moving in tandem on media freedom or judicial independence. However, challenges remain in economic freedom. Property-rights enforcement and contract execution remain below EU norms—a deterrence for smaller investors. State-owned enterprises still play an outsized role in some sectors, obstructing competition and investment freedom. The use of incentives, particularly for some foreign investors, while bringing in new capital can also distort the level playing field.

The most recent political developments underscore both the resilience of civil society and the limits of the current equilibrium. Since late 2024, large student-led protests—sparked by a fatal building collapse in the city of Novi Sad and subsequent corruption allegations in the construction industry—have broadened into a sustained challenge to the status quo. The student-led movement remains within institutional politics: It aims to contest and win elections and then reform from within. Whether it can do so without direct confrontation depends on the state’s willingness to ensure a level playing field—and on the response of powerful external patrons. In the Freedom Index, the immediate consequences fall on the political subindex, but the stakes are larger: Progress in the legal subindex will require credible insulation of the judiciary from political interference, and professional policing—areas that have lagged for a decade.

Evolution of prosperity

Serbia’s prosperity profile reflects the same three phases, but the translation from freedom to outcomes is neither automatic nor linear. In the early 2000s, as political freedoms opened and the economy reconnected to Europe, income per capita rose and the country began to narrow the gap with the regional average. Then the 2008–09 financial crisis hit Serbia, though not as hard as in many EU member states—partly because Serbia was outside the euro area and partly because of its diversified trade and investment partners. The pandemic-era shock was similar: Growth dipped but recovered quickly relative to Western Europe, helped by early access to vaccines from China and less severe energy-price pass-through due to ties with Russia. The Prosperity Index’s income component captures this series of interruptions rather than collapse.

The country’s resilience is tied to its growth model. For roughly a decade, net foreign direct investment (FDI) inflows have run at about 6–7 percent of GDP, with sources increasingly diversified beyond the EU. China has become a leading investor, while Serbia has also plugged into German value chains in mid-tier manufacturing. The model is not high-tech sophistication; rather, it is steady insertion into European (and to a degree global) production networks. As long as political stability held, the arrangement delivered: jobs in export-oriented plants, a stronger tradables base, and sustained convergence. The current uncertainty—whether stability can continue without institutional reform—is therefore not an abstract governance concern but a direct question about the durability of the prosperity path.

Prosperity has more dimensions than income, and Serbia’s experience across them is uneven. Health is the sharpest outlier in the pandemic period: While output fell less than in Western Europe, excess mortality was higher, reflecting more permissive lockdowns, thinner safety nets, and health-system limits. Over the long run, health outcomes have improved, but there is still a persistent gap with richer European systems; out-of-pocket costs are high by regional standards, and hospital infrastructure trails the EU core.

Education follows a less pronounced trajectory. The baseline is decent legacy human capital—Serbia inherits strong math and engineering traditions from Yugoslavia—but the system struggles with funding and modernization. The Prosperity Index’s education component rises gradually with cohort attainment and expected years of schooling, but there is no step change akin to the post-2000 political jump. The bottlenecks are familiar: teacher pay and training, infrastructure in secondary and vocational streams, and alignment with the needs of an export-oriented manufacturing base.

On income inequality, Serbia’s path in the 2000s and early 2010s conforms to a modest Kuznets-style worsening—where inequality rises during the early stages of development—as growth resumed and labor markets restructured. That was followed by a period of relative stability and, by the mid-2010s, Serbia’s Gini index was among the higher readings in Europe, reflecting how early market liberalization often rewards upper deciles first while redistribution and competition policy lag. Today’s level is close to the mid-1990s baseline, underscoring how incomplete rule-of-law reform constrains broad-based gains. Here again, the structure of growth matters: FDI-led manufacturing and construction have provided employment and some formalization, but the gains are uneven across regions and skill levels. When investment cools—because confidence dips or political risk rises—the distributional strain is quickest to reappear at the margins.

The environment and the treatment of minorities complete the picture. In environmental quality, the legacy of coal-heavy energy and industrial emissions weighs on air quality, especially in urban centers, even as gradual gains in household energy and vehicle standards help. The Prosperity Index’s environment component records a slow improvement that is vulnerable to policy drift and external shocks. The politics of a green transition are visible in the Jadar lithium project near Loznica. Touted as a strategic growth opportunity and opposed over groundwater risks, land loss, and opacity, the mining project has swung from license revocation in 2022 to partial reinstatement in 2024, reigniting protests. The episode captures the broader dilemma: aligning investment with credible environmental standards and local consent.

On minority access, the record is mixed: Legal protections exist and the worst 1990s legacies have receded, but equal access to services and opportunities depends on local administration and enforcement capacity—precisely the legal-institutional levers that have lagged. Post-2000 reforms—constitutional protections, cultural councils, and local representation—moved minority rights closer to regional norms, especially for Hungarians, Bosniaks, and Roma, but progress has stalled since 2011. Formal guarantees remain, but politicization, uneven municipal implementation, and hostile media narratives in tense electoral periods have limited real access to services and opportunities.

The interaction between freedom and prosperity is clearest in three places. First, the post-2012 slide in political rights bleeds into the economy by weakening predictability: When media scrutiny and legislative checks soften, policy becomes more discretionary, which eventually shows up as softer investment freedom and a more erratic economic policy. Second, the state capacity problems in legal matters—especially judicial independence and effectiveness—translate into higher transaction costs, slower dispute resolution, and a bias toward insiders; these are prosperity-sapping frictions, even in an open-trade, FDI-friendly regime. Third, women’s economic freedom raises the ceiling on growth by widening the labor pool and entrepreneurial base; Serbia’s mid-2000s improvement on statutory gender equality has been a quiet contributor to its industrial catch-up. The Prosperity Index registers all three channels, but the pace and breadth of gains depend on whether the political and legal pillars reinforce or undercut one another.

The post-2012 slide in political rights bleeds into the economy by weakening predictability.

Finally, recent domestic politics inject new uncertainty into what had become a well-understood model. The student-led protests that began in late 2024 have matured into a more organized political movement seeking early elections and a reform mandate. It is clear that this crisis will not simply fade away. Any escalation will pose serious questions for both Serbia’s democratic trajectory and the wider Western Balkans, where progress on rule of law, civic rights, and European integration remains fragile.

Investors are studying these signals closely. Already, foreign direct investment has fallen sharply: in the first five months of 2025, net FDI inflows amounted to roughly €631 million, compared with about €1.943 billion in the same period the year before—a drop of around 67.5 percent. If the political outcome is a genuine leveling of the electoral playing field and a credible push on rule-of-law reforms, Serbia’s prosperity path could re-accelerate—foreign capital is mobile and already present at scale. But if confrontation mounts, early elections are denied, and external patrons from China and Russia harden their positions, the risk is a prolonged standstill with wider regional repercussions.

The Prosperity Index is a lagging indicator here, but its income and inequality components will tell the tale in the next few readings.

The path forward

Serbia’s way forward is not mysterious, but it will be hard. The growth model that delivered catch-up—trade openness, diversified investment partners, and insertion into European value chains—remains viable. But it is probably not going to deliver the same amount of growth in an increasingly fragmented global economy facing higher tariffs and a global slowdown in FDI. And preserving it now requires political and legal reforms that were postponed when the EU accession horizon receded. The central insight of the last decade is that while economic integration can be decoupled from institutional convergence for a time, it cannot be decoupled indefinitely. The Freedom Index already shows the cost of delay in the political subindex, and the longer the legal subindex lags, the more the prosperity gains will flatten.

It is clear that this crisis will not simply fade away … escalation will pose serious questions for both Serbia’s democratic trajectory and the wider Western Balkans.

The immediate priority is political. Elections must be not only formally competitive but substantively fair, with balanced media access and a clean separation between state resources and party campaigning. Legislative oversight should recover ground lost to executive centralization; if the presidency remains dominant, courts and parliament cannot perform their checking functions. Serbia’s civil society has shown it can mobilize against overreach; the question is whether that energy can produce institutional change without confrontation. A credible commitment to level competition would register quickly in the political subindex—especially in elections and political rights—and, with a short lag, in investment sentiment.

The second priority is legal. Serbia needs a judiciary that is both insulated and empowered. Independence requires appointment and promotion systems that minimize political leverage; effectiveness requires resources and management that accelerate case processing and professionalize court administration. The legal subindex’s components offer a checklist: Clarify laws and reduce contradictions; strengthen judicial independence and effectiveness; improve bureaucratic quality while tightening corruption control; maintain security without eroding civil liberties; and treat informality not as a statistical curiosity but as evidence of high transaction costs that can be lowered. Even modest improvements would be catalytic: When firms expect fair, timely adjudication, they invest more and formalize faster, amplifying the earlier economic gains due to trade and investment liberalization.

Sound economic policy should aim to keep what works and fix what jeopardizes it. The external stance—openness to EU markets, continued diversification of partners, and predictable treatment of foreign investors—has served Serbia well. But stability established by way of muted scrutiny is running out of road. A rules-first approach to fiscal policy, procurement, and state-firm relations would lower the risk premium without forcing a retreat from the country’s pragmatic geoeconomic posture. In this sense, the economic subindex’s strongest components—trade, investment, and women’s economic freedoms—are the baseline to protect, while property-rights enforcement and corruption control are the levers for raising the ceiling.

Prosperity policy should target slow variables that pay off across cycles. Health outcomes require steady investment in primary care, hospital equipment, and public-health capacity; the pandemic showed how quickly gaps widen when systems are overrun. Education needs a dual track: modernized general schooling and a serious vocational stream matched to the country’s role in regional value chains. Inequality is best tackled by sustaining labor-intensive FDI while pushing more value added into local supply chains; when more of the “last mile” of production happens domestically, wage gains spread. Environmental quality will improve when energy policy tilts toward cleaner sources and when industrial standards rise; here, alignment with EU norms is both feasible and, over time, growth-enhancing. The Prosperity Index components—health, education, inequality, environment, minorities—will move together if legal quality does its part.

Geopolitics will keep testing Serbia’s pragmatism. The country’s relative nonalignment among major powers has so far produced diversified capital and insurance against shocks. The risk is that a domestic political crisis or external confrontation would force sharper choices. The safest way to preserve room for maneuvering is institutional: Fairer elections, stronger oversight, professional courts, and trustworthy administration lower the temperature at home and raise trust abroad. Investors do not require perfection; they require predictability. The Freedom Index’s political and legal pillars are proxies for that predictability, and progress there will determine whether the Prosperity Index resumes its upward slope or plateaus.

Reenergizing the EU accession track would have effects well beyond Serbia’s borders. Because Belgrade sits at the center of the region’s unresolved files—above all, relations with Kosovo and the major constitutional and territorial agenda in Bosnia and Herzegovina—building Serbian stability would lower regional tensions. A visible move from Belgrade to a more committed EU path would lower the political risk premium, unlock stalled dossiers, and revive the demonstration effect that powered reforms in earlier enlargement waves. The spillovers would be tangible—more predictable rules, faster dispute resolution, clearer procurement—and would draw in investment that binds the region more securely to European value chains. In short, if Serbia moves, the region moves; if Serbia stalls, momentum will move elsewhere in the region.

A recommitment to Serbia’s EU integration is possible. The region offers examples of rapid legal improvements when potential EU accession is real and monitored; Serbia’s own economy shows how quickly openness pays when credibility is present. What has been decoupled can be recoupled: political pluralism that is not merely formal, legal institutions that function without fear or favor, and an economy that remains as open and diversified as the past decade but under rules that are clearer and more evenly enforced. If that alignment is restored, the next readings should show the familiar pattern in reverse: first, stabilization of political rights and elections; next, a nudge up in legal quality; then, renewed momentum in investment and trade freedom—followed by broader prosperity gains that are felt not only in GDP charts but in health clinics, classrooms, and paychecks.

about the author

Richard Grieveson is deputy director at the Vienna Institute for International Economic Studies and a member of the Balkans in Europe Policy Advisory Group. He coordinates wiiw’s analysis and forecasting of Central, East and Southeast Europe. In addition he works on European policy analysis, European integration, EU enlargement, economic history, and political economy.

He holds degrees from the universities of Cambridge, Vienna, and Birkbeck. Previously he worked as director in the Emerging Europe Sovereigns team at Fitch Ratings and regional manager in the Europe team at the Economist Intelligence Unit.

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First hundred days: How Kast can accelerate US investment in Chile

Maite Gonzalez Latorre, Jason Marczak — Mon, 22 Dec 2025 21:12:03 +0000

Bottom lines up front

Chile elected José Antonio Kast president December 14, after a campaign centered on economic growth, security, and institutional stability.
Kast’s proposed security measures aim to restore the predictability of long-term investment needs.
To deepen economic ties with the US, in his first hundred days Kast could also expand workforce training and regional programs to ensure access to skilled talent across the country.

New president, new pressures

José Antonio Kast will head to La Moneda in March 2026. Chile’s president-elect won the second round of the election with 58.2 percent of the vote—winning by a margin of more than 16 percentage points. The day after the election, Kast met with outgoing President Gabriel Boric and emphasized afterward that he will advance a “government of national unity on priority issues: security, health, education, and housing.”

Kast will enter office with a slew of economic pressures in his inbox: slow growth, weak investment, stagnant productivity, high inequality, limited social mobility, and regional gaps. The labor market remains segmented, with low female participation and high informality. Along with these economic pressures, security and rising crime rates dominated the electoral campaign and addressing them will be central to Kast’s government plan.

In 2024, Chile’s economy showed signs of stable but uneven recovery, with moderate 2.6-percent gross domestic product (GDP) growth driven largely by mining, easing inflation, and falling poverty, while unemployment and informality remained elevated and investment growth lagged. Looking ahead to 2026, growth is expected to remain steady at 2.6 percent. Alongside a narrowing fiscal deficit and inflation stabilizing, this suggests a macroeconomic environment that is steady but still dependent on restoring investment momentum.

Chileans want to see changes and expect Kast to deliver some economic wins quickly. But the ability to do so goes hand in hand with addressing the increased rates of crime and violence. Kast’s campaign focused on the security of the country with proposals such as his Plan Implacable, which aims to “restore state authority and curb organized crime” through tougher penalties, more federal control over prisons, and stronger security operations, while also reasserting state authority in areas where criminal networks have expanded. This plan might be among the things on which Chileans want Kast to take action first. However, Kast and his administration need to balance what they want and what they can actually get done, especially regarding migration and deportation.

A challenging congress

The first one hundred days of the Kast administration will test the executive’s ability to move legislation that supports faster growth, rebuilds investor confidence that has been weakened by security concerns and political fragmentation, and signals a clearer economic direction.

That said, Kast takes office with a congress that leans right but does not give him full control. Right and far-right parties aligned with Kast hold seventy-six of the 155 seats in the Chamber of Deputies, with his second-round opponent Jeannette Jara’s left and far-left coalition of Unidad por Chile controlling sixty-one. The swing party of Franco Parisi, Partido de la Gente, holds fourteen seats.

Kast will need a simple majority to pass most legislation. But constitutional amendments and reforms of the electoral system would require two-thirds of votes in the congress. Kast’s coalition cannot reach either threshold on its own, and must work with partners to move any major bill forward. This makes the Partido de la Gente especially important. Because no bloc controls a majority, its fourteen deputies are in position to decide whether a proposal advances or fails. Its votes can tilt negotiations, shape the final text of legislation, and determine how governable the next term becomes.

Passing legislation through the lower house will be easier, but major legislation such as Kast’s proposed mass deportations will need broader support. The evenly split senate will require him to work with the traditional right as well as swing actors to move legislation. As such, Kast will be faced with increased pressure to deliver short-term results on crime and economic growth, signaling early whether his administration can translate public demand for order and stability into a more predictable environment for investment, something US investors typically look for before committing capital in Chile.

How Chile’s investment environment has shifted

Since the mid-1980s, Chile has implemented significant reforms that opened its economy and encouraged foreign investment. These included changes in the financial and social markets, such as Law No. 20.848 of 2015 establishing the framework for foreign direct investment (FDI), as well as other tax and labor reforms. However, social unrest in 2019, the COVID-19 pandemic, two failed constitutional reform attempts, and rising crime have affected investor confidence.

The trade relationship between Chile and the United States is one of the deepest and most strategic for our country. Since the Free Trade Agreement came into effect in 2004—which allowed 100 percent of bilateral trade to be duty-free by 2015—trade between the two countries has more than doubled, and Chilean exports to the US have grown steadily. Today, the United States is our second-largest export destination and also the second-largest foreign investor in Chile, reflecting a mutual trust built over time.

The opportunities to deepen this partnership are enormous: sustainable energy, critical minerals, green hydrogen, water and digital infrastructure, and advanced technologies. Chile contributes stability, legal certainty, and strategic resources; the United States brings innovation and capital. Strengthening this cooperation is key to driving investment, productivity, and new opportunities for both countries.

—Susana Jiménez Schuster, president, Confederation of Production and Trade (CPC)

The foundation for investment in Chile lies in democracy, rule of law, and a predictable regulatory environment. The Organisation for Economic Co-operation and Development (OECD) has indicated that Chile’s growth might be reaching a ceiling, making continued reforms—such as streamlining permits, encouraging innovation, digitalizing paperwork, simplifying regulations, and removing bottlenecks—essential for reigniting momentum.

Chile has economic sectors with great potential that meet global demand for a wide range of goods and services, as well as developed markets and a stable institutional framework. Just as our country can offer attractive conditions to foreign investors, we can also provide knowledge and talent in those industries where we have developed a high level of know-how and expertise. Chile’s growth has been founded on strong collaboration, and free trade agreements with various economies around the world.

—Francisco Pérez Mackenna, board member, AmCham Chile

What makes Chile an attractive destination for US investors

Several conditions strengthen opportunities for US investment in Chile. Together they shape a more attractive environment for long-term investment is likely to be a priority for the incoming Kast government.

Chile is a key tech hub in Latin America. This is because of its stable economy, strong startup ecosystem, skilled workforce, advanced digital infrastructure, and government-backed innovation programs. Successful tech projects require a strong and solid workforce. According to CBRE’s Scoring Tech Talent 2025 report, Santiago has the third-highest tech talent pool in Latin America, with more than 143,000 professionals. This positions Chile as an attractive hub for companies to expand. That said, most initiatives are heavily concentrated in Santiago, emphasizing the need for additional training in both the northern and southern regions to ensure successful new project implementation.
US companies benefit from working with reliable local partners, in part because Chile has clear rules for contracts and strong institutions and because local firms usually have long experience navigating permitting, local procurement, cultural nuances, and sector-specific regulations. These conditions create an environment where these partnerships give foreign investors a dependable base of support on the ground.
Investors trust Chile because its infrastructure is strong, and its politics stay steady. In 2024, Chile received $15.3 billion in FDI, one of the highest inflows in recent years. A big share of that comes from reinvesting earnings, which shows that companies already in Chile are confident enough to expand. The government agency InvestChile closed 2024 with a portfolio of $56.2 billion in foreign-backed projects, with US companies investing the largest share at $20.5 billion. Major investments target clean energy: green hydrogen, mining, and infrastructure. These numbers show that foreign investors, especially those from the United States, believe in Chile’s long-term stability and the clarity of its rules. They see a country where projects can start quickly and scale up, thanks to predictable regulations and reliable systems. That confidence in both infrastructure and political stability strengthens the case for more investment.

The U.S. International Development Finance Corporation (DFC)’s mandate prioritizes investments in markets that offer predictability, stability, and clear rules, conditions that have historically made countries like Chile attractive for engagement. The DFC, a US federal agency, was created under the 2018 Better Utilization of Investments Leading to Development (BUILD) Act, which merged the Overseas Private Investment Corporation (OPIC) with USAID’s Development Credit Authority. Its core purpose is to mobilize private capital to advance US development and foreign policy objectives by leveraging financial tools such as loans, equity investments, guarantees, and political risk insurance to support private-sector-led solutions in markets where commercial finance is limited or unavailable.

In December 2025, Congress reauthorized and modernized the DFC through the FY 2026 National Defense Authorization Act (NDAA), extending its authorization through 2031, and significantly expanding its scope and authorities. Under this reauthorization, the DFC’s investment cap (Maximum Contingent Liability) was raised to $205 billion, and the agency gained new tools, including a $5 billion equity revolving fund and increased equity investment authority. The legislation also broadened DFC’s ability to invest in more countries and sectors while placing limits on financing in the wealthiest countries, ensuring that no more than 10 percent of its portfolio may support high-income markets, with specified sector exceptions such as energy, critical minerals, and information and communications technology.

While Chile’s high-income status means that large-scale DFC engagement is still limited compared with developing markets, the agency can support selected projects in strategic areas, including clean energy, critical minerals, infrastructure, and technology, particularly where there is a clear economic or strategic rationale and consistent with the statutory constraints on participation in wealthy countries.

Addressing bottlenecks to further FDI in Chile

Following the presidential election, Chile enters a new political phase with renewed attention on how the next administration will translate campaign promises into policy. Chile continues to take steps to strengthen its investment environment, while facing persistent bottlenecks that shape foreign investor confidence and will influence the country’s economic direction in the months ahead.

Regulatory delays are a major concern and become impediments. Permitting and environmental review processes can take several years. However, the Framework Law on Sectoral Authorizations (Law 21.770)—better known as the Ley de Permisología, which creates the Framework Law on Sectoral Authorizations (LMAS)—was enacted and posted in September 2025. The goal is to update and speed up the permit process to encourage investment. The law creates a single digital portal called SUPER to manage permits simultaneously, introduces simplified procedures for low-risk projects, and establishes administrative silence. Streamlining and updating procedures are expected to drop processing times between 30 percent and 70 percent without lowering regulatory standards. This will also be a step forward for attracting foreign investment.
Policy uncertainty remains a concern for long-term investors. Over the past decade, shifts between governments of the right and left have created questions about the direction of future regulations. Relations between Santiago and Washington are expected to further deepen under a new administration. Kast will need to show that he can meet public expectations for stronger growth and higher investment. Here, it’s critical to balance the demands of [JF1] parties across the political spectrum as this congressional balancing act is what’s needed to advance legislation reassuring to investors. Although Chile has struggled lately to attract FDI, the United States remains its second-largest source, with a strong presence in energy, data centers, and mining.
The economy also plays a major role in the current political moment. Chile has experienced slow growth for several years and unemployment sits at about 9 percent. Investment remains stagnant, with inflation and high living costs shaping daily choices for many Chileans. Voters widely see the current government as falling short in addressing these issues. The national budget was also a central topic of conversation during the election. The legislative commission in charge of reviewing the annual budget recently rejected the proposal for 2026; Kast will now likely express his approach to next year’s spending plan in the short term. That said, his proposal of gradual elimination of property taxes on primary residences, starting with those on homeowners over sixty-five, would reduce government revenue, meaning the 2026 budget will need to account for this shortfall. The administration will need to balance funding public services and implementing the policy in a fiscally responsible way.
Security is another major risk. While Chile remains relatively safe in comparison to select other countries, crime has risen in recent years—including organized crime, drug trafficking, and violence in northern regions and Santiago. Researchers estimate crime costs the country nearly $8 billion annually, discouraging some foreign investment. Kast made public safety a core part of his platform through the previous mentioned Plan Implacable, which includes tougher penalties for organized crime, high-security prisons, expanded self-defense laws, protections for law enforcement and judicial actors, and targeted border security measures with his Plan Escudo Fronterizo.

American investment has been central to the growth of Chile’s strategic industries, while Chile’s stability, talent, and infrastructure have enabled US companies to scale across Latin America. Significant opportunities remain. Chile is the world’s largest copper producer and holds 25 percent of global lithium output, with growing mineral-processing capacity and emerging resources such as rare earths and cobalt. The country is also becoming a regional digital hub, supported by projects like Google’s Humboldt Cable and expanding data-center infrastructure. Upcoming port concessions and the need for energy storage solutions in a rapidly growing clean-energy system offer additional avenues for deeper US investment.

—Beatriz Herrera, investment commissioner for North America, Embassy of Chile

Sectors in Chile with investment potential

Information technology (IT): Chile’s IT sector is expanding rapidly, driven by high internet penetration, widespread mobile connectivity, and growing demand for digital services. Key emerging sectors include fifth-generation (5G) deployment, big-data analytics, and artificial intelligence (AI) integration, supported by initiatives such as Chile Digital 2035 and the National AI Policy. To accelerate growth, Chile can build on existing programs by expanding Chile Digital 2035 and Digital Talent for Chile, increasing investment in digital infrastructure, scaling training and education initiatives, and deepening public-private partnerships to ensure broader access to advanced IT solutions, close the skills gap, and achieve full digitalization of public services.
Critical minerals (copper and lithium): As the world’s largest copper producer, supplying 24 percent of global output, and home to 41 percent of lithium reserves, Chile is a strategic source of materials essential for clean technologies. These include electric vehicles, energy storage, and digital infrastructure. With public policies promoting sustainability and high environmental standards, Chile is positioning itself to attract investment that advances technological innovation, supports the global energy transition, and fosters inclusive economic growth. China currently dominates global demand for Chilean copper and lithium, but Kast could attract more Western-aligned investment by promoting legal certainty, officering incentives, and fostering partnerships with companies that meet high environmental and governmental standards.
Water management and drought mitigation: Chile is increasingly leveraging public-private partnerships to improve water management and climate resilience. Investments focus on both traditional infrastructure, such as dams, and natural solutions including reforestation and wetland restoration. There is demand for technologies that enhance water efficiency, like advanced treatment and recycling systems, data-driven water management tools, and construction waste reduction. Sustainable agricultural practices that conserve water and lower input costs also present promising opportunities. Water management could become a strategic priority for Kast, with the advancement of such projects allowing the administration to deliver visible results, balance regional needs, and contribute to Chile’s robust agriculture sector.
Seismic-resilient infrastructure: Situated on one of the most active fault lines in the world, Chile experiences frequent earthquakes, including several above magnitudes of eight. Critical infrastructure—such as ports, airports, and energy facilities—requires modern seismic design. There is strong demand for engineering and technology services in risk modeling, resilience planning, and early warning systems. Opportunities include digital twins, smart sensors, and integrated solutions to strengthen utilities, transportation networks, and urban development.

How can the new Kast administration help unlock Chile’s economic potential and attract investment?

Visit Washington before the March 11 inauguration. This would reinforce Chile’s shared interests in economic security and investment cooperation, present project pipelines aligned with DFC priorities and clarify Chile’s commitments in areas such as energy transition and trade. Early engagement would allow Chile to secure a proactive position in shaping US investment decisions, demonstrate commitment to close cooperation with the United States, and build political support in the US Congress and executive branch for stronger bilateral financing ties. When in Washington, use the visit to generate broader public interest in the importance of Chile as a strong US partner.
Identify emerging skills and priority growth sectors in Chile and encourage private-sector programs that link education directly to industry needs. Kast can do this by providing tax incentives and speeding up the processing of paperwork for companies involved in workforce training. Scholarships, vocational training, apprenticeships, and partnerships with universities that teach technical skills can help equip students and current workers with the skills required for mining, technology, energy, and other strategic industries.
Maintain continuity in key policies on permitting reforms. This applies to policies such as the Ley de Permisología, which aims to streamline and coordinate environmental and sectoral permitting across government agencies, and they should be expanded to ensure that the ministries and offices involved are actively collaborating with each other. If government entities are not coordinating—for example, in the processing of environment permits—the procedures for key sectors such as mining and technology will continue to be delayed. Demonstrating consistency will reinforce Chile’s reputation as a stable investment destination and encourage both new and reinvested capital.
Avoid over-centralizing these initiatives in Santiago. This can be done by collaborating with regional partners or established private-sector actors to develop and train local workforces. This could include local recruitment, training programs at regional universities, and ongoing partnerships between the government and private sector.

These measures strengthen security in ways that matter for investors by creating clearer rules, steadier institutions, and stronger local trust. When the government improves workforce training and expands formal job opportunities, it reduces pressures that fuel crime in regions tied to mining and energy. Better coordination on permits lowers chances of corruption or operational disruptions because companies face fewer conflicting decisions from different agencies. Together, these steps create a safer and more predictable environment for investors.

Conclusion

Chile remains a trusted and stable partner for the United States. Its democratic values, institutional strength, and openness to trade make it a strategic destination for US investment. But sustaining and expanding this partnership will require continued economic reforms and political engagement between both countries to ease processes for doing business, improve regulatory efficiency, enhance human capital, and foster political stability toward a robust, long-term strategic partnership. As Kast prepares to take office, he has an opportunity to set a foundation to ignite Chile’s economic growth and attract investment. And with the Western Hemisphere as a top priority for Washington, Chile has the potential to be an even more strategic partner to the United States.

The views expressed in this publication are those of the authors alone. Some of the investment opportunities discussed in this issue brief were informed by an October roundtable discussion on US-Chile investment relations, which included the participation of US and Chilean private-sector leaders, public-sector representatives, and multilateral organizations. The roundtable was organized in partnership with AmCham Chile and with the support of MetLife. Neither were involved in the production of this issue brief.

About the authors

Maite Gonzalez Latorre is program assistant at the Adrienne Arsht Latin America Center of the Atlantic Council.

Jason Marczak is vice president and senior director of the Adrienne Arsht Latin America Center of the Atlantic Council

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The post First hundred days: How Kast can accelerate US investment in Chile appeared first on Atlantic Council.

Colombia needs a strong private sector—and renewed government institutions at the helm

José Manuel Restrepo — Fri, 19 Dec 2025 17:10:35 +0000

Bottom lines up front

The foundations of Colombia’s 1991 constitution, including an autonomous central bank and fiscal discipline, have maintained macroeconomic stability despite political volatility.
Corruption and the rise of illicit economies continue to erode governance and public trust, particularly in rural regions.
Restoring fiscal discipline and consolidating territorial control are essential to transforming economic stability into long-term national security.

This is the second chapter in the Freedom and Prosperity Center’s 2026 Atlas, which analyzes the state of freedom and prosperity in ten countries. Drawing on our thirty-year dataset covering political, economic, and legal developments, this year’s Atlas is the evidence-based guide to better policy in 2026.

Evolution of freedom

Between 1995 and 2025, Colombia has gone through five institutional phases. Each phase could be characterized by progress and tension, where advances in democracy, improvements in the rule of law, and economic openness were frequently challenged by fiscal limits, political crises, and persistent inequality and informality.

The rooting period (1991–2002)

A fresh chapter of institutional development arrived in Colombia during the early 1990s. The 1991 constitution emerged from a collective determination to eliminate centralism and violence through establishing a participatory and decentralized state which protected rights for all. Social and cultural rights were integrated into the legal framework along with expanded civic freedoms. In addition, the government in the 1990s initiated structural market reforms which included trade liberalization, financial system modernization, and the establishment of an autonomous central bank to manage inflation and create responsible and prudent macroeconomic policies.

Colombia earned economic policy credibility from these reforms which established fiscal and monetary stability for three decades. Nevertheless, these reforms produced a paradox within the country: The economic liberalization process outpaced the transformation of the country’s productive base. As many authors, such as Juan Carlos Echeverry, have noticed, Colombia opened international trade doors without having first constructed its economic base. The nation developed openness, but industries remained defenseless, and infrastructure remained behind. On the other side, the constitution guaranteed a wide range of rights (related to health, education, justice, and more) which had to be funded and created ongoing fiscal burdens exceeding the state’s financial resources. In the 1990s, Colombia emerged as a nation with promising reforms, but its ambitions outpaced its capabilities. This is the tension in which Colombia has operated for many years.

Security and stabilization (2003–2015)

Between 2003 and 2015, Colombia experienced a phase of security along with stabilization. The country managed to regain territorial authority from insurgent forces while attaining public trust in its institutional structures. The government’s “democratic security” strategy was combined with macroeconomic discipline to create a virtuous cycle of investor return, economic growth, and advancement in the rule of law.

During this time, institutional development advanced significantly in response to various policies. A fiscal rule was established while the central bank kept its independence and debt remained controlled. Changes among political ruling parties in Colombia continued without violence while international observers recognized the country’s democratic progress. However, structural problems remained hidden. The security improvements brought undeniable benefits to Colombia, but fighting insurgent forces led to human rights violations that damaged the country’s legitimacy and ability to govern. Colombia made progress on security but failed to improve equality and strengthen its institutions.

Polarization and the post-peace era (2016–2020)

The third stage in modern Colombian history began with the 2016 Peace Agreement, which put an end to fighting with FARC, the Revolutionary Armed Forces of Colombia, the country’s largest guerrilla force. The peace agreement meant to unite society but instead divided it more deeply. The national plebiscite opposition to the agreement, together with its congressional approval, created an impression that the government had disregarded public opinion.

The government could not maintain the ambitious goals of the peace agreement because it lacked sustainable implementation capacity. The implementation of programs for rural reform and reintegration and financial support for these programs remained insufficient. Progress on truth, justice, and reparation was also uneven. At the same time, non-repetition mechanisms—designed to prevent former combatant or affiliated groups from committing the same crimes and to reduce the likelihood of renewed violence—were only partially carried out. Meanwhile regional territorial conflicts increased as coca production grew (due to the dismantling of aerial coca fumigation), and new criminal organizations appeared. The anticipated “post-conflict” situation was instead a reshuffling of existing threats. By 2020, people in Colombia had grown exhausted and increasingly disappointed that the global celebrations of peace appeared so distant from their actual experiences.

Pandemic and social unrest (2020–2022)

The fourth phase revolves mostly around the COVID-19 pandemic. Although Colombia managed to avoid major economic and social setbacks through its proactive countercyclical economic approach, the pandemic nonetheless revealed structural weaknesses of inequality and informality, which led to multiple indicators falling before they partially recovered in 2021 and 2022. The impact of COVID-19 pushed more people into informal work while increasing poverty and inequality and reducing the number of available jobs. The result was diminished economic freedom. The public protests, in part triggered by illegal support and tax increases announced in the wake of the pandemic, revealed deep societal inequalities and perceptions of corruption and political manipulation. These combined to damage institutional trust, hindering investor confidence and consequently the economy.

Uncertainty and political confrontation (2022–2025)

The fifth phase covers the developments since 2022. The current political environment is marked by a confrontational atmosphere, which disrupted consensus-building efforts and created conditions that decreased investment potential and caused institutional uncertainty that destroyed trust in all government institutions. Since 2022, Colombia has faced fresh difficulties caused by inadequate and debatable policies on energy, public services, education, pensions, health, taxes, and land that drive political polarization and create economic instability. The decline of institutional dialogue has diminished investor trust and created uncertainty about Colombia’s future course while democracy persists. The current state of ideological conflict has displaced the practical economic management approach that used to guide the country’s economic affairs. Colombia now confronts the dual challenge of building trust between government and markets and connecting its citizens with their representative institutions.

The 1991 constitution established institutional structures which form one of Colombia’s most valuable assets. The Acción de Tutela gave citizens legal tools to protect their rights, and decentralization increased local government accountability, capacities, and options. The central bank’s autonomy enabled uninterrupted monetary and exchange rate policy and protected the nation from the populist cycles that ravaged most regions on the continent.

But legal systems cannot ensure freedom by themselves. Governance remains weak due to corruption, excessive regulations, and persistent informalities and social inequalities. Over 55 percent of workers remain outside the formal economy, and millions of firms are microbusinesses with low levels of formality, undermining tax collection and labor protections. Colombia needs to protect its democratic institutions while extending institutional benefits to formalize the excluded population.

Over 55 percent of workers remain outside the formal economy … undermining tax collection and labor protections.

The security situation represents the second vital point in Colombia’s recent timeline. During the 1990s, the Colombian state faced three concurrent threats from drug cartels, guerrilla insurgents, and armed groups that fought for territory; used kidnapping, extortion, and narcotrafficking to fund their operations; and exported large-scale violence to cities. The homicide rate ticked up, and many people were forced to abandon their homes. Business owners lost their local enterprises and had to defend themselves because municipal authority disappeared from vast sections of the country. By 2005, Colombia regained its administrative control and normalized daily activities, which permitted people to travel more freely, reduced transportation expenses, and extended investor horizons. Companies prospered under fiscal discipline and macroeconomic stability, which directed workers toward new regions for economic enterprise.

Over the course of three decades of social and economic development, women gained visibility and access to opportunities in both the public and private sector. Women’s participation in the workforce increased as did leadership diversity and social policies aimed at gender balance. The boost in household earnings together with more stable societies proved that inclusive growth strengthens both economic prosperity and social freedom.

The business environment in Colombia developed according to its political dynamics. Institutional predictability and consistent rules produced the best investment conditions from mid-2010-2020s. The trust in Colombia has been diminished by inconsistent policies and growing polarization since 2022. The business community shows apprehension toward taxation due to its inconsistent design and enforcement.

The country’s most effective reforms happened when governmental authorities joined forces with business leaders and academic experts to craft public policy that integrated regulatory, infrastructure, and labor initiatives to achieve common goals. Economic strategy has lost cohesion because the dialogue that used to inform it has diminished. Because freedom and prosperity depend on a foundation of predictability, the loss of predictability stands as the most critical institutional threat facing Colombia in the short term.

Colombia’s democracy has shown more stability compared to other regional nations, but 2016–18 marked a fundamental change. The nation experienced a rapid deterioration of political rights and a decline in civil liberties during this time frame. The rejection of the peace agreement in the plebiscite triggered political polarization, which worsened after congressional ratification of the plan. This resulted in widespread public concern about the institutional bypassing of political processes. During this period, both cocaine cultivation and illegal mining activities expanded while violence shifted its operational patterns and power dynamics among different actors. The political rights indicator shows further deterioration during the 2020 emergency period, which also witnessed social uprisings, but there was some improvement in 2021–22 once restrictions were lifted.

At present, legal operations are restricted in Colombia because of two fundamental elements. Most labor markets and business activities operate predominantly beyond the formal sector. The rule of law, measured by the legal subindex, experienced a rapid increase in 2014–15, followed by a dramatic decline. Formalization efforts expanded when security conditions improved, and economic activity rose only to retreat once economic performance declined and labor costs increased. Research shows that greater informality reduces enforcement capacity as well as social insurance coverage and tax revenue. Corruption and bureaucratic scandals from 2010 to 2018 reduced judicial public trust, and illegal activities in unregulated territories eroded local government authority.

Inequality, widespread informality, and growing insecurity … had been eroding democratic rights well before the pandemic triggered massive job losses and overwhelmed public services.

Governance quality worsened during these processes even though other sectors showed signs of improvement. While problems existed before the pandemic, COVID-19 made them more apparent. Social unrest spiked sharply in 2019, subsided during COVID-19 lockdowns, and intensified again in 2021. Data reveal that political freedom declined both before and after COVID-19. Yet the underlying causes—rising inequality, widespread informality, and growing insecurity—had been eroding democratic rights well before the pandemic triggered massive job losses and overwhelmed public services. The political situation since 2022 has been more confrontational, hindering consensus-building between government, business, and academic partners and stirring tensions between autonomous institutions and regulatory bodies. The key goal of economic recovery requires the establishment of stable economic directions along with trustworthy dialogue mechanisms that will rebuild private-sector confidence and restore normal market expectations.

Evolution of prosperity

Freedom and prosperity in Colombia have developed concurrently, although their progression has never been perfectly aligned. The 1990s and 2000s market liberalization, alongside expanded rights in the new constitution of 1991 and fiscal and monetary discipline, created the foundation for Colombia’s largest social change in contemporary history. The nation’s average per capita income tripled while poverty dropped by 20 percentage points and life expectancy increased by around ten years. This growth, however, contained a key warning since its uneven distribution meant delayed economic benefits for many Colombians. The clear lesson was that growth without fairness damages society just as severely as economic stagnation.

The inequality trap

Between 2005 and 2016, many observers believed Colombia had entered a positive feedback loop.¹ Economic growth remained healthy while job creation improved, and social programs reduced extreme poverty levels. Market freedom finally found a way to work harmoniously with social policy to benefit society.

People will tolerate slow economic growth, but they will refuse to support a system that fails to reward hard work or equitable treatment.

After 2016, the positive cycle started to break down. Economic growth decreased, and productivity reforms came to a halt while the wealth gap between rural and urban Colombia remained the same. Informal employment increased yet again while people lost hope for their future because inequality returned to its former levels. Then the pandemic struck, revealing structural defects the country had delayed addressing. Education interruptions, female job losses, and strained public finances pushed the country to its limits.

The 2021 protests were triggered by discontent over taxes, but they served to express people’s deeper sense of exclusion. Many Colombians felt that prosperity had become an exclusive privilege rather than a universal promise. The widespread perception damaged people’s trust in democracy and transformed economic inequality into a political moral crisis. People will tolerate slow economic growth, but they will refuse to support a system that fails to reward hard work or equitable treatment.

Colombia achieved indisputable progress through its recognition of Indigenous and Afro-descendant community rights. However, many of these advancements failed to deliver real benefits in practice. From 2010 to 2020, minority inclusion freedom indicators experienced a decline. The absence of governmental security in peripheral regions, combined with ongoing displacement and illegal expansions of mining and drug production, continue to drive social marginalization.

The disconnect between greater formal rights and stagnant living conditions is clearly visible. For many Colombians, equality before the law failed to translate to real equality of opportunities. The main takeaway is that inclusion demands more than official recognition; it requires continuous financing for education, infrastructure, and peacekeeping that creates national investment incentives for all territories.

Since 2018, Colombia has received over two million Venezuelan migrants. Managing this massive influx tested national institutions but also brought new energy, talent, and entrepreneurship to Colombian society. Border communities became overburdened because social services reached their limits. The “Temporary Protection Statute” along with other pragmatic policies transformed what could have been a humanitarian crisis into a demographic boon over time. Formal labor market workers contributed to the economy through tax payments while bringing new and energetic workforce potential. Amid regional tendencies to respond with populist fervor, Colombia demonstrated a distinct approach that blended openness with strategic foresight. Institutional flexibility combined with inclusiveness demonstrated that migration could be a driver of renewal instead of instability.

Colombia has achieved one of its most remarkable successes through environmental policy initiatives. From 2010 through the early 2020s, Colombia transitioned from setting green targets to producing tangible achievements. The economic policy established through CONPES 3934 (2018) and CONPES 4075 (2022) proved that green growth had become an integral economic plan instead of merely aspirational.

The addition of electric vehicle incentives, together with renewable energy auctions in La Guajira and enhanced prosecution of illegal mining, transformed environmental defense into a core competitiveness element. Mercury emissions decreased while wind and solar power capacity expanded, and the nation began perceiving sustainability as an advantage rather than a limitation. Although environmental issues such as deforestation remain, Colombia has advanced to where economic and environmental goals are more in sync.

Human development presents the clearest demonstration of how freedom relates to prosperity. People in Colombia have experienced longer lifespans and enhanced health outcomes over the past three decades. Infant mortality rates dropped dramatically while literacy rates increased, and healthcare access became almost universal. As a result of the 1993 and 2011 reforms, Colombia’s health care systems transformed to become one of Latin America’s most comprehensive.

Education in Colombia remains divided: Urban schools have developed quickly but rural areas continue to lag behind. Digital access and trained teachers remain scarce in many classrooms while educational results show significant differences across regions. The pandemic intensified educational inequalities, emphasizing to policymakers that offering coverage without proper quality or relevance is insufficient. Future development requires better integration between educational systems and productive sectors to create job opportunities which could also lead to social stability.

The path forward

Colombia is approaching a critical point which will define its future direction. Thirty years of institutional advancement delivered stability alongside credibility, yet the country continues to struggle with social inequality, economic informality, and declining public trust. Challenges arose after 2016, when investment diminished, economic growth declined, and political polarization intensified. But the real issue is greater than Colombia’s ability to grow: The crucial challenge is to achieve inclusive growth that transforms freedom into equal prosperity.

The foundation of prosperity rests on establishing stable public finances. After the necessary spending during the pandemic period and the increase in public debt, Colombia started to make a fiscal adjustment which was successfully implemented between 2020 and 2023. However, since then, public debt and the fiscal deficit have risen high enough to make investors nervous. As a result, Colombia needs an effective reform that expands the taxpayer base while making compliance easier; it should also eliminate tax benefits that favor a select few while preserving support for small regional businesses.

The restoration of fiscal rules (which were suspended in 2025) would demonstrate Colombia’s commitment to disciplined governance while enhancing market and public confidence in the country’s fiscal management. Decentralized fiscal authority with proper accountability mechanisms would enable state institutions to connect with citizens more effectively while distributing growth benefits more fairly.

Peacebuilding requires more than negotiation-based approaches while demanding consistent territorial governance. Large rural areas of Colombia still live under alternative and illegal power systems that impose fear instead of upholding legal authority. Road construction alongside internet connectivity and new schools serve as development tools which could also be useful in strengthening citizenship.

Government investments in infrastructure yielded clear advancements across Antioquia, the coffee region, and parts of the Caribbean region in the form of decreased violence, increased job opportunities, and population retention. Security improves only when people have access to opportunities to replace coercive systems. The practical and moral lesson that emerges is that prosperity requires peace, and peace demands governance from a state whose presence is felt where people reside.

Informality blocks the path that unites freedom with a prosperous future. More than 50 percent of Colombian workers lack contracts and protections since they work outside the formal system. The workplace formalization process would be achievable by easing procedures and reducing labor expenses and modernizing ways to connect workers with employers.

Simultaneously, Colombia needs to transition from an extraction-based economy to an innovation-driven economic model. Productivity functions as the link between immediate economic recovery efforts and enduring prosperity. This requires industry-university coordination along with technological implementation support and local business development investment. Subsidies will not reduce inequality nor sustain freedom because productivity growth serves as the fundamental solution.

Colombia’s greatest challenge, however, springs not from fiscal concerns but from the political domain. The current political division has turned policy discussions into entrenched conflicts, making compromise look like weakness. Future development in Colombia depends on institutional pragmatism, which requires leaders to prioritize results over political statements.

Non-negotiables must be to protect the independence of the central bank and to maintain the autonomy of courts and oversight agencies. Dialogue between government, business, and civil society needs to be reestablished through structured channels. Economic freedom depends not only on predictable rules for investors but also on the social contract that allows it to endure. Transparent institutional operations promote both economic and public trust.

Non-negotiables must be to protect the independence of the central bank and to maintain the autonomy of courts and oversight agencies.

The transition toward clean energy creates difficulties while promising new possibilities. Even though oil and gas continue to generate substantial government revenue, Colombia possesses vast renewable energy potential. The appropriate approach involves slow and responsible market transition combined with building new industries based on sustainable agriculture, clean energy, and ecotourism while preserving fiscal stability.

Environmental stewardship could become a competitive advantage when established through consistent regulations and patient investment. Colombia is endowed with geographical diversity, biodiversity, and abundant water resources that would enable green industries to thrive—as long as institutions remain constant, regulations are simplified, and public-private partnerships are strengthened.

Throughout the thirty-year period from 1995 to 2025, Colombia has been trying to balance its aspirations against its limitations. It strengthened its democracy and opened the economy, but it continues to battle persistent problems of inequality, informality, and insecurity. Freedom in the country has never been fixed since each generation must labor to preserve and renew it.

The next chapter depends on Colombia’s ability to tether freedom to present-day opportunities. Achieving fiscal stability together with security systems, educational advancement, and institutional trust is a moral obligation essential for democratic success. Once trust returns to citizens and government bodies, between investors and institutions, and among regions with their central authorities, Colombia will convert its practical liberty to enduring economic prosperity.

The future direction of the nation depends on making decisions between opposing forces, including confrontation versus consensus, populism versus pragmatism, and empty rhetoric versus courageous social and economic reforms. With the right decisions, Colombia can become an example of democratic stability and inclusive development throughout the Americas.

about the author

José Manuel Restrepo is an economist, academic leader, and former public servant with experience in education management and economic policy. He has served as president (rector) in Universidad EIA, Universidad del Rosario, and CESA Business School in Bogotá. He held cabinet roles as Colombia’s minister of commerce, industry and tourism and later as minister of finance and public credit. He holds a master’s degree in economics from the London School of Economics and a Ph.D. in management from the University of Bath.

A strong advocate for innovation, sustainability, and institutional ethics, Restrepo has championed policies such as the Entrepreneurship Law, Green Sovereign Bonds, and the modernization of Free Trade Zones 4.0. His leadership experience extends to academia, government, and business, where he seeks to foster collaboration as a means to turn policy into progress. As a frequent speaker and columnist, he reflects on productivity, education, and governance, emphasizing that economic progress must always serve people.

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1 Otaviano Canuto and Diana Quintero, “Colombia: Getting Peace, Getting Growth,” Policy Center for the New South, March 23, 2017, https://www.policycenter.ma/blog/colombia-getting-peace-getting-growth; avid Felipe Perez, “After a Decade of Growth and Political Stability, It’s Time to Invest in Colombia’s Future,” World Finance, accessed [insert access date], https://www.worldfinance.com/wealth-management/after-a-decade-of-growth-and-political-stability-its-time-to-invest-in-colombias-future.

The post Colombia needs a strong private sector—and renewed government institutions at the helm appeared first on Atlantic Council.

Employment needs to take center stage in Gaza security plans

Melanie Robbins — Fri, 19 Dec 2025 16:40:38 +0000

Employment and economic opportunity are two of the most overlooked areas for strategic development in Gaza. The benefits of focusing on these are rather straightforward: populations stripped of economic opportunity are vulnerable to becoming dependent on armed groups or nonstate actors, especially those that have a monopoly on access to social services and economic opportunity. This means every family in Gaza without an income is an opening for Hamas, militias, or the black-market war economy. Gaza’s economy has long been shaped by coercion, taxation, and armed patronage networks because no legal economic alternative has been built.

Many political and security leaders remain unconvinced that employment should be its own goal or that employment is central to immediate security. While US President Donald Trump’s twenty-point peace plan for Gaza refers to employment in broad terms, it is only referenced as an outcome of investments and large-scale development, but employment is not viewed as a goal in and of itself.

For example, point number ten states that “many thoughtful investment proposals . . . will be considered to synthesize the security and governance frameworks to attract and facilitate these investments that will create jobs, opportunity, and hope for the future of Gaza.”

Gaza cannot function without guaranteed pathways to work. To disarm Hamas, there must be a fiscal strategy alongside effective street-level security. Most critically, the best way to undermine Hamas’s power on the ground is to employ the people Hamas pays today. Security requires a fiscal plan; in Gaza, Hamas controls labor, resources, and opportunity, eliminating competition. To break this chokehold, Gaza requires deliberate intervention to generate employment across sectors.

Hamas and Gaza’s employment crisis

Before the launch of war in 2023, Gaza already faced some of the worst labor conditions in the region. Hamas-led public sector employment accounted for nearly one-third of all those working in the Strip, according to the Ramallah-based Palestinian Central Bureau of Statistics. In 2017, the average monthly household expenditure in Gaza was 934 dinars, or roughly $1,300. Meanwhile, Hamas is paying young fighters up to three hundred dollars per month, according to Wall Street Journal reporting citing Israeli officials—an amount that pays for a crucial portion of those expenses. Additionally, the patronage network system of Hamas meant that those in the militant group’s networks were able to access aid, resources, and other market goods in a way that those unaffiliated could not, something that has continued throughout the war as well.

This meant that the few available jobs or reliable opportunities inside Gaza were disproportionately Hamas-affiliated—whether related to civil service or fighting. Against this backdrop, youth unemployment reached as high as 70 percent in Gaza, and overall unemployment reached 80 percent.

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Today, close to 70 percent of Gaza’s population is homeless or displaced, with no clarity on when they will return to stable housing. This has made the need for new employment even more urgent.

When more than a million people have no work, no prospects, and no timeline for rebuilding their lives, the outcome is predictable: Many will return to the only functioning economic structure available, which is dominated by the Hamas-led network. Gaza’s geographic isolation exacerbates this, as the majority of Gazans have never left the Strip. Without jobs, mobility, or legitimate income, dependency becomes permanent.

If Hamas were no longer the leading source of employment, its patronage networks would weaken, reducing its control over communities’ access to salaries, goods, and services. Peacebuilding experience shows that employment changes daily incentives. People with families, stability, and predictable income see militancy as a high-cost and less rational choice.

Ignoring the central variable

The Palestinian Authority’s (PA) belief that it has sufficient institutional capacity to rehabilitate Gaza, as its prime minister wrote recently in its economic plan, is troubling to most long-term analysts of the West Bank and Gaza Strip. Almost every major Arab country and Western ally has made it clear through numerous UN resolutions and diplomatic statements (including most recently in Trump’s twenty-point plan and the New York declaration by Saudi Arabia and France) that the PA requires significant reformation before it can take on control of Gaza.

In the PA’s recently released economic plans, unemployment is treated only as a minor humanitarian issue, rather than a development factor or as a central determinant of whether a cease-fire can hold or Gaza returns to terrorism and war. Specifically, the plan suggests providing $4.2 billion in cash assistance for food, supplies, minor reconstruction, and housing support. Yet, the plan’s development of employment schemes and workforce participation receives only $500 million—far short of what is required for serious job creation.

To underscore just how ill-prepared PA thinking is regarding employment outcomes, to match the current income provided by Hamas employment, the plan would need several billion dollars annually to enable workers to earn the same as they do now from Hamas coffers, as either civil servants or fighters. Yet the PA plan, similar to the Trump plan, does not explicitly focus on the details of making new workforce access available or on pursuing long-term job creation through strategic development, nor does it seek to put significant resources towards the goal of earned income. Instead, it commits Gaza to being an aid-dependent economy, in which international investors are expected to operate without a reliable labor force. This is a direct path back to patronage, dependency, and long-term instability.

Employment as a human rights and security imperative

In my book, What Role for Human Rights in Peacebuilding, I argued that peacebuilding has traditionally overemphasized political rights, institution-building, and security-sector reform while relegating economic, social, and cultural rights to a secondary status. Yet, human rights are interconnected and cannot be pursued as separate goals. Political participation cannot be realized when people are uneducated, unhealthy, unhoused, or unemployed. Civil and political rights must be linked to economic, social, and cultural rights for transitions to be viable.

The models often employed in the Israeli-Palestinian peace process do not address foundational gaps in economic, social, and cultural rights, especially in the area of long-term employment. Unless international leadership takes seriously the central role employment plays in deradicalization and stabilization, Gaza’s reconstruction will replicate past failures. Employment is a framework for disarmament, but only when sustained for the long term—not when limited to temporary per diem labor, food-for-work schemes, or short-term projects.

A sustainable employment paradigm must be put at the center of Gaza’s next phase. Many Gazans will explain, when asked, that many of the flanks of Hamas fighters are not driven by ideology but by predictable payrolls and access to goods for Hamas-affiliated families. Without a competing legal economy, Hamas will always have recruits.

Gaza needs macroeconomic and microeconomic development schemes that create market infrastructure capable of supporting the entire workforce. Education, vocational training, private-sector investment, and targeted upskilling can all generate meaningful employment. In Gaza, ignoring this is not simply poor economics. It is a direct security risk. This requires understanding the actual size of Gaza’s labor force, reasonable income targets, and priority sectors where workers can quickly enter employment with existing or modestly enhanced skills. Both public- and private-sector models will be required, with private-sector growth as the long-term engine of prosperity.

A full-employment-oriented mandate is not extreme government intervention, nor is it a call for the PA to dominate the labor market; rather, it should be defined as a strategy for long-term private-sector growth, carried out in partnership with and supported by public actors.

Impact on Palestinian sovereignty

Palestinian self-sovereignty requires economic independence and access to the world. One of the strongest inoculations against Hamas is broad access to markets and opportunities. Some of this will require long-term planning and sector-specific analysis, but many aspects are straightforward. For example, if private firms and the international community could employ Gazans to rebuild at even a slightly higher wage than Hamas salaries, stable employment could ultimately extend to swaths of the population, with Gazans able to support their families without using dollars tied to the militant group.

Sectors such as environmental rehabilitation, food production, education, medical care, infrastructure, and vocational services all require new labor. If a transitional authority seeks to meet the moment, it should invest heavily in private-sector job creation so that disarmament, deradicalization, and reintegration can begin.

Gaza’s next phase must recognize what weakens Hamas’s grip: economic independence and freedom of movement. Employment severs Hamas’s patronage networks by providing a reliable income not tied to armed actors. It rewires daily incentives, making militancy too costly for most people. The appeal of armed groups declines as economic opportunity expands.

Gaza’s future depends on far more than security forces or humanitarian aid. It depends on whether people see a path out of the rubble that is grounded in economic self-sovereignty, dignity, and the possibility of success. If security and political leaders ignore this reality, they will guarantee that the next war comes even while the debris of this one remains.

Melanie Robbins is the deputy director of the Atlantic Council’s Realign For Palestine project.

The post Employment needs to take center stage in Gaza security plans appeared first on Atlantic Council.

By the numbers: The global economy in 2025

GeoEconomics Center experts — Fri, 19 Dec 2025 14:50:50 +0000

Some people might say that six, seven was the most important number of 2025. But our global economic experts beg to differ. This was a year in which the world’s largest economy hiked its tariff rates to the highest level in a century, cryptocurrency usage surged across the globe, sanctions evaders found new ways to avoid detection, global public debt climbed ever higher, and low-income countries backtracked on gains made over decades. Below, our GeoEconomics Center experts take you inside the numbers that mattered the most in 2025.

16.8 percent

THE AVERAGE EFFECTIVE TARIFF RATE IN THE UNITED STATES

This is the highest rate consumers have faced since 1935. The cost of tariffs are being passed onto consumers, who are feeling the impact on their pocketbooks. The Budget Lab at Yale found that the 16.8 percent effective tariff rate represents a loss of $1,700 for the average household.

—Christy Goldsmith Romero is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

$840 billion

Total US-Mexico trade in 2024

In 2025, Mexico became the United States’ largest trading partner, with major increases in imports from the United States to Mexico. Mexico has already been the largest exporter to the United States since 2024, when total bilateral trade reached $840 billion.

—Earl Anthony Wayne is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

The number of days between ‘Liberation Day’ and the suspension of US ‘reciprocal’ tariffs

The episode underscored the Trump administration’s highly transactional approach to trade. The threatened tariff rates the administration presented during the April 2 “Liberation Day” announcement initially rattled global markets, but the administration suspended them only seven days later on April 9. The United States then pursued concessions through bilateral negotiations aligned the administration’s foreign and domestic policy priorities. The outcomes of these negotiations ranged from partial successes with partners such as Japan and South Korea to a stalemate with China over critical minerals.

—Martin Mühleisen is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

5 (out of 6)

The number of G7 partners the United States has concluded trade, investment, and tariff deals with

In other words, the United States has concluded deals with all of its Group of Seven (G7) partners except Canada. Of these deals, two (the EU and Japan) include a significant parallel commitment by US partners to purchase considerable quantities of liquefied natural gas (LNG) through 2030. These two tariff and LNG deals ensure that economic and geopolitical interests among G7 members remain aligned vis-à-vis Russia and China. With the USMCA up for reconsideration in 2026, few should be surprised that neither Canada nor Mexico have concluded binding deals with the United States during 2025.

—Barbara C. Matthews is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

US TRADE AGREEMENTS SINCE ‘LIBERATION DAY’

It is easy to dismiss these trade agreements as vague “frameworks,” yet their global geographical reach and substantive breadth—covering regulatory barriers, digital trade, and critical minerals, among other areas—suggest something more significant. Taken together, and given their growing detail and convergence, they point less to ad hoc transactional deals and more to a coordinated effort to set new rules of the road through bilateral agreements.

—L. Daniel Mullaney is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

88.2 percent

THE GROSS VALUE OF GOVERNMENT DEBT-TO-GDP RATIO IN THE EUROZONE AT THE END OF Q2 2025

Between the first and second quarters of the 2025 fiscal year, the eurozone’s overall debt-to-gross domestic product (GDP) ratio rose from 87.7 percent to 88.2 percent. This was due mainly to persistently high interest rates and fiscal constraints. While this metric may not be alarming when compared to the increase of global government debt-to-GDP ratio to 94.7 percent in 2025, the underlying factors and contrasting macroeconomic fundamentals driving this increase pose significant risks to the region’s financial stability.

—Nisha Narayanan is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

Number of countries and territories on China’s digital currency platform

China, Hong Kong, Thailand, the United Arab Emirates, and Saudi Arabia—these are the countries and territories now part of mBridge, Beijing’s cross-border, wholesale, blockchain-based payment system. This year, the Bank for International Settlements, which had overseen the project since its inception in 2020, had to remove itself from its work on mBridge due to concerns over China’s ambitions for the payment system. These concerns, compounded by suggestions from Russian officials that mBridge could be used as the bridge for a future BRICS currency, effectively ended the possibility of any Western participation.

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

$35 trillion

STABLECOIN TRANSFER VOLUME

Stablecoin market capitalization increased by almost 50 percent since the start of the year from $203 billion to over $300 billion. The usage of stablecoins has grown as well, as demonstrated by an increase in transfer volume growing from $27 trillion to $35 trillion in the past year.

—Nikhil Raghuveera is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

THE NUMBER OF SANCTIONS THE TRUMP ADMINISTRATION PLACED ON RUSSIA THIS YEAR

In October, the Trump administration sanctioned two Russian oil majors, Rosneft and Lukoil, as well as their subsidiaries. These were the first and only sanctions the administration placed on Russia this year. This amount of sanctions against Russian entities was a far cry from the hundreds of sanctions the European Union (EU) and United Kingdom levied against Russia in 2025 and the thousands of designations the Group of Seven (G7) sanctions coalition placed on Russia since its full-scale invasion of Ukraine in 2022.

—Kimberly Donovan is a director at the Atlantic Council GeoEconomics Center’s Economic Statecraft Initiative.

61 percent

REDUCTION IN ORGANIC CLICK-THROUGH RATES WHEN WEB SEARCH USERS ARE SHOWN AI OVERVIEWS

Today, most websites display advertisements as a primary source of revenue, relying on search engines to attract users. But AI-powered search engines may be eroding this multi-billion-dollar industry. A study from Seer Interactive record a 61 percent decline in click-through rates for search results with AI overviews from June 2024 to September 2025.

—Giulia Fanti is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

2.77 percent

THE PERCENTAGE OF AFRICANS THAT LIVE IN COUNTRIES WITH AN INVESTMENT-GRADE SOVEREIGN CREDIT RATING

Less than 10 percent of emerging market and developing economies have an investment-grade sovereign credit rating, and almost seventy low-income countries have no rating at all. Only three African countries (Mauritius, Botswana, and Morocco) have an investment-grade rating. Based on the most recent available World Bank population data, these three countries only account for 2.77 percent of the continent’s population. Credit ratings play a critical role in determining the availability and cost of capital: Countries with weaker ratings pay interest rates that are, on average, twenty basis points higher—nine times steeper—than countries with better ratings.

—Nicole Goldin is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and head of equitable development at United Nations University-Centre for Policy Research.

2.7 percent

CHINA’S ESTIMATED 2025 GDP GROWTH RATE

Beijing will likely announce 2025 GDP growth near the 5 percent target it set out for the year. But that number would be inconsistent with its own proxy indicators, including other official data series such as China’s National Bureau of Statistics (NBS). Unvarnished estimates, including a forthcoming report from Rhodium Group, suggest a growth rate closer to 2.7 percent.

—Daniel Rosen is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a founding partner of Rhodium Group.

¥ 13 billion

THE TOTAL VALUE OF PANDA BONDS ISSUED BY FOREIGN GOVERNMENTS

In 2025, foreign governments issued a record thirteen billion yuan in Panda bonds—yuan-denominated debt sold by foreign borrowers in China’s onshore market. This remains limited compared with the vast dollar bond market, but the surge in sovereign yuan-debt compared to previous years is nonetheless noteworthy.

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

$1 billion

The amount of money that Iran smuggled to Hezbollah, according to US intelligence

US intelligence assesses that Iran has smuggled $1 billion to Hezbollah since January. These funds, which reportedly come from the sale of Iranian oil, are funneled through exchange houses and private companies in Dubai and the United Arab Emirates, then moved to Lebanon through informal money transfer networks. Some funds are also reportedly smuggled via Turkey and Iraq. This amount of funding for Hezbollah reflects three factors: First, the Iranian regime is adapting and working to find new ways to send more funds to Hezbollah after routes through Syria and Beirut’s airport were largely shutdown. Second, the Iranian regime has clearly decided to double down on its efforts to rearm and rebuild the only real proxy it has left in the Levant. Third, Hezbollah was financially hit hard during the 2024 escalation with Israel given that the terrorist group has received approximately double what it normally receives from the Iranian regime in a year.

—Hagar Hajjar Chemali is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

53 percentage points

THE INCREASE IN IMPORTS FROM CANADA CLAIMING DUTY-FREE TREATMENT UNDER THE USMCA SINCE THE END OF JANUARY

While free trade agreements are often framed as tools for regional integration, they are only as strong as the incentive to use them. The Trump administration’s 2025 increase in most-favored-nation tariffs—paired with exemptions under the United States-Mexico-Canada Agreement (USMCA)—has made USMCA more valuable. Free trade agreements can effectively promote regional integration and supply-chain diversification away from China only when most-favored-nation tariffs are sufficiently high to make regional sourcing economically attractive.

—Beth Baltzan is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

THE NUMBER OF COMPANIES IN WHICH THE US GOVERNMENT ACQUIRED EQUITY OWNERSHIP

In a year of substantial changes across US policies relating to economic security, the decision by the current administration to take ownership stakes in a number of companies stands out. It began earlier this year, when the White House announced that the US government acquired a “golden share” in US Steel to resolve the national security review of the company’s acquisition by Nippon Steel. The trend continued throughout the year, with the administration concluding agreements to acquire stakes in at least six more companies by the end of 2025.

—Jesse Sucher is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

$37 billion

NEW LENDING APPROVED BY THE IMF

From January to October 2025, the International Monetary Fund’s (IMF’s) Executive Board approved new financial arrangements for ten member countries: Argentina, El Salvador, Costa Rica, Morocco, Chad, the Democratic Republic of Congo, Egypt, the Gambia, Jordan, and Pakistan. The $20 billion Extended Fund Facility that the IMF granted to Argentina—a measure designed for countries with deep, structural balance-of-payments challenges—accounted for nearly 60 percent of the total value of IMF lending approved this year.

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

$690 billion

THE ESTIMATED VOLUME OF MIGRANT WORKERS’ REMITTANCES TO LOW- AND MIDDLE-INCOME COUNTRIES

This figure far exceeds the amount of official development assistance distributed in 2025, which has declined by 26 percent globally over the past two years. Remittances to low- and middle-income countries were also much higher than global foreign direct investment, which has plummeted to its lowest level in two decades. However, the cost of sending remittances remains excessive. The governments of low- and middle-income countries should develop payment infrastructures to reduce these costs and help recipients.

—Hung Tran is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

Below 0

THE US NET INCOME BALANCE

For decades, the net US income balance had been positive, as Americans’ yields on foreign assets exceeded those on US assets held by non-US residents. This was largely because the United States was viewed as a safe haven and the dollar is central to the global economy. In 2024, the balance dipped to slightly negative, at -$51 billion. This shift reflects the rapid deterioration of the US net international investment position as foreign holdings of US assets outpaced Americans’ holdings abroad—a trend that intensified in 2025 and deepened the deficit.

The 2025 deficit stands at -$460 billion before the release of data for the fiscal year’s fourth quarter.

—Marc-Olivier Strauss-Kahn is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

THE NUMBER OF COUNTRIES THAT INTRODUCED NEW NATIONAL SECURITY-RELATED INVESTMENT SCREENING MECHANISMS

In 2025, Bulgaria, Croatia, Cyprus, Greece, and Ireland all introduced new investment screening mechanisms. This means that all EU member states now or will soon have an investment screening mechanism in operation, complementing the EU-wide investment screening cooperation mechanism. This marks a rapid expansion of such measures—forty-four countries across the Organization for Economic Co-operation and Development, the EU, and the Group of Twenty (G20) now have formal review tools, up from twenty-eight in 2019. This trend portends increasingly fragmented global supply, ownership, and technology chains in the years ahead.

—Sarah Bauerle Danzman is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

NUMBER OF DAYS THE US ENFORCED ‘AFFILIATES RULE’ EXPORT RESTRICTIONS AGAINST CHINA

On September 29, the US Department of Commerce’s Bureau of Industry and Security issued the “affiliates rule,” a move targeting Chinese companies that extended export restrictions to affiliates of entities on the Entity List and Military End-User List. On November 10, in connection with a wider US-China trade truce, the US Department of Commerce’s Bureau of Industry and Security suspended its enforcement after just forty-two days in effect. Pending further developments, the affiliates rule will be reinstated on November 10, 2026, 365 days following the suspension.

—Annie Froehlich is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

THE NUMBER OF CONSECUTIVE MONTHS THAT CHINESE PRODUCER PRICES HAVE FALLEN (THROUGH NOVEMBER 2025)

China’s slowing economy—facing weak consumer demand, anemic investment, a lingering real estate crisis, and massive local-government debts—is overwhelmingly relying on industrial output and exports to generate growth. The problem is that this full-tilt factory production has generated overcapacity and intense competition for market share.

—Jeremy Mark is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

92 percent

THE SHARE OF RARE-EARTH PROCESSING AND SEPARATION CONTROLLED BY CHINA

Much focus is given to sourcing of rare Earth elements, of which deposits exist in many countries throughout the world, notably in 2025, Ukraine signed a mineral deal with the United States. Far less focus is given to the fact that to process and refine the rare-earth elements that the world is almost entirely reliant on China both for facilities to support refining and the equipment required to process rare-earth oxides into metals, alloys, and magnets.

—Daniel Tannebaum is nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

1 percent

US EXCISE TAX ON REMITTANCES IN 2026

As of 2023, the average cost of remittances was 6.4 percent, or about $12 for a $200 transfer. But this year, they became even more pricey. In July, Congress passed the “One Big Beautiful Bill Act,” which included a 1 percent excise tax on all cash-based remittances from the United States starting on January 1, 2026.

—Juliet Lancey is a young global professional at the Atlantic Council’s GeoEconomics Center.

20 years

AVERAGE AGE OF RUSSIAN SHADOW-FLEET VESSELS

Age is not just a number for Russia’s shadow fleet—it is the strongest predictor of maritime accidents. While mainstream oil tankers are on average thirteen years old, vessels moving sanctioned Russian crude oil are on average twenty years old. With Russia relying on old vessels that fall below safety standards to transport its oil, even minor failures or collisions could trigger a large-scale spill, posing an environmental threat to shared waters.

—Mary Kate Adami is a young global professional at the Atlantic Council’s GeoEconomics Center.

$9.6 trillion

THE AVERAGE GLOBAL DAILY CURRENCY TRADING VOLUME

In 2025, global foreign exchange trading reached a new high, with an average daily turnover of about $9.6 trillion in April, up from roughly $7.5 trillion in 2022, according to the BIS Triennial Survey.

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

$4.79 billion

THE VALUE OF DATA PROCESSING EQUIPMENT THE UNITED STATES IMPORTED FROM TAIWAN IN JULY

The United States imported only $4.84 billion worth of parts and accessories for automatic data processing machines from Taiwan in the first six months of 2025 combined. So what happened in July? A sharp rise in imports of cutting-edge graphics processing units made up the majority of this spike, as AI firms in the United States raced to procure this critical component ahead of the 20 percent US tariff on Taiwan, which went into effect in August.

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

Less than 10 percent

THE SHARE OF BILLS IN CONGRESS ABOUT FRONTIER TECHNOLOGIES THAT BECOME LAW

In 2025, lawmakers introduced an unprecedented volume of legislation on AI, crypto, and autonomous vehicles at both the federal and state levels, yet only a small fraction became law, with most bills serving primarily as political messaging rather than viable policy. More consequential outcomes have instead emerged through selective enactments, regulatory implementation, and early court decisions. In this environment, it’s become challenging for startups and policymakers to distinguish real signals from legislative noise.

—JP Schnapper-Casteras is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

52 percent

YEAR-OVER-YEAR GROWTH IN SUB-SAHARAN AFRICA’S ON-CHAIN CRYPTO ACTIVITY

Cryptocurrency adoption in Sub-Saharan Africa has been on a steady rise, with on-chain activity increasing by 52 percent and total value received exceeding $205 billion, according to Chainalysis. The region now ranks as the world’s third fastest-growing crypto region behind Latin America and the Asia Pacific. For many Africans, stablecoins offer a practical and reliable way to save, make payments, and send remittances in an environment marked by currency volatility and limited financial inclusion.

—Oyinkansola Akin-Olugbade is a young global professional at the Atlantic Council’s GeoEconomics Center.

The post By the numbers: The global economy in 2025 appeared first on Atlantic Council.

Prisoner releases are welcome news but talk of a Belarus thaw is premature

Hanna Liubakova — Thu, 18 Dec 2025 22:02:36 +0000

The freeing of 123 political prisoners in Belarus last week, including Nobel Peace Prize winner Ales Bialiatski and 2020 protest leader Maria Kalesnikava, must be seen as a major humanitarian win. Lives have been saved and families have been reunited. However, this large-scale prisoner release should not be interpreted as an indication of more fundamental change. On the contrary, it is a calculated move by Belarusian dictator Alyaksandr Lukashenka to extract concessions from the West without abandoning his reliance on domestic repression.

Commenting on the releases, US Special Envoy for Belarus John Coale confirmed that Washington planned to lift sanctions on Belarusian fertilizer exports. He also suggested that all remaining Belarusian political prisoners could be freed in the coming months, potentially in a single group. This prompted some talk of a potential thaw, but it is premature to draw such conclusions. In reality, the Lukashenka regime remains as authoritarian as ever and is not reforming. Instead, it is bargaining.

When assessing the significance of the recent prisoner releases, it is important to maintain a sense of perspective. The 123 people freed in early December represent only a relatively small portion of the more than 1100 political prisoners currently being held in Belarus. Meanwhile, more names are regularly added to the list. During November 2025, human rights group Viasna identified 33 new political prisoners in Belarus.

The Lukashenka regime has clearly learned from similar agreements with the United States earlier this year, which also saw prisoners freed in exchange for sanctions relief. This is fueling a transactional approach to what should be primarily a human rights issue.

While this year’s prisoner releases demonstrate that sanctions relief can produce welcome results, any further reduction in sanctions pressure by the United States should be approached with caution. If prisoner releases are rewarded without any expectation of broader shifts away from authoritarian policies, repression itself becomes a bargaining tool. In such a scenario, there is a very real danger that political prisoners could become virtually inexhaustible bargaining chips for Lukashenka.

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In one if his first interviews following his release, Ales Bialiatski warned about the dangers of negotiating with Lukashenka without demanding wholesale change. He noted that releasing individual prisoners will not be enough to end repression in Belarus. The regime could easily exchange prisoners on a regular basis, he cautioned, freeing some and imprisoning others while asking for new concessions. Bialiatski’s insights should help inform international engagement with Belarus.

Looking ahead, the United States and European Union can play complementary roles in relations between Belarus and the democratic world. Washington’s sanctions tend to be intentionally more flexible. This makes it possible to offer targeted relief based on concrete humanitarian progress, while also allowing for an increase in pressure if Minsk backslides.

In contrast, European sanctions are more focused on systemic change. They are tied to ending policies of political persecution, embracing elements of democratic transition, and addressing Belarusian participation in Russia’s invasion of Ukraine. Any steps to weaken EU sanctions would reduce Europe’s ability to influence Minsk and rob Brussels of the tools to bring about more meaningful change.

Recent events have highlighted the lack of genuine progress toward constructive engagement between Belarus and the country’s European neighbors. Despite a number of goodwill gestures toward Belarus such as the reopening of EU border crossings, Minsk has continued to engage in provocative actions such as launching weather balloons into Lithuanian airspace.

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Lukashenka may have economic motives for seeking to secure sanctions relief in exchange for limited concessions. The Belarusian economy has benefited in recent years from a spike in wartime demand linked to Russia’s invasion of Ukraine, but this growth is now cooling. With less room to maneuver. the Belarusian dictator has good reason to engage in deals that can relieve the financial pressure.

He may also believe the time is right to reestablish his credentials on the geopolitical stage. As US-led negotiations to end Russia’s war against Ukraine continue, Lukashenka might see opportunities for a return to the mediator role he occupied during the initial stages of Russian aggression just over a decade ago. Many observers noted that during the latest prisoner releases, most of the freed detainees were sent to Ukraine rather than Lithuania, which has previously served as the main destination. This may have been an attempt to highlight ongoing cooperation between Kyiv and Minsk.

Greater engagement between the Lukashenka regime and the West could potentially be beneficial but a measured approach is essential. Future sanctions relief must be conditional and tied to verifiable steps such as the release of all political prisoners, an end to new politically motivated arrests, and the restoration of basic civic liberties. The rights of released prisoners must also be respected. This includes allowing them the option to remain in Belarus and providing them with full documentation.

Further steps to improve dialogue with Belarus should also be based on a realistic assessment of achievable goals. For example, it is wishful thinking to suggest that limited sanctions relief could somehow pull Minsk out of the Kremlin orbit. On the contrary, Lukashenka is now more dependent than ever on the Kremlin and will almost certainly never dare to distance himself from Russia, regardless of how skillfully sanctions are applied and relaxed.

What sanctions can do is constrain Lukashenka’s options and secure specific concessions. The ultimate objective should be an end to all human rights abuses and oppressive policies, rather than the targeted release of high-profile prisoners. Until that goal is within reach, the European Union in particular has a key part to play in maintaining pressure on Lukashenka.

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

The technology should be regulated with both its strengths and weaknesses in mind, and approached with a healthy dose of skepticism toward corporate advocates; but ignoring the obvious value and use of gen AI makes little sense. Those concerned with development in Africa must engage with the technology and consider its potential for reducing poverty and strengthening education, alongside other priorities such as digitizing and preserving languages.

Gen AI poses real risks and requires guardrails, especially for young people. Yet disengagement carries risks of its own: if gen AI is not actively shaped and governed, the very youths and communities it could benefit—or harm without proper controls—risk being left behind. Not engaging with gen AI would be not only harmful but also patronizing. More conversation is needed between those inventing and implementing gen AI models and those who work in development assistance, including actors involved in shaping and advancing the UN Sustainable Development Goals (SDGs). Two of these SDGs—ending poverty and providing quality education—closely mirror gen AI’s promise, or boast, of future “abundance” and human or even superhuman intelligence. The SDG and gen AI camps must explore what each can realistically offer the other.

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What Trump’s Venezuela oil blockade means for Maduro and the world

Atlantic Council experts — Thu, 18 Dec 2025 01:34:43 +0000

“Venezuela is completely surrounded.” On Tuesday evening, US President Donald Trump announced that the US military would impose a “total and complete” blockade of all sanctioned oil tankers going into or out of Venezuela. The move is targeted at Venezuelan strongman Nicolás Maduro and his regime, but it could also have wider effects. Below, Atlantic Council experts answer four pressing questions.

1. What does this blockade mean for Venezuela?

This blockade adds significant pressure to Maduro’s regime, as these shadow tankers act as a financial lifeline that Maduro relies on to sustain his corrupt patronage system. Sanctioned vessels operate in a global black market, transporting US-sanctioned oil that has been critical over the years to the ability for Maduro to stay in power.

Since the initial US seizure of the Skipper last week, Venezuelan crude exports have fallen sharply, effectively targeting Maduro’s main source of income. Venezuela relies entirely on tankers to export its oil, and disrupting the illegal trade that runs on these sanctioned tankers weakens Maduro’s grip on power. As of last week, more than thirty of the eighty ships in Venezuelan waters were under US sanctions.

Frankly, with the size of the US fleet amassed in the Caribbean, it was only a matter of time before this blockade began. It will be important to see which of these shadow vessels continue to try to reach Venezuelan shores and which vessels the United States determines it has the authority to seize. These ships are part of a large shadow shipping network designed to evade US sanctions and mask the destination of Venezuelan crude. This illegal trade network delivers oil primarily to China, and to a lesser extent Cuba, employing several tactics to disguise the origin, name, and shipping routes to evade US regulations.

The blockade of these sanctioned vessels provides an additional source of leverage for the United States. By cutting off a significant part of the regime’s income, the United States gains an additional chip to put on the table in discussions on ending Maduro’s dictatorship in Venezuela. This move elevates the Caribbean campaign from a counter-drug operation to one that is also cutting off the financial lifelines to Maduro, who the United States has designated as the leader of the Cartel de los Soles.

—Jason Marczak is vice president and senior director at the Atlantic Council’s Adrienne Arsht Latin America Center.

2. What is the likely impact on oil markets in the region and globally?

Venezuela exported a little over 780,000 barrels a day in October of this year, 100,000 of which came to the United States and the rest directly or indirectly going to China. It is highly uncertain whether all or only a portion of those exports will be impacted by the blockade.

The president referred to a blockade of “sanctioned vessels,” which could potentially exclude Chevron’s 100,000 barrels per day. A respected tanker tracking outfit suggested that only 40 percent of the vessels transporting Venezuelan crude are sanctioned.

The president also made reference in social media to Maduro and his government being labeled a foreign terrorist organization. We do not yet have designations or explanations from the Treasury or State Department. It is possible that any person or entity doing business with the Venezuelan government or its national oil company, Petróleos de Venezuela, S.A. (PDVSA), could therefore be exposed to liability. In this case, nearly all of Venezuela’s exports (oil or otherwise) could be impacted.

So far, the oil market has shrugged its shoulders at the blockade. Brent crude was up 2.5 percent overnight, to sixty dollars a barrel, according to Bloomberg. That is a pretty modest impact. This could be the result of the market having already priced in the impact of higher levels of naval interdiction of Venezuelan oil exports, high levels of spare capacity, or weak winter oil demand. Ordinarily, one million barrels a day of displaced oil translates into about ten dollars on the oil price, so a complete blockade of all of Venezuela’s exports, if not replaced by increased by OPEC spare capacity or commercial reserves, would be in the range of five dollars to eight dollars a barrel. Everything will depend on how the blockade is enforced.

—David Goldwyn is president of Goldwyn Global Strategies, LLC, an international energy advisory consultancy, and chairman of the Atlantic Council Global Energy Center’s Energy Advisory Group.

3. What else could the United States do to put pressure on Maduro?

Venezuela relies on revenue from sanctioned oil exports to prop up the regime and the country’s economy. Venezuela continues to sell its sanctioned oil, predominantly to China, while accepting payment in digital assets, namely stablecoins, to circumvent US sanctions. To increase economic pressure on Venezuela, the administration should consider enforcing existing sanctions on Venezuela’s oil sector, including PDVSA. Sanctions enforcement would include seizing crypto wallets and working with stablecoin issuers to seize or burn digital assets held by sanctioned Venezuelan entities. This would have an immediate impact on Maduro by taking out significant financial assets and it would be much more cost-effective for the United States and its naval forces.

Separately, as the United States increases pressure on Venezuela with a blockade, the administration should consider where the vessels will go next. As we have seen, the sanctioned tankers carrying Venezuelan oil have also carried Iranian oil. If ships cannot dock in Venezuelan ports, then the United States should anticipate where they will go instead and whose cargo they will carry, which could be Iran or Russia. The shadow fleet used by Venezuela, Iran, and Russia is a network, and to affect Venezuela, the United States needs to address the entirety of the fleet and its operators.

—Kimberly Donovan is the director of the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. She previously served as acting associate director of the Financial Crimes Enforcement Network’s (FinCEN) Intelligence Division, in the US Treasury Department.

4. What does the blockade mean for Russia’s shadow fleet?

The US move against Venezuelan oil exports may matter less for Venezuela itself than for Russia’s shadow fleet, because it signals a shift from symbolic sanctions toward more assertive enforcement against maritime sanctions evasion.

Russia today relies on a sprawling shadow fleet—aging tankers, opaque ownership structures, flag-hopping, ship-to-ship transfers, and weak or fictitious insurance—to keep oil flowing despite Western restrictions. What the Venezuela case demonstrates is that Washington is increasingly willing to treat sanctions evasion not just as a financial violation, but as a maritime security problem.

This matters because Russia’s shadow fleet is not isolated. Many of the same vessels, intermediaries, insurers, and ship-management networks service Russian, Iranian, and Venezuelan crude interchangeably. Pressure applied in one region exposes vulnerabilities across the entire system. Even limited interdictions force tankers to go dark longer, take riskier routes, rely on fewer ports, and accept higher freight and insurance costs—raising the overall cost of Russian oil exports.

For Moscow, the immediate risk is not a sudden collapse in exports but growing friction and uncertainty. Each escalation increases the probability of seizures, port refusals, or secondary sanctions on service providers—factors that reduce the efficiency and scalability of Russia’s energy revenues over time.

There is also a deterrent effect. By demonstrating that shadow fleets are visible, traceable, and vulnerable, the United States raises the strategic risk premium for Russia’s oil trade—even if enforcement remains selective.

This dynamic is being reinforced in Washington on the policy front. A bipartisan group of US senators has introduced the Decreasing Russian Oil Profits (DROP) Act of 2025, which would authorize financial sanctions on foreign buyers of Russian petroleum products and seek to choke off a key source of Kremlin revenue. The proposal includes targeted measures to penalize entities anywhere in the world that continue to purchase Russian oil, with narrow exemptions tied to support for Ukraine, underscoring Congress’s intent to close loopholes in the sanctions regime and further isolate Moscow’s energy exports.

The key takeaway is this: Russia’s shadow fleet survives on the assumption of tolerance and ambiguity. The Venezuela action suggests that assumption is weakening. For a war economy dependent on energy revenues, that shift matters.

—Agnia Grigas, PhD, is a nonresident senior fellow at the Atlantic Council’s Eurasia Center working on energy and geopolitical economy.

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The Gulf should not underestimate authentic intelligence

Khalid Azim — Wed, 17 Dec 2025 15:50:22 +0000

At the Milken Institute’s Middle East and Africa Summit 2025 in Abu Dhabi this week, Michael Milken observed that “the twenty-first century is being defined by a worldwide competition for human capital.”

He went on to note a striking shift: After a century of dominance, the United States is no longer the top destination for millionaires. That distinction now belongs to the United Arab Emirates (UAE). This change is more than a geopolitical curiosity; it signals deeper structural forces at work. Should these trend lines hold, Gulf states such as the UAE and the Kingdom of Saudi Arabia will evolve into global hubs—not only for energy and financial capital but for human invention.

Much of the global discussion about economic transformation centers on artificial intelligence (AI). Governments and firms focus on data centers, power grids, and the race to deploy AI-enabled systems at scale. Yet missing from this narrative is appreciation for a more enduring form of “AI”: authentic intelligence, or simply, human capital. The successful adoption, governance, and ethical deployment of AI technologies will depend not on machines alone, but on the people capable of interpreting, integrating, and improving them. In this respect, the most essential resource of the twenty-first century is unchanged from centuries past: talent. Across the Middle East and North Africa, today’s strategic bets reflect this insight.

While AI infrastructure is essential, the more important trendline, the one that will shape societies for decades, is the global movement of people. The capital that “walks on two feet” is increasingly flowing not to the United States or Europe, but to rising hubs such as the UAE and Saudi Arabia. As a matter of policy, these countries understand that long-term competitiveness depends on their ability to attract, cultivate, and retain human capital. This can be clearly seen in the number of expatriate workers in each country: in Saudi Arabia, for example, that represents 40 percent of the population, and in the UAE it is as high as 90 percent, according to the World Bank.

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The Gulf nations operate on a different paradigm. In cities like Dubai and Abu Dhabi, residents come not for citizenship but for opportunity. They live and work in environments defined by the rule of law, transparent commercial systems, accessible healthcare, and compelling professional prospects. What emerges is a new social equation: affiliation with a particular nationality becomes secondary to participation in a thriving, cosmopolitan system offering high-quality living, safety, career mobility, and tax advantages.

In this sense, the Gulf’s value proposition is less about assimilation and more about an alignment between ambition and opportunity—but there is a question over whether it can survive over generations. The unanswered question for the younger generation of expats in the Gulf is that of identity, purpose, and belonging. That said, this cohort increasingly finds the expression of oneself in the digital world, a world that does not require passports, a world where one often builds one’s own meaning and purpose both beyond and within national borders.

The role of education in the knowledge century

The broader challenge for sustained economic prosperity, however, lies not only in attracting talent but in developing it. In the knowledge century, upskilling increasingly occurs on the job, especially in fast-moving technology sectors where industry now outpaces academia in generating relevant, applied expertise. The gap between universities and employers is widening, raising the opportunity cost of traditional education, particularly graduate degrees whose value propositions are increasingly questioned.

Though it is true that a college degree still provides a healthy return on investment, between 12 and 13 percent for the past three decades, a recent report from the Federal Reserve Bank of New York also notes rising opportunity costs. Moreover, these returns vary significantly across majors. Technical training, such as quantitative and analytical skills, earns the highest return in subjects like engineering, math, computers, business, and economics. At the same time, the marketplace is scaling and adapting new technologies and products at a rapid pace. The challenge is that the skills needed to build and scale these applications, require skills and knowledge that are being created on the go. So, how does a university teach knowledge that can be applied to developing an idea that does not exist, with skills that will not be defined until they are needed?

Universities must examine the marginal value of an undergraduate or graduate degree versus the acquisition cost of a finite skill or experience. Or, if physical location is no longer a prerequisite for acquiring a degree, what is the relative value between a part-time program and a full-time program? Additionally, in terms of demand, much has been cited about millennials’ and more recent generations’ different set of life expectations. Changing preferences on experiences, consumption, causes, and personal branding, coupled with the user-driven nature of technology, requires a dynamic mindset for reinvention.

At the same time, universities must continue to serve as the hub for scholarship and ideas. Garud Iyengar, Avanessians director of the Data Science Institute at Columbia University, recently told me that “the defining value of a university is not just the transmission of today’s skills, but the cultivation of tomorrow’s ideas, whose relevance is often impossible to predict at the moment of discovery.”

Much of “the foundations of modern computing emerged not from efforts to meet an immediate industry need but from scholars pursuing fundamental questions,” he added.

“A system overly calibrated to short-term labor-market demand would never have produced those leaps. Rather than steering universities toward becoming predominantly skill factories, a healthier model is a differentiated ecosystem,” said Iyengar.

Today, as the global competition for human capital intensifies, the stakes for getting this right have never been higher. The Andalusian philosopher Ibn Rushd wrote that societies flourish when their people cultivate reason. Lifelong learning, therefore, is not merely a personal endeavor but a social imperative, a foundation for community well-being, economic vibrancy, and justice.

And while much of the world is fixated on artificial intelligence, the more consequential race may well be the one for authentic intelligence and the capacity to both attract and cultivate it. The nations that grasp this truth, those that invest not only in machines but in minds, will define the trajectory of the next century.

Khalid Azim is the director of the MENA Futures Lab at the Atlantic Council’s Rafik Hariri Center for the Middle East.

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Latin America and the Caribbean in 2026: Ten defining questions for the year ahead

the Adrienne Arsht Latin America Center — Wed, 17 Dec 2025 14:00:00 +0000

2026 could redefine Latin America and the Caribbean’s political and economic future.

The past year reshaped Latin America and the Caribbean in ways that will echo into 2026. The return of Donald Trump to the White House introduced new US priorities and a greater regional focus, as the administration imposed new tariffs and elevated the Western Hemisphere as a top priority.

Elections brought mixed outcomes. Argentina handed President Javier Milei a legislative boost in the midterms. In Bolivia, voters rejected the ruling party’s candidate. Honduras held presidential elections November 30 after logistical challenges and institutional disputes. (No winner had been announced as of this writing in mid-December.)

In Venezuela, increased US military operations in the Caribbean added pressure on the Maduro regime amid a renewed focus on countering drug trafficking. Across the Caribbean, countries continued calling for more support to strengthen resilience after Hurricane Melissa caused widespread damage.

The year ahead will test the region on multiple fronts, from the long-anticipated review of the US-Mexico-Canada Agreement (USMCA) trade pact to high-stakes elections in Colombia, Brazil, and elsewhere—as well as an exciting summer marked by the World Cup.

What might be in store for Latin America and the Caribbean in 2026? Read on for our annual ten questions about the year ahead.

Will Nicolas Maduro still be in power at the end of the year?

Hopefully not.

Maduro’s dictatorship has been devastating for the Venezuelan people, the country’s institutions, and the Latin American region at large. Eight million Venezuelans have been forced to flee their homes as his repressive and parasitic regime exacerbates hyperinflation and poverty and erodes democratic processes in the country.

When Maduro stole the presidential election from the democratically elected Edmundo González in July 2024, Venezuelan authorities carried out brutal systematic repression campaigns to suppress any political dissent.

The US military positioning in the Caribbean—which includes the world’s largest aircraft carrier, the USS Gerald R. Ford—adds pressure on Maduro’s regime, as does the recent announcement of a blockade of all sanctioned oil tankers. Illegal oil revenue that comes through a shadow fleet of tankers helps to prop up Maduro. The Trump administration has yet to show its cards regarding whether it will attempt to negotiate an exit deal with Maduro, if it will seek to remove him through military action, or pursue another option. The US military deployment, which began in late August 2025, is one of the largest to take place in the Caribbean. But pressure will escalate for it to deliver results, and Maduro must come face to face with his increasingly limited options. There are many factors at play when it comes to the possibility of Maduro leaving power in Venezuela. The real goal should be not just for Maduro to leave power, as he could be replaced by a similarly repressive ally, but a real, long-awaited democratic transition.

After Colombia elects a new president, will Bogota and Washington return to a closer partnership?

Yes.

The next year is bound to be an important one for US-Colombia relations, as a presidential election will be an opportunity to begin forging closer ties. Colombia has historically been one of the United States’ closest partners in the hemisphere, designated a major non-NATO ally and seen as central to preserving regional stability. In 2025 the relationship hit lows it hasn’t seen in decades. Tensions have largely been tied to clashes over the last few years between President Gustavo Petro and his American counterparts, however, rather than changes in the overall relationship at a subnational or people-to-people level.

With approximately ninety presidential pre-candidates and more than one-quarter of voters telling pollsters they are undecided, the election’s outcome is anyone’s guess. Regardless of who wins, the next Colombian administration will inherit a complex security landscape marked by rising violence and increasingly fragmented criminal organizations, making a partnership with Washington essential. Bilateral ties are unlikely to bounce back immediately or to revert to the way they were. But both sides will have strong incentives to rebuild trust, with Bogota focused on securing US support for counternarcotics efforts and Washington aiming to control the threats of transnational organized crime.

It will be important for the next Colombian president to show early willingness to cooperate with Washington, set a pragmatic tone, and restore predictable channels of communication. Doing so, despite any political or ideological differences, will be key to rebuilding a new type of partnership that may be more focused in scope, especially at the outset.

Will the left regain ground across Latin America in the 2026 elections?

No.

Over the last two years, voters across the region have rewarded candidates running on hard security, market-friendly, and anti-establishment platforms (think José Antonio Kast in Chile, Milei in Argentina, Nayib Bukele in El Salvador, and Daniel Noboa in Ecuador). The trend is similar at the subnational level. Chile’s 2023 constitutional council was decisively conservative, though it was rejected by voters. Brazil’s 2024 municipal races strengthened Jair Bolsonaro-aligned forces, and Colombia’s 2023 local elections punished Petro’s left coalition.

Considering the regional pendulum swung left earlier in the decade and produced a crowded “pink” map, it would be simplistic or misleading to say that a conservative wave is now sweeping over the region. Voters seem to be driven more by anti-incumbent sentiment and security fears than by any left or right ideology.

Heading into 2026, right-leaning forces are well positioned in Costa Rica, Brazil, Colombia, and Peru, where crime, migration, and the state of the economy dominate voter concerns. Trends and leading candidates in Costa Rica, for example, suggest that voters are backing more personalistic candidates from nontraditional parties rather than more traditional and conservative parties. So, while we could expect at least a few of the aforementioned countries to lean right, security, anti-corruption, and economic competence might matter more than left-right labels.

Will the review of the US-Mexico-Canada Agreement reshape North American trade?

Maybe.

The review comes at a moment when all three countries face economic and political pressures. The United States might push for stronger enforcement of labor and environmental standards, and a baseline of protections for the US to prevent countries such as China from shipping their goods through USMCA countries and then trying to claim “rules of origin” benefits.

And while US Trade Representative Jamieson Greer noted December 10 at the Atlantic Council that he continues to meet separately with Mexico and Canada, the United States’ USMCA partners may also seek additional updates. Mexico could press for more flexibility in energy and automotive rules. Canada might seek updates on digital trade, dairy market access, and environmental cooperation. These issues matter but expect governments to act cautiously, with the possibility of separate bilateral protocols in the final agreement. Reopening too many chapters could create uncertainty for businesses and supply chains that depend on stable and predictable rules.

Because North America’s economies are so interconnected in autos, agriculture, and energy, even small changes could have large effects. For this reason, the most likely outcome is an integral review that keeps at least the core benefits of the USMCA intact. The three governments might add clarifications, strengthen enforcement tools, or expand cooperation without fundamentally rewriting the deal.

USMCA review can provide a pragmatic roadmap for reshaping North America’s trade, if parties are open to discussing the fundamentals to be strengthened at this point. These include enforcing clear rules of origin, transparent technical frameworks, customs modernization, interoperability, and the rule of law to protect investment and provide overall security to businesses.

Will Milei’s economic reform agenda gain momentum?

Yes.

Argentina has long needed sizable structural revamps across key areas including tax, labor, and pension systems to unlock sustained growth, strengthen competitiveness, and ease pressures on businesses and consumers alike. While Milei has advanced parts of his agenda through executive action, the country has now reached the point at which deeper and more transformative changes require congressional approval. The challenge is that, although the government will enter next year with a sizable minority in congress, its caucus will still need to work with moderate opposition legislators to pass key legislation.

Many legislators appear willing to engage in dialogue to allow meaningful progress, and securing their support would both make these measures viable and send a powerful signal to markets that Argentina’s political class is broadly committed to long-term stability and modernization. That is why progress is likely, particularly when it comes to tax and labor reform. But the ultimate outcome will depend heavily on the administration’s ability to negotiate with provincial governors, whose delegations form a majority of the moderate opposition bloc. Watch out for early successes in the first months of 2026, which might set the tone for the legislative agenda throughout the year, defining the scale of the administration’s ability to pass reforms.

Will Latin America and the Caribbean surpass their growth projections for 2026?

Yes.

Although Latin America is expected to continue experiencing relatively slow growth in 2026 compared to other emerging-market regions, progress in US-Latin America economic engagement and improvements across several key macroeconomic variables create a credible pathway for the region to exceed current projections.

Economic forecasts suggest that 2026 will not be a transformative year for most countries. Argentina and Guyana are the primary exceptions, with Guyana standing out as the only Caribbean country among the world’s thirty fastest-growing economies. Even so, the region has meaningful upside potential on trade. Stronger-than-expected export performance could lift regional growth, especially if recent announcements on commodities lead to further reductions in trade barriers with the United States. A pickup in demand from major markets, including China, could provide an additional boost. These improvements would help offset the decline in the region’s overall trade surplus projected by the International Monetary Fund (IMF).

At the same time, a gradual easing of monetary policy in the European Union (EU) and the United States could help revive foreign direct investment flows, which have slowed since the post-pandemic surge. When combined with country-specific recoveries such as Argentina’s stabilization process and continued gains from energy and mineral projects across the region, these factors create a realistic opening for Latin America and the Caribbean (LAC) to surpass the current IMF growth projection of 2.3 percent for 2026.

Will the United States counter Chinese investment more aggressively in Latin America?

Yes.

The Trump administration’s sharp rhetoric toward governments seen as aligning with Beijing has already signaled a tougher stance, and this pressure will grow as Washington confronts the strategic nature of China’s investments in the region. While US companies invest far more than Chinese firms in overall volume, much of that investment in the region goes to low-risk service sectors.

China, meanwhile, is expanding its influence through targeted bets on critical minerals, energy, infrastructure, and transport, which shape long-term supply chains and political leverage. For the United States to remain competitive, it will need to shift its policies to encourage more strategic investment. This means reducing costs and risks for US firms, expanding development finance tools, and partnering more closely with multilateral banks to help US companies enter the sectors in which China currently dominates.

The US International Development Finance Corporation (DFC) is due to be reauthorized and recapitalized in 2026. This will help to provide some of the capital necessary to lower the barrier of entry to US companies engaging in capital-intensive projects such as infrastructure and extractives—two sectors in which China has had stronger influence in LAC. The unveiling of a holistic economic diplomacy initiative by the White House, such as America Crece 2.0 (a more comprehensive version of its predecessor during Trump’s first term), could further support US efforts in the region.

Will the Caribbean improve hurricane response and coordination?

Maybe.

Better coordination will require stronger regional planning and risk management, but past storms have shown the severity of the challenge. Partnerships with the Inter-American Development Bank and programs such as One Caribbean can help prepare projects, support public-private partnerships, and manage political risk.

Local participation in risk mitigation remains essential because many Caribbean firms operate as family businesses with deep community ties. If countries and investors work together by expanding financing tools, strengthening regional institutions, and supporting resilient infrastructure, the Caribbean can recover more quickly and prepare for stronger storms.

Jamaica is an example of the daunting challenge ahead. For more than a decade, Jamaica kept a primary surplus above 3 percent of gross domestic product (GDP) and reduced its debt, earning US bipartisan recognition for steady governance. In September 2025, Standard and Poor’s (S&P) Global Ratings upgraded Jamaica to BB minus with a positive outlook. But Hurricane Melissa caused almost $8 billion in damage, nearly half of Jamaica’s annual GDP. The country’s $250-million catastrophe bond will likely pay out in full. Yet that amount cannot cover losses of Melissa’s scale.

Across the region, Caribbean Community (CARICOM) countries lose an estimated 2 percent of their infrastructure capital stock each year to climate-related damage. The growing frequency of severe storms raises insurance costs and stretches already limited public budgets.

Will security remain the top voter priority across upcoming elections?

Yes.

Voters across Costa Rica, Peru, Colombia, and Brazil will head to the polls with security top of mind.

In Costa Rica, concern over rising violence jumped from 30.3 percent to 43.7 percent between November 2024 and April 2025. Fifteen of the twenty presidential candidates have placed security at the center of their agendas, with many proposing education reform and youth-focused opportunities to tackle the roots of violence.

Peru has seen one of its most violent years since 2017. Homicides are up 12.8 percent and extortion complaints 27.4 percent compared to 2024. Instability peaked after the attempted assassination of a cumbia band triggered President Dina Boluarte’s impeachment and the swearing in of Jose Jeri as her successor. With protests, unrest, and a surge in criminal extortion targeting informal workers and small businesses, voters will demand immediate solutions.

In Colombia, “total peace” efforts fell short, deepening the security crisis and straining relations with the United States, the country’s long-standing security ally. Armed groups expanded control, coca cultivation reached record highs, and violence surged. This included large-scale displacement in Catatumbo, an attack on a police helicopter that killed thirteen officers, and a bombing in Cali. Nearly one-third of Colombians now see security as the country’s top problem.

In Brazil, security will compete with economic concerns, but October’s Operação Contenção in Rio de Janeiro, the deadliest police raid in the country’s history with 120 victims, has pushed violence to the center of public debate. Gangs continue to control neighborhoods and challenge state authority. While economic pressures remain significant, security is poised to drive the political conversation in 2026.

Will the United States lift the additional 40 percent tariffs on Brazilian goods?

Yes.

The additional 40 percent tariffs on Brazilian goods are likely to be lifted or significantly reduced in 2026. Trump and Brazilian President Luiz Inácio Lula da Silva had a positive meeting in Malaysia in late October, and trade negotiations have been ongoing and a priority ever since. The United States and Brazil share a long-standing diplomatic relationship, and the United States has historically enjoyed a trade surplus with Brazil. Many imports from Brazil supply US demand for products that are not produced domestically, such as coffee and bananas; others are imported as input for US manufacturing, such as wood panels and airplane parts.

The Trump administration has already begun rolling back some of the additional duties. On November 20, several Brazilian products were removed from the list of those subject to the additional 40 percent tariffs, including beef and coffee, for which Brazil is the United States’ top supplier. A Supreme Court decision on the legality of International Emergency Economic Powers Act (IEEPA)-based tariffs—expected soon—would also impact Brazilian and global tariffs: Because the administration cited IEEPA to levy the tariffs, a ruling against the use of IEEPA in this way could put all of the administration’s added tariffs on Brazil at risk. Together, the diplomatic momentum, economic reasoning, and legal backdrop all point toward favorable conditions under which many of these tariffs could be lifted in 2026.

Bonus question: Will Argentina repeat its World Cup title?

Maybe.

Argentina will enter the 2026 tournament with its eyes firmly on back-to-back glory, but the biggest wildcard is Lionel Messi. The captain has given no guarantees that he will lead the team next summer, leaving fans wondering whether “La Pulga” will take one more shot at the world’s biggest stage. Even without certainty about his presence, Argentina remains one of the strongest contenders, backed by a talented roster.

But the region will not make it easy. Colombia returns to the World Cup after eight years with a revitalized team eager to prove it can compete with the best. Brazil will arrive hungry to reclaim its historic position in the World Cup hierarchy, with pressure mounting after more than two decades since it last lifted the trophy. Mexico will face the added pressure of competing as a host nation. Ecuador, Paraguay, and Panama will all look to make their mark and test regional rivals.

The tournament will unfold across the United States, Mexico, and Canada, setting the scene for an unforgettable summer. Argentina is well positioned, but the path to glory will be anything but simple. There is no certain answer for now.

This publication was updated December 17 to reflect news developments.

Explore the program

Khalid Azim: Three trends shaping the economic landscape

The post Latin America and the Caribbean in 2026: Ten defining questions for the year ahead appeared first on Atlantic Council.

What will 2026 bring for the Middle East and North Africa?

Atlantic Council experts — Tue, 16 Dec 2025 18:03:53 +0000

This year was a seismic one for the Middle East and North Africa. A new Syria emerged after the fall of Bashar al-Assad’s Iran and Russia-backed regime. The Twelve Day War between Israel, Iran, and the United States erupted, threatening critical nuclear negotiations. Iraq completed landmark national elections, as Baghdad continues to build an enduring national stability.

All of this unfolded against the backdrop of a new administration in Washington that has been unafraid to shake up decades of US diplomatic conventions.

As 2025 comes to a close, our senior analysts at the Atlantic Council’s Middle East Programs unpack the most prominent trends and topics they are tracking for the new year.

Click to jump to an expert analysis:

Gissou Nia: Demands for justice—and protests driven by the thirsty

Karim Mezran: North Africa is a rising priority for US policy

Ahmed Fouad Alkhatib: Key questions remain for Palestinians

Victoria J. Taylor: Iraq must maintain unprecedented stability

Daniel B. Shapiro: A political transition in Iran approaches

Nathanael Swanson: Will the Israel-Iran cease-fire hold?

Jonathan Panikoff: A duality of possible trajectories

Three trends shaping the economic landscape

Three major macro trends will shape the Middle East and North Africa in 2026, each carrying profound implications for the region’s economic trajectory.

1. The pressure of lower energy prices
As energy revenues soften, governments across the region will be forced to make more disciplined, risk-adjusted investment decisions. The era of abundant fiscal cushions is shifting toward one that requires sharper prioritization, operational efficiency, and a clearer sense of expected returns. This will test policymakers’ ability to allocate capital effectively and to reduce long-standing subsidies and support for entrenched constituencies. These choices become even more consequential as a growing cohort of young people demand economic opportunity, purpose, and social mobility.

2. Rising debt and the cost of ambition
Fiscal tightening will coincide with an accelerating need for investment. Across the Gulf, governments are committing billions to data centers, artificial intelligence ecosystems, new power generation, and other foundational infrastructure. These projects will increasingly be financed through borrowing, especially as the current account deficit grows. The result will be higher debt levels and rising debt-servicing costs. Countries that clearly articulate their economic value proposition and demonstrate credible reform will have a competitive advantage in the capital markets. Those that do not may face steeper financing costs and slower momentum in their diversification strategies.

3. Vision 2030 ten year anniversary: A regional bellwether
Saudi Arabia’s Vision 2030 has already reshaped the kingdom’s economic and social landscape through diversification, investment in future industries, and the creation of a more open and optimistic society. The plan’s tenth anniversary in 2026 marks a critical milestone, not only for the kingdom but for the region. The next decade will be defined not by the wealth beneath the ground, but by the wealth of human talent above it. How effectively the kingdom transitions from resource-driven growth to human capital-driven growth will influence the MENA region’s competitiveness for a generation.

Khalid Azim is the director of the MENA Futures Lab at the Atlantic Council’s Rafik Hariri Center for the Middle East.

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Demands for justice—and protests driven by the thirsty

In 2026, expect to see more widespread protest movements for change across the Middle East and North Africa fueled by climate change and authoritarian mismanagement. Analysis of global protest movements in 2025 focused heavily on the young age of the protesters. While youth demographics have gained relevance as new communication tools have emerged over the last decades (in 2011, it was Twitter organizing the youth in the “Arab Spring”; in 2025, it’s the gaming app Discord organizing Morocco’s “Gen Z” protests), the evergreen undercurrent is frustration with corruption and elites. Resources have become scarcer due to global warming and authoritarian mismanagement, and the globe has become increasingly and overtly transactional as it shuns diplomacy in favor of kinetic means and “might is right” politics. The Middle East and North Africa are profoundly impacted by both these negative trends. With water running out in Tehran and water instability around the Nile Basin and the Tigris and Euphrates River, expect the next wave of regional protests to be driven not just by the youth, but by the thirsty.

Regional victim and survivor-centric demands for justice will also continue to grow in 2026 in countries that are emerging from conflict, experiencing government transitions, or where restive populations wish to usher in a change of rule. There is no clearer example than in Syria, where Assad’s exit one year ago opened the space for a new Syria and where a previously exiled network of Syrian lawyers, researchers, and advocates now work on transitional justice processes from inside their own country. In Iran, where the population is publicly demanding regime change, victims of protest violence, executions, and custodial deaths have organized powerful advocacy groups to demand that international processes deliver justice where domestic courts are unable and unwilling to do the job. And across the region, while many governments have been complicit in the violence in Gaza, the Arab street stands at odds with those governments and instead has demanded—alongside much of the world—that the perpetrators of the violence in Gaza be held to account.

Gissou Nia is the director of the Strategic Litigation Project at the Atlantic Council.

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North Africa is a rising priority for US policy

North Africa is poised to move closer to the center of US regional policy for 2026. The past year of quiet US engagement, including the work of US President Donald Trump’s Senior Advisor Massad Boulos, is beginning to reduce tensions and open political space. Algeria and Morocco are edging towards some degree of a detente, creating space for practical steps on the Western Sahara file.

Additionally, Libya may see modest but meaningful progress. Headway on an agreement between the divided governments on a unified development funding mechanism may reduce parallel spending and put less pressure on the dinar, as well as release the funds for long-awaited reconstruction and modernization projects. The decision to include Libyan units from both east and west in AFRICOM’s Flintlock 2026 special operations forces exercise suggests an incremental movement on military unification in Libya, an area where US diplomacy with key partners has grown more active.

Egypt will remain an integral partner as Washington tries to deal with situations in Gaza, states located on the Red Sea, and Sudan. At the same time, renewed attention to commercial diplomacy signals a shift toward advancing US business interests across North Africa.

Taken together, these dynamics make the region harder to overlook and suggest that 2026 may be the year North Africa becomes a sustained policy priority in Washington.

Karim Mezran is the director of the North Africa Initiative and resident senior fellow with the Rafik Hariri Center and Middle East Programs at the Atlantic Council.

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Key questions remain for Palestinians

This was a tectonic year of realignments for the Palestinian people, as well as their heavily divided and largely powerless leadership. Next year is likely to be equally important and trend-setting—and four major threads have emerged that could shape its trajectory.

For Palestinians and what’s next for Gaza, the top four trends to look for in 2026 are the following:

The Trump administration’s commitment to the Palestinian issue and its willingness to engage the Palestinian Authority, which remains subject to US sanctions and restrictions. Will elements of a comprehensive peace deal between Palestinians and Israelis, like the one that Trump proposed during his first term, return?
What becomes of the Gaza cease-fire that the United States and international players are hoping to cement into a lasting peace deal that transforms the coastal enclave? The year 2026 is either going to be one in which Hamas is disarmed and fundamentally changed—or it will be one in which the Palestinian terror group continues to dominate Gaza’s affairs and prevent substantive change to revitalize the decimated Strip after two years of devastating warfare.
The prospect of Saudi-Israeli normalization—which could unlock immense potential for the kingdom, the Palestinians, Israel’s regional integration, and a regional anti-Iran coalition—is enormous. The year 2026 will set the tone for whether Saudi Arabia proceeds with integration based on its often-stated requirement for Palestinian statehood, or if this ends up in further stalemate and stagnation.
The fourth critically significant trend to watch is the impact the Gaza war and Israel will have on influencing voters in the upcoming midterm elections. As with the Trump election, this issue increasingly played a role in rallying US voters to the ballot box, including the high-profile race to elect New York City Mayor-Elect Zohran Mamdani. The year 2026 will reveal whether this trend persists or if it is a fad that passes once the Gaza war comes to a more permanent end.

Ultimately, 2026 will either mark the end of the Gaza war and the initiation of reconstruction and hope in the Strip—or it will perpetuate a state of stagnation and stalemate, risking a return to fighting, devastation, and more tragic deaths.

Ahmed Fouad Alkhatib is the director of Realign For Palestine at the Atlantic Council.

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Civil Society Freedom and Prosperity

Iraq must maintain unprecedented stability

Amid continued regional turmoil, Iraq ended 2025 in a period of relative stability and security, avoiding being drawn into the Twelve Day War between Israel, Iran, and the United States—and holding successful parliamentary elections. The challenge for Iraqi political leaders in 2026 will not only be to maintain this unprecedented stability, but also to navigate Trump administration pressure to rein in Iran-aligned militias and avoid being pulled into the broader US maximum pressure campaign against Iran. Iraq is also likely to continue its efforts to appeal to the Trump administration through investment, pitching new energy deals to US companies, but it is not yet clear whether these efforts will be successful.

With Iranian influence in the region at an all-time low, Iraqi leaders have an opportunity to forge a more independent foreign policy that prioritizes continued partnership with the United States and differentiates Iraqi from Iranian interests. Core to this effort will be progress toward Iraq’s regional integration and strengthened political and economic ties to the Gulf and other regional partners such as Jordan and Egypt. In the face of Iraqi efforts to challenge the militias and strengthen partnerships with the United States and the Gulf, 2026 may bring attempts by Iran and Iran-aligned militias to act as spoilers who obstruct Iraq’s progress and imperil Iraq’s stability. Iraq’s next prime minister has an opportunity to transform the country.

The next year will be critical in determining whether the Iraqi government can seize the opportunity and whether the United States and other regional partners will support it in doing so.

Victoria J. Taylor is the director of the Iraq Initiative in the Atlantic Council’s Middle East program.

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Dispatches

Dec 10, 2025

Dispatch from Iraq: The biggest challenge awaiting the country’s next prime minister

By Victoria J. Taylor

A recent visit to Iraq following parliamentary elections reveals a growing divide between the political elite and the people.

Elections Iraq

A political transition in Iran approaches

Political transitions are hard to predict, but there is no doubt Iran is approaching one. With a frail, unpopular, eighty-six-year-old Supreme Leader Ayatollah Ali Khamenei nearing his actuarial and conceivably political limits, 2026 could be the year.

Any transition has the potential to unleash dramatic changes in Iran, across the region, and in relations with the United States. The potential positive implications of new Iranian leadership and a change of approach are massive: relief from brutal suppression for the Iranian people, new possibilities in nuclear diplomacy and toward normalization with the United States, broadened detente with Iran’s Arab neighbors, and an end to the arming of violent terrorist proxies across the region that have squandered hundreds of billions of dollars of Iranian resources—driven by an ideological crusade to destroy Israel—while the Iranian people endure manmade water and electricity shortages. The beneficial effects would be felt from Iran to Lebanon to Gaza to Yemen and beyond.

None of this is preordained or automatic. A transition could cement a new generation of the Islamic Republic’s clerical leadership, bring to power an even more hardline Islamic Revolutionary Guard Corps, or devolve into chaos and civil war with massively destabilizing effects. What Washington should engage in through 2026 is transition planning—not in order to cause a regime change, which must be left to the Iranian people, but to be prepared to provide support for the Iranian people, resources and expertise, potential sanctions relief, and coordination with international partners to assist in steering a transition when it comes toward one of the better possible outcomes. The United States has moved smartly in 2025 to support a stable Syrian transition, and while the jury is still out on long-term stability there, there has been significant progress. An even more consequential transition awaits in Iran. Washington must not be caught flat-footed.

Daniel B. Shapiro is a distinguished fellow with the Atlantic Council’s Scowcroft Middle East Security Initiative.

Will the Israel-Iran cease-fire hold?

Following the Twelve Day War in June, Iran retains large quantities of highly enriched uranium and advanced centrifuges, without oversight by the International Atomic Energy Agency. At the same time, while Iran’s missile program and support for nonstate proxies were diminished, Iran is rebuilding its capabilities and still threatens US, Israeli, and regional security.

After initially declaring Iran’s nuclear program obliterated, Trump has also repeatedly called for resumed negotiations and a new nuclear deal with Tehran. Although still nominally implementing the US “maximum pressure” campaign, Trump also made a high-profile gesture by inviting Iranian President Masoud Pezeshkian to the Gaza Peace Summit in October.

For its part, Iran appears to remain in a largely reactionary posture. It is attempting to rebuild its missile and defense capabilities but is not currently enriching uranium or advancing its nuclear program (that we know of). Foreign Minister Abbas Araghchi says Iran is open to talks at the United Nations, but also foolishly rejected the Cairo invitation. Israeli Prime Minister Benjamin Netanyahu has responded by reminding the world of the Iranian missile threat and increasingly targeting Iranian proxies. There is no written cease-fire in place, and continued peace is partially reliant on Trump holding Netanyahu back. As Israeli elections approach, will Trump’s “complete and total ceasefire” hold? Will Iran do something that gives the Israeli’s an excuse or opportunity to re-engage Iran militarily? Or will Iran give negotiations another chance? Either way, 2026 should make for a pivotal year for Iran.

Nathanael Swanson is a resident senior fellow and director of the Iran Strategy Project at the Atlantic Council’s Scowcroft Middle East Security Initiative.

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New Atlanticist

Nov 17, 2025

As elections loom, can Netanyahu balance Trump, Mohammed bin Salman, and his political future?

By Daniel B. Shapiro

The Israeli prime minister’s preferred path to survive a treacherous election will be to show Israeli voters that he is advancing their country’s regional integration and staying within the US president’s embrace.

Israel Middle East

A duality of possible trajectories

2026 is a year of potential opportunity—and potential peril—for the Middle East.

Gulf states are determined to advance their political, economic, and security autonomy. Syria and Lebanon could either emerge as models of forward movement from instability or revert to sectarian strife and conflict. Pockets of normalcy could continue to advance in Iraq as exists today in parts of Baghdad and other cities, or it could descend back into political stasis and conflict. Israel could find itself more secure in the region by continuing to undertake kinetic strikes, or it could choose the path of less violence by completing meaningful security and cease-fire agreements with its neighbors. Choose the wrong option, however, and Israel could find itself more vulnerable to threats on its borders, not less. Palestinians could find space to grieve and begin to rebuild after two years of devastation—or face continued violence from West Bank settlers and a renewed war in Gaza, as well as some intra-Palestinian conflict. Jordan and Egypt will continue to muddle through their economic challenges and associated domestic social and political pressures, or this will be the year that they face collapse, and the world will look back and say the warning signs were there, we just missed them.

Most of the region has an opportunity at this moment in which it can seize and advance its desire for greater autonomy, global influence, and further integration. The Middle East can envision a calmer, more prosperous region driven by technological opportunity across sectors, including by leveraging artificial intelligence and US-exported advanced chips, while taking advantage of the economic integration pathways that are being developed, such as IMEC.

But the duality of possible trajectories laid out above reflects that in the Middle East, more often than not, positive opportunities are interrupted by internal or exogenous factors that regional capitals have to manage in a manner they did not expect. How the region grapples with the enduring and emerging risks of 2026 will determine whether it can prosper as a whole or whether only some will thrive while many continue to struggle. But if those regional countries that are advancing economically, politically, socially, and in their security only look inwards and do not seek to stabilize their neighbors facing social and physical insecurity, they will risk the latter impeding their development, as well. And then 2026 will once again be a year of missed regional opportunities instead of progress.

Jonathan Panikoff is the director of the Scowcroft Middle East Security Initiative at the Atlantic Council’s Middle East programs.

The post What will 2026 bring for the Middle East and North Africa? appeared first on Atlantic Council.

Europe’s battle over Russia’s blocked assets is nearing its endgame

Charles Lichfield — Tue, 16 Dec 2025 15:32:41 +0000

WASHINGTON—Will this be the week where Europe takes its boldest step yet on Russia’s immobilized assets?

The prize would be substantial. A financial commitment of €210 billion ($247 billion)—to be spread across regular spending, defense, and reconstruction—would be a lifeline to Ukraine. It could even enable Kyiv to resist pressure to accept a possible bad deal that would set it up for further Russian aggression. Take it from someone who’s argued against confiscating the assets: It’s a risk worth taking.

Shortly after Russia launched its invasion of Ukraine in February 2022, the Group of Seven (G7) and like-minded partners imposed sanctions on Russia that immobilized between $300 billion and $350 billion in Russian central bank assets held in their jurisdictions. Most turned up in the European Union (EU), where the sanction underpinning the immobilization has had to be renewed every six months. Slowly, the EU has explored ways to mobilize their value to boost its support to Ukraine, first by siphoning off interest income, then by channeling that interest income into repayments on the $50 billion of the G7’s Extraordinary Revenue Acceleration (ERA) loans that have largely spared Kyiv from cash flow issues this year. The EU has resisted calls to take the irreversible step of seizing the assets.

Now, as Ukraine looks likely to run out of money this coming spring, the European Commission is trying, with the support of key member states including France and Germany, to switch to a “reparations loan,” which mobilizes the principal now. If EU leaders agree to the plan this week, the scheme will not confiscate sovereign assets. Russia’s central bank and its National Welfare Fund will still be able to log into their proverbial online banking portals, and their claim on money stored in the EU will still be valid. And, importantly, they will still be unable to move the money.

What will change is that the international central securities depository Euroclear, along with other institutions holding smaller piles of immobilized Russian cash than Euroclear does, will be able to swap this for zero-interest loans. Liberating the accumulated cash avoids the need to borrow money on the markets in the coming months for Ukraine’s needs. According to a document the European Commission produced to coax EU member states to support its preferred plan, if the bloc does not pass the “reparations loan” scheme, then the interest payments on new borrowing to support Ukraine would cost EU member states at least five billion euros per year. And finding a consensus on more joint borrowing may prove even more difficult.

This Thursday and Friday, EU heads of state and government will meet to discuss and vote on this plan. The meeting might not settle every question to do with the complex scheme, but it will reveal whether the plan has the necessary support to move forward. With another vote scheduled on the controversial EU-Mercosur free trade agreement for the same meeting, there are so many moving parts that it is reminiscent of some of the truly memorable summits during the Greek sovereign debt crisis, Brexit, and the COVID-19 pandemic. The Council Conclusions—which may only be published late at night on Friday or even Saturday—will be pored over down to the last comma.

What’s in the plan

The details are important. This vote follows the important EU decision last week to use Article 122, the “emergency” provision of the EU’s treaty, to make the release to Moscow of Russia’s immobilized assets conditional on a peace plan and Russia paying reparations. While this move lifted a key hurdle to the reparations loan, it doesn’t mean the plan is a done deal. Belgium, where most of the assets are held, has objected to the plan, and Italy, Czechia, Bulgaria, and Malta have called on the EU to use alternative funding arrangements for Ukraine instead.

One possible reason for this objection can be found in rumors that the Trump administration has told European capitals that it does not want the scheme to go ahead. One of the points in the Trump administration’s recently leaked twenty-eight-point peace plan noted that $100 billion of the immobilized assets should be returned to Russia with another $100 billion for “US-led efforts to rebuild and invest in Ukraine,” with the United States receiving “50% of the profits from this venture.”

The European leaders signaling skepticism about the plan may earn themselves some brownie points in Washington, but they must also understand that the Trump administration’s alternative plan was buried by the decision they supported last week to invoke Article 122. Henceforth, the immobilization cannot be lifted until Russia pays Ukraine reparations.

What Belgium is thinking

The list of capitals expressing skepticism isn’t yet long enough to block the plans. But the arithmetic of qualified majority voting—which requires 55 percent of member states representing 65 percent of the EU’s population—isn’t the full story either. A “no” vote by Belgium could imply that member states can be forced to take steps that they perceive to be against their interests. So the main goal of the additional guarantees that are reportedly being prepared for Belgium is to convince its prime minister, Bart De Wever, at least to abstain from the vote.

At the same time, De Wever’s objections to the scheme should not be dismissed out of hand. Much was made of his comments earlier this month suggesting that Ukrainian victory was a “a fairy tale, a complete illusion.” There are indeed few examples of reparations being paid by a country that has not lost a war to a country that has not won it. The scheme being discussed relies on there being some chance that Moscow will pay reparations, so it is not unreasonable to raise how likely this is—even if the initial draft offered to mutualize the risk so that the principal would be repaid by all EU member states and not Ukraine if Russia doesn’t pay.

Russia is already wielding the threat of asymmetric retaliation against Belgium. Some of these risks also deserve to be mutualized, such as if Russia confiscates assets under Euroclear’s custodianship that have been immobilized inside Russia. While Euroclear has already built up a partial buffer against this, a stronger commitment by all EU member states would be fair. However, Belgium should not expect to be compensated for any asymmetric attack it may face, such as drone incursions. The EU should face the risks together but should not sponsor Belgium for doing its part against this collective threat.

European Commission President Ursula von der Leyen, Prime Minister Bart De Wever, and German Chancellor Friedrich Merz meet in Brussels on December 5, 2025. (BELGA via Reuters Connect)

On December 5, German Chancellor Friedrich Merz, who has invested a lot of political capital in this scheme, and European Commission President Ursula Von der Leyen met with De Wever to discuss these issues over dinner. The outcome appears constructive. The technical work to provide Belgium with assurances on some of its concerns has reportedly continued apace. Germany has even signaled that it is willing to cover more of the risk than its share of EU gross national product normally dictates, but there is still quite a way to go.

De Wever’s steeliness has fed a wave of Belgian pluckiness, and the derogatory press speculation on his motives has made reaching a deal more difficult. The unlikely prime minister’s entire career has been built on Flemish nationalism and yet even Francophones trust he is standing up for Belgium’s national interest. And so, it is vital to provide him with enough legal and financial assurances. The institutions in Luxembourg, France, and the United Kingdom that hold smaller amounts of the immobilized assets should also be required to make the same move to make a U-turn palatable for Belgium. There are, moreover, solid arguments available to them. Even in friendly jurisdictions, Russia will struggle to prove its assets have been seized thanks to the reparations loan’s design, which does not constitute confiscation.

Where the money will go

What the cash is used for is an important and underdiscussed question, and it is bound to come up during the summit this week. The figure that would be made available to Ukraine next year has varied because of the number of parameters at play. Of the €95 billion allocated to macro financial assistance, €45 billion will actually have to be used to repay the G7’s ERA loans, which were meant to be repaid using interest revenue generated by the cash now being put to work in a different way. The remaining €155 billion allocated to supporting Ukraine’s defense industrial capacities should remain the plan even if there is a peace deal, as the money will provide Ukraine with the resources to rebuild and maintain a credible defense. Within this portion of the budget, it is very reasonable for there to be a quota devoted to supporting Europe’s defense industrial base. The arguments this week will likely focus on the level of the threshold.

So how will this week play out? European Council meetings featuring heads of state and government from all twenty-seven member states are described as historic a little too often. But what’s decided in the coming days will say a lot about how the EU deals with a world in which it must fend for itself.

The post Europe’s battle over Russia’s blocked assets is nearing its endgame appeared first on Atlantic Council.

Dispatch from Beijing: Both China and the US think they have the advantage. Only one can be right.

Melanie Hart — Fri, 12 Dec 2025 15:07:58 +0000

BEIJING—The United States will not prevail in its competition with China if it does not understand the nature of the game and its competitor’s strengths and weaknesses.

In that spirit, the Atlantic Council recently teamed up with the Hoover Institution to bring a delegation to Beijing. In part, we wanted to better understand the latest developments regarding emerging technologies in China and how Chinese leaders are viewing them. Our sense prior to the trip was that many of Washington’s assumptions are out of date—such as the adage that “China doesn’t innovate; it just steals from the West.” What we saw and heard over a week on the ground in China went a long way toward refuting that simplistic view—and previewing what form US-China competition could take next.

Below are my four biggest takeaways from the trip.

1. Chinese leaders are bullish about their leverage over Washington going into 2026

Our group met with senior Chinese officials engaged in US–China negotiations. They expressed a high degree of satisfaction regarding where relations stand following US President Donald Trump’s October 30 summit with Chinese President Xi Jinping in Busan, South Korea. Their confidence stems from two factors: their ability to use rare earths as leverage and Trump’s demeanor with Xi. According to the Chinese side, Trump was jovial and magnanimous in person. But hearing this, I couldn’t help but think of Trump’s meeting with New York Mayor-elect Zohran Mamdani, who was in the Oval Office the same week we were in Beijing. Trump was magnanimous with him too—but how long do savvy Washingtonians expect that to last? Trump’s mood toward Xi could shift just as quickly.

Beijing believes its dynamic with Washington since April 2025 has been one of “good cop, bad cop,” in which it would walk away from meetings with Trump or US Treasury Secretary Scott Bessent thinking they had a good plan forward, only to be surprised when different cabinet agencies (usually the Commerce Department) popped up with surprise anti-China actions. But now Chinese leaders seem to think they are dealing solely with the “good cops” of Trump and Bessent. That sentiment is echoed in the Chinese readout of a November 24 phone call between Trump and Xi, in which they quote Trump as stating that “President Xi is a great leader” and that he “fully share(s) your comments about the China–U.S. relationship.”

Maybe Beijing is right, and Trump will keep the normal irritants in bilateral relations at bay throughout 2026 in a bid to keep Chinese rare-earth exports and soybean purchases flowing. But more bumps in the road are likely. And rare earths are likely to be among the first.

2. There’s a lot of confusion around rare earths

The Trump administration expects China to issue the United States a “general license” to import rare earths through at least October 2026. After the Trump administration rolled out new China tariffs in April, Beijing retaliated by restricting US access to rare-earth magnets and other products the United States can only get from China—moves that threatened the wider US economy. In October, China rolled out even more restrictions, ostensibly in response to a US Commerce Department action (though more likely as part of a long-running Chinese government plan to lock down rare earths). These moves sent the White House scrambling to deescalate.

The White House readout from the Trump-Xi meeting states that “China will issue general licenses valid for exports of rare earths, gallium, germanium, antimony, and graphite for the benefit of U.S. end users and their suppliers around the world,” and that this move amounts to “the de facto removal of controls China imposed since 2023.” Many in Washington also assume that Beijing will stand by as the United States works with allies and partners to bring alternative rare-earth supply online so that, once the one-year truce times out, China will no longer have this lever to use against the United States.

But Beijing has found a magic lever, and Chinese leaders are unlikely to relinquish it easily. From their perspective, that one lever got them to a state of parity with Washington and brought Trump under control. Why would they give it up? Beijing did not issue a readout of the Trump-Xi meeting that gets into as much detail as Washington’s. The most authoritative readout came via a Ministry of Commerce press conference on October 30, in which a ministry spokesperson stated that, in parallel with the United States suspending its “50 percent rule” for export controls, “China will suspend its related export control measures announced on October 9 for one year and will study and refine specific plans.”

The devil is in the details, and China has not publicly committed to many specifics when it comes to rare-earth exports. Two hiccups are likely. The first is that, although China has begun issuing licenses to specific companies, those licenses will not be as “general” and broad-brush as the Trump administration is hoping for. The second: Beijing may seek to undermine US plans to bring new rare-earth projects online. China did just that in previous decades, by dumping rare earths on the global market at low prices that no one else could match, putting alternative mines and processing facilities out of business.

As Washington works to bring new rare-earth projects online throughout 2026, no one should expect Beijing to sit on the sidelines. Instead, China will most likely use its current market position to make it as expensive and difficult as possible for Washington to escape Beijing’s vise in this sector.

3. China is deploying artificial intelligence and robotics at scale

Our group toured an advanced factory using artificial intelligence (AI) and robotics to speed up manufacturing. We also rode in robotaxis under development around Beijing. The pace and scale of China’s domestic “AI + robotics” deployment is striking. Beijing is creating space for companies to quickly deploy the technologies in manufacturing and consumer products. Robots are becoming ubiquitous around Beijing. The technology is not perfect, but companies are pushing it out anyway and tweaking it as they go. And, in many cases, the technology is pretty darn good.

We spent nearly an hour riding in Pony.ai robotaxis around Beijing. I haven’t ridden in a Waymo (they aren’t available yet for consumer use in Washington, DC), but we had a few folks in our group who have spent substantial time in Waymo taxis, and they reported that Pony.ai delivered a higher-quality driving experience.

Visitors view an L4-level driverless electric vehicle at the Pony.ai booth at the 2025 Shanghai International Auto Show on April 24, 2025. (Photo by CFOTO/Sipa USA via Reuters)

Washington needs to understand two facts that we witnessed on the ground. First, the new generation of Chinese technology is—at least in some sectors—as good or better than what US companies are producing. Second, China is deploying AI faster than the United States is, and that trend is about to go global. US companies are spending way too much time competing with each other and fretting over who will get to artificial general intelligence (AGI) faster. China, in contrast, is doubling down on deployment. And deployment is the ultimate success metric. US companies should focus more on this global deployment competition, and much of that will come down to cost.

If US firms can’t figure out how to deliver AI solutions at costs global markets are willing to pay, then it will be expensive Western alternatives versus the ubiquitous Huawei deal all over again.

People stand at an observation deck with a view on office buildings of Beijing’s central business district on November 12, 2025. (REUTERS/Maxim Shemetov)

4. Members of Congress—and their staff— should visit China

In the months before this trip, I heard multiple congressional staffers cite the saying that “China doesn’t innovate.” If the United States just cuts China off from American technology, they reasoned, then Washington will stay ahead of Beijing. Those staffers need to do some fieldwork.

Multiple things can be true at once. Yes, intellectual-property theft by China is a major issue. Yes, Beijing siphons off US technological know-how to boost Chinese companies at the expense of US companies. Yes, Beijing tilts the global economic playing field in its favor, and the United States should do more to counter that. Yes, there are major weaknesses across China’s domestic economy.

But China is a big country. A lot of things—contradictory things—are happening at once. That includes some stunning innovation. US policymakers need to understand exactly how the China model is working in 2025 if the United States is going to compete effectively with it.

If members of Congress really understood the current nature of the China competition, then they would surely realize, for example, that the United States doesn’t have enough leeway to gut the National Institutes of Health and other science funding and still maintain the remaining leads the country has. The United States now has a peer competitor. That competitor is already leading in some technology sectors, and it is gearing up quickly in others. American business leaders know this, but they are currently struggling with how to convince Washington that the US government needs to put more effort into running faster. Export controls and other such measures are important, but they are no longer enough.

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The Russian economy in 2025: Between stagnation and militarization

Elina Ribakova, Lucas Risinger — Fri, 12 Dec 2025 14:00:00 +0000

Russia’s full-scale invasion of Ukraine in February 2022 challenged much of the common Western understanding of Russia. How can the world better understand Russia? What are the steps forward for Western policy? The Eurasia Center’s new “Russia Tomorrow” series seeks to reevaluate conceptions of Russia today and better prepare for its future tomorrow.

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Introduction
Pivot to the East: How China has come to Russia’s rescue
Guns over butter
Regions
Conclusions and recommendations
About the authors

In the three and a half years since Russia launched its full-scale invasion of Ukraine, its economy has continued to grow, supported by increased militarization. This resilience is a far cry from Western governments’ prognosis in the early days of the war that sanctions would crash the Russian economy. Sky-high energy prices and hesitation on the part of Western leaders to push for stronger enforcement of sanctions kept the Russian economy afloat in 2022. Meanwhile, deepening economic integration with China has helped supplant the void left by the loss of the European Union (EU) as a market. Overall growth, however, is slowing markedly in 2025 as Russia is increasingly feeling the pressure of “guns versus butter,” the inherent tension between military and social spending.

Fortunately for Ukraine and its Western partners, topline gross domestic product (GDP) figures tell only part of the story. The Russian economy has been overheating—demand is outpacing supply and economic activity is growing at an unsustainable rate—since late 2023. Stubbornly high inflation has forced the Central Bank of Russia (CBR) to raise interest rates to a peak of 21 percent.¹ In part, higher inflation (and growth) figures have been driven by Moscow’s wartime spending spree, often described as military Keynesianism. This has been exacerbated by an exceptionally tight labor market by Russia’s standards. The unemployment rate sits at just above 2 percent, less than half of its pre-pandemic levels—which, in addition to boosting inflation even higher, betrays the economy’s limited room left to grow. Demand has been pushed up by government spending beyond the point at which supply can keep up, whether through investment, labor, or productivity gains.

The sanctions landscape has, rather unsurprisingly, become more fractured since President Donald Trump’s return to the White House in 2025. While Ukraine’s partners in Brussels and London have applied additional economic pressure on Moscow, Washington had entirely refrained from doing so until October, when Trump announced sanctions on Russia’s two largest oil producers, Rosneft and Lukoil. On one side of the Atlantic, sanctions—which require constant monitoring and updating to remain relevant—have seemingly been reduced from a tool of economic statecraft designed to inflict costs for and deter bad behavior to a bargaining chip. On the other, the European Union and United Kingdom have continued to expand their sanctions regimes, including by lowering the price cap they impose on Russian oil, but are unable to replicate the reach that the United States Treasury Department has thanks to the dominance of the US dollar and the US ability to enforce secondary sanctions.

The Russian economy is, therefore, in a precarious but manageable position. Its growth has slowed, its oil and gas revenues have slid, and the latest US sanctions on Rosneft and Lukoil directly challenge the prevailing assumption that geopolitical risks and sanctions threats had subsided. Nevertheless, the economy might yet be saved by fickle White House policy. Unless the new sanctions escalation is genuinely sustained, or global oil markets see a further downturn, the current slow downward trends are likely to hold as Russia appears to have hit supply-side constraints in the labor market and investment. This makes a better understanding of where the Russian economy currently stands all the more important. The following sections explore three key wartime developments: the growing role of China, the prioritization of the defense sector, and the positive effects of the war on poorer regions.

Pivot to the East: How China has come to Russia’s rescue

When Russian President Vladimir Putin launched a full-scale invasion of Ukraine, he gambled his country’s future on a quick victory. When that goal proved elusive, he doubled down. Two developments helped make this economically feasible. The first was the spike in energy prices, particularly for natural gas, which was precipitated by the uncertainty that Putin had wrought upon global markets. The second was Russia’s burgeoning trade relationship with China and its role in helping Russia circumvent sanctions.

Economically and politically, Russia’s relationship with China is simultaneously deeply asymmetrical and mutually beneficial. While Moscow has not become Beijing’s vassal—at least not to the extent that it would attack NATO purely to distract the Alliance from a war for Taiwan—Russia is certainly the junior partner in the “no limits” partnership. China has served as a lifeline for Russia, while Russia has supplied China with cheap energy and raw materials.

On one hand, China has easily overtaken the EU to become Russia’s largest trading partner. On the other hand, Russia accounts for just 3 percent of China’s exports and 5 percent of China’s imports as of 2024.² Russia’s economic importance to China, to be sure, is not fully reflected in these figures; it became China’s top supplier of crude oil in 2023. But even in the case of oil, China buys from an intentionally diversified set of suppliers, in which Russia accounts for less than one-fifth of imports. With an economy nine times the size of Russia’s, China has the same leverage in market power over Russia as the EU, without the structural dependencies on Russian energy.³ Many EU members (including Germany, the bloc’s largest economy) grew structurally dependent on cheap Russian oil and gas for their economic growth in the twenty-first century.⁴ The Nord Stream 1 and 2 natural gas pipelines from Russia to Germany via the Baltic Sea, which together cost €18 billion to build, best symbolized the relationship.

Even Russia’s energy exports to China are comparatively far more important to Russia. Oil and gas revenues account for nearly one-third of Russia’s budget inflows. Until 2023, Europe was the most lucrative export market for Russian energy and, thus, for Russian state coffers. Nonetheless, by invading Ukraine, Russia slayed its irreplaceable golden goose, leaving it reliant on new partners. And China, well aware of Russia’s lack of alternatives, purchases both oil and gas at a steep discount.

Russia’s trade to and from China could hardly be more different. It sells oil, gas, coal, and raw materials to China, while it buys machinery, vehicles, and electronics (see below).⁵ In other words, Russia exports what it can extract from the ground and imports what it lacks the technology and industrial capacity to build itself—highlighting the deep asymmetry in the relationship. This is a complete and embarrassing reversal in the relationship compared to the 2000s, when Russia exported higher value-added goods to China.

Automobiles have become a bellwether of China’s presence in the Russian consumer market and a rare case of the Russian market’s importance to Chinese industry. Before the full-scale invasion in 2022, Russia imported cars from a range of countries—including Japan, South Korea, Germany, China, and the United States—and a number of countries established production facilities in Russia, creating productivity spillovers. The West’s sanctions regime upended the market so thoroughly that Russia, although wary of provoking its more powerful neighbor, even increased duties on car imports in an attempt to slow the Chinese takeover.⁶ Chinese brands’ market share surged from below 10 percent in 2021 to above 60 percent in 2023, and they allegedly accounted for the vast majority (about 90 percent) of revenues in 2024.

Russia had become the largest export destination for Chinese cars, which filled the void left by Western brands exiting the country—and though Russia’s protectionist measures might have chipped away at this, the Chinese automotive industry is among the largest beneficiaries of the expanded Sino-Russian trade relationship. The industry produces far more than the Chinese consumer market can absorb, so markets like Russia—which is both large and absent of Western competition—are highly beneficial. In contrast, China’s smartphone industry, which has taken over the Russian market in a rather visible manner (86 percent of sales in 2024), is hardly dependent on Russia.

China’s manufacturing industries—which are purposefully designed for overcapacity—need international markets, and Russia has become an increasingly important destination for them to sell their products. But automotive exports are the exception that proves the rule; even mutually beneficial exchanges are far more important to Russia than to China. This conclusion is not as trivial as it might sound—the European Union, with a combined GDP that surpasses China’s, was so reliant on Russian energy that the bloc is still working on phasing it out. In other words, structural dependencies on Russia were ingrained in European economies, making it more painful to cut off the trading relationship than key economic figures would have suggested; Russia does not have this leverage with China.

But from an economic point of view, China is not a better trading partner for Russia than the European Union was. It buys oil and gas at lower prices, it invests far less in Russia, and its products are often technologically inferior. Nor is China’s relationship with Russia equivalent to the West’s relationship with Ukraine; whereas Ukraine has received billions of dollars in grants and in-kind contributions from the West, Russia pays in full for its imports from China. But with no alternatives to speak of, China has served as an economic lifeline for the Russian economy.

China has also been central to Russia’s efforts to evade Western sanctions. Following the exodus of Western countries and the imposition of a strict export control regime in 2022, Russian importers turned to increasingly complex sanctions-evasion supply chains to continue buying prohibited products and components. This was particularly urgent for the military-industrial complex, as Russia sourced more Common High Priority Items List (CHPL) items—a set of fifty export-controlled products that the sanctioning coalition jointly determined to be key to Russia’s military industry—from the EU than from anywhere else. A look at Russia’s 2023 imports of these goods reveals China’s new centrality: In value terms, 90 percent of CHPL imports were facilitated by a Chinese firm in some way. Over time, China’s role in providing sensitive goods to Russia has also tilted from facilitator to manufacturer—by 2023, 49 percent of all CHPL imports were made by Chinese companies in China. Goods as complex as computer numerical control (CNC) machines and as simple as ball bearings are now sourced from China instead of the West, making export controls less effective or, at the very least, more difficult to enforce.⁷

Chinese machinery and components are predominantly supplied to the military-industrial complex, while domestically produced alternatives usually go to civilian firms. Moreover, shipments of domestically produced machinery and components have declined during the full-scale war, indicating that Chinese imports have supplanted Russian competition. In other words, despite all of the resources that have gone into import substitution programs—and the restrictions that sanctions have imposed—Russia’s machinery and components supply chains are more import dependent now than they were in 2021. With the Russian economy on a war footing, manufacturers have merely swapped out their European dependencies for Chinese ones.

Russia’s turn from Europe to China raises the question: Did the sanctions regime backfire? After all, Russia has continued its war against Ukraine and is now closer to China than it was at any other time in the post-Soviet period.

Economically, sanctions have neither backfired nor achieved maximalist goals. The sanctions regime has ensured that every drone, artillery shell, and missile aimed at Ukraine is more expensive or more difficult to produce. Supply chains have needed to be reoriented, introducing friction costs and quality concerns—the lengths to which Russian firms have gone to acquire export-controlled technologies and machinery effectively reveal the inferiority of alternatives. Disappointment with the fact that sanctions have not brought about the collapse of the Russian economy has more to do with overzealous expectations combined with lax enforcement than it does with the failure of sanctions themselves.

However, the tightening Sino-Russian relationship carries weightier consequences for the practice of economic statecraft. Financial sanctions against Russia—including the disconnection of some major banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT)—have driven the country out of the dollar-dominated global financial system and toward its (much smaller) Chinese alternative. China and Russia now settle the vast majority of their trade in renminbi, which could theoretically pave the way for a Chinese-led, anti-Western global financial system. Combined with the Trump administration’s trade policies, risks of de-dollarization have grown, particularly in Asia. This remains hypothetical, however, and it is unclear whether Beijing is willing to bear the costs associated⁸ with taking up such a role. In reality, the Russian economy’s resilience is more of a wake-up call than a cautionary tale for Western governments. A sanctions regime that allows energy export revenues to continue to flow and leaves an economy the size of China’s as a safe haven is destined to disappoint.

Guns over butter

In the push and pull between civilian and military priorities, never has post-Soviet Russia so clearly veered toward the latter. In part, this is reflected in Moscow’s larger ambitions to revive its status as a regional hegemon in Eurasia, and in all the costs it is already bearing in pursuit of this goal—it sacrificed its most lucrative oil and gas customers in the name of dominating Ukraine. But Moscow’s priorities are more straightforwardly revealed by its wartime federal budgets.

The Russian federal budget is both convoluted and secretive, with almost one-third of all allocated funds classified, including more than 80 percent of the defense budget. Even classified expenditures are attributed to broad budget chapters (e.g., national defense), and some categories are easier to ascertain than others—the Ministry of Defense’s classified social support, for example, is likely made up of payments to families of soldiers killed or wounded in the war. Spending on the war has been immense (pegged at or above 8 percent of GDP) but not entirely straightforward to measure. Not all defense expenditures go to the war, while some large civil expenditures, such as investments in occupied territories, are directly related to it. Nevertheless, a few observations can be made about how the budget reflects today’s Russian economy.

First, direct military spending is likely to plateau, if not decrease, in real terms this year. As spending grew well above inflation since the full-scale invasion, further increasing spending would need to come at the cost of noticeable cuts to social spending, as liquid reserves in the country’s National Welfare Fund (NWF) have been depleted substantially (down 59 percent), and military spending accounted for almost half of budget revenues in the first half of 2025.⁹ As is the case with much of the Russian economy, 2025 has shown that growth cannot continue forever.

Second, while budget deficits are well above expectations, Russia has not had difficulties financing its deficits. Russia’s federal budget nearly exceeded the planned target for 2025 in just the first six months of the year. The shortfall, which was driven by a drop in oil and gas revenues and a 20-percent rise in expenditures, is far bigger than previous wartime deficits. Nonetheless, Moscow has managed to finance the deficit thanks to strong demand for bonds from Russian banks. This is particularly important to maintain, as domestic banks are effectively the only remaining buyers of the government’s bonds.¹⁰

Third, much depends on the price of oil. A bit less than one-third of the federal budget is funded by oil and gas income, and the Ministry of Finance based its budget projections on a forecasted $69.7 per barrel average export price in 2025. The extent of the budget shortfall that falling oil revenues create will depend on two factors: global oil prices, which have been weighed down by sluggish global growth, and how steep a discount on Russian oil prices the Group of Seven’s (G7) oil price cap sanctions can create. With its eighteenth sanctions package in July 2025, the European Union both lowered the price cap for crude oil (from $60 per barrel to $47.6 per barrel) and introduced an automatic mechanism to adjust the cap to market conditions. While this is a welcome change, its effect will still depend on enforcement, which has been subverted by Russia’s shadow fleet of old and uninsured oil tankers.

Besides defense expenditures as a share of GDP, one of Russia’s most-watched financial statistics has been the bonuses that the government pays those who sign up to join the “special military operation.” To entice men to join the war effort despite the risks, regional and local governments have offered sign-on bonuses that far exceed annual salaries. By early 2025, more than 60 percent of Russia’s regions offered bonuses that exceeded 1 million rubles (about $12,000). In Sverdlovsk Oblast in the Urals region, prospective soldiers are offered about 3 million rubles—2.5 million rubles from the regional government, 400,000 from the federal budget, and more from individual municipalities—which is nearly three times the median annual wage. In Mari El, a poor ethnic republic 400 miles east of Moscow, a stunning 10 percent of the region’s total budget is spent on sign-on bonuses.

In Russia’s poorer regions, the combination of sign-on bonuses and killed in action (KIA) payouts has created a system of “deathonomics” in which dying on the battlefield in Ukraine can be more profitable than living to retirement age. The system is particularly appealing to men who are not economically productive—whether due to a lack of training and education or a poor local economy—and effectively acts as local stimulus. From a macroeconomic perspective, these payouts must be viewed in the context of a tight labor market and an overheated economy, in which employers in the civilian sector compete for workers with the army, a military-industrial complex that receives favorable treatment from the government, and each other. Moreover, they are indicative of a larger trend: Russia’s resources are being directed away from the civilian economy and toward the war. Every working-aged man who joins the army is one fewer factory worker or local business employee, and every government ruble spent on incentivizing his choice is one fewer ruble for social spending.

In Russia’s poorer regions, the combination of sign-on bonuses and killed in action (KIA) payouts has created a system of “deathonomics” in which dying on the battlefield in Ukraine can be more profitable than living to retirement age. The system is particularly appealing to men who are not economically productive—whether due to a lack of training and education or a poor local economy—and effectively acts as local stimulus. From a macroeconomic perspective, these payouts must be viewed in the context of a tight labor market and an overheated economy, in which employers in the civilian sector compete for workers with the army, a military-industrial complex that receives favorable treatment from the government, and each other. Moreover, they are indicative of a larger trend: Russia’s resources are being directed away from the civilian economy and toward the war. Every working-aged man who joins the army is one fewer factory worker or local business employee, and every government ruble spent on incentivizing his choice is one fewer ruble for social spending.

It is no coincidence, then, that war-related industries have substantially outperformed the rest of the economy. While war-related industries have boomed—their combined output has increased by around 50 percent—the rest of the economy has been largely stagnant. Much of Russia’s investment, which is already low, is directed to supporting the war. Because Russia has long struggled to translate its military-industrial complex spending to durable civilian-sector growth, this leaves few opportunities for medium- to long-term spillovers. And as Russian workers move to the military-industrial complex or leave for the front, they are not being replaced by migrant labor, which is at its lowest level in a decade.

There are some areas that allow for direct, “apples to apples” comparisons between the fates of the civilian and military sectors. Though both sides are impacted by sanctions, restrictions on military-industrial complex entities are more stringent. Nonetheless, it is the military-industrial complex that comes out ahead.

Russia’s aviation industry, historically reliant on Western planes and technology, has been hit hard by sanctions. Even before the full-scale invasion, Russia’s commercial aviation industry was so reliant on Western supply chains that it resorted to smuggling parts and components from the United States to get around sanctions, as nominally Russian-made airplanes still rely on foreign components. Sanctions forced Russian airlines to quickly seize jets that had been leased from the West and cannibalize older aircraft for spare parts. But measures have clearly been insufficient, as civil aviation incidents hit a record high in 2024 and plans to build more than one thousand commercial aircraft by 2030 are merely a fantasy. In talks with the Trump administration, Russia specifically brought up the aviation industry as a pain point and proposed a scheme to purchase Boeing planes with frozen state assets.

Military aviation—which is a top-heavy sector led by companies Yakovlev, United Aircraft Corporation, and United Engine Corporation—has not suffered the same fate. Military aviation manufacturers have rapidly expanded their production capacity since the full-scale invasion, with Chinese imports playing an ever-increasing role in their supply chains. While the commercial aviation fleet steadily degrades, military aviation is continuing to produce both fighter jets and helicopters for the war effort. The diverging performance of the civil and military aviation industries, despite the substantial overlap in companies active in them, is further evidence of how Russia has prioritized military production at the expense of the civilian economy.

An indefinite expansion of the military-industrial complex, however, is not feasible. Moscow does not appear willing to make the sacrifices necessary to truly militarize society—for example, to direct the resources to defense that the Soviet Union did during the Cold War—which would be unavoidable during a broader economic slowdown. The more it spends on military-industrial manufacturing and infrastructure, the less the civilian economy can compete for labor and financing (i.e., the military-industrial complex is crowding out the rest of the private sector). Russia has now pushed the limits of how much the civilian economy can be neglected before it is forced into stagnation.

In the first two years of the full-scale war, the Kremlin was not forced to face the trade-offs it is facing today. Military-led economic expansion was not at odds with broader economic growth for a number of reasons that no longer hold true.

First, high inflation has forced the CBR to raise interest rates substantially as it attempts to pump the brakes on the overheated economy. With a key policy rate of 16.5 percent (down from a high of 21 percent), fewer businesses can afford debt-fueled growth. Furthermore, a significant share of economic actors receive subsidized interest rate loans; one-sixth of all new loans issued in 2023 were subsidized at below-market rates. Russia’s subsidized mortgage program made up a majority of these funds and was more distortionary than preferential loans to the corporate sector, but it ended in July 2024. The remaining portfolio of subsidized loans, held primarily by large banks, ranges from innocuous recipients—the agricultural sector, small and medium-size enterprises, and strategic industries—to defense contractors and the military-industrial complex writ large, which the Kremlin funds with “hidden war debt.”

The bottom line is that these preferential loan programs force the CBR to hike rates more than it would need to otherwise, hurting the broader economy’s growth prospects in the process. This has led to open infighting among regime elites, with defense executives like Rostec’s Chief Executive Officer Sergey Chemezov repeatedly lashing out at CBR Governor Elvira Nabiullina for her stewardship of the Russian economy.¹¹ Nabiullina and the CBR have been critical of these programs, noting that the subsidized loans are paid for by all the individuals and corporations that must pay market rate. Thus far, the Kremlin seems to have sided with the bank. But the longer rates remain high, the more difficult the balancing act becomes.

Second, the external environment has deteriorated significantly. In Russia’s case, this is first and foremost a question of oil and gas exports. Soaring energy prices—and the delayed application of key measures such as the G7’s oil price cap—supported the Russian economy, the ruble, and the government budget in 2022. Natural gas prices were particularly crucial in 2022 because Russian oil has been sold with a risk premium (i.e., with a discount) ever since the full-scale invasion. Russia’s gas revenues more than doubled between 2021 and 2022—from $64 billion to $130 billion—but fell precipitously below pre-war levels thereafter. Now, three and a half years into what was envisioned as a three-day war, energy revenues have structurally changed (see the analysis above). Depressed oil prices amid a global oil glut, China’s unwillingness to import more Russian natural gas via stalled projects like the Power of Siberia 2 pipeline, the EU’s measures targeting India’s refining of Russian crude oil, and Washington’s sanctions against Rosneft and Lukoil all represent real challenges for Russia’s economic prospects.¹² Regular Ukrainian strikes on hydrocarbon processing facilities have also hit Russia’s bottom line and show no sign of letting up. None of these challenges are insurmountable or even permanent, but they compound on each other in the absence of other key buffers—most notably, liquid reserves and a large and stable current account balance.

Third, Russia has burned through the reserves that it built prior to its full-scale invasion. Russia’s most important buffer has been the NWF, its sovereign wealth fund. Moscow has heavily relied on the NWF for budget financing—withdrawing more than 7.5 trillion rubles ($93 billion) for fiscal financing, while more than $300 billion of CBR reserves were immobilized in sanctions coalition countries. The NWF’s liquid funds, holdings of foreign currency and gold, have dropped by nearly 60 percent and now consist of just renminbi and gold, as Russia sold all hard currency assets in 2022. Once again, this is not an existential threat to the Russian economy, as the government’s ability to fund its deficit with debt issuance has been consistent. However, the depleted NWF is a lost buffer that creates new trade-offs for the Kremlin. If Moscow continues its war-related spending spree, it must fund its deficit by selling even more debt to domestic banks; if it does not continue its fiscal expansion, it no longer has the NWF to cushion the fall for the general population.

The reality is that the Kremlin spent the first two years of the full-scale war kicking the can down the road, avoiding the trade-offs inherent to its policies. Fiscal expansion, a supportive external environment, and large buffers had the economy growing but running on fumes. At least in the economic sphere, the war was all carrots and no sticks. In 2024–2025, when the situation deteriorated significantly on all three fronts, the Russian economy did not collapse, to be sure, but the Kremlin began to face the trade-offs that it had long put off. Interest rates climbed, real wages fell, and subsidized mortgage programs were scrapped. Fears of looming stagflation—the combination of high inflation, low growth, and high unemployment—have been (perhaps prematurely) in the ether for quite some time.

What does this mean for the most fundamental trade-off of all: guns versus butter? It is difficult to imagine a scenario in which the Russian government can sustain its current defense expenditures without social spending cuts that are pervasive and visible to the general population. Moreover, the broader economy can no longer support growth (in output and real wages) in both the military-industrial complex and the civilian sector simultaneously. This does not spell disaster, but it will likely chip away at the gains that the country’s poorer regions and citizens have seen during the war.

Regions

Parts of the civilian sector have benefited immensely from the wartime spending bonanza, and it has helped reshape the economy in surprising ways. In some cases, the war has served as an equalizer, injecting cash into poorer regions through army recruitment and casualty payments. Self-reported well-being and financial security measures have generally increased. In other ways, wartime spending has reinforced existing structural inequalities that favor privileged groups and areas, such as ethnic Russians, large cities, and regions with a strong military-industrial base.

The benefits that poorer regions have enjoyed during the full-scale war come at a cost, and they are unlikely to be permanent. Household incomes rise in exchange for killed and wounded men and high inflation; investment into the military-industrial complex crowds out more efficient investment into the civilian economy. Moreover, casualty payouts and defense spending are hardly sustainable drivers of economic growth. Regardless of their permanence, it is worth understanding the regional dynamics associated with Russia’s war.

Both before and during the war, Russia’s economy has been centered around a few economic centers: Moscow, St. Petersburg, Ekaterinburg, and regions with oil and gas extraction industries such as the Nenets, Yamalo-Nenets, and Khanty-Mansi autonomous okrugs.

But the war has brought unprecedented investment and income to Russia’s poorer regions. Two indicators—fixed investment and retail turnover—exemplify the geographic nature of wartime growth. Fixed investment, which includes assets that range from machinery to factories, has shown explosive growth in Russia’s poorer and far-flung regions. The Republic of Tyva, a small ethnic republic on the Mongolian border, has seen 190-percent growth in fixed investment and 74-percent growth in retail turnover—some of the highest in the nation. However, income is not evenly distributed within the region, with military-related incomes not trickling down to the rest of the population. In other words, the fiscal stimulus (from recruitment and KIA payouts) and demand in the military-industrial complex have not dispersed across the entire economy.

Tyva also tops the charts in a less desirable metric; it has the highest number of confirmed war deaths per capita of any region in the country. While Tyva’s sign-up bonuses are some of the lowest in the country—the region merely matches the federal government’s 400,000-ruble payout—it is worth remembering that these bonuses are generally dwarfed by the payments to soldiers’ families when they are killed in action. Consequently, the growth of household bank deposits in Tyva has massively outpaced national averages.

Households are generally faring better in regions that have contributed more soldiers to the war. The growth in household bank deposits is so visible, in fact, that it has even been used as a proxy to measure regions’ mobilization results. Notably, trends in household incomes and household expenditures somewhat diverge. While regions like Tyva show only relatively middling growth in household income despite strong employment growth, their household expenditures have risen just like their bank deposits. In other words, deposits and expenditures have risen precipitously—but not necessarily from standard income sources.

Of course, these poorer regions have had help. In late 2024, the federal government implemented a program to allow lower-income regional governments to write off up to two-thirds of their debt, provided that they spend the freed-up funds on social and communal expenditures or, in some cases, national projects. This effectively means that some regions’ exorbitant spending on the war in Ukraine, including sign-up bonuses and benefits for families of soldiers wounded or killed in action, has been subsidized by Moscow. The program exemplifies the difficulty of assessing how much the Russian government has spent on the war; the Kremlin uses arcane budget maneuvers to funnel money to the war through programs that are ostensibly designed for economic development in poor regions.

Another key development during the war is the renewed convergence between regions’ average wages.¹³ Between 2000 and 2014, as commodity prices and the market economy helped Russia grow substantially, the differences in wages across regions declined. This trend stagnated between 2014 and 2021 but then reemerged with the full-scale war. More important than the convergence itself, however, is what has driven it.

The dispersion of wages across Russia’s regions is visible in two distinctions—between the rich and middle-income regions, and between the middle-income and poor regions. Between 2000 and 2014, the convergence of average wages was primarily driven by the poorest regions catching up to middle-income regions. Since the full-scale invasion in 2022, the driver of convergence has been on the other end of the wealth distribution, with middle-income regions catching up to rich ones. Geographically, this means that the strongest wage growth does not extend much further east than the Urals.

Trends in investment betray a more complex and less optimistic picture. At face value, fixed investment has increased dramatically in some poorer parts of the country, including in the archetypal region of the Republic of Tyva. But while growth figures are useful metrics, they can obscure differences in scale. In reality, Russia’s poorer regions entered the war so far behind on fixed investment that these large increases (above 100 percent since 2021, in many cases) are dwarfed in scale by those in major metropolitan areas and export-driven (i.e., resource-rich) areas. In fact, dispersion of fixed investment per capita between regions has increased considerably since the full-scale invasion. This suggests that the wage gains in poorer regions relative to the rest of the country are unlikely to become a permanent feature of the economy.

Much of this post-2022 divergence can be attributed to regions with a heavy military-industrial presence; most of these regions fall into the Central, Ural, and Volga federal districts. Regional manufacturing growth is, of course, strongest there, and weakest where production relied on Western export markets.

Sverdlovsk oblast, which hosts key heavy industry manufacturing hubs, saw fixed investment rise by more than 100 percent since 2021. Russia’s premier tank-producing facility, Uralvagonzavod, is based in Sverdlovsk oblast’s Nizhny Tagil. The Nizhny Tagil industrial cluster has doubled down on military-industrial production, including by ramping up hiring (and wages) for skilled and unskilled workers. It faces macroeconomic headwinds, including a shrinking workforce, but has been buoyed by defense procurement orders (gosoboronzakaz) and debt-fueled investment. Thanks to the expansion of production and the tight labor market, manufacturing wages in Sverdlovsk oblast increased by 78 percent between February 2022 and February 2025 (compared to 70-percent growth in all sectors).

While the convergence of economic prospects across Russia’s regions might not be permanent, the inefficient allocation of resources—particularly to the military-industrial complex at the expense of the civilian sector—is likely here to stay for the foreseeable future. After the sign-up and war casualty payments stop flowing to the country’s poorest regions, the investments in the war machine will remain, fed by Moscow’s aggressive posture toward NATO.

Conclusions and recommendations

Unfortunately for those (the present authors included) who wish for Russia’s aggression to end as soon as possible, the bill is not yet coming due for the Kremlin’s war economy. Rather, we have argued in favor of a different lens through which to view the Russian economy—one of increasing trade-offs—as costs have mounted but remain manageable.

Slowing growth, depressed oil prices, harsher sanctions, and high inflation are the key macroeconomic challenges that the Kremlin and CBR face in late 2025. However, they are not the only trends worth considering. We have examined three structural shifts that Russia’s full-scale war against Ukraine has wrought upon the country’s economy: an external sector pivot from West to East, a clear prioritization of guns over butter, and a convergence of regional economic trends. Among these, regional convergence is the least likely to persist beyond the war.

Prescriptions for hindering the Russian economy vary depending on the specific goals and risk tolerances of sanctioning states. The United States and EU, for example, have long held the contradictory goal of reducing Russia’s oil and gas revenues without pushing up global market prices—hence the price cap—so as to avoid domestic and international backlash. With the current oil market glut, however, it is feasible to impose sanctions on Russian oil majors without spiking global prices. The true test of this theory will come only in time, as we wait to see what waivers the Treasury Department’s Office of Foreign Assets Control (OFAC) issues to potential customers of Rosneft and Lukoil (particularly India and China) and whether these sanctions remain in place for the foreseeable future.

The Trump administration’s punitive measures against China and India for their support of Russia, be they secondary sanctions or secondary tariffs, have thus far largely been half-hearted and inconsistently applied. This leaves policymakers, particularly in Europe, in a tricky situation. When Washington strikes a more conciliatory tone toward Moscow, sanctions enforcement is tougher. EU and United Kingdom efforts to sanction shadow fleet tankers have continued without the United States, and a growing willingness to interdict law-breaking vessels also put downward pressure on Russia’s oil export revenues, but they are less effective without the Treasury Department’s help. And in the only case in which Washington has imposed new restrictions—on Rosneft and Lukoil—it did so without coordination.

Economically, the two fundamental goals of the post-2022 sanctions regime have been to make it harder for Russia to produce materiel for its war and make it harder for Russia to pay for its war. Both come with their own costs and challenges—the former is hard to enforce, while the latter threatens to boomerang costs back to the sender—that reduce the coalition’s resolve.¹⁴ Nonetheless, we see no reason to deviate from these two guiding principles.

Reducing Russia’s industrial production for its war can and should be accomplished in various ways.

First, the sanctions coalition’s existing export controls regime must be better enforced and expanded. This would require more resources for investigations and a willingness to target third-country intermediaries that help Russian firms access export-controlled goods.¹⁵ As we have detailed, this will inevitably focus on China.

Second, Chinese and North Korean supply chains to the Russian military-industrial complex must be disrupted. Chinese manufacturers sell dual-use goods and machinery to a wide range of firms in the military-industrial complex, while North Korea has been supplying Russia with more than half of its artillery shells. Targeting Chinese supply chains could entail sanctioning the logistics providers that facilitate the transactions on the Russian side or imposing secondary sanctions on the manufacturers and banks that do so on the Chinese side. Targeting North Korean supply chains, while more difficult due to the country’s international isolation, could entail sanctioning Russian or Chinese banks that facilitate trade with North Korea.

Third, many entities in the Russian military-industrial complex remain unsanctioned, particularly those that maintain civilian pretenses. Rosatom and Roscosmos, two state-owned enterprises that have heavy ties to the military-industrial complex, are prime examples.

Reducing Russia’s ability to finance its war effort is, for all intents and purposes, a question of reducing its energy export revenues. Despite the fact that the United States has little direct role in the generation of these revenues, it might indeed have more leverage than Europe in the situation by virtue of its more powerful sanctions (and secondary sanctions) toolbox. In either case, the sanctions coalition can target the price of Russian energy exports or the volume of the exports; thus far, sanctions have almost exclusively targeted the former. Rosneft and Lukoil sanctions do appear to be the first major attempt to remove some Russian oil from the market entirely.

Once again, there are multiple paths that the sanctions coalition can take. The simplest step would be to align and expand sanctions against shadow fleet oil tankers, which circumvent the oil price cap. While US sanctions against shadow fleet tankers have generally been the most effective, Brussels and London should continue their efforts to force Russian oil off the shadow fleet and back to the mainstream fleet, where the price cap applies. Washington adopting the EU’s new, lower oil price cap would also hurt Russia’s oil revenues. More severe options could target Russian export volumes by embargoing a specific port, deciding not to grant waivers for Rosneft and Lukoil sanctions, or even applying secondary sanctions on buyers of Russian oil.

Whether by hitting Russia’s military-industrial capacity or its energy revenues, the United States and its European allies can surely hinder Russia’s ability to continue prosecuting its war against Ukraine economically. What is less clear, particularly in Washington, is whether the political will exists to do so.

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About the authors

Elina Ribakova has been a nonresident senior fellow at the Peterson Institute for International Economics since April 2023. She is also a nonresident fellow at Bruegel and a director of the International Affairs Program and vice president for foreign policy at the Kyiv School of Economics. Her research focuses on global markets, economic statecraft, and economic sovereignty. She has been a senior adjunct fellow at the Center for a New American Security (2020–23) and a research fellow at the London School of Economics (2015–17).

Ribakova has over twenty-five years of experience with financial markets and research. She has held several senior level roles, including deputy chief economist at the Institute of International Finance in Washington, managing director and head of Europe, Middle East and Africa (EMEA) Research at Deutsche Bank in London, leadership positions at Amundi (Pioneer) Asset Management, and director and chief economist for Russia and the Commonwealth for Independent States (CIS) at Citigroup.

Prior to that, Ribakova was an economist at the International Monetary Fund in Washington (1999–2008) working on financial stability, macroeconomic policy design for commodity-exporting countries, and fiscal policy. Ribakova is a seasoned public speaker. She has participated in and led multiple panels with leading academics, policymakers, and C-level executives. She frequently collaborates with CNN, BBC, Bloomberg, CNBC, and NPR.

She is often quoted by and contributes op-eds to the New York Times, Wall Street Journal, Financial Times, Washington Post, Guardian, Le Monde, El País, and several other media outlets.

Ribakova holds a master of science degree in economics from the University of Warwick (1999), where she was awarded the Shiv Nath prize for outstanding academic performance, and a master of science degree in data science from the University of Virginia (May 2023).

Lucas Risinger is an economic analyst and nonresident research fellow at the Kyiv School of Economics (KSE) Institute. His research focuses on the macroeconomics and military industrial complexes of Russia and Ukraine, as well as the Western sanctions regime against Russia.

Prior to joining KSE Institute, Risinger received his master’s degree from Harvard University’s Davis Center for Russian and Eurasian Studies, where his research centered around Ukraine’s modern economic development. He has studied and worked in Kyrgyzstan, Kazakhstan, Poland, Georgia, and Russia, and is fluent in Ukrainian and Russian.

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1 Rates remained at 21 percent for the first half of 2025 before the CBR entered a rate-cutting cycle in June. As of December, it has cut rates three times, down to 16.5 percent.

2 Source: General Administration of Customs of People’s Republic of China.

3 Using 2025 data in current US dollars (USD) from the International Monetary Fund’s World Economic Outlook.

4 In 2021, Germany imported 65 percent of its natural gas from Russia, whereas the EU as a whole imported 41 percent of its natural gas from Russia. Europe’s dependence on Russian energy has declined considerably since 2022 but has not disappeared entirely. A number of countries (including Germany) still import Russian liquefied natural gas, while Hungary and Slovakia remain the primary holdouts from the EU’s plan to phase out Russian oil.

5 Another stark visualization of the imbalance can be found at the Atlas of Economic Complexity.

6 It is also worth noting that the flood of Chinese cars into Russia has not been led by China’s booming electric vehicle (EV) industry—only about 10 percent of Chinese car sales in Russia are EVs.

7 Chinese firms also likely export CHPL items to Russia via Belarus and Central Asian countries, albeit at a smaller scale.

8 These costs include looser capital controls, opening up the yuan to speculative attacks and upward pressure from international capital flows, as well as the necessity of running a current account deficit.

9 Before the full-scale invasion, the Russian government abided by budget rules that were designed to be counter-cyclical: excess revenues (from oil and gas or from standard revenue sources) would be held in the NWF in foreign currencies, which could be converted back into rubles during downswings. This served to keep the ruble stable. These budget rules were temporarily abandoned after the full-scale invasion, however, and the NWF has been used to plug fiscal holes in the federal budget. A resumption of the budget rule saw deposits of renminbi and gold into the NWF, most recently in June 2025.

10 Large domestic banks are also the main facilitators of the large corporate credit expansion that has occurred during the full-scale war, prompting concerns that they are enabling the Kremlin to funnel money to the military-industrial complex.

11 Rostec is a state-owned military industrial behemoth that, for what it is worth, is one of the beneficiaries of the Kremlin’s subsidized loan programs.

12 Claims of progress on the Power of Siberia 2 project in September 2025 should not be overblown, as the two sides have yet to agree on three critical aspects: the price, the duration, and the take-or-pay level (the minimum amount of gas that China would purchase each year, regardless of demand). Without these three elements, any agreement is largely symbolic.

13 This section draws from a working paper for the Peterson Institute for International Economics (PIIE) co-authored by Yuriy Gorodnichenko, Iikka Korhonen, and Elina Ribakova.

14 Enforcing energy sanctions is no easy task either.

15 For example, the US Department of Commerce’s Bureau of Industry and Security, which handles export controls, is dreadfully under-resourced.

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China’s overcapacity problem ‘doesn’t mean we can’t trade together,’ says US Trade Representative Jamieson Greer

Katherine Golden — Thu, 11 Dec 2025 01:38:00 +0000

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US Trade Representative Jamieson Greer on one year of a new global trade system

AN #ACFRONTPAGE EVENT—US Trade Representative Jamieson Greer discusses the major changes in US trade policy that have taken place during the first year of the second Trump administration and how the strategy will evolve in the years ahead.

Economy & Business Politics & Diplomacy Trade and tariffs United States and Canada

Even with China’s unfair trade practices, the United States and China still “should trade,” said US Trade Representative Jamieson Greer. “Just . . . it needs to be managed.”

Greer spoke at an Atlantic Council Front Page event on Wednesday, hosted by the GeoEconomics Center, where he unpacked a year in which US President Donald Trump implemented an aggressive trade strategy that resulted in clashes with China over tariffs, export controls, and other trade measures.

“The president’s interest is not in blowing up everything,” Greer argued, “and that includes our relationship with China.”

Greer said that the administration’s actions are intended not to solidify geopolitical camps but to address the “giant deficit” in trade. “The landing zone with China is really we just have more balanced trade,” he argued.

Below are highlights from the event, moderated by The Wall Street Journal’s Greg Ip, where Greer talked about the Trump administration’s broader strategy, what it has and has not yet achieved, and what to expect next on tariffs and trade.

Partners and allies

Greer said that he was “disappointed” to see how the European Union (EU) is implementing the bloc’s digital regulations, with social media platform X receiving the first fine under the EU’s Digital Services Act last week.
Greer argued that the EU had promised “no discrimination against US digital actors” in trade dealings this summer, but “what we think is fair treatment and what they think is fair treatment is quite different,” he added.
“With respect to our companies, we’re going to regulate our companies,” he said. “We’re not going to allow that regulation to be outsourced.”
In discussing whether the EU and United States will take a common approach to China on trade, Greer said that “we’re not really in a position of telling everybody, ‘You’re either with them or you’re with us.’” He added, “if we align in a way that helps America, great. If not, we’re going to take our own actions.”
Yet, he argued, “it’s in every country’s interest to take action against overcapacity and distortions, whether that’s from China or that’s from Vietnam or Indonesia.”
On the US-Mexico-Canada Agreement (USMCA), which enters review next year, Greer said that the United States is going to likely talk to each of the other signatories “separately,” because “our economic relationship with Canada is very, very different than our economic relationship with Mexico.” He indicated that all options are on the table for the USMCA—including a withdrawal.
When Ip raised the idea that the rules-based international order and its fair-trade norms are dead, Greer asked whether “it was ever alive at all,” saying “sometimes we kind of have white lies we tell ourselves in international relations to paper over the actual power politics that really control everything.”

Performance review

Greer, in jotting up his own report card for the Trump trade strategy, said that while the US trade deficit globally “is tracking higher than it was last year,” he attributed that increase to “people front-running the tariffs.”
He called attention to other datapoints to show the impact of the Trump administration’s trade policies, including that the trade deficit with China has decreased and that he expects it to be down 25 percent by the end of the year. “It’s clearly going the direction we want it to go, and we expect it to go,” he said.
Greer also noted that manufacturing as a share of the gross domestic product is up, a sign that some sectors are reshoring their production. And while reshoring has centered around select items “that matter most” (such as cars, pharmaceuticals, and semiconductors), Greer said that “a lot of other manufacturing . . . comes along with it.”
As reshoring takes place and manufacturing jobs become more plentiful, the US trade representative pointed out that manufacturing jobs in the United States “on average pay more than services jobs,” so Americans shouldn’t “turn up our nose” at such work.
Despite the impact of tariffs and the reshoring of select items, Greer said that “stores are stocked up and ready for a record holiday season,” quipping, “I’m not the Grinch just yet.”

What comes next

In response to GeoEconomics Center analysis about the potential impact of the Supreme Court’s review on Trump tariffs, Greer said that if the court blocks tariffs issued under the International Emergency Economic Powers Act, the administration would use alternative instruments to attempt to recreate the nearly $200 billion in tariff revenues.
“The default position for a long time in the United States was to raise revenue to fund the government, and then we switched to an income tax early in the twentieth century,” he explained. “So it’s not crazy to have revenue helping to fund your government.”
Greer said his main focus with tariffs is “getting the trade deficit down,” and he pointed out that the countries with the largest trade surpluses with the United States do so because they “have a variety of unfair trading practices,” including overcapacity and subsidization. “Those countries currently have the highest tariffs.”
On the possibility of working with the US Congress to legislate some of the tariff increases, Greer said that he has “had some interest” from members of Congress. He argued that doing so would “provide a new baseline for companies to understand” that the use of tariffs “is a bipartisan expression.”
When asked whether next year will be quieter on tariffs, Greer said that it will depend on the president, but he added that the administration is “in the middle” of the tariff project, suggesting more movement to come.

Katherine Golden is an associate director of editorial at the Atlantic Council.

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Inside the Trump trade strategy with US Trade Representative Jamieson Greer

Atlantic Council — Wed, 10 Dec 2025 17:43:15 +0000

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Online Event Wed, December 10, 2025 • 10:00 am ET

US Trade Representative Jamieson Greer on one year of a new global trade system

Economy & Business Politics & Diplomacy Trade and tariffs United States and Canada

Event transcript

Uncorrected transcript: Check against delivery

STEPHEN J. HADLEY: Good morning. Thank you all for being here for this highly anticipated Atlantic Council Front Page event. I want to welcome our distinguished visitors here with us today, including many members of the diplomatic corps, and our viewers watching online.

I’m Steve Hadley, one of the executive vice chairs of the Atlantic Council Board of Directors. And today I have the distinct honor and privilege of introducing the 20th US Trade Representative Ambassador Jamieson Greer. We could not ask for a better guest as we conclude this year of significant transformation of the global economy.

As we look back on the first year of President Trump’s second term, there’s no doubt that trade and tariffs have dominated the economic agenda. The effective US tariff rate has gone from 2.5 percent last January to above 15 percent today—the highest in eighty years. President Trump has set out to remake the global trading system. And Ambassador Greer has been at the center of those efforts. From Geneva to Madrid to Kuala Lumpur, over the past year, he has helped shape this new policy. This summer, writing in The New York Times, Ambassador Greer said that we are at the beginning of a new global trading system. He called it the Turnberry system, named after the resort in Scotland where the US-EU trade deal was brokered.

He wrote, and I quote, “In the past, we subordinated our country’s economic and national security imperatives to a lowest common denominator global consensus. This approach harmed American workers, their families, and communities by undermining a manufacturing sector that creates high-wage jobs, fosters innovation, and catalyzes investment across the country. What began at Bretton Woods as a necessary effort to rebuild a global trade system shattered by war evolved over nine rounds of trade negotiations into something unrecognizable.”

The question we hope to answer today with Ambassador Greer, the question that animates our work here at the Atlantic Council, is what comes next? The Atlantic Council Front Page Event Series was created for conversations like these with leaders like Ambassador Greer. Before taking on his current role, Ambassador Greer served as chief of staff at USTR during President Trump’s first term. In that role, he helped negotiate the Phase One US-China Agreement and the US-Mexico-Canada Agreement, the USMCA. Ambassador Greer has had a distinguished career in private legal practice, focusing on international law and national security. He also served in the US Air Force, in the Judge Advocate General’s Corps, including a deployment in Iraq. Ambassador Greer, we thank you for your many forms of service to our nation.

To moderate today’s conversation, we are pleased to welcome Greg Ip, chief economics commentator at The Wall Street Journal. I’m sure everyone in this room and watching online agrees that Greg’s analysis of the global trading system and his writing on the US and Chinese economies are simply unmatched. Those of you joining us today will have the opportunity to join the conversation, asking questions via AskAC.org. Before I turn the floor over to Greg, let me note that today marks the fifth anniversary of the founding of the Atlantic Council Geoeconomic Center. It was created thanks to the vision of Chairman John Rogers to help define the shape of the new global economic system. Through its new tariff tracker and its data-driven work on trade, digital currencies, China’s economy, sanctions, and more, it is doing precisely that. We could not ask for a better event to mark this milestone.

Ambassador Greer, the Atlantic Council floor is yours. And, Greg, over to you.

GREG IP: Thanks very much, Stephen. And thank you, everybody here. And, Ambassador Greer, thank you so much for coming today.

Now, I’ve known you for a while, and I know that you keep a busy schedule, but even by your standards, it’s been exceptionally busy. I understand that this is actually your third meeting of the day. You’ve already met with delegations from Jordan and the UK.

I also understand that there’s an AI avatar of you out there with a song put to you, too. So do you think that in the future you’ll be doing—you’ll allow your AI avatar to take over some of the negotiation?

JAMIESON GREER: Maybe. That would allow me to multitask.

GREG IP: That’s right, yeah. Catch up on your sleep.

Look, I want to start out by going back to a speech you gave in Detroit at a reindustrialization summit. And in that speech you laid out, you know, some of the goals of the Trump administration’s trade plan, and you also laid out a three-part test—three things that you thought would tell us if you were achieving what you wanted to. They were smaller goods trade deficit, higher median real incomes for households, and rising manufacturing share of GDP. I want to ask you, give us a report card. How has the agenda—how is it delivering so far? And what more do we need—needs to be done?

JAMIESON GREER: Thanks. And thanks for having me today. Thank you to the Atlantic Council and to, you know, Adrienne Arsht for your patronage here, and for the audience.

The president has a great line where he says, you know, a lot of you I really like and some I don’t like as much, and I’m not going to tell you who. I have a reputation for liking everybody, so I’ll just leave it at that.

With respect to the report card, you know, I give those metrics when I’m talking about our goals in the administration and at USTR. The goal is not to simply have a trade deal or to simply to have tariffs for tariffs’ sake; it’s to have a trade policy that leads to these kinds of outcomes. So where are we on all of these?

The trade deficit. Right now the trade deficit globally is tracking higher than it was last year. You know, why is that? Well, there were a lot of people frontrunning the tariffs, all right? They knew this was going to happen. So if you look—if you look on a monthly basis, you know, early on, you know, we had higher imports than normal. People were frontrunning the tariffs. If you look since August, we’ve seen a significant decrease. Notably, our bilateral trade deficit with China has continued to decrease. It’ll be about—it’ll be down by about a quarter this year, I think, if it continues at this pace. So overall on the year, of course, it’s going to—you know, the first half of the year is going to track a little bit what happened last year and the frontrunning, but when you look at what’s happening more recently it’s clearly going the direction we want it to go and we expect it to go.

You know, second, on wages, blue-collar wages are up. So we’re seeing the right direction there.

And then on the—on the last one, manufacturing as a share of GDP, it’s about the same. You know, some folks measure it a little less. You know, what I would say, though, is we’re seeing a lot of positive numbers there. And you have to forgive me, I actually just brought the numbers because I can’t remember everything. I remember a lot. But you know, some of the metrics I’m looking at are shipments of core capital goods, which rose to an all-time high in July, remained high in August, remained high in September. Real private fixed investment was 5.7 percent in the first half of the year; in 2024, it was about 1 percent. So some of those indicators of new investment, more capital goods. You know, construction of new factories and facilities is also up by a large percentage. So all of those are going the right direction that we want. You know, I think we’ll see it show up in, you know, early next year. Secretary Bessent said the same thing.

You know, we also have, accompanying the trade policy are, you know, good tax policies, energy policies. You know, we’re pumping more oil a day than we ever have. We have expensing in the One Big Beautiful Bill that’s going to help folks with their capital equipment and things like that. So a lot of the indicators we’re looking at are going exactly the right direction.

GREG IP: Manufacturing employment has been weak this year. I think it’s been down in the last few months. What do you make of that? Is that a sign that the reshoring has yet to happen?

JAMIESON GREER: Well, again, it’s something we track, and we’re—you know, we’re aware of those numbers, of course. And I look at it in the broader context of some of the figures I just talked about—you know, more capital equipment, more construction, more private fixed investment. Those are all good numbers.

The employment number overall, our numbers overall, are interesting because we have this phenomenon as well of the administration’s immigration policies, you know, really changing the fundamental employment numbers in the United States. And I’m looking into that, honestly, because I see that number and it seems a little out of step with what we’re seeing in the other numbers.

So we’re watching that. I mean, it’s not been a huge drop, but obviously, we want it to be higher.

GREG IP: Last night in Pennsylvania, the president talked somewhat about his tariff plan, and one line that caught my ear was that he talked about—you know, I think he said something about how we don’t need thirty-five—so many pencils and Barbie dolls, and he’s said this in the past. But explain to us the theory of the case about reshoring. Is it the case that we want to bring back the production of everything, including pencils and dolls? Or do you—does the administration have an overarching theory about which manufacturing is most important to bring back?

JAMIESON GREER: Sure. The first thing I’ll say on, you know, Christmas and all of that, you know, we had the National Retail Federation vice president come out, you know, recently and say stores are stocked up and ready for a record holiday season. So I think we’re—you know, I’m not the Grinch just yet.

GREG IP: No doll shortage?

JAMIESON GREER: No. No, there’s no shortage.

GREG IP: That we’re hearing from—OK.

JAMIESON GREER: What I would say is manufacturing—and not just manufacturing, but the associated research and development—it moves in ecosystems. And so when you reshore—when you’re focused on reshoring the things that matter most—automotive, pharmaceuticals, semiconductors, robotics, steel, fertilizer, all of these things—you tend to naturally get a lot of other manufacturing that comes along with it. Could that be toys and pencils, et cetera? I mean, we’ve made those things here before.

And by the way, manufacturing jobs in America on average pay more than services jobs. You know, we talk a lot about services jobs and how great they are, and they certainly are, but manufacturing on average pays more. So I don’t think we should turn up our nose at making pencils in the United States or other things. I don’t know if American Girl is made in America. It says American Girl. I have four daughters, so I’ve, like, got these things.

GREG IP: Yeah.

JAMIESON GREER: So what I would say is I’m not turning my nose up at this other manufacturing. I think all manufacturing jobs are good jobs, and they typically feed into the broader ecosystem.

GREG IP: All right. Let’s talk a little bit about the agenda. I think last week you had a series of hearings on USMCA—US-Mexico-Canada Agreement—and I believe the treaty or the agreement says renegotiation must begin sometime in the coming year. You were, of course, a part of the team that negotiated that treaty back in 2018. What are the flaws that have since become apparent to you and what do you want to fix? What’s your priority for altering or fixing this agreement?

JAMIESON GREER: So one of the things we really wanted to do with USMCA—and remember, when you look at North American trade you have—you have big—you know, big sectors. You have automotive transportation and everything around it. You have energy trade. You have agricultural trade. You have other important sectors, too. You have services trade. But those drive a lot of trade in North America and in the United States. And remember, it’s a $31 trillion deal, $29 trillion of which is in the United States, when it comes to GDP.

And so in the first term we were quite focused on, you know, securing and improving ag access, because I think a lot of our agricultural producers are big winners of the North American economy. On the automotive side and related manufacturing that was more challenging, where we saw a lot of that production go to Mexico and also to Canada. And a lot of people will say, well, that was the point; we wanted to, you know, have lower-wage, you know, manufacturing in Mexico. But if you go back and look at the history, the narrative around NAFTA was, well, it’s actually going to raise wages in Mexico; we’re going to export more because they’re going to buy more from us. So it played out quite differently than how it was sold.

What we did there is we changed the rules of origin. We wanted to incentivize more content from North America, particularly from the United States. One of the drawbacks is that the most favored nation rate for automobiles in America is 2.5 percent. And so we had a very narrow range to play with where we wanted to incentivize more production in North America, but we only really had 2.5 percent to play with. And that’s a problem. If our MFN rate for autos had been 25 percent like it is for pickup trucks, it’s a lot easier to create incentives to produce in America. We make a lot of pickup trucks in America. It’s because of that 25 percent chicken tax, as it’s called.

So one of the things we’ve already done in this administration, as you know, is we’ve imposed the Section 232 on autos. We’ve to some degree fixed that. I think going forward with USMCA we need to look at non-auto rules of origin to take a similar approach. Especially now that we have the reciprocal tariff overlay of Section 232, I think we have more incentives to create more US and North American content.

GREG IP: Do you have a view on whether this is best done trilaterally, as was done last time, or that it’s best done as two separate bilaterals?

JAMIESON GREER: Well, I—our economic relationship with Canada is very, very different than our economic relationship with Mexico. The labor situation’s different. The import-export profile is different. The rule of law is different. So it makes sense to talk about things separately with Canada and Mexico.

We have the underlying agreement. There are certainly areas where—

GREG IP: When you say underlying, are you referring to CUSFTA, the one that preceded NAFTA?

JAMIESON GREER: Well, I’m talking about USMCA.

GREG IP: Oh, OK. Sorry. All right. OK.

JAMIESON GREER: We have USMCA, which is a trilateral agreement. My sense going forward is we’re going—you know, we’re already talking to them separately.

GREG IP: Sure.

JAMIESON GREER: I have not—I have not had a meeting this year where I sat with Canada and Mexico in a room and we sat together and talked about USMCA.

GREG IP: So it sounds like, if I could sort of infer what you’re saying, is that, yeah, we could end up with simply two rather than one agreement.

JAMIESON GREER: You could have—you could have a couple of protocols attached to the agreement, you could have a replacement. I mean, there are a lot of things that you could do. Now, there are going to be certain areas where a trilateral discussion could make sense. Rules of origin being one of them. Do we align on external trade policies to some extent? That could be another one. Critical minerals could be another area.

GREG IP: Under this—under this scenario does USMCA plausibly go away altogether and is simply replaced by new agreements?

JAMIESON GREER: So we put, and Congress agreed, to have this sunset review clause. And the whole purpose was to review, revise, or even exit USMCA. That’s the purpose, because NAFTA did not have such a clause. And so for twenty-five years, it persisted without change, without a driving factor to force political accountability for the deal. And it lost political support over the years, to the point where, you know, presidential candidates from both parties regularly would run against NAFTA, when it’s fully in the power of the US government to change this and revise it. So we put in the forcing function. So, you know, could it be exited? Yeah, it could be exited. Could it be revised? Yes. Could it be renegotiated? Yes. I mean, that is the purpose of that clause. And all of those things are on the table.

GREG IP: Do you anticipate submitting the finished product to the Senate for ratification?

JAMIESON GREER: So, if you—if you have something where we require an adjustment to US laws, then you have to go to Congress. That’s just how it works. If I have a situation like with some of our reciprocal trade agreements that we’re doing, where there’s not really a congressional change to be made and it’s mostly just changes on the other side of the table, you don’t necessarily have to go to Congress. Now, all that being said, go to Congress, we consult with them. I was there last night in the hearing. Our people talk to them all the time. With respect to a vote, if we need to have a vote to change something in US law, of course we’re going to go to Congress.

GREG IP: OK. Let’s turn to the International Emergency Economic Powers Act. As you know, there is a case pending in the Supreme Court—

JAMIESON GREER: I’m familiar with it.

GREG IP: That’s right, yeah, because you’ve been reading The Wall Street Journal, I would hope, yes. On the legality of this thing. So there is—I’d say the betting markets are saying that the Supreme Court will rule against you. What’s your contingency for dealing with that situation?

JAMIESON GREER: So I would say that since the first term, President Trump and the policy people surrounding him have been thinking about ways to achieve his goals with respect to trade. And even this year, in January, when we were preparing the America first trade policy and options for the president to decide from, there are many statutory delegations that Congress has granted to the president or to other—to agencies to take action. Now, remember the Section 232 actions on steel, aluminum, autos, et cetera, those aren’t at issue in the case. So all of that stays.

The question is, you know, imposing the global tariff and ensuring that the biggest offenders when it comes to trade deficits and unfair trade practices are addressed. And, you know, you have a lot of familiarity with Section 301, with—obviously, I referred to Section 232. There are people out there talking about Section 122, which is a balance of payments power. And the courts have even talked about Section 122. So, you know, all of this is kind of in the ether and people are talking about it. I’m under strict instructions from my general counsel not to reveal the backup plan.

GREG IP: The Atlantic Council—they have a lovely visual, and I hope you can put it up right now, showing the IEEPA tariffs versus the 232 tariffs. Can we get that picture put up somewhere? Oh, there we go. So, as you can see, by their estimates the IEEPA tariffs are raising an annual run rate of around $200 billion a year. That’s a lot of money. Do you think that you can basically recreate that revenue stream using alternative instruments?

JAMIESON GREER: Yes.

GREG IP: Yes? Is that—

JAMIESON GREER: Short answer, but yes.

GREG IP: Is that, in fact, one of the policy goals? Will it be one of the considerations?

JAMIESON GREER: I mean, listen, revenue—tariff revenue is a byproduct of the policy. And you’ve heard the president talk about it a lot. And as this group knows, I think, and anyone who follows trade, the default position for a long time in the United States was to raise revenue to fund the government, and then we switched to an income tax early in the twentieth century. So it’s not crazy to have revenue helping to fund your government. And a lot of countries actually still do to this day. So it’s certainly, you know, a byproduct of the policy. The policy is to reshore the things that matter. It’s to get our trade deficit down. It’s to raise in real income, all those things I discussed.

GREG IP: Well, the reason I bring up the revenue is that’s, in some sense, a proxy for the tariff burden or the tariff incidents, right? I mean, divide the tariff revenue by the imports and there’s your rough proxy, right? So the reason—what I’m trying to get at in that question is, do you think that you can create more or less the same tariff incidents, the same policy outcome using alternative instruments?

JAMIESON GREER: I mean, so I would say, roughly yes. And here’s why—

GREG IP: And is that something that would be under a consideration? Would that be one of the policy objectives that you think about in that contingency?

JAMIESON GREER: I am focused—here’s what we’re focused on, getting the trade deficit down. So when you look at where we are right now, what does the trade landscape look like? The countries that have the largest surpluses with us and the world, have the largest problems with overcapacity or subsidization, they’re largely Asian countries but, you know, the EU has a giant surplus with us. You know, those countries currently have the highest tariffs, right? China has an all-in rate of about 45, if you add the 301s and what we’ve done this year. You know, Southeast Asia has high rates, you know, 18, 19, 20 percent. You know, and then we have a variety of, you know, closer allies that we trade with, but with whom we have real trade problems. This is Japan, Korea, EU. I keep pointing here because the EU ambassador is, like, right there.

You know, and then when you get to the Western Hemisphere we’re generally at about, you know, 10 percent. This is our this is our backyard and we have surpluses with these countries. The reason why some of those countries have a higher tariff is because they have a variety of unfair trading practices that they pursue. And so I’m confident that with other tools we have related to unfair trading practices we can—we can produce the tariff rates we need.

GREG IP: If, in the event the Supreme Court also orders a refund of tariffs paid, do you anticipate any difficulty in actually facilitating or advancing those refunds? It’s a lot of money. Could the people who—a lot of companies have lined up asking you—you know, preparing to ask for their money back. How long would they have to wait?

JAMIESON GREER: Well, it is a lot of money. And, I mean, this is part of the reason why the president’s been so vocal about this case. Obviously, he wants to have the leverage that is afforded by IEEPA to be able to take care of the emergency we’re facing, the offshoring of manufacturing and the deficit. You know, and he’s raised this point too, right? You leave a hole in our finances if you do this. So it’s a big deal, right? And hopefully the Supreme Court, you know, follows the plain language of the text, which is in our favor.

You know, one fortunate thing—and this is probably the only question I’ll dodge—is I’m the USTR. I’m not CBP. I’m not the Treasury Department. And so, you know, I’ll refer you to Secretary Bessent. But, listen, I had the commissioner of CBP in my office yesterday. And we were talking. And, you know, obviously people think about, you know, how this might work. I don’t know what the timeline looks like, though.

GREG IP: So don’t expect them to thank you for basically telling us to go ask them the answer to that question.

JAMIESON GREER: Well, they send people to me all the time.

GREG IP: OK. Fair enough. You mentioned the EU ambassador. Obviously, you know, we’re still sort of, I think, working on some of the details there. Your colleague, Commerce Secretary Howard Lutnick, recently suggested that, for example, the outcome on steel and aluminum tariffs might depend on the treatment of US tech companies. There was recently a very large fine imposed on X, and I think that obviously creates some friction. Are those two things linked, in your view? Will how the EU essentially implements their various digital legislation have—affect how they are treated in tariff negotiations?

JAMIESON GREER: In our joint statement from the past summer, which was really important, right? And Stephen Hadley referred to our statement and what happened at Turnberry. It was an incredible moment for the EU and the US to agree to look at the facts on the ground and say, listen, there are other things going on in global trade that, you know, maybe aren’t accounted for by the current system. And we need to address them, and we’ll do it together. So I give huge credit to President von der Leyen, her staff, and everybody for being super pragmatic on that point.

In that joint statement, there is language about no discrimination against US digital actors and making sure that they have fair treatment. You won’t be surprised to know that what we think is fair treatment and what they think is fair treatment is quite different. And I’ve been, frankly, disappointed over the past few months to see zero moderation by the EU and its implementation of the DMA and now the DSA. You know, I don’t purport to control any other country’s, you know, regulatory schemes, or their sovereignty, or anything like that. I understand that. But with respect to our companies, we’re going to regulate our companies.

You know, the challenge with the digital—in the digital trade space is that, due to the nature of the internet and digital trade itself, is it transcends boundaries. And so if you have one jurisdiction that says, well, we’re going to impose this super-draconian set of rules, or we’re going to limit your business models in certain types of ways, because these are naturally, you know, cross-border companies, it affects them everywhere, right? This is the equivalent of California setting the emissions rules for cars for the whole country, right, for what they do, right? The EU is essentially trying to do it, you know, for global digital operators.

And it would be one thing if they had their own champions, right? But they don’t. So it’s a real problem. And, by the way, we haven’t even quite settled this in the US, right? There’s a—there’s a lot of discussion in Congress and among policymakers on how to do digital tech regulation, and people are a little bit all over the place. What I will say is, we’re not going to allow that regulation to be outsourced, and so I’m hopeful we’ll have constructive discussions with our friends in the EU on this.

GREG IP: Yes, it’s been observed that the one thing the Europeans export a lot of is regulation, so looks like they might need to find some different comparative advantage.

JAMIESON GREER: This is why they gave the EU ambassador a front row seat here, to hear this again.

GREG IP: Going back to the revenue situation, how do you feel about going to Congress and saying, let’s legislate some of these tariffs, let’s go and amend the harmonized tariff schedule to create some permanence to this revenue stream?

JAMIESON GREER: Yeah. I mean, listen, if I were Congress, I’d be quite interested in that. You know, I’ve had members of Congress come up to me who I would not characterize as fans of tariffs, but they’ve said things like, this is real money. This is real money. We have actual priorities we’d be interested in legislating. I’ve had people come up and say, we understand exactly what you’re talking about when it comes to the supply chains that we need to reshore and the trade deficit we need to get down. You know, why don’t we legislate some of this? So I’ve had some interest. You know, we’ve had discussions in the White House about the viability of this. Obviously, any bill like that is really challenging, and I’ve been in Washington long enough to be jaded at the prospect of legislation, but I think it makes sense. I think that it would provide a new baseline for companies to understand, you know, this is not just President Trump or maybe the one person who comes after President Trump, but it truly is a bipartisan expression of what I think a lot of people agree with.

GREG IP: So could that involve, for example, raising the MFN tariff, which I believe is the first schedule?

JAMIESON GREER: Yes. I mean, my own view is, if I were—you know, if I were Congress, I would want to have something like a global baseline to help get the—

GREG IP: Ten percent?

JAMIESON GREER: For example, to get the deficit under control, and then you have higher tariffs based on, you know, whether it’s the deficit or unfair trading practices or something, and you give the president enough discretion to adjust that, to incentivize countries to, you know, come into the fold.

GREG IP: There’s even been interest, and I think there might actually have been a bill in Congress on creating a separate China tariff schedule. Is that something you’d be interested in?

JAMIESON GREER: I mean, I guess my view is you don’t need something China-specific if you have a broader kind of global approach, right? You can fold whatever your approach to China would be into that same legislation.

GREG IP: Sure, OK.

One thing we hear a lot about, and we at the Journal hear a lot about from our business readers, is complaints about the complexity, the uncertainty, the compliance burden of tariffs. Tariffs have changed a lot this year, and there’s a lot of interaction, you know, between the different—for the 232s, the 301s, the IEEPA tariffs. You know, the question is, do they stack, do they not stack? There are anecdotes out there of like an importer getting three different quotes on what tariff they raised, and there was a Fed study that suggested additional compliance costs are roughly equal to a tariff of like 1 to 2.5 percent. So do you agree complexity is an issue? And if so, what’s the solution, and can American businesses look forward to a period of stability?

JAMIESON GREER: So I’m sensitive to the complexity question, because I’m an international trade attorney, and in my private life, I spent many years helping navigate what’s already a complex system, by the way. So I mean, let’s level set, right? It’s not like before this it was like all roses and hugs in customs world. It’s always been quite challenging. You know, but we are sensitive to this.

So early on, there were questions about stacking. How do you relate 232 to the reciprocal tariff? And so, you know, there was guidance and executive orders to help clarify that. And as a general matter, if something’s under the 232 regime, that’s where it is. If it’s another reciprocal tariff regime, that’s where it is. There’s some exceptions to that.

You know, I understand on, you know, steel and aluminum, there are derivative products, and there’s some complexity there. We’ve heard from that on a lot of folks. So the goal is not to introduce complexity for its own sake. Naturally, when you are moving trade policy that’s been more or less the same for seventy years to a new outcome, and you’re changing the tariff regimes, there’s going to be challenges in making it operational, right?

GREG IP: Yeah.

JAMIESON GREER: It’s one thing to kind of have big ideas at the administration level. But again, I had the CBP commissioner in my office yesterday, and we discussed this very issue. So we’re committed to making it as smooth as possible, and so we’re very open to feedback on complexity.

GREG IP: By the way, as the Atlantic Council people, I know they had a slide they wanted to show. It’s really cool with a slider that shows the changing tariff levels that—feel free to put it up now if you have it, but that sort of like visually explains how much tariffs have changed. And so now you could say, wow, that’s a great, you know, like piece of work product there. But, you know, like, if you were in your old job, you’d be, like, rubbing your hands at all the work that’s been created, I’m sure.

But yeah, anyway, I get what you’re hearing, and I presume that you’ve gotten—it looks like a lot of the heavy lifting has been done in terms of just rebuilding and reframing, restructuring the system. All else equal, will 2026 be a quieter year than 2025 on tariffs?

JAMIESON GREER: Well, that’s a question for President Trump.

GREG IP: OK.

JAMIESON GREER: But what I would say is, you know—and I see the graphic, and obviously, again, we’re in the middle of a project. I’m sure you’re going to see things changing over time. And there’s a lot of focus on April 2 and Liberation Day and things that happen since then. I would really focus on August 1st, because that is when the president really set in place a lot of what the reciprocal tariffs are going to be, we announced a bunch of deals, and then in the couple months since then we’ve kind of fleshed out what those deals are. And you’ve really seen, you know, the structure play out that I talked about, right? The highest, you know, over capacity, you know, trade deficit, countries with the highest rates, and the farther you get away from that, the lower the tariffs are.

GREG IP: Yeah, yeah.

JAMIESON GREER: I mean, that’s the structure. There are outliers: Brazil, India. We’re working on that.

GREG IP: Yeah.

I want to turn to China now. And I believe you have a visual also that shows some interesting patterns in the trade between the United States, China, Mexico. So this is interesting. As you pointed out, we’re seeing the big drop in the China number and diversion behavior, but China now drops to third place in terms of its importance as a supplier to the United States.

And I bring that as background, because I think that one of the things that has remained constant between the Trump first term, this term, and even the Biden term in between was the view that China is different. And when I read the national security strategy—and I understand you contributed to this, right? USTR actually had some role in helping draft the national security strategy?

JAMIESON GREER: We got to see it and give input.

GREG IP: OK. So I’m just going to quote a little bit from it: “We must work with our treaty allies and partners to counteract predatory economic practices, use our combined economic power to safeguard a prime position in the world economy and ensure that allied economies do not become subordinate to any competing power.” It discusses encouraging our partners to rebalance China’s economy toward household consumption, forming coalitions that use our comparative advantage to pursue growth through managed cooperation tied to strategic alignment.

So, conceptually, all of this seems to be pushing us in a direction where, whatever other differences, the United States and its like-minded partners would benefit from a common approach to China. Is that true? And how do you actualize it? Can you talk about how the United States can actually—given there’s been a lot of tension, and a lot of you know, you know, friction between our partners—given all that, how does the United States, or should the United States, even want a common approach towards China?

JAMIESON GREER: Yeah, so first of all, I think, you know, I would characterize our view on China—and I’ve mentioned this, you know, recently. So it’s not, it’s not news or something. People in Washington like to talk about China hawks and China doves, etc. That’s a distinction that doesn’t really resonate with the Trump administration because we’re just pro-American, right? We’re just pro-American. We’re not anti-anybody. You know, we’re pro-American, America first, as they say. So, so first of all that, that’s our position.

And we hear this sometimes when partners say we should align on China. Oftentimes, that is code for don’t put tariffs on me.

GREG IP: Yeah.

JAMIESON GREER: Right? So that’s like its own thing.

I mean, my own view is it’s in every country’s interest to take action against overcapacity and distortions, whether that’s from China or that’s from Vietnam or Indonesia or other folks, right? You know, we talk about the EU. We have real issues with some of the EU’s, you know, regulatory approaches. So, you know, we’re not really in a position of telling everybody you’re either with them or you’re with us. I mean, that’s really not how it is. I mean, our view is the United States has taken a lot of unilateral actions since the Trump administration. The Biden people kept a lot of this. We’re doing things now.

A lot of it has to do with China simply because we have a giant deficit with them, and their economy doesn’t fit in very well with ours. We’re just quite different economies. It doesn’t mean we can’t trade together. We should trade together. I mean, I think the landing zone with China is really we just have more balanced trade. I think we have to manage it. I think we have to talk to each other about what we do want to buy and sell from each other, and just make it, frankly, quite managed. Is that ideal? Not for a capitalist, but, you know, we aren’t dealing with capitalists on the other side.

I think with respect to, you know, other countries, I think a lot of it is organic, right? You can see other countries already taking action against overcapacity, whether it’s from China or elsewhere. You know, I think it’s not really a situation where you have, like, the Justice League coming together and, you know, doing all this. This is not how it is. We’re taking unilateral actions. It always takes longer for other countries to, you know, get behind it or do things. And I understand that everyone has different politics and policies. You know, if we align in a way that helps America, great. If not, we’re going to take our own actions.

GREG IP: So we learned just this week that China ran a trade surplus, I think, of a trillion—more than a trillion dollars just through the first eleven months of the year, an all-time high. There’s growing concern—we wrote about it this week in the Journal—that China’s export-driven model is actually hurting other countries by deindustrializing them. And so that essentially—so where that’s heading towards is that it’s—the China challenge is not strictly a bilateral challenge; it’s global. And we can try and keep out China’s exports bilaterally, but they’ll find some other home somewhere else and it will redound to the United States in some way. And this brings folks to the idea that there’s some value in this common approach.

And I noted, for example, in the Malaysia deal there’s a section there that obligates Malaysia that if the United States imposes restrictions on a third country, such as China, Malaysia must sort of copy those. So what’s the driving thought behind that? And is there some willingness to consider, for example, in USMCA maybe the United—Canada and Mexico sort of mimic the American external tariff on China in exchange for maintaining some of the preferential access in that agreement?

JAMIESON GREER: Well, I would say, first of all, it’s really important to acknowledge that President Trump is very focused on having a constructive relationship with China. We certainly had tensions earlier this year. And you know, when China really escalated the situation through rare earth controls and all these different things, the United States certainly had an option to elevate our own export controls or other things. We have—we have a lot of leverage, you know, over all kinds of—China and everyone else. But the president’s interest is not in blowing up everything, right? And that includes our relationship with China. And so we’re quite focused on trying to find a path forward to have an exchange of goods and services between China and the US that makes sense for both of us and that is fairly balanced.

Now, you referred to some of the provisions we have in our trade agreements with Malaysia and agreements from others. You know, it makes sense in a bilateral trade agreement to want to ensure that the benefit of that agreement goes to the two parties involved, right? And that helps us control all kinds of things—control for transshipment, et cetera. And if you’re ever in a situation where we think that broader action is necessary with regard to third countries—and it’s not China-specific, right; if you look at the agreement, it doesn’t say anything about China specifically—you have that option. You have that option to be able to go to countries and say, listen, you agreed to work with us on these issues, and we’re seeing an effect in your market that affects us.

I mean, that’s a—that’s a pretty—I think a normal, natural thing. I think saying it out loud is new. I think writing it down is new. And I think it signifies the importance of economic security. That’s all new, and I think we should be commended for it.

You know, again, I think it’s there if we need it. Right now we’re really trying to have a constructive relationship with China.

GREG IP: OK.

I’m being told that I need to start asking the audience for questions. There’s a few other things I wanted to ask. But any questions out—OK. My friend Gavin Bade from The Wall Street Journal has a question.

Q: Moderator’s prerogative.

JAMIESON GREER: It’s kind of a plant.

Q: He doesn’t know what I’m going to ask, I promise.

GREG IP: It’s true.

Q: Ambassador, thanks for being here. I appreciate it. As you said, Gavin from the Journal.

I wanted to ask you about some recent recalibrations in some of these IEEPA tariffs. You all have rolled back some tariffs, especially on foodstuffs, recently. Some of that was in relation to trade deals or agreements that you signed with some nations, but some of it was outside of the trade negotiations. I wanted to ask you why you’ve recalibrated in that way. And is there kind of a tacit admission there that maybe some tariffs were applied to some goods that, you know, had raised prices for consumers in a way the administration didn’t want to see going forward?

JAMIESON GREER: Yeah, so I think you’re referring to stuff like coffee and bananas and stuff like that. And so from the—you know, from the outset of these negotiations, you know, at least internally, you know, there had been a view that there would be calibrations at some point. And some of these tariffs you have because you want to reshore, you want to protect, you want to take care of the deficit; and some you have for leverage.

And so in early September the president put out an executive order saying, you know, listen, you know, here’s a bunch of stuff where we can—you know, I’m going to authorize USTR and Commerce and all these folks to eliminate the tariffs contingent on progress on the deals. And so, you know, a couple months later, after we had announced deals—a swath of deals in Asia, obviously the EU, other places in Europe, Western Hemisphere, et cetera—we were in a position to feel like we finally had really had a critical mass of progress that we could—we could remove the tariffs on these items, which he had been signaling he was going to do. And several weeks later, we did. It’s no coincidence that when we announced deals with, you know, Ecuador and Guatemala and, you know, Vietnam and Cambodia and these places, places where we get banana and cocoa and coffee, like, there’s just no coincidence that we announced these deals and then we released this stuff.

You know, with respect to the incidence of tariff increases, I mean, listen, there’s a lot of stuff that goes into pricing. If you look at coffee, the coffee price had been going up for two years, right? I can’t control the weather in Brazil with a tariff.

That being said, I think it’s more likely that you have an incidence—a tariff incidence on a price for something that we just don’t make in America than something we do make in America. Also, when you think about the incidence of tariffs, you often get a situation—you know, particularly with manufactured goods or commodities that are broadly produced. If you’re trying to sell into the most valuable consumer market in the world, you want to keep your market share. And so you’re going to compete with other exporters to eat the tariff. And so that’s why you see the tariff effect really diffuse throughout the supply chain.

GREG IP: There was a—yes, right here. Introduce yourself, please. Wait for the mic, and then introduce yourself.

Q: Thank you so much. How are you, Ambassador? I just wanted to ask you a couple of specifics and then a general question.

So specifics—

GREG IP: Let’s see if we can compress it into one question.

Q: Sure. It’s all trade related, you know.

On Indonesia, there’s reporting that you are unhappy about what’s happening with Indonesia. If you could give us an explanation on what’s happening there and what they’re trying to push back on? And what does that mean about these other agreements that you’ve already sort of negotiated? And are you seeing that kind of same recalcitrant attitude from other players?

But then, the other issue is the chips issue and the ruling that came—or the decision that was made by the president. We understand that there’s some, you know, sort of pushback. Obviously, we’re seeing that on the Hill yesterday in the hearing. But can you tell us your view on allowing those chips to go? Thanks.

JAMIESON GREER: So I’ll just do the first one, because you said one question. So on Indonesia, yeah, we saw that report in the FT. And, you know, we have confidentiality agreements between us and Indonesia as we proceed. You know, what I will say, I think it’s meaningful that we had signed agreements at the ASEAN conference in October with Malaysia and Cambodia. I would love for Indonesia to be in that same position. I think it’s a great export market. There are things we import from Indonesia that we want to import. You know, I think that we’re always ready to move forward, and to move forward quickly. And I’m going to have a conversation with my counterpart in Indonesia tomorrow morning. I’m, like, looking at my staff. Tomorrow morning? You know, to talk about progress. You know, I’d love to see that deal finished and done. I think it’s in their interest, and in ours.

GREG IP: I’m going to go to a question from the online audience. And, by the way, if you are waiting to add a question you can go to AskAC.org and there will be an opportunity there, if you want to ask a question. Let me see. How do I do this? This is the part where my age starts to catch up with me. I’ll read the—well, I guess you can all see the question now.

JAMIESON GREER: So everyone can see it?

GREG IP: Yeah.

JAMIESON GREER: Yeah. So Brazil. All right. So with Brazil, we have a lot of issues going on with Brazil. Historically, they have been a challenging trade partner in a lot of ways. An important trade partner. We have a trade surplus there. A lot of good import-export trade that happens. But there are a lot of barriers to the United States, tariff, non-tariff barriers, regulatory barriers. On top of that, they’re a competitor for the United States, especially in agriculture. You know, whenever we are trying to sell our commodities overseas we’re always competing with the Brazilians. We’re concerned about some of their practices with respect to agriculture. So we’re conducting a Section 301 investigation that covers a number of practices in Brazil, including what we think could be illegal deforestation in the Amazon, you know, for their soybean production, a variety of digital practices.

The president also, kind of separate from the trade world, has had foreign policy concerns with respect to the weaponization of law and judicial system in Brazil with respect to officials in Brazil. We’ve seen them detain Americans. We’ve seen them issue, you know, secret orders to American tech companies. We’re concerned with all of these. Some of these are identified in our Section 301 investigation that we’re conducting. Some are identified in the executive order that empowers the State Department and others to take action. And so we essentially have a mix of tariffs on Brazil due to both trade issues and foreign policy issues.

President Trump has had several very constructive interactions with President Lula recently, in the process of relieving tariffs on coffee and cocoa, which we were discussing earlier. Brazil was included in that. And part of that is a recognition of progress we’ve made with them. You know, we would like to in the near term have some kind of deal with Brazil. It may not solve every problem, but I think that there are things they can do. They seem to be quite willing partners. They’re in the Western Hemisphere. You saw the National Security Strategy. Western Hemisphere is very important to us. We want to have a better trade relationship with them. And I think we’re—we kind of have a structure set up to do negotiations to achieve that. Of course, it takes both sides’ willingness to actually make concessions.

GREG IP: Thanks. Yes, there. Wait for the mic and then introduce yourself.

Q: Hi. Logan Wright, Rhodium Group.

You mentioned that the administration is favoring a more constructive relationship with China at this point. Is that inconsistent with other objectives to bring down the US trade deficit, given that China’s strategy remains export-oriented and, you know, continuing to increase global trade surpluses? And is that—does that reflect a change in the approach toward longer-term strategic competition with China?

JAMIESON GREER: So I don’t think it’s inconsistent at all. I mean, we’ve really—frankly, since May, since our Geneva talks, we’ve been on this path with China to be more constructive. And since May, we’ve seen more balance come into the relationship on the good side. So we’re doing both of these things at the same time. As I mentioned earlier, I think that US-China trade, just I think it needs to be managed. I think we need to figure out, you know, what do we want from you? What do we not want from you? What do you want to buy from us? And there’s always going to be this, you know, upper area of the highest tech—you know, the highest tech items, which, you know, folks have referred to and asked about. And that’s always going to be, you know, some stuff obviously, and other stuff is a gray area. You have to figure that out.

But there’s a lot of area where we should trade with China, right? There’s a lot of, you know, consumer goods or low-tech items. You know, we certainly should be selling ag, and airplanes, and medical devices, and things like that. I mean, I think we should focus on where do we agree where we should be trading, and what types of volumes, to try to have balance? And then if there are stickier issues we can address those down the road. I don’t think it’s inconsistent at all.

GREG IP: We’re almost out of time. And I’m going to do the moderator prerogative to ask the last question. You know, we heard the phrase “rules-based international order” so many times, but I think the only thing we all agree on now is that it’s dead. Is that it died sometime between 2016 and 2017, but it might have already been dying by that point. What is your vision of what replaces that order, if anything? I mean, I could have explained that when it was a WTO and nested in that were a group of bilateral and prolateral treaties. What will govern the rules of international trade going forward, if, in fact, there are such rules?

JAMIESON GREER: Well, first of all, I’d say, from what I would think is a realist view, the question is was it ever alive at all, right?

GREG IP: Yeah.

JAMIESON GREER: I think sometimes we kind of have white lies we tell ourselves in international relations to paper over the actual power politics that really control everything. I would say, with the WTO, it has a baseline set of commitments that were agreed to many years ago. There hasn’t been a lot of development there. That’s why we, as the United States, are layering over the WTO commitments bilateral agreements that we believe put America’s interests first and are also in the interest of these other countries to be able to maintain access to the US market in ways that are beneficial to them.

So, I mean, I think we have some of those underpinnings, but where they can’t—I mean, the WTO can’t fix overcapacity, right? They can’t even be transparent among their own members and publish notices of new rules. You know, they can’t fix overcapacity. So we’re going to have to deal with that, either on our own or with willing partners. So I think it’s going to be interest-based.

GREG IP: OK. Ambassador Greer, thank you very much. Very interesting conversation. Really appreciate your time.

JAMIESON GREER: Thank you very much.

GREG IP: Thank you.

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Europe’s choice: Fund Ukraine now or pay a far higher price if Russia wins

Elena Davlikanova, Lesia Orobets — Tue, 09 Dec 2025 20:39:44 +0000

When European leaders convene in Brussels on December 18, continued funding for the Ukrainian war effort will be top of the agenda. However, it remains far from clear whether the European Council meeting will result in a breakthrough. Failure to reach a consensus could have catastrophic consequences for Ukraine and may prove disastrous for the future of European security.

The most realistic financing option currently under consideration is a so-called reparations loan backed by frozen Russian assets. With more than $200 billion of immobilized Russian Central Bank assets currently held in Europe, this loan would be sufficient to bankroll Ukraine’s defense for the coming two years, with Russian reparations set to cover repayments.

European officials are also mulling an alternative format that would involve a joint debt guaranteed by the EU budget. This approach would generate around $100 billion over the coming two years. However, while the reparation loan would place the financial burden on Russia, this approach would introduce new demands on the already overstretched budgets of individual EU member states.

Using frozen Russian funds as security for a major Ukrainian loan would send a message to Moscow about Kyiv’s ability to continue defending itself for years to come. Advocates of the reparations loan see it as a justified move to make Russia pay for the invasion, but the proposal faces obstacles on both sides of the Atlantic.

The Trump administration has reportedly been working behind the scenes to obstruct the reparations loan. US officials argue that the frozen Russian assets should instead become bargaining chips during negotiations with Putin to end the war.

Belgium, which hosts the largest portion of immobilized Russian funds in Europe, remains the main obstacle. The Belgian government has complained that seizing the Russian assets will expose it to legal liabilities that could bankrupt the country. Meanwhile, Belgian Prime Minister Bart de Wever claims that Moscow has “let us know that if the assets are seized, Belgium, and me personally, will feel the effects for eternity.”

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The debate over further funding for Ukraine comes at the precise moment when Russia’s own economic model is showing signs of fragility. Indeed, some forecasts indicate that Putin’s war economy will face mounting challenges in 2026 that could have a major impact on the Kremlin’s ability to continue the invasion. This may be a factor driving Moscow’s determination to block further EU funding for Ukraine.

As Russian military spending reaches new highs, the Kremlin is rapidly burning through strategic reserves. At the same time, revenues from Russia’s economically crucial energy exports have recently fallen to multi-year lows amid mounting sanctions pressures and escalating long-range Ukrainian attacks on oil and gas industry infrastructure across the Russian Federation.

For now, Putin can still afford to pay his military. However, as Russia’s economic outlook worsens, he will have to prioritize the invasion of Ukraine over other state expenditures, while shifting the burden increasingly onto the Russian public. These trends do not imply imminent collapse, but they do expose a vulnerability reminiscent of the late Soviet era that Western governments could exploit in order to push the Russian dictator toward the negotiating table.

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One of the best ways to pressure Putin is by backing Ukraine. Right now, Kyiv faces a massive funding gap for the coming year that could have serious implications for the war. Unless Ukraine can secure tens of billions of dollars in additional financing, it will be extremely difficult to pay for the military, rebuild battered energy infrastructure, and cover basic social expenditures.

Crucially, a lack of Western financial backing for Ukraine will also embolden Russia. Why should Putin consider ending the invasion when Ukraine is running out of money and Kyiv’s Western partners are showing such obvious signs of hesitation?

Europe’s reluctance to pay for Ukraine’s defense is shortsighted, to say the least. If Russia’s invasion succeeds, European governments will soon have to boost defense spending to levels that would dwarf the current cost of backing Ukraine.

A recent New York Post article highlighted the sheer scale of the likely price tag for Europe if Russia achieves victory in Ukraine. Citing research by Scandinavian think tanks, the report predicted that the expense of fortifying Europe’s eastern flank against a triumphant Russia would be approximately $1.6 trillion, or more than double the likely figure required to finance the Ukrainian war effort for four more years.

The EU’s reparations loan initiative is lawful, financially sound, and strategically necessary. By hesitating now, Western leaders risk repeating the same mistakes that shaped earlier phases of Russia’s invasion, when delayed decisions and piecemeal support only served to embolden the Kremlin and prolong the war. If European leaders are unable to act decisively on December 18, Putin will toast another strategic victory and the cost of stopping Russia will rise even further.

Elena Davlikanova is a senior fellow with the Center for European Policy Analysis and Sahaidachny Security Center. Lesia Orobets is the founder of the Price of Freedom air defense initiative and a former member of the Ukrainian parliament.

Executive summary

President Donald Trump’s policies are substantially reshaping prospects for transatlantic cooperation across a range of policy areas. In digital competition, the picture is complex. The Trump administration opposes Europe’s competition regulation, but both the European Commission and US federal and state competition enforcers have similar priorities when it comes to competition in digital markets.

US-European Union (EU) dialogue could help make interventions to promote digital competition more effective. It could boost consistency (helping firms adopt the same remedies across both sides of the Atlantic) and help regulators share knowledge and best practices. Beyond technical alignment, EU and US authorities can coordinate on narratives and messaging, ensuring that regulatory measures are perceived as fair and mitigating the risk of digital competition policy fueling foreign policy disputes.

At a recent roundtable hosted by the Centre on Regulation in Europe (CERRE) and the Atlantic Council, we identified the following recommendations for competition enforcers on digital antitrust.

The European Commission and national competition authorities should continue to cooperate with US federal agencies and strengthen their cooperation with US state attorneys general, given their important role in US digital antitrust cases.
To effectively learn from each other’s experience with remedies, and to enhance mutual learning and correct remedies when needed, competition agencies in both the EU and the United States should have a robust, evidence-based assessment about how their remedies have performed.
The European Commission needs to improve its communication strategy when pursuing antitrust cases. Antitrust enforcement must be closely linked to consumer welfare, competitiveness, and economic growth. Enhancing its legitimacy can help ensure European competition enforcers withstand any political pressure.
Europe needs to better highlight how open and competitive markets foster innovation. Tools to open competition are therefore important ways to support US and European global technological leadership.

In relation to merger policy, competition authorities on both sides of the Atlantic are evolving to better tackle the role of innovation in digital markets. Recommendations include the following.

EU and US authorities should develop consistent guidelines setting out how they will assess a merger’s impacts on innovation capabilities (such as chips and computing power, skills, data, and risky and patient capital) and incentives to innovate. Pro-innovation merger control should promote the new innovators and not protect the old ones.
The Directorate-General for Competition (DG-Comp) should aim to learn from the US merger guidelines and US authorities’ recent practices to inform the EU’s current exercise of revising its own guidelines.
As with antitrust remedies, competition authorities in both the EU and the United States must be honest and clear about how their merger remedies have performed, so that different authorities can become better by learning from each other’s successes and mistakes.

Introduction

Trump’s policies have challenged the transatlantic relationship and are reshaping prospects for transatlantic cooperation. On digital competition, the picture is particularly complex. The president and some of his appointees to the Federal Trade Commission (FTC) and the Department of Justice (DOJ) Antitrust Division oppose Europe’s competition regulation, the Digital Markets Act (DMA)—and the president recently threatened to investigate the EU’s nearly €3 billion fine imposed on Google as an unfair trade barrier under Section 301 of the Trade Act of 1974. Despite this, when it comes to ex post digital antitrust cases, US federal and state competition enforcers and the European Commission have similar priorities. More broadly, competition authorities on both sides of the Atlantic are grappling with how to adopt consistent, principled, and predictable approaches in digital markets. This can better take innovation, investment, and firms’ capabilities into consideration during competitive analysis, and a consistent approach is key for global corporations.

US-EU dialogue could help improve the efficiency and effectiveness of interventions to promote digital competition. It could do the following.

Facilitate mutually consistent approaches to common regulatory challenges, reducing burdens on regulators and making it easier for global firms to adopt the same business models across both sides of the Atlantic.
Even where consistency is not possible, help regulators by sharing knowledge and best practices, or even help authorities to divide and conquer in areas such as ex post antitrust cases in which authorities on both sides of the Atlantic are pursuing similar goals.
Mitigate the risks of foreign policy disputes as digital competition interventions increasingly have cross-border impacts, and as the Trump administration bristles at foreign governments enforcing competition law and pro-competitive regulation against US champions.

But how can this mutually beneficial cooperation be maintained? In 2021, the EU and United States established a Joint Technology Competition Policy Dialogue, supplementing established agreements between the European and US competition agencies, and there is still dialogue between antitrust enforcers. However, given the growing perception of a difference in values between the EU and the United States, and tensions on a range of topics from trade to defense, prospects for cooperation risk becoming narrower in the future.

Cooperation on digital antitrust

European and US authorities have a significant degree of alignment on ex post antitrust enforcement in the digital sector. In digital markets, large firms have often argued that highly innovative digital markets had natural “winner take all” characteristics, but there is nevertheless competition for the market. These firms argue they are subjected to significant competitive pressure from those who might displace them with disruptive innovation and, therefore, have strong incentives to keep innovating. This implies a marginal role for competition agencies. In practice, however, many digital markets have seen little displacement of incumbents in recent years. Effective antitrust remedies not only enforce competition law but also create space for innovation, enabling new entrants and disruptive technologies to challenge incumbents and thrive. While, until recently, innovation in some markets appeared to have slowed, there is an open question about how much artificial intelligence (AI) could disrupt the architecture of digital ecosystems—and whether that implies antitrust authorities should step back or play a role in keeping this possibility open.

In the meantime, competition authorities in the EU and United States have become more assertive. On the US side, the FTC and DOJ are pursuing cases against tech firms brought under previous administrations, despite the Republican Party’s traditional light-touch approach to antitrust. The FTC and DOJ’s approach is fueled by a view that conservative antitrust must not allow “private tyranny,” just as it is opposed to government tyranny.¹ In particular, FTC Chairman Andrew Ferguson has applauded that “this administration . . . is rediscovering the wisdom of taking competition enforcement seriously.”²

In Europe, although there have been few new antitrust cases under the new European Commission, a number of ongoing cases are being pursued against the same firms, on similar timeframes and in relation to similar conduct. These cases have been supplemented by enforcement action under the DMA. Some of these cases might have different underlying motivations—with US authorities more concerned with the potential role of large technology firms in stifling plurality of voices online, and the EU more concerned with ensuring market contestability. But they nevertheless illustrate authorities’ common challenges, particularly how to design remedies for highly complex and fast-moving digital markets.

EU and US competition policies increasingly interact. For example, in a case brought by the US DOJ and some states against Google regarding its conduct in the search market, the DOJ sought an extensive list of potential remedies, including data-sharing rules that looked similar to obligations in the EU’s DMA. In September 2025, the district court decided to apply a narrower data-sharing remedy. A similar question about alignment of remedies will arise in the EU and US cases concerning Google’s digital advertising technologies.

However, challenges remain in coordinating antitrust actions on both sides of the Atlantic.

A first challenge is ensuring that the tenets of antitrust analysis remain synchronized. Protecting disruptive innovation in digital markets, for example, might require identifying robust theories of harm closer to market realities and moving away from reliance on static market definitions. However, the US legal system—in which the FTC and DOJ must convince a judge of their case—makes EU-US alignment difficult. Even if EU and US competition authorities agree on a common approach to a particular case, judges might take a different approach. In particular, competition cases in the United States go before generalist US judges, some of whom might be relatively conservative about government intervention. For example, European competition agencies are exploring how large firms can stymie disruptors by preventing their access to inputs to innovate or impacting their access to customers. They have used these concerns to rework the essential facilities doctrine and the tests for when discrimination is anticompetitive (with EU courts often sympathetic to their approaches, as in the Google Shopping and Android Auto cases).³ However, there is limited evidence that US courts are as willing to see principles evolve.

A second challenge is remedy design. Ex post antitrust remedies can have global impacts—for example, by raising costs of operating different business models in different countries, or by requiring structural changes to large firms or technical changes that cannot be implemented at a regional level. Conversely, for firms that can benefit from remedies, a consistent approach to remedy design in the EU and United States could lower costs and allow innovative firms to scale faster. Securing consistent approaches to remedies between the EU, the United States, and third countries such as the United Kingdom could therefore have widespread benefits. There is acceptance that past remedies in tech antitrust cases have sometimes not been very effective, and that innovation seems to have played more of a role than antitrust remedies in promoting competition in digital markets. Both sides seem to be learning from these past experiences, but they have adopted different lessons. The EU has sought to front-end tougher remedies in the DMA while, in the US Google Search case, the judge adopted a narrower set of remedies and instead put more faith in possibilities for AI to disrupt online search markets. Both European and US authorities can benefit from robust and transparent evaluations of past remedies, learning from successes and failures to design more effective interventions in the future.

Thirdly, the EU and United States also take different approaches to the merits of ex ante digital competition regulation. Europe’s DMA has few influential friends among the current US administration. Trump has implied he sees the law as an attack on “the growth or intended operation of United States companies,” and FTC Chair Andrew Ferguson has described the DMA as a “tax on American companies” and one which is “overly rigid,” despite most of the beneficiaries of the DMA being US firms.⁴ The EU’s objectives with the DMA were to foster a competitive and fair digital market, creating opportunities for challenger firms from both Europe and the United States, and supporting the West’s global technological leadership. From a European perspective, there is no appetite to rescind or water down the DMA; Commissioner Teresa Ribera has signaled the European Commission would take a “brave” approach to enforcement and has fined Apple and Meta for noncompliance.⁵ However, there is a widespread perception that the commission is tailoring its enforcement approach to reflect the current environment. For example, the Apple and Meta fines came only after the commission missed its own self-imposed deadlines, seemingly to avoid torpedoing EU-US trade talks.⁶

There is also a question of how European and US regulatory authorities can best cooperate and coordinate in practice, given the different timeframes and processes of their respective cases and concerns in the United States about Europe taking the lead on antitrust matters. Ferguson, for example, has argued, “If we think that Americans are suffering from anticompetitive conduct at home, we should address it here at home . . . I don’t want the Europeans doing it for us.”⁷ The EU and United States have a positive comity agreement, which allows one party affected by anticompetitive behavior originating in the other party to request that said party address the conduct. But this agreement has never been used in practice. Under the Trump presidency, the European Commission has shown a desire to allow the United States to take the lead. For example, in the Google AdTech case, the European Commission has found that Google breached competition law. However, the US federal court also considered remedies in its case regarding the same conduct. The commission has therefore delayed a final decision on remedies, stating that it wanted to “ensure that Google puts in place an effective remedy on both sides of the Atlantic . . . It is in everyone’s interest to achieve a joint outcome, including for Google itself, and for citizens worldwide.”⁸ While in principle such an approach might lead to harmonization, and would provide the EU with political cover, it poses the risk of delaying the imposition of remedies or encouraging the EU to accept remedies that might prove ineffective in the European context.

The broader political backdrop remains challenging. Trump has challenged the independence of numerous public authorities, including the FTC—and there is a risk of the president seeking to change the direction of US digital antitrust policy in the future. On the European side, while the EU secured a trade deal with the United States without needing to change its digital antitrust or digital regulation, the European Commission’s enforcement of the DMA and competition law—both procedurally and substantively—already appears to have been influenced by fears of triggering retaliation by the United States. It is difficult to see how the EU can adopt a rigorous and independent approach while remaining dependent on the United States for its security.

These challenges suggest several lessons for competition enforcers.

The European Commission and national competition authorities should continue cooperating with the US federal agencies and strengthen their cooperation with US state attorneys general, given their important role in US digital antitrust cases.
To effectively learn from each other’s experience with remedies, and to enhance mutual learning and correct remedies when needed, competition agencies in both the EU and the United States should have a robust evidence-based assessment of how their remedies have performed.
The European Commission needs to improve its communication strategy when pursuing antitrust cases. Antitrust enforcement must be closely linked to consumer welfare, competitiveness, and economic growth. Enhancing its legitimacy can help ensure European competition enforcers withstand any political pressure.
Europe needs to better highlight how open and competitive markets foster innovation instead of protection of national champions. Tools to open competition are therefore important ways to support US and European global technological leadership.

Merger policy and innovation

The discussion on antitrust enforcement naturally leads to questions about how merger policy can also protect innovation and competition in digital markets. Both EU and US approaches to competition policy are evolving to better tackle the role of innovation in digital markets. In particular, there is growing unease that competition authorities need to improve how they approach the impacts of a merger on innovation.

Reflecting these concerns, the United States updated its merger guidelines in 2023 after a two-year process. Merger guidelines are traditionally intended to describe the FTC and DOJ practices to the public, businesses, and courts—such as setting out important questions to which the agencies seek answers during the review process, including what type of evidence they are looking for and how that evidence is typically analyzed. However, the updated guidelines have been perceived by some as a more political document and a statement of the agencies’ intent to toughen merger policy, with more mergers likely to be presumed anticompetitive and the introduction of novel theories of harm. These guidelines remain in place for now, despite changes of leadership at the DOJ and FTC.⁹

The European Commission is still in the process of updating its merger guidelines, a process that it aims to finalize in 2027. Recently, both Mario Draghi and Commission President Ursula von den Leyen have pushed for the process to speed up. Much of the debate has centered on the importance of scale. Draghi’s report on European competitiveness—often interpreted as reigniting discussion about the merits of allowing EU firms to merge to create more innovative “European champions”—also proposed an innovation defense to allow mergers that would otherwise be prohibited. While some consider the report to be misunderstood, Draghi’s subsequent speeches have contributed to the perception that he is arguing for a loosening of merger policy. However, the extent to which new guidelines will (or can) represent a significant evolution in approach is unclear.

First, in Europe, different stakeholders have vastly different objectives when they argue that innovation (and other factors such as resilience) should play a bigger role in merger review. For enforcers, taking innovation into account might imply being able to intervene in more mergers; it is difficult to argue that EU merger policy has been too lax given that only a tiny proportion of mergers have ever been prohibited. For other stakeholders, the objective of giving innovation a stronger role in merger policy is to allow more deals. It is unclear how the guidelines can promote European champions while preventing foreign competitors from engaging in similar large-scale mergers.
Second, the recommendations in Draghi’s report are modest. His report has been understood to propose relaxing EU competition law constraints on mergers of major industrial companies. In fact, he acknowledges that a dominant firm would still be precluded from making use of the innovation defense, which would make it inapplicable in almost all cases in which a merger is blocked today. It would also be accompanied by strict safeguards and investment commitments by the merging parties. If Draghi’s proposal is adopted, there might not be much difference from today’s efficiency defense, which has never changed the outcome of a merger review process in Europe (though that might be, in part, because so few mergers are challenged in the first place or because the efficiency defenses have not been clearly articulated or sufficiently convincing). Therefore, there is a significant gap between some of the political rhetoric surrounding the review and the technical reality.
Third, the EU’s existing merger guidelines have already been superseded by changes in the commission’s practices, so the urgency of a new set of guidelines can be overstated. In reality, the guidelines should not be a statement of intent but, rather, a description of current practices and approaches. This means they might not fundamentally change case-specific analysis.
Fourth, it is difficult to see how changes in merger review alone will significantly alter the EU’s innovation trajectory. In the absence of further development of the single market, and greater availability of venture capital, highly innovative European firms will remain more likely to move to the United States or be acquired by foreign companies rather than remain European.

This might mean that—despite the call for a fundamental change in approach in Europe—the EU and the United States will stay relatively aligned.

One area in which divergence remains a risk is adopting predictable approaches to assessing the impact of a merger on capabilities and incentives to innovate, particularly in relation to disruptive innovation. Competition authorities have pursued theories of harm based on how a merger might impact innovation, even in the absence of immediate impacts on price or quality in particular markets. For example, innovation and innovative capabilities (or access to assets considered essential for innovations) featured heavily in cases such as Dow-DuPont, Amazon-iRobot, Facebook-Giphy (in the UK), and Google-FitBit. However, these cases have often (but not exclusively) focused on sustaining innovation rather than disruptive innovation. Where competition authorities have taken disruptive innovation into account (such as the UK authority in Facebook-Giphy) or examined markets for research and development (as the US and EU authorities did in the Illumina/Grail merger) they were highly criticized for making the results of merger reviews unpredictable.

Authorities will need to make decisions when the evolution of markets is not fully certain. An insistence on only acting when the anticompetitive outcome is undeniable will, on the whole, lead to less competition. On one hand, this suggests authorities should be humble. Sources of disruptive innovation are hard to identify beforehand, which suggests some firms might have more vulnerable positions than static markers of market power might imply. On the other hand, if authorities take the need to protect possibilities for disruptive innovation seriously, this might help illuminate previously under-identified types of anticompetitive effects, such as mergers that stymie potentially disruptive firms even if they appear to be in an unconnected market. This might require defining markets for innovation or focusing more on firms’ capabilities, their management practices, and their strategies in merger review.¹⁰ While the outcomes might not always be predictable, EU and US authorities could work together to try to ensure more transatlantic consistency when identifying the impact of a merger on innovation and incentives to innovate. This could increase certainty about the process and framework that competition authorities will adopt.

A second area of potential conflict is whether competition authorities should seek to promote certain types of innovation over others. In line with the Trump administration’s broader deregulatory approach, US competition authorities appear to be taking an agnostic and free-market approach to this question. In contrast, European authorities have emphasized how merger control can contribute to innovation in the area of sustainability and protect incentives for green innovation.¹¹ This includes reflecting customer and government preferences for sustainable products when defining markets. For example, when the European Commission prohibited the Hyundai-Daewoo merger in 2022, it took into account the parties’ incentives to invest in lower-emission liquefied natural gas (LNG) vessels.

A third area of divergence risk relates to politicization of the merger process in both the EU and United States. More than ever, there is a perceived risk of US merger policy and practice being influenced by industry lobbying and top-down political influence. The lack of an institutionally independent competition regulator at the EU means this also remains a risk in Europe. Industry capture could happen at the level of guidelines—where there is a risk of helping today’s largest European companies rather than promoting the growth of disruptive and innovative firms—or on a case-by-case basis. There have been previous merger cases in which the formal technical analysis did not align well with the final decision reached. In this respect, updating the EU’s merger guidelines—by reducing the European Commission’s room for maneuver in response to political pressure—could provide significant cover for taking difficult decisions.

Lessons for merger review authorities include the following.

EU and US authorities should develop consistent guidelines setting out how they will assess the impacts of a merger on innovation capabilities (such as chips and computing power, skills, data, and risky and patient capital) and incentives to innovate. A pro-innovation merger control should promote the new innovators and not protect the old ones.
DG-Comp should aim to identify and adopt positive aspects of the revised US merger guidelines and US authorities’ recent practices to inform the EU’s current exercise of revising its own guidelines. For example, adopting the US approach by combining horizontal guidelines (which signal how a competition authority examines mergers between direct competitors) and vertical guidelines (which signal the approach to mergers between players at different points in the supply chain) would prove useful to ensure the European Commission thinks holistically about the impact of mergers on innovation, including in digital ecosystems in which horizontal and vertical concerns can be closely related. On the other hand, the EU guidelines still need to follow and reflect DG-COMP’s practices and should avoid becoming politically charged or signaling major changes to the EU approach.

As with antitrust remedies, competition authorities in both the EU and the United States must be honest and clear about how their merger remedies have performed, so different authorities can become better by learning from each other’s successes and mistakes. This will be especially important if there is increasing use of long-term investment commitments as a merger remedy (as in the UK with the Vodafone-O2 merger, and as recommended by Draghi). Such an approach can help ensure authorities across the Atlantic can work with each other. DG-COMP’s previous retrospective studies on remedies are an excellent starting point.

About the author

Zach Meyers is the director of research at the Centre on Regulation in Europe (CERRE). Previously the assistant director of the Centre on European Reform, Meyers has a recognized expertise in economic regulation and network industries such as telecoms, energy, payments, financial services and airports. In addition to advising in the private sector, with more than ten years’ experience as a competition and regulatory lawyer, he has consulted to governments, regulators, and multilateral institutions on competition reforms in regulated sectors.

About CERRE

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the direct relevance and timeliness of its contributions to the policy and regulatory development process impacting network industry players and the markets for their goods and services.

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1 “Assistant Attorney General Gail Slater Delivers First Antitrust Address at University of Notre Dame Law School,” US Department of Justice, April 28, 2025, https://www.justice.gov/opa/speech/assistant-attorney-general-gail-slater-delivers-first-antitrust-address-university-notre.

2 Andrew N Ferguson, “Competition in the 21st Century: Heeding the Rallying Cry for Deregulation,” US Federal Trade Commission, May 7, 2025, https://www.ftc.gov/system/files/ftc_gov/pdf/chairman-ferguson-2025-icn-remarks.pdf.

3 “Judgment of the Court (Grand Chamber ) of 25 February 2025: Alphabet Inc. and Others v Autorità Garante della Concorrenza e del Mercato,” European Union, February 25, 2025, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:62023CJ0233.

4 “Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalties,” White House, February 21, 2025, https://www.whitehouse.gov/presidential-actions/2025/02/defending-american-companies-and-innovators-from-overseas-extortion-and-unfair-fines-and-penalties/.

5 Francesca Micheletti, “Trump’s Antitrust Agency Chief Blasts EU Digital Rules as ‘Taxes on American Firms,’” Politico, April 2, 2025, https://www.politico.eu/article/trumps-antitrust-agency-chief-blasts-eu-digital-rules-as-taxes-on-american-firms/.

6 Francesca Micheletti and Jacob Parry, “Big Tech Fines Just Got Political, Whether the Commission Likes It or Not,” Politico, April 14, 2025, https://www.politico.eu/article/big-tech-fines-digital-markets-act-political-european-commission-meta-apple-donald-trump-tariffs/.

7 Micheletti, “Trump’s Antitrust Agency Chief Blasts EU Digital Rules as ‘Taxes on American Firms.’”

8 “Statement by Executive Vice-President Ribera on the Adoption of the Google Adtech Decision,” European Commission, September 4, 2025, https://ec.europa.eu/commission/presscorner/detail/en/statement_25_2034.

9 “Chairman Ferguson Memo re Merger Guidelines,” US Federal Trade Commission, February 18, 2025, https://www.ftc.gov/legal-library/browse/cases-proceedings/public-statements/chairman-ferguson-memo-re-merger-guidelines.

10 Giulio Federico, Fiona Scott Morton, and Carl Shapiro, “Antitrust and Innovation: Welcoming and Protecting Disruption,” Innovation Policy and the Economy (2019), https://www.journals.uchicago.edu/doi/full/10.1086/705642?af=R; David J. Teece, Dynamic Capabilities and Strategic Management: Organizing for Innovation and Growth (Oxford, UK: Oxford University Press, 2009).

11 Catherine Ellwanger, et al., “EU Green Mergers & Acquisitions Deals—How Merger Control Contributes to a Sustainable Future,” Competition Merger Brief, September 2023, https://competition-policy.ec.europa.eu/system/files/2023-09/kdal23002enn_mergers_brief_2023_2.pdf.

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Trump’s latest Ukraine peace proposal sparks strong Republican reaction

Doug Klain — Tue, 25 Nov 2025 22:39:27 +0000

A new attempt by the United States to broker peace between Russia and Ukraine has sparked fresh hopes for an end to the largest European war since World War II, while also drawing accusations of echoing key Kremlin demands. Launched late last week, this peace initiative has provoked a particularly strong reaction from some of US President Donald Trump’s colleagues within the Republican Party.

Trump’s team is now working with counterparts in Ukraine and the rest of Europe to agree on a potential common framework for a settlement with Russia. Despite tensions between Republicans in Congress worried by White House pressure on Kyiv, US efforts to end the war will only be strengthened by a more activist Congress that resumes legislating on foreign policy.

The original US plan envisioned a peace built on twenty-eight points. These included a cap on Ukraine’s armed forces, a ban on Ukraine joining NATO, and the surrender of some of the most heavily fortified land in eastern Ukraine to Moscow.

The proposal drew criticism from a number of congressional Republicans. “Those who think pressuring the victim and appeasing the aggressor will bring peace are kidding themselves,” wrote Senator Mitch McConnell, who likened the plan to “a capitulation like [former US President Joe] Biden’s abandonment of Afghanistan.”

“This so-called ‘peace plan’ has real problems, and I am highly skeptical it will achieve peace,” said Roger Wicker, chairman of the Senate Armed Services Committee.

A Wall Street Journal report that Trump would withhold arms sales to Ukraine if Kyiv didn’t accept the proposal by Thanksgiving elicited a rebuke from Rep. Brian Fitzpatrick, who wrote: “Correction: The United States wants Russia’s answer on an unconditional withdrawal of Ukraine by Thursday. This Russian-drafted propaganda must be rejected and disregarded for the unserious nonsense that it is.”

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Comments from US Vice President JD Vance indicate that the White House has received significant pushback from Republicans in Congress over its recent handling of the Russia-Ukraine peace process. “The level of passion over this one issue when your own country has serious problems is bonkers,” he posted on November 24.

Perhaps the biggest challenge to the Trump administration’s position on Ukraine peace talks has come from Fitzpatrick, who filed a discharge petition to force a vote in the House of Representatives on Russia sanctions once a majority of members have signed on. This is the same mechanism used in 2024 to pressure Speaker of the House Mike Johnson to pass a $61 billion aid package for Ukraine.

A more prominent congressional role in Russia-Ukraine peace efforts would mark a departure from recent trends. At present, 2025 is the first year since the start of Russia’s full-scale invasion that Congress has not passed any legislation to assist Ukraine. From the US-Ukraine minerals deal to shuttle diplomacy in Istanbul and arms sales to NATO, the White House has made it clear that ending the war in Ukraine is Trump’s portfolio.

This helps to explain why the Sanctioning Russia Act, introduced in April 2025 by Senators Lindsey Graham (R-SC) and Richard Blumenthal (D-CT), has gone nearly eight months without a vote despite pledges of support from 85 percent of senators. Originally written to signal strong congressional support for Russia sanctions, the legislation has since undergone technical changes to improve the effectiveness of the sanctions and gain Trump’s approval, according to congressional staff.

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Fitzpatrick’s initiative could now change things. The discharge petition, which he says would force a vote on a version of the Sanctioning Russia Act and potentially also the Democrat-led Ukraine Support Act, which includes both sanctions and new military support for Kyiv, could mobilize Republicans uneasy with current peace efforts.

After nearly a year of deferring to Trump to manage a peace process, Republican criticism in Congress is growing. “The President’s appeasement plan to Russia is forcing our hand,” commented Rep. Don Bacon (R-NE), who says he considered resigning from Congress in protest over the recently proposed peace plan.

To force a vote, the discharge petition will require majority support from House members. Most Democrats will likely back the move, though some are privately sharing concerns about granting Trump increased authority to levy tariffs, should that provision remain in the final legislation attached to the petition. A handful of Republicans could push it over the line.

Further action to back Ukraine and pressure Russia is likely to find support among Trump’s base. Fresh polling from the right-leaning Vandenberg Coalition found that only 16 percent of Trump voters agree with the proposal that Ukraine should surrender territory to the Kremlin, while 76 percent support sanctioning Russia.

The reality is that without serious additional pressure on Russia, Putin is unlikely to agree to any of the peace frameworks currently being floated. However, if Congress pushes to enact crippling sanctions, extend military assistance to Ukraine, and codify security guarantees, the Trump administration’s peace efforts could finally bear fruit.

The last few days have shown that Congress is eager to help Trump force Russia to end its war in Ukraine. Capitalizing on the revised peace framework agreed by US and Ukrainian negotiators in Switzerland will now require action from both sides of Pennsylvania Avenue.

Doug Klain is a nonresident fellow at the Atlantic Council’s Eurasia Center. He also serves as deputy director for policy and strategy at Razom for Ukraine, a US-based nonprofit humanitarian aid and advocacy organization.

First, the administration shifted the MCC’s internal evaluation framework for projects, prioritizing the return on investment (ROI) for Americans, strategic alignment with partner countries, and the use of compacts (larger partnerships) and threshold programs (smaller ones) to bolster US influence.

Second, the MCC advanced supply-chain resilience and better positioned the United States for competition with China and other rivals and adversaries. The MCC leveraged investments in allied African nations to diversify US supply chains for strategic minerals and resources, addressing export restrictions imposed by US adversaries.

These efforts abroad pay dividends at home. For small-business owners, the MCC’s tactical investments should allow their goods to enter erstwhile untapped markets. With tariff barriers dropped in the foreign market and compatible standards and processes adopted, the approach is far more holistic than trade alone; rather, it is the forging of deeply embedded partnerships.

MCC’s targeted investments will unlock billion-strong export markets for American companies. In these markets, MCC investments are helping deliver thousands of miles of highways and megawatts of power infrastructure, directly mobilizing industries from manufacturers and automakers to agribusinesses, utilities, and beyond. US firms will gain market entry, furnish expertise, and forge public-private alliances. By working with the MCC’s industry and governmental partners, US companies can ensure alignments and matches ahead of time.

Going forward, this paradigm would increase American prosperity while thwarting adversarial encroachments. Consider the MCC’s $147 million Kosovo Energy Storage Project, which is projected to deliver an ROI for American taxpayers of 6-12 percent and will blunt foes’ ambitions in the Western Balkans, where China’s Belt and Road Initiative has invested heavily.

Exports propel US growth by scaling production, thus diluting unit costs at home. Liquefied natural gas exporters exemplify this: Expanded European and Asian demand spreads fixed costs, curbing prices for US consumers. Exports buffer domestic downturns, as evidenced by 2024 agricultural shipments to China ($24.7 billion) and Mexico ($30.3 billion). Global competition spurs innovation, enriching homegrown technologies. Moreover, exports erode the $918.4 billion trade deficit, bolstering economic vigor and furnishing the leverage to project American influence worldwide.

Economic diplomacy is also among the United States’ most potent weapons to push back against adversaries’ efforts to dominate sensitive areas such as the Arctic and the Pacific. The MCC will operate in the South Pacific, in part to try to address China’s $3.55 billion in infrastructure incursions across fifty hubs, including ports, airports, fisheries, and smart grids. Programs in Fiji, Tonga, and the Solomon Islands will seek to assert US influence within island chains sitting atop critical naval corridors. The United States is thus not merely reacting to its adversaries; it is reshaping the geopolitical chessboard itself.

Securing critical minerals—including rare-earth elements (REEs) vital for semiconductors, defense, and electronics—forms another pillar of the MCC’s statecraft. China dominates 90 percent of global REE refining and 70 percent of production, with recent export restrictions limiting US access. It therefore made sense for the MCC to actively seek access to these minerals, with the goal of reducing dependence on hostile nations and strengthening US supply chains. Imagine American factories, once stalled by scarcity, humming with steady mineral inflows for technological and security imperatives.

The MCC’s work is designed to de-risk ventures globally, curating its selections to optimize exports, job creation, wage gains, and manufacturing alongside US energy independence. MCC’s infrastructure and artificial intelligence pursuits are meant to kindle innovation in American firms and sharpen the United States’ competitive advantage in any global contest.

US economic statecraft is of course about more than just the MCC. From the Committee on Foreign Investment in the United States closely scrutinizing deals to the Treasury Department issuing sanctions to the Department of Homeland Security’s Forced Labor Enforcement Task Force investigating the integrity of supply chains, the renewal of US economic statecraft depends on the ability to weave these threads into a coherent and vibrant assemblage.

In a perilous era, investing in kindred spirits and trusting genuine allies can advance multigenerational prosperity in the United States by securing resources, hardening defenses, and cementing leadership. As the MCC ignites demand for US products overseas and helps keep Americans safe here at home, policymakers might consider these important lessons.

Sohan Dasgupta, PhD, is an attorney who previously led the Millennium Challenge Corporation.

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Strengthening Ukraine’s wartime economy can set the stage for peace

Zahar Hryniv — Tue, 25 Nov 2025 20:33:10 +0000

A comparative assessment of the Russian and Ukrainian wartime economies underlines that Russia’s ongoing invasion has imposed far greater costs on Ukraine by depleting its manpower, worsening its demographics, and straining the country’s financial resources. Sustained support for the Ukrainian economy is therefore crucial as Europe and the United States seek to push Putin toward the negotiating table.

American and European security interests remain closely tied to Ukraine’s survival as an independent, democratic state anchored within the Euro-Atlantic community. This will require a combination of economic and military support for Ukraine along with tougher Western sanctions on Russia.

Western sanctions and military assistance to Ukraine have undoubtedly inflicted significant damage on the Russian economy, leading to an outflow of skilled labor, deepening technological isolation, growing Russian dependence on China, and other negative trends. However, Russia’s far larger population, considerable economic resources, and vast fossil fuel reserves have allowed the Kremlin to keep the war going.

While recent US sanctions on two Russian energy giants mark an important step forward in efforts to pressure Putin, their immediate impact is limited as China and India are unlikely to stop buying Russian oil. Moreover, sanctions alone will not force Putin to abandon an invasion that he regards as central to his entire reign.

The coming fourth winter of the war will arguably be Ukraine’s most arduous since the full-scale invasion began in February 2022. Ukraine faces a constant barrage of Russian missiles and drones, along with a persistently worsening economic outlook and acute manpower crisis on the front lines. Russian President Vladimir Putin is confident that he can wear down Ukrainian military and civilian resistance, and is also counting on Western support to dwindle.

The war is now as much a test of economic endurance as it is a military struggle. The United States and Europe should be under no illusions that Putin is unlikely to compromise on Ukraine unless he is forced to accept that continuing the war will be prohibitively costly.

The Kremlin dictator’s intransigence was underscored by a recent US intelligence assessment stating that he is more determined than ever to prevail. This makes it even more important to underline the West’s own unwavering determination to continue supporting Ukraine economically as well as militarily.

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To effectively support Ukraine, Washington and Brussels need to move beyond short-term crisis responses and embrace a longer term strategy. The goal should be to help Ukraine strengthen its wartime economy and put the country in a position to continue military operations throughout 2026 and beyond.

The most pressing issue is removing obstacles to the use of immobilized Russian assets. Before the end of 2025, EU leaders must resolve internal disagreements that are currently preventing Europe from utilizing these frozen assets to cover large gaps in Ukraine’s budget for the coming year.

Plans for a $160 billion reparations loan have so far been blocked by Belgium over concerns of retaliatory Russian lawsuits and other potential Kremlin countermeasures. In order to minimize the threat, Belgium wants all EU member states to offer political guarantees for the loan. One option is to have Norway step up as guarantor, but Oslo has so far refused to take on that role alone. The United States could use its influence and leverage to offset European concerns. Alternatives to the reparations loan are subpar and would signal a weakening of Western resolve to Moscow.

Any breakthrough on the issue of immobilized Russian assets would set the stage for a proposed “mega deal” that would see Ukraine purchase large quantities of arms from the United States using $90 billion backed by European partners. Washington’s weapons deliveries to Ukraine could also be accelerated by working with Brussels through the EU’s $170 billion Security Action for Europe (SAFE) funding mechanism. This kind of transatlantic coordination would ensure that Ukraine receives the weapons it so urgently needs while strengthening NATO’s industrial base.

Support for Ukraine’s energy sector will also be vital as Western partners seek to provide Kyiv with greater economic stability. The Kremlin has dramatically expanded domestic drone production over the past year, making it possible to increase the bombardment of Ukraine’s cities and energy infrastructure. This is leading to widespread blackouts that undermine Ukrainian morale while impacting economic activity and military production.

Brussels must do more to persuade EU member states including Romania and Slovakia to lift existing restrictions on gas exports to Ukraine. This would help Kyiv cover energy supply shortfalls. Increased funding is equally crucial. Energy experts currently estimate that it will take $2.5 billion for Ukraine to import enough gas to get through the coming winter heating season. Meanwhile, the US and EU should take steps to encourage investment in Ukraine’s energy security to help repair, replace, and upgrade critical infrastructure.

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As Russia’s full-scale invasion approaches the four-year mark, policymakers in Washington, London, and across the EU must recognize that strengthening Ukraine’s wartime economy is a top strategic priority. Ukraine’s economic resilience will shape the outcome of the war and help determine European security for decades to come.

Funding Ukraine is expensive, but the arguments in favor of such an investment are convincing. After all, the cost of supporting the Ukrainian economy today would be dwarfed by the far higher price Western governments will have to pay in terms of increased defense spending if Putin’s invasion succeeds.

At present, there is little reason to believe a just and lasting peace is close. Ukraine is suffering on the battlefield, while the credibility of the country’s leadership has been seriously undermined by the largest domestic corruption scandal of the wartime period. Nevertheless, the public mood across Ukraine remains defiant and determined. In Russia, Western sanctions and Ukrainian airstrikes are causing real pain for Putin’s wartime economy, but his fixation on establishing political control over Ukraine far outweighs his need to address these mounting costs.

The United States and Europe must adopt a long-term perspective to effectively counter Moscow’s maximalist aims. Current efforts to broker a hasty peace deal risk emboldening Putin, sacrificing Ukrainian sovereignty, and compromising European security. Instead, Western leaders should send a clear message to the Kremlin that their own resolve is as strong as ever. Taking steps to strengthen Ukraine’s economic resilience would certainly underline this message, and could help to convince Putin that his hopes of outlasting the West are futile.

Zahar Hryniv is a Young Global Professional at the Atlantic Council’s Eurasia Center.

Venezuela’s oil sector was particularly exposed, given its complete reliance on PDVSA—a company already weakened by aging infrastructure and chronic underinvestment. This overreliance on PDVSA left both the energy sector and Venezuela’s broader financial system acutely vulnerable to financial sanctions.

This year, the Trump administration has increased economic pressure further, imposing a 25 percent tariff on buyers of Venezuelan oil in March. However, the Maduro government has not yielded to US economic pressure by ceding power. Instead, it has adopted sanctions evasion methods developed by China, Russia, Iran, and North Korea—a group for which my colleague Kimberly Donovan and I coined the term “Axis of Evasion” due to their shared tactics and cooperation in circumventing Western sanctions.

Like Iran and Russia, Venezuela needed to receive oil payments from China outside the reach of Western financial oversight. Transacting with cryptocurrencies is one such evasion method, which North Korea, for example, has used in the past to launder the proceeds of cybercrime. Last year, Russia softened its restrictive stance on cryptocurrencies by allowing companies to use them in cross-border trade. Reports from this year indicate that Russia has been receiving oil payments from Chinese and Indian customers in Bitcoin and other cryptocurrencies, with transaction volumes reaching tens of millions of dollars.

The Venezuelan government has spent several years experimenting with cryptocurrencies, most notably with the launch of the state-backed petro (PTR), which was launched in 2018 and collapsed in 2024. As US sanctions on Venezuela intensified in 2019 and the years since, the Maduro regime grew increasingly interested in leveraging digital assets to facilitate oil transactions—leading to US Department of Justice indictments against individuals brokering these deals. Over the past year, Caracas has turned to USDT, a dollar-pegged stablecoin issued by the offshore company Tether, as an alternative vehicle for international payments.

Tether has previously faced scrutiny over its alleged involvement in illicit finance and money laundering. Notably, Tether has also worked with the US Department of Justice in an investigation that led to the dismantling of the online infrastructure supporting Garantex, a sanctioned cryptocurrency exchange implicated in facilitating Russia sanctions evasion and money laundering by transnational criminal organizations. By 2024, Tether had also frozen forty-one wallets that were using USDT to evade sanctions on Venezuela’s oil.

By the end of first quarter of 2024, PDVSA began requiring new clients to use digital wallets and make payments in USDT for spot oil deals. Subsequently, Venezuelan authorities enabled a limited number of banks and exchange houses to offer USDT to private companies, in exchange for bolívars. In July alone, an estimated $119 million in cryptocurrencies were sold to the private sector. This shift marked the growing use of cryptocurrencies, predominantly USDT, as a substitute for physical US dollars in domestic financial flows. While crypto still represents only a small share of total oil trade by value, it plays an outsized strategic role by offering sanctioned regimes a parallel payment channel outside traditional banking.

Sanctioned oil trade schemes between China and Venezuela

Similar to other “Axis of Evasion” countries, Venezuela transports oil to China via shadow fleet tankers—sometimes called “ghost ships”—employing at-sea evasion tactics such as turning off trackers during ship-to-ship transfers and rebranding the Venezuelan crude oil as Malaysian. By 2020, official Chinese imports of Venezuelan oil dropped to zero, while Malaysian oil imports surged to a sixteen-year high.

Like Iran and Russia, most of Venezuela’s oil is refined by small independent Chinese refineries known as teapots, primarily located in Shandong province. Although China officially halted imports of Venezuelan crude after sanctions in 2019, China remains the primary destination for Venezuelan crude exports. In September, approximately 84 percent of Venezuela’s exported oil went there, either directly or indirectly. Thus, it is widely reported that Venezuelan oil goes to China, and that Venezuela ends up with USDT. What remains unknown—and needs investigation—is the payment chain that connects these two facts.

New Chinese investments in Venezuela’s oil sector

Venezuela has historically had investments from Chinese companies in its oil sector. While China National Petroleum Corporation halted operations in Venezuela in 2019 due to the risk of US secondary sanctions, reports from August indicate that the smaller China Concord Resources Corp (CCRC) is investing one billion dollars in two Venezuelan oil fields. In May 2024, CCRC signed a twenty-year shared production agreement, aiming to produce sixty thousand barrels per day by the end of 2026. Under this deal, lighter crude will be supplied to PDVSA, while heavier crude will be exported to China.

This development carries two major implications. First, it challenges the strategic framework through which the United States has traditionally approached sanctions on Venezuela. Washington has long operated under the assumption that escalating sanctions on Venezuela’s oil sector would deter foreign companies from operating there due to the risk of secondary sanctions—and, until now, that assumption has largely held. A twenty-year production agreement with a smaller Chinese firm, however, suggests that Beijing may no longer be willing to adjust its trade and investment decisions in Venezuela according to US sanctions.

Second, if CCRC can indeed raise production to the stated levels and deliver half of the output to Venezuelan authorities, restricting the Maduro regime’s access to cryptocurrencies may become the only remaining lever to curb its oil revenues. That said, CCRC has no prior drilling experience, underscoring the need for caution and close monitoring of whether it can realistically meet its production targets.

What should the US do next

Recent reporting by Reuters and the New York Times indicates that sanctioned entities—including PDVSA—are now using crypto to receive oil payments. To ensure the Maduro regime is not using cryptocurrencies to undermine the Trump administration’s sanctions strategy, the US government, in coordination with partners and allies, should build out the intelligence picture regarding Venezuela’s use of stablecoins and other digital assets to evade sanctions. After identifying the key actors and wallets involved, the government can use targeted sanctions and law enforcement actions, consistent with past actions against Venezuelan oil-trade–related schemes. It should also share relevant information with private-sector partners, particularly stablecoin issuers and exchanges. The government should then request their cooperation on freezing wallets linked to sanctioned individuals, which issuers and exchanges have done before.

Understanding how to counter sanctions evasion through cryptocurrencies is critical—not only in the context of Venezuela, but for the overall integrity of US financial sanctions. Our Axis of Evasion research shows that sanctioned regimes often replicate one another’s tactics to bypass restrictions. With Russia’s oil giants Lukoil and Rosneft now under sanctions, Moscow is likely to adopt Venezuela’s approach of using stablecoins to facilitate oil payments from Chinese buyers. Developing a clear strategy for how US sanctions and law enforcement authorities address the use of dollar-pegged stablecoins and other cryptocurrencies is therefore essential. Doing so would not only disrupt Venezuela’s ongoing sanctions evasion efforts. It would also send a powerful signal to other heavily sanctioned countries that the United States will not tolerate the use of digital assets to undermine its sanctions regime.

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

Energy Sanctions Dashboard

This dashboard focuses on US sanctions and restrictive measures placed on crude oil from Russia, Iran, and Venezuela—including the unintended consequences and the lessons learned.

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On critical minerals, the US needs more than just supply. It needs refining power.

Bart Piasecki — Tue, 25 Nov 2025 18:11:08 +0000

When China announced export controls on several critical minerals—including rare earth elements—and related processing technologies and materials this October, the United States well understood the enormous economic consequences such restrictions could carry. Washington rushed to the negotiating table, resulting in a one-year pause on the measures, wrapping up the latest round of tit-for-tat export control escalations between the two countries.

This episode illustrates the true power of critical minerals. They now sit at the center of economic policymaking worldwide, with advanced economies racing to secure reliable access to the metals that power the modern global economy.

It is no surprise that the global race to secure long-term access to these resources is accelerating. The list of critical minerals is extensive—the latest US Department of the Interior assessment identifies fifty-four such commodities. But four of them stand out for their strategic value: lithium, nickel, cobalt, and graphite. These minerals are foundational to the future energy economy, in part because they form the core inputs of lithium-ion technologies that power electric vehicles, drones, grid storage, and modern electronics. At the same time, key nodes of their supply chains are highly concentrated. Securing access to these minerals is essential for economic competitiveness, national security, and the global energy transition.

Serious players in the critical minerals landscape specialize in at least one of three key assets—and the assets that these countries lack can present strategic vulnerabilities. One asset is access to reserves or mineral supply, either through geographic fortune or effective dealmaking with nations that host these resources. A second is processing capacity. While raw materials matter, true strategic advantage comes from the ability to reduce dependence on others to make use of those raw materials. And a third is strong export capability, which depends on having either an abundant supply, advanced processing infrastructure, or, ideally, both.

For the United States, the picture is mixed when it comes to the first key asset. But it isn’t as bad as many assume. While the United States holds significant geological potential for various critical minerals, it has not benefited from the same geological fortune in several essential deposits. Even where resources exist, production is frequently uneconomical, permitting processes are highly restrictive, and robust environmental standards further constrain the ability to scale extraction and processing. What it does have, however, is a strong capacity for strategic dealmaking. Both the Biden and Trump administrations have been notably successful in securing deals with countries with reserves. The chart below illustrates just how effective these efforts have been.

US efforts to secure access to lithium, nickel, and cobalt supplies have been largely successful. Countries shown on the graph in green represent those with active critical minerals agreements with the United States. Notably, those agreements include the $8.5 billion deal with Australia, a country that holds substantial reserves of key resources. In addition, the United States benefits from its long-standing free trade agreement with Chile—a major lithium producer. Although the free trade agreement does not explicitly address critical minerals, it makes Chile eligible for US tax credits. This preferential status means that Chilean lithium can enter the US market without additional tariffs, effectively making Chilean exports more cost-competitive.

The United States continues to lag in securing formal access to graphite, with no completed agreements so far and only ongoing negotiations with Brazil and a few African countries, including Mozambique, Madagascar, and Tanzania. Graphite remains especially challenging because China controls roughly 90 percent of global output—including extraction, processing, and exports.

However, the absence of a deal on graphite or any other mineral does not mean the United States is inactive on the ground in countries that host important reserves. The United States uses its development agencies, such as the Development Finance Corporation, to support private-sector deals, especially in Africa.

Of course, there are the other two critical components of supply-chain power: processing capacity and exports. Using lithium as an example, the chart below shows that reserves are relatively well distributed across the globe. However, processing capacity is not. Refining is almost completely concentrated in just two countries: China, which controls about 65 percent, and Chile, which holds roughly 25 percent. Processing capacity also directly shapes export power. While countries such as Australia can export large volumes of raw materials, the real value in the supply chain comes from exporting processed products.

Looking again at the four examples of lithium, nickel, cobalt, and graphite, their combined global market value in 2024, based on my calculations, was roughly $100 billion, about the size of Luxembourg’s gross domestic product. For comparison, the global oil and gas market that same year was valued at around six trillion dollars. I estimate that by 2030, the market value of these four critical minerals is projected to nearly double to $186 billion. That figure isn’t slated to catch up to oil and gas soon, yet critical minerals are gaining rapidly in their strategic significance. As the transition to a modern, electrified economy accelerates, their importance will only continue to grow.

To address its vulnerabilities, the United States must now focus on building and securing access to adequate refining capacity. In their analysis, my Atlantic Council colleagues—Reed Blakemore, Alexis Harmon, and Peter Engelke—highlight US vulnerabilities and offer concrete policy recommendations, such as designing trade and partnership strategies to ensure access, stability, and resilience when a fully domestic supply chain is unattainable. Whatever path the current administration chooses, it is clear that expanding global processing capacity remains a crucial—and currently missing—step in strengthening supply-chain control and export competitiveness. Fortunately, when considering the capacity of the United States’ partners and allies, the overall picture is far more promising.

A strong example of cooperation between the United States and its partners is the recent US-Saudi agreement, which includes a deal to establish a critical minerals processing facility in the Gulf. The joint venture—bringing together mining group MP Materials, the US Department of Defense, and Saudi Arabia’s state-backed mining giant Ma’aden—will focus on rare-earth processing, a segment of the supply chain still largely dominated by China. Looking ahead, expect more of these public-private partnerships as the United States works to strengthen its critical minerals ecosystem.

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

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

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Dispatch from South Africa: The G20’s center of gravity continues to shift

Alisha Chhangani — Tue, 25 Nov 2025 16:52:15 +0000

JOHANNESBURG—This wasn’t South Africa’s first “T20.” The country has staged some of cricket’s most dramatic Twenty20 (abbreviated as T20) matches—packed stadiums, high stakes, and global attention on Johannesburg, Cape Town, and Durban. In the opening session of the November 13–14 meetings, Alvin Botes, South Africa’s deputy minister of international relations and cooperation, nodded to that sporting record but noted that this T20 belonged to think tanks instead of to cricket. This one focused not on bowlers and wickets but on the future of global economic governance.

Two weeks ago, I was in Johannesburg for South Africa’s Think20 (T20) Summit, the policy engagement group that informs the Group of Twenty (G20) leaders. The meeting came at a critical moment: the final year in a four-year cycle of Global South G20 presidencies. What I heard was a clearer, more assertive articulation of expectations—alongside pointed frustrations.

That assertiveness played out days later at the G20 Summit itself. South Africa secured adoption of the 122-point Leaders’ Declaration at the outset of the meeting, an uncommon step in G20 practice. The declaration proceeded without US endorsement but with broad support from other members. For the first G20 held in Africa, the early adoption was significant. It reflected an emerging-market cohort more willing to manage processes and shape outcomes on its own terms.

Here is what I heard on the ground in Johannesburg:

US economic leadership remains unpredictable but indispensable

Throughout the week, I heard consistent concern about the stability and rules of the global economic order. Participants described US policy tools—from tariffs and export controls to financial sanctions—as being deployed more frequently, with shorter notice and fewer clear guardrails, creating spillovers that materially affect emerging-market stability. The T20 communiqué’s emphasis on reducing reliance on a single dominant currency, for example, reflects some of these concerns.

And yet, no one argued that the system can function without the United States. The Johannesburg declaration’s focus on adaptation finance, debt sustainability, and critical minerals still leans heavily on institutions where US support is essential. The goal is not to abandon the existing system, but to diversify risk within it and push for more transparent, rules-based, and reliable engagement from Washington.

AI as the new fault line

Sessions on artificial intelligence (AI) and the digital economy revealed a different but related imbalance. There was a shared recognition that the global AI ecosystem is highly concentrated: compute capacity, high-quality datasets, and advanced model development sit in a handful of countries and firms.

For emerging markets, this raises two concerns. First, dependence on foreign technology and infrastructure. Second, governance frameworks that were largely designed elsewhere and may not reflect their development priorities. Speakers argued that current global AI frameworks reflect advanced-economy risk profiles and regulatory debates, not the realities of countries still building basic digital infrastructure. Several participants called for open-source models, stronger regional collaboration, and domestic data-governance frameworks that better protect their interests.

AI is no longer a niche technical issue in these conversations. It is now firmly part of debates on industrialization, labor markets, and sovereignty.

A more coordinated Global South posture

The current presidency cycle has widened the G20 agenda to include development-finance reform, climate adaptation, and inclusive growth—areas emerging markets have long prioritized. Speakers emphasized that they are not simply responding to external pressures but setting agendas and building coalitions.

Africa is no longer framed as peripheral to global affairs. European participants described the continent as essential to the energy transition and supply-chain diversification. For both the United States and China, Africa has become a central arena of strategic competition. Participants argued that this attention can be turned into leverage, particularly as Africa is the center of critical-minerals supply chains.

Infrastructure and connectivity offered one of the clearest tests of this shift. Participants consistently argued that Africa needs better transport, energy, and digital links, but there was far less agreement on who should build them and on what terms. Frustration persists that many Western-backed corridors still primarily facilitate extraction and export of raw materials rather than supporting domestic industrial capacity. As one participant noted, Africa is “more connected to the global economy than to itself.” The core question was not how to supply more minerals to global markets, but how to capture more value within their own borders.

That leverage was visible in Johannesburg. The G20 Leaders’ Declaration and the new critical-minerals framework both emphasize “resilient” and “stable” critical-minerals value chains—reflecting the priorities of import-dependent economies. African officials, by contrast, used their position in those value chains to push for value addition at source and for corridors that knit together African markets under the African Continental Free Trade Area. Whether that leverage translates into concrete outcomes depends on a G20 system that is already overextended.

The leaders’ declaration also exposed a structural problem. While the G20 agenda keeps expanding, the willingness to deliver on commitments appears to be shrinking. The forum’s scope has evolved—infrastructure and critical minerals are now core macroeconomic issues, but they sit alongside debt, trade, and financial regulation on an increasingly crowded agenda, all competing for limited political capital and delivery capacity. That the declaration was adopted at all, and at the outset of the summit, sets an important precedent as the presidency rotates again in 2026. But it also raises a harder question: Can the G20 meaningfully tackle an ever-expanding list of priorities, or will it be forced to pivot to a more focused agenda?

Next up is the United States

The upcoming rotation presents an unusual opening. In its G20 presidency in 2026, the United States could lead on issues such as debt transparency, financial innovation, and energy security—areas where US interests align with broader G20 concerns about productivity and structural reform.

What stood out in Johannesburg is that, despite deepening geopolitical divisions, G20 members still face common economic challenges. Rising debt burdens, energy-security pressures, technological disruption, and climate adaptation affect all members, even as they diverge on solutions. That reality gives every major power a stake in keeping the G20 as a venue where these debates continue. Whether the G20 can maintain its relevance will depend on how those powers respond to emerging-market expectations and on whether they can still identify practical areas of coordination even as broader consensus frays.

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

Note: The author’s visit to Johannesburg was sponsored by the South African T20 secretariat.

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After a lackluster G20 in South Africa, Trump can take the group ‘back to basics’ in 2026

Hung Tran — Tue, 25 Nov 2025 16:08:14 +0000

One memorable impression left by the 2025 Group of Twenty (G20) Summit under South Africa’s presidency was the empty chairs: six leaders—from the United States, China, Russia, Nigeria, Mexico, and Argentina—were absent. Among these, the United States’ nonappearance was perhaps the most notable, since it is scheduled to host the group in 2026. While other countries sent lower-level representatives to the summit, Washington boycotted this year’s G20 since the beginning, skipping the ministerial preparatory meetings leading up to the November 22-23 summit.

This wasn’t just about the Trump administration’s fraught relations with the South African government. Washington strongly objected to the G20 themes selected by the host—Solidarity, Equality, Sustainability. It also objected to the wide-ranging agenda, which included climate change and global wealth inequality, and US Treasury Secretary Scott Bessent complained that “the G20 has become the G100” due to the large number of invited countries (twenty-two nonmembers were invited). The United States also warned against the G20 issuing a statement at the end of the summit, arguing that given its objections, there is no consensus in the group. US President Donald Trump has even said that South Africa should not be in the G20 anymore.

Meeting participants agreed to issue a declaration at the beginning of the summit instead of the traditional concluding statement, although Argentina said that it did not endorse it. While South African President Cyril Ramaphosa and others have pointed to the declaration as proof of a successful G20 Summit, the declaration more likely reveals the fundamental differences among the group’s members.

So, where does this group go from here?

It’s easier to understand the challenges the 2025 G20 presidency encountered by comparing today’s international circumstances with those surrounding the summits in 2008 and 2009. In the depths of the global financial crisis in 2008, then US President George W Bush elevated the G20—which had started in 1998 as annual meetings of finance ministers and central bank governors in response to the Asian financial crisis—to the level of heads of state or government. Bush did this to move quickly to help coordinate policy measures to quell the crisis. Both the 2008 summit and the G20 Summit in London the following year succeeded in implementing significant and timely stimulus policies, together with pledges not to raise tariffs, to contain the crisis and set the stage for a recovery. Those two G20 summits also launched financial regulatory reforms and the Financial Stability Board to safeguard against future major financial crises. Looking back, it is clear that the factors facilitating the positive outcomes of those G20 summits also included a degree of mutual trust and the perception of common interests and purposes—now largely gone due to geopolitical contention.

Rebuilding this sense of trust and common purpose will take more than one presidency but—to the relief of many members who fear a total US withdrawal from the G20—it appears that the United States will remain engaged with the group, not least because it will play host in the year ahead. Moreover, early indications are that it will take a “back to basics” approach to its presidency that could prove to be productive. The agenda of successive G20 summits have kept expanding to cover many topical issues, including climate finance, inclusive and sustainable growth, sovereign debt problems and global taxation. These have diluted the G20’s focus, making it difficult to come up with concrete solutions.

Trade tensions represent another longstanding factor behind the G20’s current dysfunction. During his first term, Trump raised tariffs against China to rectify its unfair trade practices. The fact that the second Trump administration has doubled down on tariffs—imposing these and other trade restrictions on most countries to different degrees—poses a challenge for future G20 meetings.

However, as the United States prepares to take over the G20 presidency in 2026, there is a chance that the “back to basics” agenda helps facilitate meaningful exchanges of views. As Bessent recently explained, the agenda currently promises to zero in on “unleashing economic prosperity by limiting, eliminating the burdens of regulations, unlocking affordable energy and pioneering new technologies.” In other words, an agenda of economic and financial stability could refocus the G20 and make it more relevant. At the same time, the G20 must overcome the current lack of mutual trust and shared interests to regain its role as the premier forum for global cooperation and coordination.

With the right balance of “back to basics” and a willingness to negotiate key issues such as the range of policy measures to promote growth, energy security, and technological innovation, the Trump administration could make the next G20 Leaders’ Summit, scheduled to take place in December 2026 in Doral, Florida, more relevant than the one that just concluded.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and senior fellow at the Policy Center for the New South. He is a former managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.

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Could the UK’s economic woes spell doom for Keir Starmer?

Ed Owen — Mon, 24 Nov 2025 18:51:39 +0000

Barely five hundred days have passed since the Labour Party’s landslide victory in the 2024 UK elections. Yet Keir Starmer’s government is already in deep trouble, stricken by record-low public approval ratings driven by a stumbling economy, creaking public services, and a continuing crisis over immigration.

The situation is unlikely to get any better soon. This week, Chancellor of the Exchequer Rachel Reeves is set to announce a package of measures to raise more in taxes to fill a £20 billion hole in public finances.

International bond markets are watching anxiously, and some critics have argued that the UK economy risks entering a doom loop of high taxes, low growth, and rising debt. Inflation remains stubbornly above the government’s target, unemployment is up, and debt interest payments this year are forecast to represent more than 8 percent of all public spending.

It is a gloomy economic picture that has been gleefully exploited by political opponents, particularly the populist right-wing Reform UK party led by Nigel Farage. Reform UK is consistently ten points or more ahead of the Labour Party in national opinion polls.

Mixing nostalgic nationalism and anti-immigration sentiment, as well as interventionist economic policy proposals more traditionally deployed by the political left, Farage has drawn public support across normal political boundaries and tapped into a deep-seated disillusionment with mainstream political parties and politicians.

Reform UK looks to be on course to perform well in midterm elections due next May in the Scottish Parliament, the Senedd in Wales, and a host of local councils in England. Many in Labour fear their party is facing an electoral wipeout in what will, inevitably, be seen as a referendum on the performance of the Starmer government.

How the situation came to this

In Labour’s defense, the new government inherited an economy that had been seriously underperforming for more than a decade and a half. Britain’s gross domestic product grew at roughly half the rate of the United States between the financial crash of 2008 and 2024—and while the US gross domestic product per capita increased by more than 70 percent over this period, there was an actual fall of 2 percent in the United Kingdom.

Public services in health, education, and criminal justice had been left in a dismal state too after years of financial austerity imposed by Labour’s Conservative predecessors, and the double whammy of Brexit and the COVID-19 crisis hit the United Kingdom hard.

Politically, the country has recently been in almost constant flux, with five Conservative prime ministers in just eight years between the 2016 Brexit referendum and the general election last year. Yet any hope that Starmer’s mammoth victory last year would herald a new phase of political stability and prosperity has evaporated rapidly.

In truth, he owed his landslide parliamentary success (under Britain’s first-past-the-post electoral system) less to a resounding popular mandate for Labour and more to the collapse of the Conservative Party vote and an increase in support for smaller parties. No majority government in the United Kingdom since the adoption of universal suffrage has won office on a lower share of the national ballot—less than 34 percent—than this one.

Yet, while the government’s political foundations were always fragile, the first seventeen months of Starmer’s government have been marked by a series of self-inflicted policy missteps (particularly on welfare reform) and high-profile resignations amid controversy, including his chief of staff, Sue Gray; his deputy prime minister, Angela Rayner; and even his high-profile ambassador to the US, Peter Mandelson.

What lies ahead for Starmer?

The position of the prime minister himself is now being seriously questioned, too. Labour members of parliament (MPs) are privately discussing possible replacements, and speculation is rife that Starmer might face a potential challenge before or soon after the elections in May next year.

Health Secretary Wes Streeting, from the party’s right, is a potential successor, as is Rayner, now outside government but popular among activists and MPs on the left. Another possibility is Shabana Mahmood, who, as home secretary, has just unveiled a package of hardline measures to deter the thousands of migrants entering the United Kingdom illegally across the English Channel in small boats.

One further intriguing candidate would be Andy Burnham, who was an MP until 2016 and has since carved out an effective political base as the directly elected mayor of Greater Manchester in the north of England. He would, however, need to find a way back to Parliament via a by-election if he is to join any future contest.

For now, the current prime minister soldiers on. A former human-rights lawyer who led the Crown Prosecution Service, he has sought to bring technocratic, managerial competence to government after years of political turmoil. Yet even his most ardent supporters accept that he lacks charisma and struggles to connect with many of the voters who are angry, disillusioned, and desperate for radical change.

Starmer can credibly claim significant successes during his time in 10 Downing Street, not least on the international stage. He has built a close relationship with US President Donald Trump and, with French President Emmanuel Macron, has led the European response to US attempts to appease Russian aggression in Ukraine.

By committing Britain to increasing its own defense spending, the prime minister was an important influence on other members of NATO that signed up to The Hague Summit Declaration, and he has helped secure a warmer relationship with the European Union after years of suspicion and mistrust. A new trade agreement, one that softens the impact of the hard Brexit deal agreed by former Prime Minister Boris Johnson in 2019, was solidified in May alongside other breakthrough trade deals this year, including with the United States and India.

Even on the domestic front, Starmer’s government has been busy, from developing a new industrial strategy aimed at driving future economic growth to shaping new investment in clean energy, and from nationalizing Britain’s railways to reforming antiquated planning and permitting rules. Labour’s parliamentary majority is secure for at least another three years.

Yet Starmer’s public favourability score continues to be significantly down, with one poll earlier this month suggesting he is the most unpopular prime minister in the United Kingdom for almost fifty years. His government appears unable to escape a series of crises and scandals, and he has acknowledged that delivering tangible and positive changes to people’s lives has proved far more difficult than expected.

Labour MPs worry that Starmer lacks a compelling vision and is no match against the charismatic Farage. Despite being elected on a platform of change, his government’s approach has been characterized more by caution and a search for stability. It is clear now that he and his party were woefully unprepared in policy terms for the demands posed by the United Kingdom’s current situation.

It is the persisting economic challenges and high cost of living that continue to be the heaviest drag on Starmer and his team, and there is a lot riding on Reeves’s finance statement this week. Unless there is an imminent change of fortune, the United Kingdom looks likely to be facing a new round of political musical chairs soon.

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

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Saudi Arabia’s next horizon: Building human capital beyond Vision 2030

Khalid Azim — Thu, 20 Nov 2025 21:58:10 +0000

Former US Secretary of State Dean Acheson, one of the leading intellectuals of the twentieth century and a founder of the Atlantic Council, is attributed with saying, “always remember that the future comes one day at a time.” But based on meetings this week with US President Donald Trump and Saudi Crown Prince Mohammed bin Salman (MBS), the future for the Kingdom of Saudi Arabia appears to be arriving all at once.

The kingdom is committing one trillion dollars of investments to the United States while receiving advanced US technologies such as next-generation semiconductors, AI-driven data infrastructure, energy systems, and even civilian nuclear technology.

The critical question is whether Saudi Arabia can simultaneously be a net importer and exporter of capital, new technologies, energy, ideas, and talent, while producing accretive financial results and a sustainable society.

Saudi Arabia is approaching the tenth anniversary of Vision 2030, a sweeping reimagining of its economic and social identity built on three pillars: a vibrant society, a thriving economy, and an ambitious nation. As the ten-year milestone approaches, it is worth reflecting on how far the kingdom has come and what lies beyond the horizon. At the heart of Vision 2030 was a bold commitment: to diversify away from an overreliance on hydrocarbons and to build an economy that is more resilient, innovative, and equitable.

The results have been substantial, though challenges remain.

According to the International Monetary Fund (IMF), non-oil real gross domestic product (GDP) grew 4.5 percent in 2024, driven by sectors such as retail, hospitality, and construction. In the IMF’s most recent country report, after GDP rebasing, the non-oil economy now accounts for roughly 76 percent of total GDP—a major structural shift. The World Bank similarly highlights a dramatic rise in women’s economic participation. Female labor force participation increased from 17.4 percent in 2017 to around 36 percent by the first quarter of 2023, with reforms under Vision 2030 cited as a key driver.

Yet Riyadh still needs to take critical steps to foster a deeper culture of risk-taking and to fully support small and medium-sized enterprises, the true engines of job creation. As emphasized at the US–Saudi Investment Forum by leaders including Steve Schwarzman (chief executive officer and co-founder of Blackstone) and Michael Milken, another priority is the development of a stronger domestic capital market. To assess risk and returns effectively, investors require greater transparency, reliable financial reporting, and consistent rule of law—elements essential to attracting sustained private investment at scale.

Economic progress and the next frontier

According to the IMF, Saudi Arabia’s economy continued to grow in 2024 despite global volatility, expanding 1.3 percent and supported by stronger non-oil activity. Non-oil sectors grew 4.3 percent in 2024, reinforcing long-term diversification momentum. Saudi Arabia’s digital economy has accelerated significantly, with information and communication technology now estimated at 15.6 percent of GDP, according to the General Authority for Statistics. Tourism is emerging as a major non-oil contributor. Vision 2030 targets tourism at 10 percent of GDP and 1.6 million jobs by 2030, according to official Vision 2030 reporting and the Tourism Development Fund.

Foreign direct investment (FDI) has also been rising. Vision 2030 sets a target of FDI equal to 5.7 percent of GDP, and Ministry of Investment reporting indicates continued growth.

Saudi Arabia’s next phase of growth is increasingly shaped by knowledge and technology-based industries, including artificial intelligence, fintech, biotechnology, next-generation energy, and advanced computing. The kingdom combines several strategic advantages: low-cost energy, deep capital reserves, abundant industrial land, and a rapidly improving regulatory environment for foreign investors. These conditions are accelerating the development of domestic intellectual capital through joint ventures, research partnerships, and structured global knowledge transfer.

At the US–Saudi Investment Forum this week, Elon Musk announced that xAI will build a large-scale data center in the kingdom in partnership with Humain, a Saudi artificial intelligence company. With a five-hundred-megawatt power requirement, the data center would be xAI’s largest facility outside the United States. At the same forum, Schwarzman announced plans to develop AI data centers in Saudi Arabia in partnership with Blackstone-backed company AirTrunk, using Nvidia AI chips. In the opposite direction, Saudi Arabia’s Public Investment Fund has made a commitment of twenty billion dollars to a Blackstone infrastructure fund in 2017.

Fiscal headwinds and capital market realities

Despite progress, the road ahead presents meaningful challenges. Fiscal policy remains a delicate balance. New revenue streams—including value-added and excise taxes—have expanded the non-oil fiscal base, yet budget deficits persist, pressured by oil price volatility and the political sensitivity of adjusting certain expenditures.

Saudi authorities have raised the estimated 2025 fiscal deficit by about 3 percent of GDP, according to IMF projections. Meanwhile, JP Morgan estimates the fiscal breakeven oil price at approximately $98 per barrel, underscoring a revenue gap amid growing capital needs for megaprojects such as NEOM.

These megaprojects require not only capital but also parallel enabling infrastructure to deliver long-term returns. The kingdom has faced delays, scalability challenges in new technologies, and revised timelines, increasing perceived execution risk. Market pricing reflects this: despite ratings of Aa3 (Moody’s) and A+ (S&P and Fitch), Saudi sovereign debt trades at a discount to comparable single-A issuers, as reflected in spreads and Credit Default Swap levels. Limited inclusion in major bond indices may also contribute to this valuation gap, raising borrowing costs at a time when falling oil prices and a widening current account deficit suggest the need for more debt issuance.

Nonetheless, Saudi Arabia starts from a position of comparative strength. Government debt remains low by international standards, and access to capital markets is robust. Monetary stability continues to be underpinned by the long-standing riyal–US dollar peg, reinforcing both domestic and investor confidence.

Human capital: The critical path to success

Perhaps the most decisive factor in the long-term sustainability of Vision 2030 is human capital. Roughly 70 percent of Saudi citizens are under thirty-five, meaning the kingdom’s greatest asset is, as MBS noted, “not beneath the ground; it is in its people.” This generation seeks not only marketable skills but also purpose, authenticity, and global connectedness.

Women’s participation has made major gains, but ensuring equitable access to employment, investment capital, and institutional support remains essential. Structural inefficiencies still constrain the full economic potential of a large segment of the workforce.

In the near term, skills shortages, particularly in AI, biotechnology, blockchain, fintech, and next-generation energy, must be addressed through vocational programs, apprenticeships, employer partnerships, and applied learning aligned to market needs. Education systems must become more dynamic, fostering not only technical mastery and analytical reasoning but also imagination, creativity, and adaptability.

Over the longer term, primary and secondary education must evolve to match the demands of a globally competitive economy while expanding inclusion across genders and nationalities. Education must inspire as much as it instructs, nurturing the mindset and capabilities needed to compete and lead in the decades ahead.

Looking beyond Vision 2030, policymakers should adopt a transparent, data-driven focus on human capital. A national “talent scorecard” could track employment outcomes, female participation in technology fields, survival rates among small and medium-sized enterprises, and patents per 100,000 people. Publishing these metrics annually would not only sustain investor confidence but also give citizens a clear sense of progress.

Policy levers are already in motion. The Human Capability Development Program, part of the Vision 2030 framework, targets education reform and lifelong learning. The government should expand this initiative with measurable outputs such as graduate employability, private-sector training placements, and start-up participation—aligning policy intent with practical results.

Meanwhile, the global competition for talent is intensifying. If Riyadh can become a regional magnet for skilled professionals through lifestyle improvements, competitive taxation, and credible career mobility, it will solidify its status as the Middle East’s business capital. In a world where capital follows capability, talent may prove the most strategic form of investment.

Khalid Azim is the director of the MENA Futures Lab at the Atlantic Council’s Rafik Hariri Center for the Middle East.

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Dispatch from COP30: In the Brazilian jungle, the private sector takes center stage

Jorge Gastelumendi — Thu, 20 Nov 2025 19:52:05 +0000

BELÉM, Brazil—As the 2025 United Nations Climate Change Conference (COP30) comes to a close, the weather here has been mixed, with intermittent storm clouds followed by periods of sun. Fittingly, the varying weather matches the mood among many COP30 participants in the Blue Zone, where the negotiations happen and where our Center’s Resilience Hub is located.

On the one hand, voices of doubt are rising from some negotiating groups on the ability of the Brazilian presidency and the multilateral process to deliver an ambitious package of decisions that deliver real impact, particularly on finance for adaptation for the least developed countries and small island states. But on the other hand, it is heartening that the heat and humidity of the Amazon have not slowed momentum on elevating the importance of adaptation, resilience, and the role of private finance. Holding this COP in the Amazon rainforest has sharpened the focus for many stakeholders, serving as a powerful reminder that strengthening climate adaptation will require forward-looking climate finance that includes private sector investment.

The private sector—particularly insurers, banks, asset managers, and other financial institutions—has the analytics, risk expertise, and growing appetite to engage in adaptation and resilience finance. And they are ready to work on devising the right investment vehicles to channel that much-needed finance. What they need now are strong policy signals, stable regulatory environments, and practical mechanisms from governments that can connect capital to projects.

Throughout COP30, there has been a recognition that the public and private sectors cannot act alone when it comes to climate finance.

One of the most notable developments at this year’s COP was the announcement of the National Adaptation Plans (NAP) Implementation Alliance. Led by the governments of Germany, Italy, and Brazil, as well as the United Nations Development Programme, with the support of the Atlantic Council’s Climate Resilience Center, this initiative aims to improve coherence in the complex ecosystem of financing for NAPs. Streamlining NAP financing will be critical to enable the flow of more public and private resources for climate adaptation and resilience. Over the next year, this initiative will bring together representatives from the private financial sector, multilateral development banks, civil society organizations, the public sector, and other stakeholders to find ways to improve collective action to support the implementation of NAPs.

For the private sector, this means greater visibility into future projects and greater confidence in the investment environment. For governments, it means being better equipped to design projects that meet investor expectations while delivering local resilience benefits.

The Atlantic Council’s Climate Resilience Center, along with the Natural Resources Defense Council (NRDC), will play a vital role in the alliance through Fostering Investable National Planning and Implementation for Adaptation & Resilience (FINI). Announced at a high-level session during the first week of COP30 with representatives of the governments of Australia and Switzerland, FINI is mobilizing more than one hundred actors from civil society, multilateral entities, philanthropy, and the private sector that are already advancing adaptation investments around the world.

Another remarkable development at COP30 was the announcement that fifty-three countries have committed a combined $5.5 billion to the Tropical Forest Forever Facility (TFFF). The TFFF incentivizes the conservation and expansion of tropical forests by making annual payments to tropical forest countries that maintain their standing forest. The initiative is especially notable within the climate community because of its proposed hybrid financing model. The TFFF will mix sovereign and philanthropic funding to de-risk investments on forest conservation, regenerative agriculture, and agroforestry that sustain standing forests. This, in turn, will help attract commercial capital toward these activities.

Throughout COP30, there has been a recognition that the public and private sectors cannot act alone when it comes to climate finance. The announcements and initiatives that have been launched so far at this year’s summit reflected a broad shift: the conversation is no longer about whether private finance should engage in adaptation and resilience, but how quickly financial ecosystems and policy frameworks can be aligned to deliver project pipelines to respond at the scale and speed that climate change requires.

Jorge Gastelumendi is the senior director of the Atlantic Council’s Climate Resilience Center. He formerly served as chief advisor and negotiator to the government of Peru, playing a critical role during the adoption of the Paris Agreement in the government’s dual role as president of COP20 and co-chair of the Green Climate Fund’s board.

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China’s new five-year plan should be a wake-up call for the United States

Robert Hormats — Thu, 20 Nov 2025 12:50:00 +0000

Much of the recent attention devoted to the US-China relationship has focused on the October 30 meeting between presidents Donald Trump and Xi Jinping in Busan, South Korea. There, the two leaders struck a deal that reduced trade tensions and, at least temporarily, seems to have ameliorated several highly contentious issues. It was clearly a positive diplomatic step—although many more are needed.

But another event last month may ultimately do far more to determine both the deeper, longer-term economic relationship and the outcome of the intense technological competition underway between China and the United States.

From October 20 through 23, the Central Committee of the Chinese Communist Party held its Fourth Plenum in Beijing. The plenum discussed and foreshadowed the country’s fifteenth five-year plan. It will be the authoritative government policy blueprint for the Chinese economy over the next half decade.

While the final plan will not be formally released until March 2026, the communiqué that emerged from the October meeting provides an early indication of where Chinese economic policy is headed. Americans should pay close attention. These plans will have a major effect on the US economy; US international leadership in many aspects of business, science, economics, technology, and foreign policy; and US national security for years to come.

I’ve visited China frequently since the early 1970s, beginning when I served as a senior economic advisor to then-National Security Advisor Henry Kissinger. I have continued to meet with senior Chinese leaders and officials, many of whom have worked on the development of earlier five-year plans, and I have observed how these plans have changed over time. Earlier versions were built on an old Soviet model with specific production targets for items such as steel, cement, ships, and grain. They have since become authoritative “guidance-oriented” documents, with major changes especially evident during the period when Chinese leader Deng Xiaoping and Premier Zhu Rongji exerted their influence over the process.

Beginning in the early 1980s, Deng made famous the term “socialism with Chinese characteristics.” Under this policy theme, the Chinese Communist Party would remain at the center of economic power, but the Chinese economy would become somewhat more market-oriented. The policy established the early basis for the breathtaking economic and technological progress that China has made in the past several decades.

US officials and business leaders should study both the October 23 communiqué and, when it is released, the actual five-year plan in order to assess what China’s economic policies and ambitions mean for the United States. They will also need to consider how to respond to the economic, technology, and security challenges—and perhaps a few opportunities—that it poses.

Reading between the lines

As with most such communiqués, the one released in October often speaks in very general terms. The party’s goal here is not to provide specifics, but rather to signal a policy direction through carefully chosen language, and to convey major points of policy emphasis.

In this case, a few notable phrases stand out. One is that “high-quality development” should be a major focus, suggesting that China intends to enhance its status as a major producer of advanced industrial products. This is already evidenced by its dominant role in products such as electric vehicles, integrated wireless communications technologies, and solar panels, based on increasingly advanced technologies and production practices.

A second notable phrase is that “reform and innovation” will be “the fundamental driving force” for the country. More specifically, the communiqué speaks of the need for “substantial improvements in scientific and technological self-reliance and strength.” It continues:

We should enhance the overall performance of China’s innovation system, raise our innovation capacity across the board, strive to take a leading position in scientific and technological development, and keep fostering new quality productive forces.

Importantly, the communiqué reinforces the link between technology and the military, noting the need for “further advances in strengthening the national security shield” and for bolstering “the military through reform, scientific and technological advances.” Additional emphasis is placed on increasing the already close interaction between military-oriented and civilian-oriented industries, especially when the latter produce items that the military can quickly and strategically use. A recent live-fire drone exercise in Inner Mongolia suggests how much integration there is already.

While the United States is not mentioned in the document, there are oblique references to growing US-China tensions: “We must,” the communiqué states, “proactively identify, respond to, and steer changes, demonstrate the courage and competence to carry forward our struggle and dare to brave high winds, choppy waters, and even dangerous storms.” Here “storms” of American origin are doubtless what Chinese leaders had in mind; Xi has used similar language in speeches in the past. To make the point even more vividly, he emphasized during the recent plenum the priority he attached to winning “the strategic initiative amid fierce international competition.”

Elsewhere, the communiqué states that “strategic opportunities exist alongside risks and challenges, while uncertainties and unforeseen factors are rising.” The only other phrase that rises to that level and seems to be written with the United States in mind is the call for “self-reliance and self-strengthening in science and technology.” This signals an intent to reduce the country’s dependence on foreign suppliers who might attempt to use China’s reliance on their products for negotiating leverage or to apply political or strategic pressure.

To put these measures into historical context, it’s hard to overestimate how deep and politically sensitive memories are in China about the history of foreigners using strategic leverage to put political or military pressure on the country. When I first visited China, while Mao Zedong was still its dominant leader, I was often reminded of his statement:“We are bullied by others.” To this day, China is determined to ensure that this never happens again.

American business leaders, as well as top US economic and defense officials, will need to pay particular attention to how the plans relate to China’s desire to enhance its role as an already enormously competitive industrial power, often in products formerly dominated by the United States or the West. They should also anticipate a multitude of new regulations, data-privacy and protection policies, and techniques for global advancement of Chinese-centric advanced technology hardware and software. Elaboration of policies on technologically critical rare-earth minerals is also likely. US military strategists especially should take note of rapidly growing connections between technology and national security. These elements will affect virtually all aspects of China’s relations with the United States.

Competition for the best and brightest

US policymakers should heed China’s efforts to accelerate the scientific talent behind its technological development. Beijing wants to recruit a new wave of world-class scientists, researchers, and innovators—many of whom are now in the United States—to work with its own world-class teams. It is also trying to entice Chinese researchers back from US companies and research centers. Both efforts could be bolstered by what Chinese leaders see as Washington’s sudden introduction of a host of new policies hostile to basic scientific and medical research. These US policies are causing many researchers and scientists to look for new opportunities abroad.

Both Deng, the former Chinese leader, and Zhu, the former Chinese premier, were strong advocates of Chinese students and researchers going abroad, especially to the United States—a practice that had been largely forbidden during the Cultural Revolution. In one memorable meeting that I and a small group of international colleagues had with Deng, he asserted that this was one of the decisions of which he was most proud. When these students returned, he said, they would “change China.”

One manifestation of this change was the development of a more market-friendly five-year planning process. Another was more competitive practices by both state-owned enterprises and the few but rapidly growing number of private companies.

For many years, much of China’s technological progress was attributed to Chinese companies finding various ways—some through illicit methods and some through normal business transactions—of obtaining advanced foreign technology. Now, however, many advanced Chinese products come from Chinese-originated, highly successful technology—a process known as “indigenous innovation.”

China’s indigenous innovation has grown rapidly of late to include sophisticated drones, impressively engineered robots, advanced electric vehicles (EVs), new generations of chips, widely used 5G technology, surprise advances in artificial intelligence (AI), advanced solar energy and battery technology, and fast, comfortable trains.

Some of the funding for advanced technologies in China comes from private capital, much of it from abroad, but huge sums also come from the government. Xi has determined that China should become the preeminent technology power in the world. Moreover, he wants Chinese businesses to provide the infrastructure that other countries, particularly in the Global South, use to build their data and telecommunications networks. He also wants these companies to sell them EVs and other technology. And he wants to supplant the United States as the most important force shaping global rules and network systems to make them more friendly to Chinese economic and political interests.

In the view of many Chinese officials, the next steps in the technology race will depend primarily on the skills of a rapidly growing number of formidable Chinese scientists, researchers, and innovators. But China also sees the potential for attracting scientists and researchers from abroad, as the United States has done for decades.

At the end of the same meeting mentioned above, Deng pulled me aside. Observing that I was probably the youngest member of our delegation, he told me that it would be good for US-China relations if significant numbers of bright young American scholars and scientists could visit, study, and work in China. He asked if I thought that were possible. I replied that I thought many young people would be interested, under the right conditions. He smiled and said, “Please tell your friends that I hope they do come. They will be very welcome.”

Chinese leader Deng Xiaoping escorts former US Secretary of State Henry Kissinger at the Great Hall of People, Beijing, on November 10, 1989. (REUTERS/Richard Ellis)

Over the years, Deng’s hope has materialized, probably beyond his wildest dreams. China is tapping into top talent, in numerous cases from the United States, to advance its remarkable technological rise. But until now it has had to compete with great American universities and research centers that were able to attract, support, and retain leading US and foreign scientific and research talent—often thanks in part to generous US government grants from the US National Laboratories, the National Science Foundation, and the National Institutes of Health.

Recent US policy changes present an opening for China’s leaders. According to a survey by Nature of more than 1,600 scientists in the United States, about 75 percent are considering leaving the country. Many of those who said they have thought about leaving are young, up-and-coming researchers and post-docs. And while most listed Canada and Europe as potential destinations, some doubtless have their eyes on China. A major reason given for their desire to leave the United States was major cuts in government grants for scientific and medical research—and the resulting cuts in jobs for researchers and post-docs in those areas.

Beijing clearly sees this as a golden opportunity. This summer, China announced a new “K visa” category that is designed specifically for young science and technology talent from abroad. The new five-year plan will surely reflect a desire to capitalize further on this opportunity.

Building economic and technology alliances

While China has very few military alliances, it does have a great many economic- and technology-oriented ones—especially with Singapore and other countries in Southeast Asia. And Chinese technology, through such formidable telecommunications companies as Huawei, is a key link to other nations. Solar-energy infrastructure and harbor development are other areas for collaboration. Sales of low-cost, gas-saving autos, especially electric vehicles, are yet another. Also, China is playing a key role in establishing the digital ecosystems of many of these nations, mostly in the Global South, likely giving Beijing enormous access to their data.

One major follow-up to the new five-year plan, hinted at in the communiqué, is likely to be a focus on strengthening these kinds of linkages. By attempting to achieve technological preeminence and by working with such countries, China seeks to assume a leadership role in shaping the twenty-first-century economic order to its benefit. It is a prospect that US policymakers should bear in mind when engaging in massive and disruptive funding cuts. China is positioning itself to lead the effort to write the future international rules affecting many areas of science and technology to its advantage. At the same time, the United States is pulling back and, consequently, its influence in this area is waning.

Domestic confrontations vs. domestic cohesion

China has not failed to observe the political and ideological chasm—and the dismaying acrimony—in the United States over support for scientific and medical research and innovation, along with collapsing US support for global economic institutions such as the International Monetary Fund, World Bank, and World Trade Organization. Chinese officials with whom I have recently spoken see these developments as examples of weakening US potential to sustain international leadership in many economic areas.

Meanwhile, the Chinese government has been using its five-year plans as a vehicle for strengthening internal collaboration and cohesion among key players in science and technology. While the plan traditionally is developed under the leadership of the Chinese Communist Party, it is the result of years of consultation with nongovernmental experts, private-sector companies, environmentalists, technology leaders, and university researchers from around the country. This process narrows differences among these experts and creates a sense of national unity around the final plan. While the Chinese Communist Party’s decisions still prevail, collective participation enhances the prospects of acceptance and implementation. This is certainly true in research, technology, and innovation.

The planning process is also one way of enhancing policy consistency, continuity, and predictability. This predictability creates a more stable environment for investment and business decisions—assuming, importantly, that party intervention can be kept to a minimum. Chinese leaders are quick to contrast their approach with political and policy uncertainties and unreliability in the United States.

To be sure, China’s is far from a perfect system. Many significant problems still exist. Youth unemployment remains high. Investment continues in the production of goods where there is already massive overcapacity. Private investment has lagged expectations. Household consumption is exceptionally low as consumers remain relatively cautious. Indeed, as the communiqué indicates, encouraging considerably more consumption is a high priority for party leaders. The government also is still grappling with how to govern and regulate AI. And fully integrating foreign scientists, with different languages and backgrounds, is often challenging.

How the United States should respond to China’s plans

Nevertheless, US policymakers need to come to terms with a central fact: The United States now faces, in China, the most formidable economic and technology competitor it has encountered in nearly a hundred years. And the United States is doing so at precisely the same time that it is engaging domestically in more intense, partisan, and harmful confrontations and divisions on many subjects critical to its future financial stability and technological and scientific competitiveness.

Such deep divisions at home are inflicting harm on the very institutions and principles that made the United States the world leader in the areas noted above for many decades. And while Americans struggle with rancorous domestic divisions, project dysfunction over such basic issues as keeping the government open and planes flying, and indulge in partisan hostility to science and research, China’s role in important areas of technology and its public pronouncements around the world, especially in the Global South, about the dysfunctionality of the US government and governance model have increased.

It might be easiest to start with what the United States should not to do in response to this challenge. Decoupling from China is not an effective answer; US dependence on China for rare-earth minerals and ingredients in many pharmaceuticals illustrate as much. Nor are a full-scale effort to contain China or hoping the relationship returns to what it was a few decades ago. Nor is a prolonged and unstable confrontation with Beijing, which is not in the interest of either great power. Nor is waiting for some Sputnik-like moment to awaken the United States to the challenge.

The awakening needs to come from within. The United States has enormous competitive strengths and a plethora of leading companies. It has abundant labor skills, world-class scientific expertise, highly successful research labs, and globally respected universities. It has an impressive history of entrepreneurial capitalism and competitive markets dating back decades. But if the United States continues to succumb to hostile partisan divisions on major economic and technology issues—and if its policies continue to damage the scientific, educational, technological, and basic research traditions and institutions that have driven its achievements in the past—then the United States’ economic future and scientific preeminence will become more and more uncertain.

Some US politicians see China’s successes as an economic threat and advocate engaging in a slew of punishing measures in areas such as trade and investment. But much as some in Washington may hope, the United States will not win its competition with China this way. Some tough trade and investment measures may be justified from time to time to defend US economic or security interests. Many others, however, will likely be of dubious benefit or counterproductive, or invite painful retaliation from China.

Rather, the United States should rise to the challenge of China’s economic and technological ascendance by supporting sound fiscal policies, increases in basic research, more funding for advanced science, higher quality education for more Americans, an attractive environment for foreign students and researchers, and other elements essential to growth and competition.

US leaders should see competition with China as a wake-up call—an opportunity to pull together US society at home, recognize the roots of the long history of US economic and strategic success, and mobilize its historic economic advantages and its resources to meet the competitive challenges that will define the twenty-first century.

The United States’ economic future will be determined not by a document, however dynamic, of another great power across the Pacific. But the policies in that document should serve as a wake-up call—a test of US ability and will to successfully meet the challenges the country now faces at home and abroad to advance its principles and interests in the face of twenty-first-century realities.

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China’s new five-year plan should be a wake-up call for the United States

Robert Hormats — Thu, 20 Nov 2025 11:00:00 +0000

Reading between the lines

We should enhance the overall performance of China’s innovation system, raise our innovation capacity across the board, strive to take a leading position in scientific and technological development, and keep fostering new quality productive forces.

Competition for the best and brightest

Chinese leader Deng Xiaoping escorts former US Secretary of State Henry Kissinger at the Great Hall of People, Beijing, on November 10, 1989. (REUTERS/Richard Ellis)

Building economic and technology alliances

Domestic confrontations vs. domestic cohesion

How the United States should respond to China’s plans

Robert Hormats is a member of the Atlantic Council’s board of directors and a former US undersecretary of state for economic, energy, and environmental affairs.

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Digging into the details of the US-Saudi deals

Atlantic Council — Wed, 19 Nov 2025 18:14:53 +0000

GET UP TO SPEED

“We’ve always been on the same side of every issue.” That’s how US President Donald Trump described Saudi Crown Prince Mohammed bin Salman (MBS) during a chummy Oval Office meeting on Tuesday, part of a day of pageantry and dealmaking at the White House. The United States and Saudi Arabia struck a series of agreements on defense, semiconductors, nuclear power, and more. While the world awaits the fine print of these deals, our experts took stock of what the leaders have announced so far and what to expect next.

TODAY’S EXPERT REACTION BROUGHT TO YOU BY

Daniel B. Shapiro (@DanielBShapiro): Distinguished fellow at the Scowcroft Middle East Security Initiative and former deputy assistant secretary of defense for the Middle East and US ambassador to Israel
Tressa Guenov: Director for programs and operations and senior fellow at the Scowcroft Center for Strategy and Security, and former US principal deputy assistant secretary of defense for international security affairs
Jennifer Gordon: Director of the Nuclear Energy Policy Initiative and the Daniel B. Poneman chair for nuclear energy policy at the Global Energy Center
Tess deBlanc-Knowles: Senior director with the Atlantic Council Technology Programs and former senior policy advisor on artificial intelligence at the White House Office of Science and Technology Policy

Jet setters

On defense, Trump approved the sale of fifth-generation F-35 fighter jets to Saudi Arabia, which Dan interprets as an indication that the US president “is going all-in on the US-Saudi relationship.”
But “China remains an issue in the backdrop of US-Saudi defense relations,” Tressa tells us. She notes that US intelligence agencies have reportedly raised concerns about Chinese access to the F-35 if a US-Saudi sale were to proceed, and “similar efforts to sell F-35s to the UAE were not realized across the previous Trump and Biden administrations, in part due to concerns of technology transfer to China.”
There’s also the US legal requirement to ensure Israel’s qualitative military edge (QME) in the region. Dan points out that although the 2020 F-35 deal with the United Arab Emirates was later scuttled, it did pass a QME review, and the Saudi deal is likely to do so as well, in part because “Israel will have been flying the F-35 for a decade and a half before the first Saudi plane is delivered, and Israel will have nearly seventy-five F-35s by then.”
But the UAE deal was linked to its normalization of diplomatic relations with Israel, and “it appears there is no link to Saudi normalization” with Israel in this deal, Dan points out. In the Oval Office, MBS conditioned his joining the Abraham Accords on “a clear path” to a Palestinian state, which does signal a potential disparity from Saudi Arabia’s previous stance requiring the “establishment” of a Palestinian state.
The Biden administration held talks with Saudi Arabia about a treaty that “would have included restrictions on Saudi military cooperation with China and ensured access for US forces to Saudi territory when needed to defend the United States,” Dan tells us. But “Trump has not announced whether he is giving the Saudis a one-way security guarantee, or whether there are mutual-security commitments.”
So what about Trump’s announcement during MBS’s visit that Saudi Arabia has become the United States’ twentieth Major Non-NATO Ally? Tressa tells us the designation “is a favorite tool of US presidents to cap off major visits with a symbolic flourish to indicate elevated relations.” But Saudi Arabia already enjoys many of the benefits of the designation, Tressa notes, such as privileged access to US arms sales, and the designation “does not provide any special or enforceable security guarantees, nor is it a binding treaty.”

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Nuclear option

The White House also announced a Joint Declaration on the Completion of Negotiations on Civil Nuclear Energy Cooperation. Jennifer tells us it’s “likely a precursor to an official Section 123 agreement” on peaceful nuclear cooperation, which must also be reviewed by Congress.
“Saudi Arabia has indicated keen interest for years in pursuing civil nuclear technologies,” Jennifer notes, both to add to its power grid and for water desalinization. If the United States provides that nuclear technology, she adds, then “it can exert influence on security matters and help prevent the development of nuclear weapons in Saudi Arabia and beyond.”
“Although there had long been speculation that a civil nuclear agreement between the US and Saudi Arabia might cover broader geopolitical issues,” Jennifer adds, “this week’s announcement reflects a more pragmatic approach with a focus on technologies that have strong national security implications.”

Chipping in

The two leaders also announced an AI Memorandum of Understanding but did not release many details. “Likely this means the approval of the sale of a package of advanced AI chips to Saudi Arabia,” Tess says. In the Oval Office, she points out, “MBS shared his vision (and strategic bet) on computing to compensate for the country’s workforce shortfalls and ensure continued economic growth.”
While the Trump administration has lifted the Biden administration’s “AI Diffusion Rule” that limited the sale of chips to many countries, it still has the final say on exports of the most advanced chips to Saudi Arabia, Tess notes, “likely due to fears related to ties with China.”
Now, Tess adds, US national security officials will keep their eyes on “the provisions of the new AI agreement focused on technology protection and what measures will be put in place to keep America’s most advanced AI chips out of reach of Chinese adversaries.”

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Why modernizing CAFTA-DR matters for the United States, and options for updating the trade pact

Enrique Millán-Mejía, Antonio Ortiz Mena, and Rocío Rivera Barradas — Wed, 19 Nov 2025 14:00:00 +0000

Bottom lines up front

The United States’ free trade agreement with Central America and the Dominican Republic needs updating to address digital trade, labor standards, and supply-chain rules that have evolved since it took effect in 2005.
Modernizing CAFTA-DR will strengthen US economic security by countering China’s influence and reducing migration pressures.
Three paths forward exist: full USMCA accession for CAFTA-DR members; replacing the group agreement with bespoke bilateral deals; or targeted updates to specific chapters of the original agreement.

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As the US government reconsiders its trade architecture, as well as its trade network in the Western Hemisphere, updating the Central America–Dominican Republic Free Trade Agreement (CAFTA-DR) should be viewed not as a simple economic exercise, but as a strategic investment in US economic security and competitiveness. An upgraded CAFTA-DR could reinforce regional stability at a time when economic fragility, migration pressures, and external influence are converging in the United States’ near abroad.

Aligning CAFTA-DR’s standards with the more modern United States–Mexico–Canada Agreement (USMCA) framework—for example, on digital trade, labor, and supply-chain governance—would create a more coherent North American–Central American production corridor serving US industries, reducing dependence on distant suppliers, and supporting a more orderly regional economy.

China’s expanding presence in Central America and the Caribbean, via critical infrastructure investments, technology partnerships, and growing trade links, has altered regional dynamics and tried to dilute US influence. Modernizing CAFTA-DR is therefore not just an economic update; it is a geopolitical must-have to both secure supply chains and keep key trade partners aligned with the United States.

An updated CAFTA-DR could strengthen supply chain resilience by encouraging the strategic relocation of certain US light and more-labor-intensive manufacturing and by diversifying away from China-dependent networks. It would also enhance digital trade rules, environmental standards, and labor protections, all central issues on today’s economic security agenda. By refreshing these commitments, the United States could help its partners attract high-value investment, foster inclusive growth, and reduce migration pressures fueled by economic fragility.

Moreover, modernization would reaffirm Washington’s long-term commitment to shared prosperity and democratic governance. A proactive US agenda, anchored in fair trade, sustainable investment, and transparent governance, could offer a compelling alternative to China’s transactional and opaque financial approach. In short, an updated CAFTA-DR represents a strategic tool for deepening US partnerships, defending economic values, and reinforcing the hemisphere’s autonomy at a time when geopolitical competition is intensifying.

About the authors

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

Antonio Ortiz-Mena, PhD, is a nonresident senior fellow at the Adrienne Arsht Latin America Center of the Atlantic Council. He served as head of the Trade & Economics office of the Embassy of Mexico to the United States between 2007 and 2015. He is the CEO and founder of AOM Advisors.

Rocío Rivera Barradas, PhD, is a senior advisor with AOM Advisors. She served as trade and investment diplomat of the government of Mexico to the United States, based at the Mexican Consulate in Chicago, between 2019 and 2024.

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China’s economic slowdown and spillovers to Africa

Matthew Mingey, Jeremy Smith, and Laura Gormley — Tue, 18 Nov 2025 16:00:00 +0000

Bottom lines up front

On balance, the best long-term outcome for Africa is likely one in which China accepts the cost of reform.
Demand for minerals will grow about 5 percent per year under all scenarios but only a reform scenario sees Chinese demand for African manufactures grow.
Chinese exports of commodities and manufactures to Africa are set to grow only 4 to 6 percent per annum in all scenarios, a marked decline from annual growth rates above 10 percent between 2020 and 2024.

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Executive summary

China’s economic rise and its integration with Africa have catalyzed new infrastructure and industries across the continent. But this also now exposes African countries to negative ripple effects from changes in China’s domestic economy. As China’s investment- and manufacturing-centric economic model loses steam, African officials and policymakers will need to plan for growth and economic transformation, with an understanding that their largest trade and investment partner might look very different than it has over the past decade.

This report investigates how different projections of China’s economic growth and structure over the next five years (through 2030) will affect trade and financial engagement with the African continent, and what these outcomes will mean for decision-makers. It deploys a novel framework to estimate how economic flows between China and Africa shift under different growth scenarios. To account for Africa’s diverse economies—spanning some of the world’s least developed countries as well as high-income financial centers—this analysis extends to country groups.

No growth scenario in China will benefit all of Africa’s nations equally. But on balance, the best long-term outcome for Africa is likely one in which China accepts the cost of reform to implement slower, but more stable, growth. While countries could previously envision the net benefits of close trading relationships with China in 2030, trade now presents both opportunity and threat: opportunity in the form of cheap imports, but complication in the form of persistent trade imbalances and overcapacity in manufacturing. Under any growth scenario, finance from China’s banks and investors will continue to decline—whether sharply or gradually—as China’s domestic financial system evolves.

Chapter 1 surveys economic conditions in Africa as of 2025, as well as how commodity markets and external imbalances make many African countries vulnerable to shifts in the global growth environment and in their economic relationships with China. Even countries with limited direct exposure to China are likely to feel the impact of a slowdown via regional economic linkages and the effect of China’s exports and imports on global prices.

Chapter 2 provides an overview of trade and financial flows between China and Africa. While the importance of individual flows varies, a few channels account for the majority of economic value: goods trade, commercial and development finance, and foreign direct investment (FDI). Baseline growth rates of these flows are used to inform projections in the later analysis.

Of these, the goods trade represents the largest scope of bilateral engagement between China and the African continent, approaching $300 billion annually as of 2024, or about 10 percent of Africa’s gross domestic product (GDP). However, imbalances driven by structural characteristics of the two economies have intensified in recent years. Despite recent attempts to diversify trade, African countries still have large trade deficits, mostly exporting commodities to China and importing manufactured goods. China’s mode of finance mixes concessional and commercial motives, and new financial flows are slowing as lenders look to control risk. The result has been that China is collecting more in debt service payments than it is disbursing in new loan finance.

China’s outbound financial activity, which recovered after COVID-19 downturns, is now more diverse in both its form and its targets. New annual FDI flows from China now exceed new lending from China to African countries ($6 billion in annual deals as of 2023, according to Rhodium Group data). Portfolio flows are still small. Estimated total Chinese portfolio investment amounted to only $1.6 billion as of June 2024, which remains concentrated in economies with more developed financial markets, such as South Africa and Egypt. The differences in scale between these flows influence the channels through which China’s growth effects will be most keenly felt.

To evaluate the impact on African economies of spillovers from China’s growth slowdown, Chapter 3 establishes a baseline of economic conditions in China. The real question to determine China’s future growth is whether it manages to reform its investment-driven system or stagnate on its current path. To evaluate both of these possibilities, we evaluate the economic assumptions of China’s growth scenarios—and from there, the impacts on African countries— through 2030, using three different perspectives.

The International Monetary Fund (IMF) scenario: In its official World Economic Outlook (WEO) projections, the IMF forecasts growth of 3.4 percent by 2030.
The reform scenario: China begins to successfully rebalance toward a consumer-oriented economy and the country’s economic growth slows in the short term before rising to a more sustainable rate of around 4 percent by 2030.
The stagnation scenario: Beijing’s reform efforts flounder and China’s economy grinds slower and slower. Growth slows to 2.5 percent by 2030.

Chapter 4 assesses outcomes for African economies, based on the growth scenarios laid out in Chapter 3 for China through 2030. The impacts of growth projections are evaluated for goods trade across four product groups of Chinese imports from Africa (oil, minerals, agricultural products, and manufactured goods) and two product groups of Chinese exports to Africa (manufactured goods and commodities). Impacts on key outbound financial flows from China to Africa are also evaluated, including lending, portfolio flows, and FDI. Several key takeaways arise from this analysis.

Across different scenarios, China’s oil imports from Africa are likely to decline due to growing electric vehicle adoption and clean power generation capacity, but they hold up best in scenarios in which China’s structural reforms are limited.
China’s non-oil mineral imports will likely grow quickly under all scenarios, but demand might shift among mineral products, with different implications for different African countries. Commodities such as iron ore and those used in clean tech sectors are core inputs for a variety of China’s manufacturing industries. As a result, the projected growth of China’s mineral demand is strong across all scenarios.
African manufactured and agricultural goods do best in a reforming China, where an empowered consumer base spends more on foodstuffs and African-made manufactured goods such as clothing. In the stagnation scenario, and to a lesser extent, the IMF scenario, weak Chinese demand and expanding manufacturing output and trade surplus suppress demand for African manufactured goods. Growth of China’s agricultural imports is projected to be strong under all three scenarios. In the reform scenario, growth projections are highest for both agriculture and manufacturing imports. As Chinese household consumption grows, industrial upgrading in China will move out of lower value-added industries, letting African manufacturers capture more market share.
All three scenarios project that lending to Africa will be stronger than other forms of finance. Chinese lenders will still need to refinance and support their existing obligations despite tightening constraints on their balance sheets.
Under all three scenarios, the growth of FDI to Africa is projected to continue at modest levels over the next five years. Chinese FDI in Africa is heavily concentrated in capital-intensive sectors that are stickier and more often linked to policy goals, such as control of critical minerals and other essential inputs used by Chinese manufacturers.

Chapter 5 concludes by assessing the potential impacts of each scenario by country group. While oil exporters and “traditional” mineral and commodity metal exporters would paradoxically benefit from a “stagnating” China that maximized oil consumption, this would not be a net benefit to the rest of the continent. Instead, a reforming China—better positioned to resolve trade and financial imbalances, and to drive consumption of Africa’s exports—offers the best prospects overall for a larger group of African countries.

For transition mineral exporters, demand for Africa’s critical minerals is likely to persist regardless of scenario, as these sectors will remain a core focus of China’s (and other countries’) national economic strategies. It is more difficult to predict outcomes for low-income countries even if they are less exposed to commodity markets, where much depends on regional transmission of spillovers. Though China’s aid and development finance are far from the only considerations for policymakers in this group, they are not guaranteed to rise even in a high-growth scenario. For the middle-income group as well, much depends on the balance between surging Chinese exports and opportunities to capture investment from China. A reform scenario is their best bet.

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About the authors

Matthew Mingey is an Associate Director with Rhodium Group, focusing on China’s economic diplomacy and outward investment, including development finance. Matthew is based in Washington, DC. Previously, he worked on global governance issues at the World Bank. Matthew received a Master’s degree in Global Business and Finance from Georgetown University’s Walsh School of Foreign Service and a Bachelor’s degree from the University of Pennsylvania.

Jeremy Smith is a Research Analyst with Rhodium Group’s China practice, focusing on China’s evolving growth dynamics and economic engagement with the world. Jeremy previously worked at S&P Global, where he performed macroeconomic forecasting and sovereign risk analysis for countries in Latin America and the Caribbean. Prior to that, he was a James C. Gaither Junior Fellow at the Carnegie Endowment for International Peace. Jeremy received a master’s degree from the Johns Hopkins School of Advanced International Studies, concentrating in international economics and China studies. He also earned a graduate certificate from the Hopkins-Nanjing Center and a bachelor’s degree from Williams College.

Laura Gormley is a Senior Research Analyst with Rhodium Group’s China Projects Team, focusing on China’s innovation ecosystem and external economic engagement. Prior to joining Rhodium Group, she was a research assistant with the Global Development Policy Center – Global China Initiative at Boston University, where she contributed to the Center’s work on China’s development finance and decarbonizing the Belt and Road Initiative. Laura holds a Master’s degree in Global Policy from Boston University’s Pardee School of Global Studies and a Bachelor’s degree from McGill University.

Acknowledgements

This report was written by Matthew Mingey, Laura Gormley, and Jeremy Smith, with support from the Atlantic Council GeoEconomics Center’s Charles Lichfield and Jessie Yin.

Rhodium Group and the GeoEconomics Center wish to thank the colleagues, fellow analysts, and reviewers who shared their ideas and perspectives with us during the writing process and helped us strengthen the study in review sessions and individual consultations. Our gratitude goes out to Daniel Rosen and Josh Lipsky.

This project was made possible thanks to the philanthropic support of Carnegie Corporation of New York.

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The Trump-MBS meeting comes at a pivotal moment for Vision 2030

Frank Talbot — Tue, 18 Nov 2025 10:30:00 +0000

Saudi Crown Prince Mohammed bin Salman’s visit to Washington will likely include a series of announcements of commercial and defense-related agreements between the kingdom and the United States. Woven into every discussion, however, will also be an issue that remains central to the prince’s vision for Saudi Arabia—the ambitious economic transformation plan known as Vision 2030, which seeks to diversify the country’s economy, increase private-sector participation, and reduce dependency on oil. Today, Saudi Arabia faces the threat of regional instability preventing the realization of Vision 2030—and it thinks the United States can help.

Saudi leadership is looking to bring in more international investors, keep supply chains running smoothly, and maintain a consistent stream of visitors to the country. Meanwhile, US policymakers are hoping for a calmer Middle East and a Saudi Arabia that’s both stronger and able to weather challenges. Both sides understand that Vision 2030 now depends on what happens outside the kingdom’s borders as much as on the reforms taking place within.

MENASource

Nov 18, 2025

The MBS visit to the White House could revive IMEC

By Afaq Hussain

After October 7, the corridor that once symbolized economic integration in the Middle East became a victim of regional instability.

India Middle East

MENASource

Nov 18, 2025

Peace, pacts, and recognition: Saudi Arabia at the forefront of a new Middle East

By R. Clarke Cooper

Trump and other US officials remain eager to add Saudi Arabia to the Abraham Accords rota and to strike a defense pact.

Middle East Peacekeeping and Peacebuilding

The timing matters because Vision 2030 has reached a more demanding stage. The kingdom has made clear gains in entertainment, tourism, public administration, and industry. At the same time, its most visible projects face delays, rising costs, and heavier reliance on public financing. Experts have documented higher construction expenses, shortfalls in foreign investment, and repeated capital injections into regional development projects such as Neom—all of which place pressure on state finances and investor confidence.

These challenges explain why Saudi policymakers are increasingly sensitive to regional shocks—including conflicts between Israel and Iran, increased maritime threats in the Red Sea, and political instability in the Levant—that can slow progress or weaken investor trust. Vision 2030 is now shaped not only by domestic choices but by the stability of the neighborhood around Saudi Arabia.

Regional instability

Increased attacks on commercial vessels in the Red Sea from Yemen’s Houthi rebels in recent years show how regional instability directly affects Vision 2030. The Houthis continue to disrupt global supply chains and raise insurance premiums for vessels heading toward the Suez Canal. The campaign of attacks has prompted companies, such as Maersk, to divert ships around the Cape of Good Hope. These changes increased transit times and created uncertainty in the logistics networks that Saudi Arabia hopes to anchor along its western coast. Tourism in the Red Sea has also slowed as travelers reassessed security conditions. These trends matter because the western coastline sits at the center of the kingdom’s tourism and infrastructure plans.

Sudan’s conflict reinforces these pressures. The war has destabilized a region that matters for Saudi food supplies, investments across Africa, and security around Port Sudan’s shipping lanes. Gulf states have considerable leverage in Sudan because of their financial and political ties, yet competing agendas have complicated efforts to reach a durable peace. Analysts warn that the conflict is reshaping Red Sea security and that instability on land is spilling over into the maritime environment. For Saudi Arabia, prolonged fighting threatens the long-term viability of coastal tourism and logistics projects that rely on predictable security conditions.

With Israeli strikes in Gaza continuing and Hamas yet to disarm, the Gaza peace plan continues to face strong headwinds. This unsettles global markets—including in the energy sector—and harms tourism in this region. Riyadh has signaled readiness to support postwar stabilization, but any substantial Saudi commitment hinges on governance reforms in Gaza and a recognized Palestinian political authority.

The Twelve Day War between Iran and Israel this June was a reminder of how quickly this region can drift into a bigger conflict, as well as Saudi Arabia’s vulnerability to spillovers. Saudi officials see the renewed Iran-Israel tensions as a direct threat to the energy security and investment climate Vision 2030 relies on. Cognizant of Israel’s strike in Qatar last September as well as Iran-supported strikes on commercial facilities in Saudi Arabia in 2019, Riyadh likely views its decent relationships with both Israel and Iran as helpful for reducing miscalculation and maintaining communication. However, they do not replace Riyadh’s need for sustained US engagement to deter a wider confrontation.

Saudi Arabia’s stabilizing role and its alignment with US interests

Saudi Arabia’s regional diplomacy has expanded as Vision 2030 has taken shape, positioning Riyadh as a stabilizing force in the region. It continues to play a role in mediating the decade-long conflict in Yemen while supporting Yemen’s government in Aden. Along with the United States, Egypt, and the United Arab Emirates, Riyadh pursues an end to the war in Sudan via the Quad mechanism and remains an active partner in supporting post-Assad Syria through its transition. These diplomatic and development efforts not only support stabilization efforts but ultimately create the conditions Vision 2030 requires for Saudi Arabia’s own economic transformation.

This approach is also visible in emerging Saudi defense policy, which centers on deterrence, diversification of partnerships, and the development of domestic defense-industrial capacity. Riyadh believes that security cannot be outsourced and is seeking a more structured security relationship with the United States. This aligns with a wider trend in the Gulf, where Washington and its partners are exploring a more formal regional security architecture built around burden sharing, defined guarantees, and joint operational planning.

Washington wants secure sea lanes, an energized market, and partners in the Middle East capable of preventing or resolving conflicts without the expectation of significant US resources or military support. A Saudi Arabia that achieves an economic transformation is a better, more reliable partner in international diplomacy for US national security needs. This week’s visit by MBS reflects this recognition of shared priorities for Riyadh and Washington: The United States sees an economic transformation unfolding in Saudi Arabia, and Saudi Arabia sees the United States as a partner critical for creating a stable regional context in which its Vision 2030 is possible.

For the Trump administration, stability in the Middle East is essential to the regional strategy it is building. The White House is placing political and economic bets that a partnership with Saudi Arabia results in increased energy security, investment partnerships, and conflict-ending diplomacy in places like Gaza, Yemen, and Sudan.

Frank Talbot is a nonresident senior fellow with the North Africa Initiative at the Atlantic Council’s Rafid Hariri Center & Middle East programs. Previously, he served in the Department of State supporting stabilization initiatives in the Middle East and North Africa.

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Chile’s next president will either be from the far right or the far left. Washington should watch closely.

Maite Gonzalez Latorre — Mon, 17 Nov 2025 22:29:23 +0000

Chileans voted yesterday for a new president, and as expected, no candidate reached the 50 percent plus one needed to win outright. The country now moves to a December 14 runoff: On the right is José Antonio Kast, who won about 24 percent of the first round vote. On the left is Jeannette Jara, who took 26.8 percent of the vote. While they come from opposite ends of the political spectrum, both candidates represent more change than continuity for Chilean politics. No matter which candidate wins, expect a shift away from the status quo.

Who advanced and why it matters

Even though he placed second in the first round, the Republican party’s Kast goes into the runoff as the stronger of the two candidates. This is because the other right-wing first-round candidates took a combined 30 percent of the vote—a share that could largely go to Kast in the next round.

Having lost the second-round election in 2021 to current President Gabriel Boric, Kast returned this year with a message centered on security and a smaller state. Jara, the candidate from the governing Unidad por Chile coalition on the left, has been working to expand her reach by presenting herself as grounded in the working-class experience and ready to provide steady governance.

It’s worth looking at the candidates that didn’t make it into the second round, too. One of the biggest surprises was Evelyn Matthei, presidential candidate for the center-right Chile Vamos coalition. She was a front-runner early in the year but lost momentum as Kast rose in the polls. On Sunday, Matthei finished fifth, even though she was polling third in the final weeks. The so-called “voto oculto,” or “hidden vote” not reflected in polling that she needed to win, never materialized.

The fate of Franco Parisi was also notable. He captured almost one in five votes and reinforced his role as the country’s most unpredictable political force. Throughout the campaign, he rejected ideological labels and marketed himself as neither right nor left—“ni facho ni comunacho.” His voters tend to be skeptical of political institutions and have a reputation for focusing on short-term concerns and outcomes. Surveys already show around 40 percent of Parisi’s voters leaning toward Kast, about 20 percent toward Jara, and the rest undecided. Both finalists now need support from Parisi’s voters to win the runoff.

The last two standing

Here is what we know about the remaining candidates. Kast comes from the hard right, and throughout the campaign he has underscored his social conservatism and his goal of enacting major spending cuts. He has called for lower taxes for high earners, new investment incentives, mass deportations, and a security model inspired by Salvadoran President Nayib Bukele. Some commentators have compared Kast’s political approach to that of US President Donald Trump. His place in the runoff surprised few since he stayed near the top of the polls all year. After the first-round votes were announced, Matthei and Kaiser endorsed Kast. He now needs to convince center-right voters to unite behind him.

If Kast comes from firmly on the right, his opponent is situated at least as far on the opposite end of the political spectrum. Jara represents the Unity for Chile coalition and belongs to the Communist Party. She served as labor minister under Boric, and she worked in the Bachelet administration before that. At the same time, she has tried to set herself apart from the current government. Earlier this month, she criticized Boric for not greeting Argentinian President Javier Milei and said she would not have acted that way. She has also questioned the 2026 budget bill. She has highlighted pension reform, wage increases, and a shorter work week as her past achievements. Her security plan includes more resources for the police, biometric border controls, and new prison infrastructure. But she now faces a difficult path. She delivered one of the lowest results for the left in recent cycles. With other left-leaning candidates taking under 1.5 percent of the vote, she must win over Parisi’s supporters to stay competitive.

What drove voters and what comes next

This election cycle comes as Chile remains politically fragmented. The country has shifted between the right and the left for more than a decade, and the back and forth has made it difficult to build long-term policy. Like much of the Western Hemisphere, concern about security and migration continues to push voters toward tougher positions on those issues.

This election was also the first presidential vote with compulsory participation in decades. Compulsory voting was practiced from 1925 to 2012 and reintroduced for 2023. More than 13 million people cast ballots—almost double the usual turnout. That surge reshaped the map. Regions with the highest share of first-time mandatory voters showed the sharpest drops for Jara and strongest gains for Parisi. Many of these voters reject both major coalitions and use their votes to punish whoever is in power at the time.

Security drove much of the debate. Chile remains one of the safest countries in Latin America, but violence has increased in recent years. Groups such as Venezuela’s Tren de Aragua expanded into northern regions, such as Arica y Parinacota and Tarapacá. Kidnappings, extortion, and organized criminal activity have increased. Drug trafficking and migrant smuggling continue to push homicide rates higher. In Santiago, carjackings, home break-ins, and muggings have become more common. Researchers estimate that crime costs Chile nearly eight billion dollars each year.

The economy is also a central issue. Chile has faced slow growth for several years now, and unemployment remains at about 9 percent. Investment has stayed flat. Inflation and the high cost of living shape everyday decisions. Many voters see the current administration of President Gabriel Boric as underperforming on these issues and, it seems, punished Jara for her role as labor minister. One issue sure to feature prominently in the second round is the budget. The legislative commission formed to review the annual budget bill recently rejected the 2026 budget bill, and the two candidates will likely spar over spending plans for next year.

The finalists now offer two very different paths. Jara supports stronger social programs, more resources for the police, and new tools for policing the country’s borders. Kast favors closed borders, maximum security prisons, and military deployment in the neighborhoods most affected by violence. Chileans must now decide which approach they trust to deliver results.

What it means for the United States

Santiago’s relations with Washington will likely vary depending on who wins, but both candidates face pressure to revive growth and attract investment. While Chile has struggled to bring in foreign direct investment at the levels it once did, the United States is still the country’s second-largest source of foreign investment, much of it concentrated in energy, data centers, and mining. These three sectors are likely to continue to shape the US-Chile economic partnership.

If Kast wins, Chile will likely move closer to Washington on regional security and migration. Trump’s team has focused on border control and transnational crime, areas where Kast might want to cooperate with the United States. Kast supports market-focused policies and favors free trade. The combination of security cooperation, interest in attracting capital, and a new economic agenda could create space for new bilateral initiatives. Kast may also choose the United States as one of his first international destinations.

If Jara wins, relations with the United States would continue but with more caution. She rarely comments at length on foreign policy and focuses mostly on domestic priorities. She and Trump would likely disagree on several issues; still, she seems to understand the scale of Chile’s security challenges and may seek cooperation on border management and reducing organized crime. If she wins, investors will watch how she approaches productivity, permitting, and the rule of law. These issues rank highly for US companies operating in Chile. Chile now enters a decisive period. The runoff will shape the country’s security, economic recovery, and its role as a partner for the United States. Washington should watch closely.

Maite Gonzalez Latorre, who was born in Chile, is a program assistant at the Atlantic Council’s Adrienne Arsht Latin America Center.

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Building the digital front line: Understanding big tech decision-making in Ukraine

Emma Schroeder — Mon, 17 Nov 2025 15:35:11 +0000

Executive summary
Introduction
Pull factors
- Clarity of conflict
- Business alignment
Push factors
- Difficulty of coordination
- Risk of retaliation
Key takeaways and conclusion
Author and acknowledgements

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Executive summary

The war in Ukraine has seen Russia launch and sustain a full-scale invasion across the information and physical domains against a country that has embraced technological development and increased technological and geopolitical connections to the United States, Canada, and Europe. Private technology companies have provided essential and often irreplaceable support to Ukraine following Russia’s invasion in 2022 and—especially in the early months of the conflict—did so largely without a request from an allied state or payment from Ukraine.

However, more than three years on, although the private sector’s assistance in Ukraine has been well-documented, the policymaking community at large is still largely unaware of how companies decided whether and how to provide technological support to and in Ukraine. Through open research as well as interviews and roundtable discussions with various private sector and government representatives, this report posits that companies were primarily motivated by a complex combination of factors in tandem, which pulled them toward or pushed them away from support. The factors pulling companies toward cooperation were the moral clarity of the conflict, and alignment with existing business opportunities. At the same time however, among factors pushing companies away from involvement in Ukraine was the difficulty of coordinating assistance in-country, as well as the risk of Russian retaliation. Meanwhile, both sets of factors were either enhanced—or mitigated—due to various actions taken by Ukraine, allied states, and international bodies. This includes Ukrainian tech diplomacy; the development of Ukraine’s technical capabilities; aid facilitations and coordination efforts by both various groups and entities; and risk mitigation efforts undertaken by both states and private companies.

Dependency on the private sector in the cyber domain has become a somewhat frequent refrain in domestic cybersecurity conversations. However, prior to the February 2022 Russian invasion of Ukraine, no one—not supranational bodies, states, or even companies themselves—was prepared for the role they would assume once the tanks rolled and the missiles fired. The Russia-Ukraine conflict’s cyber dimension has revealed an underlying dependency on products, services, and infrastructure owned and operated by private companies. This has proved to be both a source of opportunity to enhance Ukraine’s defenses, while at the same time revealing fundamental risks and vulnerabilities. Given the heft and impact of technology companies in today’s digital infrastructure, let alone in conflict, it is essential that policymakers grasp this complex interplay of factors that influenced companies‘ decision-making as they headed in Ukraine, to inform planning or preparedness for future conflicts where the private sector will inevitably play a key role.

Introduction

Amid the Russia-Ukraine conflict, the private sector was and is a crucial line of defense and source of cyber resilience to a greater extent than any conflict previously observed. As the first case study of this phenomenon in an overt, conventional war, the past three years in Ukraine have clearly demonstrated how crucial the cyber and informational domain, and the private companies at its forefront, will be in competition, conflict, and war to come.

More than three years following the full-scale Russian invasion of Ukraine in the early morning of February 24, 2022, the war—and the crucial role of the international community in it—continues, but not unchanged. The war that Putin expected to end in Russian victory within a handful of days is now well into the third year of the largest and deadliest war in Europe since World War II.

This study examines the characteristics of this conflict that influenced companies’ decision-making regarding the type and degree of their involvement in Ukraine. Which factors and actions taken by states shaped tech companies’ decisions throughout the conflict as to whether and how to lend their support to Ukraine? These include both pull factors, those that increased the likeliness and degree of technology company involvement in Ukraine, and push factors, those that decreased the likeliness or degree of the same. Additionally, a key element influencing this space was the response by the Ukrainian government, allied governments, and international bodies to either build on the effects of the pull factors or mitigate the effects of the push factors throughout the conflict.

These factors and reactions are explored through open research, individual interviews with executives from tech companies active in Ukraine,¹ and workshop discussions including private sector, civil society, and representatives from various governments. It puts forward the private sector’s perspective on its own involvement in Ukraine since the 2022 invasion, reflecting on opinions and actions as they stood at the time of initial decision but also on the lessons learned since. The intention is to contribute to a baseline of understanding of public-private cooperation in Ukraine so that future policy decisions, whether in the Ukraine context or beyond, are built upon a full evaluation of experience.

Pull factors

Clarity of conflict

Clarity of conflict refers to the perception of the “right” and “wrong” or “victim” and “perpetrator” in a conflict, among one or more set audiences, whose support has the potential to provide materiel aid. In examining the role of this factor in the provision of tech aid to Ukraine, these audiences are primarily state policymakers, general populations, and technology leaders in Europe and North America. Overwhelmingly, in both public reporting and private interviews, the central reason given by companies themselves for why private companies provide aid and services supporting Ukraine is the moral clarity that these companies, their employees, and a large portion of their customers saw in the conflict and its conduct. Many interviewed commented on how the Russo-Ukrainian War, distinct from most other conflicts, has a clear and binary “right” and “wrong” side in the perspective of at least most of the Western world, from governments to individuals.

Russia engaged in continuous overt and covert aggressive action through a wide variety of coercive, though largely nonescalatory, tools in an attempt to exert control on Ukraine and its population. On February 24, 2022, however, Russia unleashed coordinated missile strikes on Ukrainian cities, airborne deployments of soldiers to key locations beyond the border region, conventional advancement across the border, and coordinated cyber aggression.

In March 2022, Amnesty International released a statement saying, in part, that “In less than a week, Russia’s invasion of Ukraine has triggered a massive human rights, humanitarian, and displacement crisis that has the makings of the worst such catastrophe in recent European history.”² Photos and videos poured out of Ukraine, documenting Russian violence and war crimes against the people of that country. Reports on Russian atrocities and Ukrainian resistance dominated the headlines and news discussions in the West for months. A Monmouth University survey conducted in March 2022 found that 89 percent of Americans believed that Russia’s actions in Ukraine were not justified.³ Similarly, a poll of public perceptions of responsibility for war, taken across ten European countries showed that a clear majority in all countries attribute the primary responsibility to Russia.⁴

During these early months of 2022 the private sector quickly became an essential pillar of support for the Ukrainian war effort. As one expert put it, “If you had ordered a generic villain, you would have gotten Putin. From a moral standpoint, it was really easy for companies to take a stand, you have a moral highpoint.”⁵ Russia’s long decade of slowly escalating violence toward Ukraine, culminating in a brutal conventional assault and now, yearslong war, created an unusually stark geopolitical environment in which both Western states and the majority of their populations not only supported the defense of Ukraine but did so enthusiastically.

Across interviews and roundtable discussions, industry experts demonstrated an appreciation of the clarity of the “right” and “wrong” in the case of Ukraine. Nearly every private sector individual interviewed highlighted the importance of this factor in determining whether and how their company decided to begin or deepen its involvement in Ukraine following the invasion. One expert from a leading tech company said that “This was the easiest of all scenarios I could imagine for the private sector to seek to help an entity like Ukraine. The clarity on the conflict made the decision to assist Ukraine clear.”⁶ As several experts attested, much of the cyber aid provided to Ukraine required technical expertise that was not only limited to a few companies but also limited to a relatively small population of skilled individuals. At this level of analysis, the degree of available assistance had to take into account the bandwidth and possible burnout risk for these individuals as well as a strong, prevalent reluctance to work with a government or, especially, a military. The perceived clarity of the war in Ukraine, however, was critical to overcoming these concerns—at least for a while.⁷

Reaction – Ukrainian tech diplomacy

Tech diplomacy is the engagement between state authorities and tech companies, civil society organizations, other states, and multilateral fora to influence the development of both technology itself and the policy that surrounds it.⁸ Within the early days of the conflict, members of the Ukrainian government and especially the Minister for Digital Transformation Mykhailo Fedorov, rallied for aid across the technology sector. These calls, and the generally positive reception to them, built on arguments regarding the clarity of the conflict. Although this tech diplomacy has been the project of various Ukrainian officials and offices, both before the 2022 invasion and in the years since, a focus in on Fedorov is illustrative of the Ukrainian approach to cultivating and extracting mutual benefit from relationships with international technology companies.

In 2019, Fedorov was tapped as deputy prime minister and minister of digital transformation and was subsequently named deputy prime minister for innovation, education, science and technology and minister for digital transformation and most recently first deputy prime minister of Ukraine—minister of digital transformation of Ukraine.⁹ Fedorov and his team have been adept, according to government affairs executive from a US-based multinational technology corporation, at creating and using “carrots and sticks” to influence company leadership and employees to more favorably view Ukraine and to augment their willingness to contribute to its defense.¹⁰

Fedorov cultivated a strong social media presence with an audience both within Ukraine and across Europe and North America. He emphasized the importance of social media platforms—using primarily English to connect with an international audience—to bring awareness to the dire situation in Ukraine. He pointed to the social media platform X (formerly Twitter), saying it “has become an efficient tool that we are using to counter Russian military aggression.”¹¹ In efforts like United24, the Ukrainian government’s official fundraising platform, which began with Fedorov tweeting the government’s crypto wallet addresses with an ask for donations,¹² he saw it not just as a fundraising tool, but as a tool that is “keeping people around the world aware of what is going on in Ukraine.”¹³ Crowdfunding efforts, even if donations are small, make people feel that their contributions are making a difference and fosters a closer relationship between that person and the Ukraine regardless of the distance.

Fedorov leveraged this engaged global audience to incentivize company action, effectively mobilizing his audience’s attention. A look at Fedorov’s social media presence shows a clear pattern of this strategy in action. Between March 2022 and July 2024, Fedorov posted fifty-two requests for aid from specific companies, celebrated companies and individuals taking positive action, and called out companies engaging in business practices that he deemed detrimental to Ukrainian defense efforts. These posts served as additional public acknowledgement of the contributions of specific companies to Ukraine in a global public forum that other states were watching, as were individuals, aid organizations, and companies. One tech executive explained that not only did these callouts serve as thanks, they also leveraged the competitive nature of these companies that “one up” each other with aid as an additional driver.¹⁴

The Starlink case provides an interesting example of this strategy in action. Fedorov tagged Elon Musk in an X post and asked him directly to instruct SpaceX to provide Ukraine with Starlink stations, calling him out for trying to “colonize Mars” instead of helping civilians on Earth.¹⁵ Musk responded publicly on X less than twelve hours later that, “Starlink Service is now active in Ukraine. More terminals en route.” Two days later these stations, which would come to serve critical functions for civilians, government entities, and even military personnel, arrived. Fedorov again publicly responded on X with a photo of a truck full of terminals saying, “Starlink – here. Thanks, @elonmusk.”¹⁶

According to Fedorov’s deputy minister, Alex Bornyakov, in the months leading up to the Russian invasion, Fedorov’s office was unable to secure a meeting with Elon Musk. However, SpaceX President and COO Gwynne Shotwell indicated in March of 2022 that the company had been coordinating with Ukraine as part of its European expansion effort for several weeks before the invasion and were awaiting final approval from the Ukrainian government. According to Shotwell, “they tweeted at Elon and so we turned it on … that was our permission. That was the letter from the minister. It was a tweet.¹⁷ These early interactions show that at the very least, Fedorov’s social media engagement functioned as a nontraditional method to accelerate the provision and delivery of essential technical equipment that would enable connectivity for civilians, government entities, and even military units.¹⁸

Six months before the February 2022 invasion, Fedorov went on a tech diplomacy tour to Silicon Valley, intent on building stronger relationships with key technology companies with Ukraine’s digital transformation on the agenda. Fedorov‘s tech diplomacy work laid a solid foundation for coordination between the Ukrainian government and these technology companies by the time the war began. These relationships and Fedorov and his ministry’s direct approach with private companies meant that his office could seek solutions in the private sector directly and more swiftly than in traditional government acquisition. For example, in less than a month, a new and improved air raid alert system was implemented across the country as a result of a direct and informal conversation between Ajax Systems Chief Marketing Officer Valentine Hrytsenko, Deputy Minister of Digital Transformation Valeriya Ionan, and a team of digital transformation officers.¹⁹

Therefore, Ukraine’s approach to tech diplomacy represents a significant shift in how states, especially small or mid-power states, should conceptualize and shape their relationships with technology companies. Given that global technology companies’ (“big tech”) yearly revenue continually overshadows the gross domestic product (GDP) of many states,²⁰ this evolution in states’ relationships with big corporations suggests that corporate ties are sometimes more important than a state’s relationship with another state. This was echoed in a statement from the Danish government, recognizing the extent to which technological disruption affects societal and geopolitical change, nothing that the companies driving that innovation “have become extremely influential; to the extent that their economic and political power match—or even surpass—that of our traditional partners, the nation states.”²¹ Fedorov’s actions therefore proved the importance of tech diplomacy as a key government priority to secure the cooperation of the tech sector in a crisis, aided by the moral clarity that many companies saw in assisting Ukraine in a time of war.

Business alignment

For companies examining whether and how to provide tech-based support to Ukraine in its defense, business alignment can take a variety of forms, but typically refers to some combination of benefits that the company receives from these activities. Although the primary driver cited publicly for tech companies’ involvement has been the desire to aid Ukraine, their customers, and employees in Ukraine against blatant Russian aggression, another factor in companies’ decision-making was in fact how the provision of assistance to Ukraine fit into and supported the overall health and security of their organizations. This included the character of preexisting relationships with both Ukraine and Russia, direct financial profit, and indirect benefits such as instructive experience, field-testing products, and reputational benefits.

Preexisting relationships

The Russian invasion of Ukraine in February 2022 was not the start of the conflict between the two nations, nor was it the beginning of technology companies’ relationships with Ukraine and Russia. The nature and tone of these relationships provided a key foundation for these companies’ decisions throughout the post-2022 conflict. Ukraine and Russia, both as partners and as markets, had different starting points and were also on different active trajectories that informed the types and depth of engagement that tech companies wished to have with each country, both individually and comparatively.

One of the primary motivations cited for company involvement in Ukraine after the Russian invasion was the simple fact that many of these companies were already active in Ukraine to some extent and their leadership felt a responsibility to protect its employees and continue to serve its customers within Ukraine. For example, threat intelligence companies like Mandiant and CrowdStrike had been engaged in Ukraine since at least 2014, actively tracking cyber espionage, influence, and attack operations, while companies like Microsoft and Google were actively building capacity in the country despite Ukraine’s prohibitions on cloud services. In 2020, Google opened its second research and development center in Ukraine and Microsoft signed a memorandum of understanding with Ukraine’s Ministry of Digital Transformation to include a $500 million investment to build two data centers.²²

Several private sector and government representatives conveyed in private interviews that one of companies’ greatest concerns in the first few weeks of the conflict was the safety of their employees in Ukraine.²³ Many companies set up or contributed to programs intended to help employees leave the country, if they wished, or to provide protection measures for those who remained.²⁴ Additionally, companies with existing customers in Ukraine saw their mission as largely unchanged, seeking to serve their customers regardless of their location.²⁵ Companies with these preexisting relationships had more reason to continue or expand their work in the country due to these long-term connections.

By contrast, many of these companies also had preexisting, albeit weaker, ties with and in Russia. According to a 2024 report from the Center for Security and Emerging Technology, however, of the eighteen US tech companies that provided “direct assistance on the battlefield and/or services to maintain critical infrastructure or government functions,” none had “significant economic or financial linkages to Russia.”²⁶ While Ukraine had undertaken concerted steps to foster mutually beneficial relationships, Russia had been largely coercive. The Kremlin in the years before the 2022 reinvasion sought to tighten control over the Russian information space and exert influence over international tech companies’ activities in Russia. For example, in 2021 Russia passed a law requiring large technology companies with a presence in the Russian market to establish Russian offices registered with the Federal Service for Supervision of Communications, Information Technology, and Mass Media, commonly known as Roskomnadzor, or risk severe punitive measures.²⁷ Some in the industry viewed the move as an attempt to blackmail tech companies into complying with Russian censorship.²⁸ Google was one such target of these coercive measures—in a push to force Google to censor the content available on its platforms within Russia, Russian authorities seized the company’s bank accounts. In response, Google’s Russian subsidiary declared bankruptcy and ceased all but its free services within Russia.²⁹

Amplified by the clarity of conflict discussed above, and Ukrainian tech diplomacy efforts for companies to sever financial ties with Russia and the Russian market, the decision calculus for these companies was less complex than it may have been otherwise.

Not all companies chose to leave the Russian market completely. Despite the coercion that Google faced, the company chose to keep YouTube available in Russia; however, without ads for users in Russia and without the ability to monetize content that would “exploit, dismiss, or condone Russia’s war in Ukraine.”^“³⁰ As discussed previously, many companies decided to continue services in Ukraine out of an obligation to existing customers. Depending on the company and the type of product sold or service provided, this same motivation was seen with respect to Russia as well. One tech executive explained that some of these products and services remained active because they provided a benefit to the Russian public, as opposed to the Russian government. For example, YouTube remained partially active, with restrictions, so that the platform could continue to serve as an alternate source of information for Russians.³¹

Direct profit

For companies, both those with an existing presence in Ukraine and those without, providing technical services in and to Ukraine could also serve more clear-cut business interests. Some were at least partially motivated by direct financial gain like new paid contracts and revenue potential such as additional value generated through the delivery of services and the possibility of positive publicity for the company or their products.

Although much of private companies’ work in Ukraine was (or started as) free of charge, many others were acquired in a more traditional contractual manner, with either Ukraine or an allied government footing the bill. Company representatives said in several interviews and roundtables that while they wish to continue their work in the country, as the war continues, they will require financial support to do so.³²

Indirect benefit

Some of the tech companies active in Ukraine derived value from the very act of providing a service itself, with indirect gains that included instructive experience with Russian cyber operations, the ability to field-test products, and reputational benefits.

For more than a decade, many multinational threat intelligence companies have been tracking Russian cyber aggression in Ukraine as part of their core function. These services helped to drive the development of Ukrainian cyber infrastructure, but it was not solely a charitable effort. It was in these companies own interests to gain the closest possible insights into areas like Ukraine that experience a high degree and sophistication of cyberattacks. As a result, these companies sowed valuable intelligence from their experience, and improved their business offerings across the board. As one executive in threat intelligence at a US cybersecurity nonprofit put it: “for threat intelligence companies, having this depth of access is a gold mine, the details delivered out of Ukraine on Russian tactics, techniques, and procedures (TTPs) are quite amazing.”³³

These benefits are not only limited to threat intelligence companies. Companies that run active platforms used by and in Ukraine, such as cloud platforms, also gained greater direct experience against Russian cyber operations. As one executive put it, “while acting as a shield, [these] companies are collecting vast intelligence that can be used to improve their products and protect all their customers.”³⁴ The experience of defending against Russian activity at that scale and volume served as training of sorts for companies’ cybersecurity teams.

Both representatives from private companies and the Ukrainian government cited an additional benefit to working in Ukraine during the current war: it served as a testing ground for technology. As Fedorov stated, Ukraine “is the best test ground for all the newest tech … because here you can test them in real-life conditions.”³⁵ Several company executives privately seconded this notion, saying that alongside their company’s desire to do the right thing, their work in Ukraine provided proof of concept for their capabilities.³⁶ Ukraine also offered a means to demonstrate to potential customers the effectiveness of their offerings. Founding partner of Green Flag Ventures Deborah Fairlamb said at a European defense conference that “no one would even look at a product unless it had ‘Tested in Ukraine’ stamped on it.”³⁷ During a roundtable conversation, a company executive said that governments were more likely, having seen a company’s work in Ukraine, to purchase their products and trust that they are secure.³⁸

Finally, companies working actively in Ukraine were also motivated by the benefits to public perception and reputation. Popular support of Ukraine meant that companies’ support may have improved their reputation by association. In a TIME article from early 2024, author Vera Bergengruen argued that this reputational concern was part of Palantir’s decision calculus for its work in Ukraine, by helping to dispel characterization of the company’s work as a tool to support intrusive government surveillance. This would situate Palantir’s work in Ukraine among its similar efforts to “shed its reputation as a shadowy data-mining spy contractor.”³⁹ Clearview AI’s reputational concerns also likely motivated its assistance to Ukraine. The company was sanctioned multiple times throughout Europe for privacy violations and was lambasted in a 2020 New York Times article for its controversial use by law enforcement and private companies to track people through AI-enabled facial recognition.⁴⁰ Nevertheless, the company received an outpouring of positive press following public announcements that Ukraine was using this same AI-enabled facial recognition software to identify Russian soldiers, including deceased soldiers and those suspected of committing war crimes in Ukraine.⁴¹ Whether trying to capitalize on a positive reputation or counter negative perceptions, companies benefit from their association with a cause popular across their customer base.

Reaction – Ukrainian technical capability and posture

In both the buildup to war and the conduct of it, some companies with interest in setting up operations in or with Ukraine were reluctant to do so out of concern regarding Ukraine’s ability to act as a capable and trustworthy recipient of goods and services. Executives working in threat intelligence and information security at US-based multinational technology companies have pointed to corruption in Ukraine as a barrier to engagement prior to the invasion and a factor that was carefully considered when deciding how to provide aid in Ukraine.⁴² This challenge is openly acknowledged in Ukraine’s Anti-Corruption Strategy for 2021-25, which states that “corruption prevalence and distrust in the judiciary are the key obstacles to attracting foreign investment to Ukraine.”⁴³

To mitigate these factors, Ukraine and its partners have invested heavily over the past decade to take on corruption and build out legal, economic, and technical frameworks to transform Ukraine so as to make it a more appealing target for assistance and cooperation from the public and private sectors. According to Alex Bornyakov, Ukraine’s deputy minister of digital transformation, Ukraine’s sought to develop “the largest IT hub in Eastern Europe with the fastest growing GDP, industrial parks, and its own security-focused ‘Silicon Valley.’”⁴⁴

Anti-corruption efforts

The Ukrainian government’s commitment to anti-corruption efforts has been an important factor for the success of the process, which began well before the buildup of Russian tanks on its border. According to the 2025 Organization for Economic Cooperation and Development (OECD) Integrity and Anti-Corruption Review of Ukraine, since 2013 Ukraine “significantly reformed its anti-corruption framework to fight what were then historically high corruption levels in the country.”⁴⁵

Ukraine’s public and private IT sectors have long been a breeding ground for software acquisition-related fraud, a scheme in which an individual reports the purchase of a legitimate software license but actually buys a pirated or outdated version of that software and pockets the difference. Before 2014, approximately 80 percent of Ukrainian government and private entities were using network software that had either never been or was no longer supported by the associated software vendor,⁴⁶ making Ukraine a difficult and unappealing market for software vendors.

In 2014, anti-corruption activists started the ProZorro project, which over the past decade moved public sector procurement, including that of IT infrastructure, to a central platform built around the tenets of transparency, efficiency, and cross-sector collaboration and competition.⁴⁷ According to a report by Dr. Robert Peacock, through the use of ProZorro and other anti-corruption efforts, senior officials at Ukraine’s State Special Communications Service estimated that “the share of pirated and unsupported software on the country’s networks had dropped from more than 80 percent in 2014 to only 20 percent in 2020.”⁴⁸

As the conflict in Ukraine escalated into a full-scale war, Ukraine’s anti-corruption efforts became even more urgent and essential. For example, UNITED24, the country’s official fundraising platform to fund the Ukrainian war effort that has raised approximately $350 million since the beginning of the war, sends money directly into transparent national accounting systems depending on the choice of the donor, with the leading global accounting firm Deloitte auditing platform.⁴⁹ In addition, in the first year of the war Ukrainian President Volodymyr Zelenskyy and his government dismissed several high-ranking government officials based on allegations of corruption. This included two of the top Ukrainian cyber officials after they were accused of participated in corrupt procurement practices. According to the country’s National Anti-Corruption Bureau, the accused allegedly embezzled $1.7 million between 2020 and 2022 through fraudulent software acquisition.⁵⁰ The Ukrainian government’s efforts largely mitigated companies’ concerns regarding corruption, and those companies that cited corruption as a barrier to working with Ukraine have since commenced programming previously denied to Ukraine on those grounds.⁵¹

For a private company to make the decision to invest more heavily in Ukraine, the benefits—financial or otherwise—must outweigh the risks. By addressing corruption within the government, and especially tech-related corruption, the Ukrainian government effectively diminished the weight of this factor in companies’ overall decision calculus. Crucially, such efforts take time to implement and yet more time to create meaningful change. Had these anti-corruption programs not been well underway before 2022, the question of corruption may have significantly deterred companies from deeper involvement in Ukraine.

Ukraine turns toward tech

Instead of sowing distrust in the idea of cyberspace as a safe space for economic and even government services, the past decade of Russian aggression against Ukraine in cyberspace motivated Ukraine to invest heavily in that space and turn its former weakness into a newfound strength. It could even be said that the continuous Russian aggression against Ukraine, through cyberspace and otherwise, helped Ukraine to better defend itself against Russia. Before the 2022 Russian invasion and even more so since, the Ukrainian government sees a flourishing technology sector within Ukraine as a key component to the economic strength of the country.⁵² However, to foster such a flourishing tech environment, Ukraine needed to first invest in its legal and economic foundations.

As a response to escalating Russian aggression in 2014, Ukraine began what would be an intensive decade of government reform and policy advancement on cyber issues. The figure below highlights various investment and development programs aimed at enhancing Ukrainian technological capacity, including efforts of the Ukrainian government itself and in partnership with various international entities such as the North Atlantic Treaty Organization (NATO) and the US Agency for International Development (USAID).

These, among other efforts, were essential steps to creating and expanding a technologically capable and developed Ukraine. Especially important was the increased relative cybersecurity of the Ukrainian digital environment, the development of Ukraine’s cyber workforce and general cyber literacy, and an influx of capital enabling increased investment in private sector tools and services.

On the economic front, the Ukrainian government made strides to create an attractive environment for investment. The government’s mission has been to shift the conversation from purely one of donations and aid to a direct appeal to the companies’ more pecuniary concerns. According to Bornyakov, “The best way to help Ukraine is to invest in Ukraine.”⁵³ This call is both international and domestic. The Ukrainian government has implemented a number of projects and programs dedicated to fostering the local tech ecosystem. As of December 2024, the IT sector accounted for 4.4 percent of Ukraine’s GDP and 38 percent of the country’s total service exports. Much of this technological energy is being dedicated back to the war effort—according to a report compiled in cooperation with the Ministry of Digital Transformation of Ukraine, 97 percent of Ukrainian IT companies are “actively supporting projects that contribute” to Ukrainian defense.⁵⁴

Diia City in particular, launched just two weeks before the invasion, is a tool intentionally designed to make it easier and more appealing for foreign companies to set up and run operations within Ukraine. Diia City is a “virtual free economic zone for tech companies in Ukraine” that offers a variety of legal and tax benefits.⁵⁵ The connected Brave1 initiative launched in early 2023 to “create a fast track for innovation in the defense and security sectors,” especially those projects of high importance to Ukrainian military leadership, such as “drones, robotic systems, electronic warfare, artificial intelligence tools, cybersecurity, communications, and information security management systems.”⁵⁶

These efforts, both domestic and international, bolstered the defense of Ukraine by building and demonstrating trustworthiness, capability, and economic value for the private sector. In other words, the political and economic engine driving technological development in Ukraine was composed of more than a decade of concentrated action from Ukraine and its international partners, and was in place well before tanks began rolling across the borders. This vital work ultimately helped to bring about conducive conditions for private sector investment or provision of services, as long-term structural factors indirectly shaping company decision-making to aid Ukraine.

Push factors

Difficulty of coordination

Difficulty of coordination refers to the friction that private companies experienced along the lifecycle of technical assistance to Ukraine—from understanding which products or services would be impactful, knowing who to coordinate with and how, or the logistics of providing that assistance. Friction, as in all domains of warfare, is the imposition of the constraints of reality upon one’s plans and impulses, and therefore each additional complexity that stands between a certain technology and its use in Ukraine increases the likelihood that that desired provision will not occur, will take longer, or will be provided in a less helpful form.

One of the most persistent hindrances to the provision of tech-related assistance from private companies in Ukraine was the difficulties that all parties involved faced, which was to effectively coordinate the assistance available with the assistance that Ukraine needed most in a fast-moving and high-pressure environment, particular as more Ukrainian organizations expressed a need for more threat intelligence, licenses, or training for tools. In almost every conversation with industry representatives about their experience in this space raised this coordination problem. The factors that most significantly impacted coordination effectiveness included whether a company had a preexisting presence in or relationship with Ukraine, the clarity with which Ukraine communicated its technical needs, and the ability to assess the effectiveness and impact of products or services provided.⁵⁷

Especially in the early months of the full-scale Russian war, much of the assistance that private tech companies provided was coordinated by companies themselves and in a largely ad hoc manner. In addition, Ukraine experienced communications challenges such as a lack of secure channels or limited visibility into networks and infrastructure on the ground.⁵⁸ Companies that did not have a strong relationship with the Ukrainian public sector prior to the conflict found that direct coordination was difficult to establish once the conflict had begun.⁵⁹ For some, not having a direct relationship with or in Ukraine had been an intentional choice, due to regulation complexity or corruption concerns.⁶⁰ Initially, companies without a preexisting presence often struggled to pinpoint the correct office or person with which to speak. They bridged this gap most often with some combination of brand recognition driving direct outreach from the Ukrainian government and facilitation by Ukrainian private companies that had established relationships with international tech companies and could act as middlemen.⁶¹

Even in cases of existing relationships within Ukraine, complexities abound for companies. A threat intel executive indicated that, for many, there is a tension between what companies thought they could provide and what the Ukrainian government knew about its own needs. While Ukraine was effective in communicating its technical needs at the tactical level, according to various company representatives, effective coordination was somewhat hampered by their ability to effectively communicate and coordinate technical assistance needs across government at a strategic level lagged behind.⁶²

An additional point of friction was the high degree of difficulty in deconflicting the assistance provided to Ukraine from different companies. Understandably, the Ukrainian government—and various individuals and agencies working within it—were responding to imminent threats and thus would send out the same or similar requests to various companies in the hope that one would respond.⁶³ This meant that at times various companies were devoting time and resources to developing an assistance measure that was not actually needed and would not be implemented, or if it was in part, had a lesser relative impact on Ukrainian defense because of duplicative measures. This inability to understand and plan around the impact of assistance was broader than just the duplication issue; dozens of company representatives reported difficulties in getting a clear view as to whether their assistance was actually effective once provided.⁶⁴

Without this data, future requests for and fulfillments of technical aid will continue to be based on theory rather than evidence from their growing experiences together. A 2024 paper from the Cyber Defense Assistance Collaborative (CDAC) and Columbia School of International and Public Affairs, made strides in its effort to collate and assess the effectiveness of those companies and organizations that provided cyber defense assistance to Ukraine through their program. The report identified both direct indicators, where effectiveness can be assessed via concrete measures, and proxy indicators, where possible contributing factors are assessed on a scale of perceived impact.⁶⁵

Reaction – Ukrainian coordination and adaptation

On top of domestic development efforts, Ukrainian government officials spent concerted time and effort to build relationships that would serve as the foundation for future cooperation. Fedorov‘s tech diplomacy work forged new connections with these companies, as well as their leadership and employee bases, that in many ways enabled the speed of company response following Russia’s February 2022 invasion. “When the invasion began, we had personal connections to these companies,” Fedorov said. “They knew who we are, what we look like, what our values are and our mission is.”⁶⁶

According to Fedorov, in the first month of the war he sent “more than4,000 requests to companies, governments, and other organizations, each one personally signed.”⁶⁷ Some of these connections built on existing relationships, but companies without preestablished links either initiated conversations directly with or received direct requests from the Ukrainian Government. Beyond the Ministry of Digital Transformation, various Ukrainian offices like the State Special Communications Service of Ukraine, Security Service of Ukraine, National Security and Defense Council of Ukraine, and Ukrainian National Cybersecurity Coordination Center were engaging in relationship building and outreach efforts in order to coordinate the provision of tech assistance.⁶⁸ According to Bornyakov, the early days of coordination with the international private sector were chaos.⁶⁹ Various offices and employees sent out messages and requests without internal coordination, and products or services were provided without sufficient due diligence to ensure that they were truly useful to the Ukrainian war effort.

The Ukrainian government quickly updated its practices to facilitate more efficient cooperation. Among the first of these moves was a Ukrainian policy change to directly enable increased private sector participation. In February 2022, prior to the invasion, the Ukrainian parliament Verkhovna Rada amended the laws that had barred government use of Cloud services. This change meant that just days before the Russian invasion, companies including Amazon, Microsoft, Google, and Cloudflare were able the aid the Ukrainian government and several critical sector entities in migrating their critical data to their cloud servers—a critical move, as Russia’s attacks during the first few weeks of the war specifically targeted physical data centers.⁷⁰ In addition, due to the imposition of martial law, Ukraine adopted two resolutions to streamline public procurement. Resolution 169, adopted on February 28, 2022, enabled government contracting authorities to ignore, when necessary, the procurement procedures required by the laws on public and defense procurement.⁷¹ Resolution 723, passed four months later, added new, more efficient requirements to the procurement process, amending both resolution 169 and resolution 822, most important of which was the introduction of the ProZorro platform as the mandatory electronic procurement system.⁷² As previously discussed, this platform was both a tool to facilitate procurement and to counter corruption in the procurement process at large.

Despite improvements to coordinate more effectively with private tech companies, and even as international coordination mechanisms emerged, a significant contingent of companies has maintained a preference for direct coordination. One government affairs executive noted that their company, like many others, preferred direct coordination with the Ukrainian government since it enabled more immediate and relevant support, and they were skeptical that third-party mechanisms would be as effective.⁷³

Reaction – International aid facilitation

Since the February 2022 Russian invasion of Ukraine, and even before that, international entities—states, supranational bodies, and non-state groups— played an important role in coordinating technical-focused aid in support of Ukraine.

However, states’ coordination efforts were notably inconsistent. In the first year and a half after the Russian reinvasion, the United States allocated $113 billion in response to the war in Ukraine—largely allocated to the Department of Defense at 54.7 percent, USAID at 32.3 percent, and the Department of State at 8.8 percent.⁷⁴ This money should not be viewed like a check signed over to the Ukrainian government, but rather as money allocated to respond to the Russian invasion through a combination of forms and recipients, primarily the defense industrial base in the United States.⁷⁵ By contrast, private companies publicly announced and celebrated their digital and tech aid to Ukraine. In an interview, one leading tech executive observed a clear dearth of focus from the US government toward digital and tech aid, instead opting for significant humanitarian and more traditional military assistance.⁷⁶ This prioritization was likely an intentional choice—the US government’s perspective seems to have been that it was leading conventional aid by a significant margin and wanted others, like European governments and the private sector, to take the lead on digital and tech matters.⁷⁷Though not speaking specifically on cyber and tech elements, Secretary of Defense Pete Hegseth in February 2025 called publicly for European states to provide the “overwhelming” majority of defense funding for Ukraine, bemoaning what he saw as an “imbalanced relationship.”⁷⁸ Hegseth specifically pushed for the expansion of existing Europe-led coalitions—discussed below—dedicated to coordinating technological aid.⁷⁹

By contrast, industry experts agreed that the UK Foreign, Commonwealth and Development Office (FCDO) was a very effective facilitator of private sector aid.⁸⁰ The UK’s efficiency on this issue was due in part to fewer restrictions on aid money between distinct civilian- and military-designated buckets.⁸¹ According to an assessment from the Independent Commission for Aid Impact, which scrutinizes UK aid spending, this flexibility enabled the FCDO to respond and adapt to the constant evolutions of the war and geopolitical environment—thereby acting as an effective channel for private sector assistance into Ukraine.⁸²

The ad hoc nature of many of the early digital assistance programs provided by private companies was in some ways a double-edged sword. In many cases they were present and able to move more quickly than government programs, and in some places they stepped into de facto political roles—shaping the conflict and public understanding of it. However, this efficiency and effectiveness became difficult to sustain in the long run as governments and government-sponsored mechanisms were slow or insufficient to step in to support these efforts.⁸³ US government entities were instrumental in facilitating support from private companies to Ukraine through purchase agreements, such as that of hundreds of Starlink devices and subscriptions in coordination with other governments⁸⁴ and partnerships. US government entities also participated in intelligence sharing and collaboration efforts regarding Russian cyber capabilities and activities⁸⁵ and even conducted hunt forward operations to assist in Ukrainian defense against Russian cyber aggression both before and after the February 2022 Russian invasion.⁸⁶

In various conversations, both industry and government representatives confirmed the lack of effective governmental and supranational coordination and its impact on the private sector, and on Ukrainian defense.⁸⁷ Company representatives across the United States and Europe shared the same refrain: “we can’t keep supporting Ukraine ourselves forever without government assistance.⁸⁸

In addition to bilateral assistance efforts, various entities emerged across the conflict focused on cooperation organization and facilitation of digital and tech aid. The first of these was the CDAC, not a government entity, but a nonprofit organization that brought together a number of cybersecurity and technology organizations to better coordinate assistance efforts. The organization was founded by Gregory Rattray and a coalition of cyber executives to address the impediments and complications that accompanied the early days of digital and tech assistance provision from the private sector. A CDAC representative said in May 2024 that the group had facilitated $20-30 million in tech-related assistance for Ukraine since its inception.⁸⁹ As Ukrainian and CDAC representatives noted, CDAC’s facilitation efforts have since slowed for a variety of reasons: decreased ability to act as an intermediary as requests have become more specific, a stabilization among companies that no longer require a coordinator after their relationships in Ukraine were established, and a lack of sufficient financial support for both CDAC and the companies willing to provide assistance.⁹⁰

The vacuum noted by industry representatives and CDAC founders in the shape of a true digital and tech aid coordination body with the resources and remit to execute that mission is the planned role of the IT Coalition and the Tallinn mechanism. The IT Coalition, part of the Ukraine Defense Contact Group (UDCG; also known as the Ramstein Group), was established in September 2023 as “a dedicated group of donor nations led by Estonia and Luxembourg within the UDCG framework, focused on delivering support to Ukraine’s Defense Forces in the area of IT, communications, and cyber security.”⁹¹ The group consists of eighteen member countries, with the European Union, NATO, the United States, and France acting as observers.⁹² In 2024 and 2025, the coalition had raised “€1,1 billion in both financial and material assistance.”⁹³ The coalition aims to support Ukraine cyber defense capability and command and control integration while also delivering on more long-term goals such as fostering innovation and cloud adoption. The United States is currently an observing member of the IT Coalition and have thus far has declined taking a more active role. Those familiar with the inner workings of the mechanism have emphasized the clear benefit of a more active US role in the mechanism, as most of the tech companies with whom the organization would like to coordinate are headquartered out of the United States.⁹⁴

The Tallinn Mechanism was established in December 2023 with 11 states to “coordinate and facilitate civilian cyber capacity building” within Ukraine, and is intended to be complementary to military-focused cyber aid facilitation bodies like the IT Coalition.⁹⁵ The Tallinn Mechanism is focused on “amplifying the cyber support of donors to Ukraine in the civilian domain.”⁹⁶ The mechanism raised approximately $210 million by the end of 2024 and has focused on bolstering cyber defense capabilities, especially that of critical national infrastructure, through the public and private provision of hardware and software, incident response, satellite communication provision, and cybersecurity training for government officials.⁹⁷

The international community has certainly made strides to better facilitate technology aid to Ukraine, to counteract the pushing effect that complicates such coordination for technology companies. However, it is yet unclear whether these programs and practices will meet the demands of this conflict, or those of conflicts to come. The most effective element of the tech sector at large’s efforts in Ukraine has been its speed, both in its response to the invasion itself and to individual challenges that have arisen over the course of this war. Meanwhile, government and supranational coordination—aside from those programs already in place—were much slower to implement.

Risk of retaliation

A significant factor shaping the behavior of companies’ work in and with Ukraine is the heightened threat state created by active warfare. Various technology company officials cited their concern about potential backlash—whether financial, cyber, or physical violence—from Russia against their infrastructure, products, and people.⁹⁸ The real risk that these companies took on was informed by a number of factors, such as the application of their products or services by and for military ends, the required physical presence of personnel, products, or infrastructure, and also the degree to which increased Russian aggression against these companies might be a meaningful increase from prewar conditions.

Defense application

An undeniable yet complex risk that companies face as a result of providing support to Ukraine is the threat of Russian retaliatory action. Private sector behavior in Ukraine is shaped by the degree to which the goods and services provided are connected to the conduct of the conflict itself. Products and services provided to civilian groups for purely humanitarian purposes come with a different risk profile than goods that underpin government functions. Though not discrete or exhaustive, cyber and technical aid to Ukraine can be understood in four categories: humanitarian aid, critical infrastructure protection, government support, and military application. In practice, this division exists on a continuum, from purely humanitarian support to products or services that the state itself has come to rely on for the continued provision of government services, with particular importance placed on whether the good is for military use and whether that use is in direct support of combat operations.

By and large, companies have made their own determinations as to how to amend their work in Ukraine, looking not only at the direct military application of their product or service but also examining existing and potential products or services to determine potential applicability for offensive operations—and where to avoid their abuse. A clear example of this is Google’s cessation of the live traffic display functionality within Google Maps. A team of open source researchers at the Middlebury Institute of International Studies, under the leadership of Professor Jeffrey Lewis, were allegedly able to infer the early movements of the February 2022 Russian invasion before official reporting by analyzing Google Maps traffic data in combination with radar imagery.⁹⁹ Following these reports, Google announced that it would temporarily disable live traffic data so that it would not be used to plan military operations.¹⁰⁰ An internal task force at Google largely coordinated these and similar decisions to coordinate aid to Ukraine and, most importantly, to examine their actions and decisions in order to identify and address programs that had a potential to cause harm.¹⁰¹ However, even after these amendments were made, Google Maps was again the subject of controversy. In November 2024, Ukrainian defense chiefs accused Google of revealing the location of key military positions following an earlier Google Maps update. According to Russian military bloggers, among these revelations was the position of new air defense systems, including US-made Patriot anti-aircraft missiles, surrounding an airport near Kyiv. According to the head of Ukraine’s counter-disinformation unit Andriy Kovalenko, Google representatives reached out to Ukrainian government officials to address the issue shortly thereafter.¹⁰²

Similar in many ways was the SpaceX effort to restrict use of the Starlink satellite network close to the active front of the war. Though controversial in the public eye, and significant for military operators and planners, the SpaceX decision to restrict the use of Starlink devices near the front was an intentional one—to limit escalation directly supported by their devices. SpaceX President Gwynne Shotwell explained “our intent was never to have them use it for offensive purposes.”¹⁰³ The Starlink network, despite these imposed limitations, has undeniably been an extremely useful tool for the Ukrainian military,¹⁰⁴ but its network also supports a much wider geography of users, from individuals to government entities. The inherent dual-use nature of the Starlink network poses a much greater risk should its network be considered a military object. This risk framework is likely a significant part of the drive behind Space X’s creation of Starshield, announced in early December 2022. A partner project to Starlink, Starshield operates on a separate network and is specifically and exclusively for government—rather than consumer and commercial—use.¹⁰⁵ With this application in mind, reports still vary as to whether such a contract, like the $1.8 billion deal with the National Reconnaissance Office, would be operated by the contractee, in this case the NRO, or whether, like Starlink, the service would remain operated by SpaceX.¹⁰⁶ It is possible that this case will follow, in practice, the principle that the closer that the operation of a technology sits to strategic and sensitive national priorities, the higher the risk for both state and company of that technology being operated by said company, and the more likely that technology will come to be operated from within a government body.

Physicality

Products and services that require the physical presence of personnel, products, or infrastructure within Ukraine are the riskiest to undertake. Providing support in this way carries a level of risk that most companies did not have either the willingness or the infrastructure to take on.¹⁰⁷ While some companies, for certain products, chose to partner with government entities to deliver products or services where physical presence was necessary, as in the preceding example, others chose instead to eschew options with such a requirement. In an interview, one expert said, “there were some products that you wanted to go forward with, but you couldn’t. Your informational security can only be as good as your physical security, so projects requiring new physical infrastructure development, or new infrastructure dependencies, was a major stumbling block.”¹⁰⁸

Russia’s cyber-offensive impact

To some degree, most of the technology companies in question—especially those with a preexisting presence in Ukraine—were already a target of a significant volume of Russian cyber intrusion attempts as well as other coercive actions. As one industry executive put it when asked about the role of risk assessment in decisions to deepen their work in Ukraine following the invasion, “we knew the risk, we were already targeted on a daily basis.”¹⁰⁹ The risk of Russian aggression and retaliation remains, but for many large tech companies, their work already took them into spaces where they were in direct or indirect conflict with Russian or Russian-affiliated groups. However, the risk of Russian cyber intrusions against their networks was already a built-in calculation for their existing cybersecurity plans.

In addition to the experience and expectations of many of these private companies, Russian cyber operations accompanying and following its February 2022 invasion were less disruptive than previously anticipated. The most prominent case of coordinated disruption in the information space remains the ViaSat satellite communications system hack during the invasion. As cyber scholar Jon Bateman writes, this intrusion demonstrated clear “timing (one hour before Russian troops crossed the border), clear military purpose (to degrade Ukrainian communications), and international spillover (disrupting connectivity in several European countries).”¹¹⁰ However, the incident appeared to be limited in duration and unclear in impact—senior Ukrainian official Victor Zhora acknowledged the loss to communications during the early hours of the invasion, but later stated that the incident was less disruptive than it could have been because of redundancies in Ukrainian communication methods.¹¹¹

As nonresident senior fellow Justin Sherman explored in May 2025 Atlantic Council report, Unpacking Russia’s cyber nesting doll,¹¹² the comparably muted effectiveness of Russian cyber operations during the war is the result of a multitude of factors including:

Cross-domain coordination difficulties
Resource constraints
Interagency competition
Intentional strategic prioritization
Ukrainian defensive strength

Sherman goes on to explain that while cyber operations against Ukraine did not have that catastrophic impact expected by some—the promised cyber Pearl Harbor—Russian cyber capabilities should not be underestimated.¹¹³

In just the first year of the war, Russia and—importantly—non-state actors in Russia’s orbit, launched a multitude of cyberattacks and intrusions against the public and private sector in Ukraine—including those entities relying on products, platforms, or infrastructure owned and operated by Western tech companies.¹¹⁴ In May 2025, the US Cybersecurity and Infrastructure Security Agency released a joint cybersecurity advisory highlighting this threat, and explicitly calling out Russian targeting of “those involved in the coordination, transport, and delivery of foreign assistance to Ukraine.”¹¹⁵ The question at hand, then, is not what level of risk is associated with these actions but how prepared the company is to encounter such risks.

Reaction – Risk definition and mitigation

In response to the risk of Russian retaliatory action, either through cyber or kinetic means, states and intranational bodies had a role to play in helping companies to navigate and mitigate these risks. The first method by which this was attempted was in an increased clarity on the types of actions that may be considered military or escalatory in nature. Additionally, in many cases states were necessary partners in securing any element of product delivery or operation required new physical presence in or movement into and across Ukraine.

Definition

Throughout the conflict, industry executives and civil society displayed a great deal of concern about where the line falls between civilian actors and military objectives, and how to ensure that their activities fall squarely on the civilian side of this line. Individuals and companies reiterated a desire for increased clarity on this question from Western governments and international legal bodies.¹¹⁶ Current humanitarian law requires the country at war to target only military objects, defined as objects “whose total or partial destruction, capture or neutralization, in the circumstances ruling at the time, offers a definite military advantage” in a manner proportional to the military gain foreseen by the operation.¹¹⁷

In a 2023 report, the International Red Cross posited that, “tech companies that operate in situations of armed conflict should understand and monitor whether the services they provide may amount to a direct participation in hostilities by their employees and whether the company might qualify as a military objective.”¹¹⁸ Essentially, the line between civilian and military object is determined by Russia in its assessment of the battlespace, as well as the broader question of whether the Kremlin is concerned about staying within the bounds of international humanitarian law. The subjectivity of this divide allows for some range in interpretation.¹¹⁹ Indeed some, like Lindsay Freeman at UC Berkeley School of Law, argue that “civilian objects have been intentional, direct targets and not simply collateral damage.”¹²⁰ Ukraine and its allies cannot simply dictate where such a line exists. However, greater clarity from national and supranational entities would provide some measure of cover to these companies and help solidify their ability to make more accurate risk calculations.¹²¹

Mitigation

For products and services that require physical presence, either of people or products, many companies view some kind of partnership with government, local or otherwise, as a virtual necessity to bridge the risk imposed.¹²²

Cisco’s Project PowerUp, led by Senior Security Strategist Joe Marshall of Cisco Talos Intelligence Group,¹²³ is a clear demonstration of this. The project innovated and delivered a new industrial ethernet switch that could ensure continued effective power grid management even when Russian GPS jamming blocked Ukrenergo substation synchronization, and avoid the resulting forced outages across the Ukrainian power grid.¹²⁴ The delivery of these devices into Ukraine was coordinated via a phone call to a US government official who coordinated the first shipment on an upcoming cargo shipment to Poland and then onto a train into Ukraine to be installed by Ukrenergo engineers.¹²⁵ While this project was conceived of and executed by Cisco employees, those involved in the project emphasized the importance of Cisco’s partnership with the US government on this, as well as other private assistance programs.¹²⁶

Several governments and international organizations have established insurance programs, particularly political risk insurance to help shield companies from the financial risk of investment into Ukraine. In 2023, the Multilateral Investment Guarantee Agency of the World Bank issued guarantees of $9.1 million to support the construction and operation in the M10 Industrial Park in Lviv.¹²⁷ Additionally, the US International Development Finance Corporation has established several financial packages guaranteeing millions in political risk insurance for a variety of projects.¹²⁸ Within Ukraine, war and political risk insurance is offered by the Export Credit Agency, which insure loans for qualifying Ukrainian businesses against such risks, as well as for direct investment from or into Ukraine.¹²⁹ The Ukrainian Ministry of Economy also drafted a law, in cooperation with the National Bank of Ukraine, which would create a unified framework for political or war risk insurance, with a focus on mitigating risks that may deter foreign investments.¹³⁰

The physical element of presence in Ukraine and especially near the battlefield remains a clear demarcation between activities that are the realm of the public sector and those that are the realm of the private sector. In this area, cooperation and coordination between companies and governments could largely follow established practices and procedures. But, for technology whose infrastructure does not touch the territory of Ukraine, the question of where the line is between civilian product and military object, and where bodies like NATO, the European Union, and the United Nations would define that line to be, resembles a gradual gradient rather than a stark line.

Key takeaways and conclusion

Behind much of the discussions and debates among various groups on the role of the private sector in in the war in Ukraine is a deeper anxiety about the evolving character of warfare as we reach the quarter marker of the twenty-first century. The integration and implementation of new technologies and its effect on the practice of war is familiar territory for theoreticians and practitioners alike, from Douhet’s theories on the supremacy of air power to the revolution of military affairs (RMA) school of thought, to those today that focus on the effect of evolving drone tactics on the operation and strategy of war. Less comfortable, however, is the analysis of what changes in technology may mean in practice not just for the conduct of war itself, but more fundamentally for the very nature of actors whose abilities and choices shape the conduct of war.

Over the past few years, private companies, especially technology companies based in North America and Western Europe have made decisions as to whether and how to contribute to the Ukrainian war effort in ways that have greatly impacted the ability of the Ukrainian government to direct and effectuate its own defense. In other words, they have moved beyond the status of resource providers in this conflict toward something more resembling actors in and of themselves, at times approaching the importance of states in their contributions.

Clarity of conflict

The war in Ukraine—especially in the first months and years of the war— was notably less divisive in the court of public opinion in the West than many other contemporary conflicts. The historical context of the Russia-Ukraine relationship, along with the sustained aggression launched against Ukraine for more than a decade prior to this invasion and the nature of the invasion itself, combined with myriad factors including those discussed throughout this report, created conditions conducive to widespread sympathy and support across much of Western Europe and North America. The efforts of the Ukrainian government proactively built on these conditions both before and after the invasion. Ukrainian leaders, Zelenskyy in particular, both publicly and in private conversations with government and private sector representatives, clearly communicated the effects of Russian aggression against Ukraine and the actions undertaken by the Ukrainian government and its people.

Clarity of conflict, as a motivating factor for tech companies’ decision-making over the course of this conflict, was important in creating favorable conditions for such choices, but is not determinative. Most important as a lesson applicable in potential future conflicts, is that the seeds that grew these conditions into place were planted well before Russian forces rolled across the Ukrainian borders in February 2022.

Business alignment

Many firms had preexisting operations, employees, or customers in Ukraine—generating both a sense of duty and a pragmatic incentive to safeguard assets and personnel. Firms that were already active in Ukraine, or whose services directly contributed to protecting their employees and customers, were the most proactive and consistent contributors. Additionally, companies could derive direct or indirect benefits from their engagement. Several firms leveraged their involvement as an opportunity for product testing, cybersecurity innovation, and real-world validation of technologies under extreme conditions. In doing so, companies not only supported Ukraine’s defense but also advanced their own technical capabilities and reputational standing.

Ukraine’s long-term digital transformation further enhanced this alignment. Over the past decade, the government has implemented legal and technical reforms aimed at combating corruption and promoting digital industry growth, positioning the country as a prospective regional tech hub and a credible, innovation-friendly partner. This proactive transformation reassured corporate partners that their investments and assistance could be practicable and impactful.

For future conflicts, states will need to account for business alignment factors as an important driving factor in private sector’s decision-making. This includes the uncomfortable, yet important finding that this includes companies’ ability to profit, or at a minimum, sustain their operations in a conflict in a way that maintains their organizational health, noting that companies’ motivations will not always align with that of the states in which they are headquartered. While moral conviction catalyzed early engagement, sustained corporate involvement in Ukraine depended on alignment between ethical action and business strategy.

Difficulty of coordination

Even amid broad goodwill, the initial months of the war revealed the challenge of coordination. Companies often struggled to identify appropriate Ukrainian counterparts, assess needs accurately, or ensure that their offerings were deployed effectively. Early efforts were marked by confusion—with multiple government offices issuing overlapping requests and little centralized control. As Bornyakov later acknowledged, the early days of outreach “were chaos.”

Many of the most significant factors that shaped company involvement were already in place and being acted upon before the February 2022 Russian invasion. Preexisting relationships were key, both as a motivating factor and a facilitating factor, effectively minimizing coordination friction. Additionally, the technological and policy developments well underway before the February 2022 invasion created the appealing Ukrainian tech landscape and improved coordination necessary once the conflict was underway.

While private companies excelled in speed and agility, governments brought scale, reliability, and regulatory legitimacy. The war illustrated how preparedness for potential future conflicts will depend on preestablished coordination frameworks that merge these strengths—enabling rapid mobilization of technological capabilities, matching private capabilities with public needs in real time.

Risk of retaliation

Providing assistance to Ukraine exposed technology companies to new security risks from cyberattacks, sanctions, or kinetic threats against personnel or infrastructure. The degree of perceived risk—and retaliation—varied depending on each company’s exposure, particularly for firms whose technologies had direct military applications or some kind of physical presence.

Ambiguity around international law, cyber norms, and export controls can delay or discourage private assistance. Companies must understand whether providing certain technologies or services could be construed as escalatory, illegal, or sanctionable. Private firms are increasingly targeted in state-level cyber operations. The possibility of retaliation, in any of a myriad of forms, was a serious risk for companies aiding Ukraine; managing and sharing that risk is essential to sustaining long-term cooperation.

To mitigate these risks, Ukraine and allied governments played an essential supportive role, clarifying the boundaries between civilian and military assistance, helping companies avoid escalatory missteps and, in some cases, underwrote contracts or insurance to shield firms from loss. Such measures demonstrate the emerging need for risk-sharing frameworks between states and corporations. In cases where physical operations within Ukraine were necessary, governments provided logistical and security coordination to protect personnel and assets. Such collaboration underscores an emerging model of public-private security cooperation, wherein states and corporations jointly navigate the blurred boundaries between national defense and digital resilience.

If private technology companies’ decisions and actions are so impactful to the conduct of war, as they have shown themselves to be, then the character of warfare has evolved in such a way as to require states to likewise evolve in the ways that they provide military assistance and plan for potential future conflicts. The foundation for this evolution needs to be a greater understanding of the factors in the case of Ukraine that most greatly impacted company decision-making regarding their participation, or not, in the conflict space, starting with the four factors identified in this report: those that pulled companies toward cooperation, and those that pushed companies away. By assessing the factors that drove companies’ decision-making in Ukraine, states can better plan and prepare for future crises and conflicts—and not leave such critical capabilities, once again, to chance.

About the author

Emma Schroeder is an associate director with the Cyber Statecraft Initiative, part of the Atlantic Council Tech Programs. Her focus in this role is on developing statecraft and strategy for cyberspace useful for both policymakers and practitioners. Her work focuses on the role of cyber and cyber-enabled technology in conflict and crime.

Originally from Massachusetts, Schroeder holds an MA in History of War from King’s College London’s War Studies Department. She also attained her BA in International Relations & History, with a concentration in Security Studies, from the George Washington University’s Elliott School of International Affairs.

Acknowledgements

This report was made possible by the participation of dozens of scholars and practitioners who shared their expertise and experiences with the author.

Thank you to the Cyber Statecraft Initiative team for their support, particularly Nikita Shah and Trey Herr for their guidance. Particular thanks to Emerson Johnston, Grace Menna, and Zhenwei Gao for their research assistance, as well as to Nancy Messieh, Samia Yakub, and Donald Partyka for the creation and review of language and digital assets. All errors are the author’s own.

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The Atlantic Council’s Cyber Statecraft Initiative, part of the Atlantic Council Technology Programs, works at the nexus of geopolitics and cybersecurity to craft strategies to help shape the conduct of statecraft and to better inform and secure users of technology.

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1 All unattributed interviews were conducted in confidentiality with the author, and the names of interviewees are withheld by mutual agreement.

2 “Russia/Ukraine: Invasion of Ukraine Is an Act of Aggression and Human Rights Catastrophe,” Amnesty International, March 1, 2022, https://www.amnesty.org/en/latest/news/2022/03/russia-ukraine-invasion-of-ukraine-is-an-act-of-aggression-and-human-rights-catastrophe/.

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25 Interview with threat intelligence executive at US cybersecurity nonprofit, April 2, 2024.

26 Sam Bresnick, Ngor Luong, and Kathleen Curlee, Which Ties Will Bind: Big Tech, Lessons from Ukraine, and Implications for Taiwan, Center for Security and Emerging Technology (Georgetown University), February 2024, https://cset.georgetown.edu/publication/which-ties-will-bind/.

27 “Putin signs law forcing foreign social media giants to open Russian offices,” Reuters, July 1, 2021, https://www.reuters.com/technology/putin-signs-law-forcing-foreign-it-firms-open-offices-russia-2021-07-01/; Human Rights Watch, Russia: Growing Internet Isolation, Control, Censorship, June 18, 2020, https://www.hrw.org/news/2020/06/18/russia-growing-internet-isolation-control-censorship.

28 Interview with government affairs executive at US multinational technology corporation, August 28, 2024.

29 “Google’s Russian Subsidiary Files Bankruptcy Document,” Reuters, May 18, 2022, https://www.reuters.com/markets/europe/googles-russian-subsidiary-files-bankruptcy-document-2022-05-18/; “Google’s Russian Subsidiary Recognised Bankrupt by Court—RIA,” Reuters, October 18, 2023, https://www.reuters.com/markets/deals/googles-russian-subsidiary-recognised-bankrupt-by-court-ria-2023-10-18/.

30 Google Wins UK Injunction over YouTube Block on Russian Broadcasters,” Reuters, January 22, 2025, https://www.reuters.com/technology/google-wins-uk-injunction-over-youtube-block-russian-broadcasters-2025-01-22/.

31 Interview with executive at US multinational technology corporation, date withheld.

32 Industry executive, “Public-Private Cyber Support” Workshop, Royal United Services Institute, May 29, 2025.

33 Interview with threat intelligence executive at US cybersecurity nonprofit, May 2, 2024.

34 Interview with business development executive at US information and communications technology corporation, July 18, 2024.

35 Vera Bergengruen, “How Tech Giants Turned Ukraine into an AI War Lab,” TIME, February 8, 2024, https://time.com/6691662/ai-ukraine-war-palantir/.

36 Interview with information security executive at US intelligence and data analysis software technology corporation, May 8, 2024.

37 Bergengruen, “How Tech Giants Turned.”

38 Industry Executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024.

39 Bergengruen, “How Tech Giants Turned.”

40 Robert Hart, “Clearview AI: Controversial Facial-Recognition Firm Fined $33 Million for Illegal Database,” Forbes, September 3, 2024, https://www.forbes.com/sites/roberthart/2024/09/03/clearview-ai-controversial-facial-recognition-firm-fined-33-million-for-illegal-database/; Kashmir Hill, “The Secretive Company That Might End Privacy as We Know It,” New York Times, January 18, 2020, https://www.nytimes.com/2020/01/18/technology/clearview-privacy-facial-recognition.html.

41 Paresh Dave and Jeffrey Dastin, “Exclusive: Ukraine Has Started Using Clearview AI’s Facial Recognition during War,” Reuters, March 13, 2022, https://www.reuters.com/technology/exclusive-ukraine-has-started-using-clearview-ais-facial-recognition-during-war-2022-03-13/; Kashmir Hill, “Facial Recognition Goes to War,” New York Times, April 7, 2022, https://www.nytimes.com/2022/04/07/technology/facial-recognition-ukraine-clearview.html; Vera Bergengruen, “Ukraine’s ‘Secret Weapon’ Against Russia Is a Controversial U.S. Tech Company,” TIME, November 14, 2023, https://time.com/6334176/ukraine-clearview-ai-russia/; Drew Harwell, “Ukraine is scanning faces of dead Russians, then contacting the mothers,” Washington Post, April 15, 2022, https://www.washingtonpost.com/technology/2022/04/15/ukraine-facial-recognition-warfare/.

42 Interview with government affairs executive at US multinational digital communications technology corporation, May 2, 2024; Interview with information security executives at US intelligence and data analysis software technology corporation, May 8, 2024.

43 “Anti-Corruption Strategy for 2021–2025,” National Agency on Corruption Prevention (Ukraine), 2021, https://nazk.gov.ua/en/anti-corruption-strategy/.

44 Oleksandr Bornyakov, “Why Ukraine is Going All In on Tech to Rebuild Economy,” Fortune, August 24, 2022, https://fortune.com/2022/08/24/ukraine-going-all-in-tech-rebuild-economy-international-oleksandr-bornyakov/.

45 Integrity and Anti-Corruption Review of Ukraine, OECD Public Governance Reviews, OECD Publishing, May 2025, https://doi.org/10.1787/7dbe965b-en.

46 Robert Peacock, The Impact of Corruption on Cybersecurity: Rethinking National Strategies Across the Global South, Atlantic Council, July 1, 2024, https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/the-impact-of-corruption-on-cybersecurity-rethinking-national-strategies-across-the-global-south/; Software Management: Security Imperative, Business Opportunity, Business Software Alliance, June 2018, https://www.bsa.org/files/2019-02/2018_BSA_GSS_Report_en_.pdf.

47 Alona Savishchenko, “How Open Source E-procurement System Prozorro Helps to Sustain Ukrainian Economy,” Open Source Observatory, European Commission, November 19, 2024, https://interoperable-europe.ec.europa.eu/collection/open-source-observatory-osor/news/e-procurement-prozorro-support-ukrainian-economy; “EProcurement System ProZorro,” Observatory of Public Sector Innovation, https://oecd-opsi.org/innovations/eprocurement-system-prozorro/.

48 Robert Peacock, The Impact of corruption; Software Management, Business Software Alliance.

49 “About UNITED24,” UNITED24 – The Initiative of the President of Ukraine, accessed October 20, 2025, https://u24.gov.ua/about; Guest, “Mykhailo Fedorov is Running.”

50 Daryna Antoniuk, “Two Ukraine Cyber Officials Dismissed amid Embezzlement Probe,” The Record, November 20, 2023, https://therecord.media/two-ukraine-cyber-officials-dismissed-amid-embezzlement-probe; “Misappropriation of UAH 62 million during the purchase of software: the leadership of the State Special Communications Service is suspected,” National Anti-Corruption Bureau of Ukraine, news release (in Ukrainian), November 20, 2023, https://nabu.gov.ua/news/zavolod-nnia-62-mln-grn-pri-zakup-vl-programnogo-zabezpechennia-p-dozriu-t-sia-ker-vnitctvo-derzhspetczviazku/.

51 Interview with government affairs executive at US multinational digital communications technology corporation, May 2, 2024; Interview with information security executives at US intelligence and data analysis software technology corporation, May 8, 2024; Industry executive, “Public-Private Cyber Support” Workshop, Royal United Services Institute, May 29, 2024.

52 Bergengruen, “How Tech Giants Turned.”

53 Bergengruen, “How Tech Giants Turned.”

54 “Ukrainian Tech Industry Shows Resilience in the Face of War — IT Research Ukraine 2024,” techukraine.org, December 5, 2024, https://techukraine.org/2024/12/05/ukrainian-tech-industry-shows-resilience-in-the-face-of-war-it-research-ukraine-2024/.

55 “Diia City,” Diia, accessed October 20, 2025, https://city.diia.gov.ua/en.

56 Mykhailo Fedorov, “Ukraine’s Vibrant Tech Ecosystem Is a Secret Weapon in the War with Russia,” UkraineAlert (Atlantic Council), August 17, 2023, https://www.atlanticcouncil.org/blogs/ukrainealert/ukraines-vibrant-tech-ecosystem-is-a-secret-weapon-in-the-war-with-russia/.

57 Greg Rattray, Geoff Brown, and Robert Taj Moore, The Cyber Defense Assistance Imperative: Lessons from Ukraine, Aspen Digital, May 2025, https://www.aspeninstitute.org/wp-content/uploads/2025/05/Aspen-Digital_The-Cyber-Defense-Assistance-Imperative-Lessons-from-Ukraine.pdf.

58 “CDAC: “The Scale of What We Can Do is Severely Hampered by not Having Funding for Dedicated Staff or to Fulfill Requirements Directly,” Common Good Cyber, May 29, 2025, https://commongoodcyber.org/news/interview-cdac-funding/.

59 Industry executive, “Public-Private Cyber Support” Workshop, Royal United Services Institute, May 29, 2024.

60 Interview with business development executive at US information and communications technology corporation, July 18, 2024; Interview with government affairs executive at US multinational digital communications technology corporation, May 2, 2024; Interview with information security executives at US intelligence and data analysis software technology corporation, May 8, 2024.

61 Interview with business development executive at US information and communications technology corporation, July 18, 2024.

62 Interview with threat intelligence executive at US cybersecurity nonprofit, April 2, 2024; Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024.

63 Industry executive, “IT Coalition” Roundtable, Atlantic Council, February 21, 2024.

64 Industry executive, “Public-Private Cyber Support” Workshop, Royal United Services Institute, May 29, 2024; Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024.

65 “Cyber Defense Assistance Evaluation Framework,” Cyber Defense Assistance Collaborative, June 18, 2024, https://crdfglobal-cdac.org/cda-evaluation-framework/.

66 Peter Guest, “Mykhailo Fedorov is Running,” WIRED, July 25, 2023, https://www.wired.com/story/ukraine-runs-war-startup/.

67 Cat Zakrzewski, “4,000 letters and four hours of sleep: Ukrainian leader wages digital war,” Washington Post, March 30, 2022, https://www.washingtonpost.com/technology/2022/03/30/mykhailo-fedorov-ukraine-digital-front/.

68 Interview with tech assistance coordination executive, US nonprofit organization, July 17, 2025.

69 Bergengruen, “How Tech Giants Turned.”

70 Colin Demarest, “Data Centers Are Physical and Digital Targets, Says Pentagon’s Eoyang,” C4ISRNET, November 17, 2022, https://www.c4isrnet.com/cyber/2022/11/17/data-centers-are-physical-and-digital-targets-says-pentagons-eoyang/.

71 Oleh Ivanov, “Procurement During the Full-Scale War,” Vox Ukraine, October 14, 2022, https://voxukraine.org/en/procurement-during-the-full-scale-war.

72 “On Amendments to the Resolutions of the Cabinet of Ministers of Ukraine No. 822 of September 14, 2020 and No.169 of February 28, 2022,” Verkhovna Rada of Ukraine, June 24, 2022, https://zakon.rada.gov.ua/laws/show/723-2022-%D0%BF#n2.

73 Interview with government affairs executive at US multinational technology corporation, August 28, 2024.

74 Elizabeth Hoffman, Jaehyun Han, and Shivani Vakharia, Past, Present, and Future of US Assistance to Ukraine: A Deep Dive into the Data, Center for Strategic and International Studies (CSIS), September 26, 2023, https://www.csis.org/analysis/past-present-and-future-us-assistance-ukraine-deep-dive-data.

75 The difficulty, for the purposes of this paper, is understanding the breakdown of this assistance as it applies to digital and tech-focused aid to Ukraine. The author found examples breaking down US government assistance by general category (i.e., humanitarian, military, financial) and breakdowns of weapons systems aid (e.g., tanks and air defense systems) but little enumeration of the kind and amount of digital and tech aid provided by the US government. See “Ukraine Support Tracker,” Kiel Institute for the World Economy, updated October 14, 2025, https://www.ifw-kiel.de/topics/war-against-ukraine/ukraine-support-tracker.

76 Interview with government affairs executive at US multinational technology corporation, August 28, 2024.

77 Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024; Interview with information security executive at US multinational technology corporation, August 28, 2024; Interview with threat intelligence executive and government affairs executive at US multinational digital communications technology corporation, October 2, 2024.

78 Alex Therrien and Frank Gardner, “Hegseth Sets Out Hard Line on European Defense and NATO,” BBC News, February 12, 2025, https://www.bbc.com/news/articles/cy0pz3er37jo.

79 Jon Harper,“Hegseth Puts Onus on Allies to Provide ‘Overwhelming Share’ of Weapons to Ukraine,” DefenseScoop, February 12, 2025, https://defensescoop.com/2025/02/12/hegseth-ukraine-defense-contact-group-allies-military-aid-trump/.

80 Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024; Interview with threat intelligence executive and government affairs executive at US multinational digital communications technology corporation, October 2, 2024.

81 Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024.

82 “UK aid to Ukraine,” Independent Commission for Aid Impact (ICAI), April 30, 2024, https://icai.independent.gov.uk/html-version/uk-aid-to-ukraine-2/.

83 Industry executive, “Public-Private Cyber Support” Workshop, Royal United Services Institute, May 29, 2024.

84 “SpaceX, USAID Deliver 5,000 Satellite Internet Terminals to Ukraine,” Reuters, April 6, 2022, https://www.reuters.com/technology/spacex-usaid-deliver-5000-satellite-internet-terminals-ukraine-2022-04-06/; Alex Marquardt, “Exclusive: Musk’s SpaceX Says it Can No Longer Pay for Critical Satellite Services in Ukraine, Asks Pentagon to Pick Up the Tab,” CNN, October 13, 2022, https://www.cnn.com/2022/10/13/politics/elon-musk-spacex-starlink-ukraine; Michael Sheetz, “Pentagon Awards SpaceX with Ukraine Contract for Starlink Satellite Internet,” CNBC, June 1, 2023, https://www.cnbc.com/2023/06/01/pentagon-awards-spacex-with-ukraine-contract-for-starlink-satellite-internet.html.

85 “United States and Ukraine Expand Cooperation on Cybersecurity,” Cybersecurity and Infrastructure Security Agency, July 27, 2022, https://www.cisa.gov/news-events/news/united-states-and-ukraine-expand-cooperation-cybersecurity; David Jones, “White House Warns of US of Possible Russian Cyberattack Linked to Ukraine Invasion,” Cybersecurity Dive, March 22, 2022, https://www.cybersecuritydive.com/news/white-house-warns-russian-cyberattack-ukraine/620755/; Egle Murauskaite, “U.S. Assistance to Ukraine in the Information Space: Intelligence, Cyber, and Signaling,” Asymmetric Threats Analysis Center (University of Maryland), February 2023, https://www.start.umd.edu/publication/us-assistance-ukraine-information-space-intelligence-cyber-and-signaling.

86 Maj. Sharon Rollins, “Defensive Cyber Warfare: Lessons from Inside Ukraine,” US Naval Institute Proceedings, June 2023, https://www.usni.org/magazines/proceedings/2023/june/defensive-cyber-warfare-lessons-inside-ukraine; “Before the Invasion: Hunt Forward Operations in Ukraine,” US Cyber Command (declassified briefing), November 28, 2022, https://nsarchive.gwu.edu/sites/default/files/documents/rmsj3h-751×3/2022-11-28-CNMF-Before-the-Invasion-Hunt-Forward-Operations-in-Ukraine.pdf; Dina Temple-Raston, Sean Powers, and Daryna Antoniuk, “Ukraine Hunt Forward Teams,” The Record, October 18, 2023, https://therecord.media/ukraine-hunt-forward-teams-us-cyber-command.

87 Interview with tech assistance coordination executive at US nonprofit organization, July 17, 2025; Interview with government affairs executive at US multinational technology corporation, August 28, 2024.

88 “Interview with threat intelligence executive at US multinational technology corporation, April 22, 2024; Industry executive, “IT Coalition” Roundtable, Atlantic Council, February 21, 2024; Industry executive, “Public-Private Cyber Support” Workshop, Royal United Services Institute, May 29, 2024; Interview with threat intelligence executive and government affairs executive at US multinational digital communications technology corporation, October 2, 2024.

89 Industry executive, “Public-Private Cyber Support” Workshop, Royal United Services Institute, May 29, 2024.

90 Industry executive, “Public-Private Cyber Support” Workshop, Royal United Services Institute, May 29, 2024.

91 “Luxembourg, Estonia, and Ukraine Have Launched the IT Coalition,” Government of Luxembourg, September 19, 2023, https://gouvernement.lu/en/actualites/toutes_actualites/communiques/2023/09-septembre/19-bausch-itcoalition.html.

92 “Ukraine Defence Contact Group: Estonia and Luxembourg Announce New Contributions to IT Coalition,” European Pravda, April 8, 2024, https://www.eurointegration.com.ua/eng/news/2024/04/8/7183316/; “IT Coalition Established by Estonia and Luxembourg … Has Raised about 500 Million Euros in Its First Year,” Republic of Estonia Ministry of Defense, December 12, 2024, https://www.kaitseministeerium.ee/en/news/it-coalition-established-estonia-and-luxembourg-help-ukraine-has-raised-about-500-million-euros.

93 “IT Coalition Led by Estonia and Luxembourg Has Raised over One Billion Euros to Support Ukraine,” Republic of Estonia Ministry of Defense, May 28, 2025, https://kaitseministeerium.ee/en/news/it-coalition-led-estonia-and-luxembourg-has-raised-over-one-billion-euros-support-ukraine.

94 Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024.

95 “Formalization of the Tallinn Mechanism to Coordinate Civilian Cyber Assistance to Ukraine,” US Department of State (Office of the Spokesperson), December 20, 2023, https://2021-2025.state.gov/formalization-of-the-tallinn-mechanism-to-coordinate-civilian-cyber-assistance-to-ukraine/.

96 “Tallinn Mechanism Raises €200 Million to Support Ukraine’s Resilience in Cyberspace,” Republic of Estonia Ministry of Foreign Affairs, December 20, 2024, https://www.vm.ee/en/news/tallinn-mechanism-raises-eu200-million-support-ukraines-resilience-cyberspace.

97 “Joint Statement Marking the First Anniversary of the Tallinn Mechanism,” US Department of State (Office of the Spokesperson), December 20, 2024, https://2021-2025.state.gov/joint-statement-marking-the-first-anniversary-of-the-tallinn-mechanism/.

98 Interview with government affairs executive at US multinational technology corporation, August 28, 2024; Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024.

99 Rachel Lerman, “On Google Maps, Tracking the Invasion of Ukraine,” The Washington Post, February 25, 2022, https://www.washingtonpost.com/technology/2022/02/25/google-maps-ukraine-invasion/.

100 Marc Cieslak and Tom Gerken, “Ukraine Crisis: Google Maps Live Traffic Data Turned Off in Country,” BBC News, February 28, 2022, https://www.bbc.com/news/technology-60561089.

101 Interview with government affairs executive at US multinational technology corporation, date withheld.

102 Seb Starcevic, “Ukraine Slams Google for Revealing Location of Military Sites,” Politico, November 4, 2024, https://www.politico.eu/article/ukraine-google-reveal-location-military-site/; James Kilner, “Google Maps ‘reveals location’ of Ukrainian military positions,” The Telegraph, November 4, 2024, https://www.telegraph.co.uk/world-news/2024/11/04/ukraine-angry-google-maps-reveal-location-military-position/.

103 Alex Marquardt and Kristin Fisher, “SpaceX Admits Blocking Ukrainian Troops from Using Satellite Technology,” CNN, February 9, https://www.cnn.com/2023/02/09/politics/spacex-ukrainian-troops-satellite-technology/index.html.

104 “Russia Using Thousands of SpaceX Starlink Terminals in Ukraine, WSJ says,” Reuters, February 15, 2024, https://www.reuters.com/world/europe/russia-using-thousands-spacex-starlink-terminals-ukraine-wsj-says-2024-02-15/.

105 “Starshield,” SpaceX, accessed October 20, 2025, https://www.spacex.com/starshield/; Joey Roulette and Marisa Taylor, “Exclusive: Musk’s SpaceX Is Building Spy Satellite Network for US Intelligence Agency, Sources Say,” Reuters, March 16, 2024, https://www.reuters.com/technology/space/musks-spacex-is-building-spy-satellite-network-us-intelligence-agency-sources-2024-03-16/.

106 Tim Fernholz, “The Big Questions About Starshield: SpaceX’s Classified EO Project,” Payload, March 22, 2024, https://payloadspace.com/the-big-questions-about-starshield-spacexs-classified-eo-project/; Brian Everstine, “SpaceX: DoD Has Requested Taking Over Starship Individual Missions,” Aviation Week Network, January 30, 2024, https://aviationweek.com/space/spacex-dod-has-requested-taking-over-starship-individual-missions; Sandra Erwin, “Pentagon Embracing SpaceX’s Starshield for Future Military SATCOM,” SpaceNews, June 11, 2024, https://spacenews.com/pentagon-embracing-spacexs-starshield-for-future-military-satcom/.

107 Interview with information security executive at US intelligence and data analysis software technology corporation, May 8, 2024; Interview with government affairs executive at US multinational technology corporation, March 1, 2024; Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024.

108 Interview with information security executive at US intelligence and data analysis software technology corporation, May 8, 2024.

109 Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024.

110 Jon Bateman, Russia’s Wartime Cyber Operations in Ukraine: Military Impacts, Influences, and Implications, Carnegie Endowment for International Peace, December 16, 2022, https://carnegieendowment.org/research/2022/12/russias-wartime-cyber-operations-in-ukraine-military-impacts-influences-and-implications?lang=en.

111 Rafael Satter, “Satellite Outage Caused ‘Huge Loss in Communications’ at War’s Outset—Ukrainian Official,” Reuters, March 15, 2022, https://www.reuters.com/world/satellite-outage-caused-huge-loss-communications-wars-outset-ukrainian-official-2022-03-15/; Kim Zetter, “ViaSat Hack ‘Did Not’ Have Huge Impact on Ukrainian Military Communications, Official Says,” Zero Day (Substack), September 26, 2022, https://www.zetter-zeroday.com/viasat-hack-did-not-have-huge-impact/; Emma Schroeder with Sean Dack, A Parallel Terrain: Public‑Private Defense of the Ukrainian Information Environment, Atlantic Council, February 27, 2023, https://www.atlanticcouncil.org/in-depth-research-reports/report/a-parallel-terrain-public-private-defense-of-the-ukrainian-information-environment/.

112 Justin Sherman, Unpacking Russia’s Cyber Nesting Doll, Atlantic Council, May 20, 2025, https://www.atlanticcouncil.org/content-series/russia-tomorrow/unpacking-russias-cyber-nesting-doll/.

113 Justin Sherman, Unpacking Russia’s Cyber.”

114 Shane Huntley, “Fog of War: How the Ukraine Conflict Transformed the Cyber Threat Landscape,” Threat Analysis Group blog (Google), February 16, 2023, https://blog.google/threat-analysis-group/fog-of-war-how-the-ukraine-conflict-transformed-the-cyber-threat-landscape/.

115 “Russian GRU Targeting Western Logistics Entities and Technology Companies,” Cybersecurity and Infrastructure Security Agency, May 21, 2025, https://www.cisa.gov/news-events/cybersecurity-advisories/aa25-141a.

116 Industry executive, “IT Coalition” Roundtable, Atlantic Council, February 21, 2024; Interview with government affairs executive at US multinational technology corporation, March 1, 2024; Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024; Interview with information security executive at US intelligence and data analysis software technology corporation; Interview with threat intelligence executive at US multinational digital communications technology corporation, July 26, 2024.

117 International Committee of the Red Cross, Protocol Additional to the Geneva Conventions of 12 August 1949, and Relating to the Protection of Victims of International Armed Conflicts (Protocol I), (June 8, 1977), United Nations High Commissioner for Refugees, https://www.refworld.org/docid/3ae6b36b4.html.

118 Protecting Civilians Against Digital Threats During Armed Conflict: Recommendations to States, Belligerents, Tech Companies, and Humanitarian Organizations, ICRC Global Advisory Board on Digital Threats during Armed Conflict, October 19, 2023, https://www.icrc.org/en/document/protecting-civilians-against-digital-threats-during-armed-conflict, 15.

119 Zhanna L. Malekos Smith, “No ‘Bright‑Line Rule’ Shines on Targeting Commercial Satellites,” The Hill, November 28, 2022, https://thehill.com/opinion/cybersecurity/3747182-no-bright-line-rule-shines-on-targeting-commercial-satellites/; Emma Schroeder and Sean Dack, A Parallel Terrain: Public‑Private Defense of the Ukrainian Information Environment, Atlantic Council, February 27, 2023, https://www.atlanticcouncil.org/in-depth-research-reports/report/a-parallel-terrain-public-private-defense-of-the-ukrainian-information-environment/.

120 Lindsay Freeman, “Evidence of Russian Cyber Operations Could Bolster New ICC Arrest Warrants,” Lawfare, March 13, 2024, https://www.lawfaremedia.org/article/evidence-of-russian-cyber-operations-could-bolster-new-icc-arrest-warrants.

121 Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024.

122 Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024.

123 Joe Marshall, “Project PowerUp – Helping to Keep the Lights on in Ukraine in the Face of Electronic Warfare,” Cisco Talos Intelligence blog, December 4, 2023, https://blog.talosintelligence.com/project-powerup-ukraine-grid/.

124 Joe Marshall, “Project PowerUp;” Interview with threat intelligence executive at US multinational digital communications technology corporation, July 26, 2024.

125 Sean Lyngass, “Exclusive: This Pizza Box-sized Equipment Could Be Key to Ukraine Keeping the Lights on This Winter,” CNN, November 21, 2023, https://www.cnn.com/2023/11/21/politics/ukraine-power-grid-equipment-cisco/index.html; Industry executive, “Tales from Ukraine” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, November 20, 2024; Industry executive, “Supporting Ukraine’s Warfighting Efforts with Digital Capabilities” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, September 13, 2024.

126 Industry executive, “Tales from Ukraine” Roundtable, Embassy of Estonia and the Estonian Ministry of Defense, November 20, 2024

127 World Bank Group, “MIGA Backs Industrial Park in Ukraine,” news release, September 28, 2023, https://www.miga.org/press-release/miga-backs-industrial-park-ukraine.

128 US International Development Finance Corporation, “DFC Announces $357 Million in New Political Risk Insurance for Ukraine,” news release, June 12, 2024, https://www.dfc.gov/media/press-releases/dfc-announces-357-million-new-political-risk-insurance-ukraine-russias.

129 “Your Business in Ukraine 2025,” KPMG Ukraine, March 2025, https://kpmg.com/ua/en/home/insights/2025/03/your-business-in-ukraine.html.

130 “Developments in War‑Risk Insurance Products for Investments in Ukraine,” Dentons, December 5, 2024, https://www.dentons.com/en/insights/articles/2024/december/5/developments-in-war-risk-insurance-products-for-investments-in-ukraine.

The post Building the digital front line: Understanding big tech decision-making in Ukraine appeared first on Atlantic Council.

What the Trump-Xi trade truce means for the European Union

Valbona Zeneli — Fri, 14 Nov 2025 20:42:26 +0000

At last month’s high-stakes meeting in Busan, South Korea, between US President Donald Trump and Chinese President Xi Jinping, the two leaders secured a fragile truce aimed at easing tensions and stabilizing relations. The United States agreed to cut tariffs on Chinese goods by 10 percent, bringing the average rate to 47 percent, while China committed to delaying new export controls on rare earth minerals and boosting its purchases of US soybeans. Though limited in scope, the Trump-Xi truce is a de-escalation in trade tensions between Washington and Beijing. But what the two sides agreed to and what happens next are likely to reverberate beyond these two countries, reshaping European trade as well.

How did global trade get to this point? For years now, Trump has sought to end a decades-long US trade deficit with China. Throughout his first term and now again in his second term, he has accused Beijing of unfair trade practices, including subsidies and antidumping violations that he argues have hurt US manufacturing. This criticism has been accompanied by action. Since the start of Trump’s 2018 trade war, US tariffs on Chinese goods have risen eighteenfold. As recently as 2022, the US trade deficit with China was $382 billion. It fell to $279 billion in 2023 and rose in 2024 to $295 billion. But since April of this year, the administration’s tariff policy, including its often unpredictable implementation, has sharply shifted the balance. Monthly US imports from China have plunged by approximately 50 percent between January and June of this year, reducing the monthly deficit with China to $9.5 billion in June, the lowest it has been in twenty-one years.

China is redirecting excess production toward Europe as its long-standing access to the US market is curtailed.

Meanwhile, Chinese global exports continue to increase, reaching 20 percent of its gross domestic product (GDP) in 2024. As China-US economic ties weaken, the European Union (EU) has become China’s main export market. Chinese goods losing ground in the United States are now being redirected to Europe, flooding EU markets and creating growing trade imbalances reminiscent of those seen before in the United States. Chinese exports to the EU increased by 14 percent on the year in September, the sharpest rise in over three years, pushing the EU’s trade deficit with China to nearly double its 2018 levels. Between 2017 and 2024, China-EU trade increased by about $140 billion, with trade deficits increasing from $202 billion in 2017 to $333 billion in 2024. If this year’s trajectory continues, the EU’s trade deficit with China could exceed $400 billion this year.

The surge of Chinese goods is reshaping Europe’s industrial landscape, exposing the EU to the same state-driven capitalist practices from Beijing that long challenged the United States under the guise of free trade. Frustrations in Brussels run beyond inexpensive electric vehicles (EVs) and low-cost goods. In July, European Commission President Ursula von der Leyen accused China of “flooding global markets with cheap, subsidized goods,” warning of a new “China shock.” Chinese EVs, which are 20-30 percent cheaper than European EVs due in large part to government subsidies, challenge Germany’s automotive hub and its European supply chains. In solar and green technologies, China’s dominance has already shuttered numerous European firms in the steel, aluminum, machinery, and batteries sectors.

At the core of the problem is China’s persistent industrial overcapacity, which creates market distortions fueled by state subsidies and heavily impacts the EU’s competitiveness. Most Chinese exports to the EU still face low tariffs of 2-3 percent under World Trade Organization rules, but Brussels is increasingly imposing 20-50 percent duties on strategic sectors such as green tech, EVs, and industrial goods, signaling a more defensive EU trade stance. China, which has been the world’s top manufacturer for fifteen years, produces over 31 percent of global manufacturing output, compared to 17 percent from the United States and under 13 percent from the EU. With weak domestic demand from a property slump, youth unemployment, and deflation, China is redirecting excess production toward Europe as its long-standing access to the US market is curtailed, a shift that now poses a direct challenge to the EU’s industrial base.

At the same time, Europe’s growing frustration with Beijing is still tempered by its deep economic dependence. The EU relies on China for nearly all of its rare earth and permanent magnets supplies, as well as associated processing technologies—all of which are vital for Europe’s green-tech, digital, and defense industries. This gives Beijing significant leverage in trade and geostrategic relations with the EU. Europe’s ability to respond to China’s questionable trade practices is complicated further because Europe depends on Chinese supply chains to compete in the very industries in which China dominates. As part of the deal with the United States, Beijing will extend the suspension of rare earth export controls to the EU, giving the bloc some breathing space. But this relief alone will not be enough for the EU to diversify its sources even with initiatives such as the Critical Raw Materials Act and the Global Gateway strategy.

China’s dominance in critical raw materials is systemic, not temporary; its lead in global processing capacity allows it to control strategic choke points in supply chains. Many other suppliers in Africa and Latin America are themselves linked to China through ownership stakes or processing dependencies that keep Beijing embedded in global supply chains. Reducing dependence on China will require long-term investments in mining and processing, with significant financial and environmental costs.

In the meantime, the EU has proposed a joint purchase and storage of raw materials to secure better prices and reduce supply risks, with the first pilot tenders for joint purchasing of rare earths and lithium expected next year. In July of this year, the European Commission launched its EU Energy and Raw Materials Platform to empower domestic companies to jointly procure energy products and raw materials, but it seems that implementation has been minimal. So far, this platform has facilitated contracts for just 2 percent of potential demand of European companies in the gas sector.

While European policymakers want to avoid being drawn into the US-China rivalry, they nonetheless recognize the systemic challenges posed by China’s rise and know that Beijing’s leadership is unwilling to change course. It’s time for the EU to step up and protect its economic resilience and competitiveness. My co-author and I explore this issue in detail in a new Atlantic Council report titled “Is Europe waking up to the China challenge?” But a first step the United States and the EU can take is to launch a joint critical-minerals coordination platform—supported by co-financing, harmonized standards, and strategic stockpiles—to align project pipelines, risk screening, and offtake planning. Such efforts could eventually be elevated to the Group of Seven (G7). But this will only help if the group remains united and is not strained one of its member countries pursues a more autonomous China policy, such as when France recently floated the idea to invite China to the 2026 G7 summit. Engagement is necessary but will be effective only if all G7 members take a common approach. The EU’s best long-term insurance policy on that front is doubling down on stronger transatlantic and G7 coordination to bolster the collective leverage of the West.

Valbona Zeneli is a nonresident senior fellow at the Atlantic Council with a dual affiliation at the Europe Center and at the Transatlantic Security Initiative of the Scowcroft Center for Strategy and Security.

The post What the Trump-Xi trade truce means for the European Union appeared first on Atlantic Council.

How the US can balance Qatar’s mediation role with the fight against terrorist financing

Lesley Chavkin — Thu, 13 Nov 2025 21:21:20 +0000

In the wake of the Israeli strike on Hamas leadership in Doha in September and a fragile subsequent ceasefire between the two, US officials face the challenge of determining what to expect out of a partner such as Qatar. A country roughly the size of Connecticut and flush with natural-gas wealth, Qatar has attempted, with some success, to mold itself into a mediator—or in some cases a meddler—in international affairs. Qatar has achieved an outsized role on the global stage, but the spotlight has come with persistent scrutiny of the tiny Gulf country’s efforts to counter the financing of terrorism (CFT) regime.

Qatar’s partnership with the United States on CFT has improved markedly in recent years, with achievements that both countries can tout. Qatar has been part of the Terrorist Financing Targeting Center—a counter-illicit finance organization made up of the United States and six Gulf countries—since the center’s inception, designating financiers and facilitators associated with a host of terrorist organizations. Qatari authorities also took coordinated action with the United States in 2021 against a Hezbollah financing network—no small feat for a country that shares the world’s largest gas field with Iran.

Yet that CFT track record remains spotty. Qatar has hosted Hamas officials, including Khaled Mashal, for over a decade and allegedly failed to stop the Taliban from profiting handsomely from World Cup construction projects. The country has faced criticism for years that it creates a permissive environment for terrorists to store, use, and move funds.

The strength of any country’s CFT regime depends on both technical capacity and willingness. Despite its small size, Qatar has improved its technical capacity in recent years to work alongside the United States and others to identify and disrupt illicit finance. In 2019, for instance, Qatar passed a necessary overhaul of its anti-money laundering and CFT framework, bringing the country’s regime in line with international standards. But Qatar’s fiercely independent foreign policy, which the United States has at times used to its advantage, puts its willingness to cooperate into question at times.

Qatar’s hedging isn’t purely opportunistic, however. It’s partly a survival tactic. Wedged between Saudi Arabia and Iran, with a population smaller than most US cities, Qatar must maintain relationships with actors across the ideological spectrum to preserve its independence and strategic autonomy.

The same positioning that makes Qatar an imperfect partner on CFT and sanctions also makes it uniquely valuable as a diplomatic intermediary and strategic ally. Qatar hosts Al Udeid Air Base, the largest US military installation in the Middle East and a critical hub for US operations across the region. The country is clearly important for US security interests despite its complex diplomatic balancing act. Qatar also has facilitated Taliban negotiations that led to the US withdrawal from Afghanistan, hosted preliminary talks between the United States and Iran, mediated prisoner exchanges involving American hostages, and provided crucial back-channel communication with groups and countries that Washington cannot or does not want to engage directly.

This reality forces US policymakers to confront an uncomfortable strategic question: Is more consistent CFT cooperation worth losing one of the United States’ few channels to adversaries such as Iran and nonstate actors? The answer is likely no, but not at any cost.

The challenge for Washington is how to structure its partnership to maximize Qatar’s diplomatic utility while minimizing the impact on the United States’ highest priority CFT and sanctions concerns. Qatar made its name on the world stage precisely by being a platform for sensitive mediations and back-channel conversations with the United States’ most difficult adversaries. If Washington wants to preserve this unique asset to help navigate the most intractable foreign policy challenges, it may need to accept the tradeoffs that come with Qatar’s carefully calibrated independence. Tolerating permissiveness on CFT in exchange for diplomatic utility may be a bargain the United States is willing to strike when it comes to Qatar.

But US policymakers should also use this moment to reevaluate whether the current balance is serving the country’s foreign policy interests—and more clearly define and communicate CFT redlines for the United States, particularly related to groups such as Hamas. That will require meaningful thought as to what those redlines should be, or the United States risks continued ambiguity that has allowed Hamas’s Doha-based leadership to enrich itself. The United States should not be shy in making its expectations clear, especially considering the precarious Gaza ceasefire in place. While Qatar has made progress addressing some illicit finance risks, more could be done to push Qatari authorities to institute tighter controls to prevent money from being siphoned off for Hamas activities, increase investigations—with US cooperation—into the sources of Hamas funding, and limit the group’s ability to operate freely in Doha without repercussions.

Lesley Chavkin is a nonresident senior fellow at the Atlantic Council’s Economic Statecraft Initiative and currently works at Ribbit Capital.

Econographics Jul 17, 2025

Charting a strategic path for Syria’s postwar reconstruction

By Kimberly Donovan, Jonathan Panikoff, Lize de Kruijf, Manal Fatima

As Syria emerges from over a decade of conflict, easing sanctions by the United States, the European Union (EU), and other European partners is an important step toward reintegrating Syria into the global economy. Yet, for a country that has been economically isolated for over fourteen years, lifting sanctions is only the beginning.

Economy & Business Financial Sanctions and Economic Coercion

Econographics May 23, 2025

Can the EU leverage economic pressure to broker a Gaza cease-fire?

By Lize de Kruijf

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.

Conflict Economy & Business

Econographics Jun 17, 2025

Anonymous shell companies pose a threat to US national security. Here is how to address it.

By Julie Brinn Siegel

On March 26, the Department of the Treasury scrapped critical federal rules that would have made most anonymous shell companies illegal. The rules would also have prevented them from being abused by drug cartels, human traffickers, foreign adversaries like Iran and China, terrorist groups, and other bad actors.

China Economy & Business

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

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The post How the US can balance Qatar’s mediation role with the fight against terrorist financing appeared first on Atlantic Council.

New study: Ukrainian-American businesses generate billions for US economy

Melinda Haring — Thu, 13 Nov 2025 20:52:32 +0000

Like many Ukrainians, Valerii Iakovenko and his family ended up far from home in 2022 after the full-scale Russian invasion; in Pennsylvania, to be precise. Valerii wasn’t just seeking safe harbor in a storm, though. He was also expanding his business, which happens to be agricultural scouting with drones. His story illustrates the little-known but significant benefits that Ukrainian-American businesses have brought to the United States economy.

Valerii considered tech hubs like California or Austin but chose to open an engineering center in New Town, Pennsylvania. His company pioneered agro-scouting and aerial fertilization in Ukraine, helping farmers see what’s invisible from the ground, including soil anomalies, missing equipment, and nutrient stress.

Ukraine was an early adopter of drone farming, but its skies are now too dangerous for civilian UAVs. Instead, Valerii’s company supplies farmers from North Carolina to Ohio and Maine with aerial drones to increase harvests and improve field health. “It’s not just about drones,” Iakovenko says. “It’s about building a culture of innovation and helping young people return to rural areas. It’s the same kind of leap as when smartphones replaced push-button phones.”

Iakovenko is a small part of a big story about how Ukrainian entrepreneurship is contributing to local economies across the United States. A new report by the ISE Group, a think tank and startup accelerator with offices in Warsaw, Washington DC, and Kyiv, estimates that Ukrainian-American companies generate nearly $60 billion in annual revenue and support about 300,000 US jobs.

The findings are the first attempt to quantify the economic footprint of Ukrainian-American businesses in the US. Researchers mapped and verified 2,270 Ukrainian-American firms across all fifty states and surveyed a network of more than 45,000 diaspora enterprises. Collectively, the report says, these firms bring in around $55 billion in annual sales, pay out roughly $24 billion in wages, and contribute at least $8 billion in federal, state, and local taxes.

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Study lead Alexander Romanishyn said the team defined “Ukrainian-American” based on self-identification by business owners including diaspora firms, relocated companies, immigrant-founded ventures, and joint US–Ukrainian enterprises. “We estimate there are roughly 45,000 Ukrainian-American businesses in the US today, about one-third of which employ staff,” said Romanishyn, a former deputy minister of the economy in Ukraine. “We deliberately took a conservative approach to avoid overstating the diaspora’s economic weight.”

Technology is a particular strength, accounting for around 130,000 people, or nearly half of the total workforce in Ukrainian-American companies. With pockets in the Bay Area, New York, Boston, Austin, Dallas, and Seattle, they specialize in software development, AI and machine learning, and cloud integration. Many maintain teams in both the US and Ukraine, helping sustain both economies.

Beyond tech, Ukrainians run businesses in nearly every industry including consulting, healthcare, logistics, manufacturing, retail, construction, real estate, finance, and agriculture. Their presence is spread across the entire country, with concentrations in California, New York, Illinois, Florida, Texas, and New Jersey.

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