There’s a new chair in town. On Friday, US President Donald Trump announced that he will nominate Kevin Warsh as the next Federal Reserve chair. If confirmed by the Senate, Warsh, who was a member of the Federal Reserve Board of Governors from 2006 to 2011, will replace Jerome Powell, who has publicly sparred with Trump over interest rates and other issues. Below, Atlantic Council experts share their insights on what a Warsh chairmanship could mean for the US economy.

• Martin Mühleisen (@muhleisen): Nonresident senior fellow at the GeoEconomics Center and former International Monetary Fund chief of staff
• Josh Lipsky (@joshualipsky): Chair of international economics at the Atlantic Council, senior director of the GeoEconomics Center, and former International Monetary Fund advisor

Who is Kevin Warsh?

• “Warsh brings real credentials,” Martin says. Given his experience on the Fed board during the 2008 global financial crisis, “he understands the institution’s machinery and the weight of its decisions.” 
• Josh calls Warsh “a curious choice for a president determined to get lower interest rates,” since he was considered “one of the most hawkish members” on fighting inflation during his time as a Fed governor.  
• However, Josh adds, the “prevailing wisdom is that Warsh has changed his views since then and is now focused on an artificial intelligence-induced productivity boom,” which could allow for lower interest rates. 

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A reset at the Fed

• Like US Treasury Secretary Scott Bessent, Warsh has been critical of “what he sees as the Fed exceeding its mandate and using a range of expanding tools outside setting interest rates, including buying bonds and mortgage-backed securities,” Josh explains. According to this view, such quantitative easing has “helped assets on Wall Street at the expense of Main Street.” 
• Not everyone will see it that way. “Critics will recall that [Warsh] urged premature tightening after the financial crisis, a view that, in hindsight, could have slowed recovery,” Martin says. 
• Picking up on how Warsh responded to the 2008-2009 crisis, Josh looks ahead: “If you’re a country looking to the Fed to jump into the fray during an economic crisis, you may be in for a rude awakening” with Warsh at the head of the Federal Reserve, Josh argues, reflecting on Warsh’s response to the financial crisis. He adds that Warsh would put the onus on Congress or the US Treasury to act in those circumstances. 
• At the same time, Martin explains, Warsh’s “previous skepticism toward prolonged ultra‑easy monetary policy would bode well should the Fed come under pressure to subordinate monetary policy decisions to the federal government’s financing needs”—as borrowing costs rise with the soaring national debt. 

The word on the street

• “Wall Street will breathe a small sigh of relief,” about Trump choosing Warsh, Josh tells us. “Whatever his views on the balance sheet and Fed overreach, he is a relatively conventional pick—especially given some of the other names that were in the running.” 
• Josh expects “to see mortgage rates going higher this week,” as a result of Warsh’s past hawkishness on interest rates. 
• But the big question is Federal Reserve independence. Warsh’s “proximity to the first Trump administration, where he served as an economic adviser, will invite scrutiny,” Martin notes. 
• Markets and governments will view the Federal Reserve’s independence and credibility as inextricably linked. “If Warsh wants to cement the Fed’s standing,” Martin advises, “he will need to act—and be seen to act—as an independent guardian of price stability and full employment.” 

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WASHINGTON—US President Donald Trump just made one of the most consequential decisions of his presidency—one that will impact the global economy long after he leaves office. To Trump, the selection of a Federal Reserve chair is the ultimate mulligan. It’s a chance to fix what he sees as one of the worst decisions of his first term, the selection of Jerome Powell as Fed chair.

At first glance, Powell and Kevin Warsh, whom Trump announced on Friday morning as his nominee, are strikingly similar. Both are former Fed governors, both are lawyers (not economists), both worked for Republican presidents (Warsh for George W. Bush and Powell for George H.W. Bush), and both made their careers on Wall Street. But that’s where the similarities end.

The most important part of Warsh’s selection has nothing to do with monetary policy (even though that’s the single factor Trump has said was most important in his decision). Warsh has been vocal for years about what he sees as the Fed exceeding its mandate and using a range of expanding tools outside setting interest rates, including buying bonds and mortgage-backed securities. These tools are referred to as quantitative easing and have grown massively over the past fifteen years in the wake of the global financial crisis and the COVID-19 pandemic. Warsh believes the Fed has distorted the healthy functioning of the US economy through its injections of money into the market, helped assets on Wall Street at the expense of Main Street, and taken on the role of implementing fiscal policy.

Guess who else thinks exactly the same thing? Treasury Secretary Scott Bessent. In fact, Bessent wrote an article last year about Fed overreach that was closely read across Wall Street and inside the White House. Bessent and Warsh are completely in sync on the need to limit the Fed’s use of unconventional tools, and this could lead to a significant change and scaling back in the way the Fed does its work in the years to come. Donald Trump got his man—but Scott Bessent did as well.

What does this mean for the global economy? If you’re a country looking to the Fed to jump into the fray during an economic crisis, you may be in for a rude awakening. This is not going to be the “committee to save the world” Fed of Ben Bernanke, Janet Yellen, and Jay Powell. Warsh has said before that it is the US Treasury and Congress that should act first in a crisis—not the Fed. Warsh’s Fed will be a narrowly focused one, and that means the next moment of stress for the global economy might unfold very differently with him at the helm.

On monetary policy, Warsh seems like a curious choice for a president determined to get lower interest rates. During his previous tenure as governor from 2006 to 2011, he was considered one of the most hawkish members of the committee on fighting inflation. In fact, in April 2009, in the depths of the global financial crisis—when inflation was just 0.8 percent and unemployment was at 9 percent—he said he was concerned about high inflation. (I was working at the White House at the time, and I remember those comments standing out.) He was clearly out of consensus with his then-colleagues at the Fed.

The prevailing wisdom is that Warsh has changed his views since then and now is focused on the artificial intelligence-induced productivity boom, which he says means rates can be lower than they otherwise would be. It’s also fair to ask whether his more dovish comments are meant to appeal to Trump’s well-known preferences. But whether the dovish talk holds throughout his tenure remains to be seen. Bond markets are similarly skeptical, with yields rising several weeks ago when his name returned to the top of the list. Given his views on reducing the Fed’s balance sheet and at least the potential for him to be a slightly more hawkish chair than Trump’s other options would have been, expect to see mortgage rates going higher this week—precisely the opposite of what Trump and his economic team have wanted going into the midterm elections.

But don’t mistake higher bond yields for market skepticism over Warsh himself. Wall Street will breathe a small sigh of relief. Whatever his views on the balance sheet and Fed overreach, Warsh is a relatively conventional pick—especially given some of the other names that were in the running. He is from Wall Street, a former Fed governor, and well known both in Washington and New York. Ultimately, markets believe he is someone they can trust with the most important economic policymaking job in the world. And in the end, that may be one of the most meaningful signals from this selection: It appears that market forces—as we were reminded after the “Liberation Day” tariff announcement and just last week over Greenland—may be the most potent constraint on the Trump presidency.

Warsh will likely be confirmed by the Senate and take up his role in May. He will have to prove to markets that central bank independence is core to his chairmanship. The first test might come as soon as the summer, when tariffs may keep inflation somewhat sticky, a divided Fed committee may want to keep rates steady, and Trump will expect his new chair to deliver.

Nine years after his selection of Jay Powell, Donald Trump believes he finally got his man. We will all know soon enough whether he did or not.

The post Trump finally got the Fed chair he always wanted (or so he thinks) appeared first on Atlantic Council.

After leaning on regulatory changes and fiscal measures in a largely ineffective effort to put a bottom under the market, China’s leaders now appear to be shrugging their shoulders and moving on. Beijing has declared that the “traditional real estate model” of “high debt, high leverage, high turnover” has “reached its end” and instead is seeking to create a “new model of real estate development,” based on what one foreign bank has called “planned property supply.” In the future, China’s Minister of Housing, Ni Hong, recently wrote, the industry will be characterized by “affordable housing,” improved services, and “basically stable prices.” This marks the virtual abandonment of an industry that once accounted for about one-quarter of China’s gross domestic product and roughly 15 percent of the nonfarm workforce.

China’s housing plans collide with reality

A key problem with the new property paradigm is that it largely ignores market forces that are still very much at play. Real estate has been the primary repository of life savings for hundreds of millions of Chinese households. Yet according to Macquarie Group, roughly 85 percent of the price gains that underpinned that wealth creation have evaporated since 2021, when the government clumsily imposed credit restrictions to rein in a bubble it had tolerated for years.

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.

The post China’s property slump deepens—and threatens more than the housing sector appeared first on Atlantic Council.

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 

The post The EU and India are creating a free trade area of two billion people. What’s next? appeared first on Atlantic Council.

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.

The post When will Wall Street’s tolerance for uncertainty run out? appeared first on Atlantic Council.

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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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.

• 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.

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

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.

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.

New Atlanticist Jul 17, 2025

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The US president has threatened to impose a 50 percent tariff on Brazil in August. Before then, take a deep data dive into the current bilateral trade relationship.

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The post US-Brazil trade dashboard appeared first on Atlantic Council.

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.

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 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.

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.

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.

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.

The Indexes rank 164 countries around the world. Use our site to explore thirty years of data, compare countries and regions, and examine the subindexes and indicators that comprise our Indexes.

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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.

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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.

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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.

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The post Serbia’s future depends on rebuilding rule of law and EU credibility appeared first on Atlantic Council.

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.

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.

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.

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.

The post The Gulf should not underestimate authentic intelligence appeared first on Atlantic Council.

• 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.

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.

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.

Russia Tomorrow May 23, 2024

Oil, gas, and war: The effect of sanctions on the Russian energy industry

By Vladimir Milov

A new Atlantic Council report explores the effect of sanctions on Russia’s energy industry. Are oil and gas still Putin’s lifeline?

Europe & Eurasia Financial Sanctions and Economic Coercion

Russia Tomorrow Oct 23, 2025

The CRINK: Inside the new bloc supporting Russia’s war against Ukraine

By Angela Stent

The latest report in the Atlantic Council’s Russia Tomorrow series details how Russia’s war against Ukraine has brought together a new set of partners–united not by shared values, but by shared grievances–on the international stage: China, Russia, Iran, and North Korea.

China Europe & Eurasia

Russia Tomorrow Aug 7, 2024

A Russia without Russians? Putin’s disastrous demographics

By Harley Balzer

A new Atlantic Council report explores the effect of Putin’s politics on domestic Russian demographic change. Is Putin heading towards a Russia without Russians?

Democratic Transitions Europe & Eurasia

The Eurasia Center’s mission is to promote policies that strengthen stability, democratic values, and prosperity in Eurasia, from Eastern Europe in the West to the Caucasus, Russia, and Central Asia in the East.

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The post The Russian economy in 2025: Between stagnation and militarization  appeared first on Atlantic Council.

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.

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.

Issue Brief Sep 19, 2025

Secure supply chains for the US run through its closest neighbors

By Jose Manuel Restrepo and Martin Cassinelli

Central America and the Dominican Republic are emerging as key partners for US economic security. Strengthening rule of law, workforce skills, and trade frameworks can secure lasting, mutually beneficial economic integration.

Americas Caribbean

Report Sep 17, 2024

From rhetoric to reality: Nearshoring in the Americas

By the Adrienne Arsht Latin America Center’s Nearshoring Working Group

Over the past five years, global shifts have reshaped the world. China’s rise, US-China tensions, COVID-19, and Russia’s 2022 invasion of Ukraine exposed supply chain vulnerabilities, pushing resilience to the top of the agenda. Latin America and the Caribbean (LAC) can seize the opportunity to provide solutions for US companies through nearshoring.

Caribbean Central America

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

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The post Why modernizing CAFTA-DR matters for the United States, and options for updating the trade pact appeared first on Atlantic Council.

The chart below shows an estimate of how much ODA could be lost from the 2023 baseline, if Group of Seven (G7) countries go through with their promised funding cuts.

Major providers of ODA have announced cuts to aid spending for 2025 and beyond. 2024 marked the first time that the United States, the United Kingdom (UK), France, and Germany have all cut aid at the same time in nearly thirty years. As a result, the Organization for Economic Co-operation and Development estimates that ODA decreased by 9 percent in 2024 and could fall by as much as 17 percent in 2025.

Meanwhile, the current US administration has endorsed an approach to development investment that is more geopolitical and transactional. To achieve its strategic goals, the United States should seek to reform or empower domestic development finance institutions (DFIs), instead of abandoning the framework entirely. Washington has existing development agencies and expertise that have helped to deliver economic gains globally and would lend themselves to facilitating and implementing new investment. Specifically, blended finance is instrumental in fulfilling bilateral deals to secure critical supply chains or promote US industry abroad.

Funding cuts aren’t the only trend affecting development finance

Pulling back funding from traditional donors has been the main driver of recent declines in ODA. With growth slowing down and shrinking fiscal spaces, donor countries are reprioritizing their spending priorities. Across the board, there have been reductions in contributions to international organizations, lower levels of humanitarian aid, and reduced spending on hosting refugees in donor countries.

For example, the chart above captures the changes in a few key countries. The United States dismantled USAID in January, cutting billions of dollars of global aid overnight. France and Germany have also decreased aid budgets and placed a series of existing programs under review. In the UK, Prime Minister Keir Starmer intends to decrease the foreign aid budget from the current rate of 0.5 percent of gross national income to 0.3 percent by 2027, citing the need to increase defense spending.

In October, the Atlantic Council hosted the president of the European Investment Bank (EIB), Nadia Calvino, and she reiterated the EIB’s commitment to financing climate transition, furthering gender equality, and assisting with Europe’s defense build-up. While she shared the important continuities in the EIB’s mission, she also highlighted that the development finance landscape has been changing for years now.

Retrenchment from traditional donors is just one trend in the evolution of global development policy. The DFIs have been adapting to fewer large-scale infrastructure loans, increased involvement from the private sector, and the emergence of “middle-power” lenders—namely China. In recent years, traditional lenders have also prioritized geopolitical interests when making decisions about development finance. 

Geopolitical interests shouldn’t supersede effective development principles

Major ODA providers have increasingly started to look at development finance through the lens of strategic competition and move from aid to investment. The proliferation of China’s Belt and Road Initiative helped to spur political will in the United States and G7 allies for the Global Gateway Initiative and the Partnership for Global Infrastructure and Investment (PGII). BRICS countries have created their own new development finance institutions, such as the New Development Bank. At the Atlantic Council GeoEconomics Center, our experts wrote about a framework for positive economic statecraft in 2023 and have continued to work on how this could be operationalized to meld development goals with national security.

However, the current US administration has leaned away from the principles of effective development aid. Its “America First” policy reframes foreign assistance as more transactional, focusing on trade and bilateral investments and taking a step back from issues such as climate transition and poverty reduction. The US-Ukraine Reconstruction Investment Fund, commonly referred to as the US-Ukraine critical minerals deal, is reminiscent of the resource-for-infrastructure deals that China popularized in Africa, which received extreme criticism for their extractive nature. The $40 billion in support for Argentina marks an unprecedented, unilateral move by the United States. When the IMF provides bailouts, the programs include certain stipulations for improving economic stability. US support to Argentina seems to, instead, be contingent on President Javier Milei’s party staying in power. These US policies should prompt a reckoning from other actors about how geopolitics can or should fit into the development sphere.

Donor countries benefit from continuing effective development assistance. More stable economic environments globally facilitate sustainable investment deals in infrastructure and more. G7 initiatives, such as the Global Gateway or PGII, can’t compete with China in terms of lending volume, but they offer a value proposition of rigorous impact evaluation and development best practices to help countries avoid debt traps and maintain long-term financing. In the October editions of the World Economic Outlook and the Global Financial Stability Report, issues such as climate change or gender equality were barely mentioned, but these remain important considerations to achieve sustainable and equitable global development.

The United States should seek to meld strategic investment objectives with long-term development goals to achieve sustainable changes in the global economy. Blended finance represents an entry point for the administration to leverage existing agencies to achieve strategic goals.

Blended finance can be leveraged to deliver on strategic investment promises

Public-private partnerships—or blended finance—have become a popular area of interest for delivering critical public infrastructure. The World Bank estimates that the infrastructure funding gap is around $1.5 trillion annually, and the use of private capital is crucial to address this gap so that countries can optimize already scarce public funds.

Blended finance helps to crowd private capital into development projects by mitigating investment risk. This strategy is not without its pitfalls. But given the immense development financing need and shrinking ODA, blended finance is a critical tool for creating funding opportunities. DFIs can help coordinate investment instruments and mechanisms, such as risk guarantees, project insurance, syndicated loans, or equity instruments, which have proven especially useful in emerging technologies and when promoting first movers. In the past, the United States and G7 allies have successfully leveraged public-private partnerships to compete with Chinese lending and to further both strategic and development goals, such as with the Lobito Corridor.

If the current administration is serious about using foreign investment to benefit US industry and secure critical supply chains, it should reengage more with existing US development agencies, such as the US International Development Finance Corporation (DFC), the Millennium Challenge Corporation, and the US Export-Import Bank. Considering the immense coordination challenges of implementing strategic development projects, the administration would benefit from properly supporting these organizations to help realize investment in more challenging countries.

By empowering the DFC, for example, the United States could utilize existing capacity for private sector engagement to fulfill bilateral promises for new investments. DFC reauthorization has been included as an amendment in the National Defense Authorization Act for 2026, which was passed through the Senate last month. This reauthorization process should be seen an opportunity to reform the DFC so that it is equipped to actually implement deals, such as the US-Ukraine Reconstruction Investment Fund.

Given the United States’ massive budget deficit, the Trump administration’s approach to strategic development investment cannot succeed without the effective coordination of private capital to funnel money into sustainable projects. And infrastructure projects that align with national development agendas are more sustainable in the long run for host countries and investors.

The world is undergoing a period of great changes in the global economic order, and development finance is a part of this puzzle. As the current Trump administration seeks to reshape the global trading system, development institutions are also finding their footing in this era of competitive geoeconomics. In the process, it is important to remember that effective development agendas have helped to lift billions of people out of poverty. The United States shouldn’t forsake its track record of development assistance when existing tools can be leveraged for current strategic interests.

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

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

Learn more

The post Without development finance, the United States can’t deliver on strategic investment appeared first on Atlantic Council.

I traveled to Uzbekistan for the inaugural Fergana Peace Forum on October 15 and 16, which was billed as a platform to advance mutual understanding and provide an analytical framework for next steps in the peace process. The forum was convened by the Institute for Strategic and Regional Studies under the President of the Republic of Uzbekistan, the United Nations Regional Center for Preventative Diplomacy in Central Asia, the Organization for Security and Co-operation in Europe (OSCE), and other international partner organizations.

The governors of Uzbekistan, Kyrgyzstan, and Tajikistan’s respective border regions were at the forum, as were special representatives from the OSCE, European Union, various UN affiliates, and the Shanghai Cooperation Organization. The opening speeches were congratulatory and hopeful, if a bit staid in their guarded diplomatic language. In all, speakers and attendees alike seemed impressed that Kyrgyzstan, Tajikistan, and Uzbekistan had not only forged peace among themselves, but also agreed to come and engage in a relatively open setting. And rightly so, considering that only a few years ago, Kyrgyz and Tajik forces had been firing at each other just miles away.

The interesting discussion began when the principals departed and the state-affiliated think tankers metaphorically loosened their ties. An expert from one of the two countries that had been engaged in the border clashes expressed skepticism about the peace deal itself, noting that its details, including the borders, had not yet been made public. Across the two days of the forum, I saw Kyrgyz and some Tajik attendees speak quite openly with other foreign experts but not with each other.

Russia and China were ever-present topics of conversation, but their presence at the conference itself was relatively limited. True, China was the only non-Central Asian country to send a sitting diplomat to the forum (former Chinese Ambassador to Uzbekistan Sun Lijie), but no other Chinese experts attended. The one Russian speaker, a China expert from the state-connected Russian Academy of Sciences, railed against sanctions and the “weaponization of currencies,” a barely veiled reference to Western economic measures leveled against Moscow for its invasion of Ukraine. He quickly left the conference after his panel ended and declined to speak with other analysts, which seemed to annoy several of his Central Asian counterparts.

Washington’s role in the region also garnered interest at the conference, especially US President Donald Trump’s recent musings about reopening Bagram Airbase in nearby Afghanistan. Kyrgyz and Uzbek experts debated what Trump’s comments on Bagram meant but agreed that the US military reopening a base in the region would give them more leverage to resist security overtures from China and Russia, and it would thus be in their countries’ strategic interests. This was a remarkable statement: Four years after the bungled US exit from Kabul, Central Asian policy experts argued that a US return to Afghanistan might make the country’s neighbors more secure, not against the Taliban, but against Russian and Chinese overreach.

The forum’s second day was devoted almost entirely to local issues and the technocratic aspects of peacebuilding. Government officials laid out plans to solve water resource and transport issues, two of the main triggers of the 2022 violence. The Kyrgyz and Tajik think tankers I spoke with were not uniformly thrilled by the plans, citing continuing disagreements over transport routes and the terms of diplomatic engagement. It was a reminder of how fragile the peace process still is.

Young leaders of nongovernmental organizations from the three Fergana Valley countries, focused on everything from civic engagement to environmental protection to curbing domestic violence, deftly described why youth and independent civil society will be crucial to forging peace and more dynamic societies. That they were given the platform to express such views is a refreshing sign in a region often associated with heavy-handed governance and sclerotic administrative structures.

Following the forum, I traveled to Tashkent for meetings with government officials, financial sector analysts, and think tank leaders. Business appeared to be booming in the capital. Construction projects were everywhere—even in the unmistakably post-Soviet-looking city center—with plans for a new international exhibition center, new airport, and new neighborhoods all slated to be built in the next few years. The Ministry of Investment is working to prepare an initial public offering for a $1.7 billion vehicle of some state-owned enterprises, slated for early 2026 in either London or New York. The country’s first-ever “unicorn,” its national fintech champion Uzum, is not far behind. Last month, Uzbekistan agreed to purchase up to twenty-two passenger planes from Boeing in a deal worth up to eight billion dollars—another sign that it expects growth.

Uzbekistan is making big bets to modernize its fast-growing economy, which is projected to grow 6.8 percent this year. Strong economic growth will be important for providing better job prospects for its population of 37 million people, a majority of whom are under thirty years old. Several of the local experts I spoke with say the growth is being driven in part by the policies of President Shavkat Mirziyoyev, who initiated a push toward privatization and has empowered ministries to make investment deals with international firms. However, the state bureaucracy is vast and faces few incentives to change, so transparency and efficiency reforms may continue to face headwinds from entrenched interests. Bank privatization, for example, has slowed because bank executives are incentivized to maintain their stakes in state assets.

Uzbekistan has recently garnered renewed interest from the United States due to its abundance of critical minerals and rare-earth elements, which are crucial components for batteries, semiconductors, and advanced defense systems. The United States and Uzbekistan signed a critical minerals cooperation deal in April, and in September US mining investor Cove Capital agreed to open geological exploration projects.

Speed is critical. Think tankers and economic analysts who I spoke to in Tashkent repeatedly asked that US companies move their critical minerals projects faster, lest Chinese firms scoop up all the licenses for the best sites. Unlike the Chinese Communist Party, of course, the Trump administration cannot direct firms to make specific deals, but it does appear that Washington could be missing an opportunity by not acting faster in Central Asia. The Commerce Department and Development Finance Corporation are aware of these challenges and should be given the political latitude, resources, and staff to help make it possible for US companies to invest in the region by providing loan guarantees and equity financing, as well as by working to ensure a level business playing field for US firms.

The advances toward peace in the Fergana Valley and Uzbekistan’s economic growth are positive signs for security and prosperity in Central Asia. With a bit more effort and engagement, the United States could become a constructive partner in the region and reap mutual strategic and economic benefits.

Andrew D’Anieri is associate director of the Atlantic Council’s Eurasia Center. Find him on Twitter at @andrew_danieri.

The author’s trip to Fergana was supported by the Institute for Strategic and Regional Studies under the President of the Republic of Uzbekistan.

The post Dispatch from Uzbekistan: Regional peace progress and economic growth reveal opportunities for US engagement appeared first on Atlantic Council.

Primarily driven by a major economic crisis and distrust with the incumbent Movimiento al Socialismo (MAS) party, Bolivians have joined a regional shift away from leftist leadership. Yet, unlike the populist pendulum swings seen in neighboring Argentina and El Salvador, Bolivians appear to have chosen a more centrist and reformist path, rather than a far-right approach.

As Paz begins his five-year presidential term on November 8, expect to see shifts in the country’s approach to the economy, foreign policy, and security.

Who is Paz and why did he win?

Paz was born in exile in Spain. Son of former president Jaime Paz Zamora, he studied in Washington and was elected senator from Tarija, and later mayor of the city. Edman Lara, Paz’s running mate, also drew in support. A former police officer, he first made headlines in 2024 for calling out corruption within Bolivia’s law enforcement, leading to his removal.

Paz’s win comes after the incumbent MAS party lost the first-round elections on August 17. For the past two decades, MAS was one of South America’s most prominent parties under former President Evo Morales and then under incumbent President Luis Arce. But over time, Bolivians’ support for the party has waned as the country has dealt with economic crises and prominent MAS members have been implicated in scandals.

The rivalry between Arce and Morales fractured the MAS party, further damaging its electoral chances. Arce, suffering from some of the region’s lowest approval ratings, declined to run for reelection, claiming he didn’t want to further divide the vote and help a “right-wing candidate win.” His withdrawal ultimately contributed to the party’s collapse and Morales, who is term-limited from running for president again, motivated his followers to cast null votes to protest his absence from the ballot. In the first round, about 20 percent of votes were null. This signified somewhat diminished support for Morales, though the null ballots made up a much larger vote share than the MAS’s official candidate, Eduardo del Castillo.

The MAS party has also been hurt by scandals involving its members. For instance, in September, Felipe Cáceres, Bolivia’s former vice-minister of social defense and controlled substances under Morales, was detained after anti-narcotics authorities found a cocaine laboratory on his property. Cáceres’ arrest raised questions about potential links between Morales’s partners and connections to drug trafficking.

What might Paz mean for Bolivia’s economy?

Bolivia faces a major economic crisis and gas shortages that will require steady attention from the new administration. Annual inflation has reached 24 percent, and international reserves have plunged from around fifteen billion dollars in 2014 to under two billion dollars in 2024.

Paz’s campaign slogan was “capitalism for everyone,” promising to open markets while maintaining welfare programs. During the campaign, he spoke about his plans to secure US fuel supplies to stabilize the economy and appoint an envoy to strengthen US-Bolivia trade. He has met with US officials and oil and gas companies, arguing that these sources of supply would ease shortages that accelerated inflation and reduced production.

One issue to watch is lithium. Nearly 21 million metric tons of lithium reserves lie in the nation, giving Bolivia the opportunity to become a critical supplier in the global energy transition. The metal is also important for defense, technology, and telecommunications applications in global supply chains. Arce’s government signed several lithium deals with Chinese and Russian firms in the past two years, but progress has been slow and the terms of the contracts are opaque. Paz has said his administration would review these contracts, as well as enact a new law on lithium mining to improve environmental oversight and strengthen support for local workers. If done properly, it could open investment opportunities for Western and regional partners. These reforms may eventually help transform Bolivia from a state-run extractive economy to an important member of the clean energy supply chain.

How might Bolivia’s foreign policy change?

It is likely that a new diplomatic language will emerge from La Paz. In contrast to the outgoing MAS government’s support for the Maduro regime in Venezuela, Paz has said he would suspend, though not totally sever, ties with Caracas. For decades, Bolivia was one of Venezuela’s major political allies and this change could begin to reshape the political dynamics of the Latin American left. In addition, the United States may now have an opportunity to rebuild a partnership in the Andes to advance mutual commercial interests and fight against narcotrafficking.

As Bolivia is likely to strengthen ties with the United States and other South American countries such as Ecuador, Brazil, and Argentina, expect the country’s relations with Cuba and Iran to diminish. Nevertheless, the foreign ministry remains likely to prioritize pragmatism when it comes to trade and regional cooperation.

How might Bolivia’s approach to security change?

As Bolivia is a key transit route and supplier in the cocaine trade, the new administration may prioritize combating illicit markets by revitalizing intelligence sharing and cooperation with regional partners.

It’s expected that Paz will work to reduce crime by promoting rehabilitation and reintegration programs. He has also signaled that we would work to restore counternarcotics partnerships with the United States, an approach that Washington seems to welcome. On October 19, US Secretary of State Marco Rubio stated that the “United States stands ready to partner with Bolivia” on issues such as “combatting transnational criminal organizations to strengthen regional security.”

Although public trust in institutions is low, security is a top issue for Bolivians, and the new administration has an opportunity to make strides in this area. For years, the judiciary and law enforcement networks have undermined rule of law through politicization, but Paz’s administration could take steps to modernize the country’s justice system. Whether these initiatives succeed in combating corruption and promoting transparency will help determine whether Bolivia’s new chapter is structural shift or merely rhetorical one.

If Paz’s government can deliver greater economic resilience, institutional trust, and innovative foreign partnerships, Bolivia could emerge as an example of centrist stability in a region often viewed as turbulent. However, the new administration should take a slow and steady approach, as avoiding sudden shocks will be essential for Paz to maintain his mandate for reform.

Miguel Escoto is a young global professional with the Atlantic Council’s Adrienne Arsht Latin America Center.

The post What Bolivia’s move to the center means for its economy, foreign policy, and security appeared first on Atlantic Council.

Finance ministers and central bank governors from around the globe descended on Washington, DC for the World Bank/IMF 2025 Annual meetings last week. This year’s Annual meetings touched upon everything from debt and development to trade, monetary policy, artificial intelligence, and geopolitical risk. What was markedly missing from many of the discussions was the importance of health and innovation, which promises both economic and societal benefits.

In this episode of the #AtlanticDebrief, Jörn Fleck sits down with Michael Oberreiter, Head of External Affairs International at Roche, to discuss why heath should be part of the broader global economic agenda.

This #AtlanticDebrief is supported by Roche.

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The post #AtlanticDebrief – Why is health important to global economic resilience? | A debrief with Michael Oberreiter appeared first on Atlantic Council.

Despite spiraling global debt, US-generated trade frictions, and stubborn inflationary pressures, global growth has held up far better than most feared when the same group met in April. The IMF this week raised its 2025 global growth forecast to 3.2 percent, up from 2.8 percent in April, as the world economy thus far has shrugged off worst-case scenarios of runaway tariffs and cascading financial shocks.

Yet that relief comes with an anxious edge: Momentary stability seems less durable in a world threatening to break into fragments, as global trade growth of 2.4 percent (and declining) is running behind overall global growth figures—a departure from long-running trends that many economists reckon is unsustainable.

The crisp autumn air in Washington this week has been thick with “what-ifs?” 

• What if we are only seeing a temporary reprieve before tariff-driven inflation and slowdowns bite harder? 
• What if the tariff war escalates with China, with Beijing having announced sweeping new export controls on rare earths and President Donald Trump threatening to instate a 100 percent tariff on Chinese goods?
• What if mounting public and private debt, now above 235 percent of global gross domestic product, becomes a debt shock as growth stumbles and interest payments rise—hitting emerging markets and poorer nations hardest?
• What if monetary tightening, inflation pressures, and fiscal fatigue ultimately undermine economic expansion? 
• What if trade fragmentation—regionally oriented supply chains, eroding global trading systems—confounds conventional models and results in everyone growing more slowly?

The IMF itself warned that markets may be underestimating risks tied to tariffs, debt, and financial vulnerabilities. “Buckle up: Uncertainty is the new normal, and it is here to stay,” said Kristalina Georgieva, managing director of the IMF, in her keynote speech ahead of the annual meetings. “Before anyone heaves a big sigh of relief, please hear this: Global resilience has not yet been fully tested.”

In particular, she pointed to that reliable harbinger of global uncertainty: surging global demand for gold. “Spurred by valuation effects and net purchases—partly reflecting geopolitical factors—holdings of monetary gold now exceed one-fifth of the world’s official reserves,” she said.

To be sure, Trump administration officials don’t have a lot of patience for those wringing their hands about potential economic dangers. They see US growth as stronger than expected (and a product of their policies), they regard global growth as resilient, and they see that tariffs have proven far less inflationary than doomsayers predicted. With most global policymakers balancing between relief and anxiety, count Trump officials more as triumphant.

On the other side stand European and other global financial leaders who see economic tensions building and believe that debt, China, tariffs, artificial intelligence (AI) uncertainties—or some toxic mix of all that—could bring about a tipping point. European Investment Bank (EIB) President Nadia Calviño goes even further, saying this week at the Atlantic Council that she has “the impression that the rest of the world is moving on” from reliance on US decisions, especially on issues such as trade and climate. “There’s a very strong commitment to the multilateral framework, very strong determination to pursue win-win partnerships around the world.” The EIB’s own survey shows that Trump tariffs are slowing down investments, but that the pain is being felt more by US companies than European ones, “which are proving to be quite resilient for the moment.” 

Few conversations this week didn’t either begin or land on AI as an accelerant both of economic growth and fragility. But you would have been disappointed if you were listening for great new ideas about how best to regulate, shape market structures, and ensure the technological dividends of AI spread beyond the United States, China, and a handful of other locations where AI is entering the business bloodstream most rapidly.

Georgieva spoke about how most countries lack regulatory, ethical, or labor frameworks to cope with rapid AI diffusion. Many central bank governors and finance ministers agreed that AI, and the fourth industrial revolution it represents, could have as large an impact on the sources of global growth and employment as did the first industrial revolution, which moved so much of humanity from farmlands to factories. 

Beginning roughly in 1760, the Industrial Revolution was a period that moved the world to more widespread, efficient, and stable manufacturing processes. New knowledge and innovation resulted in vast economic growth, as economic historian Joel Mokyr, who won the 2025 Nobel economics prize on Monday, and others have documented and examined. This revolution also accelerated political change, giving birth to communism, fueling modern capitalism, and creating the economic and social conditions that were the context for two world wars and the Cold War that followed. The economic, political, and societal impact of AI will be no less—and just as uncertain in its impacts on everything from economic competition to the future of war.

The Atlantic Council’s GeoEconomics Center was created for just this kind of period, working alongside more than a dozen of our centers with the conviction that one can’t separate macroeconomic forces from national security impacts. In that spirit, the Council brought together seventy meetings in Washington this week—convening dozens of central bank governors and finance ministers.

That IMF-World Bank crowd will leave town this weekend with uncertainty about what the world will look like when they return in the spring. What’s clear is that they, particularly Trump administration officials, have agency in either building upon the scenarios that have brought momentary relief or further contributing to global anxieties.

By the close of this week’s meetings, the prevailing sentiment settled on something like this: We’ve been luckier than expected, but luck isn’t a sustainable policy response. Delegates’ cautious optimism was tempered by their knowledge that an external shock or a series of policy missteps could tilt the balance rapidly. I heard more than one voice describe this moment as the calm before a storm, or a lull before a calamity, depending on the actions of world leaders in the weeks ahead. 

Georgieva listed several reasons the world economy has withstood strains from multiple shocks thus far: Improved policy fundamentals have cushioned against shocks. The private sector has adapted as trading conditions have changed. Tariff hits turned out to be less than initially feared, as most countries avoided tit-for-tat trade wars with the United States. And supportive financial conditions, including attractive interest rates, have provided added resilience. What’s unclear is how long these advantages can last. 

Over the next six months, what I’ll be watching is whether big AI investment bets pay off, whether trade tensions turn worse, whether debt cracks deepen, and whether markets can sustain equity valuations equal to the internet bullishness of twenty-five years ago. I’ll also want to know whether leaders can find a sufficient sense of common cause to steer us through any trouble.

This week’s consensus was that business as usual is over—due to factors ranging from Trump’s tariffs and AI to global economic fragmentation and geopolitical conflict. There also was a rough consensus that if the world is to reach a new equilibrium and avoid a major crisis, then it would require the full attention of policymakers and international institutions to manage a fast-changing and increasingly fractured world. 

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.

The post Dispatch from Washington: Is this the calm before the economic storm? appeared first on Atlantic Council.

Georgieva’s warning came as the global economy continued to prove resilient against global shocks ranging from the United States’ tariff-rate changes to an artificial-intelligence investment boom that many believe is a bubble at risk of bursting. And while the global economy has done better than many feared, risks still linger. As Georgieva put it: “Uncertainty is the new normal, and it is here to stay.” An example of that played out just days before the annual meetings, when US President Donald Trump threatened to impose 100 percent tariffs on Chinese goods, but backtracked shortly after.

We sent our experts to the IMF and World Bank headquarters to sort through all the uncertainty and glean a sense of what may lie ahead for the global economy—and what policymakers should do about it. Below are their insights, in addition to highlights from our own conversations with economic leaders about how they plan to navigate tumultuous times.

This week’s expert contributors

October 17 | 5:42 PM ET

The world must be open and honest about the benefits of the Bretton Woods system

We’ve come to the end of another IMF World Bank Week at the Atlantic Council, concluding seventy events here. We’ve started with the beginning at the IMF on all the themes coming into these meetings, and it’s so different than what we were with when we first came here six months ago, ten days after Liberation Day. I wanted to take a moment, as we sit here and reflect back on everything we heard from the finance ministers, the central bank governors, our analysts, our experts, our team, and try to take it in and understand what’s happened.

Because in the day-to-day flow of IMF WEO reports and upgrades and downgrades and inflation and back and forth on Argentina and everything that’s flying on US and China and the trade wars and rare earths, I think we’re losing sight of what’s actually happening in the global economy. It’s the difference between an earthquake and a series of fractures. Six months ago, at the spring meetings, was an earthquake. US President Donald Trump shook the global economy with Liberation Day, and the question facing these ministers, these governors, and the people they represent was whether the global economy would ever be the same, and whether we were going back to a pre-Bretton Woods system, a time where these institutions didn’t exist.

And then six months passed, and Liberation Day tariffs paused, and some came back and some didn’t and some deals were struck, and so we came into these meetings, these annual meetings, with everyone mistakenly breathing a sigh of relief because they thought that things had changed and reverted to status quo.

But think about where we are. The effective tariff rate in the United States is 17 percent. It started at 2.5 percent in January. We got back to the Liberation Day level, but we got there slowly. So each of these things that’s happened over the past six months, what’s happened on tariffs, what’s happened on central bank independence, growing debt problems (we’re in a government shutdown here in Washington), all of them are fractures.

No single one is an earthquake, but in totality, it adds up to the same thing. And the difference of how these ministers reacted this week versus six months ago is night and day because they want, understandably, for things to be as they were and no one wants to speak the hard truths that things are changing fundamentally. They are not going back to the way things were, and everyone has to confront that openly and honestly, because if we don’t speak those hard truths, they are going to rear their heads in a painful way, one way or the other.

The crunch points are coming. A year from now, we’ll be in Thailand. The IMF will have to revisit its quota process, and there’s no room for compromise right now between the United States, Europe, India, China, and the world’s other large economies. The issues are building around the world, not just on trade and tariffs: on debt, on AI, on job loss, all of these issues are what the ministers talk about quietly and privately but don’t want to address openly because there are no good answers. There’s no good explanations for how the global economy has shifted, but there is a fundamental truth that is hard to reconcile with.

Henry Morgenthau, when he addressed the Brent Woods conference at the opening of that conference in 1944, said we have to be partners, not bargainers. But let’s face it, the United States wants to bargain and deal with every other country in the world bilaterally, and that is not why these institutions were created in the first place. They were created on the premise that if we operated collaboratively, not bilaterally but multilaterally, we would deliver better results for the people in our own countries and the world.

And we all know that that system was imperfect over eight years, but if we break down to a simple bargaining premise of might-makes-right economic leverage over one country can be exercised, we might not like what we find back in the United States. That was the lesson this week with China and its rare earth decision. Opening this up will have cost, and there’s a reason the system was built in the first place.

I think the rest of the world has to be open and honest about the benefits of that system. No one seems to want to defend it. Everyone wants to say what’s wrong about it, and there certainly are things that are wrong. No one wants to say that multilateralism is a good thing, that international cooperation is a good thing, that not bullying your friends and allies is a good thing, but these are truths.

These are truths we’ve always known in this country—that central bank independence is a good thing and leads to more prosperity. This is fundamental to what makes a strong economy and what makes a healthy society. And we cannot separate out, as the ministers and governors would like to do, our geopolitics and our economic policy. There are National Guard troops outside this building all week. You don’t hear that anywhere in this building throughout the week. We have a government shutdown. We have a situation going on around the world. We have flare-ups all over, but those are not issues the ministers want to confront because it’s not core to what they see as the immediate objective, which is stability, but stability for stability’s sake, while technology is changing rapidly and the shifts are happening all around us, will ultimately lead to instability.

So our work here, our goal at the Atlantic Council, is to tell the hard truths that are sometimes difficult to tell. This is the role of these institutions, and we will play a constructive role in doing it.

The one thing about macroeconomics and data is that the numbers usually don’t lie. Now, there’s questions about that, and we’ve debated some of them here, but we need to put the data out there and let the facts speak for themselves. We need to be transparent about our economies. We need to show what’s actually happening around the world, and only then can we have an honest conversation about the tectonic shifts that are happening in the global economy and how every country has to adapt to this new reality and stand by their values and stand by the process and stand by the system that has led to the prosperity that has brought us to this prolonged period of global peace unseen any time before in history.

October 17 | 4:26 PM ET

Unease, uncertainty, and a struggle for direction

This year’s IMF-World Bank Annual Meetings reflected profound unease about a shifting global economic order and uncertainty over the roles of the two multilateral institutions.

Discussions took place amid continuing trade tensions and a stark divergence in the direction of the world’s major economies.

The United States is placing its chips on the rapid buildup of artificial intelligence (AI) and digital finance, with AI-driven capital investment now overshadowing slowing activity in other sectors. China continues to rely on manufacturing exports, masking weaknesses in the domestic economy. European growth is recovering slowly while it faces the dual challenge of maintaining its open-market model and financing a defense buildup in response to Russian aggression. Meanwhile, public debt keeps increasing, and concerns about government bond markets is creating a bit of unrest in financial markets.

Delegates from smaller countries surely used the meetings to point to the resulting spillovers. Apart from the general exhortations to mutual cooperation, however, there were no tangible takeaways in the concluding documents coming out of the meetings.

A US call to get back to basics

Yet, delegates walked away with one bit of clarity. After dreading a possible US withdrawal during the spring meetings, delegates now got a clearer idea of the priorities of the Bretton Woods institutions’ major shareholder. Treasury Secretary Scott Bessent repeated his pointed call for the IMF and World Bank to return to their core mandates: that is, helping countries strengthen their private sector growth and maintain macroeconomic and financial stability.

The World Bank translated this impetus into an elegant shift toward a “jobs, jobs, jobs” agenda, refocusing its existing private sector work to deliver more immediate benefits for developing countries. The IMF, by contrast, looked as though it lacked a clear north star—guarded in tone, generic in its advice, and preoccupied with avoiding friction with major shareholders. In the face of “Knightian uncertainty,” even its highly valued World Economic Outlook forecasts have a shorter half-life than usual.

A risky bet on Argentina

And there was Argentina, of course, an evergreen topic for annual meeting conversations. The unprecedented US intervention in favor of the Argentine peso carries exceptional risks, both for the reputation of the US Treasury and the IMF, which could be asked to discreetly provide the funds for Argentina to repay the United States and, less discreetly, may get stuck with the blame for a failed adjustment program in the first place. Much is therefore at stake in Argentina’s midterm elections, which may or may not deliver the intended boost for the president’s reform program.

What comes next

For the World Bank, success will rest on the successful execution of its jobs agenda. It may find partners in the developing world more willing to engage this time. Zambia’s President Hakainde Hichilema, for example, neatly summed up how his country hopes to boost domestic activity in the face of declining foreign aid. “Seek ye [own] growth” is his mantra, an effort which the World Bank will no doubt gladly assist.

On the IMF’s side, discussions on quota and governance reform remain gridlocked, with major shareholders seemingly uninterested in meaningful changes. However, the forthcoming Article IV consultations with the United States and China will be a chance for the institution to redeem its reputation as a credible and impartial assessor of its members’ economic policies and their spillovers.

And by the annual meetings in Thailand next year, the then-completed surveillance and conditionality reviews will provide a clearer picture of how the institution will reinterpret the mandate of its core activities—economic surveillance and program lending.

October 17 | 1:52 PM ET

Megan Greene: It could be time to ‘slow down’ the Bank of England’s rate-cutting cycle

October 17 | 1:31 PM ET

Concerns over debt dominate the annual meetings once again—but this time, it’s major economies keeping officials up at night

It should come as no surprise that debt is dominating the conversations at this week’s annual meetings. The IMF has been clear in raising the alarms around the current dangerous trajectory, with global public debt set to hit 100 percent of global gross domestic product (GDP) before the end of the decade. 

Reining in unsustainable debt-to-GDP ratios is always a key piece of IMF surveillance work and countries use this convening in Washington to show the Fund—and private investors—why their markets are stronger than they might appear on paper. But what’s different this time around is which part of the economy is causing the most concern. It’s not the typical emerging markets that are keeping the IMF up at night. In the Fiscal Monitor it released this week, the IMF flagged Italy, France, Canada, and of course, the United States as having rising debt risk and warned that this financial turmoil (perhaps exacerbated by political dysfunction in some countries) could spiral into a “doom loop.” 

The interesting thing to me is how often I heard a similar concern raised privately by emerging market finance ministers and central bank governors. In the series of meetings we held this week, debt came up again and again, with these countries’ officials concerned about the United States and Europe. It’s a strange and concerning twist on the usual way debt plays out through the IMF and World Bank meetings, and perhaps a signal of what finance officials fear could end up being a problem which, like the global financial crisis, starts in advanced economies but doesn’t end there.

October 17 | 12:28 PM ET

The World Bank’s Christine Qiang on AI infrastructure

Frank Willey, assistant director at the Global Energy Center, speaks with Christine Qiang, the World Bank’s director of digital foundations, about how the World Bank and other international financial institutions support the global adoption of artificial intelligence.

October 17 | 11:01 AM ET

A grim picture for global public debt, but the IMF and World Bank are here to help

It used to be a running joke that the IMF stands for “It’s Mostly Fiscal.” And indeed, before the global economy was hit by a series of major shocks, that was the case—the IMF placed strong emphasis on its fiscal policy advice.

This year’s annual meetings are bringing that focus back. The IMF’s latest Fiscal Monitor, released on Wednesday, presents a sobering picture: global public debt is expected to reach 100 percent of global GDP—the highest level since 1948, when the world was rebuilding after the devastation of World War II.

Today, 3.4 billion people—about 40 percent of the world’s population—live in countries where governments spend more on debt servicing (interest payments) than on either education or healthcare. The main drivers of rising government expenditures are increased defense spending, aging populations, and high borrowing costs.

With scarce resources, spending efficiency becomes critical. Governments must rethink how to use public money smarter—through enhanced public finance management, strong debt management frameworks, credible medium-term fiscal rules, and greater transparency. As always, both the IMF, through its capacity development and Article IV policy advice, and the World Bank, through its development assistance, stand ready to help. Policymakers should make full use of these tools and focus on achieving fiscal sustainability for this and future generations.

After all, no one wants to live in a world where interest payments occupy the top line of the national budget.

October 17 | 10:54 AM ET

The World Bank’s Boubacar Bocoum on value creation for local industries

Alexis Harmon, assistant director at the Global Energy Center, is joined by Boubacar Bocoum, lead mining specialist at the World Bank.

October 17 | 10:49 AM ET

Turkish Central Bank Governor Fatih Karahan warns that the digital lira should be designed carefully—or else risk financial stability

October 17 | 9:03 AM ET

What lies ahead on day five of the IMF-World Bank annual meetings

October 17 | 7:00 AM ET

Dispatch from Washington: Is this the calm before the economic storm?

When the world’s finance ministers and central bank governors roll into town for the annual meetings of the International Monetary Fund (IMF) and the World Bank, it’s a good time to take the measure of the global economic mood. The best way to view this week’s gathering is through a split screen of relief and anxiety. 

Despite spiraling global debt, US-generated trade frictions, and stubborn inflationary pressures, global growth has held up far better than most feared when the same group met in April. The IMF this week raised its 2025 global growth forecast to 3.2 percent, up from 2.8 percent in April, as the world economy thus far has shrugged off worst-case scenarios of runaway tariffs and cascading financial shocks.

Yet that relief comes with an anxious edge: Momentary stability seems less durable in a world threatening to break into fragments, as global trade growth of 2.4 percent (and declining) is running behind overall global growth figures—a departure from long-running trends that many economists reckon is unsustainable.

The crisp autumn air in Washington this week has been thick with “what-ifs?” 

• What if we are only seeing a temporary reprieve before tariff-driven inflation and slowdowns bite harder? 
• What if the tariff war escalates with China, with Beijing having announced sweeping new export controls on rare earths and President Donald Trump threatening to instate a 100 percent tariff on Chinese goods?
• What if mounting public and private debt, now above 235 percent of global gross domestic product, becomes a debt shock as growth stumbles and interest payments rise—hitting emerging markets and poorer nations hardest?
• What if monetary tightening, inflation pressures, and fiscal fatigue ultimately undermine economic expansion? 
• What if trade fragmentation—regionally oriented supply chains, eroding global trading systems—confounds conventional models and results in everyone growing more slowly?

The IMF itself warned that markets may be underestimating risks tied to tariffs, debt, and financial vulnerabilities. “Buckle up: Uncertainty is the new normal, and it is here to stay,” said Kristalina Georgieva, managing director of the IMF, in her keynote speech ahead of the annual meetings. “Before anyone heaves a big sigh of relief, please hear this: Global resilience has not yet been fully tested.”

Read more

Inflection Points

Oct 17, 2025

Dispatch from Washington: Is this the calm before the economic storm?

By Frederick Kempe

At the IMF-World Bank annual meetings, cautious optimism about the global economy was tempered by what could come next.

Economy & Business International Financial Institutions

EBRD President Odile Renaud-Basso on private capital mobilization in Ukraine

Finance leaders’ word of the week: Jobs

The World Bank’s Lisa Finneran on encouraging and scaling innovation

Visa’s Todd Fox on how fragmentation is impacting payments innovation

Ukrainian Finance Minister Serhiy Marchenko on the future of the IMF’s lending to Kyiv

‘The rest of the world is moving on’ after US strikes at multilateral order, says European Investment Bank’s Nadia Calviño

IFC Director of Research Paolo Mauro on venture capital in emerging economies

Economy and Trade Minister Amer Bisat: ‘There’s just not going to be prosperity without the sovereignty of the state’

The IMF’s message is clear: The time to prepare for AI adoption is now

Commerzbank’s Verena Bitter on trends in transatlantic investment

Pakistan’s finance minister on his country’s devastating flooding—and the government’s reforms in response to it

What to expect on day four of the IMF-World Bank meetings

Read day three analysis

October 16 | 6:15 PM ET

EBRD President Odile Renaud-Basso on private capital mobilization in Ukraine

European Bank for Reconstruction and Development (EBRD) Odile Renaud-Basso speaks with Nicole Goldin, head of equitable development at the UNU-Centre for Policy Research and a senior fellow at GeoEconomics Center, about the EBRD’s investments in Ukraine’s economy and the current state of private capital mobilization.

October 16 | 5:52 PM ET

Finance leaders’ word of the week: Jobs

We’re nearly through IMF-World Bank week, and it is at this point when our experts usually begin to mark the divide between the conversations happening at the World Bank and the International Monetary Fund. But this week, for economist Nicole Goldin, it’s not the differences that are striking—it’s one major similarity.

“The World Bank is making a can’t-miss reorientation around jobs, but they are not alone in that,” Nicole tells me. “The IMF managing director and her colleagues are also talking jobs.” 

So why would the IMF want to join the World Bank in ensuring that people everywhere have (and take) employment opportunities? Nicole, who previously delved into jobs data, policy, and strategy as a World Bank lead economist, shares one reason: Heavy debt, and paying the mounting costs associated with it, “is one of the biggest challenges to macroeconomic stability,” Nicole tells me. “One policy prescription we hear from the IMF is generating domestic revenues. Jobs are critical to this, to expanding the tax base.” 

Another reason: AI has the potential to make the financial system more efficient and generate between 0.1 percent and 0.8 percent in global economic growth, as Georgieva noted this morning. But Nicole points out that “countries need the right talent and a technologically skilled workforce to capitalize on new industries and seize digital dividends from deploying AI.” 

The third reason is particularly relevant at a time when youth protests are leading to the ousting of leaders around the world: “Without economic opportunity, lost ambition and aspiration can fuel conflict and fragility and destabilize markets.” 

October 16 | 5:30 PM ET

The World Bank’s Lisa Finneran on encouraging and scaling innovation

The Global Energy Center’s Ken Berlin speaks with Lisa Finneran, director of innovation at the World Bank about the Bank’s initiatives with governments around the world aimed at driving private-sector innovation.

October 16 | 4:25 PM ET

Visa’s Todd Fox on how fragmentation is impacting payments innovation

Todd Fox, the president of Visa’s Economic Empowerment Institute, joins Atlantic Council Assistant Director Alisha Chhangani to discuss the impact of regulatory fragmentation on digital finance at the Atlantic Council’s World Bank content hub.

October 16 | 3:31 PM ET

Ukrainian Finance Minister Serhiy Marchenko on the future of the IMF’s lending to Kyiv

October 16 | 12:00 PM ET

‘The rest of the world is moving on’ after US strikes at multilateral order, says European Investment Bank’s Nadia Calviño

October 16 | 11:54 AM ET

IFC Director of Research Paolo Mauro on venture capital in emerging economies

Charles Lichfield, director of economic foresight and analysis at the GeoEconomics Center, speaks with Paolo Mauro, director of the International Finance Corporation’s (IFC) Economic and Market Research Department about the IFC’s priorities and recent trends in venture capital in emerging markets.

October 16 | 11:29 AM ET

Economy and Trade Minister Amer Bisat: ‘There’s just not going to be prosperity without the sovereignty of the state’

October 16 | 11:11 AM ET

The IMF’s message is clear: The time to prepare for AI adoption is now

Per IMF research, around 30 percent of jobs in advanced economies will be negatively affected by artificial intelligence (AI)—meaning potential income or job losses. Policy leaders must get ready for what’s coming, and the sooner they start preparing, the better. 

Yesterday, I moderated an IMF-World Bank Week panel tackling this issue, where I spoke with two IMF officials, Era Dabla-Norris, the deputy director of the Fiscal Affairs Department and Giovanni Melina, deputy division chief of the structural and climate policy division in the Research Department. 

Our conversation explored the risks and opportunities stemming from the rapid rise of AI. If implemented correctly, AI could boost global economic growth by 0.1 to 1.5 percent. But there will be both winners and losers. 

The IMF has made preparing for these shifts a top priority. To put things in perspective: in the latest World Economic Outlook, the word AI appears more than thirty times, while climate appears only seventeen times. In its AI Preparedness Index, the IMF assesses 170 countries on their readiness for AI adoption—benchmarking them across categories such as human capital, digital infrastructure, and energy supply. 

Most importantly, the IMF is here to help with policy advice. Its message is clear—the time to act is now. Governments must start rethinking unemployment benefits, adjusting taxation to encourage job augmentation rather than automation, and reskilling their labor forces. There’s a lot to be done—but if your country wants to stay ahead in the AI race, there’s no better time to start than today.

October 16 | 10:50 AM ET

Commerzbank’s Verena Bitter on trends in transatlantic investment

Charles Lichfield, the GeoEconomics Center’s director of economic foresight and analysis, talks with US Representative for Commerzbank Verena Bitter about the transatlantic investment climate.

October 16 | 10:43 AM ET

Pakistan’s finance minister on his country’s devastating flooding—and the government’s reforms in response to it

October 16 | 9:03 AM ET

What to expect on day four of the IMF-World Bank meetings

The ‘torn umbrella’ problem for developing countries in debt

The next phase in Argentina’s recovery—and the US role in it

The World Bank’s Luis Benveniste on education and the labor market

Spain’s Carlos Cuerpo responds to Trump’s tariff threats over NATO spending: ‘We’re making good on our commitments’

Behind the scenes with the Atlantic Council at the World Bank during the annual meetings

Mastercard’s Dimitrios Dosis on digital infrastructure and inclusive growth

The World Bank’s Manuela Francisco on turning economic analysis into outcomes

The World Bank’s Lisandro Martín on the upcoming Jobs Indicator

The overlooked views of developing countries

Ireland’s Paschal Donohoe on why his neutral country is ramping up its defense spending

A number worth thinking about this wek: 3.4 billion

How the World Economic Outlook sets the tone for today’s IMF-World Bank meetings

Read day two analysis

October 15 | 7:28 PM ET

The ‘torn umbrella’ problem for developing countries in debt

For the size of the problem that is sovereign debt, the response from the global community always seems to be not enough. 

Today, the IMF convened the Global Sovereign Debt Roundtable, and this week, it has been adamant about the roundtable’s role in addressing the plight of heavily indebted developing countries. It’s an issue that has risen to the top of the international agenda since I left the IMF, just before the COVID-19 pandemic.  

But the patchwork effort to help the most indebted countries is flawed, and we’re seeing why in the opening days of these Annual Meetings. The all-important first chapter of the IMF World Economic Outlook only genuflects toward the Group of Twenty Common Framework for debt restructuring (which has consistently amounted to less than promised) and the Global Sovereign Debt Roundtable, which is supposed to address the rules of the road for creditors. The Global Financial Stability Report also says little about the issue, although it does discuss how Eurobonds. issued by so-called frontier economies—those nations that before the pandemic were making progress toward emerging market status—now are expected to offer yields of over 10 percent.  

Behind closed doors, the verdict on the international community’s commitment to low-income country debt is decidedly negative. At a roundtable I took part in yesterday, I heard considerable skepticism about both the debt restructuring process and the Global Sovereign Debt Roundtable consultations. As my colleague Nicole Goldin pointed out, developing countries spent $1.4 trillion on debt service payments last year. Countries that together represent over half the population send more money to creditors than they spend on their own people’s health, education, and other needs. Officials worry that a global slowdown or unexpected shocks could send many countries into default. 

For low-income countries, the approach seems like a torn umbrella: It will help in a light rain, but in a storm, it will be useless. 

October 15 | 5:14 PM ET

The next phase in Argentina’s recovery—and the US role in it

The Atlantic Council hosted Argentina’s delegation to the annual meetings for an hour-long discussion of the country’s economic policies. Economy Minister Luis Caputo and Central Bank President Santiago Bausili took stock of Argentina’s efforts to normalize fiscal and monetary policies, a process that was successfully pursued over the past two years, resulting in a primary fiscal surplus and a significantly improved central bank balance sheet.

They expressed confidence that the exchange rate would continue to depreciate normally within the widening band while inflation was on a gradually declining path. They also characterized US support as instrumental in stabilizing foreign exchange markets ahead of the midterm elections later this month. Details on such support are close to being finalized, and the central bank president emphasized that there would be a close link to the IMF’s current program framework with Argentina.

Caputo explained that the Milei administration’s expectations for the midterms remain conservative, focused on winning more than a third of seats in either house of Argentina’s Congress. This would be sufficient to sustain a presidential veto of legislation that is not in line with the administration’s policy goals. The lack of an absolute majority has not been an obstacle to new reforms in the past, and the minister was confident that the reform momentum would continue. 

Caputo also reported a significant increase in US companies’ interest in investing in Argentina, especially in the mining and energy sectors. OpenAI is also reported to be weighing a $25-billion investment in Argentina, potentially providing a major growth impulse to the still sluggish economy.

October 15 | 3:29 PM ET

The World Bank’s Luis Benveniste on education and the labor market

Nour Dabboussi, associate director of the Atlantic Council’s MENA Futures Lab, is joined by World Bank Global Director of Education Luis Benveniste for his take on education reforms, the future of the labor market, and the role of the private sector.

October 15 | 2:46 PM ET

Spain’s Carlos Cuerpo responds to Trump’s tariff threats over NATO spending: ‘We’re making good on our commitments’

October 15 | 12:20 PM ET

Behind the scenes with the Atlantic Council at the World Bank during the annual meetings

Juliet Lancy, a young global professional at the GeoEconomics Center, gives a tour of the Atlantic Council’s pop-up studio, where it records and broadcasts events and interviews during the IMF-World Bank annual meetings.

October 15 | 11:38 AM ET

Mastercard’s Dimitrios Dosis on digital infrastructure and inclusive growth

Alisha Chhangani, an assistant director at the GeoEconomics Center, speaks with Dimitrios Dosis, president for Eastern Europe, Middle East, and Africa at Mastercard, about the potential for digital infrastructure to drive inclusive growth.

October 15 | 11:10 AM ET

The World Bank’s Manuela Francisco on turning economic analysis into outcomes

Bart Piasecki, an assistant director at the GeoEconomics Center, talks with Manuela Francisco, global director of economic policy at the World Bank, about the Bank’s Country Growth and Jobs Report.

October 15 | 11:07 AM ET

The World Bank’s Lisandro Martín on the upcoming Jobs Indicator

Lize de Kruijf, a program assistant at the GeoEconomics Center’s Economic Statecraft Initiative, speaks with World Bank Department of Outcomes Director Lisandro Martín on the Bank’s upcoming Jobs Indicator. 

October 15 | 11:04 AM ET

The overlooked views of developing countries

One of the perpetually overlooked events of the Annual Meetings is the gathering of finance ministers and central bank governors from emerging market and developing economies known as the Intergovernmental Group of Twenty-Four, or G24. Unlike its Group of Twenty (G20) counterpart, which brings together the world’s largest economies, the G24 serves as a voice for smaller countries—one that normally isn’t heard as the meetings proceed. In my twenty-plus years in the IMF Communications Department, the twice-yearly G24 press conferences were normally treated as an afterthought in planning, and mainstream media rarely gives attention to its communiques.

Which is too bad, because the G24 statement usually contains a plain-spoken summary of the issues that are on the front burner for countries that represent a vast swath of the world’s population. If the watchwords of these annual meetings are “uncertainty” and “opportunity,” the G24 only has room for the former. The communique issued yesterday highlights “humanitarian suffering,” “trade tensions,” “high debt burdens and rising debt-servicing costs” and the continuing need for “climate action.” (In the all-important first chapter of the World Economic Outlook, whose publication yesterday overshadowed the G24, climate change is relegated to the final paragraph.)

Underlying it all is concern about falling exports and declining foreign-exchange earnings, all of which add up to “constrained” growth, “magnifying risks” to macroeconomic stability, and a bleaker medium-term outlook. With development assistance from the advanced economies declining, the G24 offers up a proposal for the IMF to “consider exploring a mechanism for the regular issuance of Special Drawing Rights (SDRs) to better support” developing countries. The IMF tried that after the COVID-19 pandemic, but most of the SDRs ended up in the coffers of the largest economies. The idea of an SDR issuance to low-income countries was also discussed at yesterday’s IMF Week seminar on “a global response to sovereign debt pressures and climate change.” It remains to be seen whether the views of the G24 will resonate as the powerhouse economies of the Bretton Woods institutions settle in for their deliberations this week—or whether the group will remain a voice in the wilderness.

October 15 | 11:00 AM ET

Ireland’s Paschal Donohoe on why his neutral country is ramping up its defense spending

October 15 | 9:58 AM ET

A number worth thinking about this week: 3.4 billion

The IMF-World Bank Annual Meetings are officially in full swing, and if there’s a topic on everyone’s mind, it’s debt. The topic of climate change, on the other hand, is on many minds, but it isn’t making its way into many conversations this week—one exception being a conversation I led yesterday, in partnership with the Heinrich Böll Foundation and SOAS University of London.  

These topics are top of mind for good reason. I, like most economists, like to go “by the numbers,” so here is one number that shows why many of us in Foggy Bottom are thinking about debt and climate change: 3.4 billion.

That figure represents nearly half the world’s population. It’s also the number of people living in developing countries whose governments spend more on their debt service than they do on health or education, according to a report released this year by the United Nations Conference on Trade and Development (UNCTAD).

This same figure is also the midpoint of the estimated range (3.2-3.6 billion) of the number of people living in areas disproportionately experiencing the effects of climate change, including rising sea levels and weather events such as extreme heat, droughts, and floods.

The implications are staggering. In 2024, developing countries spent $1.4 trillion in debt service payments. The money spent servicing debt is money that cannot be spent investing in people and prosperity: not only in health and education, but also in infrastructure, energy, technology, and the services needed for economic growth and equitable development. Combined with dwindling official development assistance and reduced trade and foreign direct investment, developing countries—including some of the most vulnerable to climate change—lack the fiscal space to invest in mitigation, adaptation, or resilience.

Debt dynamics and other financial trends factor prominently in today’s World Economic Outlook and Global Financial Stability Report and they will spark discussion (case in point: check out our discussion yesterday “decoding” the reports only hours after they launched). They are certainly worthy of all the talk, but it is important not to lose sight of the human toll—the ultimate costs to the lives and livelihoods of 3.4 billion people that must be urgently addressed.

October 15 | 9:36 AM ET

How the World Economic Outlook sets the tone for today’s IMF-World Bank meetings

Good numbers, but a gloomy forecast, for the global economy

Saudi Finance Minister Mohammed Aljadaan sounds the alarm on the world’s ‘very serious’ debt challenge

What to know about the World Bank’s new AgriConnect initiative

Europe may be losing momentum for realizing the single market, says Irish Central Bank Governor Gabriel Makhlouf

What Trump 1.0 trade negotiators think about the second administration’s tariff strategy

US-China trade spat moves supply chains to top of mind

What to expect at today’s IMF-World Bank meetings

Read day one analysis

October 14 | 6:47 PM ET

Good numbers, but a gloomy forecast, for the global economy

Today, the International Monetary Fund released its highly anticipated World Economic Outlook (affectionately abbreviated “WEO”). And as I tuned in to the launch from IMF headquarters, I noticed a glaring contrast between the report’s upgrade to global growth forecasts and its overall gloomy tone, reflected in the headline: “Global Economy in Flux, Prospects Remain Dim.” 

Our top numbers cruncher, Hung Tran, tells me that’s kind of the point. Hung worked at the IMF for six years, during which he had a hand in these kinds of reports. The IMF is trying to tell us, he says, that the economy is faring “better than feared,” but “worse than what we need.” 

On the positive side, Hung points to upgraded economic growth estimates for countries such as the United States, India, and China. This is due in part, he adds, to the world’s relative restraint from deploying retaliatory tariffs against the United States. 

But on the grimmer side, Hung notes that the WEO lists a number of “downside risks,” from a “possible slowdown in the AI boom” to “high public debt” to “pressure on central banks,” which could destabilize financial markets. But “the WEO emphasizes the importance of policy and policy cooperation,” without getting to the roots of the problem, Hung says: “US protectionism and Chinese mercantilism.” That, he says, is what is “squeezing many countries in the rest of the world.” 

“To say that we need good policies and cooperation is not a solution,” Hung warns. 

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October 14 | 4:23 PM ET

Saudi Finance Minister Mohammed Aljadaan sounds the alarm on the world’s ‘very serious’ debt challenge

October 14 | 12:35 PM ET

What to know about the World Bank’s new AgriConnect initiative

Charles Lichfield, director of economic foresight and analysis at the Atlantic Council’s GeoEconomics Center, outlines the three most important things to know about AgriConnect, a new initiative from the World Bank as the institution aims to pivot to its “new north star”: creating jobs.

October 14 | 12:26 PM ET

Europe may be losing momentum for realizing the single market, says Irish Central Bank Governor Gabriel Makhlouf

October 14 | 10:39 AM ET

What Trump 1.0 trade negotiators think about the second administration’s tariff strategy

OCTOBER 14 | 10:30 AM ET

US-China trade spat moves supply chains to top of mind

The IMF-World Bank Annual Meetings have kicked off following another rupture in the US-China trade relationship after Beijing’s tightened export restrictions on rare earth elements (REE) last Thursday. As one of the most important trade relationships in the world enters a new period of uncertainty, expect supply-chain management to now play a bigger role than ever.

China’s announcement strikes at the heart of US dependence on REE supply chains: China controls around 70 percent of rare earth extraction, 90 percent of refining, and 93 percent of magnet production (which uses rare earths) worldwide.

As of December this year, companies will be required to secure permission before exporting any product with more than 0.1 percent of its value attributable to a rare earth originating in China. In effect, the policy extends Beijing’s control of the supply chain much further downstream, reflecting a mechanism the United States has previously used to control chip exports—even companies manufacturing and selling products outside of China would theoretically need authorization if the product’s REE content falls above the designated value. A ban on the export of any rare earths to foreign militaries further complicates the supply-chain picture; for example, it is unclear whether a company such as Boeing or General Motors—both of which produce goods for the defense sector—are counted as such. These restrictions are also not specifically designated against the United States, giving China the latitude to use its REE export dominance against other countries should it deem necessary.

To date, the Trump administration has been aggressive in attempting to manage wider risks associated with China’s supply-chain dominance. The administration has consistently worked to secure non-Chinese sources of REE including resource development opportunities in negotiations with Ukraine, the Democratic Republic of Congo, and Greenland. This summer’s major deal (led by the Department of Defense) with MP Materials represents another effort to improve domestic supply-chain resilience. Yet bringing these opportunities online at scale takes time, and as a result, REE have been an important lever in trade negotiations with China. Case in point: A framework agreement toward a US-China trade deal this past June included a drawdown in REE export restrictions that China had announced over the past several months.

That’s possibly why Thursday’s announcement had been met with such an aggressive White House response, in the form of a proposed 100 percent retaliatory tariff on China and talk of canceling a meeting between US President Donald Trump and Chinese President Xi Jinping. And while Trump has walked back his threats, the exchange still largely resets trade negotiations back to where they were earlier this year, with supply chains caught in the middle.

There are two observations from these latest flare-ups that will be of use to the officials descending upon Foggy Bottom this week, some wanting to talk trade on the sidelines of the annual meetings. First, it is clear that risks to global supply chains are entering a new phase. While China’s Ministry of Commerce aimed to clarify the scope of these new restrictions on Sunday, whether (or how) China will enforce these new and powerful tools is still unclear. China’s willingness to use such tools will continue to be hard to ignore, even if wider trade tensions cool. Second, Washington’s pursuit of alternative sources for REEs now bears even more urgency—and opportunity. Though China dominates REE supply chains, REEs themselves aren’t necessarily rare. But accessing them and integrating them into the economy requires thoughtful and precise supply-chain partnerships. Other countries may find that their own REE resources can help enhance their trade negotiations with the United States on the basis of alternative supply-chain development. It will take time for alternative resources to alleviate the US dependency on China, but the need to reduce China’s REE dominance, its leverage in trade negotiations, and its risk to US national security will weigh increasingly heavy as the US administration continues to work to address its trade-balance concerns.

October 14 | 9:02 AM ET

What to expect at today’s IMF-World Bank meetings

Why you won’t hear enough about the Gaza peace plan at IMF-World Bank week

Expect IMF-World Bank meeting debates over China, the US, Ukraine, and more—behind closed doors

As the trade war resumes, China may be keeping one eye on Trump and one on the Supreme Court

Jobs and AI to dominate the IMF-World Bank Annual Meetings

The five important issues at the IMF-World Bank Annual Meetings

OCTOBER 13 | 5:30 PM ET

Why you won’t hear enough about the Gaza peace plan at IMF-World Bank week

The IMF-World Bank Annual Meetings kicked off today, on the same day that US President Donald Trump visited Israel to mark the implementation of phase one of his Gaza peace plan.

On the surface, the two events seem completely disconnected, but anyone who has been part of international finance over the past two years knows the opposite is true.

On October 8, 2023, I landed alongside my Atlantic Council colleagues in Marrakesh for that year’s IMF-World Bank Annual Meetings. Throughout the airport, our hotel, and the conference venue, television news played the horrific images of October 7 on loop, and the world’s finance ministers and central bank governors were asked for their thoughts on the unfolding war. They largely demurred, arguing that it was too early to tell if there would be any economic repercussions. I criticized that response at the time.

Fast forward to the 2024 spring meetings. Two days before the meetings began, Iran launched hundreds of drones and missiles toward Israel. The markets reacted sharply, and the risk of a wider war trickled into every conversation. But the threat passed, markets rebounded, and the world’s finance ministers went back to business.

Now, here we are again. Financial leaders will discuss tariffs, debt, a US government shutdown, the growth of artificial intelligence, the future of the dollar, the bailout in Argentina, and more. But the one thing they likely won’t talk about is the cease-fire in Gaza.

Economists have been trained for decades to separate the worlds of macroeconomics and geopolitics, despite time and again being reminded that’s not how the world works. Just look back to Russia’s invasion of Ukraine, which triggered the most sweeping sanctions response in history.

Events over the past few years remind us why the Bretton Woods institutions were created in the midst of World War II: to deliver economic prosperity in the hopes of fostering peace. But in recent decades, the world’s financial leaders have focused solely on the prosperity part (with mixed results) and have sometimes forgotten the larger goal.

To continue to earn the trust of the member countries they serve, these institutions must remember their roots. 

OCTOBER 13 | 11:15 AM ET

Expect IMF-World Bank meeting debates over China, the US, Ukraine, and more—behind closed doors

Once again, the International Monetary Fund (IMF) and World Bank Annual Meetings will unfold against a turbulent global backdrop. In their speeches and prepared statements, delegates will raise concerns about the global economic outlook, fret about rising fiscal deficits and hidden risks in private equity and crypto markets, and make the case for their own policy efforts in front of the global community. A joint communiqué is unlikely, in part because both the United States and China will not agree to language aimed at reining in their isolationist or mercantilist tendencies for the benefit of the rest of the world.

But this is not what observers should focus on most this week. Instead, it’s worth closely watching for a hint of what is happening behind closed doors. There, conversations will focus on the few areas for which the two institutions still enjoy the support of their major shareholders—not the least because the IMF’s and World Bank’s considerable financial resources look ever more appealing to finance ministers who are running out of fiscal space at home.

The United States and the IMF

To begin with, most delegations will be keenly interested in Washington’s relationship with the Bretton Woods twins. US Treasury Secretary Scott Bessent signaled support for the institutions at the spring meetings this year, recently firmed up by the US intervention in the Argentine peso. But while policymakers may talk of partnership, the power asymmetry within the IMF remains evident.

There is a possible upside to greater US engagement—including improved cooperation on major lending cases and a push for the IMF to strengthen its surveillance arm, a core mandate much neglected in recent years. Similarly, the United States could collaborate with the two Bretton Woods institutions to ensure that countries meet their loan conditions, enabling timely repayment. The administration might even convince Congress to ratify the 2023 quota increase, shifting the fund’s finances to a more permanent capital base.

But there is also a risk. Already reeling from the dissolution of the US Agency for International Development, many delegates are bracing for US demands to cut climate and, perhaps, development programs at the IMF and World Bank, which could lead to substantial friction with emerging market and developing countries. Moreover, there are concerns that the United States could politicize both lenders’ loan operations, exposing all shareholders to the risks of misconstrued lending programs.

Read more

Econographics

Oct 13, 2025

Expect IMF-World Bank meeting debates over China, the US, Ukraine, and more—behind closed doors

By Martin Mühleisen

Behind closed doors, delegates are likely to tackle questions around Washington’s relationship with the IMF, China’s economic performance, and the role of the Bretton Woods institutions.

China Financial Regulation

OCTOBER 12 | 4:36 PM ET

As the trade war resumes, China may be keeping one eye on Trump and one on the Supreme Court

The big question in Washington this weekend, following the latest exchange in the US-China trade war: What went wrong?

On Thursday, China announced sweeping new export controls on rare earths, and the following day, US President Donald Trump threatened to reinstate 100 percent tariffs on Chinese goods (on top of existing tariffs) and cancel his long-awaited meeting with Chinese President Xi Jinping.

That flurry of action came after a quiet summer, during which the world’s two largest economies put their trade war on hold and Trump said increasingly nice things about Xi. Just three weeks ago, the two leaders had what Trump called a “very productive” phone call, agreeing to finally meet face-to-face in South Korea at the end of October.

Then, on September 29, the US Department of Commerce issued the so-called “affiliates rule,” which—as an interim final rule—went into effect immediately, without full notice and comment. It placed export controls on thousands of foreign companies that are 50 percent owned or controlled by listed entities. Even though the rule doesn’t mention China, Chinese companies are on the lists, so the measure directly affects them.

Beijing viewed the move as a violation of the spirit of Geneva, where US Treasury Secretary Scott Bessent and his counterpart, He Lifeng, brokered a temporary truce in May. So on Thursday, China added five new elements to its rare-earth licensing regime. Remember, this is the same authority that caused supply shortages at Ford factories in Michigan in June—and arguably pushed Trump and Xi to the negotiating table in the first place.

Trump, of course, reached for his favorite tool in response: tariffs. And now, many are watching to see whether Asian markets dip on Monday into what could be their biggest drawdown in months. Trump, perhaps wary of the market reaction, posted on Truth Social on Sunday, “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment.”

But there’s something I think analysts are missing in all of this: the Supreme Court.

Read more

New Atlanticist

Oct 12, 2025

As the trade war resumes, China may be keeping one eye on Trump and one on the Supreme Court

By Josh Lipsky

The US president’s leverage with Xi Jinping could be undercut by the Supreme Court’s deliberations.

China Trade and tariffs

OCTOBER 10 | 9:28 AM ET

Jobs and AI to dominate the IMF-World Bank Annual Meetings

The GeoEconomics Center’s Sophia Busch and Bart Piasecki outline what to expect at the 2025 IMF-World Bank Annual Meetings.

OCTOBER 8 | 2:28 PM ET

The five important issues at the IMF-World Bank Annual Meetings

The International Monetary Fund (IMF) and World Bank are gearing up for their annual meetings next week. Amid increasingly high stakes, this year’s gathering has special significance, seeing as the United States, after having withdrawn from several other international organizations and agreements, still remains active in the two Bretton Woods institutions.

At these annual meetings, the IMF and the World Bank will face five important issues, which span both near-term economic prospects and more fundamental, longer-term challenges confronting the global economy.

1. Navigating growth—and inflation

Recent data show a rather resilient global economy, particularly in the United States. Despite concerns about rising tariffs and ongoing uncertainty, economic activity has held up since the second quarter of the year—so much so that 2025 gross domestic product (GDP) growth estimates have been recently revised upward, to 3.2 percent globally (according to the Organisation for Economic Co-operation and Development) and 2.5 percent for the United States (according to Goldman Sachs). Stock markets have also performed well, with the MSCI World Index posting a 14.3 percent return year-to-date, roughly matching the S&P 500’s 14.4 percent, though a price-to-earnings ratio of thirty (compared to a long-term average of nineteen) suggests the market valuation could be stretched. Global inflation has slowed noticeably, from 5.67 percent in 2024 to an estimated 4.29 percent this year. In the United States, the consumer price index growth rate fell from 3 percent in January to 2.3 percent in April, before rebounding to 2.9 percent in August.

But this resilience may not last. Evidence suggests that the good performance of the global economy and stock markets has been narrowly based, driven by a handful of high-tech corporations (the so-called Magnificent Seven) pouring money into artificial intelligence (AI) hardware, software, and data centers. In fact, according to JP Morgan Asset Management, AI-related capital expenditures have accounted for 1.1 percent of the 1.6 percent GDP growth in the first half of 2025. Such intensive investment could prove unsustainable, and a slowdown could ripple through the broader economy and stock markets. Meanwhile, US importers are likely beginning to pass more of the costs of tariffs onto retail customers, driving up consumer prices. If new tariffs keep coming, that would sustain the inflation process going forward.

It is up to the IMF to present a convincing analysis of the economy’s vulnerability to concentration risk (dependence on AI related activities) and the likely delayed effects of rising tariffs, which boost the likelihood of mild stagflation in the near future, especially in the United States; it is also up to the Fund to advise countries to adopt policies to mitigate this risk. This could be a challenge, especially when major economies can point to decent economic performance so far this year and may feel complacent.

Read more

Econographics

Oct 8, 2025

From US tariffs to Argentina’s crisis: The five important issues at next week’s IMF-World Bank Annual Meetings

By Hung Tran

The IMF and the World Bank will face five important issues, which span both near-term economic prospects and more fundamental, longer-term challenges confronting the global economy.

Argentina Financial Regulation

The post Behind the scenes of the IMF-World Bank Annual Meetings as leaders adjust to a new normal of uncertainty appeared first on Atlantic Council.

Since the start of Trump’s second term, the US dollar has depreciated by roughly 12 percent against a broad basket of currencies, including many across Africa. For African economies that borrow and trade in dollars, a weaker greenback eases debt burdens and lowers import costs. In this way, a weaker dollar provides these African countries with unexpected breathing room in an otherwise difficult global financial environment.

Why do African countries rely so heavily on the US dollar?

Challenges around public debt in Africa are not a recent development, but a structural feature of the continent’s political economy. For several decades, many African governments have faced persistent difficulties in mobilizing sufficient domestic capital to meet rising expenditure demands. These constraints stem largely from the shallowness of domestic financial markets, characterized by a narrow investor base and underdeveloped institutional investors. Consequently, many countries have relied on external borrowing. 

Instruments denominated in local currencies attract little demand in international markets, compelling leaders to issue debt in foreign currencies—primarily the US dollar, followed by the euro. Relying on foreign currency borrowing exposes governments to significant exchange rate risk, as currency movements remain beyond their control. The Mo Ibrahim Foundation recently estimated that more than 70 percent of Africa’s external public debt is denominated in US dollars.

External debt denominated in foreign currency is a suboptimal financing strategy that amplifies a range of macro-financial vulnerabilities. It is a short-term solution to a long-term problem. Exchange rate risk is the most obvious concern, compounded by the nature of international capital markets. Sovereign debt issued in US dollars by countries other than the United States is typically priced with a risk premium above the benchmark yield on US Treasury securities, due to perceived credit risk and broader investor sentiment toward emerging markets. 

Moreover, African leaders frequently issue debt with relatively short maturities, heightening rollover risk and constraining fiscal space for long-term development planning. This dynamic results in a paradox: Governments rely on a costlier and more volatile source of financing to address structural investment needs that, by definition, require stability and predictability.

How much external debt is there?

The chart below presents the ratio of external debt-to-gross domestic product (GDP) ratio for selected African economies, alongside the nominal interest payments denominated in US dollars. In Mozambique’s case, external debt exceeds 300 percent of GDP. Aggregate interest obligations on external public debt across the continent now exceed $23 billion annually. This scale of debt service illustrates the growing fiscal burden associated with liabilities in foreign currency, which divert scarce public resources away from development priorities and render African countries more vulnerable to changes in global financial conditions. 

How much debt is too much?

The ongoing accumulation of public debt in Africa—exacerbated by the COVID-19 pandemic and increasingly frequent extreme weather events—has pushed several countries to the brink of default. According to the International Monetary Fund’s (IMF) 2023 Debt Sustainability Analysis, seven African countries are already in debt distress, while an additional thirteen are classified as being at high risk. At present, the IMF has active programs with twenty-five African countries with approved commitments exceeding 21.5 billion in special drawing rights (SDR)—equivalent to around $30.9 billion. SDR is an international reserve asset created by the IMF, valued against a basket of major currencies, and used to supplement member states’ foreign exchange reserves. 

Among IMF instruments, the most widely used in Africa is the Extended Credit Facility (ECF)—the organization’s flagship concessional lending tool for low-income countries. The ECF provides long maturities, zero-interest financing, and reform support. It is intended to help enable governments to address persistent balance-of-payments pressures and advance structural reforms. Typically, countries request an ECF arrangement when short-term financing proves insufficient to meet prolonged macroeconomic and developmental challenges. The chart below presents a more comprehensive picture of the IMF’s current engagement in Africa.

How a weaker dollar is helping

Any precise assessment of Africa’s external debt trajectory must consider the value of the US dollar. For African countries, where more than two thirds of external public debt is denominated in US dollars, a depreciation of the dollar relative to local currencies temporarily reduces the cost to service debt and creates additional fiscal space for the government. 

In this sense, a weaker dollar provides a measure of relief, not strain. To be sure, the value of a free-floating currency can change rapidly, reversing positive fiscal impact. It is important to note that a weaker dollar can also negatively impact African exports to the United States, as it makes African-made products more expensive relative to the stronger dollar. The trade landscape between the United States and Africa is further complicated by the recent expiration of the African Growth and Opportunity Act, a US trade program that grants duty-free access to the US market for thousands of products from eligible sub-Saharan African countries to promote economic growth and development.

The trend of a weaker dollar is likely to continue. Since the beginning of Trump’s second term, the US dollar has depreciated by roughly 12 percent against a set of major African currencies, yielding an estimated $2.3 billion in annual savings on interest payments. This additional fiscal space provides governments with a unique opportunity to either front-load debt repayments or accelerate the implementation of development projects. 

How African countries can seize this momentum

African countries could use the additional fiscal space to pursue front-loading debt repayments. In its April 2025 Regional Economic Outlook for Sub-Saharan Africa, the IMF commends the region for reducing public debt levels. However, the primary driver of lower public debt has been the GDP deflator—in other words, inflation—followed by real GDP growth, while the nominal stock of debt has remained broadly unchanged. The fiscal savings resulting from a weaker US dollar present an opportunity to accelerate principal repayments, strengthen the fiscal position, and bolster market confidence in the long term.

Another possible use of the extra resources would be to accelerate large-scale development projects aimed at boosting growth in the private sector—while avoiding the subsidization of private consumption—and enhancing productivity. It is important for governments to avoid welfare projects that would increase daily spending, creating long-term fiscal liability when conditions become less favorable. Instead, African governments should seek to leverage their young populations by expanding access to education and digital services, which could unlock innovation potential and lead to sustainable growth. 

Path toward the domestic debt market

In a long-term strategy, echoing the IMF’s recommendations, African countries should intensify their efforts to develop domestic debt markets as the foundation for long-term fiscal sustainability and effective debt management. Strengthening local markets would yield several benefits. First, issuing debt in local currency eliminates exchange-rate risk, insulating public finances from external currency fluctuations. Second, if appropriately designed, domestic markets can facilitate the extension of debt maturities, thereby enhancing stability and predictability in public debt management. Third, a broader domestic investor base ensures that interest payments remain within the local economy, supporting financial sector development and reducing the transfer of national resources abroad.

So, one might ask: What has prevented African countries from working toward a more robust domestic debt market? The answer lies in the complexity of the issue, which requires a long-term plan. Macroeconomic challenges such as a shallow investment base, underdeveloped financial infrastructure, and institutional weaknesses demand a well-anchored strategy. It is important to start this process when fiscal conditions are more favorable. Eliminating central bank deficit financing would be a welcome first step forward.

By most indications, the Trump administration did not set out with the intention to weaken the US dollar. But a reality of the second term so far has been a weaker dollar, and this outcome carries far-reaching implications. For African countries with external debt denominated in dollars, this development offers a welcome reprieve, easing fiscal pressures and creating new policy space. It’s now up to national authorities to proactively seize this opportunity, as the current environment of a weaker dollar may prove temporary. The moment is favorable—decisive action today can translate into lasting economic resilience tomorrow.

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

Juliet Lancey, a young global professional at the GeoEconomics Center, contributed research to this article.

The post How a weaker US dollar can help debt-burdened African countries appeared first on Atlantic Council.

1. Who is protesting?

Moroccan youth took to the streets starting September 27, after calling for general protests across the kingdom on social media using the #GenZ212 hashtag to mobilize and demand more accountability and improved public services. (The number 212 refers to Morocco’s telephone country code.) Those leading the demonstrations were initially mostly Gen Z individuals, who were apparently inspired by the momentum created by this generation in other parts of the world such as Nepal, Indonesia, and Madagascar. These demonstrations are the largest in the country since the Arab Spring and the February 20 movement, which led in 2011 to constitutional reforms limiting the power of the monarchy and providing more authority to the executive and legislative branches.  

This new type of protest is unique because it is largely organized by a digital generation using the tools and ideals of Gen Z—coordinating and arranging an entire social movement on platforms such as Discord, Twitch, and TikTok. Unlike in other demonstrations in Morocco, where civil society, opinion leaders, and political parties take the lead—as seen over the past two years in the pro-Palestine protests—this wave extends beyond the country’s traditional political and business elites, civil society leaders, and media. 

For the past three days, the demonstrations have taken a more violent turn in some of the most impoverished towns and suburbs, where socioeconomic disparities are more pronounced and the populations are increasingly frustrated with the political class. This includes cities such as Sale, Inezgane, and Oujda. Some demonstrations that had been peaceful have been hijacked by new groups, mainly minors from Gen Alpha, who have vandalized and looted public and private property, according to the Interior Ministry’s spokesperson, Rachid El Khalfi.

Last night, the authorities responded with live ammunition when a group of minors stormed a gendarmerie barricade in Lqliaa, Southern Morocco, resulting in the death of three people. The Moroccan Ministry of Interior also announced the injury of 354 people, mostly from law enforcement, and damage to private cars, shops, banks, and public buildings across twenty-three regions.  

2. Why are they protesting?

The demonstrations started after Morocco unveiled its new Moulay Abdellah soccer stadium in Rabat in mid-September. The stadium reportedly costs $75 million and it is scheduled to host the African Cup this December. Simultaneously, reports of several patients dying of medical negligence in Agadir brought back to the surface questions about the country’s development priorities. Frustration over degraded health and education services, while the government is actively gearing up to erect state-of-the-art sports infrastructure to meet its 2030 World Cup hosting targets, is compounding the crisis.  

In a recent speech, King Mohamed VI described Morocco as a two-speed economy, where opposites coexist in the same dysfunctional context. On one hand, ambitious infrastructure and industrial projects are underway, while on the other, basic vital public services are performing poorly. 

Youth, who make up nearly a third of the population, say they feel disenfranchised by the country’s policies and international ambitions, which mainly target external audiences and tourists. Entire neighborhoods are being reduced to rubble to make space for new hotels, highways, and stadiums. At the same time, progress in the vital fields of education, youth employment, and medical services remains unsatisfactory. Adding to the problem, Morocco has not yet fully recovered from the economic crisis and inflation caused by the COVID-19 pandemic, and it has still not fully compensated victims of the 2023 Al Haouz earthquake. 

Demonstrators have also leveld accusations of corruption against the current coalition government, which has been in power since October 2021 and is led by Prime Minister Aziz Akhannouch. Akhannouch, one of Morocco’s wealthiest businessmen and the head of Akwa Group, with a reported net worth of $1.6 billion, has been under scrutiny for potential conflicts of interest between his personal business dealings and state projects. Some voices within the new protest movement are also calling for the government to step down and be held accountable for any mismanagement of public funds.  

3. How has the Moroccan government responded? 

In the first few days of the demonstrations, the authorities apprehended around one thousand protesters, according to the Moroccan Association of Human Rights, for holding unauthorized protests. Many of these protesters have since been released. But as frustration grew over the government’s lack of communication and limited response, more violent confrontations between the authorities and a mixture of mobsters and demonstrators started dominating parts of the movement, especially in the suburbs and more underdeveloped towns, resulting in casualties and chaos.  

Akhannouch addressed the protests in public remarks on Thursday, six days after the start of the protests. He expressed his sadness amid the unfortunate escalation of violence. He vowed the readiness of his cabinet to respond to the demands voiced by Morocco’s youth and to engage in dialogue within institutions and public spaces. 

Given the complex nature of the constitutional monarchy in Morocco, dividing powers between the monarch, “the commander of the faithful,” and the elected executive and legislative branches, many demonstrators also look up to King Mohamed VI to take firm decisions and enact drastic systemic reforms to adress the failure of the political class and degrading services. The king had previously responded positively to the Arab Spring’s demonstrations in 2011, allowing Moroccan society to experience what commentators have referred to as “an evolution rather than a revolution,” unlike other Arab countries in the region. However, the 2011 constitutional reforms would make it difficult for the king to simply dissolve the government, and it would require a broader consensus and action from the parliament’s side. Moroccan youth are also looking for signals from Crown Prince Moulay Hassan, a member of Gen Z himself, who has been playing a greater role in the political and development sphere as part of the long-term succession process.  

4. What should we expect next? 

With general elections scheduled to take place in September 2026, the current Gen Z uprising will undoubtedly reshape the political conversation in Morocco and help recenter the government’s priorities beyond the spectacle- and infrastructure-focused policies ahead of the 2030 World Cup. Given the country’s track record in managing crises, Morocco will likely absorb the current events and gradually return to normalcy. While it is unlikely that this new social movement will evolve into a more transformative revolution, as was the case in Nepal, it is still a pivotal moment for the country and a wake-up call. It is clear that there is a deep rift between a digitally connected and politically critical generation and the current governing elites, and whose priorities focus on stones rather than humans.  

It is also essential to watch for any ripple effect of these demonstrations in the larger Middle East and North Africa region, like what happened during the Arab Spring, when the wave of protests started in Tunisia and then spread across other Arab countries. Neighboring Algeria is already bracing for similar protests under the label of #GenZ213 (using Algeria’s telephone code of +213) on Friday.  

Sarah Zaaimi is a resident senior fellow for North Africa at the Atlantic Council’s Middle East programs, focusing on identity and minorities in the region. She is also the center’s deputy director for media and communications.

The post Four questions (and expert answers) about the antigovernment protests in Morocco  appeared first on Atlantic Council.

“The relationship between the United States and the Dominican Republic is rich with history and underpinned by our shared tenets of democracy, trade, and security. Here in New York’s Hudson Valley, I am proud to represent a large Dominican population, whose contributions to our economy, culture, and communities are felt every single day. We are proud to join the Atlantic Council’s Adrienne Arsht Latin America Center to announce the release of this comprehensive strategy for greater United States–Dominican Republic integration. This new, imaginative framework will ensure that our bilateral cooperation continues for decades to come—and will lead to the mutual expansion of our economic partnership, shared security efforts, and celebration of each other’s cultures.”

Representative Mike Lawler (R-NY)

“The partnership between the United States and the Dominican Republic is a cornerstone of stability, prosperity, and security in the Caribbean. The Atlantic Council’s Adrienne Arsht Latin America Center has provided a timely report offering strategic recommendations to leaders in both nations as we work collaboratively to deepen economic cooperation, enhance technological integration, and strengthen our shared security. I am honored to join the Council and sector leaders in recognizing this important contribution to advancing the United States–Dominican Republic relationship.”

Representative Adriano Espaillat (D-NY)

As global supply chains realign and geopolitical competition intensifies, the United States and the Dominican Republic have a unique opportunity to deepen economic, security, and institutional ties. By working together across six key strategic pillars both countries stand to enhance resilience, unlock new growth opportunities, and bolster regional stability. DR-US engagement presents the following strategic payoffs:

• Industrial supply chain security: The United States secures critical supply chains, reduces dependence on China, preserves high-value domestic production, and expands exports through integrated co-production. The Dominican Republic shifts from low-cost assembly to higher-value manufacturing, attracts long-term investment, integrates into strategic US supply chains, and develops a skilled, specialized workforce.
• Strategic infrastructure and regional logistics: The United States gains a logistics diversification partner in the Caribbean, enhances US Southern Command disaster and counter-narcotics capacity, enables a neighbor’s exit from Belt and Road-aligned infrastructure, and leverages the Dominican Republic for regional warehousing, transshipment, and space infrastructure. The Dominican Republic modernizes strategic infrastructure, becomes a regional logistics and disaster response hub, attracts investment in cutting-edge sectors such as space, and deepens security and counter-narcotics cooperation with the United States.
• Digital infrastructure and cybersecurity: The United States establishes a secure regional digital hub for the Caribbean, reduces Chinese tech penetration, expands secure cloud and intelligence networks, and strengthens cybersecurity coordination. The Dominican Republic leads Caribbean digital transformation, attracts international tech and data firms, evolves into a regional cybersecurity operations hub, and diversifies into high-value digital services.
• Energy security and critical minerals: The United States secures regional critical minerals and liquefied natural gas (LNG), diversifies supply away from China, supports Puerto Rico’s energy needs, and creates a regional partnership model. The Dominican Republic monetizes mineral resources, modernizes its grid and exports electricity, gains energy sovereignty, and becomes a regional resource development hub.
• Homeland and regional security: The United States locks in a security partner in the Caribbean, prevents regional instability, narcotics flows, and migration crises, reinforces counterterrorism and sanctions enforcement against hostile regimes, and enhances resilience against cyber and hybrid threats. The Dominican Republic strengthens border and national security, secures structured US support against spillovers from Haiti and regional shocks, institutionalizes anti-corruption and rule of law gains across political cycles, and bolsters international standing as a hemispheric security partner.
• Institutional alignment and bilateral mechanisms: The United States builds a resilient alliance with a regional partner, improves policy coordination, enhances diaspora engagement, and models whole-of-government cooperation. The Dominican Republic institutionalizes US–Dominican ties beyond political cycles, grows influence in Washington, engages diaspora capital and talent, and articulates long-term priorities with strategic continuity.

Marino Auffant is a nonresident senior fellow at the Atlantic Council’s Scowcroft Center for Strategy and Security.

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

This report would not have been possible without the invaluable input, support, and
feedback throughout the research and drafting process of the DR-US Economic Strategy Advisory Group.

This initiative was made possible with the support of ASIEX (Asociación de Empresas de Inversión Extranjera) through a grant from the Ministry of Industry and Trade of the Dominican Republic.

Issue Brief Sep 19, 2025

Secure supply chains for the US run through its closest neighbors

By Jose Manuel Restrepo and Martin Cassinelli

Central America and the Dominican Republic are emerging as key partners for US economic security. Strengthening rule of law, workforce skills, and trade frameworks can secure lasting, mutually beneficial economic integration.

Americas Caribbean

Report Sep 17, 2024

From rhetoric to reality: Nearshoring in the Americas

By the Adrienne Arsht Latin America Center’s Nearshoring Working Group

Over the past five years, global shifts have reshaped the world. China’s rise, US-China tensions, COVID-19, and Russia’s 2022 invasion of Ukraine exposed supply chain vulnerabilities, pushing resilience to the top of the agenda. Latin America and the Caribbean (LAC) can seize the opportunity to provide solutions for US companies through nearshoring.

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

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The road to Turnberry

Any assessment of the outcome of the Turnberry negotiations—and, therefore, any assessment of where to go from here—hinges not on the negotiations themselves but on the amount of leverage the two parties brought to Turnberry. The European Union (EU) had less of it. Europeans have a goods export dependency on the United States that the United States does not have with any country, let alone those in Europe. This asymmetry is long-standing, an outcome of the post-war trade system that emerged after Bretton Woods. That system was grounded in a model of export-led growth. As the richest market and with the lone currency pegged to gold, the United States was the target designation for others’ exports, not least so that European countries could earn dollars to rebuild.

US negotiators of that era were comfortable with asymmetrical concessions because they believed the global economy as a whole would grow, aggregate demand would rise, and all trading nations could benefit from increased production. The United States did not undertake these commitments with the expectation that increased imports would come at the expense of US workers or producers. At some point, however, that is just what happened, contributing to the Nixon Shock of 1971. Part of Richard Nixon’s goal in allowing the dollar to float was to correct for overvaluation that had depressed US export competitiveness. The accession of China’s non-market economy to the World Trade Organization (WTO) in 2001 accelerated US deindustrialization and, along with it, the loss of jobs that had provided many blue-collar Americans with lifelong economic security. Today, this is known as the China Shock.

As the last three years have exposed all too well, exports are not the only area of asymmetrical European dependency. The EU has also relied on the United States for its security—another outgrowth of the post-war environment. The United States was not only the market of first and last resort, but Europe’s security guarantor. To be sure, this was not an altruistic undertaking. The United States sought to keep Europe democratic and market oriented, part of an overall effort to fend off the threat of communist encroachment.

European prosperity flourished. Today, more than half the Group of Seven (G7)—the club of rich countries—comprises European democracies as well as all three former Axis powers. Nevertheless, these dependencies persisted.

The China Shock, the financial crisis, and popular backlash

As the China Shock began to unfold in US communities, the 2008 financial crisis and resulting recession severely widened inequality and aggravated precarity in many of those same communities. The one-two punch of deindustrialization and the Great Recession sparked popular backlash against a global governance regime seen as serving the interests of elites at the expense of the middle and working classes. In retrospect, this backlash can be understood as the beginning of the end of the United States’ willingness to serve as the market of first and last resort.

In 2013, academics began to document the China Shock, formally publishing the results of their work in 2016. These results showed that US imports from China had caused a significant loss of manufacturing jobs, concentrated in particular regions, with economic effects that lasted throughout workers’ lifetimes. The researchers also linked the China Shock to electoral outcomes. In 2015, the Chinese government adopted a Made in China 2025 industrial strategy that promised to transform China into a producer and innovator of cutting-edge goods. The combination of the China Shock and Made in China 2025 triggered a profound and rapid shift in US thinking. Policymakers who had supported the effort to create a global free market confronted the rise of a non-market economy that was dominating one critical industrial sector after another. Made in China 2025 sought to expand that dominance from steel, aluminum, and glass to advanced sectors such as electric vehicles, robotics, and aerospace. It was precisely to avoid that kind of dominance that the architects of Bretton Woods planned to embed antimonopoly rules in the global trading system in 1948.

The “free trade” paradigm breaks down

Made in China 2025 was inspired by Germany 4.0, Germany’s industrial strategy, and both were grounded in export-led growth. As early as the 1970s, the United States complained that Germany was promoting exports at the expense of domestic consumption.

In 1995, Europeans and Americans led the creation of an entirely new trade regime, yet this failed to address the long-standing transatlantic tension of Germany’s export orientation. Moreover, the tariff asymmetry dating back to the founding of the General Agreement on Tariffs and Trade (GATT) lingered; the US tariff cap was 3.4 percent, while Europe’s was 5 percent. While the United States sought to use the narrower tools of trade remedies (known as “trade defence” in Europe), the WTO Appellate Body over time eroded the strength of those tools, even creating commitments that the parties had expressly declined to make during negotiations. The EU has been well aware of this dynamic, having lost the first of several disputes involving one of the commitments in question.

The 2016 double shock of Brexit and the election of Donald Trump should have served notice that popular discontent was manifesting as an angry rejection of the system as a whole. Yet trading partners who had come to rely on export-led growth largely rejected calls for change, instead pressing for more of the same. Similarly, despite a clear message that NATO partners needed to bear more of the burden of collective security, now-wealthy allies neglected to step up.

The COVID-19 pandemic drove home the vulnerability that comes with that kind of domination. Not only did shortages of personal protective equipment prove lethal, but production around the world was hamstrung when Chinese lockdowns persisted.

The Biden reset and Trump 2.0

The Joe Biden administration came into office offering strong support for the transatlantic relationship, from declaring a truce on rancorous trade disputes like Boeing-Airbus in 2021 to providing military support to Ukraine in the wake of its invasion by Russia. Europeans consistently expressed fear of a second Trump administration but, in the end, seemed disinclined to do much to bolster the Biden administration’s efforts to address the core challenge of US deindustrialization. The European posture was infused with a conviction that the only proper course was restoration of the status quo ante. Early on, one European paper characterized Biden as “Trump with manners,” a line that administration officials would routinely hear in person. To meet climate commitments, as well as to begin to address deindustrialization, the United States enacted the Inflation Reduction Act (IRA). Europeans responded by complaining that the IRA represented a “continuation of President Trump’s hard-nosed America First policies.” A more pragmatic and less ideological analysis revealed that the IRA played to European manufacturing strengths and thus presented an opportunity, rather than a constraint, for European exporters.

Now we have the second Trump administration. It is indeed engaged in hard-nosed “America First” policy, deploying tariff authorities in unprecedented ways while criticizing trading partners for regulating their economies contrary to the preferences of some US multinational corporations—the very thing the Biden administration had declined to do. This policy led not only to Turnberry, as the Europeans felt a trade war would lead to an even worse outcome, but to an ongoing discussion about European regulatory sovereignty.

The EU position is more precarious still. Europe risks not only the loss of export opportunities to the United States, but the possibility that the European market will itself become the destination of choice for the next China Shock. All this is happening as the Trump administration expresses fatigue with guaranteeing Europe’s security.

The way out

Is there a way out of this downward spiral? Yes. But it requires policymakers around the world to spend less time pining for the past and more time focused on what to build next.

Fortunately, there are signs that a shift is taking place. Germany’s willingness to remove the debt brake for defense spending suggests that the long-standing goal of having Germans consume more and export less might indeed be coming to pass—all while addressing outsized dependence on the United States for security. It is a fraught debate. If Germany pairs military Keynesianism with austerity, the result could be an acceleration of authoritarian sentiment reminiscent of the policies that ushered in the end of the Weimar Republic. Still, the shift in approach is a positive step.

Germany’s efforts have been followed by a pledge for Franco-German cooperation, signaling a shared commitment to charting a new path for Europe to extricate itself from these challenges. On a still broader European scale, the recent report by Mario Draghi rightly argues that the EU must do more to integrate and unleash the power of the internal market.

Similarly, there are signs that China is wrestling with the harmful consequences of its economic model. Xi Jinping recognizes that fierce internal competition leads to excessive production (much of which is then exported). As finance professor Michael Pettis has argued for years, China must find a way to encourage greater domestic consumption, relieving the emphasis on exports that is problematic for advanced economies and has also contributed to premature deindustrialization in less advanced economies.

The United States must also adjust. If other governments succeed in reducing their dependencies, the United States will have less influence. Shifting overnight to a world of pure power politics, coupled with the erosion of US domestic rule of law, will have implications for the long-term viability of the dollar as the reserve currency. That, in turn, will have implications for the servicing of US debt, which is expected to grow as a result of the One Big Beautiful Bill.

The answers suggested here lie principally in the domestic policies of each relevant economy. Many trade experts reach for trade tools, such as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and other free trade agreements (FTAs), as the escape hatch. Yet too few understand what these agreements actually do: They lock in existing supply chains rather than diversify them. This is especially true for intermediate goods. If Europe is looking to further strategic autonomy by diversifying away from existing dependencies—one of the goals of the Franco-German alliance—then signing agreements that incentivize half the content of an FTA good to come from non-FTA partners will not do the trick.

None of these transitions is without cost or pain. Europe has struggled for decades to complete the internal market. Still, even the shock of the first Trump administration did not move Europeans to minimize their exposure in any significant way. Weighing existential threats to Europe, Draghi—who recognizes the shortcomings of the old system—pleaded before the European Parliament: “Do something!”

China’s reorientation of its economy toward consumption will not be easy either, which is why it has not yet happened. But the potential consumption power of its huge domestic market means that China is not fated to play the role of a predatory global monopolist, distorting markets and crushing the ability of market-oriented producers to compete.

The biggest obstacle to moving toward a global trading system more suited to contemporary circumstances might be intellectual: the lingering belief that there is, in essence, only one way to do globalization and it was done in 1995. History tells us otherwise. The previous great globalization boom was grounded in UK hegemony, colonialism, and the gold standard. This model also once seemed inexorable. Yet the onset of World War I proved the beginning of the end. Countries struggled for two decades thereafter to salvage the gold standard, but they were eventually forced to accept the demise of what John Maynard Keynes referred to as a “barbarous relic”—and to come up with something else.

The post-war regime, suited for its era, encouraged dependencies that shifted over time from beneficial to unhealthy. We are now living through a period in which the adverse consequences of those dependencies have become manifest. Just as the architects of the post-war vision summoned the courage and imagination to create a new system to foster peace and stability, so must we.

Beth Baltzan is a nonresident senior fellow with the Atlantic Council GeoEconomics Center. She previously served as a trade policy adviser in the Biden administration.

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Few national monies have what it takes to reach international reserve currency status. Markets are picky, only elevating currencies with stable values and issued by states with broad international transactional networks and large, open financial markets. The role of politics in shaping the global currency hierarchy is seen as secondary to these baseline economic fundamentals. That is changing as the second Donald Trump administration has thrust politics to the fore of a renewed discussion about the dollar’s reserve currency status. In the great global currency debate, market forces have never been more passé and political forces have never been so prominent. As the Trump administration’s foreign policy upends the liberal international order (LIO) upon which dollar dominance is built, questions are being raised about the future of the dollar and the potential for change in the international currency system—and rightly so. As realist scholar Robert Gilpin argued, “Every international monetary regime rests on a particular political order.” With the survival of the LIO now in question, Gilpin’s thesis is being tested in real time. Dollar dominance is as much a political phenomenon as a market-driven one. It reflects a set of ideas about what it means to be the reserve currency issuer, as well as a series of policy choices that enabled and fostered the dollar’s international use. If ideas and policy choices change, the status quo monetary equilibrium will destabilize. Today, the Trump White House appears to be breaking from the long-standing postwar view that the dollar’s reserve currency status is in the US interest. This position shift reflects a contrarian perspective that blames the dollar’s reserve role for large US trade deficits and industrial decline. Consequently, the administration is embracing an unorthodox economic policy path to undo these alleged harms. As uncertainty about the United States’ political commitment to the dollar’s reserve role grows under this administration, the currency’s appeal will diminish.

International security dynamics are also stoking change. US allies are incentivized to hold dollars due to security considerations. Moreover, so long as they depend on Washington for protection, their own currencies are less likely to emerge as rivals to the dollar. Trump views US allies as free riders who have taken advantage of the United States by enjoying military protection without paying for it, leading him to openly question the NATO Alliance. If the United States casts aside its security responsibilities in Europe and elsewhere, former military dependencies will pursue self-help security strategies. A more independent Europe that finances a large and fast-growing military budget through joint debt issuances could put the euro on a path toward being the dollar’s rival, which some predicted it could become a quarter century ago.

The dollar’s rise, enshrinement, and reign as the world’s indispensable currency coincided with an unprecedented era of global economic integration and international institution building. As US power has waned in the twenty-first century, its currency power has remained steady. Indeed, dollar dominance might be the most durable feature of the aging US-led postwar international order. Predicting its demise has been a foolhardy enterprise for more than half a century. This time could be no different, but there are reasons to think it might be. For all the economic tumult that the dollar has faced and endured over the last eighty years, its political foundations have remained steadfast—until now. As the political order on which the dollar system rests grows creaky, dollar preeminence is also looking wobbly.

The reserve currency role as policy choice

Political economist Jeffry A. Frieden’s opus Global Capitalism, a sweeping historical account of economic globalization in the twentieth century, presents us with a seven-word thesis: “Globalization is . . . a choice, not a fact.” Frieden’s pithy point is that global markets do not develop in a political vacuum; rather, they are the product of politics, of government policy choices that remove barriers to economic integration. The political base upon which markets are built is easy to ignore, especially during times of openness and cooperation. However, when things begin to fall apart, the weight of politics and policy becomes impossible to miss.

Extending Frieden’s thesis, it is also true that issuing the world’s reserve currency is a choice, not a fact. US economist Peter B. Kenen wrote more than fifty years ago that the United States“allowed other countries to attach [reserve currency] status to the dollar.” That is, US policy choices enabled market actors to elevate the dollar to its global currency status.

Decades of US political leadership supported the dollar’s reserve currency role largely for one reason—it was believed to be in the US national interest. Because the world’s investors want to hold dollars, the US government, as well as US businesses, can tap global capital markets for a seemingly limitless supply of low-cost financing. To overly simplify it, being the reserve currency issuer is akin to having a credit card with an unusually high borrowing limit and the lowest interest rates available. This gives the United States unparalleled macroeconomic flexibility, allowing Washington to keep taxes low while spending more freely on priorities like national defense than it could if its currency were not so special. This is why, in the late 1960s, France’s finance minister infamously labeled the dollar’s reserve status an “exorbitant privilege”; it uniquely allowed the United States to practice fiscal profligacy without being disciplined by markets.

Given the perceived benefits of issuing the world’s reserve currency, preserving dollar preeminence has been a mainstay of presidential administrations going back decades. The proof is in the policy. For example, successive administrations have espoused the United States’ commitment to a “strong dollar,” aimed at ensuring that dollar assets maintain their long-term appeal to foreign investors. Since fully deregulating its capital markets after the Bretton Woods system collapsed, the United States has maintained an open-door investment policy, making it an attractive destination for foreign capital. As a borrower, the US government has earned a sterling reputation by never defaulting on its bonds, which is a central reason why US Treasuries are viewed as safe assets. During the most extreme moments of global financial distress, the Federal Reserve has repeatedly acted as the lender of last resort to the global economy, making its currency available to jurisdictions where panic had made dollar funding scarce. The political independence of the Federal Reserve, while occasionally tested by presidents, has been respected and protected, signaling competent, technocratic management of the dollar.

None of this happened by accident. To return to Frieden’s thesis, the United States has chosen, time and again, to take on the role and responsibility of issuing the world’s reserve currency. Now, as the United States’ commitment to the LIO appears to be fading, its commitment to the dollar’s reserve role might also be slipping away.

From privilege to burden

What happens if US policymakers change their minds? How might US policy evolve if Washington no longer views issuing the reserve currency as a net positive for the United States and something worth preserving? We are beginning to get answers to these questions as the Trump administration breaks with decades of dollar policy orthodoxy.

At the heart of this apparent position shift is a contrarian view of the dollar, associated with the ideas of Michael Pettis, which portrays the reserve currency role as a burden rather than a privilege. As the primary provider of the global safe asset, the argument goes, the US financial system absorbs massive amounts of foreign capital each year. As foreign central banks and private investors buy dollars to scoop up safe, highly liquid US Treasury bonds, the dollar’s value increases while corresponding foreign currency values are depressed. As a result of the strong dollar, US-made goods are uncompetitive globally, depressing exports, while foreign goods are inexpensive in US markets, stimulating imports. The net effect is a large and persistent current account trade deficit that harms US producers and shrinks US industrial capacity.

This perspective has gained a foothold within the Trump White House. In a 2023 public hearing with Federal Reserve Chair Jerome Powell, then Senator JD Vance suggested that reserve currency status amounts to “a massive tax on American producers” and linked it to a “hollowed out industrial base.” Stephen Miran, who served as the president’s top economic advisor prior to joining the Federal Reserve Board of Governors earlier this month, published a paper last year detailing policy steps the Trump administration might take to offload some of the reserve currency burden onto other countries.

For Miran, the objective is clear: to rebalance US trade with the world through dollar devaluation and bring down long-term US debt service costs in the process. He meticulously outlines a range of policy paths the administration can take toward these ends, including: the imposition of tariffs to bring trading partners to the table where a coordinated, multilateral dollar devaluation could be negotiated; cutting off allies from US security commitments and from the Federal Reserve’s dollar swap lines unless they agree to exchange their ten-year US Treasury bills for hundred-year bonds; imposing a “user fee” or tax on foreign official holders of US Treasury securities to reduce the inflow of capital into US financial markets; and influencing Federal Reserve policy to assist in weakening the dollar.

Uncertainty and the dollar

Whether the White House chooses to pursue all, some, or none of Miran’s proposals, the discussion itself generates uncertainty about the global dollar’s future. Political scientists Helen Milner and Erik Voeten argue that, even in the absence of fundamental changes to the “building blocks” of the LIO, uncertainty about the stability of those building blocks—including uncertainty about future policy choices—can affect the global economy. If structural uncertainty increases to the point that the equilibrium to which most market actors previously expected to converge is no longer shared, behavior becomes unpredictable.

The Trump administration’s unorthodox position on the dollar is producing uncertainty on multiple fronts. First, there is the apparent end of a US commitment to a strong dollar. If dollar asset holders expect that the currency is in a sustained depreciation, the appeal of US assets will decline relative to alternatives. Second, there is the question of swapping short-term Treasury bills for much less attractive hundred-year bonds, a move that many would consider a technical default on US debt obligations. If the United States can force foreign governments to accept this deal today, it might do so again in the future. This undermines confidence in future bond issuances, making US Treasuries less attractive as a safe asset. Next is the proposal that the United States might deny its partners access to the Fed’s dollar swap lines. This suggestion has already raised anxiety in Europe and, if implemented, would be viewed as an abdication of US monetary leadership. Then there is the suggestion that the United States could impose capital controls to slow financial inflows into US Treasuries. This move would challenge the United States’ fifty-year reputation as the world’s most open financial system and raise questions about its future commitment to liberalism. Finally, the notion that the White House might somehow secure the Federal Reserve’s cooperation in an effort to depreciate the dollar raises questions about the independence of the US central bank, fanning fears about the soundness of US monetary policy and the dollar’s long-term appeal as a store of value. These measures, to say nothing of the use of coercive trade measures or the threat to withdraw US security protections to key allies, have the potential to reshape how the dollar is perceived around the world.

What happens if structural uncertainty about Washington’s global dollar policy increases? We might have witnessed a trial run of this in April amid the unveiling of Trump’s “Liberation Day” tariffs and his unprecedented threats to fire Powell (threats which continue today). Historically, the dollar strengthens and US bond yields fall in times of crisis and uncertainty, as investors rush for the safety of US Treasuries. This is precisely what happened during the initial weeks of the global financial crisis in 2008, as global investors clambered out of risk assets, such as equities and emerging market assets, and into the haven of US debt securities. In April 2025, however, investors sold their riskier US equities as well as their “safe” US government bonds. Rather than the dollar appreciating and government bond yields falling after Trump’s announcement, the dollar slumped and US borrowing costs jumped, shocking markets. Amid swelling uncertainty about the United States’ political commitment to the global dollar and to liberal economic principles, the old currency equilibrium might be approaching its critical point. Uncertainty about US security commitments is also contributing to this instability.

Security and securities

Collective security is a core component of the LIO, with NATO functioning as its cornerstone. The transatlantic Alliance rests on the bedrock principle that an attack on one member is an attack on all, yet Trump’s transactional approach to foreign policy is straining the credibility of Article 5. Today, US allies in Europe and beyond question whether they can count on Washington to guarantee their security in a future crisis.

While the connection might not appear obvious at first glance, a breakdown in trust within the US alliance network could further weaken the dollar’s reserve currency status. Foreign governments that rely on the United States for security tend to hold a higher share of their foreign exchange assets in US dollars. Investments in US government debt subsidize Washington’s ability to pursue an assertive military posture in the world, including providing defense guarantees for its allies. Thus, security dependencies are incentivized to buy Treasuries that finance the US defense capabilities on which they rely. Were Washington to pull back from its defense commitments abroad, the security-driven logic for holding dollars would fade, cutting into demand for dollar assets.

More importantly, as Trump has sown uncertainty about the United States’ commitment to NATO, Europe is now planning for a future in which its security will not depend on the United States. If Europe embraces a unified approach to security-driven fiscal expansion, the euro stands to expand its share of global reserves at the US dollar’s expense.

TINA meets the euro

Hyping the euro’s potential is as old as the euro itself. Upon its introduction at the turn of the century, some observers envisioned the new monetary unit emerging as the dollar’s equal, if not its rival. Jacques Delors, former European Commission president, proclaimed, “the little euro will become big” while former Federal Reserve Chair Alan Greenspan speculated that “it is absolutely conceivable that the euro will replace the dollar as [the] reserve currency.” Though the currency has ensconced itself as the clear number-two international currency, it is a distant second, accounting for 20 percent of global reserves to the dollar’s 57 percent.

The euro’s stunted rise has reinforced the popular view that dollar dominance is destined to endure indefinitely. Even as dissatisfaction with dollar dominance has climbed because of rising US debt levels and Washington’s reliance on financial sanctions, skeptical observers cry “TINA!” (there is no alternative). This argument accepts that the dollar system is flawed but asserts that it remains the cleanest dirty shirt in the laundry bin. The euro cannot supplant the dollar’s reserve role because the sovereign bond market in Europe is too small and too fragmented. Also, China’s authoritarian political system, closed capital account, and non-convertible currency disqualify the renminbi as an option.

These are not unfair characterizations. On size alone, Europe’s $10-trillion government bond market cannot absorb as much of the world’s savings as the $25-trillion US Treasury market. Furthermore, because the currency union lacks an attendant fiscal union, European governments issue debt separately. With the European debt crisis of fifteen years ago still fresh in market memory, investors rightly view German debt differently than debt issued by other Eurozone nations. In short, European sovereign bonds are of varying quality and are available in too limited a quantity to be a viable alternative to their dollar-denominated counterpart.  

Despite these legitimate constraints, the Trump administration’s upending of the United States’ traditional security role in Europe is giving the euro renewed potential as a reserve currency. The European Commission is now calling for the continent to have a self-sufficient defense posture by the beginning of the next decade. To achieve this, the commission acknowledges, “a massive increase in European defence spending is needed,” targeting €800 billion ($930 billion) in newly mobilized financial resources. While not all of this will necessarily be financed through new debt issuances, much of it will. Germany’s surprising elimination of its debt brake—a self-imposed rule that previously limited Berlin’s capacity to deficit spend—is indicative of the change that is already happening.  

The issuance of many new sovereign bonds in Europe over the rest of this decade will prove attractive to central banks looking to diversify away from their US Treasury holdings. Importantly, Europe has space for significant and sustained fiscal expansion; in 2024, the European Union’s collective debt-to-GDP (gross domestic product) ratio was 81 percent compared to 120 percent in the United States. European government bond markets have the capacity to grow more than the US Treasury market over the next ten years, increasing the supply of highly rated euro-denominated bonds in primary and secondary markets. There is also reason for optimism on European progress toward unified Eurobond capital markets: the 2025 commission report proposes that €150 billion of the €800 billion total be raised via a newly created financial instrument that would issue single-branded European Union (EU) bonds and EU bills.

Whether these proposals become reality is a political question more than an economic one. The euro’s stunted rise over the last quarter century is attributable primarily to the lack of political will on the continent to implement the policies necessary for the common currency to reach its full international potential. With an aggressive Russia waging a hot war on its eastern flank and a US president aiming to end what he sees as European free riding on US defense, there has never been a moment riper for the Eurozone to take the steps needed to unleash the euro and take down TINA.

What the future holds

We are less than a year into the second Trump administration. Much is yet to be written, and much can still change. In time, the White House might drop its contrarian view of the reserve currency role as a burden and embrace policies that reinforce dollar centrality. Europe might fail to achieve fiscal unity and expansion, leaving its borders less secure from invasion and its currency’s potential arrested once again. However, if we continue along the current path, the erosion of dollar dominance will pick up speed. Change will come in increments, not overnight, but one day—perhaps within the next decade—the dollar’s share of worldwide reserves will fall below 50 percent. This share will continue to slide, not undoing the dollar’s international role but ending its unquestioned unipolar moment. US global financial power and influence will fall in kind.

History is littered with failed predictions of the international dollar’s imminent demise. The are many reasons why the dollar has endured despite its critics. It has unique infrastructural advantages including its dense, efficient, low-cost, cross-border payment network and the world’s deepest, most liquid, and most open financial markets. It also has incumbency advantage. International currency markets are prone to inertia because of network effects. The benefits any actor derives from using any given currency are directly related to whether others are also using that currency. Once the market settles on a choice (in this case, the dollar) actors have little incentive to change. The dollar has also lacked a true peer competitor in the marketplace. While TINA might not be a strong positive argument for dollar dominance, it remains a powerful, constraining, and stabilizing force. These are all good reasons to bet on the status quo continuing.

Yet it is also true that dollar dominance will not last forever. Eventually, the doomsayers will get it right. As Charles Kindleberger once quipped, “the dollar will end up on history’s ash heap.” Kindleberger was an economist, but one with a keen eye for the fundamental role that politics plays in the world economy. He would have been sympathetic to Gilpin’s observation that monetary regimes and political orders are co-constituted. Dollar dominance and the US-led LIO were constructed alongside one another by a series of mutually reinforcing policy choices. Whether the former can long endure without the latter is the monetary question of our age.

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

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With respect to China, the administration is taking steps to preserve and exploit US technological advantages, while trying to close the gap in other areas in which China has strategic advantages. The first category includes advanced chip design and artificial intelligence (AI), in which the United States continues to enjoy a slim advantage over China; the second category includes restoration of US manufacturing with the help of tariffs. Closing the manufacturing gap with China serves both domestic and international ends, of course, with the goal of boosting US employment while building the capacity to sustain a potential military conflict that would otherwise quickly exhaust the United States’ advanced weapons arsenal.

The administration aims to leverage new financial technologies as a source of growth and to keep the dollar at the apex of the world’s exchange rate system. Faced with the development of an internationally tradable Chinese digital currency that would operate outside US law, the administration aggressively pushed for Congress to pass the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act to set up a regulatory environment for US dollar-backed stablecoins. From its point of view, staking out a crypto universe that consists largely of dollar-denominated assets could stifle Chinese plans and further underpin the United States’ economic leverage. Another advantage is that coin issuers would help finance the growing US deficit burden, as crypto firms have already become major buyers and holders of short-term Treasury securities.

At the same time, the administration has discarded important economic principles that, in medical terms, are equivalent to basic advice for a healthy lifestyle. For example, it has emphasized short-term growth by continuing with loose fiscal policies that add to already high debt, hollowed out government functions via across-the-board staff cuts, compromised market integrity by reducing regulatory oversight, appeared to interfere with statistical data collection, and sought to undermine the independence of the Federal Reserve. Formerly close allies and major trading partners are rethinking economic relations with the United States, given a climate of uncertainty in which disagreements in any policy area could trigger new tariff threats as a means of extracting further concessions.

Can the administration defy economic gravity?

These policies have been met with pessimistic—if not downright fatalistic—assessments of the future of the global economy and the international financial system, including in a recent Foreign Affairs edition and a Centre for Economic Policy Research e-book. The gist of these reactions has been that, by discouraging foreign trade and removing the cornerstones of the post-WWII economic order, the administration is: undermining the stability and productivity of the United States and other economies; and creating the risk of global instability, given economic interlinkages and the tight integration of financial markets. The biggest casualty of these developments might be the United States itself, given the inherent contradictions in a policy that aims to close the current deficit without improving public saving, raise productivity while sheltering firms from foreign competition, and cancel energy projects while electricity is urgently needed to feed a sprouting network of data centers—not to mention giving China the opportunity to boost its geopolitical standing as a trading partner and source of economic support for third-party countries.

And yet, the reaction of markets to this generational change in US policies has been remarkably muted. Stock markets have rebounded strongly after the April 2 tariff announcements and, even in the aftermath of the attempted dismissal of Federal Reserve Governor Lisa Cook, capital inflows into the United States have remained strong. The dollar and long-term Treasury markets have weakened in recent months, but these movements have been minor compared to the momentous policy reversals in recent months.

The momentum in technology stocks could well overshadow the consequences of recent policy changes, which will take some time to show their full effect. The picture would be much worse, however, had the United States and China not agreed to a truce in their trade dispute, with the United States refraining from further tariff measures in exchange for China’s continuing exports of rare earth minerals. Indeed, the dependence on China as a provider of these minerals presents a major constraint on the Trump administration’s latitude for further action.

It remains to be seen how markets will react to the possible release of pent-up inflation in the coming months, including from rising energy prices, the exhaustion of stockpiles of goods imported at lower tariff rates, and sectoral labor market shortages due to ramped-up immigration enforcement. A slowing economy might mitigate price pressures for some time, especially if there is a rise in unemployment among younger labor market cohorts, but it would be difficult to imagine these factors not reasserting themselves as long as the fiscal position is extremely loose.

If the administration were to respond by suppressing inconvenient data or shaping the Federal Reserve’s interest decisions, volatility could increase sharply. This risk still seems remote, but there is a real possibility of a fiscal doom loop due to a blowout of long-term interest rates caused by investors moving out of Treasuries, risking financial distress in case of unexpected market movements.

Currency dominance by default?

With these prospects, the debate about the future of dollar dominance is back in full swing. The risks of using the dollar would certainly increase if the Trump administration were able to directly influence monetary policy in the face of rising inflation (as happened, for example, under Turkish President Recep Tayyip Erdoğan in recent years, leading to overall negative outcomes).

It is important to keep in mind, however, that changes in global currency arrangements are not bound to happen overnight. Even in the case of large policy mistakes, the global role of the dollar might only weaken gradually, as it still seems unlikely that another dominant currency contender could replace it within a short time period.

A recent Atlantic Council strategy paper emphasized the link between global hegemony and reserve currency status, suggesting that only China, with its economic reach and geopolitical expansion, could possibly become a successor to the United States. Europe, meanwhile, is buffeted by powerful forces from the outside and within, ruling out a major geopolitical role for the euro in the foreseeable future.

However, China’s economic model is showing severe strains from adverse demographics, stagnant growth, and a large domestic debt overhang. Moreover, as China is a continental (rather than maritime) power, Chinese leaders have consistently stated that their strategic aims revolve around regional order and expanding trade and economic relations, rather than gaining global dominance. Another reason to be skeptical about the renminbi’s international use is that China’s capital account and financial markets are still tightly controlled and fairly closed to the outside. Moreover, the renminbi plays only a limited role as a store of value, given China’s lack of a stable and transparent regulatory regime and an independent judiciary.

Chinese authorities have refrained from liberalizing the capital account because of the risk that residents would invest substantial parts of their savings abroad for more attractive returns, leading to sharp capital outflows. This risk would, of course, diminish if the United States (along with other Western countries) were to end up in a debt spiral, but it still seems unlikely that the Chinese Communist Party would give up control over its citizens’ external transactions.

While this is obviously speculative, perhaps it will one day become possible for China to fully trace the participants and purposes of transactions in renminbi-based stablecoins, using its extensive surveillance capabilities in combination with sophisticated AI tools. This could allow further liberalization for foreign investors while keeping domestic capital controls in place. If China were also able to reassure foreign investors about their property rights and the rule of law, the renminbi could become more attractive as an investment vehicle, boosting its international use.

This thought experiment is just to show that we are entering uncharted territory. Eighty years after Bretton Woods, a new chapter of international finance is being written, in terms of both technology and the shared commitment to financial stability. The Trump administration supports this transition because it believes that earlier administrations did not respond forcefully enough to China’s misuse of global rules, to which it credits the country’s rise as a manufacturing power. The administration seems to hope that a tariff- and technology-driven boost will restore the US economy to the dominant position it once held.

With policies in flux, it is hard to predict how this paradigm change will play out. The United Kingdom at the end of the nineteenth century certainly did not expect the pound to be displaced by the dollar within a generation. Neither is it clear that there will be a dominant currency in the years to come. The alternative could be a multipolar, or even fragmented, global financial system with all the costs, uncertainties, and volatility that this could bring.

Stablecoins are no panacea

What seems certain, however, is that further cooperation between the large economies will be needed even if the administration succeeds in leveraging crypto technology to support the dollar’s global status.

The reason is that stablecoins will operate freely across borders, with different issuers competing for customers through a variety of incentives, which could include interest payments or the ability to obtain loans against their holdings. This is not allowed under the GENIUS Act, but other countries might be more lenient, or industry pressure might prompt changes to relevant legislation. However, the diversion of reserves by stablecoin issuers would increase the already nontrivial risk of a run by coin holders, which exists even under stricter regulatory standards.

The potential erosion of stablecoin discipline, as well as the consequences of stablecoins’ illegitimate use and susceptibility to cyberattacks, will require collaboration between regulators and monetary authorities of different jurisdictions. Unlike banks, stablecoins have no access to central bank balance sheets in case of distress, making it more difficult to inject emergency liquidity into the system. This further increases the risk of fire sales of the underlying assets—with potentially cataclysmic spillovers into the real economy.

For the same reason, it is clear that the United States must adopt responsible fiscal policies to support the primacy of global dollar-based stablecoins. Doubts about the value of the underlying asset would be a prime reason for investors to sell off their coin holdings. This is yet another reality that the administration will not escape. Crypto holdings can certainly help finance the deficit, but investors will take things into their own hands if the United States is unable to keep its public debt at reasonable levels.

To conclude, we could be at the cusp of an unprecedented change in the global financial landscape. The Trump administration looks to unshackle itself from what it sees as the constraints imposed on the United States by the previous global architecture. It seeks to preserve the dominance of the US dollar by means of stablecoins as one major advantage in its competition with China. Despite its unorthodox and controversial economic policies, it will need to realize that stablecoins offer no free lunch in the battle for geopolitical influence. Economic discipline and international cooperation must continue even under the envisaged paradigm change—a lesson that should be heeded before a crisis reminds us of it.

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

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But focusing only on the political aspects of these crises misses the bigger picture: economic despair fueled this uprising, just as it did in Bangladesh in 2024 and Sri Lanka in 2022. Across these three South Asian countries, shaky economies, undermined by corruption, unemployment, remittance dependence, and policy missteps, have become the true fault lines of political instability.

This pattern suggests a region-wide crisis of governance linked to economic precarity. In Nepal, over 60 percent of the population is under thirty, and youth unemployment exceeds 20 percent. In Bangladesh, inflation surged to double digits while billions of dollars were allegedly siphoned abroad. In Sri Lanka, foreign reserves dropped to near zero, leaving the state unable to pay for basic imports. These are not just abstract statistics but economic realities that cut into the daily survival of ordinary people—rising food prices, queues for fuel, stagnant wages, and lost jobs. No political settlement, however carefully negotiated, can hold for long without addressing these economic grievances.

From macro crises to daily struggles

In all three countries, citizens reached a breaking point because economic conditions collapsed, both at the national and household levels. Sri Lanka provides the most dramatic example. Years of reliance on foreign borrowing and “white elephant” infrastructure projects—ports, airports, and highways that generated little revenue—left the country deeply indebted. In 2019, newly elected President Gotabaya Rajapaksa slashed taxes, costing the state $1.4 billion annually in lost revenue. When the COVID-19 pandemic hit, the tourism sector, which had contributed nearly 12 percent of gross domestic product (GDP), collapsed. Foreign exchange reserves dwindled, fuel and medicine imports stalled, and inflation spiked above 69 percent in 2022. An abrupt ban on chemical fertilizers shrank harvests by up to 40 percent, leaving farmers destitute. For ordinary Sri Lankans, this meant days without power, hours-long queues for petrol, and an inability to afford staple foods. Their frustration crystallized in the Aragalaya (Sinhala for “the struggle”) protests, which ultimately chased the Rajapaksas from power.

Bangladesh’s crisis unfolded differently but had similar roots. For years, the country celebrated its status as one of the world’s fastest-growing economies, powered by the ready-made garment sector (more than 80 percent of its exports) and remittances from overseas workers (around 7 percent of GDP). Yet by 2023–24, the sheen of growth had faded. Inflation reached 9 percent, unemployment persisted, and allegations of corruption exploded. Reports accused elites of laundering billions of dollars out of the country, even as millions struggled with the soaring cost of rice, onions, and cooking oil. Public discontent mounted as the government cracked down on dissent under draconian digital security laws. Student activists, long a significant part of Bangladesh’s political history, mobilized mass demonstrations. The military’s withdrawal of support from Prime Minister Sheikh Hasina’s government in August 2024 sealed her fate, pushing her into exile.

Nepal’s uprising this month revealed a different kind of vulnerability: the fragility of a remittance-driven economy. Remittances contribute more than a quarter of Nepal’s GDP, masking the weakness of domestic job creation. Remittance dependence leaves Nepal and other South Asian countries uniquely vulnerable to external shocks; any downturn in Gulf economies or tightening of labor migration policies directly translates into lost income for many households. High youth unemployment and underemployment in the informal sector have left recent graduates disillusioned, as a weak education system, poor vocational training, and ineffective public employment services have left them mismatched to labor market needs. The government’s inability to diversify beyond remittances and tourism meant that when political instability hit, the economic fallout was catastrophic. Protests and riots have inflicted unprecedented economic damage, with losses worth an estimated at $22.5 billion—nearly half of Nepal’s GDP. The tourism sector, which should have been thriving during the festive season, was devastated as cancellations poured in. Investor confidence evaporated, and national growth projections are expected to fall below 1 percent. For Nepalis, this meant not just fewer jobs but also a sense that their future had been stolen.

From economic grievances to political collapse

What began as anger over inflation, joblessness, and shortages of food and goods became full-blown political crises because entrenched elites proved unable—or unwilling—to respond. In Sri Lanka, the Rajapaksa family had dominated politics since 2005, enriching themselves and their allies while hollowing out state institutions. Their failure to manage the crisis forced citizens from all walks of life into the streets—farmers, students, professionals, and trade unionists. In Bangladesh, Hasina had been in power since 2009, centralizing authority and silencing opposition. But once the economic base of her legitimacy cracked, protests led by Gen Zs spiraled into a nationwide revolt. Three parties rotated in and out of power in Nepal for over a decade without delivering jobs or stability. When Oli attempted to muzzle criticism by banning social media, he miscalculated: instead of silencing dissent, the ban fueled it. Like in Bangladesh, Gen Zs hit the streets of Kathmandu and other major cities in Nepal.

Gen Z and social media were crucial catalysts for mass protests in all three cases. In Sri Lanka, young activists transformed Colombo’s Galle Face Green into GotaGoGama, a protest commune complete with libraries, art exhibitions, and community kitchens. In Bangladesh, student groups organized nationwide strikes, using social media to document repression and rally support. In Nepal, social media accounts for 80 percent of internet usage, with Instagram videos and hashtags bypassing government censorship, turning online outrage into street-level mobilization. These movements were not exclusively youth-driven—farmers, trade unions, and retirees also joined—but younger generations’ energy, creativity, and digital savvy turned them into unstoppable forces. Their tactics—flash mobs, viral hashtags, and decentralized organization—made it harder for regimes to repress them.

The economics of instability

The fall of regimes in Sri Lanka, Bangladesh, and Nepal has underscored a fundamental truth: political stability cannot be separated from economic security. Sri Lanka’s foreign reserves and debt repayment crisis, Bangladesh’s corruption and inflation, and Nepal’s remittance trap all led to the same result: young people forcing entrenched elites from power. Leaders who ignore inflation, unemployment, and the everyday struggles of their citizens do so at their peril. The primary sufferers of the economic downturns are South Asia’s youth population, who are no longer willing to accept corruption as the cost of politics. Once dubbed a “demographic dividend,” this generation is increasingly a double-edged sword, demanding accountability and reform.

The international implications are profound. These countries sit at the heart of the Indo-Pacific, where India and China compete for influence. Instability in Dhaka, Colombo, or Kathmandu reverberates beyond borders, shaping regional geopolitics and economic flows. For example, there were similar youth protests last month in Indonesia. For policymakers in the United States, the lesson is clear: Supporting South Asia’s stability means going beyond election monitoring and diplomatic engagement. It requires confronting the economic roots of instability—unemployment, corruption, debt dependency, and overreliance on single sectors such as remittances, garments, or tourism. The region’s political crises won’t be settled with debates in parliamentary halls; they can only be resolved by lowering the price of food, creating jobs, and ensuring the daily survival of ordinary people.

Rudabeh Shahid is a nonresident senior fellow at the Atlantic Council’s South Asia Center and a visiting assistant professor of government at Wesleyan University.

Nischal Dhungel is a PhD candidate in economics at the University of Utah and a nonresident fellow at the Nepal Institute for Policy Research.

Shakthi De Silva is a visiting lecturer in international relations at several universities and institutes in Sri Lanka and a policy fellow at the Centre for Law and Security Studies (CLASS).

The post The economic roots of Nepal’s uprising—and what it means for the region appeared first on Atlantic Council.

But the economic reality is very different than the face China presents to the world, and the latest statistics describe a country mired in a slowdown. The numbers show that efforts to juice the economy late last year have failed to stimulate sustained recovery.

Consumption growth as measured by retail sales fell last month to the slowest pace this year, up only 3.4 percent from August 2024, and compared with a 6.8 percent increase in June of this year. This is despite efforts the government has made to boost consumer spending, including by providing subsidies for trade-in purchases of cars and appliances. As funding to the provinces for the subsidies has been exhausted, retail sales have lost momentum.

Factory and mining output also decelerated last month, posting the smallest gain since August 2024. Fixed-asset investment in the first eight months of the year dropped steeply to a gain of less than 1 percent. Some of the slowdown in production and investment may reflect Beijing’s efforts to strong-arm companies into reducing the price cuts and overproduction that are exacerbating the economy’s problems. Either way, Chinese demand is nowhere near enough in the best of times to meet the country’s high levels of factory production, and these goods are being exported.

There is no escaping the fact that China is struggling to address structural weaknesses that defy simple solutions. For example, in the real estate market, the decline of new home sales and prices for new and preexisting homes accelerated in August. With the real estate sector trapped in a four-year crisis of oversupply and developer bankruptcies, local governments facing a mountain of debt, and consumers tightening their belts as unemployment rises, the government’s reliance on industrial investment amid the downturn is coming home to roost. Beyond oversupply and price cutting, trade tensions with Washington, which have seen China’s exports to the United States fall at double-digit rates for the past five months, exacerbate the problems underlined by the most recent economic indicators.

While China claims “strong resilience” as growth supposedly hits this year’s target of about five percent, the headline numbers—whether accurate or not—don’t capture the state of the economy. Youth unemployment is high and job opportunities are disappearing, with over 80 million people trapped in the gig economy. Many Chinese are losing hope of a better life, especially for their children. The latest economic indicators will inevitably produce another round of speculation about new stimulus measures. But Beijing’s recipe of small interest rate cuts, targeted consumer subsidies, and regulatory changes to boost housing haven’t addressed the underlying problems so far. For the moment, its immediate spending priority appears to be to devote billions of dollars to reducing local government debts. In the meantime, when Xi gets on the phone with Trump, he no doubt will continue to claim that everything is hunky dory.

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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There are compelling reasons to believe the euro could play a larger international role. It currently accounts for 20 percent of global foreign exchange reserves—a share it has maintained steadily, even as the dollar’s share has declined. The euro is also used to invoice 40 percent of global trade. 

The current global climate plays to the euro’s advantage, as countries facing high tariff rates seek to diversify away from the dollar. A new wave of free trade agreements by the European Union (EU) could boost euro-denominated trade and gradually shift investor preferences toward euro assets. Additionally, with concerns around the politicization of the US Federal Reserve, the European Central Bank’s high degree of independence and institutional credibility may attract investors seeking stability. 

So far, however, there has not been a global rush to the euro. This serves as a good reminder that a weak dollar does not immediately equate to a decline of dollar dominance. But it also raises a critical question for the euro’s international ambitions: If not now, then when, and under what conditions? Many factors underpin currency dominance, and not all are in immediate reach for the euro. However, it is worth exploring what is realistically achievable for the euro. 

Limited supply of safe euro assets

Lagarde has emphasized that the euro remains “underdeveloped” as a reserve currency. One major reason is the lack of scalable, safe euro-denominated assets—a role that the US Treasury market has long played for the dollar. 

When combined, the eurozone government bond market stands at around eleven trillion euros, which is roughly half the size of the US Treasury market, but it is fragmented across member states with different credit ratings, political dynamics, and liquidity profiles. While Germany’s Bunds dominate the AAA-rated space (€2.25 trillion), they are not issued in volumes comparable to US Treasuries. Supranational bonds remain limited in size and are often tied to specific projects or crises, such as the NextGenerationEU program, or potentially Europe’s defense spending, which Lagarde has suggested could be a joint safe asset.

The EU structurally incorporating joint debt could improve this. It would create a safe euro-area asset, lower borrowing costs for weaker EU economies, and strengthen the bloc’s crisis response capacity. But so far this has faced political resistance, with some member states wary of debt mutualization, moral hazard, and erosion of national fiscal sovereignty. 

But the question is not only whether the EU can issue more debt. It is also whether it should. While the global role of US Treasuries has contributed to the dollar’s dominance, it has also encouraged the United States to rely heavily on debt issuance. This has led to chronic fiscal deficits and a high and rising debt-to-gross domestic product (GDP) ratio. 

The “exorbitant privilege” of issuing the world’s reserve currency can cause structural imbalances and debt problems, and the EU already has enough of both. Under the current fiscal governance framework, the Stability and Growth Pact stipulates that EU countries should not accumulate public debt above 60 percent of GDP. In practice, however, many member states have breached this ceiling, with the average debt-to-GDP ratio standing at 81 percent in 2025. While this remains below the US public debt amount of 124 percent of GDP, the Economic and Monetary Union depends on member states pursuing sound fiscal policy for the effective transmission of monetary policy, as the ECB has repeatedly emphasized. 

If policymakers in the eurozone want the euro to play a greater global role, they must do so on more sustainable terms. This means building scalable and trusted financial instruments, yes, but without falling into the trap of excessive debt-fueled growth. 

Fragmented capital markets

Another major obstacle to a global euro is the lack of a unified capital market. Despite launching the Capital Markets Union initiative in 2014, progress has been slow. European financial markets remain fragmented along national lines, with different legal systems, tax codes, insolvency regimes, and regulatory standards.

This fragmentation discourages cross-border investment and hampers the EU’s ability to mobilize domestic savings for productive investment. In 2023, €11.6 trillion of private wealth—about a third of total EU household wealth—sat idle in bank accounts and cash, while roughly €250 billion flowed to deeper markets such as the United States. 

Following the September 2024 competitiveness report by former European Central Bank President Mario Draghi, which warned that the EU would fall behind the United States and China without increased investment, there has been a renewed push to complete capital markets integration. The European Commission has proposed a savings and investments union aimed at channeling more domestic capital into strategic investments. Central to this effort is the push to strengthen EU-level financial supervision, giving the European Securities and Markets Authority powers similar to those of the US Securities and Exchange Commission. 

Despite political opposition to this by smaller states such as Luxembourg and Ireland, who see risks in outsourcing the supervision of their highly developed financial sectors, this remains one of the most promising strategies for strengthening the euro’s global role. Integrated capital markets would allow capital to flow to where it is most productive, mobilizing European savings and attracting foreign investment. This would bolster economic growth and deepen global holdings of euro assets, boosting its use in reserves, trade, and finance. Additionally, stronger capital markets would mean more international companies could issue debt in euros, use euro-backed derivatives, and denominate contracts in euros.

Don’t bet the house on the digital euro

The digital euro has been touted as a way for the euro to gain ground internationally. European policymakers view it as a tool to reduce dependence on dollar-denominated payment systems and strengthen the euro’s international role. But the digital euro is not a silver bullet, and its proposal still lacks political momentum, having been stalled in the European Parliament for more than two years.

At the retail level, the EU faces stiff competition from payment networks dominated by US credit card companies. A digital euro could diversify the system, but only if widely adopted—something that hinges on incentives and user experience. Wholesale applications hold more potential, particularly as financial markets move toward tokenization, or the digital representation of assets. But this will take time and depends heavily on cross-border coordination. 

While the digital euro may improve payment efficiency and enhance monetary sovereignty, it will not resolve the structural constraints holding back the euro’s global ascent. Deep and liquid capital markets, large-scale safe assets, and a unified political strategy still matter far more. 

External pressures on euro growth

In addition to internal constraints, the euro also faces external challenges—most notably from China. Chinese firms have expanded into strategic sectors, such as electric vehicles (EVs), renewable energy technologies, and specialized machinery—areas where European companies, particularly German ones, have traditionally led. Facing overcapacity, a slowing domestic economy, and escalating trade tensions with Washington, Beijing is increasingly redirecting its industrial surplus toward Europe. At the same time, Chinese firms are outcompeting European manufacturers in global markets, and China is buying fewer high-value European exports as it develops its own capabilities. This poses a direct challenge to Europe’s export-led growth model, particularly for economies such as Germany’s, where manufacturing and trade surpluses are foundational. The resulting pressure on Europe’s industrial base threatens to erode the real economic strength that underpins the euro’s credibility as a global currency.

The EU has recognized the need to “de-risk” from China, and it has taken important steps to do so, including the Critical Raw Materials Act, the Foreign Subsidies Regulation, and anti-subsidy probes into sectors such as EVs and solar panels. However, many of these efforts remain underfunded, reactive, or politically fragmented. Meanwhile, the EU’s trade defense and investment screening instruments are constrained by limited enforcement capacity and a narrow focus on specific companies rather than systemic risks. This has allowed China to continue to find workarounds. 

To safeguard the euro’s international position, EU member states need to align on a coherent de-risking strategy and commit to an EU-wide industrial policy including bold investments in European green and digital technologies. Divergent national interests—Germany’s dependence on China, France’s reluctance to antagonize China, and southern and eastern Europe’s preference for engagement—have thus far weakened Europe’s collective leverage and have blunted its policy response. If the EU fails to act cohesively, then it will not only lose ground in strategic sectors but risk diminishing the euro’s credibility as a stable, globally relevant currency anchored in real economic strength.

A political union without political unity

While each of these issues has technical dimensions, they are all ultimately political. Fundamentally, the euro’s global ambitions are constrained by the EU’s institutional design: a monetary union without a true fiscal or political union. Each member state has its own priorities, domestic constituencies, and red lines—making consensus slow and hard-won.

The EU has shown it can act boldly in times of crisis, overcoming these divisions. But once the immediate danger passes, momentum stalls. Even now, with rising national security threats and trade tensions pushing EU member states closer together, the prospects of a stronger euro and deeper integration are falling victim to the familiar pattern of national vetoes, legal ambiguities, and competing visions for the EU’s future.

The European Central Bank and the European Commission can promote initiatives, but without member-state alignment, implementation will be piecemeal. The EU has many of the ingredients for a globally dominant currency, but it cannot rely on crises alone to drive change. To make the euro truly global, EU members would need to align political priorities around a shared strategic vision.

Lize de Kruijf is a program assistant within the GeoEconomics Center’s Economic Statecraft Initiative and she previously worked for the Dutch Ministry of Foreign Affairs in the International Trade and Enterprise department.

Dollar Dominance Monitor

This monitor analyzes the strength of the dollar relative to other major currencies. The project presents interactive indicators to track BRICS and China’s progress in developing an alternative financial infrastructure.

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Still, the Fed faces significant political pressure from the White House, in part reflecting the president’s frustration with an economy that’s weaker than the one he inherited in his first term. In 2017, inflation, unemployment, and interest rates were all lower than today’s projections for 2025. In fact, Trump’s first year in office brought lower inflation and unemployment than the first year of any US president since 1977.

Balancing “maximum employment” and price stability

For the Fed, Trump’s push for lower rates is particularly challenging, because—unlike most other central banks—it operates under a dual mandate. It has a legally binding obligation to achieve both price stability and maximum employment, understood as the highest level of employment the economy can sustain without incurring unwanted inflation. For the United States, that generally means 4 to 5 percent unemployment, with a target of 2 percent inflation.

This unique mandate could put the Fed in an even tougher spot in the coming months. Currently, the employment component of the mandate is allowing it to lower rates sooner than previously expected. At Jackson Hole last month, Federal Reserve Chair Jerome Powell hinted at a September rate cut, citing a “slowing in both the supply and demand for workers.” However, if unemployment and inflation continue to rise—which some economists warn may happen due to trade wars—the Fed will have to balance the job market, price stability, and mounting political pressure.

Labor market signals complicate the Fed’s decisions

Congress added the maximum-employment mandate to the Federal Reserve Act in 1977—a move prompted by the painful economic lessons of stagflation. A year later, President Jimmy Carter signed the Humphrey-Hawkins Act, which reinforced the goal of full employment.

At the beginning of September, the Bureau of Labor Statistics (BLS) released its first jobs report since the firing of its former commissioner, Erika McEntarfer. The White House had dismissed her over what it called unfavorable numbers, with Trump openly questioning the reliability of BLS data. The report showed that in August, nonfarm payrolls grew by only 22,000 jobs, far short of the 75,000 projected, underscoring the fragility of the job market. This shortfall has fueled expectations of a rate cut of at least 25 basis points at the Fed’s September 17 meeting. Meanwhile, Trump has kept the pressure on, calling for Powell to make a bigger cut—even though inflation rose to 2.9 percent in August.

While inflation and job loss loom, Trump wants it all

The US economy now faces the risk of both rising unemployment and higher inflation—precisely when the Fed must make some of its toughest monetary-policy calls.

Meanwhile, Trump wants it all. Frustrated by the latest inflation and employment data, he wants low inflation, low interest rates, and a booming job market. These conditions were briefly present during his first term, but most presidents have faced a Fed forced to make trade-offs. The slowing job market is going to prompt a rate cut this week, giving Trump his desired interest-rate outcome, but that will not change the underlying data. Bloomberg’s consensus projection sees US inflation remaining well above the 2 percent target until 2027, partly because of how tariffs will be passed through to consumer prices. If that trend continues, the Fed could raise rates again to keep inflation in check.

Navigating between political pressure and economic realities, the Fed faces a delicate balancing act. Despite the Trump administration’s attempts to oust Fed governors, the central bank’s dual mandate comes from Congress. In setting its policy, it must carefully weigh employment indicators and inflation expectations against broader macroeconomic conditions to safeguard economic stability. Politicizing economic data has the opposite effect: It undermines both the Fed’s ability to make sound decisions and the market’s trust in economic forecasts, and any erosion of central bank independence only exacerbates these challenges.

Jessie Yin 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.

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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Of course, there are still downsides for the EU. With the 15 percent tariff rate, the EU’s pharmaceutical industry faces an estimated additional cost of up to $19 billion per year. In 2024, the EU exported nearly €120 billion in pharmaceuticals to the United States, representing 38.2 percent of all pharma exports outside of the bloc. It was the largest category of products by value exported to the United States by a significant margin. To say that a tariff rate soaring to 250 percent would have been devastating to the European pharmaceutical industry, and economy more broadly, is an understatement.

Regardless, the tariffs will still have an impact on both European firms and US consumers. To offset costs, many European pharmaceutical companies began to stockpile products in the United States, and some are beginning to announce new or upgraded manufacturing facilities in the country. This may have a negative impact on their overall footprint in Europe, though it is unclear how dramatic it will be. The deal will likely still raise prices for many Americans, as pharma companies pass additional costs onto consumers. However, the extent to which prices will rise is dependent on several factors, such as where the active pharmaceutical ingredient (API) is manufactured and whether the product is a brand name or generic drug.

Further complicating matters is a sticky situation in which companies have booked their patents in Ireland, for example, to avoid higher tax rates in other countries, though production can take place elsewhere. Should companies choose to shift these profits to the United States, they risk facing higher tax rates.

Tariffs may be the issue of the day, but they may not be the pièce de résistance impacting drug pricing in the United States or pharma companies’ relationships with Washington. According to a 2024 report, US customers pay nearly three times as much as consumers in other high-income countries for the same medications, a figure that has drawn Trump’s ire. To address this imbalance, the Trump administration is pushing for “Most Favored Nation” pricing on pharmaceutical products, which ties US prices to those in comparable countries. Unsurprisingly, Europe has been front and center in this debate as it exercises its regulatory might to ensure more reasonable prices while those in the United States continue to pay more due to confusing policies and systems, leading to claims of European free riding by US officials.

Already, some companies have begun to respond to US demands to adjust prices. Eli Lilly, which produces a leading diabetes medication, has said it will raise prices in Europe, presumably with the end goal of lowering them in the United States. Europe’s regulators will have to confront these and similar practices in the European market.

Between these tariffs and aggressive US drug pricing measures, transatlantic cooperation on any pharmaceutical or health policies will be difficult. However, both Europe and the United States stand to benefit from working together to accomplish an underlying goal the Trump administration is, perhaps unknowingly, targeting: securing affordable, accessible pharmaceutical supply chains.

When considering API sources, more than 60 percent of key inputs come from India and China, representing a significant risk for both US and European pharma companies should they lose access to these ingredients. Finding a long-term, sustainable solution to “friendshoring” pharmaceutical production benefits both the United States and Europe from a health and economic security perspective, as they both must mitigate the risk posed by foreign dominance in certain pharmaceuticals.

While Europe avoided the worst-case scenario through the US-EU trade deal, a 15 percent tariff on European pharmaceuticals benefits neither the United States nor the EU in the long term, weakening the transatlantic community’s interest in jointly addressing its common concerns abroad in favor of scoring political points.

Emma Nix is an assistant director with the Atlantic Council’s Europe Center.

The post The US-EU face-off over pharma is on pause—for now appeared first on Atlantic Council.

Nearly two years ago, the India–Middle East–Europe Economic Corridor (IMEC) emerged as a potential alternative to the existing volatile sea routes. When it was announced, IMEC offered partner countries, including the United States, the promise of a more secure and reliable trade route across the Arabian Peninsula. But the route itself is not IMEC’s only selling point. Additionally, participating countries stand to benefit from more streamlined, efficient, and transparent trade processes—deepening economic engagement and connectivity across regions.

The plans for IMEC envision it running from India and the United Arab Emirates (UAE) through Saudi Arabia, Jordan, and Israel, eventually reaching Europe. While political tensions have delayed progress on the Jordan-Israel segment of the transportation corridor, other components of the corridor continue to move forward, especially when it comes to economic cooperation between India and the Gulf states. This includes various port upgrade initiatives in India and the announcement of the India–UAE Virtual Trade Corridor (VTC) in September 2024.

With bilateral trade between India and the UAE reaching $100 billion in 2024–25 following the signing of the Comprehensive Economic Partnership Agreement (CEPA) in 2022, the VTC represents a timely and strategic boost to this growing economic partnership. This VTC is based on the Master Application for International Trade and Regulatory Interface, known as MAITRI. This platform seeks to integrate multiple digital systems and enable the seamless exchange of documents and trade-related information among regulatory stakeholders through a unified interface.

The India–UAE VTC, through the MAITRI platform, should be a starting point for building a seamless regional digital trade ecosystem across the IMEC countries. By enabling real-time data exchange, aligning customs procedures, and reducing paperwork, MAITRI and similar digital platforms can enhance trade efficiency along the corridor. Expanding this model across IMEC partner countries would help lay the foundation for a digitally integrated trade network that complements the physical trade corridor.

Linking MAITRI to IMEC

In the current global trading ecosystem, digital connectivity infrastructure has become as critical as physical connectivity infrastructure. There are many important aspects to track in cross-border trade, including duty assessments and payments managed by customs authorities, regulatory certificates, testing reports, and real-time cargo tracking and notifications by shipping lines. The India–UAE VTC through the MAITRI platform helps address these needs bilaterally. Extending MAITRI across IMEC could unlock far greater efficiencies by integrating partner countries into a unified digital trade interface.

A similar approach has worked farther east. The Association of Southeast Asian Nations (ASEAN) Single Window, ASW for short, stands as the benchmark for the digitalization of cross-border paperless trade within a regional bloc. Since its full operational launch in 2018, the ASW has made significant progress, with over 800,000 ATIGA e-Form D exchanges occurring in 2020 alone, demonstrating the scalability of digital trade solutions. The ATIGA e-Form D is an electronic document used in ASEAN trade, allowing for the exchange of data among member states. According to recent research, comprehensive digital trade facilitation measures can reduce costs by over 8 percent within ASEAN. This substantial benefit highlights why expanding the MAITRI VTC along the IMEC corridor should be a strategic priority.

The road ahead   

The operationalization of the India–UAE VTC has been smooth, largely due to the CEPA between the two countries. CEPA has eliminated duties on most traded product categories and streamlined regulatory compliance and documentation requirements, enabling a more efficient implementation of the digital corridor. But extending the VTC to the broader IMEC region presents several challenges.

The system will need to accommodate the diverse combinations of bilateral and regional trade agreements of which the IMEC countries are a part. Saudi Arabia and the UAE, for example, are members of the Gulf Cooperation Council, which means they have standardized economic policies and customs regulations while other IMEC countries may not follow the same trade protocols. Additionally, the multimodal nature of the IMEC corridor—encompassing rail, road, and maritime transportation—adds further complexity. Each participating country follows distinct customs procedures, regulatory processes, and documentation requirements, contributing to a fragmented and less harmonized regional trade ecosystem.

To enable the extension of a MAITRI-based VTC across multiple IMEC countries, policymakers should take the following five steps.

1. Establish a Joint Working Group on Digital Integration. IMEC partners should establish such a group to focus on extending MAITRI to the remaining IMEC countries. This group could be co-chaired by India’s Ministry of Ports, Shipping, and Waterways and the UAE’s Ministry of Economy, with relevant ministries from other IMEC countries as core members. The working group would be responsible for developing a roadmap for the phased implementation of the MAITRI platform across the corridor. Key stakeholders from the private and public sectors could contribute valuable technical expertise to this initiative.
2. Launch a comprehensive trade process mapping. The key elements of this exercise should include identifying stakeholders involved in trade processes within each country; outlining benefits and concessions available under bilateral and regional trade agreements; cataloging existing digital systems used by stakeholders (such as Port Community Systems or customs platforms); and understanding differences in trade process nomenclatures and terminologies. Ultimately, achieving a harmonized trade ecosystem across IMEC countries will be critical for the successful implementation of a unified digital trade platform like MAITRI. The secretariat of the IMEC envoy in each country, whenever designated, could lead this initiative to better coordinate among domestic as well as cross-country stakeholders.
3. Create a technology interoperability plan. This should include the use of common Application Programming Interfaces, harmonized data fields for cargo information, and standardized data formats aligned with international trade standards. The partners’ respective ministries of information technology, together with customs authorities, could lead this initiative, in coordination with the ministries of ports and railways in each IMEC country.
4. Operationalize mutual recognition agreements (MRAs). This would ensure the cross-border validity of critical documents, such as testing certificates, rules of origin, and health certificates. India and the UAE have already operationalized bilateral MRAs for digital certificates under the CEPA framework, setting a precedent for broader regional adoption. Customs authorities and the ministries of commerce in each country should serve as the coordinating agencies for MRA implementation.
5. Hold technical and capacity-building workshops. India and the UAE should jointly organize these workshops to familiarize IMEC partner countries with the technical and regulatory frameworks of the VTC and the MAITRI platform. These efforts will support the training of key stakeholders—including customs authorities, regulatory and testing agencies, port operators, and industry associations—across the IMEC region, laying the groundwork for effective implementation of the VTC.

As global trade corridors evolve to redefine cargo movement routes, robust digital infrastructure will be instrumental to ensuring connectivity. It will play an important role in consolidating new trade routes and encouraging the global trade community to adopt emerging corridors, such as IMEC. A digitally integrated IMEC will enable seamless cargo movement with faster clearances, strengthening economic partnerships among participating nations—particularly US partners such as Israel, the Gulf states, Europe, and India.

Given the deep economic linkages between the United States and IMEC countries, this integration will advance US trade and strategic interests by creating transparent and predictable supply chains, reducing shipping delays, and lowering shipping costs and time for US exporters and importers in Asia and the Middle East. Moreover, strengthened economic ties among partners in volatile regions could reduce the risks of disruption to US manufacturing supply chains. That relies on the digital world just as much as the physical.

Afaq Hussain is a nonresident senior fellow at the N7 Initiative within the Atlantic Council’s Middle East Programs. He is also co-founder and director of the Bureau of Research on Industry and Economic Fundamentals (BRIEF), New Delhi.

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Around the world, central banks are facing political pressure as they confront the economic aftershocks of the pandemic and grapple with tight fiscal constraints and new sources of inflation. But this level of political pressure is rare, if not unprecedented, in the United States and is casting a shadow over the Fed’s major conference in Jackson Hole this week.

Political pressure mounts on the Fed

Since the beginning of his term, Trump has repeatedly attacked Federal Reserve Chair Jerome Powell for maintaining interest rates at their current level, as the president believes they should be reduced (although he has backed off that call recently). The Fed has held rates steady since December, largely in response to the inflationary effects of tariffs. Powell noted that the Fed went on hold when it “saw the size of the tariffs, and essentially all inflation forecasts for the United States went up materially.” At Jackson Hole, Powell said that changing economic factors “may warrant” interest rate cuts, but he did not signal when. 

Despite Powell’s refusal to resign from his position before it ends in May 2026—as Trump has demanded that he do—the president has already had the opportunity to influence the Federal Open Markets Committee, which sets interest rates. Following Adriana Kugler’s surprise resignation this month as one of the governors of the Federal Reserve Board, Trump appointed his chairman of the Council of Economic Advisers, Stephen Miran, to temporarily fill her seat. Cook’s term, however, does not expire until January 2038—unlike Kugler’s, which would have expired in January next year. If Trump were to successfully remove Cook, he would get another opportunity to install his own pick on the Fed’s seven-member board.

A global perspective on central bank autonomy

As the GeoEconomics Center predicted early this year, the debate over central bank independence has emerged as a defining theme of 2025. In response to post-pandemic inflation, central banks have tightened monetary policy—slowing growth, increasing unemployment, and straining public finances. These effects have triggered significant political backlash. 

But the institutional frameworks protecting central bank governors from political interference vary dramatically across major economies. The chart below compares which of the Group of Twenty’s (G20’s) elected leaders can unilaterally dismiss their central bank chiefs.

Most advanced economies—including Australia, Japan, the United Kingdom, and the eurozone—have established strong legal safeguards that require legislative approval for dismissals. By contrast, the United States finds itself in a more precarious position, alongside countries such as Canada and Turkey. Under US federal law, the president may only remove the Fed chair “for cause”—a provision widely interpreted to refer to misconduct, not policy disagreements. However, this protection has never been definitively tested. The closest precedent dates back to 1965, when President Lyndon B. Johnson asked the Justice Department whether he could dismiss then-Federal Reserve Chair William McChesney Martin amid monetary-policy clashes during a period of rising inflation and escalating costs associated with the Vietnam War.

The economic case for independence

There is strong historical evidence that central bank independence correlates with lower inflation. Apart from that, the Fed’s autonomy is crucial for maintaining global confidence in US institutions. That credibility supports the dollar’s role as the world’s reserve currency and anchors financial market stability.

Threats to that independence carry real consequences. In April, when Trump declared that Powell’s termination “cannot come fast enough,” the dollar fell sharply—prompting him to quickly walk back the statement.

Countries that have compromised central bank independence—from Turkey to Argentina—have experienced currency volatility, capital flight, and higher inflation. While the United States enjoys unique advantages with the dollar’s reserve status, these privileges are not guaranteed. There is a growing risk of fiscal dominance, when government fiscal pressures dictate or constrain a country’s monetary policy. High debt and rising borrowing costs could pressure central banks to keep interest rates below what inflation warrants to sustain government spending. Investors worry this would weaken the Fed’s ability to prioritize price stability, making inflation harder to control. If central bank monetary policies bend to the government’s fiscal needs, inflation could resurge, and long-term yields could climb even higher.

As Trump tests the limits of what he can do, the credibility of the Fed—and by extension, global financial stability—is increasingly at risk.

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

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

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For many countries, tax collection on international trade in the form of tariffs and import or export duties remains a relevant source of fiscal revenue. At the same time, it’s important to lower tariffs to attract investment, boost competitiveness, and lower consumer prices.

This infographic explores the fiscal implications of reducing customs revenues, shows which countries are most dependent on trade taxes, and explores what changes to import volumes and related revenues mean for LAC’s economic future.

The post Economic pulse of the Americas: How dependent is Latin America on taxes on international trade? appeared first on Atlantic Council.

The demolition and reconstruction has been easier than even the US president himself likely imagined. That’s because other countries have been willing to quickly ditch the rules-based trading order that just a few years ago many professed was the bedrock of international economic prosperity.

To appreciate the scale of change, step back from the whirlwind tariff news cycle for a moment. When Trump came into office in January, the effective US tariff rate on the world was approximately 2.5 percent. Today it is more than 15 percent and climbing. When the president’s August tariffs are implemented next week, along with additional sectoral tariffs on copper, pharmaceuticals, and other goods, the US rate will be near 20 percent—the highest in a century and nearly eight times the rate at the start of the year.

It’s difficult in the middle of a tectonic realignment to pinpoint the pivotal moment that signaled things would never be the same. But for me, one image last week captured the new dynamic: European Commission President Ursula von der Leyen sitting at Trump’s golf course in Scotland, about to negotiate a trade deal that was the opposite of the kind of multilateral trade negotiations the European Union (EU) had been involved in for decades.

As recently as April, one week after Trump unveiled his large-scale “Liberation Day” tariffs, the EU’s ambassador to the World Trade Organization (WTO) stated upon the thirtieth anniversary of the institution that “the [Trump] tariffs violate WTO commitments and the basic rules and principles of this organization.” The EU maintained a ““firm commitment,” the ambassador continued, “to rules-based trade, and the WTO is a key foundation of that approach.” Four months later, the rules are being made up as we go, the WTO is nowhere to be seen, and the tariffs are here to stay.

For decades, the US concept of a trade agreement involved the United States agreeing with another country or a group of countries to drop their tariff and non-tariff barriers in an effort to foster more mutual economic prosperity. This was evident in deals ranging from the North American Free Trade Agreement to the Central America Free Trade Agreement to the US-Korea Free Trade Agreement. But Trump has redefined what a trade deal means. It now entails enshrining high tariffs (but not as high as threatened)—typically 15 percent or more—on another country. In return, the other country commits to make additional investments in the United States. 

Why is the world agreeing to this arrangement? First, if a country sees other countries agreeing to similar tariff levels and their economies are competitive in the same sectors (think European, South Korean, and Japanese car makers), then accepting the same baseline tariff rate as those other countries is palatable. Second, that country knows that it is US importers that will pay the new tariff rates, not its own importers. The thinking goes that if the United States wants to tax itself in this way and the country is not getting a different rate than everyone else, so be it.

And why have so many countries, save for China, decided not to retaliate against Trump’s tariffs and instead agreed to deals that seemed impossible just weeks prior? The conventional wisdom is that these countries are calculating that they can’t afford to get into a tit-for-tat escalation like China did because of the United States’ considerable economic leverage. This is only partially true. There is no way Trump could have upended the global trading system so quickly without willing partners in other countries. The fact that so many engaged in these bilateral negotiations, jumping in with promises (however unrealistic they may be) of investments in the United States, reflects frustration that many officials around the world have about the laborious and painful nature of trade negotiations over the past two decades. Consider what former European Trade Commissioner Peter Mandelson, who is now the British ambassador to the United States and played a key role in securing the first trade deal with the second Trump administration, observed in 2008. After the WTO’s Doha Round of negotiations proved unable to reform global trade rules to adapt to the rise of China and India, he described the process as “a collective failure.” In many ways, the trust broken back then was never fully repaired. Yes, Trump has smashed the system, but the speed and scale of the smashing owes to a system that had been growing increasingly brittle for years. 

All this leaves the global trading system in a confused and contradictory state. In such a situation, other economic powers like the EU will likely pursue a dual system, in which trade deals with the United States are treated differently than agreements with countries such as Indonesia or nations in Latin America. The EU believes it can engage in trade negotiations as it always has through a system and process. But there is a problem with this theory. The reason the global trading system has worked—until it didn’t—is that the world’s most militarily and economically powerful nation was willing to submit itself to the same rules as everyone else. Without the United States embedded in this framework, the incentives for every other country to play by the old rules will quickly evaporate.

Many countries beyond the EU may believe they’ll be able to reset to the old way of doing business after the Trump administration leaves office. Perhaps this is why several of the deals Trump has struck with trading partners involve three-year investment commitments. But future US presidents, whether Republican or Democratic, will find it hard to simply drop tariff rates back to previous levels when they come into office. Since the EU, for example, already has committed to reduce tariff rates on US imports to near zero, it will make little sense for a future US administration to simply revert to the old system without getting anything in return.

Since the creation of the General Agreement on Tariffs and Trade in 1947, which evolved into the WTO, successive US administrations of both political parties generally have believed that free trade served US interests by strengthening trading ties, spurring the economic growth of neighbors, delivering cheaper goods at home, and showing that a hegemon could operate within a multilateral system. This system was never fully functional, but US leaders always viewed it as better than a protectionist alternative. Trump believes differently, and he is now resetting the global trading system according to his preferences. The rest of the world is adapting very quickly.

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

Trump Tariff Tracker

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

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Yet as China’s cities, counties, and provinces confront slower economic growth and fiscal belt-tightening, the leadership didn’t mention the “one ugliness” that is weighing on local governments—trillions of dollars of debt. That is because the Chinese government already has declared victory over local government debt and seems to be moving on. A three-year debt restructuring initiative launched last November refinances ten trillion yuan ($1.39 trillion) of “hidden debt,” or bonds issued by investment companies known as local government financing vehicles (LGFVs). But LGFV bonds are only one part of a much larger problem. Local governments throughout China are also on the hook for trillions of dollars of bank loans, unpaid bills, and other obligations that remain unaddressed.

Beijing’s restructuring program is a maneuver that bankers and regulators commonly label “extend and pretend.” The central government has chosen to put off its day of reckoning when it will have to assume the burden of local government debt, instead choosing to whistle past the graveyard. But that strategy could have serious implications for the Chinese economy. Resources at the local level are drying up even as grassroots officials are still expected to service their debts. Despite lower interest rates, there is less money to build infrastructure, provide social services, and invest in industries that create jobs. Not to mention making good on payrolls and accounts receivable. With China already facing a lingering real estate collapse, weak consumption, industrial overcapacity, and falling prices, the continuing debt crisis could produce hollowed-out financial sectors in many parts of the country.

The International Monetary Fund (IMF) pointed to another danger in a recent report assessing the health of China’s financial system. The report warned that the fifty-eight trillion yuan of LGFV debt on the books represented “a serious risk to financial stability.” The report estimated that “support needed to retire debt-servicing capacity where debt is perpetually rolled over (but not reduced) could require debt relief.” The IMF report focused on LGFV debt and did not include debt taken on directly by local governments.

Beijing was having none of the IMF recommendations. A statement from China’s executive director to the IMF, which was included in the report, insisted that the issue of hidden local government debt had been “properly resolved” by the 2024 restructuring. The statement also held that the implementation of “a strict accountability mechanism to prevent local governments from raising new hidden debt” meant that the IMF’s “relevant policy recommendations have already been implemented.”

The Chinese response did offer up a forty-four trillion yuan estimate of overall LGFV debt—three times the figure provided at the time of last year’s restructuring announcement, suggesting that the restructuring will need to be revisited in the future. But Beijing’s representative blithely explained that the Fund had double counted debts by relying on faulty numbers from a Chinese data company—Wind Information Co. (Most foreign analysts, it should be noted, have been barred by Beijing from accessing Wind’s statistics since May 2023.) For the Chinese government to disagree on such an important number in an IMF report that officials had cooperated for months to prepare suggests a late-stage political decision to fudge the numbers. The action is part and parcel of Beijing’s recent efforts to obscure inconvenient economic facts. For example, as youth unemployment soared in 2023, the government recalibrated its data set to reduce the jobless number.

Unsurprisingly, the government’s debt-restructuring numbers have been greeted with skepticism in other circles. The credit-rating agency Fitch Ratings estimated in April that the restructured LGFV debt was only 25 percent of the “hidden” portion of the debt load. Meanwhile, David Daokui Li, a leading Chinese economist, said in February that there were ten trillion yuan in payments “arrears” to contractors and civil servants at the end of 2024.

The size of the debt is only part of the problem. Most LGFVs were originally set up over the past decade to help local governments to take on debt, using land controlled by local authorities as collateral, and revenue from land sales to help service the bonds and loans But that source of revenue dried up with the collapse of China’s real estate bubble in 2021. In May, nationwide revenue from land sales, include tax receipts, fell to its lowest level since 2015, exacerbating the squeeze on financing.

However, the debt-restructuring program also mandated that thousands of LGFVs be turned into commercial entities that will now have to stand on their own two feet. While some of them already function as businesses, the end of the era of runaway real estate development also means the end of the road for many LGFVs. They will transition into unsustainable “zombie companies” that will continue to rely on new borrowing or government subsidies to service their debts.

In a May report entitled “China’s LGFVs in transition: cutting debt may prove easier than making money,” S&P Global estimated that “former LGFVs” would have to increase their pre-tax earnings by some 40 percent a year over three years. Doing so will just enable them to reduce their debt leverage to the level of China’s existing state-owned enterprises—themselves hardly paragons of commercial success. While acknowledging that the government’s debt restructuring initiative has “substantially alleviated the immediate liquidity pressure” on many LGFVs, the report said, “that’s just one side of the equation.” By 2027, S&P said, when the restructuring is scheduled to conclude, LGFVs will no longer “benefit from expectations of implicit (government) repayment guarantees.” They will remain mired in a cycle of increasing indebtedness.

Beijing has been loath to take the debts off the books of local governments because of its own spending priorities and out of concern that such central government largesse will only encourage local authorities and investors to engage in risky behavior. But moral hazard works both ways: the central government’s conflicting demands on local governments over the years already opened the floodgates to unwise lending and investment under the assumption that such ventures would be backed by government guarantees. Witness the flood of investment that provinces and cities have undertaken in such cutting-edge industries as semiconductors, electric vehicles and wind power. For every commercial success, there is also an ocean of red ink that has added to the bad debts.

Solutions to debt crises without cost do not exist. But half measures only add to the final cost of resolution. So far, Beijing has chosen to pursue half measures—or perhaps it’s better to say quarter measures—and the costs continue to mount. The result of such delaying tactics will only be greater problems down the road for an economy that, for all its strengths, can ill afford the real-world impact of procrastination.

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

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

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While the halting of foreign aid is a serious mid- and long-term discussion, the disruption caused by rapid capital outflows and market freezes is far more acute. Financial shocks destabilize national budgets in real time and spark broader economic and political crises. Consequently, they create potential entry points for corrosive capital, financing that lacks transparency and accountability. At a time when globally imported risk in emerging markets is tied to the rise of corrosive capital, the United States can play an important role as a responsible and tranquilizing international actor.

Three channels of transmission

To understand how financial shocks travel across borders and deepen emerging-market vulnerabilities, it is crucial to unpack the mechanisms through which instability in the US financial system transmits abroad. Below are three channels that, although presented distinctively, often overlap as countries are exposed to multiple shocks at once:

The risk channel

Periods of heightened uncertainty or adverse news from the United States can prompt investors to “de-risk.” As emerging market assets are generally considered riskier, this causes a capital flight toward safer options, such as US Treasuries, gold, and AAA-rated bonds. For example, in the days following the April 2025 tariff shock, major emerging market exchange-traded funds, which are baskets of assets, experienced sharp outflows and price drops; only as global sentiment stabilized in May did inflows resume. This abrupt reallocation lifts emerging markets’ yields and spreads, sometimes within days, and can abruptly tighten credit availability even for fundamentally sound emerging economies.

The dollar channel

The sovereign and private debt of emerging markets’ economies is often denominated in US dollars. Data for emerging markets consistently show that the stock of liabilities denominated in US dollars is greater than the stock of US dollar assets they hold. This means that emerging markets are “net short” on the dollar. By extension, a US dollar appreciation will lead to a higher net appreciation in the liabilities than the assets, creating a gap. That the dollar has been rapidly devalued in recent months amid fiscal uncertainty is still troubling, as it could leave emerging markets exposed to an upward reversal.

The liquidity channel

Broader shifts in global liquidity driven by the US Federal Reserve or US banking stress can tighten credit everywhere, even in places with no direct link to the original problem. Liquidity shortages are rapidly transmitted shocks that impact all borrowers at once and are difficult to insulate against. Whereas countries can defend against risk channel-transmitted shocks (by providing credible signals) and their dollar-channel equivalents (by diversifying debt), there is no insulation against a global liquidity crunch.

The connection to corrosive capital

Financial volatility can create financing vacuums quickly filled by authoritarian or opaque lenders. A critical entry point for corrosive capital is nonmarket mechanisms such as resource-backed loans, currency-swap lines, and emergency deposits, which become lucrative only after the wells of transparent markets dry up. Between 2004 and 2018, a survey of resource-backed loans found that interest rates, collateral clauses, and repayment schedules were publicly available in only nineteen out of fifty-two cases. Respectively, currency-swap lines usually force closer bilateral trade cooperation with the issuer due to limited currency convertibility, while emergency deposits are often collateralized with strategic assets and increase dependency on authoritarian lenders. In short, corrosive capital flourishes where constructive capital deems investments as too risky, and this can become self-reinforcing. 

Amidst the COVID-19 pandemic, Sri Lanka, a frequent issuer of dollar-denominated sovereign bonds, sought support from China, including a one billion dollar swap line from the People’s Bank of China that provided strategic leverage over the country. An appreciation in the dollar, along with heightened global risk, led to an over 50 percent decrease in the value of the country’s bonds in just three months. This resulted in increased yields, locking the country out of the international market.

A similar case of the dollar channel at play was Pakistan in 2022, where foreign exchange reserves dwindled and debt increased following US dollar appreciation, leading to higher borrowing costs. This opened the way for a new four-billion-dollar rollover of commercial loans and deposits from Chinese state banks. The loan was poorly negotiated, had unclear and unfavorable terms, and constituted part of the wider leverage of China over Pakistan through previous China-Pakistan Economic Corridor loans.

In the same year, in Ghana, sovereign Eurobond yields spiked above 20 percent, which made external commercial borrowing unsustainable. Instability was primarily transmitted through the risk channel. Investors rapidly sold off Ghanaian bonds, reflecting a broader “flight to safety,” with capital moving to assets such as US Treasuries, pushing the sovereign’s yields to unsustainable levels. With spreads at such levels and no appetite from private markets, Ghana turned to China for emergency financing. This resulted in a two-billion-dollar barter deal, in which Ghana exchanged future bauxite revenues for infrastructure investments by Chinese state-owned SinoHydro.

In April 2025, Angola hit the news when dollar bonds tumbled, triggering a $200 million margin call that pushed yields near 15 percent, effectively shutting it out of global capital markets. Importantly, the mechanism at work here was the liquidity channel. It was not a reduction of Angola’s creditworthiness, nor dollar appreciation, but a broader shrinkage in the willingness to extend dollar credit globally that drove yields up. Although no subsequent entry of corrosive capital has occurred to date, Angola is already highly indebted to China, with a lot of its debt collateralized against future oil revenues.

The role of the United States

It’s not a coincidence that these countries engaged with corrosive capital only after their monetary and fiscal capacity deteriorated. In contrast to market mechanisms, which are symmetrical agreements between equal partners, corrosive capital is by its nature asymmetrical. It capitalizes on the extraordinary circumstances that make it lucrative in the first place. High yields, irrelevant of their domestic or international origin, pave the way for its entrance.

In this environment, the United States should act as a responsible internationally stabilizing agent. Financial stability is a nonrival and nonexcludable global public good, forming the backbone of today’s globalized world. The United States had historically helped “grow the pie” by offering the certainty that tamed inflation expectations, reduced risk, and minimized market frictions globally. This has helped bridge global financiers with emerging markets, benefiting both alike.

As political freedom continues to decline for the twelfth consecutive year worldwide, global risk and trade policy uncertainty are high. For the United States, a recommitment to free trade, prudent fiscal policies, and the promotion of an environment conducive to business are the mandatory steps toward defending freedom, prosperity, and its interests. Domestic shocks will always exist, even more so in emerging markets, but a stable global economy can provide a cushion, crowding out corrosive capital through market-oriented constructive capital.

Achilles Tsirgis is a visiting fellow at the Atlantic Council’s Freedom and Prosperity Center.

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That’s not because the US currency is about to collapse or be dethroned. Quite the contrary. However, it is being diminished in ways that are both cumulative and new, and in a manner that should concern every American patriot.

Not since ‘73

For more than eighty years, the US dollar has been the cornerstone of global finance. It’s been an anchor of global economic stability, a vehicle for American influence, and, frequently, a weapon to achieve foreign policy goals. It has served as the world’s primary reserve currency since World War II and the Bretton Woods Agreement in 1944, when other currencies pegged themselves to the dollar and the dollar pegged itself to gold.

For decades, the world chose the dollar without thinking about it all that much, and that was not only because of unrivaled American economic strength. Most of the world’s major economic players also trusted the United States’ financial leadership—its rule of law, its institutions, its predictability. 

Nothing will replace the greenback soon, but its erosion is an increasing topic of conversation among global investors. This is reflected in markets. A Financial Times front-page headline this week, across five columns, screamed: “Dollar’s worst showing since 1973 after Trump agenda forces investor rethink.”

Trump administration officials pooh-pooh all that as partisan claptrap, even after the Senate this week passed its mega budget bill that the Congressional Budget Office estimates will add more than $3 trillion to the United States’ $36 trillion debt. They argue that the dollar’s decline is cyclical, that the US stock market keeps hitting records, and that the economy will boom after the bill also passes the House—and as the administration reaches a string of trade agreements currently being negotiated.

By way of counterpoint, the Financial Times quoted Francesco Pesole, a foreign exchange strategist at ING, as saying that the dollar had become “the whipping boy of Trump 2.0’s erratic policies.” He added that the president’s stop-start tariff war, the United States’ vast borrowing needs, and worries over the independence of the Federal Reserve are undermining the appeal of the dollar as an investment haven. 

Beyond tariffs

What makes this moment a potential inflection point, and thus worthy of this column, is that confidence in the dollar has become less automatic than it once was. Trust is the intangible but irreplaceable asset backing any currency. 

At the spring International Monetary Fund-World Bank meetings, leading financial officials who spoke at the Atlantic Council publicly hadn’t changed their view that there wasn’t really anything good to replace the US currency. Speaking privately, however, many expressed an ever-growing desire to find alternatives. And that is what’s new. 

The dollar has slumped more than 10 percent in 2025, which the Financial Times reported was the worst first half of the year since the end of the gold-backed Bretton Woods system in the early 1970s. At the same time, the euro has risen 13 percent, to more than $1.17, as investors increase their demand for assets such as German bonds and worry about the impact of tariffs and the possibility of a US recession, though recession odds have declined.

As the dollar has been overvalued, some sell-off makes sense. However, this market response has gone beyond Trump tariff policies and speaks to broader angst about the dollar around world markets. Another sign of dollar doubts is that US Treasury markets have experienced significant volatility. What’s driving the swings, investors say, is concern about rising US debt levels, inflation fears, the impact of US trade policies, and the potential for a recession. Thus far, the bond market has been shrugging off the potential implications of the budget bill.

Confidence building

It is always harder to regain confidence than it is to lose it. The US economy has so much built-in dynamism and underlying strength that those who have predicted the dollar’s demise over the years have inevitably been proven wrong. 

At the recent NATO Summit in The Hague, US President Donald Trump showed that he had the power to shift European concerns about US security guarantees. He did this by recommitting Washington to them in the summit’s communiqué, which at the same time embraced a surge in European defense and defense related-spending to a target of 5 percent of gross domestic product over the next ten years—up from 2 percent. Yet concerns lingered in Europe even after the summit, given Trump’s perceived unpredictability and a decision earlier this year to cut off US weapons delivery and intelligence sharing with Ukraine for a period of ten days. Then this week, the Pentagon announced that it was pausing certain weapons deliveries to Ukraine, reportedly including air defense capabilities.

Regaining global confidence in US financial leadership may be even harder. Above all, it will require committing credibly to deficit reduction and fiscal discipline and reinforcing the Federal Reserve’s independence. It will also require reasserting the US role as a predictable anchor of the global financial system and avoiding the weaponization of the dollar in sanctions and trade disputes.

This isn’t a call to panic, but it is a warning. Even as Old Glory flies high this weekend, the dollar is showing concerning wear. History shows the consequences of inattention.

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.

Dollar Dominance Monitor

This monitor analyzes the strength of the dollar relative to other major currencies. The project presents interactive indicators to track BRICS and China’s progress in developing an alternative financial infrastructure.

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After years of nearly aligned rate policies, the recent rate-cutting cycles of the United States and European Union (EU) central banks have recently not been in lockstep.

Following the most recent meeting, the current ECB reference rate stands at 2.15 percent. In her speech, ECB President Christine Lagarde explained the governors’ decision and suggested that the bank is nearing the end of its rate-cutting cycle.

In contrast, the US monetary authority has cut rates only three times since their peak of 5.5 percent in July 2023, bringing the benchmark rate down to 4.5 percent. Federal Reserve Chair Jerome Powell has defended the Fed’s cautious stance amid sharp criticism from President Trump, citing uncertainty with the administration’s tariff policy. With the now legally contested universal 10 percent tariff on nearly all US imports, the Fed is increasingly concerned about potential inflationary effects—leaving the Fed trailing behind its European counterpart in the rate-cutting cycle.

In the coming months, the Federal Reserve will have several opportunities to adjust or reinforce its hawkish monetary policy stance. But will it? Markets expect the Federal Open Market Committee to lower rates by fifty basis points by the end of the year, but judging by yesterday’s decision, we can anticipate continued vigilance. Setting tariffs aside, economic data from the Eurozone and the United States—particularly regarding central bank mandates such as price stability and sustainable employment—look strikingly similar. In both cases, inflation is gradually declining, and in the case of the ECB, it has already reached its 2 percent target. In April, US inflation stood at 2.1 percent, exceeding the Fed’s target by just 0.1 percentage point. Following the spike in unemployment after COVID-19—more pronounced in the United States due to differences in labor protection laws—employment remains historically strong in both regions, hovering around 6 percent in the EU and 4 percent in the United States. So, why is the ECB cutting rates while the Fed holds steady? If no cuts are made, Chair Powell will need to clearly communicate the Fed’s policy rationale.

It boils down to an uncertain economic outlook caused by recent shift in US trade policy. Amid a roller coaster of tariff announcements, it’s nearly impossible to assess their broader impact on the economy, inflation, and employment. Following Liberation Day and the dramatic reaction in the Treasury market, it seems that Trump’s tariff strategy does carry significant risk. Our Trump Tariff Tracker highlights how trade policy is being repurposed as a strategic lever. The most recent US–UK trade “deal” serves as a clear example of how tariffs are being used not just for protection, but as a starting point in broader negotiations—anchored by a proposed 10 percent baseline rate. Applying that framework to other agreements echoes Chairman Powell’s remark that “increases in tariffs this year are likely to push up prices and weigh on economic activity,” potentially delaying future monetary policy decisions.

But how long can the Fed afford to wait and see? According to the International Monetary Fund’s spring World Economic Outlook, US inflation in 2025 is projected to reach 3 percent. Moreover, the New York Fed conducts a survey measuring consumer inflation expectations, with the outlook for the next year currently at 3.2 percent—well above the Fed’s 2 percent target. Given elevated inflation expectations and lingering uncertainty—balanced against encouraging labor market and inflation data—the Fed will need to tread carefully. Cutting rates too soon could undermine recent progress in bringing inflation back to target and potentially necessitate future rate hikes. On the other hand, cutting rates too late could further weaken growth prospects and negatively impact employment.

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

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

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

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

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

The “America first” dollar

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

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

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

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

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

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

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

The dollar as an economic burden

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

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

A fractured coexistence

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

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

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

So what’s the dollar strategy, then?

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

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

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

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

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

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

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

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

Israel Rosales contributed to the data visualization in this article.

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In her traditional Global Policy Agenda speech, the IMF managing director, Kristalina Georgieva, sought to temper market anxieties and reassure member countries. She struck a tone of cautious optimism and underscored the Fund’s institutional preparedness while candidly acknowledging a range of serious global risks. She outlined three interlocking priorities to frame the week’s deliberations: (1) resolving trade tensions and restoring confidence, (2) safeguarding economic and financial stability, and (3) reviving medium-term growth through structural reforms.

Acknowledging the gravity of the moment, Georgieva stated, “We’re not in Kansas anymore,” a metaphor underscoring the unfamiliar and turbulent terrain the global economy now faces. She advocated for a comprehensive and coordinated settlement among major economies aimed at rolling back trade barriers, reducing policy uncertainty, and restoring the openness of global trade flows. She warned that prolonged ambiguity was already suppressing investment and eroding consumer confidence.

In this context, the IMF reiterated its longstanding position that both tariff and non-tariff barriers must be lowered to preserve multilateralism. However, the challenge extends beyond immediate trade disputes. Structural imbalances—including China’s elevated savings and weak domestic consumption, the United States’ sustained fiscal deficits, and the European Union’s incomplete economic integration—are increasingly viewed as drivers of systemic strain. To correct these asymmetries, the IMF recommended: (1) stimulating domestic demand in China, (2) advancing infrastructure investment and market integration in Europe, and (3) embarking on credible fiscal consolidation in the United States. The IMF portrayed these national adjustments as preconditions for global macroeconomic rebalancing and long-term resilience.

The second thematic pillar—economic and financial stability—highlighted the narrowing margin for error after years of policy stimulus in response to the pandemic, inflationary shocks, and geopolitical disruptions. Georgieva’s appeal to “get your house in order” captured the moment’s urgency. She urged countries to reinforce their fiscal foundations by implementing credible and transparent medium-term frameworks.

While she broadly encouraged gradual deficit reduction, Georgieva gave particular attention to low-income and emerging economies, which are confronting acute debt vulnerabilities amid tightening global financial conditions. For these nations, the policy agenda emphasized enhanced domestic revenue mobilization, improved public financial management, and proactive engagement with debt restructuring mechanisms. On the monetary front, Georgieva advised central banks to remain guided by incoming data and preserve their operational independence, while continuing to focus on price stability. The meetings also addressed mounting concerns over the stability of the financial system, including the risks posed by non-bank financial intermediaries, and called for more robust regulatory oversight and international coordination.

Finally, the IMF’s managing director placed renewed emphasis on the structural transformation needed to revive medium-term growth. As Georgieva declared, “Now is the time for long needed but often delayed reforms.” With global potential growth trending downward, she plainly acknowledged the limitations of monetary and fiscal policy.

Instead, discussions centered on national reform agendas tailored to each country’s specific institutional context. These included measures to improve the business climate, enhance governance and the rule of law, modernize labor and product markets, and strengthen innovation ecosystems and digital capacity. For emerging and developing economies, the imperative to expand access to finance, invest in human capital, and build sustainable infrastructure was seen as crucial to catalyzing private sector participation. Climate resilience and inclusive growth were integrated into the broader reform discourse, reflecting the growing consensus that sustainability must be embedded in long-term economic strategy. The IMF committed to supporting member countries in these efforts through targeted instruments—such as the Resilience and Sustainability Trust—alongside bespoke policy advice and capacity development.

A pivotal intervention during the meetings came from US Secretary of the Treasury Scott Bessent, who addressed the Institute of International Finance with a call for the IMF to return to its original mandate. He criticized the Fund’s perceived “mission creep” into areas such as climate, gender, and inequality. He acknowledged these issues as important, but potentially distracting from the IMF’s core objectives of macroeconomic stability, balance of payments support, and monetary cooperation. Bessent reaffirmed US support for the Fund and the World Bank, while clarifying that continued engagement would hinge on institutional discipline, rigorous program conditionality, and a sharper focus on correcting global imbalances. His remarks signaled not just a recalibration of US expectations, but a broader ideological debate over the role of multilateral financial institutions in a fragmenting global order.

Georgieva’s response the following day was diplomatically calibrated. In an April 24 press briefing, she welcomed continued US engagement and described Bessent’s comments as constructive. “The United States is our largest shareholder… of course, we greatly value the voice of the United States,” she remarked, interpreting the speech as a reaffirmation of US commitment at a time when political rhetoric had raised fears of disengagement. She acknowledged the legitimacy of US concerns and noted that ongoing institutional reviews—including the Comprehensive Surveillance Review and the Review of Program Design and Conditionality—would serve as venues for deeper discussions. These mechanisms, she suggested, provide space to reexamine priorities, refine programs, and ensure alignment between the Fund and its major stakeholders.

But what do US concerns about the IMF’s direction truly entail, and how might they be addressed in the upcoming policy reviews? It is crucial to recognize that, despite holding over 16 percent of the Fund’s voting power, the United States cannot unilaterally block the IMF executive board’s approval of the regular Comprehensive Surveillance Review. This implies that the most consequential negotiations will, as is customary, occur informally and behind closed doors. We can anticipate that the US executive director’s office will try to shape a draft document that aligns with Washington’s preferences.

However, the United States is not the only influential voice at the table. Other member states—many of whom have divergent priorities, particularly on issues such as climate integration, social inclusion, and the future scope of macroeconomic surveillance—will also seek to assert their positions. The previous surveillance review in May 2021 introduced climate macro-criticality into Article IV consultations for the twenty largest greenhouse gas emitters. Whether the United States can successfully build a broad coalition to revise the surveillance framework in line with its renewed emphasis on “core” macroeconomic fundamentals remains to be seen.

Yet despite the Spring Meetings attendees’ efforts to project cohesion and forward momentum, the underlying global outlook remains clouded by persistent uncertainty. Geopolitical tensions, rising debt burdens, and diverging monetary policy trajectories continue to weigh on policy coordination platformed by the IMF.

As attention shifts toward the 2025 annual meetings this October, critical questions will come into sharper focus. Can the IMF meaningfully recalibrate its surveillance priorities? Will members find the political will to realign quotas and governance structures? How will the Fund balance its evolving role with the demands for institutional discipline? These meetings will not merely be another milestone in the global economic calendar—they may well constitute a stress test for the resilience of the postwar international system and its ability to adapt in an increasingly complex, multipolar world.

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

The views and opinions expressed herein are those of the author and do not reflect or represent those of the US government or any organization with which the author is or has been affiliated.

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

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

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The welcome in Riyadh will be more than ceremonial: Saudi Arabia is the linchpin of Trump’s Gulf tour. On May 14, Trump will join heads of all six GCC states at a summit in the Saudi capital. From Riyadh, Trump will head to Doha for talks with Qatari Emir Tamim bin Hamad Al Thani, then to Abu Dhabi to meet UAE President​ Mohammed bin Zayed Al Nahyan.

But Trump’s Gulf visit is more than a diplomatic tour; it is a pivotal opportunity to reimagine US–Gulf relations for a new era. The region is no longer content to be seen as the world’s energy hub alone; its ambitions now span digital innovation, green growth, and global influence. To remain a trusted and valuable partner, the United States must evolve its engagement strategy—offering not only promises but a visionary blueprint for shared prosperity and long-term stability.

Energy diplomacy: Oil on the table

Oil production will feature prominently in Trump’s talks, as energy prices tie directly into both global economics and domestic politics. Trump has drawn a link between high inflation in the United States and expensive oil, vowing to ask Saudi Arabia and the Organization of Petroleum Exporting Countries (OPEC) to “bring down the cost of oil.”​ Oil producers seemed to be trying to pre-empt such a request with this week’s announcement of another production increase, which caused oil prices to drop. Will this be enough for Trump? He will need to balance the US desire for affordable fuel with respect for Saudi economic goals, including ambitious domestic projects funded by higher oil prices. Any public statements on oil will be closely watched for signs of compromise. Energy talks may even address renewables and climate adaptation, a newly important topic for Gulf states.

Confronting regional conflicts

The Middle East’s simmering conflicts form a tense backdrop to the visit. Containing Iran’s nuclear ambitions will be a top priority. Trump’s visit comes as Washington tries to develop a new nuclear deal with Tehran, a move quietly backed by Saudi Arabia and the UAE​. Gulf leaders will seek reassurance that this outreach won’t compromise their security. Another pressing issue is Gaza. Trump pointedly is not visiting Israel—a sign that without progress toward a Gaza cease-fire or hostage deal, such a stop would yield little. Instead, Qatar and Egypt continue to work on brokering a cease-fire and easing the humanitarian crisis.

Yemen’s war, where a fragile cease-fire now offers hope, will also come up—Trump can reinforce Gulf-led peace efforts by lending US support​. From Yemen’s tentative peace to Syria’s uncertain future, Gulf partners are bearing more responsibility for regional crises, and US backing can help them succeed​. Each of these challenges underscores the importance of US-Gulf cooperation in resolving conflicts, as Washington and its Gulf allies strive to coordinate strategies and realign on the responsibilities of peace-making.

Investment and economic opportunities

Economic statecraft is at the heart of Trump’s Gulf agenda. The region’s deep pockets and sovereign wealth are a magnet for a US president eager to spur investment and job growth back home​. Trump will seek major new investments from Saudi Arabia, Qatar, and the UAE into US infrastructure, energy, and technology ventures​. In this transactional diplomacy, big numbers matter—and reports suggest that Trump is hoping to secure additional investment deals. Visible Gulf capital flows would allow Trump to claim wins for the US economy.

Beyond oil and real estate, today’s focus includes emerging industries. Cooperation in artificial intelligence and advanced technology is on the agenda​, aligning with Gulf states’ ambitions to become tech hubs. Expect announcements of joint tech funds or research centers. Defense deals are another pillar of the economic relationship. On the eve of the trip, the United States approved a $3.5 billion sale of advanced air-to-air missiles to Saudi Arabia, a signal that security cooperation (and the hefty contracts that come with it) will feature alongside business deals. By the end of the tour, Trump will aim to unveil a slate of agreements projecting a narrative that US-Gulf ties are translating into tangible economic benefits.

Despite headline-grabbing Gulf pledges, the numbers tell a cautionary tale. The UAE’s vaunted ten-year, $1.4 trillion investment commitment is enormous. However, this commitment lacks any clear roadmap, and such long-term promises face serious headwinds amid global economic volatility. Similarly, Saudi Arabia’s promised $600 billion (over four years) investment push represents an implausibly high share of the country’s economy. Riyadh’s finances are already stretched by Vision 2030 mega-projects like the city of NEOM, forcing the government to recalibrate and prioritize domestic spending. With the kingdom contending with turbulent growth forecasts and persistent political strains (not least the fallout from the war in Gaza), a sustained influx of Saudi capital into the United States is increasingly in doubt.

Recalibrating bilateral relationships

Each stop on the trip reflects a recalibration of US ties with a pivotal Gulf partner. In Saudi Arabia, Trump will renew official ties with Crown Prince Mohammed bin Salman after having kept his relationship with Riyadh strong during his time out of office. A similarly reassuring tone is expected in Abu Dhabi, where the UAE’s leaders seek confirmation of enduring US support even as they hedge with other partners. The stop in Doha highlights Qatar’s importance as a US ally, host to a major airbase and a mediator in regional crises. Broader strategic issues will weave through these bilateral talks. With China and Russia also courting the region, Trump’s visit is a chance to reassert US influence amid shifting alliances​.

As Trump prepares for his high-stakes visit to the Gulf, it is essential that his administration makes the most of this opportunity. Beyond familiar conversations about oil and security, this visit can—and should—mark the beginning of a broader, smarter partnership. Here are four ways Trump and his team can seize the moment.

1. Stabilize energy markets, embrace climate adaptation: Trump will ask Gulf producers to help moderate oil output to keep global prices in check. Yet to make this more than a one-note exchange, Trump should propose joint US–Gulf initiatives focused on clean energy transitions and climate resilience. By supporting Gulf investments in hydrogen, carbon capture, and renewable energy, the United States can demonstrate that its energy ties are evolving with the times—making both economies more resilient and forward-looking.
2. Prioritize conflict mediation: Washington’s long-standing alliances in the Gulf are grounded in shared security interests. Trump should leverage the considerable trust he enjoys with Gulf leaders to press for meaningful progress in Yemen’s fragile peace process and the war in Gaza. A joint US–Gulf conflict resolution framework could institutionalize cooperation, ensuring both swift responses to flare-ups and sustained support for reconstruction and peacebuilding, helping to stabilize a region too often trapped in cycles of crisis.
3. Bolster economic ties through innovation: Trump’s transactional approach to diplomacy is well known, but this trip offers a chance to push economic ties into new, forward-looking areas. Encouraging Gulf sovereign wealth funds to channel investments into US infrastructure and tech startups would deliver immediate economic benefits. Yet deeper gains lie in establishing joint research ventures in artificial intelligence, cybersecurity, and next-generation industries. This form of digital diplomacy could position both sides as global innovation leaders, fostering a tech-driven alliance for the twenty-first century.
4. Strengthen cultural bridges: To humanize what is often seen as a transactional relationship, the United States should double down on cultural diplomacy. Arts collaborations, sports exchanges, and interfaith dialogues can soften perceptions and deepen trust between societies. By championing such initiatives, Trump can underscore that US–Gulf ties are not confined to boardrooms and defense pacts but extend into the everyday fabric of life. Nurturing people-to-people connections is as strategic as any formal agreement.

If Trump can look beyond the predictable and embrace a more diversified, future-oriented approach—one that ties oil and security to innovation, youth, and culture—he can transform this trip from a standard diplomatic handshake into a legacy-defining pivot. The sands of the Gulf are shifting fast. To stay grounded, the United States must not just renew its ties—but reinvent them for the decades ahead.

Racha Helwa is the director of the empowerME Initiative at the Atlantic Council’s Rafik Hariri Center for the Middle East.

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

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

Prediction problems

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

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Certain about uncertainty

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

A recession by any other name

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

New Atlanticist

Apr 20, 2025

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

By Atlantic Council experts

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

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The post Is the global economy headed for a reset, recession, or both? appeared first on Atlantic Council.

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

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

This week’s expert contributors

APRIL 26 | 12:01 PM ET

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

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

Read the remarks

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

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

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

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

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

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

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

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

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

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

APRIL 26 | 11:24 AM ET

Thanksgiving in April

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

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

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

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

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

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

APRIL 25 | 6:27 PM ET

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

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

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

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

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

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

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

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

APRIL 25 | 3:48 PM ET

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

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

APRIL 25 | 3:02 PM ET

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APRIL 25 | 1:57 PM ET

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

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

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

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

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

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

APRIL 25 | 11:03 AM ET

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

APRIL 25 | 10:15 AM ET

Slow progress on debt restructuring

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

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

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

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

APRIL 25 | 9:17 AM ET

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

Dispatch from IMF World Bank Week: Why surveillance matters

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

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

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

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

A common tone among key leaders is a sign for optimism

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

Read day three analysis

APRIL 24 | 7:57 PM ET

Dispatch from IMF World Bank Week: Why surveillance matters

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

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

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

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

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

APRIL 24 | 4:38 PM ET

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

APRIL 24 | 2:56 PM ET

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

APRIL 24 | 1:42 PM ET

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

APRIL 24 | 9:22 AM ET

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

APRIL 24 | 8:43 AM ET

A common tone among key leaders is a sign for optimism

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

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

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

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

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

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

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

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

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

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

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

APRIL 24 | 8:00 AM ET

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

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

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

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

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

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

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

Read more

Inflection Points Today

Apr 24, 2025

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

By Frederick Kempe

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

European Union International Financial Institutions

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

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

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

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

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

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

What ever happened to climate change?

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

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

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

Read our day two analysis

APRIL 23 | 6:04 PM ET

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

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

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

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

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

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

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

Watch more

APRIL 23 | 4:48 PM ET

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

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

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

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

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

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

APRIL 23 | 3:55 PM ET

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

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

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

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

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

APRIL 23 | 3:39 PM ET

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

Read his remarks

Transcript

Apr 24, 2025

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

By Atlantic Council

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

Europe & Eurasia European Union

APRIL 23 | 2:43 PM ET

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

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

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

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

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

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

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

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

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

APRIL 23 | 2:11 PM ET

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

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

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

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

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

APRIL 23 | 1:37 PM ET

What ever happened to climate change?

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

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

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

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

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

APRIL 23 | 1:21 PM ET

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

APRIL 23 | 11:10 AM ET

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

Read the full transcript

Transcript

Apr 23, 2025

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

By Atlantic Council

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

European Union Ukraine

APRIL 23 | 9:10 AM ET

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

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

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

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

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

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

The flagship reports walk a fine line

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

We’ve seen these risks before

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

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

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

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

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

Read our day one analysis

APRIL 22 | 9:06 PM ET

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

APRIL 22 | 6:03 PM ET

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

APRIL 22 | 5:17 PM ET

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

APRIL 22 | 5:01 PM ET

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

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

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

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

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

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

APRIL 22 | 3:19 PM ET

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

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

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

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

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

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

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

Watch more

APRIL 22 | 3:07 PM ET

The flagship reports walk a fine line

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

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

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

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

APRIL 22 | 2:34 PM ET

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

APRIL 22 | 2:02 PM ET

We’ve seen these risks before

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

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

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

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

APRIL 22 | 1:55 PM ET

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

APRIL 22 | 1:52 PM ET

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

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

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

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

APRIL 22 | 11:40 AM ET

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

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

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

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

APRIL 22 | 10:03 AM ET

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

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

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

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

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

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

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

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

APRIL 22 | 8:58 AM ET

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

How countries are reacting to the trade war

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

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

Read earlier analysis

APRIL 21 | 8:52 PM ET

How countries are reacting to the trade war

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

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

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

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

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

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

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

APRIL 21 | 4:57 PM ET

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

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

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

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

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

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

APRIL 21 | 4:31 PM ET

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

Spring Meetings unlike others—and not just because of trade

Why these meetings are existential for the IMF and World Bank

Dispatch from IMF-World Bank Week: A fractured foundation

Three ways to think about Trump’s tariffs

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

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

No one is coming to save the global economy

Trump can make the IMF more effective

APRIL 20 | 5:15 PM ET

Spring Meetings unlike others—and not just because of trade

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

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

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

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

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

APRIL 20 | 4:52 PM ET

Why these meetings are existential for the IMF and World Bank

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

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

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

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

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

APRIL 20 | 3:16 PM ET

Dispatch from IMF-World Bank Week: A fractured foundation

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

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

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

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

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

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

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

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

Watch more

APRIL 18 | 2:16 PM ET

Three ways to think about Trump’s tariffs

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

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

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

Explore the full Trump Tariff Tracker

Trump Tariff Tracker

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

APRIL 16 | 3:52 PM ET

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

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

Read their answers

New Atlanticist

Apr 16, 2025

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

By Martin Mühleisen, Jason Marczak

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

Argentina Fiscal and Structural Reform

APRIL 11 | 7:22 AM ET

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

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

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

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New Atlanticist

Apr 11, 2025

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

By Hung Tran

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

Economy & Business Politics & Diplomacy

APRIL 8 | 11:46 AM ET

No one is coming to save the global economy

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

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

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

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

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

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

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

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New Atlanticist

Apr 8, 2025

No one is coming to save the global economy

By Josh Lipsky

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

China Economy & Business

APRIL 8 | 10:15 AM ET

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

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

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

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New Atlanticist

Apr 7, 2025

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

By Elizabeth Shortino

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

Economy & Business International Financial Institutions

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