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EPP Summit - 6 March 2025 - Friedrich Merz

Friedrich Merz confirmed as Germany’s chancellor – but betrayal by MPs in a secret ballot means he starts from a position of weakness

by Ed Turner

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Friedrich Merz has been confirmed as Germany’s new chancellor after a close shave left his future in doubt. Merz lost a first round of voting among MPs gathered to confirm his role, and may never know who among his own coalition betrayed him. After the shock of the morning vote, a second vote was called and whoever was blocking his path appears to have stood down. Merz’s CDU/CSU had struck a coalition deal with the social democratic SPD. Ministers were nominated and ready to take office and Merz’ election as chancellor was scheduled for the morning of May 6. But for much of the morning, this looked uncertain. Candidates for chancellor regularly fall short of the number of votes they’d expect to receive (from MPs in their own party and from their coalition partner), and there have been some close-run races, such as Helmut Kohl in 1994, who made it through by just one vote. But this was the first time a candidate has lost the vote. Merz fell dramatically short in the first round, receiving only 310 votes. That’s six below the overall majority he needed, and 18 below the number of MPs in his own CDU/CSU/SPD coalition. Germany’s constitution requires this ballot to be secret so we don’t know and may never find out who voted against Merz. In the second round of votes, hastily organised after Merz’s failure in the first, 325 votes, more than 316 required. There were 289 votes against, one abstention and three invalid votes. Merz will now hope the first vote can be dismissed as “false start” and that life will quickly move on. Why did this happen? There are four groups of MPs who might have, in secret, voted against Merz in the first round. It’s possible that all four were represented in the group – and we will never know for sure. The first is those CDU/CSU parliamentarians who were unhappy with Merz. In particular, just days after his election when he argued for balanced budgets, he pushed through a reform of Germany’s constitutional restrictions on government debt to allow extra defence and infrastructure spending. This irked fiscal hawks, some of whom may have decided to send him a message during the vote. The second is those CDU/CSU MPs who had hoped for ministerial office and missed out. The was inevitable, especially since Merz secured fewer cabinet positions than had been expected for his own party. The third group would be made up for SPD MPs who missed out on a ministerial post or were unhappy at choices of ministers. Fourth, suspicion will fall on some of the leftwing MPs who have policy disagreements with Merz. His decision to vote with the far-right AfD on immigration policy before the election caused great anger. There are internal SPD critics who feel the coalition agreement makes too many concessions to Merz, particularly on immigration. One message about the new government is clear: it had hoped to be more united than its predecessor, the three-party coalition which was frequently consumed by public quarrelling and in the end collapsed over budget policy. Those ambitions have fallen at the first hurdle. We should not overstate the risks to government stability. Most votes happen in public, not secret, so MPs are much more likely to tow the government line from here on. And chancellors have often governed with smaller majorities for an extended period. However, this debacle is a bad omen. If Merz turns things around quickly, this episode can be forgotten. But if he doesn’t this early blow to his authority will embolden the AfD, which will point to the apparent dysfunction of mainstream parties and capitalise on public dissatisfaction. Nor will this blow to Merz’s authority help him realise his ambition to show leadership in Europe. Merz’s poll standing was already weak, and these events risk causing further damage. His first days in the job will now be even more difficult than he expected.

Energy & Economics
Nuclear power stations in Japan, 3D rendering isolated on white background

Japan's return to civil nuclear power reflects government pragmatism

by Gauthier Mouton

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Fourteen years after the Fukushima incident, faced with an energy crisis, geopolitical tensions and decarbonization goals, Japan launches nuclear power once again. The incident at the Fukushima Daiichi power plant on March 11, 2011 seems like a distant memory. From now on, Japan is committed to “maximum utilization” of nuclear power, as stated in substance in the 7ᵉ Strategic Energy Plan, adopted on February 18, 2025 by the Japanese government. This is a 180-degree turn from the previous 2021 plan, which aimed to significantly reduce reliance on the atom. Japan, an Asian pioneer in this field, first connected a nuclear power plant to its electricity grid in 1966 (11 years before South Korea and 35 years before China!). So why is Tokyo turning back to nuclear power? In addition to the goal of reducing greenhouse gas emissions, soaring gas prices due to the war in Ukraine make nuclear power a more attractive option for Japan, a country that imports 90% of its energy needs. Nuclear-generated electricity will reach record levels in 2025, accounting for just under 10% of global production, according to the International Energy Agency (IEA) in a report published in January 2025. This growth is driven by the electrification of uses and sectors such as electric vehicles and data centers. With the rise of artificial intelligence, the IEA predicts that the electricity needs of data centers could double by 2030, partly justifying Japan's decision to revive nuclear power. On a domestic scale, public opinion and changes in the Japanese political landscape offer further clues to understanding this reorientation. Japan is also banking on nuclear power to stay in the global geo-economic competition for energy. Government reassurances The release of contaminated water from the Fukushima nuclear power plant into the Pacific Ocean on August 24, 2023 has aggravated neighborly relations in East Asia. Although the project was approved by the International Atomic Energy Agency, the release of over 1.3 million cubic meters of tritiated water provoked a furor in South Korea and a strong reaction from China, which suspended all imports of Japanese seafood for over a year. Are these contaminated waters really safe? Immediately after the meltdown of the three reactors, the most urgent objective was to cool the corium, a mixture of fuel and molten metal, with seawater. However, chemical treatment of the recovered water eliminates almost all radionuclides, with the exception of tritium. Since 2011, the Japanese government has been investigating the health repercussions of the accident, the results of which are being monitored by the Institute for Radiation Protection and Nuclear Safety. Of the millions of samples taken between 2011 and 2019, less than 1% exceeded the limit of 1,000 Bq/kg, in line with World Health Organization standards. The Ministry of the Environment has also set up an interim storage site for the most contaminated waste, at Okuma and Futaba, scheduled to operate until 2045. Understanding nuclear risk The power plant accidents at Three Mile Island (1979) and Chernobyl (1986) were the result of human error, characteristic of what Ulrich Beck describes as the risk society. Fukushima, however, was the result of an earthquake followed by a tsunami. Despite the construction of anti-tsunami walls, the threat of natural disasters remains, as the Noto earthquake on January 1, 2024 reminded us. In one of the world's most seismically active countries, public opinion on nuclear risk has evolved considerably over the last ten years. Whereas in 2013 only 22% of Japanese supported the restarting of power plants, the most recent poll carried out in February 2023 by the leading national daily, Asahi Shimbun, showed that 51% of Japanese are now in favor of a return to nuclear power. An unprecedented political scene The early parliamentary elections of October 2024 forced the parties to clarify their positions on the role of the atom in the archipelago's power generation. Prime Minister Shigeru Ishiba, hoping to strengthen the influence of the Liberal Democratic Party (LDP), called the elections, but they led to an electoral debacle. For the first time since 2009, the LDP and its center-right ally Komei no longer represent the main ruling coalition. This political crisis revealed the differences within the LDP-Komei on energy strategy. The conservative PLD advocates “maximizing the use” of nuclear power plants and the development of new reactors, while its ally advocates a non-atom-dependent society. Prior to the elections, the race for the LDP nomination had highlighted the reversals of Shigeru Ishiba's previously anti-nuclear rivals. The main opposition group, the Constitutional Democratic Party, led by popular former Prime Minister Yoshihiko Noda, recognizes the need to maintain some nuclear capacity in the short term, but rules out the construction of new power plants. Other groups, such as the People's Party and the Japan Innovation Party, advocate restarting power plants and modernizing the nuclear fleet. Finally, the Japanese Communist Party and several small environmentalist groups remain firmly anti-nuclear. Behind this ideological fragmentation within the Diet, however, all agree on the imperative of Japan's energy transition. Decarbonizing while remaining competitive In addition to the goal of reducing greenhouse gas emissions by 73% in 2024 compared to 2013, Japan has also set an ambitious target of 20% to 22% nuclear power within the energy mix by 2030. However, with a fleet of 14 reactors currently in service, the country does not have the capacity to meet this target. It takes decades to build new power plants, and many years to restart existing reactors. Far from the Bataan nuclear power plant in the Philippines, and its "ghost" image, Southeast Asia represents a fast-growing market for nuclear power. Indonesia, for example, has unveiled plans to build 20 new power plants by 2036, focusing on small modular reactors that are safer, cheaper and quicker to build. Vietnam has also signed agreements with Japan. These projects are reshaping the energy landscape in Southeast Asia, and underscore the growing geo-economic competition. In addition to electricity production, Japan sees nuclear power as a vector of technological innovation, and therefore a lever of influence for its companies in this high-potential region. In July 2023, for example, Mitsubishi Heavy Industries was appointed to lead a program on sodium-cooled fast reactors. Let's avoid any “sensationalism” about the return of the atom to Japan, as the energy mix remains largely carbon-based (oil: 38%; coal: 26%; natural gas: 21%; nuclear: 5.8%). This reversal is not a paradigm shift, but part of a worldwide trend, particularly in Asia, where three-quarters of the reactors under construction are located. The challenges facing the archipelago are numerous: geographical constraints, an energy-intensive economic model and an unfavorable geopolitical context that increases energy insecurity. As a result, the Japanese government's decision to revive nuclear power reflects a form of pragmatism.

Energy & Economics
United Arab Emirates, Kuwait, Qatar, Bahrain, Saudi Arabia, Yemen and Oman. GCC Gulf Country Middle East Flag 3D Icons. 3D illustration of GCC Country Flags arranged in around the GCC Logo

Diversification nations: The Gulf way to engage with Africa

by Corrado Čok , Maddalena Procopio

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Summary -The UAE, Saudi Arabia and Qatar have longstanding political and security interests in north and east Africa.- But the late 2010s saw a “geoeconomic turn” in their foreign policy. This has led the three Gulf states to make inroads into sub-Saharan Africa.- Energy and infrastructure are at the heart of this new economic involvement. These sectors serve Gulf interests, but they are also where Africa’s needs are greatest.- This is improving the image of Gulf states in Africa. This ties in with a trend among African governments to diversify their own international partners and foster competition among them.- The EU and its member states remain influential in Africa, but their involvement is declining. The Gulf expansion in Africa could exacerbate this—unless Europeans find a way to respond. The geoeconomic turn Africa is big business in today’s geopolitics and geoeconomics. “Great powers” have returned to compete on the continent, with rising powers like Turkey and Gulf monarchies snapping at their heels. African leaders, meanwhile, are capitalising on the fragmentation of the global order to foster competition among all these powers. In this evolving landscape, the United Arab Emirates, Saudi Arabia and to a lesser extent Qatar are looking beyond their traditional African interests. The three Gulf states have long extended their reach into east and north Africa. There, they have worked to secure land and trading routes, extract resources and project influence over their preferred versions of Islam. In so doing they have tried (and spent big) to empower friendly governments and political actors through a combination of diplomatic, economic and security-related assistance. This political-military posturing has often drawn them into competition with one another—for instance through their involvement in the conflicts in Yemen and Libya. The UAE has been by far the most assertive of the three states in this regard, with recent Emirati involvement in Sudan’s civil war prompting regional and international condemnation. Despite these political interests, the late 2010s saw a “geoeconomic turn” in the foreign policy of the Gulf powers. This has led them to make inroads deeper into Africa. The covid-19 pandemic and falling oil prices hit sectors crucial to these states economies: aviation, for instance, as well as tourism and logistics. These oil and gas producers also know that fossil fuels will be out of the picture at some point in the future, thanks to the global energy transition. With its booming markets and rich natural resources, sub-Saharan Africa brings opportunities for Gulf states to diversify their economies. Moreover, African governments offer them backing to pursue a dual approach to the energy transition: no pressure to lose the oil and gas right now (and Africa offers plenty of prospects in that regard) but opportunities also position themselves as leaders in sectors vital to future economies—from renewables to minerals. Such pragmatic engagement should guarantee Gulf states greater returns than costly security politics in their “near abroad”. This could all affect European interests in Africa, not least because the continent is also becoming a crucial partner for Europeans to sustain and diversify their own energy supplies. In our 2024 paper “Beyond competition” we examined the UAE’s involvement in African energy sectors, setting out how Europeans might mitigate the risks that poses and grasp the opportunities. This policy brief expands on that research. First, it breaks down the UAE’s, Saudi Arabia’s and Qatar’s geoeconomic activities in sub-Saharan Africa, zooming in on energy as a central focus of their strategy. Next, it analyses the divergences in the Gulf states’ economic expansion, and how these interact with their traditional African interests. Finally, it explains how Europeans should grapple with this emerging phenomenon. Africa and a fragmenting global order Over the past five years, economic and geopolitical turmoil has changed how big and rising powers compete in Africa—and how African countries relate to the rest of the world. This is the case for both political and economic engagement. Africa The African embrace of diversification reflects a broader movement within the global south that advocates a reimagined global order. Within this, a key demand is for equity, inclusivity and agency in global governance structures—indicating a deliberate pivot away from historical dependencies on Western-led models. This includes traditional frameworks of aid and development. This multipolar moment gained momentum as the tumult of the post-covid years and Russia’s invasion of Ukraine intensified. As Western states focused on economic and geopolitical upheavals closer to home, many African leaders saw neglect and self-centredness. This was exemplified in African criticism of Western vaccine hoarding, and then of the redirection of aid to Ukraine at the expense of African crises. So African leaders have increasingly sought out alternative partners.   But these developments only exacerbated a more longstanding trend. From the early 2000s onwards, Western engagement with Africa has steadily declined. Other powers—such as China, Turkey and Russia—have expanded their influence. Indeed, Russia and China in particular have leveraged African aspirations and grievances against Western-led frameworks. This has helped them legitimise their political, economic and military projection in Africa. It could also open up space for stronger West-free alliances, such as through the BRICS+ grouping (which the UAE joined and to which Saudi Arabia was invited in 2024). Gulf The African embrace of multipolarity resonates with Gulf powers, which underpin their own foreign policy with an aim to cultivate partnerships across the east-west and north-south spectrum. Gulf states do not explicitly adopt anti-Western rhetoric. But, to address their domestic imperatives, they are strategically tapping into African governments’ call for alternative partners. The three states offer their African partners development cooperation and financing that depart from the Western model. They tend to offer a more flexible and rapid deployment of funding. Their state-backed economic models also align political agendas with strategic investments. This allows them to leverage their financial resources to fill the capital and political void left by other international players. Such alignment is timely and could be mutually beneficial as African and Gulf states navigate the shifting dynamics of global power distribution. It also seems to be boosting Gulf states’ political capital with African governments. But the monarchies’ strategic interests may not always line up with Africa’s long-term development goals, which could foster extractive and exploitative relationships. Their expansion in Africa could also reduce the space for Europeans to rebuild their ties with the continent. Europe Europeans maintain a significant presence in Africa. But the fragmenting global order could challenge their status, particularly in the face of the second Trump presidency and its implications for Western unity. European economic engagement in Africa has been declining for some time, just as Western governance, aid and financing models are meeting competition For now the EU remains sub-Saharan Africa’s largest trading partner, with trade flows between the two regions valued at approximately $300bn annually. Yet, the EU’s share of trade with sub-Saharan Africa has dropped significantly since 1990. This reflects competition from countries like China, whose rapid ascent is evident in its large increases of both imports and exports with the region. Indeed, China now rivals the EU in terms of imports to sub-Saharan Africa.   Sub-Saharan Africa’s imports from China have grown especially in the consumer-goods sector, but also increasingly in the energy and other industrial sectors. The EU, meanwhile, continues to dominate in imports of high-value goods such as machinery, chemicals and vehicles. Sub-Saharan Africa exports primarily raw materials, minerals, and oil to Europe, akin to its exports to other regions, such as China and the Gulf countries. Emerging players like the UAE have witnessed a steady growth in their overall share (though percentages do not reach 10% of the total yet). Gulf-Africa (geo)economic relations on the riseInvestment and finance The scale of Gulf financial engagement in Africa underscores the monarchies’ expansion. In 2022 and 2023 the Gulf Cooperation Council states collectively funnelled nearly $113bn of FDI into the continent, exceeding their total investments over the previous decade ($102bn). The UAE, Saudi Arabia and Qatar are investing most in sectors that not only reflect their interests, but in which Africa’s needs are greatest: energy and climate and infrastructure It is the infrastructure (and connectivity) investments that form the backbone of their expansion. Interests among the states overlap, but the UAE invested first and by far the most in ports, logistics networks and special economic zones. Saudi Arabia is the main investor in roads. All three states have stakes in sub-Saharan Africa’s air connectivity, though Saudi Arabia to a lesser extent to date.  These investments open up new opportunities across the continent. They also boost the Gulf states’ geostrategic presence, helping to fill a gap in Africa’s infrastructure that China has only partially filled over the last 20 years—while the EU is only now trying to launch a comeback with the Global Gateway. Moreover, Gulf states are helping to fill the funding gap that Western financiers left as they withdrew. In 2021, for example, the UAE pledged $4.5bn to support energy transition efforts in Africa. This financial commitment is meant to support green energy, infrastructure development and the wider energy transition. In March 2024, four Emirati banks helped the Africa Finance Corporation (AFC) raise $1.15bn in the largest syndicated loan ever pooled together by the AFC. Saudi Arabia, which has long provided development assistance to Africa through the Saudi Development Fund, signed a 2023 memorandum of understanding with the AFC to jointly finance infrastructure across the continent. In late 2024 the Saudi government pledged $41bn through a mix of financing tools to finance start-ups, provide import-export credit and spur private sector growth in Africa over the next 10 years. In 2022 Qatar pledged a $200m donation for climate adaptation projects in African countries vulnerable to the impacts of climate change, including funding for drought and flood mitigation programmes, as well as renewable energy access in off-grid communities. In 2024 it contributed to the creation of Rwanda’s Virunga Africa Fund I, launched with $250m to strengthen social services and private sector growth in innovative domains in Rwanda and the rest of Africa. However, many of the investments and deals are opaque and come with limited accountability. This raises questions about whether Gulf-Africa financial and investment partnerships will truly be mutually beneficial. The balance of power often tilts in favour of the Gulf monarchies due to their financial strength, which may lead to asymmetrical outcomes—including a potential increase of debt burdens in Africa. Despite focusing on critical sectors for Africa’s development, these investments may not shift the underlying dynamics of extractivism that have historically characterised Africa’s relations with external players. As the trade data clearly show, this includes the Gulf states. Trade The UAE’s foreign policy has long been more focused on trade than that of the other two Gulf states. Accordingly, trade (including those goods it re-imports and exports via its economic zones) between the UAE and sub-Saharan Africa has grown robustly over the past decade. Qatar and Saudi Arabia, meanwhile, have seen more limited change. The UAE ventured early into trade, logistics and services to secure sustainable revenues—particularly Dubai, an emirate with very limited oil reserves. Emiratis have undertaken extensive expansion of port and transport infrastructure across Africa (led by logistics giants such as the Dubai-based DP World and, more recently, Abu Dhabi Ports). This has helped turn the UAE into a trade gateway between Africa and the world.   The composition of Gulf-Africa trade reveals deeper dynamics in the economic relationship. In line with their global trading patterns, fuels and hydrocarbon derivatives dominate Emirati, Qatari and Saudi exports to sub-Saharan Africa. This reflects the centrality of fossil fuels in Gulf states’ expansion in the continent. The population of sub-Saharan Africa is rapidly growing; the region is also industrialising and urbanising at pace. The whole of Africa’s energy demand will likely increase by 30% by 2040—including fossil fuels. This creates new markets for Gulf states in sub-Saharan Africa. Sub-Saharan African exports to the Gulf, meanwhile, are largely made up of metals and minerals, including gold, as well as agricultural products. This underscores how the export relationship is largely extractive. Gold trade is particularly notable in the sub-Saharan Africa-UAE relationship, helping consolidate the country as a key global importer and refiner of the precious metal.   These trade patterns highlight mutual dependencies but also expose structural imbalances. Sub-Saharan Africa’s export profile—heavily skewed toward raw commodities—limits its benefits to African states, while Gulf countries capitalise on higher-value imports and exports. Energy diplomacy and the green transition Africa’s vast natural resources mean the continent is central to the global energy transition. Alongside reserves of oil and gas, it boasts plentiful minerals essential for renewable technologies (such as lithium, cobalt and rare earth elements), abundant solar energy potential, and well-preserved forests for carbon offset. This, combined with the region’s large and increasing energy demand, helps centre energy and climate in the Gulf’s African expansion. A rapid transition away from fossil fuels is unrealistic for the Gulf states, given their reliance on them for export revenues and GDP. In Africa, meanwhile, oil and gas still account for 40% of energy consumed by end users (its final energy consumption). As discussed, this creates new markets for Gulf states in which they can help meet Africa’s current and future demand. But Africa also acts as a gateway to new energy value chains. Gulf leaders know the hydrocarbon era is waning. This means they could lose the leverage oil and gas brought them in global energy governance. To maintain their relevance, they aim to lead in green economies too. They therefore work to integrate Africa’s energy markets and resources into their broader strategy for sustainable economic transformation. Hydrocarbons Gulf countries’ economies are betting on African governments’ interest in further exploiting their oil and gas resources to increase revenues and fulfil growing demand. Saudi Arabia and the UAE are mostly eyeing investments in distribution (downstream), and transportation and storage (midstream); while they have traditionally shown limited interest in Africa’s oil and gas exploration and production (upstream). Qatar, by contrast, is more focused on exploring upstream production and increasing its stakes in Africa’s LNG sector. This aligns with Qatar’s unique energy profile as a leader in the global LNG market. It also gels with its long-term strategy to consolidate global dominance in natural gas, especially as the energy transition increases demand for cleaner-burning fuels like gas. The UAE might be eyeing Africa’s LNG sector as well, as it expects natural gas to contribute more significantly to its energy mix by 2050, but currently relies on Qatar for nearly one-third of its supply. Africa may prove helpful in expanding gas investments. Emirati energy giant Abu Dhabi National Oil Company, for example, has a stake in Mozambique’s Rovuma LNG project and a gas deal with BP in Egypt.   African countries find common ground with the Gulf states in resisting the rapid phase out of oil and gas advocated by advanced economies. For African nations, oil and gas remain vital sources of revenue, industrial growth and energy security; Gulf states need these resources as they are integral to their global influence and economic diversification efforts. This challenges the European position on oil and gas, and their reciprocal alignment could cement stronger consensus around a dual approach to the energy transition. Green value chains The UAE’s “We the UAE 2031” vision and Saudi Arabia’s “Vision 2030” are economic reform plans that include commitments to diversify their economies away from hydrocarbons. This underscores their leaders’ recognition that fossil fuels may not be around forever, but mainly that green value chains hold great value. The UAE and Saudi Arabia (but much less so Qatar) are therefore investing in the green energy transitions, both at home and abroad. Their investment also allows them to maintain their influence in global energy decision-making, including the speed and pathways to a net-zero world and economy. With its abundant solar and wind resources, sub-Saharan Africa is an ideal testing ground for Gulf countries to expand their renewable energy expertise. It is also an environment in which they can develop scalable projects and build exportable green technology capacities. All three Gulf states are investing in solar and wind plants across sub-Saharan Africa. They have also shown appetite in other renewable fields, such as batteries, green hydrogen and thermal energy. The UAE leads in this through its companies Masdar and AMEA Power; Saudi Arabia’s ACWA Power is also getting in on the act. Qatar has been eyeing opportunities for investments, though it favours joint or brownfield investments in large foreign companies’ projects to limit risks and costs.   Though several of these commitments are today pledges, their involvement could potentially contribute to expanding access to energy in Africa, helping address the continent’s critical energy deficit. Their dual-track approach to the energy transition allows them to advocate for a pragmatic transition that balances decarbonisation with energy security and economic development, enhancing their reputation among African governments as forward-thinking states on energy. Critical minerals At the same time, the UAE and Saudi Arabia are investing in mineral value chains. This underlines the strategic importance of these resources in their economic diversification and technological ambitions. Gold is the top import product from Africa to the UAE. But other minerals such as copper also rank high in Emirati imports—and in those to Saudi Arabia as well. These minerals are the backbone of the green economy. They are also critical for the digital transformation (including AI and defence, with the UAE eyeing dual-use minerals as it develops its national defence industry), but also infrastructure. In line with its trade-focused foreign policy, the UAE is seemingly more interested in tapping into the trade of these commodities. Saudi Arabia, meanwhile, seems keen to access raw resources for import, necessary to boost its industrial ambitions at home. Under Vision 2030, Saudi Arabia aims to develop domestic manufacturing and high-tech industries, such as electric vehicles and renewable energy technologies. Accessing African minerals aims to support this strategy by providing the necessary input for domestic production, and enabling Saudi Arabia to move up the value chain.   For African countries, the global race for critical minerals is a unique opportunity to move beyond their traditional role as providers of raw commodities. Many African governments recognise the potential of these resources to catalyse industrialisation, create jobs and generate more value domestically. This shift in perspective has led to increasing demands for investments that prioritise local processing and manufacturing rather than merely extracting and exporting raw materials. However, the extent to which Gulf players will align with these aspirations remains uncertain. Where the Gulf states diverge Despite some similar drivers, Emirati, Saudi and Qatari approaches in Africa vary significantly. The nuances stem from the states’ different domestic imperatives and foreign policy strategies. Although the shift to geoeconomics is clear, this underlines how the three states—especially the UAE—could still influence security across the continent as well as in their traditional regions of interest. Country profiles The UAE lacks significant domestic industrial capacity (except for the gold sector). This means it needs bigger and better trade routes to secure its revenues. Here, Africa’s expanding consumer markets and its centrality in green value chains offers an opportunity. Abu Dhabi adopts a risk-prone, largely state-backed, approach—though this is mitigated by a strong orientation towards economic returns. The UAE’s presence is becoming increasingly entrenched across the African continent. Despite focusing outwardly on economics, the UAE’s ability to leverage political influence to safeguard its interests has not gone away, as its involvement in Sudan shows. This politico-security approach is less visible in other parts of Africa, though it remains a tool that could shape Emirati-African relations in the years ahead. As the UAE’s economic interests expand in Africa, its leaders may find they have more to protect—which could increase the risk of them deploying the security approach.  The UAE’s energy diplomacy reinforces the idea that the country’s involvement in Africa will extend beyond economic ventures: the 2024 COP28 climate conference in Dubai, for instance, laid bare Emirati ambitions to position the UAE as a global leader in the energy transition. African alignment with the monarchy on the need for a dual approach makes Africa a key arena for Abu Dhabi to mobilise consensus. Saudi Arabia faces urgent domestic socio-economic imperatives linked to a growing population (largely under the age of 25) and high unemployment rates. This contrasts with the UAE and Qatar, which grapple with a shortage of domestic workforce. Africa is therefore appealing as a contributor to Riyadh’s economic transformation programme, which envisages a strong diversification of the economy. Green value chains rank high amid these efforts. But internal socio-economic constraints and the urgency of domestic reforms have prompted Riyadh to adopt a risk-averse stance. This has resulted in cautious and geographically limited engagement across the African continent. This caution contrasts with Riyadh’s more interventionist posture in the 2010s in the near abroad. Its aggressive policies to gain allies on the African side of the Red Sea strained rivalries with its neighbours. This included, for instance, the monarchy’s war against Houthis in Yemen from 2015, and its interference that contributed to the ousting of Sudan’s president Omar al-Bashir in 2019. Saudi Arabia now relies more on soft power and economic diplomacy, leveraging its traditional leadership of the Muslim world and development aid to advance its influence. This has led it towards a new approach largely oriented towards stabilisation—especially in the Horn of Africa—and multilateral dialogue. Yet, as Riyadh seeks to balance economic imperatives with geopolitical caution, its engagement in Africa remains transactional. Today, it is driven by immediate strategic needs rather than a long-term vision. Qatar, unlike the UAE and Saudi Arabia, is less constrained by energy transition-related pressures. Its reliance on gas provides Doha with greater economic stability (albeit vulnerable to overdependence on gas for revenues) and a competitive edge in the global energy market. Qatar has not to date significantly changed its approach to Africa, which is characterised by a focus on selective, strategically significant investments that hold both political and economic relevance. These targeted initiatives aim to strengthen bilateral ties in key sectors rather than pursuing broad-based engagement. This restraint is a reflection of Doha’s limited institutional knowledge of Africa and an overall risk-averse foreign policy, which often leads to it to engage in brownfield investments rather than expand into new ventures. Qatar, similar to Saudi Arabia, pursues a soft-power approach to political affairs on the continent. This is characterised by a strong emphasis on conflict mediation. It has played key diplomatic roles in past negotiations, such as in the Darfur conflict, the Eritrea-Djibouti border dispute and Somali reconciliation efforts. More recently, in March 2025 it hosted mediations between the Democratic Republic of Congo and Rwanda, managing to bring both sides to the table where other negotiators failed. This approach aims to enhance its global standing as a facilitator of dialogue and peace. Its Africa strategy is a balancing act between economic priorities and broader diplomatic ambitions.   What this means for Europe The EU and its member states will have to work with Gulf states in Africa. If they fail to do so, their political and economic decline on the continent could accelerate. This would also likely open up space for power blocs such as Gulf-China and Gulf-Russia partnerships to deepen their relations with African countries. But a lack of engagement with Gulf states also means Europeans would miss out on opportunities. Crucially, Europeans could benefit from collaboration with Gulf powers to align with African governments in shaping reciprocal green industrial transitions. These risks and opportunities stem from the strengths and weaknesses of Gulf states’ involvement in Africa.   These features also create synergies between Europe and Gulf states in Africa. The EU and its member states can add unique value to sectors vital to Gulf states’ interests, which could help mitigate the risks both sides face. Gulf countries, for example, would benefit from European technological know-how and innovation in sectors such as renewable energy. Moreover, Europeans have extensive experience and interest in human capital development; Saudi Arabia’s and Qatar’s soft-power approach means they have a growing interest in providing education and training. This could combine to help build the skilled and educated workforce that Africa’s rapid development and industrialisation requires. More synergies exist in Europeans’ longstanding political and institutional presence across Africa, as well as their focus on regulatory frameworks and experience dealing with African markets and governance structures. This could all be of use to the less Africa-experienced Gulf countries, helping to minimise their exposure to political and economic uncertainties. Europeans would gain reciprocal benefits through access to Gulf states’ financial resources, their capacity to roll out large scale projects, and their work to expand connectivity. The monarchies are also building greater influence in forums such as the UN and the G20, and more specifically in the energy sector (the COP climate conferences, for example, but also Saudi Arabia’s Future Minerals Forum). Through this, Europeans could leverage their relations with Gulf states in Africa to respond to the demands of the global south for equality in global governance. This would not only bolster Europe’s role in Africa’s sustainable growth but also help Europeans maintain a competitive edge in the evolving global energy and geoeconomic landscape. African governments would also benefit. Cultivating a diverse range of international partners lies at the heart of their newly enhanced bargaining geopolitical and economic power. This means that fostering Europe-Gulf cooperation could be vital for Africans to mitigate the risks of a declining European presence and the expanding (but still nascent) expansion by Gulf states. How Europeans should respond Initially, the EU and its member states should focus on four opportunities for cooperation with Gulf and African states. 1.Energy cooperation and access. The growing presence of Gulf states in Africa’s energy transition means Europeans can help improve access to (clean) energy across the continent. Gulf states are investing in power-generation projects and transport networks. These could enhance Africa’s economic growth, contribute to its market expansion (also through regional integration), and make the continent more attractive for other investors. Europe’s technological expertise in renewable energy complements the Gulf states’ investment capabilities and ambitions in this sector. a.Opportunity: Europeans should consider joint investment with Gulf states in Africa’s renewable energy projects. The UAE’s Masdar and Saudi Arabia’s ACWA Power can roll out large-scale renewable projects. European governments and companies would benefit from collaboration with such companies and with African governments, not only to help boost Africa’s renewable capacity but also to reduce the risks and costs of investment. For example, the government of Mauritania is already collaborating with the UAE’s Infinity Power and the German developer Conjuncta to develop a 10 gigawatt green hydrogen plant in the country. European energy companies should also leverage Qatar’s risk-aversion and interest in reducing risks via partnerships to expand their operations (as hinted at in a 2024 deal between Italy’s Enel Green Power and the Qatar Investment Authority). b.Risk: If Europeans do not take up such opportunities, Gulf countries could end up dominating Africa’s renewables sector. Their involvement in the continent’s energy market expansion may prioritise Gulf-centric policies over European or African climate and energy as well as industrial interests. Without a stronger European presence, Europe risks missing opportunities to contribute shaping Africa’s energy landscape in a way that aligns with both European interests and global climate objectives. 2.Cross-regional infrastructure development. The Gulf states’ investment in infrastructure and regional connectivity mean Europeans could help boost Africa’s economic growth and stimulate investors’ interest. Given the sheer scale and complexity of these projects, trilateral cooperation would help distribute costs, risks and expertise. By proactively collaborating with Gulf states, in particular the UAE and Saudi Arabia, Europeans can secure a role in Africa’s infrastructure transformation. This would help them ensure that major projects also align with European trade interests and long-term strategic priorities. a.Opportunity: The EU and member states should cooperate with Gulf and African states on infrastructure, focusing on the UAE’s maritime and logistics capabilities and Saudi Arabia’s substantial infrastructure investment. This would enable them to accelerate critical projects, from roads to power plants and energy distribution systems. Europeans should also collaborate with Gulf and African states on cross-regional railways. Trilateral cooperation on such initiatives as the “Lobito Corridor” (linking Angola, DRC and Zambia) would contribute to the development of high-impact infrastructure that no single state could easily undertake alone. b.Risk: If Europe does not do this, it risks being sidelined from new trade corridors and supply chains that will shape the continent’s economic and geopolitical landscape. Control over critical infrastructure—ports, railways, logistics hubs and energy networks—is a vital tool of geoeconomic influence, determining who facilitates and benefits from Africa’s economic growth. If Europe remains passive, Gulf and other external actors could shape Africa’s infrastructure in ways that reduce European access, limit European firms’ market participation and weaken Europe’s overall influence on regional economic integration. 3.Capacity building and human capital development. Africa’s rapid development requires an educated and skilled workforce. Saudi Arabia and Qatar have a growing interest in education and vocational training, an area in which Europeans have extensive experience. This is another potential area for trilateral cooperation. a.Opportunity: The EU and member states should collaborate with African and Gulf countries to launch joint capacity-building initiatives. Europeans would bring a unique contribution to these efforts through their experience in advanced training models, institution-building and regulatory frameworks. Moreover, African countries should proactively coordinate new Gulf efforts with European know-how, particularly in vital sectors such as energy and infrastructure. b.Risk: Inaction from European and African governments could mean Gulf-led training programmes shape Africa’s workforce according to the monarchies’ strategic priorities. This risks limiting European influence in Africa’s future development. It could also compromise European access to a skilled African workforce—essential to ensure foreign investors can ensure they meet African demands for local content. 4.Financial instruments and investment mechanisms. Africa’s development requires significant capital inflows, but investors often see the continent as high risk. The Gulf states’ growing role as both a financier and developer of Africa’s energy infrastructure presents opportunities for joint de-risking strategies. This would help both European and Gulf investors to overcome these risks. By pooling resources and expertise, Europe and Gulf countries can expand the capital available to fill Africa’s financing gaps—particularly for large-scale energy and infrastructure projects. a.Opportunity: European financial institutions should work with their African counterparts and Gulf investors and developers to de-risk their investment in Africa. This should include, for example, the European Investment Bank and European Bank for Reconstruction and Development, but also member states’ development banks such as the KfW (Germany) or Cassa Depositi e Prestiti (Italy). Such collaboration would help them de-risk investments and roll out large-scale infrastructure and energy projects, or scale up existing ones. This collaboration would appeal particularly to risk-averse countries such as Saudi Arabia and Qatar. b.Risk: Without this, Gulf investors could increasingly dominate Africa’s investment landscape. This shift could result in financial structures that, while effective for Gulf interests, may not align with European business practices, regulatory standards or long-term sustainability goals. That would likely result in European companies facing a more competitive and opaque investment environment. It could also erode Europe’s ability to promote investments that meet both Africa’s needs and European objectives. These four initial opportunities could act as a testing ground for trilateral cooperation. This, in turn, may create new synergies between all three parties. Europeans would then be well placed to build on this initial engagement to safeguard its geopolitical and geoeconomic interests in Africa; while developing new partnerships with rising powers that may benefit Europeans well beyond the continent.  Acknowledgements We would like to thank the Bill and Melinda Gates Foundation for their generous support that allowed us to organise workshops and conduct extensive research and travel. We are immensely grateful to Kim Butson, our editor, for helping us keep a clear direction, and for her unwavering patience especially in the last editorial phases. And to Nastassia Zenovich for giving such a great visual shape to our ideas. We are also very thankful to the entire ECFR Africa and MENA teams’ colleagues for regular brainstorming and helping us challenge our assumptions. Last but not least, this paper would not have been possible without the many officials, diplomats, experts and thinkers in Europe, Africa and the Gulf, who generously dedicated their time and ideas, contributing significantly to shaping this project.This article was first published by the European Council on Foreign Relations (ECFR) [here].

Diplomacy
H.E. the President of the Republic, Gabriel Boric Font, visits the Supreme Federal Court of Brazil and holds a protocol reception with the President of the Supreme Federal Court of Brazil, Minister Luís Roberto Barroso.

H.E. President of the Republic, Gabriel Boric Font, leads the inauguration of the Roundtable: Business and Investment Opportunities on the Bioceanic Corridor, Brasília 2025

by Gabriel Boric Font

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском H.E. President of the Republic, Gabriel Boric Font, together with the Minister of Economy, Development, and Tourism of Chile, Nicolás Grau, and the Minister of Planning of Brazil, Simone Tebet, leads the inauguration of the Roundtable: Business and Investment Opportunities on the Bioceanic Corridor, Brasília 2025. Thank you very much, Nicolás, Minister Tebet, and everyone present. First of all, I apologize for the 15-minute delay. We were previously attending a preparatory forum for the COP in Belém do Pará, convened by President Lula with several world leaders, including the presidents of China, France, Spain, Vietnam, and South Korea. That delayed us a bit, so my apologies. That said, it is truly an honor for me to be here because it represents something that resonates with me on two distinct yet complementary dimensions. The first is South American integration. One of the things that Pepe Mujica has repeated to me countless times whenever I visit him — and something President Lula has also emphasized on every occasion we have met — is that Latin American integration, and particularly South American integration, must necessarily go beyond rhetoric, beyond adjectives, and beyond summit photographs. It must be about result-oriented actions, concrete actions that materialize, that our people and communities can see and feel in their daily lives. I believe that the Bioceanic Corridor is one of the best examples of this serious approach to integration. Beyond, I insist, adjectives and rhetoric. And secondly, because it is integration with decentralization. This is no small matter. Brazil is a federal state, while Chile is a unitary state — which is an elegant way of saying "centralized." Although we have gradually advanced in granting greater power and resources to the regions — for example, by electing governors, who used to be appointed by the President of the Republic — we still have a long way to go. It is enough to see that more than 40% of Chile’s population, out of 20 million inhabitants, lives in the capital, Santiago. This is partly due to cultural inertia, but also to a lack of opportunities and development in the other regions. I come from an extreme region — from Chilean Patagonia, from the southernmost part of the world. I was a deputy for eight years representing Magallanes and the Chilean Antarctic. Therefore, I am fully aware that from places like Planalto in Brazil or La Moneda in Chile, the daily reality of the regions — especially the most remote ones — is not always fully perceived. That is why I am very pleased that, in the case of Chile, this initiative is being carried out by empowering the north of the country with local authorities. That is why today we are joined by Ricardo Díaz, Governor of the Antofagasta Region, and José Miguel Carvajal, Governor of the Tarapacá Region, which provide a significant portion of Chile’s wealth. However, this wealth is not necessarily reflected in the quality of life within those regions, despite their tremendous potential. Therefore, I believe this project is very positive in both dimensions. The Bioceanic Road Corridor aims to connect the Atlantic and Pacific Oceans through an extensive network of road and port infrastructure. I have shared this anecdote before, but since there are people here I hadn’t met previously, I’ll tell it again. The former President of Chile, Ricardo Lagos — who, if I remember correctly, served during the same period as Fernando Henrique Cardoso and the first term of President Lula — once told me, thinking about the future, that the Mediterranean was the center of the civilized world, at least from a European perspective, for much of history. After World War II, the center of the world shifted to the North Atlantic. But today, the future of the world lies in the South, particularly in the Pacific, in the Pacific Ocean. Chile is part of several treaties, including the CPTPP 11, and various free trade agreements with ASEAN countries, particularly with China, and we are also working on others. These agreements grant us, I would say, privileged access to sectors that are among the fastest growing in the world today. As Minister Grau mentioned, we are also working on a Comprehensive Economic Partnership Agreement (CEPA) with India, the world’s most populous country with 1.4 billion people. The Bioceanic Corridor will be at the heart of South America. The Mayor of Iquique showed me a world map and pointed out, "Iquique is the center of the world." Mayors, governors, and leaders everywhere always praise their own regions, but I find that a beautiful idea. Now we are talking about the Bioceanic Corridor, not about a particular city or a particular country. We are speaking about more than 2,400 kilometers that will significantly reduce cargo transport times from the interior regions of Brazil and Paraguay to the markets of the Asia-Pacific. Instead of crossing the Panama Canal — which, as we know, is currently facing significant congestion due to the climate crisis and water shortages — we will create a new route. And what will this lead to? We will link the Pantanal with the Atacama Desert, two ecosystems that are unique on the planet — and this is not just about trade. I really liked what Minister Tebet said: "This is also about tourism." We discussed it yesterday during the business forum we attended, where President Lula also participated: how tourism is not only one of the few non-polluting industries, but also how tourists often become the best ambassadors for our countries and the best promoters of the destinations they visit. In 2024, we had a record number of Brazilian tourists visiting Chile. This happened because the tourists who came in previous years had a good experience and shared it with their families, friends, and colleagues. The same is true for Chileans traveling to Brazil — and not just to Rio de Janeiro or São Paulo, but also to Bahia, Fortaleza, Mato Grosso, and the Amazon. Thus, we have opportunities in many areas. We have taken this very seriously, and from Chile, we created a high-level commission to drive this project forward in a coordinated manner. One of the greatest challenges for states is achieving coordination and collaboration among different public agencies to move projects forward more quickly. That’s why what Nicolás mentioned is so important regarding the input we need from the private sector to more rapidly identify and resolve bottlenecks and obstacles together. In this high-level commission, we have brought together various ministries, regional governments, and local actors because we have learned from experience that without involving organized communities, these initiatives do not work well. We want to ensure that this project brings direct benefits to our people — to the families of Tocopilla, Antofagasta, and Iquique, as well as to the provinces of Santa Fe, Jujuy, Salta, and Mato Grosso do Sul. However, we still face significant challenges. One of the main concerns of our populations — and I am sure this is true in Brazil as well, but I will speak specifically about Chile — is security. While we have made significant progress in infrastructure — Nicolás outlined the improvements we have achieved and the ones we will continue to make, as infrastructure is a long-term investment — we must also address the challenge of security. Today, we see that crime, delinquency, drug trafficking, human trafficking, and arms trafficking are no longer purely local issues; they are transnational. The case of the Tren de Aragua is perhaps the most well-known in recent times in Latin America, at least in the Pacific region. But this issue deeply concerns our people, and therefore, opening new routes must go hand in hand with providing security for those traveling along them. All trucks must be guaranteed safety, as well as dignified conditions for rest, meals, and repair services in case of vehicle breakdowns — and of course, security for all people. Whether through scanners, police presence, artificial intelligence, or other mechanisms, we must ensure that everyone can feel safe. Because ultimately, when crime spirals out of control and we are unable to contain it, it effectively becomes a new kind of tax — an undeclared tax — because it forces increased spending. And in the end, it is the consumers who bear that cost. Therefore, we must be extremely careful and put great effort into addressing this issue. Another positive aspect is the very clear complementarity between our countries. Brazil is a first-rate industrial and agri-food powerhouse. Chile enjoys privileged access to the Pacific and Asian markets and has increasingly positioned itself as a technological hub. Argentina and Paraguay contribute with critical transport routes and productive capacities. If all of this is properly coordinated, it can transform South America into a global integration platform with sovereignty, without external tutelage, promoting free trade in times of uncertainty for the benefit of our peoples. Here we are also talking about strengthening many SMEs — small and medium-sized enterprises — in addition to large companies. If we do this well, it will generate benefits, circulation, and a dynamic that will positively impact many people. Achieving this, however, is primarily the responsibility of the states, but certainly also in close partnership with the private sector. At this moment, global integration is being called into question. The United States has unleashed a trade war marked by volatility and great uncertainty. And the best way to respond to this trade war is not through loud declarations. From Chile’s point of view, and considering the position we hold in the world as a medium-sized country, we will not respond with retaliation. We will respond with more integration. We will respond through the CEPA agreement with India, through the initiatives we are advancing with the United Arab Emirates. We will also push and engage in dialogue with countries like France to expedite the approval of the agreement between the European Union and Mercosur. And we will continue integrating regionally within South America, working together with our regions. That is why we must continue working diligently to facilitate customs processes, promote cross-border investments, and improve logistics throughout the entire supply chain. And I ask, particularly of the private sector, that you intensify these business alliances. I assure you that you can trust the Chilean state to provide guarantees for long-term investment. We have a development path that is environmentally conscious and understands that to better distribute wealth, first we must grow more. There is a balance to be struck: generating more wealth to distribute it better, not merely accumulating it in the hands of a few. But this is a cycle — to distribute wealth better, we must first create it. We cannot be satisfied with what we already have. Trade is one of the main drivers of this, along with strengthening our own industries — an area where Brazil is ahead of us, and which Minister Grau has also strongly promoted within Chile. Minister Tebet lamented how long it has taken us to advance this integration. President Lula mentioned yesterday that during his first term, the first bridge with Peru was built — if I recall correctly — after so many years of being neighbors. What I want to tell you is that it is never too late, and that today it is up to our generation to make this integration a reality. This is a unique opportunity, and we have no right to waste it. We cannot let this opportunity slip away. The Bioceanic Road Corridor will be much more than a transport route; it will be a path for human development, a bridge between peoples, and a symbol of what South America can achieve when it stands united. Thank you very much.

Diplomacy
 At least three agreements were signed during the state visit of President Ferdinand R. Marcos Jr. in Canberra where he addressed the Parliament of Australia.

A Historic Election for Australia

by Chhayheng Soth

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Labor’s landslide victory and Conservatives in disarray In the same week that Canada swung left, Australia followed with a similar but even more decisive result. Just two hours after polls closed—at 8:25 p.m. on May 3—ABC News officially declared the Australian Labor Party (ALP)'s election victory and Prime Minister Anthony Albanese's second term. A red wave swept across the country, delivering the Conservatives their worst defeat in recent memory. The loss was significant in scale, and symbolic: Opposition Leader Peter Dutton even lost his own seat in Parliament, a seat he had held for 24 years. A historic election Prime Minister Albanese defied pre-election polls and predictions, delivering the most decisive victory for Australian Labor Party (ALP) in the country`s modern history. While opinion polls had forecast an ALP win, they suggested it would fall short of a majority, with a hung parliament being the most likely outcome.[i] However, as soon as the polls closed, a nationwide swing toward Labor signaled trouble for the Liberal-National Coalition (an alliance of conservative parties). Less than three hours later, ABC News declared that the ALP would form the next government. This election marks a historic moment for the ALP in at least three key ways. First, Albanese becomes the first incumbent Prime Minister to win consecutive elections since John Howard in 2004, breaking the so-called “incumbency curse” that has plagued several Australian prime ministers in the past two decades. He is also the first Labor Prime Minister to secure re-election since Bob Hawke (1983–1991). Second, with almost 80% of the votes counted, the ALP is projected to win at least 85 of the 150 seats in the House of Representatives, securing a clear majority well above the 76-seat threshold. In contrast, the Coalition trails significantly with just 39 seats.[ii] This has given the ALP an outright majority, passing over the 76 seats required for a simple majority. The number of seats ALP obtained in this election exceeded the 77 seats it had achieved in the last election in 2022 and any election in its history. Third, the Coalition also made history—albeit in a disappointing way. For the first time, Australia’s Opposition Leader has lost their seat in Parliament. Peter Dutton, who entered Parliament in 2001 and had represented the electorate of the constituency of Dickson for 24 years, was defeated by ALP’s candidate, Ali France. Experts had long identified Dickson as “the most marginal seat in Queensland for the Liberal Party.”[iii] Dutton’s departure from Parliament raises significant questions about the future direction and leadership of both his Liberal Party and the broader Coalition. While he accepted full responsibility for the loss in his concession speech, he has yet to address his political future or the party’s leadership situation. How did it get here? The outcome of this election is surprising and unexpected in many ways. The question is how did it get here? What are the internal and external factors that shaped the outcome of this election? The Coalition’s disastrous campaign Not only did the Coalition fail to secure victory, but current projections show a significant drop in their House of Representatives seats—from 53 in the previous election to potentially fewer than 45. However, this figure merely scratches the surface. The Coalition faces deeper, more systemic problems, most notably in its campaign messaging, policy direction, and overall strategy. The voters’ verdict reflected this clearly. Heading into the election, the Coalition appeared ill-prepared and ran an ineffective campaign marked by unclear messaging and a series of tactical missteps. They failed to craft a coherent, consistent narrative that could resonate with the electorate. Opposition Leader Peter Dutton’s leadership further compounded these issues, with several high-profile errors reinforcing perceptions that he—and his party—were not ready to govern. Among the most notable blunders were: A flip-flopping „work-from-home“ policy[iv];A partial reversal of planned job cuts for public servants[v];An unpopular and vaguely nuclear energy policy[vi]; andA diplomatic misstep involving Indonesia, which Dutton later admitted during the second leaders' debate[vii]. These misjudgments, all within a short campaign period, pointed to a campaign lacking strategic coordination and message discipline. Ultimately, Dutton failed to present himself or his party as a viable alternative government, especially in a time of global uncertainty when voters sought stability and clarity. An anti-Trump sentiment? In just one week, two major democracies—Canada and Australia—shifted decisively to the left, rejecting conservative and right-wingpolitical alternatives. On Monday, Canadian Opposition Leader Pierre Poilievre lost the election and his seat. By Saturday, Australia’s Peter Dutton met the same fate. Dutton had cultivated a hardline image, advocating for controversial immigration restrictions and adopting elements of Donald Trump’s DOGE playbook, including proposed cuts to the public service – an image that earned him the nickname “Temu-Trump” (referencing the Chinese cheap online retailer Temu). The outcomes of the Canadian and Australian elections signal a broader people’s rejection of extreme or polarizing styles of governance. Analysts have pointed to the “Trump factor” as a key external influence swaying voters against right-wing opposition parties. In the current context of global uncertainty—characterized by geopolitical tensions, economic instability, and the lingering impact of Trump-era trade wars—voters appear more inclined to maintain the status quo. Rather than risk unknown changes, manyseem to have opted for continuity and stability under incumbent governments. “[…] Today, the Australian people have voted for Australian values. In this time of global uncertainty, Australians have chosen optimism and determination. Australians have chosen to face global challenges the Australian way.” Prime Minister Anthony Albanese, during his speech at the ALP campaign headquarters following election victory. What does it mean for Europe and the world? Key foreign policy issues—such as AUKUS, increased defense spending, and international trade—featured prominently during Australia’s election. In the current global context, Australia and the European Union (EU) have much to gain from deepening their partnership. Recently, the United States imposed a baseline 10 percent tariff on several trading partners, including the EU and Australia. The initial proposal suggested tariffs as high as 20 percent on the EU and 10 percent on Australia. These measures pose a challenge not only to the global trading system but also to bilateral trade relations between the US and key allies. Against this backdrop, Prime Minister Albanese’s second term presents a timely opportunity to revive efforts toward finalizing the long-stalled Australia-EU free trade agreement. Negotiations have been on hold since the fifteenth round in 2023, but a renewed commitment from both sides could pave the way for a more robust trade partnership.[viii] On defense and security, the ALP-led government increased Australia’s defense budget by A$50 billion during its first term, with plans to raise defense spending to 2.3 percent of GDP by the 2030s. This aligns with the EU’s current push to bolster its own defense capabilities, suggesting a convergence in strategic priorities between the two partners. In brief, the outcome of this election signals continuity in Australia's strategic direction and opens a new window of opportunity for enhanced cooperation with the EU. References [i]     Rania Yallop, “What if no one wins? What to know about a minority government”, SBS News, 28 March 2025. https://www.sbs.com.au/news/article/what-if-no-one-wins-what-to-know-about-minority-government/v6swmoisl[ii]      ABC News, "Australian federal election lives 2025 results“, 04 May 2025. https://www.abc.net.au/news/elections/federal/2025/results?sortBy=latest&searchQuery=&filter=all&selectedRegion=all&selectedParty=all&partyWonBy=all&partyHeldBy=all[iii]      Gavin Butler, “Australian opposition party realing after Albanese’s landslide election win”, BBC News, 04 May 2025. https://www.bbc.com/news/live/cevdw14r1mgt[iv]     ABC News, "Peter Dutton partially walks back public service work-from-home vow“, 05 April 2025. https://www.abc.net.au/news/2025-04-05/dutton-walks-back-public-service-wfh-plan/105141758[v]     ABC News, "Dutton confirms public service cut limit to Canberra, which labor say impossible“, 24 April 2025. abc.net.au/news/2025-04-24/dutton-confirms-public-service-cuts-limited-to-canberra/105211946  [vi]     The Guardian, "Australians’ support for nuclear power ban rises despite Dutton’s best efforts to sell atomic future, survey finds“, 01 May 2025. https://www.theguardian.com/australia-news/2025/may/01/australians-support-for-nuclear-power-ban-rises-despite-duttons-best-efforts-to-sell-atomic-future-survey-finds[vii]     The Guardian, "Dutton admits he made mistake on Indonesia in ABC leaders’ debate as Albanese evasive on electricity price“, 16 April 2025. https://www.theguardian.com/australia-news/2025/apr/16/dutton-admits-he-made-mistake-on-indonesia-in-abc-leaders-debate-as-albanese-evasive-on-electricity-prices[viii]     Department of Foreign Affairs and Trade, Australian Government, "Australia-EU FTA – report on 15th negotiation round, 24-28 April 2023“, n.d. https://www.dfat.gov.au/trade/agreements/negotiations/aeufta/aeufta-news/negotiating-round-fifteen-24-28-april-2023

Energy & Economics
US President Donald Trump and Benjamin Franklin's portrait on the back of the $100 bill. Trump imposes additional tariffs on many countries. New York. U.S. 20.04.2025

Tariffs: Zero-sum game or an own goal?

by Ottón Solís

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском By assuming that trade relations are a zero-sum game in which one party must lose for the other to win, and that a trade deficit represents a loss while a surplus represents a win, President Trump reveals a simplistic view far removed from the dynamics of international trade. Let’s imagine that the global economy is Central America, that Costa Rica imports more goods than it exports, and that other countries accept paper printed by its Central Bank — bills in colones — as payment for their exports. Furthermore, let’s assume that a good portion of their trade surpluses are used to buy Costa Rican government bonds and make deposits in its banks, accepting — due to confidence in the strength of its economy — lower interest rates than they might obtain in other markets, and that those debts can be paid with the same printed paper. Trade deficits arise because a significant share of Costa Rican consumers and investors prefer to source final, intermediate, and capital goods from other Central American countries where prices are lower than at home. In other words, those deficits are the result of a national choice to enjoy a higher quality of life and greater productivity than what its economy would otherwise allow. Under these circumstances, Costa Rica, far from being a victim of other countries’ policies, would actually be enjoying levels of consumption above its means and economic growth beyond what its productivity would justify. The willingness of those countries to hold the colones derived from their trade surpluses in Costa Rican government bonds and bank deposits results in lower interest rates in Costa Rica. This enables a higher sustainable level of public debt, greater investment at low cost to improve infrastructure and service quality, and lower interest rates for private investment — all of which contribute to a higher rate of economic growth without endangering macroeconomic stability. In such a scenario, making imports more expensive through tariffs to boost local production competitiveness and eliminate trade deficits would, one by one, remove these advantages — amounting to nothing more than an own goal. This remains true even if Central American countries did not retaliate by restoring relative competitiveness to its starting point, and even if Costa Rican investors were not left uncertain about whether a future government might remove the tariffs. The U.S. economy faces the world in a situation identical to that hypothetical scenario of Costa Rica. It takes advantage of the fact that with paper printed by its central bank — the dollar — can pay for the real production of other countries, allowing it to live far beyond its means. Far from being “cheated” by other nations, as Trump claims, the United States enjoys a standard of living well above its capacity precisely because of this. That does not mean the U.S. is cheating anyone, since it is thanks to its economic strength that the rest of the world accepts that paper as a means of payment and trusts in its government bonds and banking system. Thus, by assuming that trade relations are a “zero-sum game” — where one must lose for the other to win — and that a trade deficit signals losing while a surplus signals winning, President Trump ignores these realities. He reveals a board-game level of simplification, detached from the complex chessboard that defines international trade dynamics. It is nothing less than a massive own goal. Trade deficits are an economic problem for countries like Costa Rica, which must pay for their imports using foreign currency, often requiring them to take on debt and/or attract foreign investment through subsidies and tax exemptions. This combination of factors permanently threatens macroeconomic stability and forces governments to limit spending on infrastructure and social services to free up resources to cover interest payments and the growing fiscal costs of structuring an economy based on incentives to foreign companies. Adding to the absurdity of Trump’s proposals, his goal is to achieve trade surpluses with every country in the world. However, the United States does not produce coffee or cocoa; thus, with some of the countries that export these products, running trade deficits is not only inevitable but also beneficial for the U.S. Many countries in the region, even without the advantages the United States enjoys, are unlikely to avoid trade deficits — for example, with oil-producing countries or those manufacturing goods that incorporate cutting-edge technologies. In such cases, raising tariffs could severely damage their economies. Trump boasts that the countries affected by the tariffs are lining up to renegotiate, claiming that this was his goal. If so, it marks the beginning of an uncertain period, contaminated by threats and blackmail, with China standing by to benefit from the resentment against the United States. This scenario will severely affect private sector investment plans, employment, and economic growth — not only in the United States but around the world. Far from "Making America Great Again" (MAGA), Trump is diminishing both his country and the world while violating every rule of international trade, both global ones under the WTO framework and those contained in free trade agreements like CAFTA-DR. This, of course, validates the concerns of those of us who argued that such treaties did not guarantee protected access to the U.S. market against political or geopolitical shifts. In international relations, the historical rule has been that decisions are not based on any moral or legal absolutes but rather on the exercise of power from unequal positions ("might is right"). This is why we always doubted that a free trade agreement with weaker countries would truly guide the behavior of the United States. But Trump's overwhelming violations of international law (surprisingly and disappointingly supported by more than half of his country’s political establishment) strip the United States of any moral authority to criticize countries that do not act according to the rules. This imposing attitude, reaffirmed by Trump when he paraphrases emperors and tyrants — enemies of any democratic principle — who claimed that "those who save their country violate no law," leads us to a world where anything is permitted for those who hold power. From the perspective of the definition of civilization, a world where anything goes loses its value. It takes us back to the law of the jungle — the rule of the strongest, of violence and war, or of peace imposed by one over others, not through harmony and goodwill. This is not a new “Washington Consensus”, now guided by the mercantilism typical of the 18th and 19th centuries, because in this case neither multilateral organizations like the World Bank or the International Monetary Fund nor other Western powers share Trump’s decisions. Far from consensus, today the most frequently heard word in those circles is “retaliation”. Latin America will be affected by the potential decline in global GDP growth, the tariffs imposed on our exports, and the rise in interest rates resulting from inflation that could be triggered by higher import taxes in the United States. However, the region could benefit from the U.S. confrontation with its developed-world allies by strengthening economic ties with Europe, China, Japan, India, and other powers of the Global South — without, of course, abandoning the U.S. market. To achieve this, our governments must stop meekly following Trump’s directives, such as preventing Huawei from competing to sell us 5G technology, participating in a shameful deportation policy that violates fundamental human rights, or undermining Panama’s absolute sovereignty over the Canal. What is needed is to build and implement a foreign policy with dignity, one that best serves the interests of each of our countries — not the whims of a single power.

Diplomacy
US of America and Iran relations. USA and Iranian flags wrecking balls swinging on blue cloudy sky background. 3d illustration

Iran-U.S. Relations: From Escalation to Dialogue?

by Lana Rawandi-Fadai

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском From war threats to negotiations In the early months of 2025, Iran and the United States stood on the brink of open military conflict. The escalation was driven by several factors that coincided in time, heightening the effect of instability. It was one of the most dangerous periods in the history of their relations. Until very recently, Iran lived under a cloud of anxious expectation: would war erupt, or could the situation be contained? The first reason behind the sharp escalation is, without doubt, Donald Trump’s return to office. It is well known that during his first presidency in 2018, he withdrew from the Iran nuclear deal (the Joint Comprehensive Plan of Action, JCPOA), reinstated prior sanctions and introduced new, extremely severe ones against Tehran. Trump took a hardline stance toward the Islamic regime, viewing it as a threat to human rights and regional stability. By early February of this year, he had already issued strict demands to Iran: to drastically scale back—or possibly entirely dismantle—its nuclear program, relinquish nuclear weapons and intercontinental ballistic missiles, and cease support for allied groups in the region (Hamas, Hezbollah, the Houthis and Iraqi Shiite militias). He threatened large-scale bombings if Tehran disagreed, but also left room for negotiations. It is worth recalling that Trump personally authorized the assassination of Qasem Soleimani, the commander of the Quds Force of the Islamic Revolutionary Guard Corps (IRGC), accusing Shiite militias under Soleimani’s leadership of alleged mass killings of civilians in Syria. In contrast, Iranians see Soleimani as a noble warrior and a professional soldier, who saved the peoples of Syria and Iraq from terrorist atrocities, and were outraged by his extrajudicial killing. From an economic perspective, it was during Trump’s first term that Iranian oil exports plummeted nearly tenfold, from over 2.5 million barrels per day in April 2018 to 300,000 barrels per day in June 2019. Although sanctions remained in place under President Joe Biden, their enforcement became more lenient. As a result, by 2024, Iran had begun rapidly rebuilding its oil exports, which rose to 1.9 million barrels per day by the summer of last year. This sparked hopes for a gradual economic recovery. However, Trump’s return to the White House in January 2025 meant a new wave of threats. In his first month back in office, Trump gave Iran a two-month deadline to make concessions or face a firm response. The second reason is Israel’s aggressive and expansionist policy. Ayatollah Khomeini, the founder of the Islamic Republic, long described Israel as a colonial-settler project created by the West, inherently driven to expand by seizing territory from neighboring Muslim countries and committing crimes against their Muslim populations, all with the ultimate goal of forcibly establishing “Greater Israel” from the Nile to the Euphrates. In reality, there have been some differences between Israeli governments: under left-wing leadership, Israel tends to act more peacefully and moderately, while right-wing administrations pursue more aggressive and harsh policies. In recent years, however, Israel’s actions toward its neighbors have become especially aggressive—exactly as Khomeini had described—after the rise to power of the most radical ultra-right forces. The devastation that this government has brought upon the Gaza Strip, razing it to the ground, speaks for itself. After the fall of Bashar Assad’s strong leadership in Syria, Israel immediately seized the opportunity to destroy all of Syria’s heavy weaponry, effectively disarming the country. Israel then moved to capture more Syrian land beyond the annexed Golan Heights and committed new violations there. The Iran policy of the current Israeli government is focused on overthrowing the regime and installing puppet authorities. Israeli Prime Minister Benjamin Netanyahu, known for his uncompromising hostility toward the regime in Iran, has spoken openly of his desire to see its end. There were rumors in Iran’s media space suggesting that Israel might be considering Reza Pahlavi, the Shah’s son, as a symbolic leader for a future “secular Iran.” Within Iran, perceptions of the Pahlavi dynasty are overwhelmingly negative: it is seen as a pro-Western dynasty detached from traditional Islamic roots, which exploited national resources and oppressed Muslims and the Islamic clergy. Nonetheless, a portion of Iranian youth and some opposition commentators in the country hold radical views, harbor hostility toward Islam and Arabs, and support Trump, Netanyahu and the Pahlavi dynasty. This group would likely side with the enemy if hostilities broke out. Furthermore, Iran began to lose its regional influence. Israel carried out a series of successful operations against Iranian allies, primarily targeting Hezbollah in Lebanon and pro-Iranian militias in Syria. Key Hezbollah commanders and several IRGC officers were killed, and arms depots were destroyed. It is remarkable that some Syrian Islamists, who had previously been hostile to Israel, welcomed this development as a form of revenge for Hezbollah’s support of the Assad regime and thus became temporary tactical allies of Israel. Following the December 2024 coup that brought anti-Iranian Islamists to power, Syria—once a strategic ally of Iran—is now increasingly taking a negative stance toward Tehran. By the start of this year, a sense of pessimism had settled over Iran. Feelings of confusion, anxiety and the realization of diminished influence in the Middle East became widespread among many Iranians, especially conservative ones. At the same time, a different sentiment was growing in Tehran among Iranian patriots and supporters of the Islamic regime: if the U.S., Israel or both launched a military attack, Iran’s response would be as harsh as possible. IRGC officials and prominent religious figures have made this clear. A change within: tracing Iran’s path to negotiations After a long period of tough rhetoric, Iran has made a strategic shift in its foreign policy in recent weeks. Iranian Supreme Leader Ayatollah Ali Khamenei, who had firmly banned any negotiations with the U.S. on the nuclear program, suddenly changed course. What drove this decision? It is important to recognize that this shift resulted not only from an external threat but also from a deep internal reassessment, one that was rational, compelled by the circumstances, yet conscious. Until recently, Iran stuck to the principle of “no concessions under pressure.” Khamenei pointed to the collapse of the 2015 nuclear deal, which the U.S. exited during Trump’s presidency in 2018. From Khamenei’s perspective, new talks would be meaningless and dangerous because “the Americans will deceive again.” However, by April 2025, the situation had changed so much that Iran’s political and military elites began convincing the supreme leader of the need for dialogue. Reformist circles—especially the newly elected President Masoud Pezeshkian—played the leading role in this process. He insisted that without negotiations, Iran faced the risk of catastrophe: a major war, domestic unrest and even the fall of the regime. Reports from Tehran suggest he emerged as the main negotiator within the political establishment, persuading Khamenei to invoke the concept of maslahat (expediency)—a religiously sanctioned method for setting aside principles in order to save the Islamic regime. This decision was informed by several factors: - Economic crisis: according to official data, inflation between March 21 and April 20, 2025, reached 39%, while youth unemployment in the last quarter of 2024 stood at 20%. While Iran has seen worse in its recent past, these figures are nonetheless troubling. Furthermore, reserve funds were significantly depleted last year, investments have all but disappeared due to sanctions, and foreign currency reserves have declined. The country has also been hit by an energy crisis.- Erosion of ideology: satellite channels broadcasting from the U.S. and the UK have significantly expanded their reach. Outlets like Manoto, BBC Persian and Iran International have long championed secular, pro-Western views while criticizing the Islamic regime. What has particularly alarmed the authorities is the promotion of the legacy of the Pahlavi dynasty: despite its brutal rule and fight against traditional Iranian and Islamic values—still remembered by the older generation—some youths have begun to see the Pahlavis as a possible “alternative” to the ruling clerical establishment.- Risks in domestic politics: political analysts, military officials and intelligence agencies warned the leadership about the risk of a “nationwide uprising” that could be sparked by an external attack. The concern was not just about protests but the potential for pro-Western groups to cooperate with foreign aggressors. The Iranian Interior Ministry said that these elements had become more active amid the 2022 protests and were receiving support from abroad. All these signals from the army, the clergy, the administration and the intelligence agencies compelled the Iranian leadership to adopt a political survival strategy. Drawing on the experience from the Iran–Iraq War, Khamenei reasoned that “continued confrontation would lead to catastrophe.” This is why he allowed the talks to begin while keeping control over their scope and substance. The nuclear program: compromise is possible, surrender is not One of the key issues in the Iran–U.S. negotiations remains the future of the Iranian nuclear program. Despite years of mutual accusations and broken trust, Tehran appears open to tactical compromises but not to surrender. According to sources within Iranian political circles, Supreme Leader Ali Khamenei has agreed to discussions on all parameters of the nuclear program, including uranium enrichment levels and the terms for international inspectors’ access to nuclear facilities. However, a complete dismantling of the nuclear program is widely seen as out of the question, as it would be perceived as a national humiliation within Iranian political culture. Khamenei and top IRGC officials—guardians of the regime’s ideological foundations—have repeatedly reinforced this position in their public statements. The scenario under consideration in Tehran includes these possible concessions: - a temporary halt to uranium enrichment beyond 60%,- a reduction in the stockpile of highly enriched uranium,- broader IAEA access to selected nuclear sites,- a declaration affirming the peaceful purposes of the nuclear program with legal guarantees. In return, Iran will push for major sanctions relief—not only in the financial sector but also in technology, including the lifting of the ban on investments in the oil and gas industry. These restrictions, in force since the late 1990s, have been particularly damaging: former Iranian official Hossein Selahvarzi put the total economic loss to Iran since 2012 at over USD 1 trillion. Iran’s missile program remains a separate and highly sensitive issue. It is regarded as an untouchable symbol of national pride and strategic autonomy. The supreme leader has made it clear that Iran’s nuclear capabilities “ensure the country’s security” in the face of potential isolation or attack. As a result, Tehran is likely to reject any proposals for reducing its missile potential. All this means that negotiations are possible, but their scope is quite limited. The outcomes of the two latest rounds of indirect talks in Oman and Rome offer some optimism. Flexing muscles: a show of force as a negotiating tool The prospect of talks between Iran and the U.S. does not preclude military tensions. On the contrary, this year both countries carried out a series of shows of force to send a message: “We are approaching negotiations from a position of strength.” Iran, on the one hand, has stepped up military activity along its external borders. In April 2025, Tehran for the first time supplied its allies in Iraq with long-range ballistic missiles and drones, including the Shahed-136 and Mohajer-6. These moves were seen both as acts of support for Shiite militias and as a signal of Iran’s readiness to launch strikes in the event of major conflict. The military exercises in the Strait of Hormuz took on special significance, as Iran’s navy conducted a series of maneuvers with missile boats, mines and underwater drones. Up to 20% of the world’s sea-traded oil, or about 18 million barrels per day, passes through the strait. Its possible blockade was considered a measure of last resort to pressure international markets if another round of sanctions was imposed. In addition, Iran has increased its military footprint in the southern provinces, expanding bases in Bushehr, Bandar Abbas and Hormozgan. This builds operational depth in the event of a U.S. or Israeli attack and reinforces the internal narrative that “Iran will not surrender but stands ready to defend itself.” The U.S., in turn, responded by deploying six B-2 Spirit strategic bombers to the Diego Garcia base in the Indian Ocean, within striking range of key targets in Iran. These warplanes can carry both nuclear and precision-guided conventional weapons. The U.S. also sent a carrier strike group to the Persian Gulf and reinforced air defense systems at its bases in Kuwait, Qatar and Iraq. Thus, the military buildup in the region is not just preparation for a possible conflict but part of the diplomatic game. Tehran is demonstrating that it can deliver a firm response and that any concessions it makes are not a sign of surrender but a pragmatic step toward stability. Meanwhile, Washington is signaling its readiness for a military scenario in order to gain leverage in the talks. Russia as a mediator: interest in stability and strategic partnership Amid rising tensions between Iran and the U.S., Russia is emerging more clearly as a potential mediator and stabilizing force. Its role is shaped not only by current political dynamics but also by the deep structural ties built between Moscow and Tehran over the past years. In April, an Iranian delegation led by Foreign Minister Abbas Araghchi visited Moscow to discuss preliminary outcomes of consultations on a new nuclear deal with Russian Foreign Minister Sergey Lavrov. Beyond nuclear diplomacy, the parties addressed a broad range of regional issues, including Syria, the South Caucasus and Central Asia. This meeting was more than a diplomatic gesture; it reflects the genuine interests of both countries. Moscow is interested in the continuity of Iran’s current regime as a source of stability and a partner in the emerging multipolar world. Tehran, for its part, refrains from anti-Russian rhetoric, does not endorse resolutions against Russia at international platforms and shows respect for Moscow’s interests in the region. Russian–Iranian ties are strengthening not only politically but also infrastructurally. In 2023, both countries made significant progress in advancing the International North–South Transport Corridor, a project designed to link St. Petersburg with the Indian port of Mumbai via Iran. This initiative, backed by both Russia and Iran, offers an alternative to Western-centric logistics routes, and its success depends on the stability of the Iranian regime. Furthermore, Moscow has already shown itself to be an effective broker in regional conflicts. In 2023, Russian diplomats helped revive dialogue between Iran and Azerbaijan after a long period of hostility fueled by disputes over borders, religious matters and relations with Israel. This experience could be leveraged in the context of Iran–U.S. negotiations, especially given the deep mistrust and the lack of direct dialogue between Tehran and Washington. Russia’s position is clear: Moscow is opposed to any destabilization of Iran, as it threatens to undermine regional balance, strengthen Western influence and jeopardize the partnership with Iran. As Sergey Lavrov has emphasized, Russia will support any steps aimed at de-escalation and the lifting of sanctions from Iran, as long as sovereignty and international law are respected. Thus, Russia is more than just an ally of Iran; it is one of the few actors that maintains channels of trust-based communication with both Tehran and several Western nations. This makes Moscow a potentially successful mediator, especially at a time when the U.S. has limited options for direct dialogue with Iran, and European brokers have lost much of their former influence. Possible scenarios and a window of opportunity The situation around Iran has reached a critical juncture. Amid a deep internal crisis, sanctions pressure and rising external tensions, Tehran must choose between a limited deal with the West that preserves its strategic assets or a drawn-out standoff that risks plunging the region into broader instability. First scenario: moderate de-escalation If the U.S. and Iran reached a compromise on the nuclear dossier, even in a limited format, it would create a short-term opportunity for stabilization. Iran would benefit from partial sanctions relief, increased oil export capacity and attract investment in critical sectors. In return, Tehran would commit to transparency, lower uranium enrichment levels and IAEA oversight. This scenario could also partially ease tensions around Israel, reducing the risk of direct conflict. However, even this scenario does not remove several fault lines: - The ideological hostility between Iran and Israel,- Tehran’s unwavering position on the missile program,- U.S. military presence in Iraq and the Persian Gulf.This “frozen détente” could last for one to three years, assuming both sides show political will and avoid provocations. Second scenario: a new wave of escalation If the negotiations reach a deadlock—whether due to Washington’s excessive demands, Iran’s refusal to compromise on sensitive issues or outside interference—the situation could quickly spin out of control. In that case, possible outcomes include: - Direct strikes on Iran’s nuclear facilities (by Israel or the U.S.),- Retaliatory attacks on U.S. bases in Iraq and Qatar,- Blockade of the Strait of Hormuz,- More active operations by Shiite militias in the region. Inside Iran, this could trigger another major wave of protests, especially if the economy takes another hit from stricter sanctions. There is also a risk that some radical opposition groups could try to take advantage of the unrest to start an uprising with high casualties—something Iran’s counterintelligence has already warned about.

Defense & Security
Cambodia in Focus on a Tilted Map.

Change of Course or Continuity? Cambodia at a Crossroads

by Grigory Kucherenko

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском In December 2024, Cambodia reached a key point in its foreign policy. Japan delivered a group of patrol boats to Cambodia as part of the "Free and Open Indo-Pacific" (FOIP) regional initiative. This clearly showed that security cooperation between the two countries is growing stronger. In April 2025, Japan is expected to take another big step by becoming the first foreign country allowed access to Cambodia’s strategically important Ream Naval Base — a facility that has been upgraded by China since 2022.These events, happening just months apart, seem to show Cambodia’s effort to expand its foreign partnerships after relying on China for a long time. The handover of Japanese vessels, while China is leading the base's modernization, is more than just a friendly act from Tokyo. It is a smart move by Cambodia, showing how it is trying to use the rivalry between big powers to strengthen its own security and independence. But can Cambodia really protect its sovereignty by trying to balance the interests of powerful countries? Or is this idea of multiple partnerships just an illusion — hiding the fact that Chinese influence continues to grow? The answers to these questions may shape the future of regional security in Indochina. In August 2023, Hun Manet became Cambodia’s new Prime Minister, replacing his father Hun Sen, who had ruled for nearly 40 years. Unlike his father, Hun Manet has a Western education — he graduated from the U.S. Military Academy at West Point and earned a PhD in economics from the University of Bristol. His background gave some hope to Western diplomats that Cambodia’s foreign policy might move in a direction closer to their values. These hopes were partially fulfilled when Hun Manet’s first major foreign policy statement reaffirmed Cambodia’s commitment to diversifying its international relationships while strictly adhering to the principle of neutrality. This stance was particularly significant, given Cambodia’s longstanding perception among Western analysts as a pro-China state. For years, the Khmer elites have consistently voiced support for the PRC on the international stage, receiving in return substantial investment and infrastructure aid. However, these actions have occasionally strained Cambodia’s ties with neighboring countries — a dynamic noted by officials within the Association of Southeast Asian Nations (ASEAN), of which Cambodia has been a member since 1999. A striking example is the discord surrounding the South China Sea territorial disputes. When affected countries sought to use ASEAN as a platform to pressure Beijing, Cambodia opposed the effort, effectively blocking the adoption of a joint statement in autumn 2024 — something unprecedented in ASEAN’s 45-year history. With a few exceptions, the Khmer elites traditionally supported a policy of non-alignment during the Cold War and, afterward, a neutral stance on foreign affairs. Former Prime Minister Hun Sen himself emphasized that Cambodia seeks ties not only with China, but with all countries, considering this the most beneficial foreign policy path for a developing nation. Among Phnom Penh’s close partners is Japan, which conducts an active foreign policy in the region and stands as one of the Kingdom’s largest economic donors. At the same time, it is important to note that Hun Sen described relations with China as "unbreakable" and consistently rejected external criticism, highlighting only the positive aspects of Cambodia’s deepening ties with Beijing. In the first half of December 2024, Cambodia and Japan signed an agreement on the transfer of military patrol boats to Phnom Penh as part of Japan’s FOIP (Free and Open Indo-Pacific) initiative. Cambodia became the first ASEAN country to receive such assistance. However, the Kingdom has no intention of turning its back on China. The principle of neutrality, which underpins the country’s foreign policy, means that partnership with Japan does not contradict friendship with the PRC. Rather, the combination of the two reflects a strategy of multi-vector diplomacy, enabling Cambodia to benefit from relationships with a variety of partners. This approach is supported by several factors. First, Prime Minister Hun Manet has repeatedly affirmed his commitment to an "independent and neutral foreign policy based on the rule of law, mutual respect, and adherence to the principles of the UN Charter." In his words, this policy aims "to promote national interests, strengthen existing friendships, and build more solid ties." Second, Phnom Penh consistently accepts aid from all willing donors, including Australia through the Cambodia-Australia Partnership for Resilient Economic Development (CAPRED), the United States, Japan, and, of course, China. In 2023, marking the 70th anniversary of diplomatic relations with Japan, Cambodia elevated bilateral cooperation to the level of a Comprehensive Strategic Partnership. With this move, Japan joined a narrow circle of Phnom Penh’s strategic allies — a status previously held solely by China between 2010 and 2023 — advancing from basic diplomatic engagement and standard strategic partnership. Although China surpassed Japan in aid volume back in 2007, Tokyo remains a vital partner for Phnom Penh. Between 1994 and 2021, Japan implemented 210 investment projects in Cambodia totaling $3.1 billion. In 2024, bilateral trade between Japan and Cambodia reached $40.94 billion, placing Tokyo as the Kingdom’s fifth-largest trading partner. This robust economic cooperation underscores Japan’s strategic importance to Cambodia and highlights Phnom Penh’s efforts to diversify its international relationships, avoiding overreliance on any single partner. Despite Japan’s recent delivery of patrol boats to Cambodia, Phnom Penh’s most robust military cooperation remains with China. Between 2016 and 2024, China and Cambodia conducted six joint military exercises under the name “Golden Dragon” (នាគមាស), with each iteration featuring an increase in the number of troops, weaponry, and military equipment involved. Even amid the global threat of the COVID-19 pandemic in 2020, Phnom Penh proceeded with the fourth iteration of these drills, involving nearly 3,000 soldiers — ten times more than in 2016. [1]. The drills also included dozens of combat helicopters, armored vehicles, and various transport assets. This continuous military support from Beijing underscores Cambodia’s growing reliance on Chinese involvement in strengthening its armed forces. Meanwhile, after seven years of joint military exercises with the United States, Cambodia suspended this cooperation in 2017, officially citing scheduling conflicts due to national elections. However, in June 2024, during a meeting between Hun Sen and U.S. Secretary of Defense Lloyd Austin, Cambodia announced the resumption of military cooperation with Washington. Furthermore, the U.S. agreed to revive joint military drills and to once again accept Cambodian cadets for training at the U.S. Military Academy at West Point. For the United States, the primary point of contention has been the Chinese-built Ream Naval Base in Cambodia, despite Phnom Penh’s repeated assurances that the facility is intended solely for use by the Royal Cambodian Navy. Rumors about the base’s development first surfaced in 2018, sparking increased tensions between Phnom Penh and Washington. At the time, however, the U.S. lacked concrete evidence to formally accuse Cambodia of intending to host Chinese military forces on its territory, and American officials limited their response to diplomatic messages expressing concern. In August 2018, then-Secretary of State Mike Pompeo stated that he trusted Cambodia’s assurances that the base would be used exclusively by its own navy, and he praised the Kingdom for its “firm defense of national sovereignty.” In early December 2024, a U.S. Navy vessel arrived in Cambodia in the first port call in eight years — a visit made possible after a prolonged period of strained relations due to sustained American criticism of Cambodia’s human rights record. Cambodia’s Ministry of National Defense stated that the visit was arranged following a request from the United States and would help to “strengthen and expand the bonds of friendship, as well as enhance bilateral cooperation” between the two countries. *** In recent years, the Asia-Pacific region has become a stage for intensifying geopolitical competition, directly impacting Cambodia’s security environment and foreign policy choices. The strategic interests of major powers such as the United States and China increasingly intersect in the region, prompting smaller states — including Cambodia — to explore new pathways for safeguarding their independence and national security. In response to these shifts, Phnom Penh has sought to strengthen its defense capabilities and diversify international partnerships, as reflected in the agreement with Japan on the transfer of military vessels. This move not only enhances bilateral relations with Tokyo but also signals Cambodia’s intent to play a more active role in regional security affairs. Such involvement could enable Cambodia to navigate between competing global powers and maintain its independence amid mounting pressure from both China and the United States.Russia, as one of Cambodia’s traditional partners, may also seek to bolster its regional presence by intensifying diplomatic engagement and offering avenues for cooperation in defense, security, and military technology. This would help Phnom Penh better balance its external relations and maneuver between great powers more effectively. For Moscow, it presents an opportunity not only to deepen ties with Cambodia, but also to expand its influence in Southeast Asia and counter the growing presence of Western actors in the region. 1. Phan Thi Hai Yen. (2024). Cambodia's Strategic Embrace of China: Military Cooperation and Its Implications. ISRG Journal of Arts Humanities & Social Sciences (ISRGJAHSS), II(V), 191–198.

Energy & Economics
Canada's Liberal Party leader, Mark Carney, attends a federal election campaign rally at Sheraton Vancouver Airport Hotel in Richmond, British Columbia, Canada, on April 7, 2025.

Mark Carney won: Here are the key economic priorities for his new government

by Berhane Elfu

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском The Liberal Party led by Mark Carney has secured a fourth consecutive term in government. This victory has come at a time when Canada is facing an unprecedented threat to its economic security and sovereignty from United States President Donald Trump. In an election defined by concerns over Trump’s erratic tariff policy and talk of making Canada a 51st state, voters decided Carney was the leader best equipped to deal with these challenges. Carney previously served as governor of the Bank of Canada, where he guided the country through the 2008 global financial crisis. He later became the first non-British person to head the Bank of England, helping guide the United Kingdom through Brexit, one of the biggest shocks to the British economy in decades. Now the world is facing similar financial shocks from Trump’s trade war. The on-again, off-again nature of Trump’s tariff policy could inflict significant damage to the global economy — even more to the American economy — and cause irreparable damage to its reputation as a rational entity in international trade. In the face of the ill-advised and self-defeating U.S. tariffs, the new Canadian government should take prudent, urgent and bold steps to strengthen the nation’s economy. Here are major and important economic priorities for the government to reshape the economy and spur much-needed economic growth. Stabilize and strengthen the national economy As a primary act, the new government should stabilize the Canadian economy from the tariff shocks. It must continue to develop carefully calibrated retaliations to Trump’s tariffs. The revenue raised from the tariffs should be used to compensate those directly affected by them, using a multi-pronged mechanism that includes training, increased employment insurance benefits and additional transfers to low-income households to reduce the impact of tariffs on food costs. Currently, a series of provincial regulations restrict the goods and services that cross Canada’s provincial borders daily. The new government should urgently remove longstanding interprovincial trade barriers. According to a report by the Canadian Federation of Independent Business, removing these impediments could boost the economy by up to $200 billion annually. Similarly, a study by the International Monetary Fund indicates the effect of these barriers is equivalent to a 21 per cent tariff. Removing interprovincial trade barriers would significantly offset the negative effects of Trump’s tariffs on the Canadian economy, and provide a boost to the “Buy Canadian” movement. Carney seems to have made this a priority already, which is promising. In March, he said he aims to have “free trade by Canada Day” among provinces and territories. Streamlining natural resource projects Canada is a natural resource superpower. However, for natural resources and critical minerals to be extracted efficiently, regulatory processes need to be streamlined by cutting red tape and duplicative assessments. The federal government and the provinces should agree to a single environmental assessment that meets the standards of both jurisdictions. Additionally and importantly, respectful, genuine and meaningful consultations must be undertaken by project proponents and governments with the relevant Indigenous communities to address their concerns, respect their rights and safeguard their economic well-being in the development of the natural resources projects. Carney has said he will uphold the principle of free, prior and informed consent when it comes to initiating resource extraction projects and make it easier for Indigenous communities to become owners of said projects. A similar approach should also guide the construction of infrastructure projects such as pipelines and ports, which play a crucial role in facilitating Canada’s exports. Boost Canada’s productivity through innovation A country’s ability to raise living standards for its people mostly depends on its capacity to improve its productivity. Economist Paul Krugman once stated, “productivity is not everything, but, in the long run, it is almost everything.” Canada’s productivity is lagging, according to the Organization for Economic Co-operation and Development. The new Canadian government should take steps to boost the nation’s productivity by increasing direct expenditures on research and development. Additional funding should be allocated to higher institutions of learning, and incentivizing businesses to spend more on research and development through significant tax credits. Although research and development spending continues to grow in Canada, as a percentage to GDP, it is the second lowest among G7 nations. Boosting investments will drive innovation, spur economic growth and ensure Canada remains competitive on the global stage. Dealing with U.S. tariffs One of the government’s primary tasks will be preparing meticulously for trade negotiations with the U.S. to address the threat of tariffs and reach a “win-win” trade deal. Given Trump’s highly unpredictable nature, negotiations will not be easy. Although Trump could have withdrawn from the Canada-US-Mexico Agreement (CUSMA), he has not done so, and zero-tariffs remain in effect for products that are certified as being North American origin under the CUSMA rules. This could be a solid starting point for future trade negotiations. At the same time, Carney and his team must work to stabilize the Canadian economy against the unprecedented threat of Trump’s tariffs by strengthening the domestic economy, diversifying Canada’s exports and reducing the country’s dependence on the U.S. Pulling away from the world’s largest economy will not be easy for Canadian businesses, given the deep integration of Canada’s economy with that of the U.S. Still, expanding trade with the European Union, the U.K., Africa and the Association of Southeast Asian Nations — and exploring other opportunities to reducing trade barriers with nations in Asia, the Middle East and Latin America — will enlarge Canada’s export market. By doing all this, Canada can not only prepare for a tough round of U.S. trade talks but also position itself as a stronger, more self-reliant global trading partner.

Energy & Economics
USA and China trade war. China and United States of America trade, duty, tariffs, customs war

The economic effects of US-China trade wars

by World & New World Journal Policy Team

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском I. Introduction U.S. trade with China has significantly grown in recent decades and is crucial for both countries. Today, China is one of the largest export markets for U.S. goods and services (second to Mexico), and the United States is the top export market for China. As Figure 1 shows, this trade—much of which increased after China joined the World Trade Organization (WTO) in 2001—has brought lower prices to U.S. consumers and higher profits for American companies. But it also comes with costs, notably the loss of American jobs because of import competition, automation, and multinational companies moving manufacturing overseas.   Figure 1: US-China Trade over the 20 years Source: U.S. Bureau of Economic Analysis. After President Donald Trump began a so-called trade war with China in 2018, economic tensions between China and the U.S. have been on the rise. Chinese officials have warned that there are “no winners” in a trade war, but the second Trump administration embarked on a new and more aggressive tariff policy. In the first months of his second administration, Trump has threatened tariffs as high as 145 percent on all Chinese goods, while China’s latest retaliatory tariffs on U.S. imports are as high as 125 percent. The Trump administration claims the levies attempt to punish China for unfair trade practices, including Chinese subsidies that hurt U.S. workers and the long-standing accusation that China pressures American companies to hand over their technology and intellectual property, as well as China’s role in illicit fentanyl trafficking. Some economists doubt, however, that Trump’s aggressive approach will achieve its desired goals and raise concerns that tariffs will drive up inflation and the costs of goods, hurting American consumers and exports. This paper attempts to examine the economic effects of the U.S.-China trade war. It first shows the economic effects of the U.S.-China trade war under the first Trump administration and then forecasts for the second Trump administration. II. Trade War between the U.S. and China As Figure 2 shows, the US trade deficit with China has increased as trade between both countries expanded. Therefore, the first Trump administration started the trade war by imposing higher tariffs on Chinese goods. Figure 2: US-China Goods Trade (2001-2024) Figures 3-1, 3-2, and 4 show U.S. and Chinese tariff rates for each other’s goods. As Figure 3-1 shows, the US tariffs on Chinese goods were less than 5 per cent when the first Trump administration began on January 20, 2018. Then the tariff continued to rise. As Figure 3-2 shows, the average US tariffs on China goods were 20.8 percent when the second Trump administration began on January 20, 2025. As Figure 4 shows, after the second Trump administration took office, US tariffs of 10 percent were imposed on all imports from China under the International Emergency Economic Powers Act (IEEPA) on February 1, 2025. Then the Trump administration increased tariffs on Chinese goods to 20 percent on March 3 and to 34 percent on April 2. US tariffs of 10 percent were imposed on nearly all countries under IEEPA, but with some sector carve-outs on April 5. China retaliated against US tariffs by increasing tariffs on U.S. products to 34 percent on April 4 and to 84 percent on April 10. US tariffs ranging from 1 percent to 74 percent were imposed on nearly all countries with a trade surplus with the US, including China (74 percent). US tariff on Chinese goods included an additional 50 percent tariff as counter-retaliation for China’s retaliation announcement on April 10. Then again China faced an additional 41 percent tariff increase under IEEPA (to 125 percent total). However, Trump instituted a broad 90-day pause on steep Liberation Day tariffs, aiming to give time for negotiators to work out new deals. But Trump has not provided a pause for China. In response, China has raised its duties on imports of US goods to 125 percent from 84 percent on April 12, while US tariffs on Chinese imports have increased to 145 percent by adding a 20 percent tariff in relation to the fentanyl. Figure 3-1: US–China tariff rates toward each other and the rest of the world (ROW) before 2025 Source: MacroMicro. https://en.macromicro.me/charts/130548/china-us-tariff-rates  Figure 3-2: US–China tariff rates toward each other and rest of world, 2018-2025  Figure 4: US–China tariff rates toward each other in 2025 Source: Reuters, April 11, 2025. III. Economic Effects of the Trade War between the U.S. and China A.  The first Trump administration Chad Bowen (2023) at the Peterson Institute for International Economics raised a question “was the trade war between U.S. and China worth it for US exporters”? And his answer so far is no. In the middle of the trade war, the United States and China signed a historic trade agreement on a ‘Phase One trade deal’ on January 15, 2020. Bowen supposes that in 2018–21, US goods exports to China of phase one products had grown at the same pace as China’s imports of those products from the world and that US services exports to China had grown at the rate of US services exports to the world. Cumulative US goods and services exports to China in 2018–21 were about 19 percent lower with the trade war and phase one agreement between the two countries (see Figure 5). His estimates suggest that the United States would have avoided export losses of $24 billion (16 percent) in 2018 and $30 billion (20 percent) in 2019 resulting from the trade war. Exports would also have been $27 billion (18 percent) higher in 2020 and $40 billion (23 percent) higher in 2021 than under phase one agreement.   Figure 5: US exports to China would be higher with no trade war. i. US manufacturing exports suffered in the trade war and did not recover. As Figure 6 shows, China purchased only 59 percent of the full commitment of US manufactured products in 2020–21 under Phase One trade deal. Manufacturing was the most economically significant part of the trade deal, making up 44 percent of covered US exports in 2017. Autos and aircraft dominated US exports before the trade war. Both did poorly during the period of 2020–2021. US auto exports reached only 39 percent of the target over 2020–21. The sector’s suffering is a trade war warning. In July 2018, Trump’s tariffs on Chinese imports included auto parts; China’s tariff retaliation hit US car exports. US car exports decreased sharply in 2018, as car makers like Tesla and BMW reacted to the higher costs by moving production destined for the Chinese market out of the United States. (Ford, another major car exporter, including through its Lincoln brand, complained in 2018 that Trump’s separate steel and aluminum tariffs raised the cost of its US-based manufacturing by $1 billion.) Even when China lifted the retaliatory tariffs in early 2019, US exports did not recover. Sales of US aircraft, engines, and parts to China did even worse, reaching just 18 percent of the 2020–21 target. Though the industry was less directly impacted by trade war tariffs, US sales to China plummeted in 2019 after the two crashes of the Boeing 737 MAX. Between March 2019 and late 2020, the airplane model was grounded, with Boeing shutting down production in early 2020. China cancelled orders in April 2020, and though the legal text allows credit for aircraft “orders and deliveries”, additional orders had not been publicly announced by the end of 2021, despite complaints by the Biden administration that China's trade policy was holding back sales. (Exports of the 737 MAX might eventually resume, as Chinese regulators instructed airlines in December 2021 to implement the changes needed to allow the model to fly again in China.) Not all manufactured exports performed poorly during the period of 2020–21. Medical supplies needed to treat Covid-19 significantly increased. US exports of semiconductors and manufacturing equipment also boomed – thanks to a combination of stockpiling by Chinese companies as US export controls in 2019-20 threatened to cut off Chinese firms like SMIC and Huawei as well as increased demand for chips needed for consumer electronics and data servers brought on by the Covid-19 pandemic shift to remote work, schooling, and leisure.  Figure 6: US-China war battered hard US manufacturing exports to China ii.  US agricultural exports suffered in the trade war, received subsidies, and then recovered. To the Trump administration, agriculture was a very politically important part of the trade deal in 2020, despite accounting for only 14 percent of covered exports. As Figure 7-1 shows, when China's retaliatory tariffs hurt US farm exports during the period of 2018–19, the Trump administration awarded the sector tens of billions of dollars in federal subsidies. In the days leading up to the 2020 presidential election, the Trump administration released a report that touted resuming farm sales to China—ignoring the continued troubles facing US manufacturing, energy, and service exports. US farm exports did get back to 2017 pre-trade war levels and ultimately reached 83 percent of the 2020–21 commitment under Phase One deal (see Figure 7-1 & 7-2).  Figure 7-1: US agricultural exports to China Soybeans made up approximately 60 percent of US agricultural exports to China in 2017. As Figure 7-2 shows, exports of US soybeans to China were devastated by the trade war, falling from $12 billion to $3 billion in 2018, because China imposed retaliatory tariffs. Though soybean exports managed to reach their pre-trade war levels during the period of 2020–21, they still fell over 30 percent short of their target under Phase One deal. Products like pork, corn, wheat, and sorghum exceeded expectations, though not necessarily because of the trade deal in January 2020. The outbreak of African swine fever led China to increase pork imports from the U.S. in 2019 before the deal was agreed. (In 2020–21, China's pigmeat imports from the rest of the world also averaged five times 2017 levels.) Wheat and corn imports increased after China began to comply with a 2019 WTO dispute settlement ruling against its unfilled tariff rate quotas. (Compared with 2017, China's imports from the rest of the world in 2020–21 were about 200 percent higher for wheat and 350 percent higher for corn.) Some farm exports also benefitted less from the Chinese purchase commitments under the trade deal in January 2020. Seafood and farm products did not rebound from the effects of the trade war. After being hit with Chinese tariffs, US lobster exports re-achieved about half of their target in 2020–21. US exports of raw hides and skins ended up at less than one-third (see Figure 7-2).  Figure 7-2: US agricultural exports to China (sub-category) iii. U.S. Imports from China: Total US imports from China were down with the beginning of the trade war. For 15 months beginning in July 2018, the Trump administration imposed higher tariffs on Chinese products. The Trump administration began the trade war by imposing tariffs of 25 percent on products covering roughly $34 billion of US imports from China in July 2018 (List 1) and on $16 billion of imports in August (List 2). When China retaliated against the U.S., the trade war continued with Trump imposing 10 percent tariffs on an additional $200 billion of imports in September 2018 (List 3), increasing the tariff rate of those duties to 25 percent in June 2019. In September 2019, Trump hit another $102 billion of imports (List 4A) with 15 percent tariffs, later reducing them to 7.5 percent upon implementation of the US-China Phase One trade agreement in February 2020. (The administration identified another set of products covering most of the rest of US imports from China of more than $160 billion—List 4B—for which it scheduled tariffs to take effect on December 15, 2019 but was cancelled on December 13, 2019.) As a result, as Figure 8-1 & 8-2 show, overall, the trade war reduced US imports from China. Then US imports recovered only slowly, starting in mid-2020. In January 2022, when the term of the first Trump administration ended, US imports from China (red line) remained well below the pre-trade war trend (dashed line), while US imports from the rest of the world (blue line) returned to pre-trade war levels of June 2018. China was the source of only 18 percent of total US goods imports in 2022, down from 22 percent at the beginning of the trade war.  Figure 8-1: Value of US goods imports from China and the rest of the world, 2016–2022 (June 2018 = 100)  Figure 8-2: Value of US imports from China and the rest of the world by trade war tariff list, 2018–2022 (June 2018 = 100) B.  The second Trump administration As of April 12, 2025, U.S. tariffs on Chinese goods are 145 percent, but this tariff rate is not sustainable over a long period of time because it is way too high and because U.S. President Donald Trump and Chinese leader Xi Jinping want to negotiate. In fact, Trump signalled on April 23 that he would cut his 145 percent tariff on Chinese goods substantially. Therefore, it is not reasonable to explore the effects of Trump’s tariffs of 145 percent. Last year, McKibbin, Hogan, and Noland at the Peterson Institute for International Economics (PIIE) examined the impact of now-President Trump’s proposed tariffs based on Trump’s campaign promises that would impose 60 percent additional tariffs on imports from China. They explored the impacts of a 60 percent additional tariff on China with and without other countries’ retaliating in kind by imposing steeper tariffs on imports from the United States. Figures 9 through 14 show the results from their analyses. Figure 9 shows that China experiences the most significant GDP losses (0.9% below baseline by 2026), while the U.S. also experiences a negative GDP growth rate (0.2% below baseline by 2027).  Figure 9: Projected change in real GDP of selected economies from an additional 60 percent increase in US tariffs on imports of goods from China, 2025-40 Figure 10 shows that the direct impact of the U.S. tariff of 60 percent on Chinese employment is initially negative (-2.25% in 2025), but a gradual decline in Chinese real wages eventually restores employment to the baseline after a decade. US employment will fall 0.23% below baseline by 2027.  Figure 10: Projected change in employment (hours worked) in selected economies from an additional 60 percent increase in US tariffs on imports of goods from China, 2025-40 Figure 11 shows that US inflation rises by 0.4% in 2025, with the higher cost of imports due to tariffs not offset by the stronger US dollar lowering prices of imports from other countries. The tariffs on US imports from China are mildly deflationary in other countries (see Figure 11).  Figure 11: Projected change in inflation in selected economies from an additional 60 percent increase in US tariffs on imports of goods from China, 2025-40 The slowdown in the Chinese economy causes capital to flow out of China and into other economies. This is initially a financial capital flow responding to a fall in financial rates of return in China and a rise in expected profits in countries like Canada and Mexico. That financial inflow becomes physical investment over time, which increases production capacity in these economies. Countries that receive the capital experience a trade deficit (see figure 12). This additional production enables the rise in exports to the US economy. While the US trade deficit with China shrinks, the overall US trade deficit increases (figure 12) as the partial relocation of production back into the US economy causes the dollar to appreciate.  Figure 12: Projected change in the trade balance of selected economies from an additional 60 percent increase in US tariffs on imports of goods from China, 2025-40 So far, figures have focused on the unilateral imposition of US tariffs on Chinese products. In figure 13, McKibbin, Hogan, and Noland compare projected changes in US GDP from the unilateral imposition of tariffs with a scenario where China retaliates by imposing a 60% tariff on US goods and services. By 2026, US GDP losses from Trump’s tariff policy more than double if China retaliates against the US (see Figure 13). The impact on US inflation in 2025 yields a similar result (see Figure 14). With Chinese retaliation, US inflation rises 0.7% above baseline compared with 0.4% without retaliation.  Figure 13: Projected change in US GDP from an additional 60 percent increase in US tariffs on imports of goods from China, with and without retaliation by China, 2025-40  Figure 14: Projected change in US inflation from an additional 60 percent increase in US tariffs on imports of goods from China, with and without retaliation by China, 2025-40 IV. Conclusion This paper showed that U.S. tariffs on Chinese goods imposed by the first Trump administration mainly had negative impacts on U.S. exports, although they reduced U.S. imports from China over a short period of time. The analysis by McKibbin, Hogan, Noland (2024) for the second Trump administration also shows that U.S. tariffs on Chinese goods will have negative impacts on US GDP, inflation, employment, and trade balance. This paper also showed that U.S. tariffs on Chinese goods will have larger negative impacts on U.S. GDP and inflation if China retaliates. Then a question arises: “Why does Trump attempt to impose extremely high tariffs on products from China?” Larisa Kapustina,  Ľudmila Lipková, Yakov Silin and Andrei Drevalev (2020) identify four main reasons that led the U.S. to the greatest trade war between the U.S. and China: a) to reduce the U.S. deficit of bilateral trade and increase the number of U.S. jobs; b) to limit access of Chinese companies to American technologies and prevent digital modernisation of the industry in China; c) to prevent the growth of China’s military strength; and d) to reduce the U.S. federal budget deficit. References Bown, Chad, “China bought none of the extra $200 billion of US exports in Trump's trade deal.” Peterson Institute for International Economics, Working Paper. July 19, 2022.Bown, Chad, “Four years into the trade war, are the US and China decoupling?” Peterson Institute for International Economics, Working Paper. October 20, 2022.Bown, Chad, “US imports from China are both decoupling and reaching new highs. Here's how.” Peterson Institute for International Economics, Working Paper. March 31, 2023. Kapustina, Larisa, Ľudmila Lipková, Yakov Silin and Andrei Drevalev, “US-China Trade War: Causes and Consequences.” SHS Web Conference. Volume 73, 2020: 1-13.McKibbin, W., M. Hogan and M. Noland (2024), “The International Economic Implications of a Second Trump Presidency.” Peterson Institute for International Economics, Working Paper 24-20.