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한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском The Paris Agreement will be ten years old in 2025. It is a good opportunity, then, to reassess the feasibility of its long-term goals and understand what they mean for the current and for the next generations. In a very optimistic scenario, if the goals of the Paris Agreement are achieved, the climate crisis will have been solved by the end of the 21st century. In the meantime, though, the crisis will worsen, as temperature overshoot is very likely to occur by the middle of the century. During the overshoot period, our planet’s average temperature exceeds 1.5°C above pre-industrial levels, which is the threshold proposed by the Paris Agreement. At the end of the overshoot period, which could last from one to several decades, the temperature will begin to fall until it eventually stabilises at 1.5°C at the turn of the century (IPCC 2023, 1810). Expectedly, the success of the Paris Agreement would greatly benefit the “post-overshoot generation”, namely the generation that will live in the first half of the 22nd century. But to ensure the success of the Paris Agreement, the generation that will live in the overshoot period – the “overshoot generation” – will have to remove an enormous amount of GHG (Greenhouse Gases) from the atmosphere. For now, though, it is unclear whether CCS (Carbon Capture and Storage) technologies will be available at a scale that might enable the overshoot generation to achieve the long-term goals of the Paris Agreement. To aggravate the problem, the overshoot generation will also probably have to rely on as-yet untested geoengineering technologies to promote their own survival. As we can see, conflicting interests of three different generations are at stake here, namely: (1) the interests of the current generation, (2) those of the overshoot generation, and (3) the interests of the post-overshoot generation. Given the unequal distribution of power across generations (Gardiner 2011, 36), it is likely that the current generation will tend to further their own interest to the detriment of the overshoot generation, even if, in the end, the climate policies enforced by the current generation do indeed fulfil the interests of the post-overshoot generation. The best possible world is one in which the goals of the Paris Agreement are achieved. Yet, depending on the choices that we make today, the best possible world could also mean the worst possible world that human beings will ever have met on our planet. That will be the fate of the overshoot generation, squeezed between the self-serving policies of the current generation and the climate hopes of the post-overshoot generation. The implications for international relations are momentous, as we intend to show in this article. Possible pathways The Paris Agreement did not establish a concrete deadline for the achievement of the goals set out in Article 2, namely: Maintain the increase in the global average temperature well below 2°C above pre-industrial levels, and make efforts to limit this temperature increase to 1.5°C above pre-industrial levels, recognising that this would significantly reduce the risks and impacts of climate change. The scientific community generally understands that the Paris Agreement aims at climate stabilization at the end of the 21st century. There are two main reasons for this. The first is a constraint imposed by our planet’s climate system. The second is a constraint imposed by agreed upon principles of justice. As for the first reason, we have to bear in mind that an immediate reduction of GHG emissions would not be followed by an immediate decline of global temperature (Dessler 2016, 91). Even if all countries decided to eliminate their respective emissions today, the global temperature would continue to rise for several decades, until it begins to recede and stabilises at the turn of the century. As for the second reason, the Paris Agreement assumed that developing countries could not immediately reduce their own emissions without compromising their own development and the prospect of eradicating poverty. Thus, the Paris Agreement also established in Article 4 that each country could continue to emit GHG until their respective emissions peaked as soon as possible. After peaking, emissions should be rapidly reduced. Thus, the attempt to achieve the goals set out in Article 2 well before the end of the 21st century might turn out to prove inconsistent with the reality of our planet’s climate system and unfair towards developing countries. The problem, however, is that the Paris Agreement did not establish a specific pathway for the achievement of its long-term goals (Figure 1). There is, indeed, a multitude of pathways, but many (if not most) of them involve an overshoot period (Geden and Löschel 2017, 881; Schleussner et al. 2016). And as there are “different interpretations for limiting global warming to 1.5°C”, there emerges the question, then, as to which interpretation could do justice to the conflicting claims of the three different generations considered as a whole, namely the claims of the current generation, those of the overshoot generation, and the claims of the post-overshoot generation (Figure 2). There has been much discussion now on the concept of a “just transition”. But this debate has focused entirely on the claims that the members of the current generation can raise against each other, and not on claims that could be raised – or presumed – across the three generations referred to above. The IPCC (Intergovernmental Panel on Climate Change) Glossary from 2023, for instance, contains a specific entry on this topic: “Just transitions. A set of principles, processes and practices that aim to ensure that no people, workers, places, sectors, countries or regions are left behind in the transition from a high-carbon to a low carbon economy” (IPCC 2023, 1806). The IPCC entry ends with some considerations regarding past generations: “Just transitions may embody the redressing of past harms and perceived injustices”. Interestingly, though, the entry says nothing about the normative implications of a just transition for future generations. A 2023 United Nations document defines the concept of just transition along similar lines (United Nations Economic and Social Council 2023, 3, 12–13). But, again, it understands “just transition” in terms of claims that stakeholders within the current generation, whether at national or international level, can raise against each other. As for the international level, the United Nations document makes the following statement concerning the concept of just transition as applied to international relations: “As countries pick up the pace of their climate change mitigation strategies, it is critical that developed countries do not transfer the burden of the transition onto developing countries” (United Nations Economic and Social Council 2023, 8). The problem, however, is that, as a matter of justice, it is equally critical that the current generation does not transfer the burden of the transition onto the overshoot generation, even if that burden, in the end, turns out to benefit the post-overshoot generation. Such an unequal distribution of burdens across three generations would certainly conflict with the requirements of intergenerational justice (Moellendorf 2022, 161–70; Meyer 2021). Overshoot generation and retroactive mitigation One might perhaps argue that no extra burden is being imposed on the overshoot generation, for the current generation is already having to face challenges that the overshoot generation, supposedly, will not have to face. The overshoot generation, one might suggest, will inherit from the current generation all the benefits resulting from the energy transition, but without having to bear the costs that the transition imposes on the current generation. The idea here is that by the middle of this century global emissions will have already peaked and will be declining at an accelerated pace, towards stabilisation at 1.5°C above the pre-industrial level at the end of this century. Thus, the overshoot generation can arguably reap the benefits of green energy, as long as the current generation remains free, at least for the time being, to emit GHG further, which is necessary to finance the human and technological development that the overshoot generation will need later. This claim, however, overlooks a crucial fact about the climate crisis – a fact that has not been given due attention in the public debate on climate policies. In a very optimistic scenario, the overshoot generation will not have the burden of reducing their own emissions because they will be able to rely on carbon-free energy. The problem, however, is that the overshoot generation will still have to retroactively mitigate the emissions of previous generations – including, of course, the emissions of the current generation. We call this process “retroactive mitigation”, for what is at stake here is not reduction and phasing out of one’s own emissions, but the removal of massive amounts of GHG, which previous generations failed to mitigate in the past. In a 2014 report, the IPCC realised that simply reducing GHG emissions would no longer be enough to preclude irreversible climate change. Removal of GHG would also be necessary (IPCC 2014, 12). The IPCC called attention to yet another problem: it was unclear whether CCS (Carbon Capture and Storage) technologies, including DAC (Direct Air Capture), could be deployed on a global scale in time to avoid a climate disaster. In a 2018 report, the IPCC was even less confident about the future development and scaling-up of CCS technologies (IPCC 2018, 136). To make matters worse, two further factors must be taken into consideration. (1) Recent studies show that there are practically no pathways left for the achievement of the Paris Agreement goals without the massive deployment of CCS (Smith et al. 2023). And (2) it has become increasingly probable that the overshoot generation will also have to deploy geoengineering technologies to cope with ever more frequent heatwaves (Moellendorf 2022, 161–70). It could perhaps be argued that afforestation and preservation of existing forests could be used instead of CCS technologies. However, the amount of land and water that would be necessary for the creation of new forests is probably larger than the amount of land and water available. Moreover, the attempt to create new forests on such a large scale might compromise the water and food security that the overshoot generation will need to promote their own climate adaptation (Shue 2017, 205). It is also necessary to take into account the amount of time new forests need to grow, not to mention the risk of fire. In this case, forests stop absorbing GHG and become GHG emitters themselves (Gatti et al. 2021). Implications for international relations In the aftermath of the Second World War, human being’s capacity to trigger catastrophic events at a global scale became increasingly apparent. As Garrett Hardin aptly put the problem in 1974: “No generation has viewed the problem of the survival of the human species as seriously as we have” (Hardin 1974b, 561). But while even realist thinkers such as Hans Morgenthau and John Herz argued for international cooperation in the face of global threats, Hardin himself advanced what he called the “lifeboat ethics”. According to Hardin, instead of engaging in international cooperation, richer states should behave like lifeboats and resist the temptation to help individuals from poorer states to cope with environmental disasters or famines. This, he argued, might undermine richer states’ capacity to secure their own survival (Hardin 1974a; 1974b). In his The Limits of Altruism: An Ecologist’s View of Survival from 1977, Hardin resumes his criticism of international cooperation to alleviate the plight of poorer states: We will do little good in the international sphere until we recognize that the greatest need of a poor country is not material: call it psychological, moral, spiritual, or what you will. The basic issue is starkly raised in a story of personal heroism that unfolded in South America a few years ago (Hardin 1977, 64). Hardin goes on to recall the 1972 Andes plane crash, turned into a feature film in 2023. Hardin suggests that the passengers who had survived the crash would not have taken the initiative to save their own lives had they not heard on the radio that the search efforts to rescue them had been called off. Hardin’s conclusion is this: “This true story, I submit, bears a close resemblance to the moral situation of poor countries. The greatest gift we can give them is the knowledge that they are on their own” (Hardin 1977, 65). Hardin, of course, does not take into consideration the extent to which richer states themselves may be responsible for the plight of poorer states. Hardin’s self-help approach to international relations is in line with political realism. But when major realist thinkers themselves addressed the question of human survival, around the same time Hardin advocated his lifeboat ethics, they came to entirely different conclusions. Authors such as Morgenthau and Herz realized that nation-states had become unable to protect their own citizens in the face of global catastrophes triggered by the depletion of the environment or the outbreak of a nuclear war. As Morgenthau put the problem in 1966: “No nation state is capable of protecting its citizens and their way of life against an all-out atomic attack. Its safety rests solely in preventing such an attack from taking place” (Morgenthau 1966, 9). In a 1976 article on the emergence of the atomic age, Herz made a similar point: “Nuclear penetrability had rendered the traditional nation-state obsolete because it could no longer fulfill its primary function, that of protection” (Herz 1976a, 101). Both Morgenthau and Herz argued for international cooperation – or perhaps even the dissolution of the system of states (Morgenthau 1978, 539) – as the better strategy to avert global catastrophic risks (Herz 1976a, 110; 1976b, 47). Herz later also theorized about the concept of “ecological threat” and argued for the development of a new interdisciplinary field, which he aptly named “survival studies” (Herz 2003; Seidel 2003; Laszlo and Seidel 2006, 2–3; Graham 2008; Stevens 2020). During the overshoot period, as heatwaves and other climate-related extreme events become more severe and frequent, people in poorer countries are likely to suffer the most. Mass migrations are likely to occur on an unprecedented scale (Vince 2022). Given the current popularity of anti-migration measures both in the United States and Europe, it is imaginable, then, that the lifeboat ethics will strike a chord with future conservative governments. That would be an error, for the assumption that governments will be protecting their own citizens by way of making their borders impenetrable to climate migrants is misleading. The “ecological threat” cannot be held back by higher walls. Lifeboat ethics will make everyone worse-off. Back in the 1960s, Martin Luther King may not have had climate change or mass migration in mind, but his words strike us as even more poignant now: “We may have all come on different ships, but we’re in the same boat now” (as quoted by former American President Barack Obama). There is only one boat, carrying three generations of hopeful passengers with equal legitimate claims to a better climate. It is a long journey. Let us not allow our only boat to go down. Final remarks The scenario in which the overshoot generation will have to live is not an encouraging one, but it is even less inhospitable than the scenario that the post-overshoot generation will have to face if the goals of the Paris Agreement are not met. It is up to the current generation to make sure that the overshoot period is as short as possible, and that the overshoot generation will not only be in a position to adapt to unprecedented climate scenarios in the history of human civilization, but also fulfil hopes of the post-overshoot generation. Figures Figure 1: Pathways compatible with the goals of the Paris Agreement (IPCC 2018, 62). FIGURE01  Figure 2: Pathways that would limit global warming to 1.5°C (IPCC 2018, 160).   Acknowledgements Marcelo de Araujo thanks Prof. Darrel Moellendorf for the invitation and the Alexander-von-Humboldt Foundation for the financial support. Support for this research has also been provided by the CNPq (The National Council for Scientific and Technological Development) and FAPERJ (Carlos Chagas Filho Research Support Foundation). An earlier draft of this article was presented at the University of Graz, Austria, Section for Moral and Political Philosophy, in 2024, with thanks to Prof. Lukas Meyer for the invitation. Pedro Fior Mota de Andrade benefited from financial supported provided by CNPq (National Council for Scientific and Technological Development). References Dessler, Andrew Emory. 2016. Introduction to Modern Climate Change. Second edition. New York, NY, USA: Cambridge University Press. Gardiner, Stephen. 2011. A Perfect Moral Storm: The Ethical Tragedy of Climate Change. Oxford: Oxford University Press. Gatti, Luciana V., Luana S. Basso, John B. Miller, Manuel Gloor, Lucas Gatti Domingues, Henrique L. G. Cassol, Graciela Tejada, et al. 2021. ‘Amazonia as a Carbon Source Linked to Deforestation and Climate Change’. Nature 595 (7867): 388–93. https://doi.org/10.1038/s41586-021-03629-6. Geden, Oliver, and Andreas Löschel. 2017. ‘Define Limits for Temperature Overshoot Targets’. 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Global Survival: The Challenge and Its Implications for Thinking and Acting. 1st ed. Change the World. New York: SelectBooks. Meyer, Lukas. 2021. ‘Intergenerational Justice’. The Stanford Encyclopedia of Philosophy. 2021. https://plato.stanford.edu/archives/sum2021/entries/justice-intergenerational/. Moellendorf, Darrel. 2022. Mobilizing Hope: Climate Change and Global Poverty. New York: Oxford University Press. Morgenthau, Hans. 1966. ‘Introduction’. In A Working Peace System, D. Mitrany, 7–11. Chicago: Quadrangle Books. ———. 1978. Politics among Nations: The Struggle for Power and Peace. New York: Alfred Knopf (Fifth Edition, Revised, 1978). Schleussner, Carl-Friedrich, Joeri Rogelj, Michiel Schaeffer, Tabea Lissner, Rachel Licker, Erich M. Fischer, Reto Knutti, Anders Levermann, Katja Frieler, and William Hare. 2016. ‘Science and Policy Characteristics of the Paris Agreement Temperature Goal’. 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한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Oren Cass, the head economist of Compass, had a column in the New York Times today touting Donald Trump’s proposed tariffs. The gist of the piece is that “free trade” has not worked out as economists’ textbooks promised and we should look to take a different path. As someone who was very critical of the major trade deals of the last three decades, I would say that they did work out very much as the economists’ textbooks promised. But they were also not “free trade,” and imposing high tariffs will not help us going forward. First, the economists’ textbooks did not promise that everyone would benefit from opening trade. They show that there would be a redistribution from some types of workers to other types of workers and/or capital. There is a famous article, co-authored by the first American Nobel Prize winner Paul Samuelson, that laid out this theoretical argument more than 80 years ago. Economists pushing NAFTA, China’s entry into in the WTO, and other recent trade deals always waved off the logic of the Stolper-Samuelson model, or alternatively promised government policies to offset the distributional impact of trade openings. As a practical matter, the policies (mostly trade-adjustment assistance) were one or two orders of magnitude too small for the job. We saw millions of workers displaced in manufacturing, as our trade deficit ballooned from 1997 to 2007. Communities across the industrial heartland were devastated as the factories that supported them downsized or shut altogether. We can have lengthy debates about the motives of working class people who switched from Democrats to Trump voters, but the fact that Democratic presidents pushed trade policies that destroyed millions of good paying jobs for non-college educated workers is not really in dispute. While it is important to recognize the damage caused by trade deals of the last three decades, it is also essential to recognize that these were not “free trade” deals even though this is what their proponents like to claim. These deals did little or nothing to free up trade in highly paid professional services, like the services of physicians or dentists. As a result, while our manufacturing workers get paid less than their counterparts in Western Europe, our physicians get paid more than twice as much as doctors in countries like Germany and Canada. The trade deals were all about lowering barriers to trade in manufactured goods, with the predictable effect of lost jobs and lower wages for manufacturing workers. But when it came to discussions of lowering the barriers to foreign doctors and foreign-trained professionals working in the U.S., most of the “free-traders” would suddenly get really dumb, as though they didn’t understand the concept of free trade. And to be clear, the economics textbooks tell us the same thing about free trade in professional services as they say about free trade in cars and shoes. If we paid our doctors the same as doctors in West Europe it would knock more than $100 billion a year ($1,000 per family) off our national health care bill. But we don’t have free trade in physicians’ services. But it gets worse. Even as we were lowering barriers to trade in manufactured goods, we were increasing barriers to trade in intellectual products in the form of longer and stronger patent and copyright protections. These protections are government-granted monopolies, 180 degrees opposite of free trade. Yet somehow every major “free trade” deal of the last four decades included provisions making these monopolies longer and stronger both in our trading partners and in the United States. The effect of longer and stronger patent and copyright protection is to redistribute income from the rest of us to those in a position to benefit from them. Bill Gates would probably still be working for a living if the government didn’t threaten to arrest people who copied Microsoft software without his permission. And to be clear, there is an enormous amount of money at stake. The higher prices from patent and copyright monopolies almost certainly cost us more than $1 trillion a year. They cost us more than $500 billion ($4,000 per family) in the case pharmaceutical alone. Patent and copyright monopolies do serve a purpose. They provide an incentive for innovation and creative work. But they are not the only way to provide this incentive. For example, we support more than $50 billion a year in biomedical research through the National Institutes of Health and other government agencies. Most importantly for this argument is the recognition that patent and copyright monopolies are government policies that should be treated as such. We can argue whether they are the best policy, but they are certainly not free trade, and it is a lie to call them free trade. Tariffs and the Trump Route Forward Getting the free trade story right is important for what we think is the best route going forward. The fact that reducing trade barriers in manufacturing was bad for non-college educated workers doesn’t mean that raising those barriers now will be good news for these workers. The wage premium that manufacturing workers had enjoyed in years past had largely disappeared. This means that if we get back jobs in the auto industry or textile industry, there is little reason to think these jobs will pay better than alternative jobs in warehouses or health care. High tariffs just mean that all workers will be paying higher prices for a wide range of goods in order to shift a relatively small number of other workers into not especially good-paying jobs in manufacturing. The reason manufacturing jobs were good paying jobs was because these jobs were far more likely to be union jobs than other private sector jobs. In 1980 more than 30 percent of manufacturing jobs were unionized, compared to 15 percent for the rest of the private sector. Today, the gap is just 8.0 percent compared to 6.0 percent. That’s still a difference, but not one that has much impact. If we got back another 1 million manufacturing jobs as a result of tariffs, a very big lift, it would translate into roughly 20,000 more union workers. That’s a pretty small drop in the bucket in a labor force of more than 160 million. If we want to reverse the rise in inequality of the last four decades, we should make use of those economics textbooks rather than ignoring them, as Mr. Cass advocates. We should do everything possible to have freer trade in highly paid professional services, exposing our most highly paid workers to the same sort of competition, both domestically and internationally, that our factory workers have long faced. And we should look to shorten and weaken the patent and copyright monopolies that have shifted so much income upward and made items like prescription drugs incredibly expensive. In the absence of patent monopolies, drugs would almost always be cheap, patent monopolies make them expensive. We also need to pursue other mechanisms for supporting innovation and creative work. This is the conversation that we need to have and one that unfortunately will not take place in the pages of the New York Times or other leading media outlets. In fact, the econ textbooks have much to teach us if we actually pay attention to what they say and don’t use them selectively to push a class agenda. Originally published on CEPR (https://cepr.net/publications/a-quick-note-on-trade-and-inequality/) under the Creative Commons Attribution 4.0 International License.

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Donald Trump has made clear his intent to supercharge his “America First” approach to foreign policy in his second term – and Mexico looks set to be at the tip of the spear. While many of Trump’s predecessors have also followed a “realist” strategy – that is, one where relative power is at the forefront of international relations, while diplomatic success is viewed through how it benefits one’s own nation – the incoming president has displayed an apparent unwillingness to consider the pain that his plans would inflict on targeted countries or the responses this will engender. Trump’s proposed policies threaten Mexico in three key ways: First, his goal of deporting millions of migrants would put tremendous pressure on Mexico’s economy and society as the country tried to absorb the influx. This would be exacerbated by his second threat, a sharp increase in tariffs, which could devastate the critical export sector of Mexico’s economy. And third, Trump has floated the idea of using U.S. military power to confront narcotraffickers within Mexico, which would directly impinge on Mexico’s sovereignty and could generate more violence on both sides of the border. But as a scholar of Latin American politics and U.S.-Latin American relations, I see several options that Mexico could use to push back on Trump by imposing high costs on U.S. interests. Indeed, Mexican President Claudia Sheinbaum has already signaled how she may counter Trump’s policies. The most obvious tools are ending cooperation on drugs and immigration and imposing tariffs of her own. She could also revoke some of the decades-old tax and labor privileges that have benefited U.S. businesses operating within Mexico. And finally, she could play the “China card” – that is, in the face of worsening U.S.-Mexico ties, Mexico could turn to Washington’s biggest economic rival at a time when Beijing is seeking to assert more influence across Latin America. From conciliation to confrontration Of course, a worsening relationship is not inevitable. During Trump’s first term, Mexico’s then-president, Andrés Manuel López Obrador, maintained a constructive relationship with the U.S. administration. In fact, Lopez Obrador was surprisingly cooperative given Trump’s at times hostile rhetoric toward Mexico. For example, he helped facilitate the Trump administration’s “Remain in Mexico” program for those seeking asylum in the U.S. and also accepted Trump’s demands to renegotiate NAFTA and give it a title reflecting U.S. leadership: the United States-Mexico-Canada Agreement, or USMCA. Sheinbaum, who took office on Oct. 1, 2024, started with a cautious approach to her relationship with Trump. She congratulated Trump on his victory and urged dialogue with the incoming U.S. president. “There will be good relations with the United States. I’m convinced of that,” she told reporters on Nov. 7, 2024. But Trump hasn’t been conciliatory. In addition to talk about dumping millions of immigrants across the border, he announced on social media on Nov. 24 that he would impose a 25% tariff on Mexican and Canadian goods – a move that would effectively abrogate the USMCA. That post seemingly ended Sheinbaum’s cautious approach. In a strongly worded response, the Mexican president cautioned that she would respond in kind. A trade war, she noted, would harm the economies of both countries; progress on immigration and drug trafficking required cooperation, not threats, she added. The impact of tariffs Sheinbaum has said she wants to avoid a trade war, but Trump’s threats have led her nonetheless to talk about how a trade war would begin. This trade war, plus other costs Sheinbaum could impose on U.S. investors, would also likely foment a coalition of opposition within the U.S. business community – a group that has been a key ally of Trump. Trump’s stated goal of putting high tariffs on goods coming from Mexico is to encourage businesses that currently exploit lower employment costs in Mexico to relocate to the northern side of the border. But that approach ignores the impact that retaliatory tariffs and investment controls would have on U.S.-based companies that rely on the Mexican market. It would have several negative effects. First, a tit-for-tat tariff war would generate inflation for U.S. and Mexican consumers. Second, it would disrupt the integration of markets across North America. As a result of the elimination of tariffs – a key component of both NAFTA and the Trump-era USMCA – markets and the production of goods across North America have become highly interconnected. The trade treaties severely reduced barriers to investment in Mexico, allowing significant American investment in sectors such as agriculture and energy – where U.S. companies were formerly prohibited. Further, manufacturers now rely on processes in which, for example, the average car crosses the border multiple times during production. Similarly, agribusiness has developed symbiotic practices, such that grains, apples and pears are predominantly grown in the United States, while tomatoes, strawberries and avocados are grown in Mexico. Given these processes, the U.S. now exports over US$300 billion of goods and services per year to Mexico, and the stock of U.S. investments in Mexico reached $144 billion in 2023. If Trump abrogates the trade deals and imposes tariffs, he might convince investors to spend their next dollars in the U.S. But if Mexico imposes tariffs, business taxes or investment restrictions, what would happen to investors’ farms and factories already in Mexico? Past experience suggests that any disruption to supply chains or U.S. export markets would awaken strong business opposition, as analysts and business groups have already recognized. Trump is not immune to pressure from U.S. businesses. During his first administration, companies successfully opposed Trump’s attempt to close the border, arguing that slowing the flow of immigrants also meant slowing trucks full of goods. Security and immigration On the issue of the border and immigration, while Trump has issued threats, Sheinbaum has stressed the importance of cooperation. Currently, the Mexican government expends significant resources to patrol its own southern border, not to mention dealing with the many potential migrants who gather in its northern cities. Mexico could demand more support from the U.S. in exchange for this work, plus the costs associated with welcoming back the estimated 4 million Mexicans who are currently in the U.S. without proper documentation. The deportation of undocumented immigrants that Trump has repeatedly promised will require other types of cooperation, such as processing border crossings, and Mexico could slow-walk this process. Mexico has already signaled that it will withhold processing of non-Mexicans. The two countries have a history of collaboration in addressing the illegal drugs trade – but here too there have also been tensions. Toward the end of Trump’s first term, for example, a Mexican general was arrested in the U.S. on drug charges. After a diplomatic uproar, he was returned to Mexico and released. In late November, Sheinbaum noted that she and Trump had discussed security cooperation “within the framework of our sovereignty.” But Trump’s campaign rheotric seemed less concerned with Mexico’s sovereignty, floating the idea of sending troops to the border or even deploying them within Mexico to counter narcotraffickers. That would clearly enrage Mexico, with consequences that would extend far beyond a willingness to cooperate on the issues of drug trafficking. A chance for China? One country that stands to benefit should U.S.-Mexican relations deteriorate is China – an issue that Mexico could exploit. China is now the first or second trading partner with nearly every country in Latin America, including Mexico. The value of U.S.-Mexico trade is over $100 billion a year, but the growth of Chinese imports into Mexico has been limited somewhat by rules-of-origin provisions in NAFTA and the USMCA. A U.S.-Mexican trade war could weaken or end any incentive to keep Chinese goods out. Further, if the doors to the United States are narrowed through tariffs and hostile rhetoric, China’s car parts and financial services would clearly become even more attractive to Mexican businesses. A U.S.-Mexican trade war, in short, would augment Beijing’s access to a market on the U.S. border. A coalition of the concerned? In sum, if Trump goes through with his threats, the result will be costs to consumers and businesses, plus a new opportunity for China. This is likely to foment a coalition of industries, investors, consumers and foreign policy experts concerned with China – many parts of which supported Trump’s campaign.

Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Despite escalating geopolitical tensions, India and China maintain a paradoxical relationship of economic interdependence. This dynamic reveals a delicate balance where strategic competition coexists with pragmatic cooperation, driving global supply chains and sustaining mutual economic benefits. The India-China relationship is characterised by both cooperation and competition, with economic ties often at odds with geopolitical tensions. In recent years, the relationship has been marked by increasing rivalry and mistrust, particularly following the 2020 border clashes in the Galwan Valley. This incident led to a significant deterioration in bilateral relations, resulting in India implementing economic measures against China, including banning numerous Chinese mobile applications and imposing stricter scrutiny on Chinese investments. However, in a recent development, India and China have agreed to resolve the Line of Actual Control (LAC) issue and move forward, signalling a potential thaw in tensions. While this thaw is good news, economic interdependence has persisted even with tensions running high, as evidenced by the continued high levels of bilateral trade. This paradoxical situation, where economic necessity coexists with strategic competition, underscores the multifaceted and often contradictory nature of India-China relations in the contemporary global context. Often described as “cooperation amid competition,” the relationship has important implications for both countries and the wider global economy. Their mutual interdependence plays a crucial role in global supply chains and consumer markets. India and China have robust trade relations, with China being one of India’s largest trading partners. Bilateral trade reached US$114.2 billion in 2021-22; and in 2022-23, China remained India’s largest source of imports, with its share increasing to 30 percent from 21 percent over the past 15 years. This relationship is characterised by Chinese imports of manufactured goods and electronic components, which are essential for India’s consumer market. India’s imports from China include machinery, telecom equipment, and electronic products, which are integral to its growing consumer electronics sector. The trade dynamics between the two countries ensure that Indian markets have access to affordable and diverse consumer goods, while China benefits from a large export market. This economic relationship encompasses various sectors, including manufacturing, pharmaceuticals, and technology, and has become particularly evident during global supply chain disruptions, such as those caused by the COVID-19 pandemic. In the technology sector, Indian and Chinese companies have formed several alliances. Many Indian companies rely on Chinese components and raw materials for their production processes. For instance, India’s electronics and automotive industries heavily depend on imports from China for semiconductors, display panels, and other critical components. Chinese technology firms like Xiaomi, Oppo, and Huawei have significant operations in India, contributing to the smartphone and electronics market. These companies not only import finished products but have also established manufacturing units in India, creating jobs and contributing to the local economy. Additionally, collaboration in the tech sector extends to software and app development, with Chinese investments in Indian startups fostering innovation and growth. Chinese investments have played a crucial role in India’s startup ecosystem, with companies like Alibaba and Tencent holding significant stakes in Indian unicorns. While recent policy changes have led to a decline in Chinese investments, existing collaborations continue to influence India’s digital economy. The pharmaceutical industry represents another area of significant cooperation. India, known as the “pharmacy of the world,” relies heavily on Active Pharmaceutical Ingredients (APIs) imported from China. Approximately 70 percent of India’s API requirements are met through Chinese imports. This collaboration is essential for maintaining the global supply of affordable generic medicines, particularly for developing countries. Both India and China have maintained a cooperative stance despite their political rivalries in the renewable energy sector. This collaboration is crucial for India’s ambitious renewable energy targets and global climate change mitigation efforts. China, as the world’s largest producer of solar panels and components, plays a vital role in India’s rapidly expanding solar market. In 2022, China exported solar cells and modules worth $3.89 billion to India, accounting for approximately 62.6 percent of India’s total solar imports. This interdependence is critical for India’s solar energy growth, with the country’s installed solar capacity reaching 66 GW by the end of 2022. Conversely, India’s burgeoning renewable energy market provides significant opportunities for Chinese manufacturers and investors. The collaboration extends beyond mere trade; Chinese companies have also invested in Indian solar projects and manufacturing facilities. For instance, LONGi Solar, a leading Chinese solar technology company, has established a solar module manufacturing plant in India with a capacity of Two GW. This interdependence in the renewable energy sector underscores the complex nature of India-China economic relations, where mutual benefits coexist with competitive dynamics. As both countries strive to meet their climate commitments and energy needs, their cooperation in this sector remains a critical factor in the global transition to clean energy. Last, the India-China economic relationship is integral to global supply chains, particularly in consumer markets. Their collaboration ensures cost-effective production, with Chinese components allowing Indian manufacturers to produce goods at competitive prices. The Indian electronics industry depends on Chinese semiconductors and circuit boards to assemble smartphones and other consumer electronics, ensuring they remain competitively priced. Quick market access due to large consumer bases in both countries further provides significant opportunities for businesses in both countries and beyond. Despite a competitive and conflictual relationship, trade between the two countries is a common factor that keeps them connected and facilitates the flow of technological know-how. In Asia, where the two countries have a combined population of more than 2.4 billion, their manufacturing capabilities play a crucial role in maintaining competitive global supply chains. This symbiotic relationship ensures the smooth functioning of supply chains, keeping costs low and availability high for consumer goods worldwide. Despite persistent geopolitical tensions and competitive dynamics, the India-China economic relationship underscores a paradox of interdependence. Much like the US-China dynamic, their collaboration in trade, technology, manufacturing, and renewable energy reveals a complex but mutually beneficial relationship. This interdependence sustains global supply chains, ensuring cost-effective production, technological innovation, and affordable consumer goods. By leveraging their manufacturing strengths and large consumer bases, India and China remain critical to global economic stability and growth. Even amid strategic competition, their economic ties highlight the pragmatic necessity of cooperation in an interconnected world. This article was published under a Creative Commons Licence. For proper attribution, please refer to the original source.

Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Western missteps in Africa are creating an opening for Russia to deepen its influence. Recent protests against International Monetary Fund (IMF)-imposed austerity measures have rocked several African states. Kenya, a long-time partner of the United States and a key contributor to UN peacekeeping operations in Haiti, experienced violent clashes between government security forces and anti-austerity protestors over tax hikes in a controversial finance bill. Simultaneously, many protesters saw Kenyan engagement in Haiti as footing the bill for American security interests while ordinary Kenyans struggled to make ends meet. Soon after, similar protests against IMF measures spread to Nigeria. Analysts and locals are concerned that spreading protests may threaten stability across Africa. Citizens of other countries continue to voice their displeasure with the political and economic status quo through protest (in Mozambique) and at the ballot box (in Botswana). IMF loans come with significant stipulations, including reforms to financial systems and governance. Critics of these conditions frequently malign the IMF as a violator of sovereignty. Changes to economic and governing models, combined with high debts and economic stress, increase the costs of everyday products and diminish purchasing power across the continent. To many ordinary citizens, the West is benefiting from the fruit of African resources while hindering Africans’ access to the global economy. Publics in these countries demand alternatives to IMF funding, protesting governments to oppose IMF-imposed austerity. Youth, an increasingly important demographic, are especially active. Many of these young people are college-educated but fail to secure adequately paid employment in skilled industries. The informal economy is growing but increasingly separated from formal and international economies. IMF austerity measures are driving the continent to economic crisis and protest that may have lasting effects anathema to US foreign policy and the liberal international order. Some already see China as a viable alternative, although public opinion of Chinese influence is mixed. Elsewhere, faded Cold War memories make Russia a relatively unknown economic and political alternative. So, while recent Western actions in Africa have put long term relationships at risk, Russia is slowly increasing its influence on the continent. In fact, the Kremlin has already taken action and is engaged in the politics surrounding the various debt crises in African nations. African countries owe debts to multiple international actors, including Russia. However, Moscow has forgiven debts owed by many of these countries, coupling debt relief with additional economic benefits, including an influx of grains and energy resources. It has also deepened defense cooperation with several African countries. This cooperation often includes contracts for weapons sales and the deployment of irregular military units, including the Wagner Group. Diplomatic actions such as the above have led some protestors to see Russia as a viable alternative to IMF funding and partnerships with the US and Europe. In a visual representation of this phenomenon, protestors have been seen waving Russian flags at mass gatherings across Africa. Russia appears to receive the greatest support in the Sahel, where governments have failed to curb political instability and deliver on economic development promises. Publics in the region were already angry with the continued postcolonial military presence of France, and Russia took advantage. Mass publics are not the only actors seeking alternatives, ruling elites also see Russia as an attractive partner. Russian defense cooperation and the presence of irregular forces bolster these regimes in the face of increasing civilian protests over poor governance or human rights. Still, Russia has not yet made the gains it could. The war in Ukraine is hurting Africans and contributing to economic stress as global grain prices have skyrocketed. Some perceive Russia as exacerbating the problems of failed governance through its use of Wagner Group formations to back corrupt officials, protect corporate interests, and bolster unpopular governments. Russian interest in the region is also less significant than in the Middle East, Eastern Europe, or the Arctic, where Russia has more proximate strategic, economic, and political goals. Rather than rushing in, Russia’s economic presence in Africa is slowly advancing Moscow’s goals on the international stage. When Russia sought to undermine financial, technological, and energy sanctions from the West as a result of its invasion of Ukraine, it turned to Africa to find new consumers for food products, energy, and arms. Already, in the wake of the invasion, only half of the continent voted to condemn Russia. Such voting patterns at the UN indicate greater support for Russia in Africa than in other regions around the world, even if distrust of Russia remains high in some parts of the continent. Forecasted crises could increase Russian influence on the continent as well. Shocks generated by the African debt crisis could become a proximate cause for geopolitical and geoeconomic shifts. Rapid demographic changes and disastrous climate events (e.g., droughts and floods) exacerbate existing economic and migratory challenges. Since the tentacles of Russian economic and security influence, as well as misinformation, are already present in Africa, such future crises could pull multiple African states further into Russian orbit, and away from Western countries and institutions. Further alignment of African states with Russia would have several drawbacks. Russia would discourage democratization and use security assistance to bolster dictators across the continent. Environmentally sustainable development is also likely to be hampered. Russia may increase the extraction of natural resources in environmentally damaging ways. Additionally, Russian energy exports will be oil and gas, eroding the already significant investment and progress in green energy development many African political economies have made. As Western missteps create openings for Russia to gain a foothold in Africa, they also set the stage for other global powers to capitalize on the vacuum. Chinese-built infrastructure in Africa also contributed to debt burdens, but unlike Western approaches tied to IMF austerity measures, China is recalibrating its strategy. By shifting to smaller projects with lower debt exposure and promoting green energy development overseas, China positions itself as a more appealing partner. This strategy not only bolsters China’s domestic solar and EV industries but also enhances its soft power by responding to local economic needs. Moreover, as Western policy blunders alienate African publics and governments, both Russia’s and China’s influence may grow. Russia’s gains in the region could indirectly strengthen China’s position by fostering broader skepticism of Western-led systems, aligning African leaders more closely with Beijing’s geopolitical goals, including its stance on Taiwan. Africa is a burgeoning continent. One in four humans will be African by 2050. If the US and Europe pass on opportunities to engage with a continent of emerging green development powers and an increasingly educated demographic bulge, Western policies will undermine their own power and influence in the international order. Russia’s quiet increase in trade and security assistance offers an established alternative. Meaning ultimately, both Russia and China, may play the long game, gaining incremental support from a region of one billion people at a time. This work is licensed under the Creative Commons Attribution 4.0 International License (CC BY 4.0) [add link: https://creativecommons.org/licenses/by/4.0/]

Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском “Changes! We’re waiting for changes!” proclaimed Viktor Tsoi nearly 40 years ago, at the dawn of the Soviet perestroika. If one were to summarize the multitude of diverse and contradictory events, trends, and sentiments of the past year in a single phrase, it would be that the modern world is eagerly awaiting change. Much like the former USSR in the 1980s, few today can clearly define what these changes should entail or what their ultimate outcome will be. Yet, the idea of maintaining the status quo has evidently found little favor with the public over the past year. This impatient anticipation of change was reflected, for instance, in the outcomes of numerous elections held over the past 12 months across the globe. In total, more than 1.6 billion people went to the polls, and in most cases, supporters of the status quo lost ground. In the United States, the Democrats suffered a resounding defeat to the Republicans, while in the United Kingdom, the Conservatives were decisively beaten by the Labour Party. In France, Emmanuel Macron's once-dominant ruling party found itself squeezed between right-wing and left-wing opposition, plunging the Fifth Republic into a deep political crisis. The seemingly stable foundations of political centrism were shaken in Germany, South Korea, and Japan. Even the party of the highly popular Indian Prime Minister Narendra Modi failed to retain its parliamentary majority after the elections, and in South Africa, the African National Congress led by Cyril Ramaphosa also lost its majority. Pessimists might argue that abandoning the status quo in itself solves no problems, and the much-anticipated changes, as the final years of the Soviet Union demonstrated, do not necessarily lead to positive outcomes. Replacing cautious technocrats with reckless populists often backfires, affecting those most critical of the entrenched status quo. Optimists, on the other hand, would counter that the rusted structures of state machinery everywhere are in desperate need of radical modernization. They would add that the costs inevitably associated with maintaining the existing state of affairs at all costs far outweigh any risks tied to attempts to change it. The international events of the past year are also open to various interpretations. Pessimists would undoubtedly point out that none of the major armed conflicts carried over from 2023 were resolved in 2024. On the contrary, many of them showed clear tendencies toward escalation. For instance, in late summer, Ukraine launched an incursion into the Kursk region of Russia, and in mid-November, the U.S. authorized Kyiv to use long-range ATACMS missiles against targets deep within Russian territory. Meanwhile, the military operation launched by Israel in Gaza in the fall of 2023 gradually expanded to the West Bank, then to southern Lebanon, and by the end of 2024, to parts of Syrian territory adjacent to the Golan Heights. From the optimists' perspective, however, the past year demonstrated that the disintegration of the old international system has its limits. A direct military confrontation between Russia and NATO did not occur, nor did a large-scale regional war break out in the Middle East, the Taiwan Strait, or the Korean Peninsula. The economic results of 2024 are equally ambiguous. On one hand, the global economy remained heavily influenced by geopolitics throughout the year. The process of “technological decoupling” between the U.S. and China continued, and unilateral sanctions firmly established themselves as a key instrument of Western foreign policy. On the other hand, the world managed to avoid a deep economic recession despite the numerous trade and investment restrictions. Global economic growth for the year is expected to reach around 3%, which is quite respectable for such turbulent times, especially considering that the long-term effects of the COVID-19 pandemic have not yet been fully overcome. In 2024, the average annual global temperature exceeded pre-industrial levels by more than 1,5 °C for the first time, crossing another critical “red line”. However, the UN Climate Change Conference (COP29) held in November in Baku fell short of many expectations. At the same time, China reached its peak carbon emissions by the end of the year, achieving this milestone a full five years ahead of previously announced plans. In the past year, the UN Security Council managed to adopt only 12 resolutions, mostly of a humanitarian nature, clearly reflecting the declining effectiveness of this global governance body. For comparison, in 2000, the Security Council approved 29 resolutions, including key decisions on conflict resolution in the Balkans and Africa. At the same time, 2024 saw continued efforts to explore new formats for multilateral cooperation, including mechanisms within the BRICS group, which held its 16th summit in Kazan for the first time in its newly expanded composition. With enough imagination, one can easily find evidence in the past 12 months to confirm any omen or superstition traditionally associated with leap years. However, all these signs and superstitions predicting upheavals and catastrophes—while aligning with the pessimistic conclusions about the year now ending—do not apply to the year ahead. Human nature, after all, tends to lean more towards optimism than pessimism; if it were the other way around, we would still be living in caves. As they bid farewell to a difficult and challenging year, people around the world continue to hope for better times. And the mere act of hoping for the best is already significant in itself. As Johann Wolfgang von Goethe aptly remarked, “Our wishes are forebodings of our capabilities, harbingers of what we are destined to achieve”. Originally published in Izvestia.

Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Last week Donald Trump made a bizarre threat on his Truth Social site that he would impose 100 percent taxes on the imports (tariffs) from any country that doesn’t take a pledge to not move away from the dollar as its reserve currency.  Donald Trump’s Big Fear Exists Only in His Imagination  The threat was bizarre for several reasons. First, he seemed to imagine that the BRICS countries (Brazil, Russia, India, China, and South Africa) and their allies are in the process of setting up an alternative currency to the dollar.  This would be very hard to imagine since this group of countries has little in common other than feeling marginalized by the United States, West Europe, and the international institutions they have established. Agreeing on rules for a common currency involves considerable haggling and is difficult even among countries that are similar in their economies, history, and culture. Ask the countries in the euro zone. Bringing this group together in a common currency seems a long shot even one or two decades out. So, Trump was making some grand threat against a development that will almost certainly not happen. Oh well, always good to be cautious. Who Cares If They Establish Their Own Currency? Trump’s ignorance of trade and finance issues really shines through on this one. Paul Krugman has been working hard trying to educate the public on the meaning of a reserve currency.  First of all, there is not a single reserve currency. There is no law that requires all international payments be made in dollars, and many in fact are not. If businesses find it more convenient to sell in euros or yen, there is nothing that prevents them from doing so. It’s not clear if Donald Trump is unaware of this fact or thinks that he somehow will police all the transactions in the world and require them to be done in dollars. Central banks also hold currencies in reserve to cover international payments and to support their own currency in the event of a crisis. The dollar is the predominant reserve currency, but not the only one. Central banks also hold euros, British pounds, Japanese yen, and even Swiss francs. Perhaps Trump wants to monitor the currency holdings of central banks and start raising the tax on imports from any country where dollar holdings fall below a certain level. That seems a pretty whacky way to set trade policy (it would violate most of our trade agreements), but about par for Donald Trump economic policy. The Dollar as a Reserve Currency Undermines Donald Trump’s Dream of Balanced Trade  Insofar as having the dollar as the world’s leading reserve currency matters, its main benefit would be increasing demand for the currency and thereby driving up its value relative to other currencies. This would be good in the sense that it makes it cheaper for people in the United States to buy items imported from other countries.  The effect is not likely to be very large. The overwhelming reason for wanting to hold dollars is to invest in US financial assets, like stock and bonds, both public and private. As long as investors think the United States has a strong and stable economy, they will want to have dollars to be able to invest here.  If the United States were just another reserve currency, like the euro, then fewer dollars would be held as reserves and for carrying through transactions. This would likely mean the dollar was valued somewhat less against other currencies, but it is unlikely that the drop would be more than 5-10 percent. This is the sort of movement in the dollar we see all the time over the course of a year or two. It usually does not get much attention. For example, the dollar rose by more than 5.0 percent against the euro between May of 2021 and the end of the year, and it seems no one noticed. More importantly for this issue, insofar as being the leading reserve currency raises the value of the dollar, it goes the wrong way in terms of Donald Trump’s goals on trade policy. Donald Trump seems to want the United States to have balanced trade or even a trade surplus.  A higher valued dollar directly undermines the effort to achieve this goal. If the dollar is higher valued against other currencies, it makes imports cheaper for people in the United States. That means we will buy more imports.  If the dollar is higher valued against other currencies it means that foreigners will have to use more of their own currency to buy a dollar. That makes our exports more expensive for them. If our exports are more expensive, people living in foreign countries will buy less of exports. If we buy more imports, and sell fewer exports, then our trade deficit will be larger. This means that Donald Trump’s quest to preserve the dollar’s status as the premier reserve currency goes completely against his goal of reducing the trade deficit. Donald Trump’s 100 Percent Tariff Will Hurt Us Much More Than It Will Hurt China The United States provides a valuable export market for China, but it would require some very strange arithmetic to imagine that China somehow needs the US market for its prosperity. First, it is worth getting an idea of the volume of exports at stake. The US had imported $322 billion in goods from China through September of this year, which puts it on a course to import roughly $430 billion for the year. By comparison, China’s GDP on a purchasing power parity basis is projected to be $37.1 trillion this year using a purchasing power parity (PPP) measure of GDP, while it would be $18.3 trillion using an exchange rate measure. This means that its exports to the US would be equal to 1.2 percent of its GDP using the PPP measure, and 2.3 percent using the exchange rate measure. The difference between these two measures is that the PPP measure uses a common set of prices across countries for all goods and services. It means that it prices a haircut and a heart operation at the same price in the United State and China, as well as every other country. By contrast, the exchange rate measure takes the country’s GDP calculated in its own currency and then converts it to dollars at the current exchange rate. The large difference between the two measures is explained by the fact that many services cost much less in China than in the United States and other wealthy countries. For example, renting a comparable apartment or getting a doctor’s exam would cost far less in China than it would in the United States. While for many purposes, such as comparing living standards, the PPP measure is appropriate, in this case the exchange rate measure is probably the right one. We are asking how much demand China would lose in its economy if it is cut off from the US market. Since the goods sold internationally are likely priced in China close to their prices internationally, the demand loss would be larger than would be indicated by their share of its GDP measured in PPP terms.  This means that in the extreme case where China loses its entire US export market, demand in its economy would fall by 2.3 percent, before taking account of any multiplier effects. This is far from trivial, but it is not likely to lead China’s economy to collapse. By comparison, when the housing bubble collapsed in the United States in 2006-2008, the share of residential construction in GDP dropped by 4.0 percentage points.  That drop gave the US a severe recession, but it is important to keep in mind the economic problem we are describing. This would be a story of inadequate demand in the economy. This can be counteracted by the government spending more money, which we did to some extent with the stimulus package enacted under President Obama in 2008-09 and with an even larger package under President Biden in 2021-22.  There may be political considerations that act as obstacles to large-scale stimulus in China, as there are here, but there is no economic reason that China could not boost its economy in a way that replaces the demand lost from the U.S. export market. If China’s government chose, it could even borrow a trick from the US playbook and send $2,000 checks to everyone in the country and put Donald Trump’s name on the check. That would hardly be a crisis from China’s standpoint. The picture looks much worse from the US standpoint. We will be paying substantially more for the $430 billion in goods that we had been buying from China. It would be necessary to look at possible substitutes for these imports on a sector-by-sector basis, but let’s say on average that the additional cost for the replacement its is 40 percent of the price of the goods from China. In that case, we would be paying an extra $170 billion a year, roughly $1,400 per family, to cover the additional cost.  The reason this looks worse from the US standpoint than the Chinese standpoint is that China just needs to create a new source of demand, which its government can do directly by giving people money. On the other hand, the United States is seeing the cost of a number of items rise, in effect seeing a shortage of supply comparable to what happened with the supply chain crisis during the pandemic.  Most governments would not deliberately inflict this sort of pain on its population without a good cause, but Donald Trump prides himself on being unorthodox. This threat over the dollar’s status as a reserve currency certainly is unorthodox.

Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Ladies and Gentlemen, Today marks a truly historic milestone. Let me begin by thanking the Chief Negotiators for their dedication and determination. They worked tirelessly, over many years, for an ambitious and balanced agreement – and they succeeded. The bond between Europe and the Mercosur countries is truly one of the strongest in the world. It is a bond anchored in trust, enriched by a shared heritage, that spans centuries of mutual learning and growth. In fact, exactly 30 years ago, in 1994, my predecessor Jacques Delors stood here in Montevideo. He met with your father, dear Luis, who was then President of Uruguay. Together they shared a bold vision. A vision of deeper integration, not only within Europe and Mercosur, but also between them. Today, in Montevideo, we are turning that vision into reality. We are strengthening this unique partnership as never before. And in doing so, we are sending a clear and powerful message to the world. First, in an increasingly confrontational world, we demonstrate that democracies can rely on each other. This agreement is not just an economic opportunity, it is a political necessity. We are like-minded partners. We both believe that openness and cooperation are the true engines of progress and prosperity. I know that strong winds are blowing in the opposite direction – towards isolation and fragmentation. But this agreement is our clear response. We stand together on the global stage, as partners. Second, we are sending a message to our people and businesses in our regions: This agreement was designed with your interests at heart. It is made to work for you. It means: more jobs – and good jobs – more choices and better prices. The European Union and Mercosur create one of the largest trade and investment partnerships the world has ever seen. We are taking barriers down and we are allowing investments in. We are forming a market of over 700 million consumers. This partnership will strengthen entire value chains; it will develop strategic industries; it will support innovation; and it will create jobs and values, on both sides of the Atlantic. Third, we are showing the world that trade can – and must – be guided by values. Trade agreements are more than economic frameworks. They are a way to build communities of shared values. The EU-Mercosur agreement reflects our steadfast commitment to the Paris Agreement and to the fight against deforestation. President Lula's efforts to protect the Amazon are welcome and necessary. But preserving the Amazon is a shared responsibility of all humanity. This agreement ensures that investments respect Mercosur's extraordinary yet fragile natural heritage. My fourth message is that, economically, this is a win-win agreement. Europe is already a leading investment and trade partner for Mercosur. So you know how we do business together. We are focused on fairness and mutual respect. EU-Mercosur will bring meaningful benefits to consumers and businesses, on both sides. It will facilitate European investments in strategic industries across all Mercosur countries: like sustainable mining, renewable energy and sustainable forest products, just to name a few. It will also make it easier to invest in sectors that directly impact the people's daily lives. For example, expanding the electricity grid to rural and remote areas and advancing digitalisation across the region. Finally, let me address my fellow Europeans: This agreement is a win for Europe. 60,000 companies are exporting to Mercosur today – 30,000 of them are small and medium-sized enterprises. They benefit from reduced tariffs, simpler customs procedures and preferential access to some critical raw materials. This will create huge business opportunities. To our farmers: We have heard you, listened to your concerns and we are acting on them. This agreement includes robust safeguards to protect your livelihoods. EU-Mercosur is the biggest agreement ever, when it comes to the protection of EU food and drinks products. The agreement protects 350 EU geographical indications. In addition, our European health and food standards remain untouchable. This is the reality – the reality of an agreement that will save EU companies EUR 4 billion worth of export duties per year while expanding our markets and opening new opportunities for growth and jobs on both sides. I want to thank President Lacalle Pou for hosting this Summit and for bringing us together in Montevideo. This is a good day for Mercosur, a good day for Europe and a landmark moment for our shared future. A whole generation dedicated their effort, vision and determination to bring this agreement to life. Now, it is our turn to honour that legacy. Let us ensure that this agreement delivers on its promises and serves the generations to come. Thank you very much.

Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском The BRICS Summit held in Kazan October 22–24, 2024, highlighted several defining developments regarding Latin American countries that will play a significant role in the continent's political and economic evolution soon. With the inclusion of two regional states as associate members of the bloc, Latin American presence in the pool of developing nations striving to expand their influence in shaping a new world order is set to increase. Bolivia and Cuba joined BRICS as partners alongside 11 other countries: Algeria, Belarus, Vietnam, Indonesia, Kazakhstan, Malaysia, Nigeria, Thailand, Turkey, Uganda, and Uzbekistan. Together with the core BRICS countries and new members who joined the bloc a year earlier, they form a fundamentally new framework for international cooperation, where the diversity of participants creates a platform for a polyphonic dialogue. While the general outline of their interests aligns, each country has its own priorities and expectations from its participation in BRICS. Interests of Bolivia The multinational state of Bolivia is developing a left-oriented economic model, in which fundamental importance is given to the social redistribution of state revenues, received mainly from the exploitation of the country's resource potential. Bolivia has significant hydrocarbon reserves, primarily natural gas, as well as the largest lithium reserves on the planet, the volume of which is estimated at more than 21 million tons. While the export of Bolivian hydrocarbons (mainly to neighboring Brazil and Argentina) remains a traditional source of budget revenues, the lithium industry has relatively recently become a priority for the country's foreign economic activity. The nationalization of lithium in 2008 marked the beginning of efforts to develop deposits. However, for a number of reasons, including difficulties in attracting investment, the lack of a technological base, and resistance from indigenous populations and local environmental organizations, full-scale exploitation of the deposits—aside from some pilot projects—was never realized. Only in 2021, two Chinese and a Russian company, Uranium One Group, which is part of the management circuit of the State Corporation Rosatom, received a tender for development. By joining BRICS as a partner, La Paz hopes to strengthen its position as a supplier of lithium raw materials to the global market. Given the scale of national reserves of this metal, the Bolivian government is interested in expanding the number of international investors. La Paz is ready to engage with its partners in other fields, such as energy resources and food production. BRICS countries already occupy leading positions in Bolivia's foreign economic relations. Firstly, we are talking about Brazil ($3.5 billion), China ($3.5 billion), and India (about $2 billion), which imports large volumes of Bolivian gold. In addition to trade, China is actively investing in Bolivian infrastructure and technology projects. The significance of collaboration with Russia continues to increase. The lithium agreement is part of a broader strategy between the two governments to encourage investment in key sectors. On the sidelines of the Kazan summit, Presidents Luis Arce Catacora and Vladimir Vladimirovich Putin held a bilateral meeting to discuss joint nuclear technologies (a unique high-mountain Nuclear Research and Technology Center (NRTC) for the peaceful use of nuclear energy has been established in Bolivia, built by Russian specialists), along with cooperation in education, lithium contracts, and other agendas that align the interests of the two countries. Additionally, La Paz and Moscow share common principles for shaping a global order and advocate for the creation of a multipolar world. At the same time, it is important to consider Bolivia's complex domestic political situation and the conditions under which the country will approach the 2025 general elections. The dispute over the presidential candidacy threatens to completely dismantle the political project that has been unfolding in the country since 2006. Social divisions and economic crises are fostering a deep sense of uncertainty and pessimism within Bolivian society regarding the country's development prospects. BRICS could present a new opportunity for economic breakthroughs, provided the current course is maintained after the elections. However, it is also possible that with the rise of opposition forces, Bolivia might follow the path of Argentina, which, as is known, withdrew from joining the bloc after a change of power. Cuban Expectations For Cuba, international support from BRICS countries represents a chance to overcome the prolonged and multifaceted crisis that the island cannot resolve on its own. Havana sees its main goals as countering unilateral American restrictive measures and seeking alternative sources of financing.   Cuba maintains trade relations with all BRICS countries, though their share in Cuba’s total trade turnover remains relatively small. China holds a leading position, accounting for approximately 13% of Cuban foreign trade. The most significant growth in trade turnover occurred between 2005 and 2015, but in recent years, Cuban-Chinese relations have seen a decline. In 2018, Cuba joined China's Belt and Road Initiative, but it has yet to yield substantial results.   Latin American countries account for a third of Cuba's foreign trade, with Brazil representing only 3.2%. The expansion of trade and economic ties with Russia has led to an increase in trade turnover to 7%. Thus, enhancing the intensity of external economic relations remains one of Cuba’s primary objectives. At the same time, the primary obstacle to achieving this remains the U.S. economic embargo, which Cuba consistently urges the international community to oppose. While there was a thaw in bilateral relations during Barack Obama's presidency, with mutual efforts to find compromises on key issues, neither side is willing to fully abandon its positions.   It should also not be assumed that Havana’s rapprochement with BRICS signals a complete abandonment of efforts to establish constructive engagement with Washington. The United States will continue to be a focal point for Cuban attention. However, given the new dynamics in the White House following the recent elections, it will be challenging for Havana to maintain the current status quo and avoid heightened pressure that could follow from the hegemon. Contradictions Between Venezuela and Brazil  One of the countries that shares Cuba's aspirations is Venezuela, which is under severe Western sanctions and grappling with a deep economic crisis. Caracas primarily relies on support from Russia and China. However, Venezuela's relationships with other BRICS members are far more complex.   For instance, Venezuelan-Indian ties are primarily based on India's demand for oil from the Bolivarian Republic. Under pressure from U.S. sanctions, India ceased purchasing “black gold” from Caracas in 2019 but remains open to resuming cooperation if restrictions are eased.   At the same time, Delhi provides no political support to the Venezuelan government, and the prospect of expanding ties in other areas appears unlikely. The veto on Venezuela's inclusion in the BRICS group of partners, driven by Brazil’s position, exposed deep contradictions within the region and intensified divisions among representatives of the left wing of Latin America's political spectrum. The fact that Brazil—the only country representing the region within BRICS—became the obstacle for Venezuela caused significant backlash and sharp rejection from Caracas. For Nicolás Maduro and his administration, potential membership in BRICS represents a key foreign policy objective. Maduro's close ties with Russia and strong relations with some Asian and African nations suggested high chances of acceptance. Furthermore, Venezuela maintains robust connections with several BRICS members, including Iran and China, with which it signed a comprehensive strategic partnership agreement in 2023 (similar agreements exist between Beijing and only Russia, Belarus, and Pakistan). Until recently, no open opposition to Venezuela's accession to BRICS had been observed. Venezuela and Brazil have a history of strained diplomatic relations, which were severed in 2019 after then-Brazilian President Jair Bolsonaro recognized opposition leader Juan Guaidó as Venezuela’s interim president. Ties were restored only in 2023 with the return of Luiz Inácio Lula da Silva to Brazil’s presidency. However, relations began to deteriorate again after Venezuela’s presidential elections in July 2024, in which Nicolás Maduro was declared the winner. The election results remain unrecognized by many countries, including Brazil, which officially called for the release of electoral protocols and withheld recognition of the Venezuelan government’s legitimacy. The growing rift between the two nations was exacerbated by Brazil’s veto on Venezuela’s inclusion in BRICS, leading to a sharp response from Caracas. In addition to issuing strong statements against Brazil, Maduro recalled his ambassador for consultations. Given that Brazil is set to chair BRICS in 2025, the current tensions have significantly diminished Venezuela’s chances of membership until relations with Brasília are restored. Considering the steadfastness and consistency of Itamaraty in implementing its foreign policy, this issue is likely to be postponed indefinitely. Brazil’s Aspirations   As of today, Brazil remains the only Latin American country represented in BRICS as a full-fledged member. It plays a key role on the global stage in advancing the Global South's agenda.   A central figure in this process is Luiz Inácio Lula da Silva, who, during his two presidential terms (2003–2006, 2007–2011), pursued an active policy of fostering closer ties with developing nations in Asia and Africa. His commitment to a multilateral approach in foreign policy reflects Brazil’s national tradition of positioning itself as a regional power with global ambitions. The rotation of BRICS chairmanship, coupled with the extension of Dilma Rousseff's tenure as head of the New Development Bank, appears to enhance Brazil’s prospects for expanding its role within the group and globally. In a challenging domestic political landscape, where the government faces significant opposition from a large segment of society, international achievements will be crucial for Luiz Inácio Lula da Silva.   While Brazil struggles to consolidate its Latin American neighbors and act as a driver of regional integration, its current diplomacy has shifted focus to global initiatives. Participation in international affairs is an integral part of Brazil's national identity. Its historical tradition of engaging in multilateral forums as a regional leader, combined with its accumulated diplomatic expertise, has positioned Brazil as a significant actor on the world stage. This allows the country to wield influence far exceeding that of a developing nation burdened by substantial internal socio-economic challenges and lacking the military capabilities of great powers. Brazil’s vision for a world based on international rules, where every nation has a voice, reflects its aspiration to advance a fairer global order. Through BRICS, Brazil seeks to promote this ideal, leveraging the group’s potential to amplify its influence on the global stage. External Factors Several other Latin American countries, such as Honduras, Nicaragua (both submitted applications ahead of the 2024 Kazan summit), and Colombia, have expressed their desire to join the bloc. This demonstrates a broad interest and intent to deepen cooperation within the Global South paradigm.   Additionally, Argentina's accession to BRICS, which was renounced by President Javier Milei, is likely to remain on the agenda and may be revisited in the future. Considering that an invitation from BRICS was extended and Argentina's political landscape is subject to radical shifts, the prospect of joining the bloc could materialize if pro-BRICS forces return to power in Buenos Aires. Finally, U.S. policy toward the region under Donald Trump’s administration will play a significant role in shaping the participation of Latin American countries in BRICS. While Trump’s cabinet is not yet fully formed and clear policy directions have not been outlined, various speculations are fueling uncertainty and raising expectations among different groups, without providing a clear picture. What is evident, however, is that Latin American countries once again find themselves needing to react to steps taken by the northern hegemon. Attempts to establish independent policies, undertaken over recent decades by many governments in the region, primarily leftist ones, have yet to yield the desired results or become an established reality. As a result, how these nations shape their foreign policies, including in other areas, will, to a certain extent, depend on Washington’s influence. In this context, BRICS, not only for newcomers like Cuba and Bolivia, could serve as a point of leverage to reduce dependence on the United States and create alternative paths for their foreign economic and political engagement. In a world of global uncertainty, Latin American countries are seeking effective mechanisms to advance and strengthen their positions.  Forms of international cooperation, like those provided by the BRICS format, are emerging as essential tools in this effort. This collaboration holds the potential to be both mutually enriching and highly beneficial.

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Kenya’s government faces the challenge of meeting its debt obligations, while avoiding further unrest. President William Ruto must find ways to raise money, manage the economic recovery from Covid-19 and respond to the threat of climate change. William Ruto was elected as Kenya’s fifth president in September 2022. He had previously served ten years as deputy president and came into office with broad international support. In May 2024, Ruto embarked on the first state visit to the United States by an African leader in 16 years. That same month, his government proposed a raft of taxes designed to reduce Kenya’s budget shortfall – the fiscal deficit is projected to be 4.3% of GDP in 2024/25. The measures were encouraged by the International Monetary Fund (IMF), which had loaned Kenya $2.3 billion to meet the financial obligations resulting from Covid-19 and existing debt-servicing costs. The taxes were drafted into a bill comprising mostly VAT measures, which would place a disproportionate burden on poorer Kenyans. As a result, thousands of citizens, led by the younger generation, took to the streets in protest. This culminated in them storming the parliament buildings on 25 June, with around 50 protesters being killed. The next day, the president declined to sign the bill. Two weeks later, he dismissed his entire cabinet. What are the roots of Kenya’s debt crisis? In the last 15 years, Kenya’s debt has risen significantly. Government debt totalled a manageable 39% of GDP in 2010; by March 2023, it stood at 68% of GDP. This rise in debt is the result of a surge in borrowing between 2013 and 2022, under Uhuru Kenyatta’s administration. Following strong growth rates in the early 2000s, Kenyatta took out large loans to pay for infrastructure projects. Many of these did not result in enough economic growth to cover their costs. One often-cited example of this excessive borrowing is the $5.3 billion loan from China to pay for the Standard Gauge Railway (SGR) project linking the port city of Mombasa and the capital, Nairobi. Many of these infrastructure projects were victims of corruption, which siphoned money away from large loans. In particular, significant allegations of embezzlement have been levelled over the allocation of the Eurobonds (large international loans) secured by the Kenyan government in 2014 and 2018. The government lost at least 567.4 billion Kenyan shillings ($4.4 billion) to corruption between 2013 and 2018 alone, according to estimates from consulting firm Odipo Dev. Over the last ten years, Kenya has consistently ranked between 120th and 140th out of 180 countries in Transparency International’s corruption perception index. During this period, the Kenyan shilling has also lost 31% of its value against the US dollar. This has helped Kenyan exporters, particularly those that export to the United States (9.8% of exports). The dollars that Kenya receives from exporting have been vital to its debt repayment, especially because the country imports more than it exports. Its trade deficit sat at around $18 billion, according to 2022 figures. The shilling’s drop in value poses a significant problem for the treasury. Kenya’s $80 billion debt pile is mostly denominated in dollars, and the depreciation of the shilling has made these repayments significantly harder. Figure 1: Kenyan shilling ten-year exchange rate with the US dollar Source: xe.com The Kenyan government is not solely at fault for the accumulation of debt. IMF managing director Kristalina Georgieva called Kenya an ‘innocent bystander’ to external shocks after visiting in May 2023. She was referring primarily to the pandemic, which had caused dramatic short-term rises in unemployment and food security, and to the drought and inflation that followed. Where there is a country in debt distress, such as Kenya, there is often an irresponsible lender as well as the borrower. Campaign group Debt Justice points out that Kenya’s credit dried up after the pandemic, when developing countries were generally seen as riskier lending options. As a result, it had to turn to World Bank and IMF loans, and eventually bonds with double-digit interest rates. In the words of the African Forum on Debt and Development (AFRODAD), Kenya’s debt was the result of ‘a combination of irresponsible lending by developing partners… and an unsatiable appetite to borrow by the government of Kenya.’ In May 2020, the World Bank upgraded Kenya’s risk of debt distress from moderate to high. The pandemic depressed Kenyan exports and economic growth, and the government’s strong fiscal response magnified the existing budget deficit. At this point, both the World Bank and the IMF still viewed Kenya’s debt as fundamentally sustainable. What role has China played in Kenya’s debt burden? Since the Kenyatta administration started borrowing vast sums of money from China in 2013, the Asian giant has been accused of indulging in ‘debt-trap diplomacy’. Many Kenyans fear that the collateral for China’s $5.3 billion loan for the SGR is the strategic Mombasa port. Specifically, if Kenya is forced to default, it has been argued that China will seize the port. Similar accusations have dogged Chinese projects in Uganda and Zambia. In the last financial year, Kenya has repaid China $1.18 billion, a third of which comprised interest payments. Nonetheless, China’s role in Kenya’s debt crisis has probably been overstated. Kenya owes China approximately $6 billion, out of a total of $70 billion of debt. The World Bank and the IMF have judged the $2 billion Eurobond to be the more decisive factor in Kenya’s default risk. While Kenyatta’s government did borrow excessively from China, those loans at least resulted in completed infrastructure projects. The challenges that Kenya faces with Chinese loan repayments are mostly representative of its wider debt struggles. Chinese loans are dollar-denominated, and repaid at 3% above the benchmark global interest rate. What happened in 2024? In 2024, Kenya faced a looming June deadline to repay a $2 billion Eurobond issued in 2014. The IMF stepped in with a $941 million loan in January, bringing the organisation’s total exposure to Kenya to $4.4 billion. To cover the rest of its shortfall, Kenya issued an international bond of $1.5 billion, with an interest rate of 10.4%. The second loan was met with relief by international markets, which no longer feared an immediate Kenyan debt default. Many observers see this level of interest payment as a stark warning of financial ill health. Indeed, six of the 15 countries to issue bonds at 9.5% or higher interest rates since 2008 have eventually defaulted, according to Morgan Stanley analysts. In return for the low-interest loan from the IMF, Ruto’s government agreed to raise taxes. It introduced a finance bill in May 2024, outlining plans to raise 346 billion Kenyan shillings ($2.68 billion). It was these proposals that triggered the country’s mass protests. In the end, the president refused to sign the bill into law after these protests, which had culminated in the storming of Kenya’s parliament on 25 June. At least 50 demonstrators were killed in the violence, bringing worldwide attention to Kenya’s political and economic struggles. Who is protesting and why does it matter? Debt repayment is a controversial topic in many developing countries. Since the so-called ‘third world debt crisis’ in the 1980s, many have been mired in debt. The IMF provided emergency loans to affected countries throughout the 1980s. But these loans were conditional on austerity measures being implemented, privatisation programmes introduced and the countries’ economies opened to foreign capital. As a result, the IMF is frequently accused of seeking to influence the economic strategy of poor countries. Many Kenyan protesters took this line, decrying the IMF programme for tax rises and spending cuts in order to finance Kenya’s debt to the West as colonial. Many debt specialists around the world have sympathised with this view. Binaifer Nowrojee, president of the Open Society Foundations, noted that Kenyans make up just some of the three billion people living ‘in countries that are spending more on servicing their debt than public spending on education or health’. The Ruto government faces the challenge of overcoming the debt crisis and convincing the population to accept measures needed to do so. The protesters are predominantly urban, young and poor – the Kenyans who feel squeezed in the current economy. One study indicates that youth unemployment could be as high as 67%. For example, to buy a motorbike – often critical for employment – young people are forced to turn to microloans, which often leave them in inescapable debt. Kenya’s biggest cities have been at the heart of the anti-tax protests since the movement escalated on 18 June – 57 of the 215 protests took place in just seven cities. Many of the protesters left rural areas in search of economic opportunity and better government services but were left disappointed with the opportunities available. The demonstrators generally see themselves as existing outside civil society. One study finds that the wave of African protests since 2010 have typically been led by ‘political society’ (Branch and Mampilly, 2015). These are the most impoverished urban workers, who have little interaction with the state and tend to accomplish their aims through direct demonstration rather than the electoral system. Where does Kenya go from here? The IMF’s communications director has apologised to Kenyans, but maintains that an austerity programme is critical for the country’s economic health. So long as Ruto’s government seeks to avoid a default, the IMF is likely to insist on its measures being passed. Ruto responded to the 25 June events by branding the demonstrations as ‘treasonous’. He later moderated his position, dismissing almost his entire cabinet on 11 July. The new cabinet includes four members of the opposition Orange Democratic Movement (ODM), led by political opponent Raila Odinga. Demonstrations continue against the government, albeit to a lesser extent than in June. In order to address these, Ruto will have to accept that the ‘political society’ behind the protests is not allied to the ODM. Thus far, protesters have not shown themselves to be wedded to a party political or ethnic identity. Their demands – to bring down inequality, introduce measures against corruption and end police brutality – will require political will. Ignoring the protests, on the other hand, risks another crisis. Now that indirect tax rises are too politically toxic, the government must find other ways to increase its revenue. The obvious pivot is to raise direct taxes, particularly income tax and corporation tax. Kenya has a GDP per capita of $1,949, ranking 17 out of 48 countries in sub-Saharan Africa. The treasury has historically struggled to convert this into revenue. A recent study finds that Kenya’s tax revenue is equivalent to just 16.5%, down from a high of 17.5% in 2017 (OECD, 2023; KRA, 2024). This puts Kenya below the African average in both tax and non-tax revenue, and far below the Western average of 30-40%. Increasing direct tax revenue in sub-Saharan Africa is easier said than done. Prior to independence, colonial governments built tax bases that relied on controlling the movement of goods in and out of the territory (Cooper, 2002). Modern African states – many of which are poor and sparsely populated – have also relied on indirect taxes (Herbst, 2000). The IMF’s encouragement of Kenya to move away from indirect taxes on trade (that is, tariffs) towards taxing consumer expenditure (VAT) has damaged the government’s ability to collect taxation on a natural source. In common with some other African countries, state infrastructure is generally more effective at taxing trade since it is more regulated and accessible to the public authorities than domestic consumer spending. A short-term return to tariffs on foreign goods would be risky. It would be likely to result in higher consumer prices and increased costs of production for Kenyan companies. In the longer term, the government may need to expand formal employment and seek to bring in higher-wage jobs in order to expand the tax base (Cheeseman and Griffiths, 2005). For the time being, Kenya has averted a default. IMF loan interest rates are minimal, and the country won’t have to start repayments on its $1.5 billion bond until 2029. There are also some positive indicators. Kenya’s tax revenue in 2023/24 was $18.8 billion, an 11.1% increase on the previous year (at $16.4 billion). Economic growth rates are stable, at around 5.5% year-on-year. Nonetheless, Kenya is still spending 60% of its revenue on debt servicing, half of which goes to interest repayments alone. The situation is close to unsustainable and, without changes, the country could be facing a negotiated default in the coming years. What about inflation? Central Bank of Kenya (CBK) has a mixed record of managing inflation. The country has seen inflation averaging 6.5% over the last decade. The impact of Covid-19 and Russia’s invasion of Ukraine brought further rises, but this has been contained at 7.7%, broadly in line with the sub-Saharan average of 7.1%. Figure 2: Inflation in Kenya, 2014-24 Source: World Bank The rise in the value of the shilling in 2024 may begin to translate into a further reduction in inflation, but this is is unlikely to be sustainable. Kenya’s foreign exchange reserves have seen significant volatility, as the country has repaid and subsequently issued large bonds. The CBK’s reserves total around $7 billion – enough to cover less than four months’ worth of imports. If these reserves fall further, then foreign investors may withdraw from Kenya, depreciating the shilling and inducing higher inflation. What about climate change in Kenya? Kenya has suffered repeated droughts over the last decade, with that of 2021-22 being particularly severe. In late 2022, 4.3 million people faced severe food insecurity, as a result of the country’s worst drought for 40 years. Approximately 2.6 million livestock deaths were attributed to the drought. Food prices jumped temporarily by 60-90%. In a country where agriculture comprises 33% of production and exports are predominantly horticultural, food insecurity is widespread. Climate change poses a major challenge to Kenya and its neighbours. Kenyan farmers are vulnerable to increasingly variable rainfall – 98% of agriculture in the country does not use irrigation. The economic damage from droughts – which interrupt work, school and medical appointments and thus have knock-on effects on health and education – is costing Kenya 2-2.8% of GDP every year. By 2050, the crop yields of staples such as maize, rice, coffee and tea are likely to drop by 40-45%. By 2055, food prices are expected to be between 75-90% higher in relative value (World Bank, 2022). Kenya’s ability to develop climate resilience, through effective land and water management, will be vital for its economic health in the next few years.