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Energy & Economics
The new Russian nuclear icebreaker project 22220 in the Barents Sea. Murmansk region, Kola Bay.

Russia in the Arctic: Challenges and Opportunities

by Andrey Kortunov

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Russia is a distinctly Nordic country. Its Arctic coastline stretches for twenty-four thousand kilometers, and almost two thirds of Russia’s territory is covered by permafrost. Among all Arctic states, Russia has by far the most numerous resident communities in the region in total exceeding two million people (approximately a half of the global Arctic population). All of the biggest cities to the North of the Arctic Circle—Murmansk, Vorkuta, Norilsk—are located in Russia. A very large part of Russia’s history for the last millennium has been included a relentless quest for fur, fish, timber, empty lands and new trading routes along the endless Arctic Ocean. Historians still debate whether this perpetual drive to the North has been a Russian blessing or a Russian curse. The expansion in the Northern direction offered the nation a variety of unique opportunities, but it also created numerous challenges that other Europeans never confronted. In any case, this movement had a critical formative impact on forging the Russian character and left a deep imprint on the national mentality. This heritage will undoubtedly stay with Russians in future, affecting their perceptions of themselves, the overall worldviews as well as many specific economic, social, military and other decisions. Economy Today, the Arctic region houses less than 1.3% of Russia’s population, but it accounts for some 12–15% of the national GDP and for 25% of all the exports. One fifth of all Russia’s oil and four fifth of natural gas are extracted here. The Arctic continental shelf, which remains not fully explored, contains even more hydrocarbons—at least 85 tln cubic meters of natural gas and 17.3 bln tons of oil. With many old easily accessible deposits of hydrocarbons on the continent being depleted, the only way for Russia to remain an energy superpower is by moving further North and by mustering its capacities of offshore drilling under quite harsh climate and weather conditions. Beyond oil and gas, Russia’s Arctic can offer such important minerals as nickel, copper, iron core, rare earth elements, platinum, palladium, etc. However, deep-water drilling not makes extracted hydrocarbons and other minerals quite expensive; for instance, most of sea-based oil repositories in the Arctic turn profitable with oil prices staying at USD 70–80 per barrel. With the global energy transition taking speed it is not clear whether international markets are likely to sustain long term demand for the expensive Russia’s Arctic fossil fuels. Besides, quite often this type of deep-water drilling requires a lot of state-of-the-art technologies that Russia does not always has at its disposal. For a long time, Moscow counted on its Western partners (US, Norway, Germany, UK) to get access to such technologies, but the geopolitical environment of today has made this cooperation impossible. Today, Russia counts mostly on China to replace its former partners from the West, but many China’s energy companies have to exercise caution and sometimes practice over-compliance with Western technology transfers restrictions fearing possible secondary US and EU sanctions. Another evident economic opportunity for Russia in the Arctic region is the Northern Sea Route (NSR)—a 5,600 km long transportation corridor that remains the shortest shipping route between Europe and the Asia-Pacific. With the Arctic ice melting and navigation seasons in the North getting longer due to global warming, NSR becomes commercially more attractive. Another assumed comparative NSR advantage is that it does not contain any security risks comparable to those existing today in the Red Sea or in the Gulf of Aden and has no physical restrictions that limit the cargo traffic through the Panama or Suez canals. Nonetheless, these are both technical and political obstacles on turning NSR into a major international transit route. The seas in the North of Eurasia are mostly very shallow and large modern deep draught container ships simply cannot use them without expensive dredging. Furthermore, the coastal infrastructure along NSR needs quite radical modernization and further maintenance. On top of these complications, today it is hard to imagine that EU states would accept NSR as a preferred transit corridor from the Asia-Pacific using Russia as the main link in this transit. This is why the odds are that in the nearest future NSR will be used mostly to serve Russia’s domestic cabotage needs as well as to ship Siberian oil, coal and LNG to China, India and other consumers in Asia. With due commitment, the annual size, which now amounts to almost 40 mln tons, can be doubled by 2030 and later on it can reach even 150 mln tons a year, but it will hardly ever successfully compete with the Suez Canal that can handle up to 150 mln tons of cargo in just one month. Security The security significance of the Arctic region for Russia has two distinctly different dimensions. First, such a long maritime border creates potential vulnerabilities and has to be protected against possible conventional encroachments (these might include not only actions taken by hostile states, but also by private poachers, human traffickers, etc.). Second, the Arctic region provides Russia with a unique unrestricted access to high seas for the national Strategic Naval Forces that are an organic part of the country’s nuclear triad; this access has to be preserved at any cost to maintain credible nuclear deterrence vis-a-vis the United States and its NATO allies. A conventional challenge to the Russian Arctic could theoretically emerge either in the East, with an adversary entering the region through the Bering Strait, or in the West, from the NATO bases in North Atlantic of from Norway. The ongoing climate change and the Arctic ice melting may further increase Russia’s security vulnerabilities, opening the Arctic waters for more intense military traffic. It seems that for the time being Moscow is not particularly concerned about security challenges coming from the Asia-Pacific, though the recent changes in the defense postures of Japan and South Korea and even of a more remote Australia are significant enough to keep a close eye on them. The NATO naval capabilities in the West arguably present a much more immediate security challenge to Russia, especially with Finland and Sweden having joined the Alliance and Norway having lifted some of its earlier limitations on NATO’s use of the Northern Norwegian coastline. Being a predominantly continental military power, Russia cannot hope to defeat NATO in a large-scale conventional naval war, but it can try to deny NATO forces access to the Russian Arctic while maintaining secure access to the Northern Atlantic for the Russian Navy. The nuclear dimension is different. The Russian Northern Fleet is the largest, the most advanced and the most strategically important fleet in the Russian Navy. Its missions are not limited to the Arctic region alone, but are explicitly global; the Northern Fleet should be in a position to operate in any remote corner of the planet deterring a nuclear attack on the Russian Federation. Some of the newest types of Ballistic Missile Submarines (Borei-class) and Nuclear Attack Submarines (Yasen-class) are operating from Arctic bases, as well as many surface battleships including the sole aircraft carrier that Russia has now (“Admiral Kuznetsov”). The choice of the Arctic region to host a critically important component of the national strategic deterrence force was to a degree involuntary—both the Black and the Baltic Seas are semi-enclosed and exits from them are easy to block, and the free access to the Pacific Ocean for Russia is restricted by the US military infrastructure in Japan, in South Korea and in Alaska. Today, Moscow invests a lot into enhancing and modernizing its military presence in the Arctic region including reopening some of the old Soviet installations that were put out of operation in 1990s and building new ones. These installations include search and rescue centers, deep-water ports, air bases and air-defense missile complexes. All these efforts notwithstanding, they clearly reflect defensive rather than offensive nature of Russia’s military posture in the Arctic region. The conventional Russia’s capacities in the region are not sufficient to confidently cut NATO communication lines in the Northern Atlantic and they can hardly justify an extended NATO forward naval deployment in the Arctic. Avoiding a self-destructive navel arms race in the Nigh North remains a critical challenge for both Russia and its Western adversaries. Environment and Social issues Russia’s Arctic region is warming at a rate that is three times faster than the global average. In some parts of this vast territory (e.g. the North-Eastern tip of the Eurasian continent) the speed of warning is even higher. There is a widely shared view that global warming might have a positive impact on the region opening new opportunities in agriculture, transportation, fisheries, offshore oil and gas drilling and so on. Indeed, some of these opportunities might prove to be very real. However, the likely negative repercussions of global warming for the Arctic should not be underestimated. These include an accelerated coastal erosion, increased frequency of floods and other natural disasters decay of local ecosystems. The most visible manifestation of global warming detrimental impact on the region is permafrost thawing, which is expected to affect at least two thirds of the infrastructure in the coming years, including houses, bridges, railroads, highways, sea and river ports, airports and so on. The likely accelerating rise of sea levels would also have profound implications for the region; the West Siberian Lowlands are particularly vulnerable and a part of this huge landmass might ultimately turn into a seabed. Since Russia cannot stop global warming on its own, it pursues policies of climate change adaptation, including enhanced permafrost monitoring, enforcing new construction standards, creating additional wildlife sanctuaries for endangered species and reducing black carbon emissions. On top of the growing climate change pressure, Russia has to face many social problems in its Arctic region. The overall Arctic population of the country is steadily declining all the time since the disintegration of the Soviet Union. Though the decline is not very steep—up to 20 thousand people a year,—for a rather modest Arctic community it is nevertheless quite significant. The Arctic salaries usually exceed Russia’s average, but the costs of living in the region are also higher than in the South. Long and dark winters, harsh cold winds and generally inhospitable environment do not provide incentives to settle in the region. The federal government is trying to cope with this problem by offering affordable housing loans, investing into public transportation and health systems, supporting local colleges and Universities and subsidizing social and cultural life in the region. A lot will depend on whether the Russian leadership has the needed resources to continue these initiatives for a long time and whether economic activities in the Arctic can go far beyond extracting mineral resources, fishing and transportation. Like many other Arctic countries, Russia faces many challenges related to indigenous communities residing in the North. Altogether these communities amount to approximately 250 thousand people belonging to at least forty different ethnic groups. Climate change is only one side of the problem that these groups face today though it contributes to shifting animal migration patterns, disrupting subsistence practices like reindeer herding and fishing, inundating villages and threatening traditional ways of life. However, even putting aside global warming one should confess that oil and gas exploration as well as other large-scale mineral resources extraction projects often lead to pollution and displacement of indigenous peoples from their ancestral lands. At the same time, being scattered along very large territories, indigenous peoples face difficulties in accessing healthcare, education, and legal services. It is not easy to combine traditional cultural and social practices with successful careers in modern business or in the rapidly changing public sector. There are no magic solutions to indigenous people’s problems. Yet, the existing Russian and foreign experience suggests that that the severity of these problems can be significantly reduced by implementing a broad range of economic, administrative, legal and social actions. These actions should include engaging representatives of indigenous population into bodies of local self-governance, shifting economic modernization plans from extensive growth to sustainable development, building resilient private-public partnership with local NGOs engaged, creating systems for assessing the impact of climate change on indigenous communities and involve them in environmental monitoring. First published in the Guancha.cn.

Defense & Security
Berlin, Germany - December 8, 2017: Detail of Reichstag building and German and EU Flags in Berlin, capital of Germany

Germany - the EU's challenging leadership in challenging times

by Krzysztof Sliwinski

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Abstract This paper departs from an assumption derived from Liberal Intergovernmentalism theory: Germany is a de facto leader of European integration processes and the European Union as an institution.The first part of the analysis explores priorities and their corresponding challenges for the new German CDU-led cabinet. It examines issues around the ongoing war in Ukraine, transatlantic relations, and outstanding questions about German-China cooperation.The second part looks at the recently proposed Security and Defence Union (SDU) project and its various challenges.In conclusion, it is suggested that Germany will likely dominate future defence efforts, the actual shape of which will also be determined by other players such as the US, Russia, China, Iran, Israel, India or Turkey.Key Words: Germany, Foreign Policy, EU, Geopolitics Introduction According to the Federal Election Commission, the German election on February 23 saw a record-breaking voter turnout of 82.5%. That's an increase from 76.6% in 2021 and the highest voter participation since unification in 1990.  With vote counting finished, preliminary results show that the conservative Christian Democratic Union (CDU), led by Chancellor candidate Friedrich Merz, and its sister Christian Social Union (CSU) won the election with 28.6% of the vote. (As of the writing of this paper, the coalition negotiations are in progress, and the new Merz-Lead government will likely be formed by Easter this Year).  Before we analyse the challenges ahead of Merz's Government, let us briefly note that Friedrich Merz belongs to the so-called 'Davos Crowd'. He regularly attends the World Economic Forum Meetings. Before fully dedicating himself to politics, Merz worked as a corporate lawyer and held a significant position at BlackRock, a leading global investment management firm. He served as the head of the supervisory board of BlackRock's German branch, a role that has drawn scrutiny due to BlackRock's CEO, Larry Fink, being a key figure at the WEF. By his critics, Merz is seen as a 'globalist puppet' who is likely to promote Agenda 2030-related policies and the Klaus Schwab Great Reset initiative at the expense of German citizens.   Challenges ahead of Germany and its new political leadership Under the new CDU-led Government, Germany will face significant international challenges in supporting Ukraine, managing US relations, and balancing China ties. - The war in Ukraine The ongoing war in Ukraine is a pressing issue, requiring Germany to sustain its support for Ukraine while managing its own energy security and economic interests. This involves coordinating with other EU and NATO members, which could be challenging given potential fatigue and differing national priorities.  The ongoing war in Ukraine, initiated by Russia's invasion in 2022, remains a critical challenge for Germany. The new CDU-led Government must sustain this support amidst potential fatigue and economic pressures. It goes without saying that the war has disrupted energy supplies, with Germany suspending the Nord Stream 2 pipeline and facing higher energy costs. The CDU, under Merz, has advocated for a strong stance against Russia. Still, challenges include maintaining EU unity, especially with some member states favouring dialogue with Moscow, and managing domestic economic impacts, such as inflation and cost-of-living pressures. This support towards sustained support to sanctions against Russia seems necessary, but it may strain Germany's resources and require coordination with NATO and EU partners. - Navigating Transatlantic Relations Germany's relationship with the United States, mainly through NATO, is vital for its security and economic interests. Even before the Trump election, German experts were ready to address the incoming challenges.  Trump's opposition to previous policies, such as climate commitments and trade agreements, has led to tensions. Traditionally aligned with the US, the CDU knew the need to balance cooperation on security issues, such as defence spending, with potential trade and climate policy disagreements. This challenge is compounded by the need to prepare for a world where Germany must pay more for its security, especially given the war in Ukraine.  Today, Germans are painfully aware that the relations with the United States are crucial, especially given that Trump's presidency has already led to tensions over trade and security policies. Germany seems willing to balance cooperation with the US while asserting its interests and those of the EU. This will be complicated due to conflicting interests regarding trade and the economy. Trump is expected to continue his protectionist policies, imposing tariffs on German goods like cars to address the trade deficit. This will likely lead to retaliatory measures from Germany and the EU, straining economic ties.  In fact, the European Commission already declared it would impose "countermeasures" from April 1 in response to US tariffs of 25 per cent on steel and aluminium imports.   Regarding defence and security - Trump will likely pressure Germany to increase defence spending, possibly threatening to reduce US troops in Germany, as he did in his first term by announcing a withdrawal of 12,000 troops (later reversed by Biden). This could push Germany to enhance its defence capabilities and meet NATO targets.  As for climate change and energy - Trump's scepticism towards climate agreements, such as the Paris Accord, will likely continue, clashing with Germany's leadership in renewable energy and its goal to phase out coal by 2038 at the latest.   Finally, there is the question of foreign policy, especially Russia and Ukraine - Trump's potential alignment with Russia could complicate Germany's position, particularly given its significant support for Ukraine. Reports suggest Trump might cut Ukraine out of negotiations with Russia, forcing Germany to take a more independent stance.   - Balancing Economic Relations with China Germany's economic ties with China are significant, with China being a primary export market and investment partner. However, the new German Government faces the challenge of addressing security and human rights concerns, such as intellectual property theft and China's assertive foreign policy. The CDU-lead coalition may push for greater diversification of supply chains and stricter regulations, as suggested by recent analyses.   This balancing act is crucial, as economic dependence on China could limit Germany's ability to take a firm stance on delicate issues regarding human rights. The challenge is maintaining economic benefits while mitigating risks, potentially through EU-level coordination and bilateral agreements, which could create diplomatic pressures and affect Germany's global trade position. Economic ties and the challenge of de-risking. Germany has deep economic ties with China, with significant trade and investment flows, particularly in the automotive and manufacturing sectors. However, the new government will face the challenge of reducing economic dependence, as outlined in the CDU's election platform, which calls for "reducing reliance on China".  This is driven by concerns over supply chain vulnerabilities, as seen in the CDU's criticism of previous decisions like allowing a Chinese state-owned company to invest in Hamburg's port.  The challenge lies in implementing de-risking strategies without triggering economic repercussions, such as reduced exports or investment pullbacks. Recent statements from Merz, such as warning German firms about the "great risk" of investing in China, indicate a stricter stance. Still, experts question whether this rhetoric will translate into firm policy, given the economic interests at stake.   Security concerns and strategic competition are at the forefront - Friedrich Merz recently grouped China with Russia, North Korea, and Iran in an "axis of autocracies," highlighting perceived threats to German and European security.  The CDU's position paper, adopted around Easter 2023, states that the idea of peace through economic cooperation "has failed with regard to Russia, but increasingly also China," signalling a shift toward a more security-focused approach.  This includes addressing issues like technology transfer, intellectual property theft, and cybersecurity, which could strain bilateral relations. The challenge is strengthening defence and economic security measures without escalating tensions, particularly as China's military capabilities grow. Merz's focus on European strategic autonomy, especially in light of US policy shifts under Donald Trump, may lead to increased cooperation with EU partners in China. Human rights and values-based diplomacy are important for the incoming CDU-led government. Therefore, it is likely to take a firmer stance on human rights issues, reflecting the CDU's emphasis on preserving the rule-based international order.  Merz has consistently called China "an increasing threat to [German] security," suggesting a values-based approach that could lead to diplomatic tensions.  The challenge is maintaining constructive engagement while addressing these issues, especially as China has offered a "stable, constructive partnership" post-election, seeking to inject "new vitality" into China-EU relations. Balancing economic interests with values-based diplomacy will be a key test for Merz's government.  As for the coordination with EU partners, Germany's China policy should probably align with the EU's broader strategy, which has shifted toward de-risking under the European Commission. This requires coordination with other member states, some of whom may prioritise economic ties over security concerns, creating potential friction. The challenge is to ensure a united EU front, particularly in trade negotiations and investment screening, where Germany's leadership will be crucial. Merz's advocacy for improved coordination with major European allies such as France and Poland suggests focusing on EU unity. However, coalition dynamics, potentially involving the dovish Social Democrats, could dilute this approach.  Compared to Angela Merkel's pragmatic approach and Olaf Scholz's cautious stance, Merz's leadership is expected to mark a "Zeitenwende" or turning point, with a more critical and security-focused China policy.  However, the extent of change depends on coalition dynamics, with potential partners like the SPD possibly moderating his approach, creating tension between rhetoric and policy implementation. The EU as a security actor This section of the paper outlines the significant challenges ahead for the EU, considering Germany's influence and the broader geopolitical landscape, especially regarding the future EU defence cooperation and its potential relations with NATO. According to German experts and policymakers, The EU must maintain unity in supporting Ukraine amid Russia's ongoing invasion. Under the CDU, Germany will most likely continue its policy in this regard, providing military aid and economic support. According to the Federal Foreign Office, the German Government has, since the start of the war, made available around 43.62 billion euros in bilateral support for Ukraine (as of 31 December 2024); this aid includes the critical area of air defence, a substantial winter assistance programme and energy assistance, help for those who have fled Ukraine, humanitarian aid, mine clearance operations and assistance with efforts to investigate and document war crimes. Furthermore, Ukraine and Germany signed a bilateral agreement on security cooperation on 16 February 2024.  European Army The former Chancellor, Olaf Scholz, at Charles University in Prague on 24 August 2022, recently elaborated on German leadership's vision regarding the Europen defence efforts. His presentation paints a broad picture of the future of the EU at the beginning of the 3rd decade of the 21st century against the backdrop of the Russian invasion of Ukraine. Among the four 'revolutionary' ideas mentioned by Scholz, two stand out in particular. Firstly, given the further enlargement of the European Union for up to potentially 35 states, a transition is urged to majority voting in Common Foreign and Security Policy. Secondly, regarding European sovereignty, the German Chancellor asserts that Europeans grow more autonomous in all fields, assume greater responsibility for their security, work more closely together, and stand yet more united to defend their values and interests worldwide. In practical terms, Scholz indicates the need for one command and control structure for European defence efforts.   The German leadership is not always openly claimed, at least verbally. Instead, the German National Security Strategy of 2023 mentions Germany's 'special responsibility' for peace, security, prosperity, and stability and the Federal Government's 'special responsibility' for establishing the EU Rapid Deployment Capacity.   In the same vein, German leadership posits their country as a leader in European Security, declaring the importance of becoming the 'best equipped armed force' in Europe.  Former Chancellor Scholz would, however, make it an open claim at times: "As the most populous nation with the greatest economic power and a country in the centre of the continent, our army must become the cornerstone of conventional defence in Europe, the best-equipped force".  The re-entrance of Trump into global politics only reinvigorated German calls for stronger defence cooperation. Amid a drive to shore up support for Ukraine after Donald Trump halted US military aid and intelligence sharing, European leaders held emergency talks in Brussels (6 March 2025). They agreed (Hungary did not support the document) on a massive increase in defence spending. According to the European Council's Conclusions, the European Commission is to propose a new EU instrument to provide Member States with loans backed by the EU budget of up to EUR 150 billion.  Apart from that, the document mentions several other instruments that are supposed to enhance Europe's defence capabilities: additional funding sources, new EU instrument for loans, support from the European Investment Bank (EIB), mobilising private financing, priority areas for defence capabilities (air and missile defence; artillery systems, including deep precision strike capabilities; missiles and ammunition; drones and anti-drone systems; strategic enablers, including in relation to space and critical infrastructure protection; military mobility; cyber; artificial intelligence and electronic warfare), joint procurement and standardisation, simplification of legal frameworks and finally coordination with NATO. Overall, Ursula von der Leyen, the President of the European Commission, presented a plan worth EUR 800 billion to increase European defence spending against the backdrop of the Russian invasion of Ukraine.  Will it be enough to create actual European defence capabilities, finally? Time will show. Europeans have been talking about common European defence for decades. So far, most of their achievements fall short of lofty political declarations.  Consequently, on March 19 this year, the European Commission unveiled the Joint White Paper for European Defence 2030.  (White papers are policy documents produced by the Governments that set out their proposals for future legislation.) Accordingly, the 22-page-long document consists of numerous 'bold' ideas to advance European defence cooperation toward a European Army. The key threats to European Security include correspondingly: military aggression from Russia, strategic competition (there is increasing strategic competition in Europe's wider neighbourhood, from the Arctic to the Baltic to the Middle East and North Africa), transnational challenges (issues such as rapid technological change, migration, and climate change are seen as serious stressors on political and economic systems), actions of authoritarian states (countries like China are asserting their influence in Europe and its economy, posing a strategic challenge due to their authoritarian governance style), hybrid threats (these include cyber-attacks, disinformation campaigns, and the weaponisation of migration. The document notes that these threats are interconnected and increasingly prevalent), geopolitical rivalries (ongoing geopolitical tensions in various regions, particularly in the Middle East and Africa, are highlighted as contributing to instability that directly affects Europe) and last but not least instability from neighboring Regions (proximity to conflict zones, especially in North Africa and the Middle East, leads to spillover effects such as migration and economic insecurity).  Notably, at the very beginning of the document, the EC makes an unequivocal statement: "The future of Ukraine is fundamental to the future of Europe as a whole. Since 2022, we have seen a full-scale, high-intensity war on the borders of the European Union with hundreds of thousands of casualties, mass population displacement, huge economic costs and deliberate destruction of vital energy systems and cultural heritage. The outcome of that war will be a determinative factor in our collective future for decades ahead". The document proposes several measures to support Ukraine amid its ongoing conflict, mainly through a "Porcupine strategy" to enhance Ukraine's defence and security capacity. The "Porcupine strategy" includes elements such as:  Increased Military Assistance - The EU and its Member States should significantly step up military and other assistance to Ukraine (providing large-calibre artillery ammunition with a target of delivering a minimum of 2 million rounds per year, supplying air defence systems, missiles (including deep precision strikes), and drones, supporting Ukraine's procurement of drones and further developing its production capacity through joint ventures with European industries and training and equipping Ukrainian brigades and supporting the regeneration of battalions). Direct Support to Ukraine's Defense Industry (the document emphasises the importance of directly supporting Ukraine's defence industry (encouraging EU Member States to procure directly from Ukraine's defence industry for donations to Ukraine and utilising EU loans to boost Ukraine's defence industry spending, estimated to reach around EUR 35 billion in productive capacity by 2025). Enhanced Military Mobility (the EU aims to improve military mobility corridors extending into Ukraine, facilitating smoother deliveries of military assistance and enhancing interoperability). Access to EU Space Assets (Ukraine should have enhanced access to EU space-based governmental services, which would aid in its defence capabilities). Coordination of Military Support (the EU Military Staff Clearing House Cell will coordinate military support for Ukraine, enhancing collaboration with NATO and other partners). Integration of Ukraine into EU Defense Initiatives (the document proposes integrating Ukraine's defence industry into EU initiatives and encouraging its participation in collaborative defence projects. Conclusion A 'Security and Defence Union' (SDU) has been recently proposed as a new institutional form of military cooperation among EU Members.  It is suggested that the SDU includes the UK, and given the special attention paid to Ukraine in the White Paper, it is logical to surmise that it (Ukraine) will also be a de facto member. The devil lies in details, however, and so financially speaking, Europeans have to address numerous challenges. For example, the European Defence Fund (EDF) details Euro 8 billion over 7 years (approx. Euro 1.12 billion/year), supports R&D, and has committed Euro 5.4 billion since May 2021.        Meeting these ambitious goals will be especially challenging given the funding constraints (EU instruments like EDF and EDIP have limited impact; EDIP at €750 million/year is less than 1% of €90 billion 2024 procurement, needs €9 billion/year for 10% impact), capability and industry gaps (post-Cold War cuts left significant gaps, needing €160 billion by 2018 if 2008 levels maintained, €1.1 trillion if all spent 2% GDP 2006-2020), political and partnership issues (US scepticism, especially under second Trump administration, makes EU states cautious), policy integration (balancing security and economic priorities).  Against this backdrop, Germany claims to rise to the occasion and take the leading role, passing a new defence budget, referred to by media as 'bazooka'.  A massive increase in military spending is paralleled by another military aid package to Ukraine (The €3 billion package approved by the Bundestag Budget Committee comes on top of the €4 billion in military aid to Ukraine already planned in the 2025 budget).  Where does it leave NATO? 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Reuters, 25 February 2025. https://www.reuters.com/world/europe/policies-german-election-favourites-cdu-conservatives-2025-02-18/   South China Morning Post. “Will Merz’s tough talk on China fizzle out if he becomes leader of Germany?” https://www.scmp.com/news/china/diplomacy/article/3292397/will-merzs-tough-talk-china-fizzle-out-if-he-becomes-leader-germany   Rhodium Group, “Wind of Change: German China Policy After the Election – Rhodium Group.” 12 February 2025. https://rhg.com/research/wind-of-change-german-china-policy-after-the-election/   Rhodium Group, “Wind of Change: German China… op.cit.  Rinaldi, Gabriel. “German Christian Democrats rewrite Merkel’s China playbook”. Politico. 26 March 2023. https://www.politico.eu/article/german-christian-democrats-to-overturn-angela-merkels-china-policy/   Radunski, Michael. “German conservatives call for China policy Zeitenwende • Table.Media.” Table Briefings. 19 March 2023. https://table.media/en/china/feature/union-calls-for-china-policy-turnaround/   South China Morning Post. “Will Merz’s tough talk on China fizzle out if he becomes leader of Germany? | South China Morning Post. https://www.scmp.com/news/china/diplomacy/article/3292397/will-merzs-tough-talk-china-fizzle-out-if-he-becomes-leader-germany   South China Morning Post. “China offers ‘stable, constructive’ partnership with Germany after Friedrich Merz’s election win.” https://www.scmp.com/news/china/diplomacy/article/3299946/china-offers-stable-constructive-partnership-germany-after-friedrich-merzs-election-win   Verhelst, Koen. “Friedrich Merz wants to lead Europe on the economy. Can he?” POLITICO. 19 February, 2025. https://www.politico.eu/article/friedrich-merz-wants-to-lead-europe-on-the-economy-can-he/   Rinaldi, Gabriel. “German Christian Democrats… op.cit.  Federal Foreign Office, “Germany continues to stand with Ukraine – the third anniversary of Russia’s full-scale invasion”. https://www.auswaertiges-amt.de/en/aussenpolitik/laenderinformationen/ukraine-node/ukraine-solidarity-2513994   The Federal Government (2022) Speech By Federal Chancellor Olaf Scholz at The Charles University In Prague On Monday, August 29 2022. https://www.bundesregierung.de/breg-en/news/scholz-speech-prague-charles-university-2080752   National Security Strategy. Robust. Resilient. Sustainable.  Integrated Security for Germany (2023). Federal Foreign Office, Werderscher Markt 1, 10117 Berlin. https://www.nationalesicherheitsstrategie.de/National-Security-Strategy-EN.pdf   “Germany must become 'the best equipped armed force in Europe', Scholz says.” Euronews, September 16, 2022. https://www.euronews.com/my-europe/2022/09/16/germany-must-become-the-best-equipped-armed-force-in-europe-scholz-says   “Germany must become 'the best equipped armed force in Europe', Scholz says”, Euronews, 16 September, 2022. https://www.euronews.com/my-europe/2022/09/16/germany-must-become-the-best-equipped-armed-force-in-europe-scholz-says   European Council. "Conclusions – 6 March 2025." EUCO 6/25. Brussels: General Secretariat of the Council, March 6, 2025. https://www.consilium.europa.eu/en/press/press-releases/2025/03/06/special-european-council-6-march-2025/   See more at: https://www.theguardian.com/world/2025/mar/06/watershed-moment-eu-leaders-close-to-agreeing-800bn-defence-plan-ukraine   The European Intervention Initiative (EI2) is a joint military project between 13 European countries outside of existing structures, such as the North Atlantic Treaty Organization (NATO) and the European Union's (EU) defence arm. The Initiative was first proposed by French President Emmanuel Macron in his Sorbonne keynote in September 2017. ASee more at: https://archives.defense.gouv.fr/content/download/535740/9215739/file/LOI_IEI%2025%20JUN%202018.pdf   A week before on 12th of March 2025 European Parliament adopted a ‘resolution on the ehite paper on the future of European defence’ which includes 89 points. See more at: https://www.europarl.europa.eu/doceo/document/TA-10-2025-0034_EN.html   European Commission, High Representative of the Union for Foreign Affairs and Security Policy. "Joint White Paper for European Defence Readiness 2030." Brussels, March 19, 2025. JOIN(2025) 120 final. https://defence-industryspace.ec.europa.eu/document/download/30b50d2c-49aa-4250-9ca6-27a0347cf009_en?filename=White%20Paper.pdf   See more at: https://www.eeas.europa.eu/node/34278_en   See more at: https://defence-industry-space.ec.europa.eu/eu-defence-industry/european-defence-fund-edf-official-webpage-european-commission_en   See more at: https://www.cer.eu/publications/archive/policy-brief/2025/towards-eu-defence-union   See more at: https://commission.europa.eu/topics/defence/future-european-defence_en   “Germany's historic spending plan has passed - so what is the money going to be spent on?”, The Journal, 22 March 2025. https://www.thejournal.ie/germany-spending-plan-explainer-6656255-Mar2025/   Sexton Karl and  Hubenko Dmytro, “Germany approves $3 billion in military aid for Ukraine”. DW, 21 March 2025. https://www.dw.com/en/germany-approves-3-billion-in-military-aid-for-ukraine/a-72001265

Defense & Security
Missiles with warheads are ready to be launched. missile defense. Nuclear, chemical weapons. radiation. Weapons of mass destruction.

What kind of European nuclear strategy?

by François Géré

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Whether French or European, the strategy of nuclear deterrence is governed by one absolute rule: it is not an end in itself, but means to an end, so that we cannot put the atomic cart before the political horse. To avoid getting bogged down for the umpteenth time in futile discussions about a European nuclear deterrent, let's recall the fundamental principles of this strategy. Deterrence is a mode of operation with a negative goal as old as war itself. Aimed at preventing an adversary's offensive intentions, it has been used with varying degrees of success due to its random nature. It is based on the calculation of probabilities. Usually, if an aggressor takes the risk of transgressing deterrence based on conventional forces and its venture goes wrong, the aggressor has gambled and lost, suffering at worst the humiliation of defeat. With nuclear weapons, deterrence now takes on a whole new dimension, since the probability of nuclear retaliation entails the risk of an exorbitant loss, said to be unbearable, exceeding the value of what is at stake. The strategy of nuclear deterrence is not peace. It cannot prevent limited regional conflicts or suppress terrorist action. It can only be applied in the event of a massive attack of any kind against the vital interests of the country under attack. This “perimeter of vitality” does not have to be precisely defined, but is left to the discretion of the Head of State, so as to create uncertainty for the would-be aggressor. The strategy of nuclear deterrence is based on five identified principles, theorized in France by Generals Gallois [1] and Poirier. [2] Principle of credibility: nuclear deterrence requires the creation and demonstration of technical capabilities. This was the role of the tests suspended indefinitely in 1994 and prohibited by treaty (CTBT). Principle of permanence: the SDN is ensured by the Head of State, who is the sole decision-maker, with 24-hour access to electronic codes and means of transmission to strategic air forces on standby and submarines on patrol. Principle of uncertainty: “the deterrent effect results from the combination of certainty and uncertainty in the mental field of a would-be aggressor: certainty as to the existence of an unacceptable risk... uncertainty as to the exact conditions of application of the model in the event of the outbreak of hostilities.” Principle of sufficiency: for a medium-sized power like France, in terms of quantity and quality, neither too much nor too sophisticated. During the Cold War, this was known as “deterrence of the weak by the strong” (the strong being the Soviet Union, which French leaders wisely never named explicitly). To avoid embarking on a ruinous arms race, two conditions need to be met: A. An invulnerable nuclear force capable of retaliating in the event of aggression (nuclear-powered ballistic missile submarines - SNLE - are permanently undetectable). It is essential to provide redundancy in the event of human or technical failure. B. Ability to penetrate enemy defenses. There is no such thing as 100% interception. The damage remains tolerable if the explosive charges are conventional, but if they are nuclear, the problem changes completely. An SSBN salvo sends 96 charges that can “vitrify” potentially as many targets. No defense system would be able to intercept them, no matter how much progress is made. All the more so as these warheads are surrounded by decoys, maneuverable (change of trajectory) and stealthy (low radar signature). This lasting superiority of aggression over protection means that the SDN is the only response. Principle of proportionality: the amount of “unbearable” destruction is related to the value of what is at stake. In this case, is the invasion and conquest of France worth the annihilation of one or more of the aggressor's vital centers?  So what should be the target? “Anticité” (men) or antiforces (weapons)? Progress in precision has made it possible to target smaller areas with greater precision. The official line is that France is no longer targeting cities, but rather the command centers of nuclear forces and political decision-making centers. However, such targets are rarely located in the heart of deserts, but have the bad taste of being buried deep in the middle of densely populated areas. The creation of a European strategic nuclear deterrent will therefore have to go along with all these principles. How and with what facilities? The stakes for the aggressor would change dimension. From the vital interests of France alone, we would move on to those of all the member states of the European Union, or at the very least, of those who would agree to join us. The calculation of proportionality would be affected, with ipso facto repercussions on the principle of sufficiency. Given its flexibility and visibility, should the air component be expanded? Should the number of nuclear weapons be increased? Should territorial positioning be extended, where and how far? Could France extend its nuclear deterrent to cover the interests of its European partners?  The nuclear “umbrella” declared by U.S. leaders since Kennedy's Defense Secretary McNamara has often been the subject of skepticism about its credibility, starting with General de Gaulle. Donald Trump openly exposes the eminently selfish nature of nuclear weapons. Who can still believe today that this President and his successors would sacrifice New York for Warsaw, Berlin or Paris? A fortiori, are the citizens of the countries of Europe prepared to make their existence dependent on the decision of the French President alone? Who could believe that he would sacrifice Paris for Tallinn? In truth, if the allies (European and Asian) thought they could rely on the commitment of the United States, it was because of the growing strength of American conventional forces capable of effectively opposing non-nuclear aggression. Any comparison with the USA is therefore absurd. Together, do the EU states have 11 aircraft carriers? 14 strategic nuclear submarines? Do their navies lock up world trade routes? Do they control Space? The little European frog won't reach the enormity of the American ox. But would this be necessary if their governments were to make an objective assessment of the real threat, free from ideological prejudices and corporatist interests? Let's move on to the crux of deterrence: the cost of “burden-sharing”, NATO's constant worry. Are states like Germany, Italy, Spain and Poland prepared to pay for the construction of a so-called European nuclear deterrent, without having access to the ultimate decision? Money is also time. A single multi-state nuclear strategy cannot be improvised overnight. Are we forgetting that some EU members do not perceive Russia as a threat; that others, like Austria, are leaders in favor of a ban on nuclear weapons? Last but not least, where would the post-Brexit United Kingdom fit into this scheme? Even if the will is strong and widely shared, the political, financial and technical development of a nuclear deterrent involving a number of European states will take time, on the order of several years. What will the Russian Federation look like, and how will US-China competition have evolved in five to ten years' time? Peacetime declarations (Franco-German, Franco-British) often express only grand illusions or pious hopes that cost nothing. The true ally is seen at the foot of the war, when egoistic realism reclaims its icy rights.  Yet for the past twenty years, in every crisis (financial, migratory, health - Covid- and military - Ukraine-), the EU has shown itself to be unprepared, slow to react and, above all, divided. The creation of a credible NED is therefore in flagrant contradiction with the very existence of the EU in its current form and operation. We need to return to the foundations of the Community project. Those countries of Europe which share a rigorously identical conception of their global situation, to the point of merging their vital interests, will have to agree on a lasting political framework defining common goals, in a sort of Charter; to equip themselves accordingly with a military alliance such as a European Defense Society for as long as deemed necessary; to guarantee themselves by a European Intelligence Community. Whether French or European, the strategy of nuclear deterrence is subject to one absolute rule: it is not an end in itself, but means to an end, so that we cannot put the atomic cart before the political horse. Copyrights for his picture : Copyright Mars 2025-Géré/Diploweb.com Marie-France Géré

Energy & Economics
US - 11.14.2024:

The Economic Impacts of Trump Administration's Tariffs

by World & New World Journal Policy Team

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском I. Introduction  We are only two and a half months into the new Trump administration. However, President Donald Trump's long-threatened tariffs have plunged the country into a trade war abroad. On-again, off-again, new tariffs continue to escalate uncertainty around the world. Trump already launched a trade war during his first term in office, but he has more sweeping tariff plans right now. The second Trump administration has embarked on a new and more aggressive tariff policy, citing various economic and national security concerns. His administration has proposed, imposed, suspended, revoked, and then reimposed various new tariffs. It could be difficult for average citizens to keep up with all the proposals. As of March 19, 2025, there are ten proposed or active tariff initiatives. They range from broad-based tariffs that cover all goods from a certain country (China, Mexico, Canada) to tariffs that cover certain types of goods (aluminum & steel), promises of future tariffs (copper, lumber, automotive, semiconductor, and pharmaceutical), and promised retaliatory tariffs (European wine and other alcoholic beverages). Moreover, although we have seen more tariff announcements in the first two months of the second Trump administration than in the entire first Trump administration, "fair and reciprocal" tariff rollout will overpower the tariffs imposed until today. The ten tariff initiatives that are proposed or in play are as follows in Table 1.   This paper aims to evaluate economic impacts of tariffs imposed by the Trump administration. It first explains the effects of tariffs imposed by the first Trump administration and then forecasts the impacts of the second Trump administration's tariffs.  II. Literature on Tariff Effects A tariff is a type of tax that a government adds to imported goods. Companies importing goods pay the tariff to the government. If any part of a product arrives with a tariff, whether it is an imported avocado or a car built locally with imported steel, its cost is part of the price everyday consumers pay before sales tax.  Economists reject tariffs as an effective tool to improve the welfare of U.S. citizens or strengthen key industries. In a survey conducted during the first Trump administration, 93 % of economic experts did not agree that targeted tariffs on aluminium and steel would improve Americans' welfare. Recent research has strengthened economists' opposition to this policy instrument. Numerous studies demonstrate that American consumers entirely bear the burden of tariffs imposed during the first Trump administration, with disproportionately large impacts on lower-income U.S. households. A framework for analysing the impact of higher import tariffs on the economy is provided by Mundell and Fleming. Mundell (1961) claimed that the country that raised tariffs on imported products may benefit because more people choose domestically produced products over imported ones. Protection from foreign competition could also benefit domestic industries. Large countries can also benefit from improved terms of trade. However, increased tariffs on imported products are assumed to lead to an increase in the current account balance by increasing savings relative to investment. Higher savings dampen aggregate demand. The situation of households deteriorates because of rising consumer prices. Domestic industries are also negatively affected by lower household demand and the need to pay more for imported input products.  Over the years, Mundell and Fleming's model has been developed further by other scholars such as Eichengreen (1981), Krugman (1982), Obstfeld and Rogoff (1995) and Eichengreen (2018). Overall, the theoretical literature demonstrates that higher import tariffs could affect the economy through various channels. The impacts of tariffs on the economy differ between a nation imposing the tariffs and nations exporting to the nation raising the tariffs. However, nations that are not subject to the increased import duties are also affected. Main effects of higher tariffs are as follows: Higher inflation: Higher import tariffs lead to higher prices for imported products. Depending on which tariffs are increased, this could lead to higher prices for both consumers and companies. Domestic firms may also raise their prices because of reduced competition from foreign companies (Cavallo et al. (2021)).  Higher consumer prices lead to a decline in real disposable household income, which hampers private consumption. Higher business costs have impacts on companies' profits, which in turn dampen employment and companies' willingness to invest. Companies are also more likely to pass on some of their higher costs to consumers in the form of higher prices. The rise in imported prices might be smaller in large countries, as they are more able to influence the world price of products. Increased consumption of other products: Higher imported prices can lead companies and consumers to increasingly buy cheaper domestic products. But it can also lead to increased imports of products from countries not subject to higher import tariffs.  Domestic industries are protected: Higher import tariffs improve the competitive position of domestic companies. These benefits can lead to increased investment, production, and employment in protected industries. However, the longer-term effect of protecting some domestic industries from foreign competition can be negative, as it might reduce incentives to improve production efficiency, thereby dampening productivity and GDP.  Decreased trade: Increased tariffs usually lead to reduced trade. This can lead to reduced knowledge transfer between nations in the form of less direct investment, reduced technology transfer, and reduced access to skilled labour. These factors in turn can lead to companies moving further away from the technological frontier, thereby hampering productivity (Dornbusch (1992) and Frankel and Romer (1999)).  Stronger exchange rate: When demand changes from foreign to domestic production, the exchange rate tends to rise to balance it out. One reason is that higher inflation often leads to higher interest rates relative to other nations. The nominal exchange rate might appreciate if imports decline significantly and demand for foreign currency drops. An appreciation of the exchange rate hampers exports but keeps imports cheaper.  Global value chains: Higher tariffs can lead to disruptions in global value chains by making imported inputs from abroad pricier. If firms are part of global value chains, higher costs for firms facing higher import costs may also lead to higher costs for domestic firms further down the production chain.  Uncertainty and confidence: Higher import tariffs may increase uncertainty about future trade policy and lead to increased pessimism among households and companies. Such uncertainty may hamper household consumption and business investment (Boer and Rieth (2024)).  III. Tariffs under the first Trump administration The first Trump administration's tariffs involved protectionist trade initiatives against other nations, notably China.  In January 2018, the Trump administration-imposed tariffs on solar panels and washing machines of 30–50%. In March 2018, the administration-imposed tariffs on aluminium (10%) and steel (25%), which are imported from most countries. In June 2018, the Administration expanded these tariffs to include the EU, Mexico, and Canada. The Trump administration separately set and escalated tariffs on products imported from China, leading to a trade war between the U.S. and China.  In their responses, U.S. trading partners imposed retaliatory tariffs on U.S. products. Canada imposed matching retaliatory tariffs on July 1, 2018. China implemented retaliatory tariffs equivalent to the $34 billion tariff imposed on it by the U.S. In June 2019, India imposed retaliatory tariffs on $240 million worth of U.S. products.  However, tariff negotiations in North America were under way and successful, with the U.S. lifting steel and aluminium tariffs on Mexico and Canada on May 20, 2019. Mexico and Canada joined Argentina and Australia, which were the only countries exempted from the tariffs. But on May 30, Trump announced on his own that he would put a 5% tariff on all imports from Mexico starting on June 10, 2019. The tariffs would go up to 10% on July 1, and then by another 5% every month for three months, until illegal immigrants stopped coming through Mexico and into the U.S. Then the tariffs were averted on June 7 after negotiations between the U.S. and Mexico. U.S. tariffs on Chinese products had been applied as follows: On March 22, 2018, Trump signed a memorandum under Section 301 of the Trade Act of 1974 to apply tariffs of $50 billion on Chinese products. In response, China announced plans to implement its tariffs on 128 U.S. products. 120 of those products, such as fruit and wine, will be taxed at a 15% duty, while the remaining eight products, including pork, will receive a 25% tariff. China implemented their tariffs on April 2, 2018.  On April 3, 2018, the U.S. Trade Representative's office (the USTR) published an initial list of 1,300+ Chinese products to impose levies upon products like flat-screen televisions, medical devices, aircraft parts and batteries. On April 4, 2018, China's Customs Tariff Commission of the State Council decided to announce a plan to put 25% more tariffs on 106 U.S. goods, such as soybeans and cars.  In the response, On April 5, 2018, President Trump directed the USTR to consider $100 billion in additional tariffs. On May 9, 2018, China cancelled soybean orders exported from the United States to China. On June 15, 2018, President Trump released a list of Chinese products worth $34 billion that would face a 25% tariff, starting on July 6. Another list with $16 billion of Chinese products was released, with an implementation date of August 23.  On July 10, 2018, in reaction to China's retaliatory tariffs that took effect July 6, the USTR issued a proposed list of Chinese products amounting to an annual trade value of about $200 billion that would be subjected to an additional 10% in duties. During the G20 summit in Japan in June 2019, the U.S. and China agreed to resume stalled trade talks, with Trump announcing he would suspend an additional $300 billion in tariffs that had been under consideration. IV. Economic Effects of the Tariffs from the First Trump Administration Changes in tariffs affect economic activity directly by influencing the price of imported products and indirectly through changes in exchange rates and real incomes. The extent of the price change and its impact on trade flows, employment, and production in the United States and abroad depend on resource constraints and how various economic actors (producers of domestic substitutes, foreign producers of the goods subject to the tariffs, producers in downstream industries, and consumers) respond as the effects of the increased tariffs reverberate throughout the economy. According to the U.S. Congressional Research Service (CRS), the following six outcomes came out at the level of individual firms and consumers as well as at the level of the national economy. 1. Increased costs for U.S. consumers Higher tariff rates lead to price increases for consumers of products subject to the tariffs and for consumers of downstream products as input costs rise. Higher prices in turn lead to decreased consumption, depending on consumers' price sensitivity for a particular product. For example, consider the monthly price of U.S. laundry equipment, which includes washing machines subject to tariff increases as high as 50% since February 2018. The monthly price of this equipment increased by as much as 14% in 2018 compared to the average price level in 2017, before the tariffs took effect (see Figure 1).   Figure 1: U.S. laundry equipment prices According to Jin (2023), many companies passed the costs of the Trump tariffs on to consumers in the form of higher prices. Following impositions of the tariffs on Chinese products, the prices of U.S. intermediate goods rose by 10% to 30%, an amount equivalent to the size of the tariffs. An April 2019 working paper by Flaaen, Hortaçsu, and Tintel not found that the tariffs on washing machines caused the prices of washers to rise by approximately 12% in the United States. A Goldman Sachs analysis by Fitzgerald in May 2019 found that the consumer price index (CPI) for tariffed products had increased dramatically, compared to a declining CPI for all other core goods. According to the Guardian, the Budget Lab at Yale University found that American consumer prices could rise by 1.4% to 5.1% if Trump implemented his comprehensive tariff plan, which would amount to an additional $1,900 to $7,600 per household. 2. Decreased domestic demand for imported goods subject to the tariffs and less competition for U.S. producers of substitute goods: U.S. producers competing with the imported products subject to the tariffs (e.g., domestic aluminium and steel producers) may benefit to the degree they are able to charge higher prices for their domestic products and may expand production because of increased profitability. Since March 2018, U.S. imports of steel and aluminium have faced additional tariff charges of 25% and 10%, making foreign supplies of these products more expensive relative to domestic products. Because of these tariffs, U.S. imports of these goods went down in 2018 and 2019 compared to what they were usually like in 2017 before the tariffs, while U.S. production went up (see Figure 2 and Figure 3). By the first quarter of 2020, real U.S. imports of steel and aluminium (adjusted for price fluctuations) had decreased by more than 30% and 16%, respectively, from their average 2017 levels. The quarterly production of steel and aluminium in the U.S. during this period, however, increased by as much as 13.5% and 9.0%, respectively, above average 2017 levels.   Figure 2: Domestic production and imports: Steel  Figure 3: Domestic production and imports: Aluminium 3. Increased costs for U.S. producers in downstream industries, resulting in a decline in employment U.S. producers that use imported products subject to the additional tariffs as inputs ("downstream" industries, such as auto manufacturers in the case of the aluminium and steel tariffs) might be harmed as their costs of production increase. Higher input costs are more likely to lead to some combination of lower profits for producers, which in turn might dampen demand for these downstream products, leading to some contraction in these sectors.  A study (2019) by Federal Reserve Board economists Flaaen and Pierce, which examined effects on the manufacturing sector from all U.S. tariff actions in 2018, found that higher input costs from the tariffs were associated with higher prices, employment declines, and reductions in output for affected firms. Another study (2020) by Handley, Kamal, and Monarch found that the higher input costs associated with the tariffs might have led to a decrease in U.S. exports for firms reliant on imported intermediate inputs. Handley, Kamal, and Monarch suggested that export growth was approximately 2% lower for products made with products subject to higher U.S. tariffs, relative to unaffected products. Another study (2019) by Federal Reserve Board economists Flaaen and Pierce found that the steel tariffs led to 0.6% fewer jobs in the manufacturing sector than would have happened in the absence of the tariffs; this cut amounted to approximately 75,000 jobs. A study (2024) by Ma and David concluded that the United States lost 245,000 jobs because of the Trump tariffs.  4. Decreased demand for U.S. exports subject to retaliatory tariffs  Retaliatory tariffs place U.S. exporters at a price disadvantage in export markets relative to competitors from other countries, potentially decreasing demand for U.S. exports to those markets. Since Q3 2018, after Section 232 retaliatory tariffs took effect in China, the EU, Russia, and Türkiye, U.S. exports to these trading partners subject to the tariffs declined by as much as 44% below their 2017 average values (Figure 4). U.S. exports to China subject to retaliation during the same period declined even further from their 2017 levels, falling as much as 68% on a quarterly basis. By contrast, during this same period, overall U.S. exports were as much as 10% higher each quarter relative to 2017, suggesting the retaliatory tariffs played a role in the product-specific export declines.  Figure 4: Declines in U.S. exports subject to retaliation A study by Fajgelbaum, Goldberg, Kennedy, and Khandelwal published in the Quarterly Journal of Economics in October 2019 estimated that consumers and firms in the U.S. who buy imports lost $51 billion (0.27% of GDP) because of the 2018 tariffs. This study also found that retaliatory tariffs resulted in a 9.9% decline in U.S. exports. This study also found that workers in counties with a lot of Republicans were hurt the most by the trade war because agricultural products were hit the hardest by retaliatory tariffs.  5. U.S. National Economy In addition to industry- or consumer-level effects, tariffs also have the potential to affect the broader U.S. national economy. Quantitative estimates of the effects vary based on modelling assumptions and techniques, but most studies suggest a negative overall impact on U.S. GDP because of the tariffs.  The Congressional Budget Office (2020) estimated that the increased tariffs in effect as of December 2019 would reduce U.S. GDP by 0.5% in 2020, below a baseline without the tariffs, while raising consumer prices by 0.5%, thereby reducing average real household income by $1,277. From a global perspective, the International Monetary Fund estimated that the tariffs would reduce global GDP in 2020 by 0.8%. Dario Caldara et al. (2020) also found that in 2018, investment dropped by 1.5% because of the uncertainty caused by U.S. trade policy. Moreover, a study (2019) by Amiti, Redding, and David published in the Journal of Economic Perspectives found that by December 2018, Trump's tariffs resulted in a reduction in aggregate U.S. real income of $1.4 billion per month in deadweight losses and cost U.S. consumers an additional $3.2 billion per month in added tax. Furthermore, Russ (2019) found that tariffs, which Trump imposed through mid-2019, combined with the policy uncertainty they created, would reduce the 2020 real GDP growth rate by one percentage point.  6. Trade balance  The Trump administration repeatedly raised concerns over the size of the U.S. trade deficit, thereby making trade deficit reduction a stated objective in negotiations for new U.S. trade agreements. Broad-based tariff increases affecting a large share of imports may reduce imports initially, but they are unlikely to reduce the overall trade deficit over the longer period due to at least two indirect impacts that counteract the initial reduction in imports. One indirect effect is a potential change in the value of the U.S. dollar relative to foreign currencies. Another potential effect of U.S. import tariffs is retaliatory tariffs. Economists argue that while tariffs placed on imports from a limited number of trading partners may reduce the bilateral U.S. trade deficit with those specific nations, this is likely to be offset by an increase in the trade deficit or reduction in the trade surplus with other nations, leaving the total U.S. trade deficit largely unchanged.  Figure 5 shows the relative change in the U.S. goods trade deficit with the world as well as the bilateral U.S. deficits with three major partners, China, Mexico, and Vietnam, from 2017 to 2019. Since the U.S. tariffs took effect, the overall U.S. trade deficit has increased, rising 8% from 2017 to 2019. However, the U.S. trade deficit in goods with China declined by 8% from 2017 to 2019, while the U.S. trade deficit in goods with Vietnam and Mexico significantly increased by more than 40% during the same period.  Figure 5: Changes in the U.S. goods trade deficits with China, Mexico, and Vietnam According to Zarroli (2019), between the time Trump took office in 2017 and March 2019, the U.S. trade deficit increased by $119 billion, reaching $621 billion, the highest it had been since 2008. American Farm Bureau Federation data showed that agriculture exports from the U.S. to China decreased from $19.5 billion in 2017 to $9.1 billion in 2018, a 53% reduction.  V. What are the Potential Consequences of Trump's Tariff Plan? Last year, the Peterson Institute for International Economics examined the impact of President Trump's proposed tariffs based on his campaign promises, which would impose 10 % additional tariffs on US imports from all sources and 60 % additional tariffs on imports from China. The major outcomes were lower national income, lower employment, and higher inflation. McKibbin, Hogan, and Noland (2024) at the Peterson Institute for International Economics found that both of Trump's tariff plans—imposing 10% additional tariffs on U.S. imports from all sources and 60% additional tariffs on imports from China—would reduce both U.S. real GDP and employment by 2028. But the former proposal damages the U.S. economy more than the latter. If other nations retaliate with higher tariffs on their imports from the U.S., the damage intensifies.  Assuming other governments respond in kind, Trump's 10 % increase results in U.S. real GDP that is 0.9 % lower than otherwise by 2026, and U.S. inflation rises 1.3 % above the baseline in 2025.  The 10 % added tariffs hurt the economies of Canada, Mexico, China, Germany, and Japan—all major US trading partners that see a lower GDP relative to their baselines through 2040. Mexico and Canada take much larger GDP hits than the U.S. The 60 % added tariffs on imports from China reduce its GDP relative to its baseline, much more than that of other U.S. trading partners. Mexico, however, sees a higher GDP than otherwise as some production shifts to Mexico from China. This paper focuses on Trump's universal 10 % tariffs rather than 60 % tariffs on imports from China because extreme 60 % tariffs on Chinese imports are not expected. McKibbin, Hogan, and Noland (2024) assume the 10 % tariff increase is implemented in 2025 and remains in place through the forecast period. They also consider a second scenario in which U.S. trading partners retaliate with equivalent tariff increases on products they import from the U.S.  Figures 6–11 show the results for the uniform additional 10 % increase in the tariff on imports of goods and services from all trading partners.   Figure 6: Projected change in real GDP of selected economies from an additional 10 % increase in US tariffs on imports of goods and services from all trading partners, 2025-40 (Source: McKibbin, Hogan, and Noland, 2024) When tariffs go up by 10%, the U.S. real GDP goes down by 0.36 % by 2026, and it goes down even more in Mexico and Canada by 2027 (see Figure 6). Chinese GDP drops by 0.25 % below the baseline in 2025. After the initial demand-induced slowdown, U.S. GDP recovers as production shifts from foreign suppliers to U.S. suppliers, leading to a slightly lower long-term GDP of 0.1 % below baseline by 2030 in the U.S.   Figure 7: Projected change in employment (hours worked) in selected economies from an additional 10 % increase in US tariffs on imports of goods and services from all trading partners, 2025-40 (Source: McKibbin, Hogan, and Noland, 2024) The results for aggregate employment are like the GDP outcomes (see figure 7). Employment drops in the United States by 0.6 % by 2026 but recovers due to a supply relocation towards U.S. suppliers. U.S. employment returns to baseline eventually because real wages decline permanently to bring employment back to baseline by assumption.  Figure 8: Projected change in inflation in selected economies from an additional 10% increase in US tariffs on imports of goods and services from all trading partners, 2025-40 (Source: McKibbin, Hogan, and Noland, 2024) The imposition of higher tariffs increases prices of both consumer and intermediate goods, contributing to a rise in inflation of 0.6 % above baseline in 2025 (see figure 8).  The higher tariff is inflationary everywhere except in China due to the tightening of Chinese monetary policy to resist change in the exchange rate relative to the U.S. dollar.   Figure 9: Projected change in the trade balance in selected economies from an additional 10 % increase in US tariffs on imports of goods and services from all trading partners, 2025-40 (Source: McKibbin, Hogan, and Noland (2024)) Figure 9 shows the change in the trade balance as a share of GDP. In theory, the trade balance can worsen or improve due to changes in exports and imports. From 2025 to 2028, the U.S. trade deficit narrows slightly but then widens as capital flows into the U.S. economy, appreciating the U.S. real effective exchange rate. By 2030, the U.S. trade deficit will worsen by 0.1 % of GDP due to capital moving from Mexico and Canada into the U.S. Government savings rise due to additional tariff revenues.  VI. Conclusion  This paper showed that tariffs imposed by the first Trump administration had negative impacts on the U.S. economy, particularly inflation, incomes, and employment. It also demonstrated that tariffs which will be imposed by the second Trump administration are expected to have negative effects on the U.S. economy. Then a question arises: "Why does Trump attempt to impose tariffs on products from abroad?" Today, more people mention tariffs as tools to protect U.S. companies and farmers. They are discussed as a tool for bringing back manufacturing businesses into the U.S. as well as a bargaining tactic in negotiations over the flow of fentanyl and immigration. Trump has used and promised to increase tariffs for three purposes: to raise revenue, to bring trade into balance, and to bring rival countries to heel. It is unclear whether Trump will achieve his goals. However, President Donald Trump believes that tariffs are a panacea. Trump believes that his tariffs would bring hundreds of billions—trillions— into the US Treasury. Moreover, Trump is confident that he can force countries to give up something he believes is in America's best interest. For example, his tariffs on Canada and Mexico have led Mexico and Canada to agree to expand their border patrols. Reference  Amiti Mary, Redding Stephen, David E, “The Impact of the 2018 Tariffs on Prices and Welfare,” Journal of Economic Perspectives. 33 (Fall 2019): 187–210. Boer, L. and M. Rieth, “The Macroeconomic Consequences of Import Tariffs and Trade Policy Uncertainty,” IMF Working Paper 2024/013, International Monetary Fund. Cavallo, A., G. Gopinath, B. Neiman, and J. Tang (2021), “Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy,” American Economic Review: Insights 3(1): 19-34.  Congressional Budget Office, The Budget and Economic Outlook: 2020 to 2030, January 28, 2020. https://www.cbo.gov/system/files/2020-01/56020-CBO-Outlook.pdf.  Dario Caldara et al., “The Economic Effects of Trade Policy Uncertainty,” Journal of Monetary Economics, vol. 109 (January 2020), pp. 38-59. Dornbusch, R. (1992), “The Case for Trade Liberalization in Developing Countries,” Journal of Economic perspectives 6 (1): 69-85.  De Loecker, J., P.K. Goldberg, A.K. Khandelwal and N. Pavcnik (2016), “prices, markups, and trade reform,” Econometrica 84(2): 445-510.  Eichengreen, B. (1981), “A Dynamic Model of Tariffs and Employment under Flexible Exchange Rates,” Journal of International Economics 11:341-359.  Eichengreen, B. (2018), “Trade Policy and the Macroeconomy,” Keynote address Mun dell-Fleming Lecture, International Monetary Fund, 13 March 2018.  Fajgelbaum, P.D., P.K. Goldberg, P.J. Kennedy and A.K. Khandelwal (2019), “The Return to Protectionism,” The Quarterly Journal of Economics 135(1): 1-55.  Fitzgerald, Maggie, “This Chart from the Goldman Sachs Shows Tariffs are Rasing Prices for Consumers and It could Get Worse.” CNBC. May 13, 2019. Flaaen, A. and J.R. Pierce (2019), “Disentangling the effects of the 2018-2019 tariffs on globally connected U.S. Manufacturing sector,” Working Paper, Finance Economic Discussion Series 2019-086, Board of Governors Federal Reserve System, Washington DC.  Flaaen, A., A. Hortacsu and F. Tintelnot (2020), “The production relocation and price effects of US trade policy: the Case of Washing Machines,” American Economic Review 110(7): 2103-2127.  Frankel, J.A. and D.H. Romer (1999), “Does Trade Cause Growth,” American Economic Review 89 (3): 379-399. Handley, K., F. Kamal, and R. Monarch (2020), “Rising Import Tariffs, Falling Export Growth: When Modern Supply Chains Meet Old-Style Protectionism,” NBER Working paper 26611. https://www.nber.org/papers/w26611. Handley, K. and N. Limao (2022), “Trade Policy Uncertainty,” NBER Working Paper 29672.  Handley, Kyle, Fariha Kamal, and Ryan Monarch, “Rising Import Tariffs, Falling Export Growth: When Modern Supply Chains Meet Old-Style Protectionism,” National Bureau of Economic Research, NBER Working Paper No. 26611, January 2020. Jin, Keyu (2023). The New China Playbook: Beyond Socialism and Capitalism. New York: Viking. Kreuter, H. and M. Riccaboni (2023), “The Impact of Import Tariffs on GDP and Consumer Welfare: A Production Network Approach,” Journal of Economic Modelling 126.  Krugman, P. (1982), “The Macroeconomics of Protection with a Floating Exchange rate,” Carnegie-Rochester Conference Series on Public Policy 16: 141-182.  Ma, Xinru; Kang, David C. (2024). Beyond Power Transitions: The Lessons of East Asian History and the Future of U.S.-China Relations. Columbia Studies in International Order and Politics. New York: Columbia University Press.  McKibbin, W., M. Hogan, and M. Noland (2024), “The International Economic Implications of a Second Trump Presidency,” Peterson Institute for International Economics, Working Paper 24-20.  Mundell, R. (1961), “Flexible Exchange Rates and Employment Policy,” Canadian Journal of Economics and Political Science 27: 509-517.  Obstfeld, M., and K. Rogoff (1995), “Exchange Rate Dynamics Redux,” Journal of Political Economy, 103: 624-660.  Russ, Katheryn (December 16, 2019). “What Unilateralism Means for the Future of the U.S. Economy,” Harvard Business Review. January 2, 2020.  Zarroli, Jim. “Despite Trump’s Promises, The Trade Deficit is Only Getting Wider,” NPR. March 6, 2019.

Defense & Security
Main img

Boost for the defense industry - Seven short-term proposals for a competitive domestic defense sector

by Dr. Christina Catherine Krause , Dr. Jan Cernicky

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском ' Germany and Europe must invest more in defense and deterrence capabilities to assert and maintain themselves. This requires substantial and long-term investment in our armed forces, in research and development, in infrastructure, material and personnel. ' Various analyses indicate that the upcoming significant increase in defense spending is a fantastic opportunity for German industry. However, despite the high demand, it is very hesitant to transfer its partially idle capacities to the lucrative defense sector. ' To strengthen the competitiveness of the German defense industry and thus benefit from lower prices through mass production, better use should be made of the advantages of the EU internal market. ' Germany has globally unique knowledge and unparalleled production networks in many sectors that are needed to produce defense equipment. At the same time, many of these sectors are currently in crisis and have spare capacity. ' At the same time, sustainable and long-term financing of military procurement is essential, which is primarily achieved through long-term contracts or purchase guarantees. ' Such measures should also contribute to a change in mentality so that employees, customers, and financiers increasingly perceive the defence industry as a positively valued industrial sector. Defense capabilities: Investment is essential. President Donald Trump has made it clear that the United States no longer sees itself as a security guarantor for Europe. While the USA is scheduling talks with Russia on the future of Ukraine, there is great concern in Europe about new arbitrary border demarcations: a division of Europe. The Munich Security Conference has ruthlessly exposed the USA's disengagement from Europe and the breakdown in values between the EU and the Trump administration. Since then, developments have become thick and fast. There are fears of the end of the transatlantic partnership and the US reneging on its NATO commitment. However, it has long been clear that Germany and Europe must invest more in deterrence and defense capabilities to assert and maintain themselves and can no longer be free riders for the USA. The EU is not helpless: the accumulated economic power of the EU states is equal to that of the US and ten times that of Russia. However, defense capability requires considerable and long-term investment in the armed forces, in research and development, in infrastructure, material and personnel. Closing capability gaps is the top priority. With this goal in mind, the procurement of fighter jets, drones, transport and combat helicopters, air defense systems, infantry fighting vehicles, transport vehicles, submarines, corvettes and much more has been commissioned over the past three years. So far, however, only the essentials have been ordered and made up for, which have been neglected for years. The defense industry: fragmented and underfunded Despite clear analyses, good plans and declarations of intent, the European defense industry remains underfunded and fragmented, according to the Draghi Report1. As of 2023, for example, the European NATO states were operating nineteen different battle tanks, twenty different fighter aircraft and ten diverse types of submarines. Projects for joint development and production revealed some insurmountable hurdles, as the FCAS example shows. Europe has so far benefited little from the additional funds for defense: between mid-2022 and mid-2023, 78% of total procurement expenditure went to non-EU companies, 63% of which went to the USA. In this respect, it is particularly important to strengthen domestic and European industry. To remain competitive, investments must be made at increasingly shorter intervals. Development cycles are becoming shorter and shorter - as can be seen in drone production, for example. The potential of an integrated European defense is huge! The new and first-time EU Commissioner for Defense and Space, Andrius Kubilius, has set himself the goal of exploiting this potential. In March 2025, he will present the first White Paper on the future of European defense. Various analyses indicate that the upcoming significant increase in defense spending is a terrific opportunity for German industry. It has been calculated that an increase in defense spending to 3 percent of GDP would increase economic output by 1 to 1 ½ percent.2 It is clear that economic output in Germany will only increase as a result of defense spending if domestic manufacturers or suppliers are involved in the production of the goods in question. However, despite the high demand, German industry is very hesitant to shift its partially idle capacities into the lucrative armaments sector. Why is that? Germany: in a particularly good technological position In terms of technical capabilities and the necessary production capacities, Germany is fundamentally in a particularly acceptable position. Traditional companies as well as young, agile start-ups are thriving on the market. The country has unique expertise and unparalleled production networks in many sectors that are needed to produce defense equipment. This applies, for example, to vehicle construction, mechanical engineering, the chemical industry, the metal industry, the aerospace industry, and automation technology. At the same time, many of these sectors are currently in crisis - primarily due to the transformation in the automotive industry - and have spare capacity. With a view to the goal of expanding the production of defence equipment in Germany quickly, resiliently, and efficiently, there is immense potential here that can be realized quickly and operated economically. In December 2024, the Stockholm International Peace Research Institute (SIPRI) showed that the global defense industry will continue to grow by 4.2 percent in 2023. Four German companies are among the top 100 companies worldwide: Rheinmetall (26), ThyssenKrupp (66), Hensoldt (73) and Diehl (83), as well as three European companies: Airbus (12), MBDA (33) and KNDS (45).3 At the top of the global list are companies from the USA, the UK, Russia and China. Some of them focus entirely on armaments or on dual use, as the example of Boeing shows. There is potential in Germany and Europe that needs to be tapped into now to secure the continent. However, many details have so far stood in the way from the point of view of the private sector. Defense industry: obstacles Industry often waited a long time for contracts, sometimes in vain. While Russia switched to a war economy, Germany missed a real turning point. There is a lack of reliable commitments from the German government regarding long-term financing for procurement. This is because companies only invest in new capacities if they can assume that these can be utilized profitably for at least ten years. In addition, social acceptance of the arms industry remains low. Companies not previously active in the armaments sector - for example in the automotive industry - fear that employees, customers, and investors will be skeptical about a shift towards weapons production. However, tank manufacturer KNDS has shown that there is another way with its takeover of Alstom's former locomotive plant in Görlitz. The financing of armaments projects is still more expensive than for civilian projects. This is also due to the EU's taxonomy, which, despite a recent weakening, still makes investment in armaments more difficult. This increases financing costs and may make projects completely unprofitable. The production of armaments is also subject to significantly more regulations than civilian production, which is justified. However, it should be possible to significantly reduce the regulations to the absolute minimum necessary without reducing safety. It is also often overlooked that the defence industry can hardly take advantage of cross-border supply chains - the core of German industry's high competitiveness. This is due to different export licenses in European countries. As a result, there is an incentive to keep supply chains in one's own country. Synergies from mass production based on the division of labor cannot be promoted in this way, and as a result, armaments are still often manufactured products with correspondingly soaring prices. Finally, there are still civilian clauses that prohibit universities from conducting research on military issues and purposes and from cooperating with the arms industry. This cuts the arms industry off from the traditional path of innovation. Seven viable solutions The following measures could enable the arms industry to ramp up its production capacities quickly and become much more competitive: 1. The immense economic advantages of the EU internal market can only be exploited if there is a significant simplification and standardization of export rules for the arms industry. Up to now, most German-made systems used in the Bundeswehr can only be exported to other NATO or EU partners without any problems. However, it is desirable for European producers to be able to specialize and focus on the global market so that they can achieve the competitiveness that otherwise characterizes the German export industry. This requires European supply chains, which has hardly worked in the military sector to date due to the strict German export regulations, as the participation of a German company is tied to strict arms export regulations. The term german-free has been a selling point at international arms fairs to date, as this is the only way to guarantee smooth deliveries and maintenance of military equipment. The possibility of exporting to third countries such as Israel, Japan or South Korea would bring advantages: Bundeswehr weapons systems and spare parts would become cheaper due to economies of scale. 2. Further European and German regulations should be revised immediately. These include the sustainability directive in the financial taxonomy, the dual-use regulation and many particularly stringent requirements for the arms industry, whose production in many cases hardly differs from other branches of industry (only a few companies work with explosives or other hazardous materials). Special economic zones for arms production would also be conceivable, in which selected regulations and rules would not apply or would apply differently than otherwise. 3. Long-term contracts of the federal government for arms purchases should be secured by a robust and sustainable regular defense budget. 4. For other equipment (ammunition, protective equipment, light vehicles, etc.), Europe-wide tendered purchase guarantees are a much better means than "priority procurement in Germany". Ideally, the Bundeswehr would conclude a contract with more than one company that stipulates that a certain quantity of military equipment must be purchased at a minimum price - even if the item in question can be bought more cheaply on the world market. On the other hand, the company guarantees a maximum price at which it must sell the specified quantity to the Bundeswehr - even if the prices on the world market are higher. It is right to put such contracts out too tender throughout Europe and to take advantage of the EU single market. The German (supplier) industry is so strongly positioned in Europe that it participates in a substantial proportion of production. With reference to the safety aspects that apply here, the associated exclusion of non-European producers is WTO-compliant. 5. In view of the above, regulations that stipulate procurement only from Germany or provide for quotas of domestic production should be dispensed with. 6. KfW should provide credit lines for the conversion of existing industrial plants into defense plants. 7. Civil clauses should be abolished. This should ensure for all researchers at universities and colleges that third-party funding and other sources of financing will not be reduced or completely cut if they decide to cooperate in research with the defense industry. Conclusion The measures would strengthen the competitiveness of the German defense industry and deepen cooperation between EU states. They should also contribute to a change in mentality so that employees, customers, and financiers increasingly perceive the defense industry as a positively valued industrial sector. This should be flanked by political communication and, if necessary, marketing measures. With an appropriate policy that focuses on incentives and not on detailed regulations, several goals could be achieved at the same time: German industry could grow again in its traditional sectors, the Bundeswehr would be able to procure urgently needed equipment and material for its defense and deterrence capabilities faster and more cheaply, the European Union could grow closer together and Europe's security in these turbulent times would be strengthened. References 1 The Draghi report on EU competitiveness, 9. September 2024. 2 Vgl. EY, Dekabank: Wirtschaftliche Effekte europäischer Verteidigungsinvestitionen. Februar 2025 und Ethan Ilzetzki: Guns and Growth: The Economic Consequences of Defense Buildups. Kiel Reports Nr.2/2025, Kiel Institute for World Economy. 3 The SIPRI Top 100 Arms-producing and Military Services Companies, 2023 | SIPRI, Dezember 2024.

Energy & Economics
Economic growth in Russia, uptrend market, concept. 3D rendering on blue dark background

Russia’s economic growth model amid the crisis in Ukraine

by Alexander A. Dynkin

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Amid the economic downturn of the global economy during the early 2020s, Russia’s economy has demonstrated notable resilience and growth. Despite a brief period of GDP decline by 1.2 percent in 2022 on account of Western sanctions, Russia’s economy grew by an estimated 4.1 percent in 2023 and 2024. This exceeded the growth rates witnessed in the European Union (EU) and the United States (US). During these years, Russia faced a cascade of more than 16,000 financial, trade, sectorial, logistical, personal and other punitive sanctions, unprecedented in world history. Moreover, financial assets abroad were frozen/stolen, and export pipelines were physically attacked. The Russian economy’s resilience in the face of external shocks can be explained by three reasons: 1) the result of 30 years of market reforms; 2) accumulation over these years of heavy experience in stress-resistant and anti-shock strategies; and 3) miscalculations of the West in its ability to isolate Russia’s economy. Due to the market institutions, the Russian economy is not only highly adaptive but also diversified. Russia is self-sufficient in energy, minerals, food, crops and water resources. It has a developed and stable domestic market and a stress-resistant banking system, cleared of major problem banks. The national innovation system provides a sound technological base, from vaccine creation to hypersonic technologies and the simultaneous competing development of two AI models. Streamlined healthcare regulations during the COVID-19 pandemic permitted the entry of targeted therapy medicines for autoimmune diseases in the market. The 2022 economic crisis is the fifth one in the history of modern Russia. Over time, the government, federal regulators, and the Central Bank have gained unique professional experience in crisis management and counter-cyclical policies. The same applies to businesses and even households, with the Russian middle class becoming adept at techniques of asset allocation across bank deposits, real estate, currency, and gold. Oil producers made a dramatic redirection of export flows. While in 2021, almost 100 percent of crude oil exports went to Europe, by the end of 2022, 80 percent went to Asian markets. If in 2021, the top three leading trade partners of Russia were China, Germany, and the Netherlands, then in 2023, it was China, India, and Tükiye. Russia is now Europe’s top trade partner with China and is one of the few countries with which China has a trade deficit. Paradoxically, Russia remains the second LNG supplier to the EU. Sanctions sharply stimulated domestic production. Since 2014, agriculture, food production, and manufacturing have been included in the import substitution sphere, which has proven to be quite successful. Today, without cancelling the efforts in manufacturing, the focus of industrial policy is shifting to services: first, medicine, education, and tourism. This transition relies heavily on large-scale digitalisation and Artificial Intelligence (AI) integration. Key areas such as taxation, customs, government, banking, and educational services have been digitised, increasing efficiency, easing demographic constraints, and reducing white-collar corruption. Macro policy instruments have also undergone another anti-crisis transformation: budget rules have been relaxed; the fiscal impulse has increased revenues and consequently demand, including credit demand. Economic expectations have improved. The intention is to manage inflation not only through demand compression but also through supply growth and the liberalisation of entrepreneurship. Formulated by Vladimir Putin, he said “Restraining price growth today is not only the task of the Bank of Russia, but also an assessment of the quality of the RF Government's work on stimulating supply growth”. The Russian government is simultaneously completing “de-offshorisation”—bringing key companies under Russian jurisdiction to special administrative districts created in advance.. At the same time, foreign holdings that acted as intermediaries and asset holders are being dismantled. Collectively, these can be called the Russian version of supply-side economics. What are its preliminary results? The Russian economy, by most indicators, including the level of consumption in 2023, has returned to the level of the end of 2021. The main economic problems of the Russian Federation remain labour shortage (at full employment) and closed export markets. According to the latest estimates of the World Bank, Russia has become one of the five largest economies in the world in terms of GDP in purchasing power parity. This result is attributed not only to the abovementioned factors, but also to the fact that for a long time, the depreciation of the ruble has been significantly outpacing the price growth. Therefore, the equivalent value of the consumer basket of goods in dollar terms has declined. Russia's support for the Global South is an expected reaction to the “unipolar world order”. Russia was the first to challenge it. Ten years ago, Kurt Campbell, warned that “dual containment of Russia and China is a nightmare for U.S. national security”, which by 2019 has become a reality. Sanctions against Russia strengthen ties between the Eurasian Economic Union (EAEU) and BRICS countries, and these organisations themselves are an obstacle to the fragmentation of the global economy. By 2025, Russia's supply-side economy will have reached a sustainable trajectory. The task of the current year is to eliminate imperfections of this model, including inflation (9.5 percent in 2024), labour market constraints (unemployment 2.3 percent in 2024), and high budget expenditures. Price pressure is a classic consequence of ultra-high defence spending. In addition, the government sees a downside risk to oil prices. Therefore, the goal for 2025 is to reduce overheating of the economy. The expected growth rate is around 1.5-2 percent of GDP. This can be pursued through fiscal consolidation and a tight monetary policy. However, inflation expectations and foreign trade conditions are still pro-inflationary. Therefore, inflation will have a “long braking path”. In 2025, the Central Bank expects inflation to fall only to 7-8 percent on an annual basis; however, by the end of 2024, the cooling of credit activity as a result of high lending rates became noticeable. They also overinflated the population's inclination to save. At the same time, the total volume of Russian budget revenues in December 2024 increased by 28 percent compared to the same month of the previous year. To summarise, it can be stated that the Russian economy, having successfully navigated the COVID-19 crisis, was well-prepared for the shock from the sanctions of 2022. After a slight holdback, it has entered the growth trajectory. The immediate effects of the sanctions have been borne, but they have come with “boomerang” consequences, both economic and political, especially in Germany. Russia could manage, not without certain difficulties, to increase defence production and at the same time maintain and even improve the living standards of the population.

Defense & Security
Toy soldier on Euro bills banknotes with the European flag. Concept of Rearming plan of Europe.

The ReArm Europe Plan: Squaring the Circle Between Integration and National Sovereignty

by Federico Santopinto

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском In response to the weakening of the Atlantic Alliance and the challenges posed by the war in Ukraine, the Europeans have announced their intention to rearm, leveraging the European Union (EU) as part of this effort. To fully grasp the dynamics unfolding in Brussels—particularly regarding military financing—and to bring order to the myriad of initiatives launched in this field in recent years, it is essential to take a step back. ReArm Europe: Prioritizing National Over European Financing For several years now, the EU has developed new competencies to support and strengthen Europe’s defense industrial base. Since 2017, it has introduced various programs aimed at funding collaborative defense projects among member states, including the European Defence Fund (EDF) and the upcoming European Defence Industrial Programme (EDIP)—the latter still under negotiation. These programs, managed by the European Commission and financed through the EU’s ordinary budget, have remained relatively limited in scope. So far, member states have been reluctant to allow the European executive to gain too much influence in this area, which they consider a matter of national sovereignty. However, the evolving geopolitical landscape—particularly the rapprochement between the United States and Russia—has underscored the urgency for European countries to pursue strategic autonomy by increasing their military spending and by joining forces through their common defense policies. Consequently, they have asked the Commission to explore ways to support defense sector investments while maintaining national control over decision-making. On March 6, 2025, the Commission proposed a plan called ReArm Europe, in an attempt to square the circle desired by the Member States, namely reconciling the principle of national sovereignty with the need to act together. At this stage, the plan does not directly expand the existing EU defense support programs, such as the EDF or the future EDIP. Decisions regarding funding for these programs will be made in the coming months as part of the negotiations for the next Multiannual Financial Framework (2028–2034). Instead, ReArm Europe focuses on facilitating national military budget increases while ensuring a degree of European coordination. Five Key Measures of ReArm Europe To achieve this balance, the Commission has proposed five key measures: • Activating the Stability and Growth Pact’s escape clause—which allows member states to exceed deficit and debt limits during crises. Under this proposal, countries could be allowed to increase their military budgets to up to 1.5% of GDP without this expenditure being counted in their national deficits. This measure could generate an estimated €650 billion over four years for defense spending.• Raising €150 billion through EU-issued bonds, which would then be lent to member states at low-interest rates and with long repayment terms. This funding would support pan-European military projects, such as air defense systems, by pooling demand and enabling joint procurement. Some of the military equipment financed through this mechanism could also be sent to Ukraine.• Facilitating the use of cohesion funds for defense investments. In this regard, it should be recalled that Member States remain free to decide whether or not to use the cohesion funds due to them for defense. These, in fact, must finance projects that are identified by the Member States and their local entities, although they must subsequently be approved at EU level.• Creating a European savings and investment union to encourage private financial institutions to support the military industry—something they have been reluctant to do.• Expanding the European Investment Bank’s (EIB) role in defense financing. Currently, the EIB can only fund dual-use (civilian and military) projects. The proposal seeks to lift restrictions on military financing entirely. However, this issue has been debated for years, and since the EIB’s board of directors comprises member states that make decisions unanimously, the Commission has no direct authority over this matter. The Risk of a Counterproductive Outcome The plan could undoubtedly strengthen European defense, but it could also weaken it. Much will depend on the technical details, as yet unknown, that will be adopted to implement it. To understand this point, it is worth recalling that the ultimate purpose of EU action on armaments is to reduce the fragmentation of the European defense industrial base, in order to consolidate it and make it more competitive. The EU must create a critical mass in terms of defense capabilities and technologies that will enable Europeans to stand up to the world’s major powers together. However, if ReArm Europe simply leads to increased national military spending without coordination or a common EU strategy, it could produce the opposite of the intended effect. In such a scenario, each country would finance its own defense industry in isolation, exacerbating fragmentation and duplication of efforts, rather than strengthening Europe’s collective military capabilities. Difficult Questions That Are Still Waiting for an Answer The technical and regulatory details that will be adopted to implement the ReArm Europe plan will determine whether it will serve a European strategy or whether it will be nothing more than a futile attempt to water the desert sand. Several contentious issues remain to be addressed—particularly regarding the proposed exemption from the Stability and Growth Pact. These questions can be grouped into three main categories: What Types of Defense Expenditures Will Be Exempt from Deficit Calculations? The EU must clarify which military expenditures will be excluded from national deficit calculations and which will still count: Will ReArm Europe apply only to investment spending (e.g., R&D, acquisitions), or will it also cover operational costs (e.g., salaries, training, deployment expenses)? 1.Under What Conditions Will Defense Spending Be Exempt? The EU will also have to define the conditions under which arms expenditure will not be taken into account in the deficits: • Will Member States have to invest in equipment identified as a priority at EU level, or will they be able to finance whatever they want without coordination within the EU?• Will they have to do so through trans-European collaborative projects or not?• What about European preference and eligibility criteria? Will they have to use this money to produce or purchase European equipment, or will they also be able to equip themselves abroad? Who Will Decide? Finally, the issue of decision-making power remains unresolved: • To what extent will the European Commission have discretion in determining which military expenditures qualify for exemption?• Will the Commission have the authority to reject certain expenditures if they do not align with EU strategic objectives?• For EU-backed loans, how will the projects to be financed be selected? The negotiations that will have to be initiated within the EU to answer these questions will not be easy. Behind their bureaucratic appearance lie the perennial political and existential challenges that have plagued European defense since its inception: What level of integration are the member states prepared to accept? What role should Brussels and the Commission play? The squaring of the circle is far from resolved.

Diplomacy
chair and flags of Ukraine and Russia.Concepts of peace negotiations to end the war

US and Ukraine sign 30-day ceasefire proposal – now the ball is in Putin’s court

by Stefan Wolff , Tetyana Malyarenko

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Less than a fortnight after Donald Trump and Volodymyr Zelensky had their now-notorious row in the Oval Office and US-Ukrainian relations appeared irretrievably damaged, the two countries have reached an agreement. After nine hours of negotiations behind closed doors in Jeddah, Saudi Arabia, negotiators signed off on a US proposal for a 30-day ceasefire, allowing the resumption of military aid and intelligence sharing by the US. This does not mean that the guns in the war will now immediately fall silent. No ceasefire agreement between the warring parties – Russia and Ukraine – has been signed. In fact, it is not even clear how much detail is contained in the proposal and how much of it has already been discussed with Russia during earlier talks between senior US and Russian officials. Nonetheless, the deal signals a major step forward. From a Ukrainian perspective, it has several advantages. First, the major rift between Kyiv and Washington has at least been partially patched up. The minerals agreement – on hold since the White House shouting match on February 28 –is back on. Trump has extended an invitation to Zelensky to return to Washington to sign it. Equally importantly for Kyiv, the resumption of US weapons deliveries to Ukraine and the lifting of the ban on intelligence sharing were part of the deal, and with immediate effect. This restores critical US battlefield support for Ukraine, including for Kyiv’s capability to strike targets deep inside Russia. By contrast, the Russian president, Vladimir Putin, is now in a somewhat trickier position. He has to balance his war aims in Ukraine with the arguably more strategically important goal of rapprochement with the US. Talks between senior US and Russian officials on February 18, in the Saudi capital Riyadh, seemed to indicate that Moscow had won significant concessions from Washington – including on retaining illegally occupied territory and no Nato membership for Ukraine. These concessions may still be on the table, alongside other US offers to normalise relations and end Russia’s isolation from the west. But this does not mean that Russia will be in any particular hurry to bring the fighting in Ukraine to an end. The country’s economy has weathered western sanctions remarkably well so far. Putin is also likely to be keen on capitalising further on the momentum that his troops still have on the frontlines inside Ukraine. And he is unlikely to want to sit down to talk about a ceasefire, let alone a peace agreement, with Zelensky as long as Ukraine still holds territory in the Kursk region inside Russia. While Ukrainian troops have come under increasing pressure there recently and are in danger of being encircled, it is likely to take Russia some more time to force them to withdraw completely or to surrender.   Putin is therefore likely to play for more time in an effort to push his advantage on the ground while avoiding upsetting Trump. The deputy head of the upper house of the Russian parliament, the Federation Council, and chairman of its international affairs committee, Konstantin Kosachev, signalled as much after the US-Ukraine deal was announced. He insisted that any agreements would have to be on Russian, rather than American – let alone Ukrainian – terms. This indicates a willingness to talk but also signals that an agreement, even on a ceasefire, will still require further negotiations. Pressure points Playing for time will also allow Putin to avoid rebuffing the American proposal outright. To do so would be a huge gamble for the Russian president. Trump has already proven his willingness to exert maximum pressure on Ukraine – and he seems to have got his way. Ahead of the US-Ukraine meeting in Jeddah, he was also clear that he would consider further sanctions on Russia to force Moscow to accept an end of the fighting in Ukraine. Both of these steps – pressure on Ukraine and on Russia – are part of a plan developed by Trump’s special Ukraine envoy Keith Kellogg back in May 2024. Crucially, Kellogg also envisaged continuing “to arm Ukraine and strengthen its defenses to ensure Russia will make no further advances and will not attack again after a cease-fire or peace agreement”. If Putin were to reject the current proposal, he would therefore not only risk a broader reset of US-Russia relations but potentially also lose his current battlefield advantage, as well as territory Moscow currently controls. That’s because a boost to Ukrainian military capabilities would likely shift the balance of power, at least on some parts of the front line. The most likely scenario going forward is a two-pronged Russian approach. The Kremlin is likely to engage with the White House on the American ceasefire proposal that has now been accepted by Ukraine while pushing hard for further territorial gains before US-Russia talks conclude. The peculiar set-up of the negotiations also plays into the Kremlin’s hands here. Short of direct talks between Kyiv and Moscow, Washington has to shuttle between them, trying to close gaps between their positions with a mixture of diplomacy and pressure. This has worked reasonably well with Ukraine so far, but it is far less certain that this approach will bear similar fruit with Russia. The temporary ceasefire currently on the table may, or may not, be an important step towards a permanent cessation of violence and a sustainable peace agreement. Whether it will become a milestone on the path to peace will depend on Trump’s willingness to pressure Russia in a similar way to Ukraine. It’s important to remember that Ukraine has already paid a huge price as a result of Russia’s aggression. Any further delay on the path to a just peace will inflict yet more pain on the victim instead of the aggressor. This work is licensed under the Creative Commons Attribution-Non Commercial 4.0 International License (CC BY-NC 4.0) [add link: https://creativecommons.org/licenses/by-nc/4.0/] 

Defense & Security
Isolated broken glass or ice with a flag, EU

Will the EU even survive? Vital external and internal challenges ahead of the EU in the newly emerging world order.

by Krzysztof Sliwinski

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Abstract This departs from an assumption that the EU is an outstanding example of liberal institutionalism. It has been very successful in providing lasting peace for Europeans who are now facing a series of existential challenges.The central hypothesis of this paper is that if these challenges are not addressed effectively, the EU may not survive in the long term.The first part of the analysis explores five external challenges that affected the macroeconomic and political environments of the EU in the third decade of the 21st century.The second part of the analysis signals five internal and more profound challenges the EU must face if it wants to continue in any viable form.The author concludes that the future of the world order and, by extension, the environment of the EU will most likely be decided by three great powers: the US, China, and Russia. Keywords: EU, Great Powers, World Order, US, China, Russia Introduction 2024 is exactly 20 years since the so-called ‘Big Bang enlargement’, which is why the author of this paper takes the liberty of looking at the future of the European Union (EU). The EU is, according to voluminous literature, the best working example of Liberal Institutionalism, which at its very core is about prescribing peace and security. Yet, the EU project seems derailed in the last few years and is becoming increasingly dysfunctional. This lack of internal cohesion is arguably based on several political phenomena: overregulation, ideologisation, and bureaucratisation being the proverbial tip of the iceberg. This paper examines the EU's economic and political environment and then lists five most pressing challenges it must face to survive as an institution. British citizens have already shown the first ‘red card.’ Core external challenges - the macroeconomic and political environments To say that the contemporary world is complex is to state an obvious truism. However, five phenomena should be outlined here as significant variables regarding the EU’s environment. Firstly and most fundamentally, the changes in the international political economy and corresponding structural changes that undermine states’ positions. What we are witnessing is the emergence of non less than the New World Order, which not only challenges the so-called traditional great powers by shifting the centre of gravity to the East but, perhaps most importantly, challenges the position of state actors as ‘shakers and movers’ of the international system. The Great Reset and the Fourth Industrial Revolution are phenomenal examples of the challenges ahead. Secondly, the ongoing war in Ukraine. Apart from obvious regional European relevance, it should also be analysed globally. Russian invasion threatens principles of sovereignty and territorial integrity. If allowed and left unchecked, it encourages other acts of aggression, and in doing so, it confirms a worrying trend according to which the so-called great powers stand above international law. The war draws attention to Ukraine's strategic importance as a large European country. In that sense, the outcome of the conflict will shape the balance of power on the continent. It tests the Western alliance and its response to such challenges. Moreover, it bears global economic consequences—Ukraine & Russia are significant exporters of grain, energy, and raw materials. Prolonged conflict involving these two risks, long-term inflation and food/fuel shortages abroad, is equivalent to the global spread of instability. The Ukrainian-Russian conflict bears an uncanny resemblance to a proxy war between the East and the West competition. An argument could be made that it can be seen as a battle between democracy and authoritarianism, where Russia’s victory strengthens authoritarianism abroad. Finally, let us not forget the nuclear aspects of the conflict. A risk of direct Western involvement would raise the threat of nuclear escalation. The outcome could influence nonproliferation norms for security assurance. Thirdly, and partly as a response to the above two phenomena, there comes the question of German leadership/vision of the future of the EU. The vision of the current German cabinet was elaborated on August 24, 2022, by Chancellor Olaf Scholz at Charles University in Prague. It paints a broad picture of the future of the EU at the beginning of the 3rd decade of the 21st century against the backdrop of the Russian invasion of Ukraine. Two stand out among the four ‘revolutionary’ ideas mentioned by Scholz. Firstly, given the further enlargement of the European Union for up to 36 states, a transition is urged to majority voting in Common Foreign and Security Policy. Secondly, regarding European sovereignty, the German Chancellor asserts that Europeans grow more autonomous in all fields, assume greater responsibility for their security, work more closely together, and stand yet more united to defend their values and interests worldwide. In practical terms, Scholz indicates the need for one command and control structure for European defence efforts.[1] Fourthly, and again in significant part as a response to the first two phenomena, we are witnessing unprecedented resistance among large sections of European societies. In particular, the now openly verbalised and physically demonstrated dissatisfaction mainly, but not exclusively by the farmers, to the seemingly inevitable plan for the green transition as heralded by the ‘Fit-for-55’. It is a set of proposals to revise and update EU legislation to achieve a target of reducing net greenhouse gas emissions by at least 55% by 2030 [2]. This ambitious initiative includes actions in fourteen areas, from the reform of the EU’s emissions trading system through reducing emissions from transport, buildings, agriculture, and waste to regulation on methane emissions reduction. Effectively, this means that EU farmers will have to accept an unprecedented and unequal burden. On top of that, there is a question of Ukrainian farming products that enter the European market in equally unprecedented quantities. This prompts many farmers to demonstrate their objections towards their governments and the European Commission by blocking capital cities and transportation arteries across the block. The protests are massive in their character, with thousands upon thousands across most EU member states. Political elites in Europe probably had not expected this and possibly have not experienced such a level of dissatisfaction and resistance towards their policies since the creation of the European Union. Farmers have been aided by other professional groups, from truckers to taxi drivers and even ordinary citizens. Notably, the protests are a bottom-up initiative, though they have also drawn the attention of right-wing parties.[3] Last but not least, there is the question of massive immigration to the EU from outside Europe and consequent challenges to social cohesion in countries such as Germany, France, Italy, and Belgium. As of the writing of this paper (2025), more and more members of the societies of Western EU countries challenge the official narrative of their governments based on the assumption that massive immigration is primarily positive for the economies and that large numbers of non-Europeans pose no threat to the quality of life and security of ordinary citizens (the phenomenon referred to earlier by the author of this paper as ‘a-securitisation’ – Sliwinski, 2016).[4] Worse still, the differences between ‘old’ and ‘new’ members of the EU, namely Hungary under Victor Orban, pose a formidable challenge to the immigration policy of the entire EU and, consequently, the future of the EU's integrity. It is not unimaginable at this stage to fathom a day when Hungary, like Britain before, decides to leave the EU,[5] pressured by Brussels and Berlin to accept thousands of immigrants from the Middle East or Africa. Slovakia could follow suit. Core internal challenges – the weakness from within Many of these problems were accidentally quite openly expressed by J. D. Vance, US Vice President, during his speech at the latest Munich Security Conference (February 14th, 2025). Vance did not spare strong criticism directed at European elites and, in a typical ‘American fashion’, called a spade a spade. His criticism of the EU included six general points: retreat from democratic values, censorship and limitations on the freedom of speech, limitations of religious liberties, lack of election integrity, uncontrolled mass migration, and the general unwillingness of the political elites to engage with views other than those of the left and even tendency to suppress dissent.[6] - Centralisation (Federalisation) Today, the EU continues to centralise, particularly in response to challenges like the economic crisis COVID-19, taking on more fiscal policy, health, and security responsibilities. This trend is evident in recent proposals, such as the European Commission’s role in determining budgetary paths, but it faces resistance from member states concerned about losing sovereignty. Historically, the EU has been moving to a federation through recent treaty revisions: The Treaty of Maastricht (1992) to the Treaty of Lisbon (2007). According to Alberto Mingardi from the GIS, there is a so-called ‘creeping power grab’ phenomenon.  “It assumes that Brussels should become more powerful while Rome, Berlin and Paris less so. [...] europhiles tend to look for opportunities that might allow them to give carte blanche to Brussels, albeit beginning with apparently limited endeavours. Hence, the EU is supposed to grow through crises, and thanks to crises, whatever the problem or issue, it could foster a slice of national sovereignty that can be cut and brought up to a higher level. Behind this, there is an overarching belief in the higher efficiency of centralisation, which is perhaps the true landmark of modern politics. Politicians trust themselves more than the taxpayers; they seek a single control room, and the more it controls, the better. This approach fits well with a protectionist outlook of economics, which sees Europe (‘fortress Europe’, as some say) as one trading bloc set to countervail others (the US, China).”[7] The centralisation (federalisation) logic rests heavily on the arguments presented by legalism. On the one hand, it derives from the strict and literal reading of regulations. On the other, it implies that no sphere of life should be left unregulated. Consequently, overregulation has become a characteristic feature of the European Union.[8] Additionally, the overregulation leads to the often cited democratic deficit,[9] exemplified by the fact that the majority of European legislation that EU member states are obliged to follow is proposed by nonelected technocrats working for the European Commission. - Demographic Decline and Social Welfare An ageing population and falling birth rates threaten the EU’s long-term economic stability and social welfare systems. With a shrinking workforce, funding pensions, healthcare, and social services is increasingly difficult, particularly in weaker economies. This demographic shift also amplifies labour shortages, prompting debates over immigration as a solution—yet one that risks further political backlash as it will inevitably affect European identity. According to available data, Europe is the only continent projected to experience population decline until 2070, with the EU's working-age population (20–64 years) expected to decrease by around 20%. Concurrently, the share of older individuals (65 years or older) will be the second highest globally among large economies. This demographic shift poses significant challenges, potentially undermining the EU's economic and social model, exacerbating existing disparities, and creating political divisions among Member States if not adequately addressed.[10] According to Eurostat, The natural population change (difference between live births and deaths) has been negative since 2012. This is primarily due to the ageing population described in this publication and the COVID-19 pandemic in 2020-2022.[11] - Economic Competitiveness and Growth After the so-called Big Bang Enlargement, all available data suggests that the gap between the EU and the US with regards to GDP output has been steadily growing, that is to say, that the US economy, which recently has been experiencing huge problems, still has been developing faster than the EU.[12] Contemporary the EU is grappling with stagnating economic growth and a loss of competitiveness compared to global powers like the United States and China. High regulatory burdens, internal market fragmentation, and insufficient investment in innovation and technology hinder its ability to keep pace. The growing threat of US tariffs under a second Trump administration will only likely exacerbate these issues, disrupting supply chains and increasing costs. Additionally, the EU’s energy dependence—highlighted by the shift away from Russian gas after the Ukraine invasion—has driven up costs, further straining industries and economies, particularly in countries like Germany.[13] - Weakness as an international actor Russia’s ongoing war in Ukraine continues to pose a significant security challenge. The conflict has exposed the EU’s reliance on NATO and the US for defence while increasing pressure to bolster its own military capabilities—sometimes referred to as a ‘European Defence Union’. Tensions with China, particularly over trade and technology, and uncertainty about US commitment to transatlantic alliances add to the geopolitical strain. The EU must also address hybrid threats (e.g., cyberattacks, disinformation) targeting critical sectors like energy, transport, and digital infrastructure. In light of this, Americans are already calling for much more input from the European members of NATO regarding their defence budgets (5% of GDP).[14] This will most likely reinvigorate calls for creating a European Army,[15] which no doubt will be dominated by Germany and France. German domination will be met with considerable unease by some Central and Eastern European Countries (members of the EU). At the same time as the recent meeting, Ryiad shows the US is not even treating the EU as a partner worthy of a place at the negotiating table.[16]When pressed by the likes of Trump and charged with not sharing a fair part of their own security costs, European political leaders invoke the notion of Europe as a normative power. Supposedly, though weak militarily, the EU and its members are a beacon of values such as peace, freedom, democracy, the rule of law and human rights. In his seminal publications, Iaan Manners, argued that the EU's unique historical context, hybrid political structure, and legal constitution enable it to promote norms that go beyond state-centric concerns, particularly in areas such as human rights and the abolition of the death penalty. Manners claims that the EU's ability to define what is considered 'normal' in world politics is a significant aspect of its power, and this normative approach is crucial for understanding the EU's role in shaping international relations.[17] As nice as it sounds, it does not seem to bear much weight in the practice of international security in recent decades. It is the EU, in fact, as an institution and the political leadership of France, Germany, and the European Commissioner, who stand accused now of contradicting all of the above-mentioned values. The latest visit by President of the European Commission Ursula von der Leyen to Kiev, and her strong support for the continuation of war against Russia is a case in point.[18]   - Ideologisation 'Europeanism' has become an ideology shared among intellectual, political, judicatory, societal,  and even dominant economic elites that influence or shape the European Union as an institution and its major policies. As an ideology, 'Europeanism' is a somewhat exotic mixture of various seemingly incoherent trends that give the current European Union its intriguing characteristics. On the one hand, economically, one can easily identify numerous elements of neoliberalism, especially regarding the financial aspects of European integration. Likewise, arguments used by the major proponents of European integration vis-à-vis the USA, China, or Japan are of neoliberal character. At the same time, regarding international trade in agricultural products, intellectual property, or internal (single market) competition (freedom of labour), one quickly spots distinct elements of protectionism and overregulation. Finally, regarding philosophical outlook and especially moral issues, 'Europeanism' seems to focus mainly on the progressive agenda and a particular ‘obsession’ with climate change revocation. Conclusion As the Munich Security Conference confirmed, EU political elites are way out of touch with reality and a rapidly changing world. Their proverbial Europocentrism is based on, among others, self-precepted moral high grounds, a history of economic and political domination and exploitation, and an undiscerning belief in bureaucratic, if not technocratic, policy-making and regulation of every sphere of life and institutionalism. Their weakness is probably most accurately depicted by the reaction of the Chairman of the Munich Security Conference, Christoph Heusgen, who broke down during his closing remarks, unable to finish his speech.[19] He was patted on the back and given a hug. (This reaction must have undoubtedly caused bewilderment, if not pity, in Washinton, Beijing, and Moscow.) The original integration goals have little to do with today’s Eureaucrats’ obsessions with saving the planet or pushing for Diversity, Equality, and Inclusivity (DEI). With the election of Donald Trump, the world of the ‘Davos Men’ seems to be stalled. Interestingly, the EU is now one of the last standing actors to represent the ideology of globalism, with its tenets based on neoliberalism - unlimited free trade and the capturing role of international transnational companies. The rest of the world, including the US, seems to be moving in the opposite direction – the world driven by state actors. The world order, therefore, is likely to be directed by strong and nationally based governments from no, possibly the US, China and Russia – a ‘Concert of Powers’ of sorts. References ________________________________________[1] The Federal Government (2022) Speech By Federal Chancellor Olaf Scholz at The Charles University In Prague On Monday, August 29 2022. Available at: https://www.bundesregierung.de/breg-en/news/scholz-speech-prague-charles-university-2080752[2] “Fit for 55”, European Council. Council of the European Union. European Green Deal. https://www.consilium.europa.eu/en/policies/green-deal/fit-for-55-the-eu-plan-for-a-green-transition/[3] Tanno, Sophie and Liakos, Chris. “Farmers’ protests have erupted across Europe. Here’s why.” CNN, World, Europe. Last modified February 10, 2024. https://edition.cnn.com/2024/02/03/europe/europe-farmers-protests-explainer-intl/index.html[4] Sliwinski, Krzysztof. “‘A-Securitization’ of Immigration Policy - the Case of European Union.” Asia–Pacific Journal of EU Studies 14, no. 1: 25 -56.[5] Körömi, Csongor. “Hungary reveals plan to send asylum-seekers to Brussels.” Politico August 22. Available at: https://www.politico.eu/article/hungary-asylum-plan-brussels-migration-refugees-gergely-gulyas/[6] Pangambam, S. “Full Transcript: VP JD Vance. Remarks at the Munich Security Conference”. The SIngju Post. https://singjupost.com/full-transcript-vp-jd-vance-remarks-at-the-munich-security-conference/?singlepage=1[7] Mingardi, Alberto, “The EU’s future: Like Switzerland or more like Italy?”GIS, May 20, 2022. https://www.gisreportsonline.com/r/eu-future/ see also: Dunleavy, P., and G. Kirchgässner. “Explaining the Centralization of the European Union: A Public Choice Analysis.” Edited by P. Moser, G. Schneider, and G. Kirchgässner. Decision Rules in the European Union, 2000. https://doi.org/10.1007/978-1-349-62792-9_7.[8] Van Malleghem, Pieter-Augustijn. “Legalism and the European Union’s Rule of Law Crisis.” European Law Open 3, no. 1 (2024): 50–89. https://doi.org/10.1017/elo.2024.5.[9] Neuhold, C. Democratic Deficit in the European Union, 2020. https://doi.org/10.1093/ACREFORE/9780190228637.013.1141.[10] Zalai, Csaba. “Too Little Too Late?” Európai Tükör 27, no. 1 (December 13, 2024): 169–93. https://doi.org/10.32559/et.2024.1.9.[11] See more at: https://ec.europa.eu/eurostat/web/interactive-publications/demography-2024#population-change[12] See more at: https://www.macrotrends.net/global-metrics/countries/wld/world/gdp-gross-domestic-product[13] See more at: https://www.eiu.com/n/campaigns/global-outlook-2025-the-impact-of-a-new-US-presidency?utm_campaign=MA00001133&utm_medium=paid-search&utm_source=eiu-google&utm_content=&gad_source=1&gclid=Cj0KCQiA8fW9BhC8ARIsACwHqYqwk_M8I--YkZ_fiDS6leiOiRLjPXlG63SHjKwQZgP2kaovx_sc4qIaAkGYEALw_wcB[14] See more at: https://www.euractiv.com/section/politics/news/trump-says-nato-members-should-spend-5-of-gdp-on-defence/ and https://www.politico.eu/article/donald-trump-tells-allies-spend-5-percent-gdp-defense-nato/[15] See more at: https://www.bbc.com/news/articles/cvgl27x74wpo[16] See more at: https://www.cbsnews.com/news/us-russia-meeting-improving-relations-ukraine-war/[17] Manners, Ian. "Normative Power Europe: A Contradiction in Terms?" Journal of Common Market Studies 40, no. 2 (2002): 235–58. Oxford: Blackwell Publishers Ltd.[18] See more at: https://www.euronews.com/my-europe/2025/02/24/ursula-von-der-leyen-arrives-in-kyiv-with-35-billion-in-fresh-aid-for-weapons[19] https://www.youtube.com/watch?v=BhNy0u5-ijY

Defense & Security
Military supply ad delivery USA american weapon for Ukraine. Weapon box with flags of USA and Ukraine. 3d illustration

Pause in aid has introduced uncertainty into Ukraine’s military planning − forever changing its war calculus

by Benjamin Jensen

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском War is a numbers game. Each side involved must marshal the supplies, troops and firepower needed to sustain the fight, thwart advancing armies and, hopefully, prevail. But it’s also a game of uncertainty. For the past three years, Ukraine’s military planners have had to approach every battle with a series of cold calculations: How much ammunition is left? How many air defense interceptors can be fired today, without running short tomorrow? Do we have the men and equipment needed to advance or hold position? But now, with U.S. military assistance on hold and European support constrained by economic realities, that uncertainty is growing. As an expert on warfare, I know this isn’t just a logistical problem; it’s a strategic one. When commanders can’t predict their future resource base, they are forced to take fewer risks, prioritize defense over offense and hedge against worst-case scenarios. In war, uncertainty doesn’t just limit options. It shapes the entire battlefield and fate of nations. Trump orders a pause On March 3, 2025, President Donald Trump announced a suspension to all U.S. military aid to Ukraine. It followed a fractious Oval Office meeting between the U.S. president and Volodymyr Zelenskyy, after which Trump declared the Ukrainian leader “not ready for peace.” Two days later, Central Intelligence Agency Director John Ratcliffe announced Washington was also pausing all intelligence sharing and ordered key allies such as the United Kingdom to limit the information they give Kyiv. National security adviser Michael Waltz has linked the pause to ongoing U.S.-Ukrainian negotiations, stating that weapons supplies and intelligence sharing will resume once Ukraine agrees to a date for peace talks with Russia. A critical supplier of weapons Any pause, no matter how long, will hurt Ukraine. The U.S. has been the largest provider of military assistance to Kyiv since Russia’s 2022 invasion, followed by the European Union. While the level of support is debated – it is often skewed by how one calculates equipment donations using presidential drawdown authority, through which the president can dip into the Department of Defense’s inventory – the U.S. has undoubtedly delivered critical weapons systems and a wide range of ammunition. Though this assistance has decreased U.S. military stockpiles, it has helped Washington invest in its domestic defense industry and expand weapons production. In addition, while Europe is starting to increase its own defense expenditures, EU members are stuck with flat economic growth and limits on how much they can borrow to invest in their own militaries, much less Ukraine. This makes the U.S. a critical partner for Ukraine for at least another two years while Europe expands its military capacity. These conditions affect the design of Ukraine’s military campaigns. Planners in Kyiv have to balance predictions about the enemy’s strengths and possible courses of action with assessments of their own resources. This war ledger helps evaluate where to attack and where to defend. Uncertainty skews such calculation. The less certain a military command is about its resource base, the more precarious bold military maneuvers become. It is through this fog of uncertainty that any pause in assistance shapes the course of the war in Ukraine and the bargaining leverage of all parties at the negotiating table. A new uncertain world The White House has indicated that the pause in military aid and intelligence sharing will be lifted once a date for peace talks is set. But even if U.S. weapons and intel begin to flow again, Ukrainian generals will have to fight the duration of the war under the knowledge that its greatest backer is willing to turn off the taps when it suits them. And the consequences of this new uncertain world will be felt on the battlefield. Ukraine now faces a brutal trade-off: stretch limited resources to maintain an active defense across the front, or consolidate forces, cede ground and absorb the political costs of trading space for time. Material supply has shaped operational tempo over the course of the war. When Moscow expects Kyiv to be low on ammunition, it presses the attack. In fact, key Russian gains in eastern Ukraine in 2024 coincided with periods of critical supply shortages. Russia used its advantage in artillery shells, which at times saw Moscow firing 20 artillery shells to every Ukrainian artillery shell fired, and air superiority to make advances north and west of the strategic city of Avdiivka. Looking to the front lines in 2025, Russia could use any pause in supplies to support its ongoing offensive operations that stretch from Kherson in southern Ukraine to Kharkiv in the north and efforts to dislodge Ukrainian units in the Russian Kursk region. This means Ukraine will have to decide where to hold the line and where to conduct a series of delaying actions designed to wear down Russian forces. Trading space for time is an old military tactic, but it produces tremendous political costs when the terrain is your sovereign territory. As such, the military logic of delaying actions creates political risks in Ukraine – sapping civilian morale and undermining support for the government’s war management. A horrible choice This dilemma will drive where and how Ukraine weights its efforts on the battlefield. First, long-range strike operations against Russia will become increasingly less attractive. Every drone that hits an oil refinery in Russia is one less warhead stopping a Russian breakthrough in the Donbas or counterattack in Kursk. Ukraine will have to reduce the complexity of its defensive campaign and fall back along lines deeper within its own territory. Second, Russia doesn’t fight just on the battlefield – it uses a coercive air campaign to gain leverage at the negotiating table. With U.S. military aid on hold, Moscow has a prime opportunity to escalate its strikes on Ukrainian cities and infrastructure, forcing Kyiv into painful choices about whether to defend its front lines or its political center of gravity. From Vietnam to Ukraine, airpower has historically been a key bargaining tool in negotiations. President Richard Nixon bombed North Vietnam to force concessions. Russia may now do the same to Ukraine. Seen in this light, Russia could intensify its missile and drone campaign against Ukrainian cities and infrastructure – both to weaken defenses and to apply psychological and economic pressure. And because Kyiv relies on Western assistance, including intelligence and systems such as U.S.-built Patriot surface-to-air missiles to defend its skies, this coercive campaign could become effective. As a result, Ukraine could be faced with a horrible choice. It may have to concentrate dwindling air defenses around either key military assets required to defend the front or its political center of gravity in Kyiv. Interception rates of Russian drones and missiles could drop, leading to either opportunities for a Russian breakout along the front or increased civilian deaths that put domestic pressure on Ukrainian negotiators. Uncertainty reigns supreme The real problem for Ukraine going forward is that even if the U.S. resumes support and intelligence sharing, the damage is done. Uncertainty, once introduced, is hard to remove. It increases the likelihood that Ukraine’s leaders will stockpile munitions to reduce the risk of future pauses, rather than use them to take the fight to Russia. And with battlefield decision-making now limited, Ukraine’s military strategists will increasingly look toward the least worst option to hold the line until a lasting peace is negotiated.