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Energy & Economics
South America Map with Shown in a Microchip Pattern. E-government. Continent Vector maps. Microchip Series

Polyglobalization, Big Tech, and Latin America, or what happens to the digital periphery when the center shifts.

by Carina Borrastero

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском So far in the 21st century, we are witnessing the consolidation of an international division of labor in which the levers of economic, political, and technological power are increasingly decoupled from local capacities for the vast majority of nations and relocated to the international arena. The cooperative competition among oligopolistic forces vying for control of key assets to secure global hegemony—energy, finance, digital technology, logistics, military, and space—is one of the fundamental vectors of this framework. The constant expansion of these forces is rooted in the constitutive interaction between giant corporations in strategic sectors and the core states of the new poly-globalization—namely the United States and China—whose geopolitical rivalry is intrinsically linked to the success of the accumulation regime. The oligopolies and their centers of origin appropriate the market and innovation rents generated by the new productive map, accumulating a structural and relational power (in Susan Strange’s terms) that is quickly and markedly outpacing the rest. In this way, both companies and states outside these core zones are being pushed into increasingly dependent positions regarding the technologies, goods, and basic services produced by the winning oligopolies. They are, we might say, being shifted to the new extended periphery. How does this happen? What role does technology play, and where is Latin America in this story? GEOPOLITICS Today, the United States and China sit at the center, while the rest of the world occupies the periphery. UNCTAD Secretary-General Rebecca Grynspan (2023) describes the novel emergence of “centers within the periphery” as part of a process she calls poly-globalization: both China’s rise to the top ranks of global power and the consolidation of highly productive and commercial hubs in other parts of Asia challenge the sustainability of the post–Cold War unipolar world and the traditional North–South divide. Within this framework, historical peripheral dependency does not disappear, but rather changes in form and geography—especially considering that a growing number of developed countries are becoming productively and technologically dependent on countries like China, more so than the reverse (a case in point is Germany in the automotive industry; Zhang & Lustenberger, 2025). However, the periphery is not a homogeneous entity, and not all regions and countries have the same capacities or room for maneuver within this scheme, where starting points significantly shape long-term trajectories. Developed countries (formerly located at the center) remain better equipped than developing countries to face the challenges of their new condition. We can conceptualize the peripheral configuration as tiers or peripheral rings: there is no “semi-periphery”, but rather tiers or rings within the periphery. From this perspective, we might say that Western Europe constitutes a first peripheral ring (1st tier periphery), and industrialized Asia a second ring (2nd tier periphery). Latin America, in this framework, occupies a third ring: it possesses certain accumulated productive capabilities, but due to being more "distant" from the center in terms of the criticality of its production, it receives fewer benefits from integration into major global value chains in terms of investment and technological learning (as Evolutionary Economics and Latin American Development Theory have long pointed out, producing semiconductors, AI, or green hydrogen technology —as in Taiwan, India, or Germany, respectively— is not the same than assembling automobiles as in Mexico and Argentina). In this scenario, the Latin American region—historically subordinated to a single center (the North-Center)—is now subordinate to two. China has been rapidly tightening its economic ties with the region, primarily through trade and financial assistance (Dussel Peters, 2021; Ugarteche & De León, 2020; Villasenin, 2021). Chinese foreign direct investment (FDI) in Latin America and the Caribbean, for example, rose from less than 1% of the region’s total FDI in 2012 to 10.8% in 2019 (although it still lags behind investment from the US and the European Union) (Dussel Peters, 2022). The Asian giant is already Brazil’s main trading partner, is rapidly deepening its ties with Mexico, and an increasing number of countries across the continent have joined the Belt and Road Initiative, including Argentina since 2022 (the other two major Latin American economies have not joined so far). However, the benefits of these relationships for the region remain ambivalent: on the one hand, they have reduced financial dependence on the US—a significant achievement—but they have not yet translated into higher value-added development such as export diversification or upgrading. On the contrary, they have tended to reinforce the trend toward re-commoditization of local economies (Wainer, 2023; Alami et al., 2025). DIGITAL ECONOMY The current dynamics of the tech industry are particularly illustrative of the broader landscape described above, and for that reason, we take it as a focal point of observation. Google, Apple, Meta, Amazon, Microsoft, Alibaba, Tencent, and Huawei—the flagship tech giants of the US and China, commonly referred to as Big Tech (BT)—operate collectively as a global oligopoly. This formation increasingly relegates Latin America to the role of data provider and accelerates the shift of other industrial powers from technology innovators to adopters—that is, to a position of subsidiarity. To this picture we must add Nvidia, the Musk ecosystem, and DeepSeek, among other firms whose products and executives carry significant weight in the global chain of technological decision-making, beyond even their specific market shares. No country outside of the US and China has leading firms in AI, cloud computing, advanced chip knowledge, or 5G champions (with the exception of Ericsson in the latter sector, which remains Swedish. It’s worth noting that Nokia is not included here, as although its production and brand profile are still centered in Norway, the largest shareholding stake belongs to BlackRock). An example of an interesting yet ultimately failed challenge to Big Tech dominance in large-scale projects is the European federated cloud initiative Gaia-X (European Association for Data and Cloud AISBL, https://gaia-x.eu/about/). Originally promoted by the Ministers of economic affairs of Germany and France, Gaia-X is a non-profit international association that brings together companies, state agencies, and third-sector organizations involved in European industrial and technological development (such as SAP, Siemens, the Fraunhofer-Gesellschaft, or Luxembourg’s National Data Service, alongside hundreds of SMEs). Its aim is to pool capabilities in order to create a large shared cloud infrastructure that allows companies and public bodies to store and develop applications securely—that is, independent of servers located outside the continent that fail to meet European data protection standards. In short, the goal is to enable competition with US tech giants and ultimately establish a “gold standard” in data security that tends to exclude them—driven by European governments’ stated concern over the region’s digital sovereignty. The conceptually appealing strategy of combining the complementary capacities of local companies of different sizes on a single platform and offering joint products, initially acted as a carrot for the industry (over 300 members joined, up from 22 at the beginning). However, over time, even the governments most vocal about sovereignty declined to adopt Gaia-X as a primary provider: Germany, for instance, signed a €3 billion agreement with Oracle Cloud (a strategic partner of AWS, Microsoft, and Nvidia) to provide cloud services in 2024. To this day, US tech giants continue to control 70% of the European cloud market (Gooding, 2024). Gaia-X remains a valuable project with over five years of development, but with frankly limited real-world reach—also, it must be said, due in part to the tech giants’ own offensive, as they increasingly offer services aimed at the “territorialization” of data (e.g., https://www.oracle.com/cloud/sovereign-cloud/what-is-sovereign-cloud/). As things stand, the European industrial powers do not control the supply, circulation, or demand of digital technologies, and major Asian players—such as India or Taiwan—occupy intermediate links in the value chains of either the Western bloc or China, depending on the case. This kind of displacement is not so surprising when we consider the oligopolistic dynamics that currently govern the global economy, involving the leadership of core countries across all strategic sectors. Particularly in the digital economy. Oligopoly is a market structure in which a small number of firms control the supply of certain goods and/or services—that is, a large-scale market dominated by a few major sellers, who are often interconnected. Oligopolies are everywhere (in oil, automotive, telecommunications, and more), but in certain sectors, structural traits such as the hyper-scale at which production is viable and profitable, the pace of innovation required for sectoral expansion, or the relevance of brand reputation drive the formation of so-called natural oligopolies (NOs): markets in which open competition (several smaller actors producing the same and rotating their market shares over time) would tend to hinder efficient production. In these markets, the number of firms capable of minimizing total industry costs is “naturally” low, due to the high entry barriers that are established. Each NO actor holds considerable market power, allowing it to develop productive and technological capacities in a privileged way over long periods. As a result, the minimum threshold for joining the oligopoly becomes increasingly difficult for outsiders to overcome. This is the case in sectors such as the extraction of scarce and critical natural resources (like lithium), energy generation and supply (e.g., wind farms), large physical and cyber-physical infrastructure for logistics (commercial ports and oceanic bridges, 5G, or submarine internet cables), or transversal digital technologies (like AI, big data, or cloud computing). All of these require massive upfront investments, accumulated know-how, strong commercialization capacity, and the ability to retain rents—which includes “artificial” legal barriers such as intellectual property rights, trade secrets, and various mechanisms to capture innovation rents. It’s not the same to have oil reserves in your territory and develop or invite companies to exploit them (which several countries do, with companies of varying sizes) as it is to develop powerful AI models using 20 years of data from the entire public internet (which only OpenAI-Microsoft of the US originally achieved with ChatGPT, even though the data came from millions of people around the world). In fact, comparable AI capabilities have only been reached by Google’s Gemini and the open-source DeepSeek model recently developed in China following US sanctions on Nvidia chip acquisitions. In a technological oligopoly, the ability to invest and innovate at scale grants companies significant prospective power: they can pour enormous sums into R&D and start-up acquisitions to develop innovations that will pay off a decade later—after numerous failed attempts costing millions—thus shaping future markets in the process (Google, for example, has heavily invested in AI development since the 1990s and has, at times, acquired one start-up per week). Additionally, NO actors actively exclude potential competitors outside the oligopoly through more questionable mechanisms such as collusion or lobbying, among others (Borrastero & Juncos, 2024). Today, given the broad productive and geographic scope of global value chains and the extreme concentration of investment capacity typical of financial capitalism, more and more markets are becoming structured as natural oligopolies. Especially in digital technologies. Only Amazon, Microsoft, Alibaba, and Google together dominate 75% of the global cloud computing market (with respective shares of 47.8%, 15.5%, 7.7%, and 4%, according to Gartner, 2024), a sector whose relevance is crucial for the development of technologies such as generative AI. In the years leading up to the COVID-19 pandemic, Google, Facebook, Amazon, and Microsoft also became owners or lessees of more than half of the world’s submarine bandwidth capacity—a market historically controlled by states and large telecommunications companies like NEC, Alcatel, and Fujitsu, which still make up the backbone of global data traffic infrastructure (Business Research Insights, 2025). Huawei is the world’s largest supplier of telecommunications equipment, particularly for 5G networks and smartphones, holding a 28% share of the global market and over 4,000 patents (Merino et al., 2023). This helps explain Donald Trump’s insistence on making it both a material and symbolic target in the US-China trade war. The fact that Big Tech companies share technological and market domains—beyond specializing in particular niches—fuels an intense internal competitive race that, unlike monopolies, drives continuous innovation. This means that, in addition to competing to outdo one another, these firms also cooperate extensively to maintain their global leadership far ahead of the rest of the market: each company develops interoperability features to ensure their apps function properly on others’ platforms, and they share open source projects on GitHub (now owned by Microsoft), for instance. Microsoft has contributed significantly to the development of AI in China through its Microsoft Research Asia lab in Beijing and collaborations with Chinese institutions such as the National University of Defense Technology (Hung, 2025)—efforts that neither the US nor Chinese governments have blocked. Long before the current reloaded geopolitical confrontation emerged, core-country governments had already been promoting initiatives aimed at the expansion and globalization of their tech firms, such as China’s Digital Silk Road (Borrastero, 2024) or Silicon Valley itself in the US (it bears repeating just how much state R&D funding is packed inside an iPhone; Mazzucato, 2013). And what each state has done to strengthen its own technological base has ended up, in some way, benefiting the other. Consider, for example, that what China’s customs agency classifies as “foreign-invested enterprises” are mostly US-based companies, which control three-quarters of the country’s most advanced high-tech products. These include large-scale electronics exports that often involve importing key components from the US, assembling them in China via foreign companies like Foxconn (which builds Apple’s iPhones), and then exporting them. At the same time, private Chinese firms have also expanded their role in these core exports, going from virtually zero in the 1990s to over 20% today (Kenji Starrs, 2025). The offshoring of US tech production has helped the US continue leading by producing more cheaply, and has helped China learn how to lead too. As can be seen, the actors of a Global Technological Oligopoly (GTO) are deeply interdependent. To this picture, we must add the increasingly blatant symbiosis between dominant governments and individual stakeholders, as exemplified by the Trump-Musk case. We are no longer simply talking about "public-private complexes", "revolving doors" or "intimate relations". These notions describe very close ties, but between separate entities. What we are seeing now is a kind of fusion (or confusion) between a tiny handful of public and private actors who are able to govern strategic global value chains and set the rules of the game for the rest of the world. In China’s case, the country is characterized by what Weber and Qi (2022) describe as a “state-constituted market economy”: a strong state deeply intertwined with a fundamentally marketized economy, resulting in a political-economic balance that differs somewhat from Western models but still yields a global power that is difficult to challenge. In sum, we are witnessing a competition scheme designed for the very few, that generates a spiraling cycle of leveraged success in which core states play a crucial role. LATIN AMERICA A scheme like this reinforces Latin America's historic peripheral condition. GTO companies operate directly within the territory (setting up data centers, having subsidiaries, providing services, among other things), but they also rely on regional actors to amplify the generation of indigenous data, the large-scale paid consumption of BT’s technological infrastructures, and the global dissemination of their business models. The free domestic use of email applications or social networks enables data capture, but not the monetization of digital assets, whose massive volume comes from services provided to businesses and governments (as someone aptly put it, Amazon is famous for its store but rich from its servers; Lacort, 2021). In Latin America, there is a handful of large technology companies – the so-called 'tecnolatinas' – that replicate the e-marketplace, fintech, or cryptocurrency development models characteristic of the BT, managing to stand out as champions in the regional league far ahead of the rest. However, they continue to be dependent users of the fundamental technologies produced by the GTO. Mercado Libre, originally from Argentina, is the largest and most widely used digital platform on the continent, the one with the highest market value, and the first to be listed on Nasdaq. Modeled after Alibaba, it is a marketplace with an integrated online payments and credit system, technology development and service divisions, and an extensive ground-based logistics infrastructure. For its data storage and management, Mercado Libre is a client of Amazon Web Services (AWS): it processes over 40 purchases per second across 18 countries and has migrated more than 5,000 databases to Amazon DynamoDB (AWS, 2021). As of 2024, it was using nearly a dozen services from the tech giant with which it had signed an agreement to reduce its data computing costs by 13% (AWS, 2024). The other two regional champions, both Brazilian in origin, also maintain strong ties with the BTs: the marketplace Magazine Luiza runs on Google Cloud; and the fully digital bank Nubank (of Nu Holdings) is an AWS client, has received investments from Warren Buffett, Tencent Holdings and Sequoia Capital, and many of its executives have worked at Google, Facebook, Amazon, and Alibaba. The following chart illustrates the stark imbalance in market value and profits between the GTO firms, other global tech giants, and two of Latin America's top champions, in descending order: Source: Own elaboration based on data from Forbes Global 2000 (2024).* Originally in Borrastero & Juncos (2024).** Magazine Luiza is not publicly traded.  Regional firms, in turn, capture data from countless Latin American users, acquire local start-ups, participate in scientific research networks, and work with governments to access tax and especially regulatory benefits—mechanisms that enable their gradual “giantization” (Borrastero & Juncos, 2024). In short, they are part of this kind of stratified oligopoly led by Big Tech, which tecnolatinas help sustain while securing their regional slice of the pie. Far from being a marginal arena, despite Latin America’s relatively low share in global cross-border data flows compared to Asia or Europe (UNCTAD, 2021), the region represents a key market to conquer. This includes sectors with crucial resources for Big Tech’s vertical integration strategies, such as lithium. For instance, Tesla is one of the main buyers of Arcadium Lithium, which operates in the salt flats of northern Argentina, and along with other tech moguls like Bill Gates, is planning new direct investments and investments in companies developing technologies related to extraction (such as Lake Resources, which works on reducing freshwater usage in lithium mining) (López King, 2025). Big Tech companies form true global ecosystems for resource capture and the monetization of informational assets, supported by states and firms across the globe. SYSTEMIC RISKS One of the main problems of the dynamics described so far is the deepening of the international division of learning which—already highly unequal—continues to grow at breakneck speed, while technological learning becomes increasingly fundamental to value creation, and peripheral states are less and less equipped to deal with ever-larger corporations. In this context, peripheral countries risk becoming mere providers of informational raw material for platforms developed in the global centers, and end up having to pay for the digital intelligence extracted from them. Meanwhile, industrial hyper-concentration makes it increasingly difficult for the market to address these structural issues on its own. Rent refers to income derived from control over a scarce and strategic asset. The oligopolistic control of such rent-generating assets by central countries drives an endogenous concentration of rent in the central regions, and the result, in terms of income distribution both between and within nations, is a deepening of inequality at all levels (UNCTAD, 2021; Milanovic, 2019; Torres and Ahumada, 2022). Another major issue stemming from the scale reached by dominant actors and the penetration of their digital infrastructures is how difficult it has become to reverse the technological path — in terms of how to generate and provide services in a different way, while maintaining the reach and quality. Just imagine, for example, trying to establish alternative global data traffic routes or to produce world-class AI for diagnosing and treating rare diseases, without at some point relying on the technological resources of the oligopoly. The key question is how societies across the globe can harness these accumulated technological capabilities for collective purposes, without depending so heavily on heteronormative political and market-driven decisions. The list of systemic risks is a long one, and there isn’t space here to delve into the broader political dimensions of the issue. But it is worth highlighting these two particular risks tied to the current techno-economic order, given their impact on the very possibility of building concrete alternatives. LOCAL INITIATIVE Latin America enjoys neither structural power (that is, the ability to shape the rules of the game in terms of production, finance, security, or the global control of knowledge and culture), nor relational power in relation to other regions with accumulated techno-productive capacities (the ability to influence other actors into doing something they otherwise wouldn’t, following Strange’s 1988 classification). This essay may lean more toward pessimism of the intellect than optimism of the will when it comes to the global order within which Latin America must forge a new place.  Yet it is clear that the continent holds bargaining potential, rooted in the fact that it remains a highly coveted region for all the reasons discussed above—and many more (including the fact that it is, for now, a territory free of military wars). In the context of a “divide and conquer” logic typical of today’s intensified inter-core battles, strategies of absolute alignment with any single power are far from the wisest. The global oligopolistic economy will only deepen Latin America’s peripheral status if countries in the region fail to adopt a solidary non-alignment—or poly-alignment—approach, one that allows them to consolidate minimum thresholds of technological sovereignty. From dependent adoption to sovereign adoption (deciding what and how to adopt in order to learn), and from there to emancipation (integrating and developing what is needed for the people’s well-being). In Brazil, multiple state-led projects are underway to develop a sovereign data economy in collaboration with small and medium-sized enterprises and the academic sector (Gonzalo & Borrastero, forthcoming), along with large-scale initiatives to build national tech and energy infrastructures by leveraging the techno-productive capabilities accumulated over decades by Petrobras, BNDES, the national research council, and public venture capital funds (Alami et al., 2025). Mexico and Colombia are currently undergoing political processes inspired by the ideals of a “common home” and the care of virtual lands, advocating for continental unity on the one hand and strict regulation of Big Tech on the other (BBC News Mundo, 2025; Forbes Central America, 2025; Government of Colombia, 2024; Colombian Presidency, 2025; Wired, 2025). Argentina has a range of digital development projects based on policy frameworks designed to autonomously leverage the productive capacity the country has accumulated since the 1940s (Gonzalo & Borrastero, 2023)—though these efforts have been obstructed by the pro-Trump government of Javier Milei. EPILOGUE As these lines are being written, stock markets around the globe are tumbling amid the tariff war unleashed by the United States, forcing everyone else to adjust. Even the “Magnificent Seven” (Google, Apple, Meta, Amazon, Microsoft, Nvidia, and Tesla) have lost billions in just a few days. This raises the question of whether we are witnessing the birth of a new international economic order. Whether this is a true turning point or merely another heightened episode in the ongoing geopolitical rivalry remains to be seen. What we can already observe, however, is that global control over strategic assets for development places the GTO and core economies in a structurally advantageous position to lead long-term value chains. At the same time, the polycrisis opens up opportunities for marginalized regions to seize the momentum and assert their own demands. In financial capitalism, not everything is determined in the marketplace, and amid widespread and persistent instability, self-determination remains, without a doubt, one of the most powerful antidotes. References Alami, I., DiCarlo, J., Rolf, S. & Schindler, S. (2025). The New Frontline. The US-China battle for control of global networks. In Transnational Institute, State of Power 2025. 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Energy & Economics
NEW DELHI, INDIA - February 25, 2020: U.S. President Donald Trump wife Melania Trump, Indian President Ram Nath Kovind, Prime Minister Narendra Modi during a ceremonial at the presidential palace

Trump's tariffs: an economic windfall for India

by Catherine Bros

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском US tariffs on Indian goods will rise from 17% in 2023 to 26% in 2025. Yet the world's most populated country can see this aggressive US policy as an economic boon for three reasons: its low level of integration into the global market, its ‘Atmanirbhar Bharat’ policy of strategic autonomy and its position as an alternative to China. The United States is India's biggest customer. It accounts for 19% of India's exports. India considered itself relatively unaffected by the new US customs policy unveiled on April 2. US tariffs on Indian goods will rise from 17% in 2023 to 26% in 2025, if President Trump does not postpone the implementation date once again... This 26% figure is much lower than the duties imposed on other South-East Asian nations, which to some extent compete with Indian industry. Bangladesh, for example, has tariffs of 37%, Vietnam 46% and Thailand 36%. Certain key sectors of Indian industry, such as pharmaceuticals, are even exempt from additional duties. This exemption underlines the strategic importance of India's exports of generic medicines to the United States. A variable geometry customs strategy. India, which has no plans to retaliate, is confident of concluding a relatively advantageous agreement thanks to the bilateral negotiations that began in February 2025, following Indian Prime Minister Narendra Modi's visit to the United States. Indian reindustrialisation? Some see this new customs policy as an opportunity for India to reindustrialise, something it badly needs to boost employment. Over the years, India has lost its comparative advantage in certain sectors to other South and South-East Asian countries such as Bangladesh, Thailand and Vietnam. The latter face customs duties that are higher than India's, and that are rising faster. Is this likely to boost the competitiveness of these Indian industries? However, they would require long-term investment. India's industrial strategy has preferred to focus on more technologically advanced sectors, by introducing subsidies for the creation of production capacity through the Production Linkes Incentive (PLI) Scheme. The aim is to reduce dependence on imports and boost exports in priority sectors. The semi-conductor sector, for example, has benefited greatly, with the hope, among other things, of turning India into a manufacturing hub for these products. It hopes to attract €27 billion in foreign direct investment (FDI). The task will certainly be made more difficult by the protectionist policies of the United States. Re-industrialisation in India will require regulatory reforms and investment in infrastructure. Despite the substantial progress made in these areas, more remains to be done. In any case, for US protectionist policy to encourage the development of Indian industry, it would have to be stable, which does not seem to be the primary orientation of the current Trump administration. Weak integration into world trade India's participation in world trade in goods is modest given the size of its economy: in 2023, India's market share in world trade was 2%. Despite its growing trade surplus with the United States, India has been relatively unaffected by the rise in tariffs, partly because Indian imports account for only 3% of total US imports. Its economy, which is very little integrated into global value chains, will de facto be less severely affected by the new US customs policy.  Although its economy trades few goods with the rest of the world, India has a comparative advantage in the service sector, which accounts for almost half of its exports of goods and services. Yet services are largely unaffected by tariffs and remain outside the perimeter of the new US policy. Indian protectionism: "Atmanirbhar Bharat" The protectionist stance adopted by the United States may reinforce the Indian government's conviction that it is right for its economy to be only marginally integrated into world trade in goods. The Indian economy is not very open and its trade policy has long tended towards protectionism. The latest industrial policy plan, "Atmanirbhar Bharat" ("Self-sufficient India"), aims to promote both exports and the strategic autonomy of the Indian economy in a number of sectors, including pharmaceuticals, solar energy and electronics. Since the ‘Made in India’ programme, India's industrial policy has not sought to create growth through exports, but to attract foreign capital to create production capacity in India, mainly for the Indian market. Foreign direct investment (FDI) has risen sharply, albeit from a relatively low base: it stood at 45.15 billion dollars in 2013. By 2022, it will have risen to $83.6 billion. India, more than ever courted India is strengthening its strategic position on the international stage. Its economy was already attracting the attention of investors, thanks to its potential market of 1.4 billion consumers and its position as Asia's alternative to China. The erratic behaviour of the Trump administration makes any partnership with India even more desirable, particularly for Europeans. There is no doubt that the trade talks for an agreement between the European Union and India, that began in 2022 and were brought back to the forefront by the visit of the President of the European Commission to New Delhi in February 2025, will take on a new dimension in the eyes of the Europeans. India's current nationalist government has worked hard to ensure that India becomes a pivotal player in the international community. This leading role on the international stage is a significant electoral asset that should strengthen Narendra Modi's influence within the country.

Defense & Security
HAJJAH, YEMEN – October 29, 2023: A visit by senior military leaders to internationally recognized forces in the Yemeni Saada axis

Trump, Tehran, and the Trap in Yemen

by Mohd Amirul Asraf Bin Othman

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском As the Middle East braces for another escalation of conflict, Tehran finds itself cornered by Donald Trump’s coercive diplomacy, facing the stark choice between strategic concession or regional confrontation. Donald Trump’s return to the presidency has reignited US–Iranian hostilities, transforming Yemen into a strategic flashpoint. His administration’s doctrine of militarised diplomacy, cloaked in zero-sum calculations, has elevated the Houthis from a peripheral proxy to a principal trigger for escalation. By explicitly linking Houthi missile fire to Iranian command, Trump has effectively nullified Tehran’s longstanding strategy of plausible deniability.  Historically, Iran’s use of proxies has relied on operating within a grey zone; projecting influence while avoiding direct confrontation. Trump’s return seeks to dismantle this strategic ambiguity, reclassifying all proxy activity as acts of Iranian statecraft. The US military has launched its most expansive campaign under United States Central Command (CENTCOM) against the Houthis since the Red Sea crisis began in late 2023, targeting ballistic missile infrastructure, drone depots, and senior leadership in Yemen. The operation, launched on 15 March, marked a strategic shift, following Trump’s re-designation of the Houthis as a Foreign Terrorist Organisation and his vow to “rain hell” on their positions if the attacks continued. Trump’s rhetoric has escalated accordingly, and he has warned: “Every shot fired by the Houthis will be looked upon, from this point forward, as being a shot fired from the weapons and leadership of Iran.”  This traps Tehran in a paradox: either abandon the Houthis, risking both reputational credibility and strategic depth, or absorb the full brunt of US retaliation. Neither option is strategically tenable. Recognising the stakes, Iran has reportedly urged the Houthis, via Omani intermediaries and back channel diplomacy in Tehran, to scale down their maritime attacks, particularly in the Red Sea. However, Houthi leadership has publicly dismissed such appeals, reaffirming their commitment to targeting Israeli shipping and rejecting external interference in their operational decisions. Their resistance is fuelled by ideological conviction, conflict-tested resilience, and an expanding sense of regional purpose.  Since the beginning of the recent Israel-Hamas conflict, and amid Hezbollah’s decline, Hamas’s isolation, and Syria’s collapse, the Houthis have emerged as Iran’s most assertive proxy. Their attacks on Red Sea shipping and missile strikes against Israel, while mostly intercepted, nonetheless embarrass Arab regimes and stretch Israeli and American defensive postures.  The renewed Gaza conflict, triggered by Israel’s March 2025 bombing that killed five Hamas leaders and over 400 civilians, according to the Gaza Health Ministry, has collapsed the fragile ceasefire and reignited a multifront war involving Hamas, Hezbollah, and the Houthis. With Gaza’s death toll now exceeding 50,000, Hamas frames its actions as part of a broader resistance to Israeli aggression. This development has galvanised regional anger and contributed to a broader mobilisation among Iran-aligned actors. Hezbollah has resumed intermittent rocket fire along the Lebanese border, while the Houthis, citing solidarity with Gaza, have intensified missile launches towards Israeli territory, including attempted strikes near Ben Gurion Airport, underscoring their expanding operational capacity and the symbolic coordination anchoring the Axis of Resistance.   Tehran’s influence may be weakening. The Houthis have repeatedly demonstrated a higher risk appetite, often acting beyond Iran’s preferred thresholds of escalation. This divergence complicates Tehran’s efforts to preserve plausible deniability while reaping the strategic dividends of proxy activism. The resulting imbalance reveals a deeper problem: Iran seeks the benefits of Houthi militancy without bearing the cost, an increasingly unsustainable equilibrium under Trump’s zero-tolerance posture.  Iran’s dilemma: no more deniability  According to the 2025 US Intelligence Community Threat Assessment, the Houthis continue to enhance their military capabilities through arms and dual-use technology imports from Russia and China. The smuggling of drone components through the Red Sea and the Omani-Yemeni border indicates a pattern of sustained logistical support. By dismantling Iran’s plausible deniability and publicly attributing every Houthi strike to Tehran, Washington seeks to force a binary: either Iran controls its proxies or accepts full strategic liability.  This exposes Tehran to a potential regional escalation that it is likely unprepared to navigate. The US narrative, amplified by Trump’s statements and CENTCOM’s operational tempo, collapses the operational gap between proxy and patron. This leaves Iran with shrinking room for strategic manoeuvre, particularly as it seeks to avoid direct conflict while preserving deterrent credibility. The Israeli Defence Forces (IDF) have already conducted cross-border raids into Yemen, and Israel is lobbying for expanded UN sanctions on Iran’s missile program.  Backchannel bargains: araghchi’s high-wire diplomacy  Amid growing domestic unrest, Iranian Foreign Minister Abbas Araghchi has reportedly been granted authority to pursue indirect negotiations with Washington. While Supreme Leader Khamenei maintains opposition to direct talks, the use of European and Omani channels offers Tehran a diplomatic off-ramp, though under immense diplomatic and political pressure. Araghchi, a veteran of the original Joint Comprehensive Plan of Action (JCPOA) talks, is viewed as more pragmatic than hardliners in the regime.  This opening follows Trump’s letter to Khamenei, demanding a new nuclear agreement within two months. The letter includes explicit demands: dismantle uranium enrichment, abandon missile development, and sever ties with regional proxies.   Iran’s nuclear posture remains opaque. The IAEA confirms Tehran has stockpiled enough 60 percent enriched uranium for multiple warheads if refined further. Yet, Iran insists its nuclear aims are peaceful. Semi-official sources suggest that continued Western escalation could prompt withdrawal from the Non-Proliferation Treaty.   Iran’s domestic pressures are compounding. The economy suffers under inflation, sanctions, and currency collapse. The unrest in Urmia during Nowruz—the Persian New Year celebrated on the spring equinox—driven by inter-ethnic Kurdish-Azeri tensions, underscore the regime’s waning ability to manage internal dissent. With state institutions weakened, and central authority increasingly concentrated in the hands of Khamenei, public disillusionment is deepening.  The squeeze on Iran: less room to manoeuvre  Iran’s ability to maintain the status quo is under unprecedented strain. Its decades-old strategy of “strategic patience” is becoming harder to sustain. Though Iran continues to nurture ties with China and Russia, and remains engaged with European interlocutors,these relationships no longer offer the same buffer. The European Union, constrained by Washington’s hard-line approach, lacks the independence to offer credible guarantees.  Meanwhile, Israel and Saudi Arabia remain resolute in preventing a nuclear-armed Iran. The Begin Doctrine, which justified Israel’s pre-emptive strikes on Iraq (1981) and Syria (2007), may resurface should diplomacy falter. The spectre of unilateral military action now shapes Tehran’s strategic calculus.  Regionally, Iran’s proxy entanglements are escalating. The synchronised attacks from the Houthis, Hamas, and Hezbollah are overstretching Israeli defences and fuelling calls in Tel Aviv for broader regional offensives. Israeli retaliation, paired with US military strikes, has intensified the risk of a wider conflagration. Arab regimes, especially the UAE and Saudi Arabia, fear being drawn into the fray, threatening their economic visions for 2030 and beyond.  Meanwhile the Palestinians remain largely abandoned, with no Arab state willing to absorb the population of Gaza as Trump toys with expulsion scenarios. This hard-line vision, absent regional consensus, risks igniting further instability across Jordan, Egypt, and the broader Arab world. Trump’s coercive diplomacy may satisfy tactical aims but alienates Arab publics, a recipe for internal backlash across fragile states.  Yet, abandoning its nuclear leverage is not politically viable for the Iranian regime. Any concessions must be matched by credible, enforceable guarantees—a lesson painfully learned from Trump’s unilateral exit from the JCPOA in 2018. Tehran may accept a phased or limited deal but will resist anything perceived as total capitulation.  In sum, Iran now faces a multidimensional siege: external coercion, proxy volatility, domestic instability, and ideological polarisation. Trump’s second term seeks to corner Tehran into submission, not negotiation. Yet, by collapsing the space between proxy action and state responsibility, Washington may provoke precisely what it seeks to prevent: a regional war with no clear exits. This article was published under a Creative Commons Licence. For proper attribution, please refer to the original source

Energy & Economics
United States Global Trade War as American tariffs and US government taxation or punative trade war policy or duties imposed on imports and exports  as a 3D illustration.

The trade deficit isn’t an emergency – it’s a sign of America’s strength

by Tarek Alexander Hassan

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском When U.S. President Donald Trump imposed sweeping new tariffs on imported goods on April 2, 2025 – upending global trade and sending markets into a tailspin – he presented the move as a response to a crisis. In an executive order released the same day, the White House said the move was necessary to address “the national emergency posed by the large and persistent trade deficit.” A trade deficit – when a country imports more than it exports – is often viewed as a problem. And yes, the U.S. trade deficit is both large and persistent. Yet, as an economist who has taught international finance at Boston University, the University of Chicago and Harvard, I maintain that far from a national emergency, this persistent deficit is actually a sign of America’s financial and technological dominance. The trade deficit is the flip side of an investment magnet A trade deficit sounds bad, but it is neither good nor bad. It doesn’t mean the U.S. is losing money. It simply means foreigners are sending the U.S. more goods than the U.S. is sending them. America is getting more cheap goods, and in return it is giving foreigners financial assets: dollars issued by the Federal Reserve, bonds from the U.S. government and American corporations, and stocks in newly created firms. That is, a trade deficit can only arise if foreigners invest more in the U.S. than Americans invest abroad. In other words, a country can only have a trade deficit if it also has an equally sized investment surplus. The U.S. is able to sustain a large trade deficit because so many foreigners are eager to invest here. Why? One major reason is the safety of the U.S. dollar. Around the world, from large corporations to ordinary households, the dollar is used for saving, trading and settling debts. As the world economy grows, so does foreigners’ demand for dollars and dollar-denominated assets, from cash to Treasury bills and corporate bonds. Because the dollar is so attractive, the Federal Reserve gets to mint extra cash for use abroad, and the U.S. government and American employers and families can borrow money at lower interest rates. Foreigners eagerly buy these U.S. financial assets, which enables Americans to consume and invest more than they ordinarily could. In return for our financial assets, we buy more German machines, Scotch whiskey, Chinese smartphones, Mexican steel and so on. Blaming foreigners for the trade deficit, therefore, is like blaming the bank for charging a low interest rate. We have a trade deficit because foreigners willingly charge us low interest rates – and we choose to spend that credit. US entrepreneurship attracts global capital – and fuels the deficit Another reason for foreigners’ steady demand for U.S. assets is American technological dominance: When aspiring entrepreneurs from around the world start new companies, they often decide to do so in Silicon Valley. Foreigners want to buy stocks and bonds in these new companies, again adding to the U.S. investment surplus. This strong demand for U.S. assets also explains why Trump’s last trade war in 2018 did little to close the trade deficit: Tariffs, by themselves, do nothing to reduce foreigners’ demand for U.S. dollars, stocks and bonds. If the investment surplus doesn’t change, the trade deficit cannot change. Instead, the U.S. dollar just appreciates, so that imports get cheaper, undoing the effect of the tariff on the size of the trade deficit. This is basic economics: You can’t have an investment surplus and a trade surplus at the same time, which is why it’s silly to call for both. It’s worth noting that no other country in the world enjoys a similarly sized investment surplus. If a normal country with a normal currency tries to print more money or issues more debt, its currency depreciates until its investment account – and its trade balance – goes back to something close to zero. America’s financial and technological dominance allows it to escape this dynamic. That doesn’t mean all tariffs are bad or all trade is automatically good. But it does mean that the U.S. trade deficit, poorly named though it is, does not signify failure. It is, instead, the consequence – and the privilege – of outsized American global influence. The president’s frenzied attacks on the nation’s trade deficit show he’s misreading a sign of American economic strength as a weakness. If the president really wants to eliminate the trade deficit, his best option is to rein in the federal budget deficit, which would naturally reduce capital inflows by raising domestic savings. Rather than reviving U.S. manufacturing, Trump’s extreme tariffs and erratic foreign policy are likely to instead scare off foreign investors altogether and undercut the dollar’s global role. That would indeed shrink the trade deficit – but only by eroding the very pillars of the country’s economic dominance, at a steep cost to American firms and families.

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.

Diplomacy
Toronto, Canada - March 9, 2025 - Image of Donald Trump and Mark Carney the new Canadian prime minister

Canada on the way of change

by Natalia Viakhireva

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском First months of the 2025 year were uneasy for Canada, it started with waves of changes. The era of Justin Trudeau, who was the leader of the country for 10 years from 2015 to 2025, and the beginning of the new presidential term of Donald Trump made things different for Canada and added uncertainty. On the ninth of march the new leader of the Liberal Party has been chosen, Mark Carney became the new prime minister of Canada. It remains unclear how long he will stay in his position, because Canada is standing on the threshold of federal elections. The end of era Like any leader, Justin Trudeau had certain achievements but also enough failures that affected the decline in his popularity among the population, lack of trust from fellow party members and opposition parties, which in the best years were even ready to collaborate with him together. In 2022 the New Democratic Party (NDP) and Liberal Party make an agreement to build trust and solidify a position on significant socio-economic issues. However, by the end of autumn 2024 the leader of the New democratic party Jagmeet Singh said that Justin Trudeau was not coping with the tasks facing the country and announced the NDP withdrawal from the agreement. This statement had a negative impact on the rating of the Liberal Party while they were passing decisions through Parliament. In the end of December Jagmeet Singh asked Justin Trudeau to resign and state that he is ready to support a vote of no confidence in the government, which the Conservative Party has been systematically calling for by that time. In the end of December of 2024 suddenly minister of finance and deputy prime minister of Canada Chrystia Freeland unexpectedly announced her resignation. This action raised a wave of negative sentiments around Justin Trudeau. The greatest criticism of the Prime Minister was caused by the failed migration policy, shortage of housing stock coupled with the sharp increase in housing prices, high inflation, and unemployment and the introduction of unpopular carbon tax. As a result of severe pressure of fellow party members and leaders of opposition parties Justin Trudeau was forced to announce the resignation on 6th of January, from the moment when a successor will be found within the liberal party. At the same time, he noted that if he must wage and internal party struggle, he does not consider himself as a suitable candidate for the role of a leader for the party during the next elections.  Beginning of New Uncertainty The era of political uncertainty in Canada worsened when Donald Trump repeatedly “attacked” the country’s sovereignty by verbally proposing Canada to become the 51st state of the United States. He also threatened to impose a 25% tariff on Canadian products, although he canceled this decision several times. On December 1st, Donald Trump signed an executive order imposing a 25% tariff on products coming from Canada and a 10% tariff on energy from Canada. The U.S. stated that this was a measure to combat emerging threats due to high levels of migration and fentanyl trafficking across the U.S.-Canada border. In response, Canada threatened to impose retaliatory tariffs on critically important minerals and fossil, electricity supplies, energy resources, and other products. Justin Trudeau, who was in the final days of his term, achieved some success during negotiations on February 3rd between Canadian and American leaders. As a result, Donald Trump agreed to postpone the imposition of tariffs on Canadian products for 30 days. This decision followed Canada’s promise to strengthen border security measures and invest an additional $1 million into those efforts. The tariffs were imposed on March 4th, and Justin Trudeau responded with retaliatory measures targeting U.S. products. However, on March 5th, Donald Trump canceled the tariffs on the automobile industry, and on March 6th, after a phone call with the leaders of Mexico and Canada, he signed an executive order temporarily suspending tariffs on Canadian and Mexican products that comply with the terms of the USMCA (United States–Mexico–Canada Agreement). If the tariffs were imposed in full, they would have had a negative impact on the Canadian economy. Supply chain channels would suffer, leading to an increase in the prices of various goods traded between Canada and the U.S. Additionally, the tariffs would reduce the competitiveness of Canadian products in the U.S. market. The most harmful consequences would be felt by sectors and products highly dependent on the American market. Trust credit The topics related to tariffs and bilateral agreements with the USA during the last two months became the main subject of discussion in Canada and in the main election campaign for the leader of the Liberal Party. On the 9th of March, the successor of Justin Trudeau was selected. It was Mark Carney, who received 85.9% of the votes. During the final stage, there were four candidates for the position of leader of the Liberal Party. The second after Mark was the Minister of Finance and Deputy Prime Minister of Canada, Chrystia Freeland. She did not get many votes, receiving only 8% of the votes from the electorate. The other two candidates — Karina Gould, the leader of the Government in the House of Commons, and Frank Baylis, who was a member of Parliament, received 3.2% and 3%, respectively. The main topics of Mark Carney’s internal party campaign were the economic development of Canada, climate change, and a green incentive program. He proposed a carbon tax from consumers to large companies, removing trade barriers between Canadian provinces and territories, increasing the pace of housing construction and investments in this sphere while cutting the government budget. The success of Mark Carney can be attributed to a few reasons. He is the only candidate who did not hold any official position in Justin Trudeau’s Cabinet and did not have a position in Parliament. So, he represents some distance from the course of the prime minister, which Canadians did not like during the post-pandemic times. Canadians associate Mark Carney with new opportunities and changes for Canada. He is not a person from politics; he is related to the economy and business sector. Among his numerous roles, he was the Governor of the Bank of Canada during the 2008 crisis, when Canada avoided the worst impacts due to good financial and banking policies. In 2013, he was appointed as Governor of the Bank of England. He handled the economic processes during Brexit and the following economic and political crises. This experience casts Mark Carney in a positive light for voters and provides him with trust during tough times in the country, marked by unfriendly statements and actions from the closest partner — the US. Carney himself highlights his success in crisis management and believes that he would be able to negotiate with Trump, even though he agrees that the 25% tariff and policy that Trump has stated are a serious challenge in modern Canadian history. In his victory speech after being elected as the leader of the Liberal Party, he highlighted that: "The United States of America are not Canada. Canada will never become a part of the US in any form, in any way." All other political elites are in solidarity with him. Carney states that Canada must fight Trump’s tariffs using retaliatory measures in the form of "dollar for dollar." The main goal is the diversification of trade agreements in the medium term. Both goals are important. For now, Canadian analysts are concerned that Trump’s tariffs in the short term may cause a recession in the Canadian economy. It is important to remember that Donald Trump is a businessman, and in political discussions, he has often said that he is ready for deals. Maybe Carney, with his experience in the economy and finance, will find a way to make such a deal — if he has time. What is next? For how long Mark Carney will stay in the prime minister position is hard to predict now. According to the schedule, another federal election in Canada should take place no later than October 2025, however, the Canada Elections Act provides the opportunity for long-term elections. There is a high probability that Mark Carney will use his popularity and announce voting in the next few weeks. According to the law, the pre-election period must last from 37 to 51 days. The main opposition for Carney will be the leader of the Conservative Party, Pierre Poilievre. For the last 1.5 years, the rating of the Conservative Party has been significantly higher than the rating of the Liberal Party. According to the data, the popularity rate of the Conservative Party on January 6th was equal to 44.2%, and the Liberal Party had 20.1%. However, the rating of the Liberals started to grow after Justin Trudeau announced his resignation. According to the data on March 5th, the rating of the Conservative Party was equal to 40.3%, and the Liberal Party had 30.8%. Pierre Poilievre, with his views, is close to the ideas of right-wing populism. He is a supporter of the Freedom Convoy — the protest movement that spread across Canada in early 2022. People often say that his positions and approaches are similar to those of Donald Trump. Even though the pre-election campaign has not officially started yet, Pierre Poilievre unofficially began his campaign in January.  After Justin Trudeau announced his impending resignation, Pierre Poilievre changed his political slogan “Axe the Tax” (which referred to the unpopular carbon tax) to “Canada First,” which is similar to Trump’s slogan “America First.” Poilievre promises that he will remove trade barriers for provinces, tighten punishments for fentanyl dealers, strengthen border security, construct a base in the Arctic, the construction of which will be financed by cutting foreign aid. Border security, fentanyl contraband, and low defense costs in Canada are the main complaints of Donald Trump. Mark Carney, talking about his opponent Pierre Poilievre, said: “Donald Trump is trying to weaken our economy, but there is also another person who is doing the same. And this person is Pierre Poilievre. Pierre Poilievre’s plan will leave us divided and ready for conquest because he is a person who worships Trump, and he will stay on his knees in front of Trump, not oppose him.” The election on March 9th for the leader of the Liberal Party is not the final stage of the political situation in Canada. It remains to be seen who will become the new prime minister for the next four years.

Energy & Economics
Canadian and Chinese flag. Canada and China flag.

The Fruits of Trump Tariffs: Closer Ties Between Canada and China

by Dean Baker

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском With Donald Trump seemingly determined to push the US economy on a path towards autarky, our major trading partners will need to make alternative arrangements. This is especially the case with Canada, since its economy is so closely tied to the US economy. At this point, Mark Carney, the country’s new Prime Minister, knows there is little possibility of dealing with Trump rationally. Trump has bizarre and totally imagined grievances against Canada. His main complaint seems to be that the United States runs a $200 billion trade deficit with Canada, which Trump describes as Canada ripping off the United States. It’s hard to believe that anyone would say that selling stuff to a willing and well-informed customer is ripping them off. Presumably we buy stuff from Canada because it’s cheaper than the stuff we either produce ourselves or could buy from other countries. Also, the deficit is entirely due to purchases of oil from Canada, something Trump sought to promote in his first term. We have mostly balanced trade if we exclude oil. In fact, the claims of unfairness are based on a treaty that Trump himself negotiated in his first term. Trump can’t even get his numbers straight. Rather than being $200 billion, our trade deficit is less than one-third this size, at just over $60 billion. Trump’s erratic craziness makes the prospect of a real and lasting deal very dim. Carney has to look to secure stronger trade deals with more stable partners. Europe and Latin America are clearly part of the that story, but China needs to be too, as the world’s largest economy. There are opportunities for major gains from trade with China, especially in the auto sector, which had been thoroughly intertwined with the United States and Mexico. Carney has to work from the assumption that these links could be severed for the indefinite future. Here China’s enormous progress in developing electric vehicles offers a great opportunity to Canada. China now sells high quality, low-cost EVs. It has also developed battery technology to the point where a battery can be fully charged in six minutes, not much different than the time it takes to fill a tank of gas. Canada can in principle negotiate trade deals with China where it partially opens its market to its EVs, in exchange for a commitment to technology transfer. The plan would be that in a few years Canadian manufacturers would adopt the latest Chinese technology and supply much of the market themselves. Since Canada has more union-friendly labor law than the United States, they can structure their deal so that the factory jobs would be largely good-paying union jobs. This would be good for the environment, good for Canadian workers and consumers, and good for Canada’s economy, since it means car buyers will have considerably more money to spend on other items or to save. It would also set up a great contrast with the United States, where Trump is determined to try to lock the country into building and buying cars that rely on old-fashioned internal combustion (IC) engines. While Canadians are buying high-quality EVs, people in the United States will be buying IC cars for two or even three times the price. Furthermore, while we are paying $40 to $60 to fill our tanks every couple of weeks, Canadians will be able to power their vehicles for ten or fifteen dollars a charge. The move to EVs will also mean that Trump will have imposed a permanent cost on the US car industry, even if he eventually learns a little economics and discovers his tariffs were not a good idea. If Canada develops a vibrant EV industry, it will not be going back to the integrated production structure with the United States that it had with IC vehicle producers before the trade war. Trump is not going to be able to get Canadians to buy more expensive IC vehicles. The only way for the United States auto industry to go forward, if we move back towards more normal trade with Canada, will be for it to double-down on developing EVs itself. There obviously will be many other problems that Canada will have to deal with as it attempts to cope with unwinding decades of economic integrations with the United States, but working with China on adopting EV technology should be a no-brainer. In this area, Trump may have done Canada a big favor.

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/] 

Energy & Economics
Main img

Economic Sanctions: A Root Cause of Migration

by Michael Galant , Alexander Main

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском The question of migration occupies a central and divisive place in US politics. Yet critical questions are rarely asked about why migrants decide to leave their homes in the first place and what role US foreign policy might play in that decision. This oversight is especially glaring when it comes to one of the most common tools of US foreign policy: broad economic sanctions. There is overwhelming evidence (1) that migration1 is driven in large part by adverse economic conditions and (2) that sanctions can have severe, harmful economic and humanitarian consequences for civilians in targeted countries. The cases of Cuba and Venezuela demonstrate this relationship clearly: The imposition or tightening of sanctions by the US government have, in recent years, fueled economic crises that in turn have led to record migratory outflows. Addressing migration at its roots will require rethinking US sanctions policy as part of a broader research and policy agenda that considers the role of US foreign policy in fueling migratory push factors abroad. Economic Hardship Drives Migration The decision to emigrate — often involving leaving one’s home, family, and community to undertake a perilous journey to a new country with a different language and culture, without any guarantee of safety, accommodation, or employment — is not typically one that is taken lightly. Such a life-altering decision is rarely reducible to a single factor but is rather made in the context of multiple and interrelated push and pull factors. However, one of the most well-established sets of factors that impact migration are economic. There is broad consensus that economic conditions in the country of origin are a major determinant of the desire to migrate. A recent review of 72 peer-reviewed, survey-based analyses of migration aspirations found an overwhelming relationship between the desire to migrate and economic factors, including perception of national economic conditions, employment opportunities, household financial situation, food security, contentment with public services, and expectations of future economic conditions. A similar relationship holds true of realized migration. Many have hypothesized an inverted U-shaped relationship between development and migration, whereby higher GDP per capita is associated with increased migration as would-be migrants gain the means to do so, until a certain point — after which higher income is associated with decreased migration. However, recent research suggests that this U-shaped relationship, though observed in cross-sectional analyses, does not hold for a given country over time.2 Rather, the relationship is clearer: poor or deteriorating economic and humanitarian conditions cause people to migrate from developing countries while growth and stability lead people to stay home. Sanctions Fuel Economic Hardship Over the past two decades, the number of US-imposed sanctions has grown nearly tenfold. The United States is by far the most prevalent user of sanctions, with one-third of all countries — and over 60 percent of low-income countries — facing US sanctions in some form. While many sanctions are narrowly targeted against particular individuals or entities, others target entire sectors or even the entire economy of a country. Such broad-based sanctions are indiscriminate and can have profound impacts on the economies, and therefore civilians, of targeted nations (and even purportedly targeted sanctions can have significant spillover effects). Broad-based sanctions can impede economic growth, potentially triggering or extending recessions and even depressions; restrict access to critical resources like medicine, food, and energy; disrupt humanitarian aid (despite nominal exemptions); and consequently exacerbate poverty, illness, and hunger. As a result, sanctions can lead to a significant number — in some cases tens of thousands — of preventable deaths. In a 2023 literature review for CEPR, economist Francisco Rodríguez determined that 94 percent of peer-reviewed econometric studies on the subject found substantial, statistically significant “negative effects on outcomes ranging from per capita income to poverty, inequality, mortality, and human rights” as a result of sanctions. One study associated sanctions with, on average, a 26 percent drop in GDP per capita — roughly the size of the Great Depression. Another tied sanctions to a 1.4-year decline in female life expectancy — comparable with the global impact of COVID-19. Yet another found a 2.5 percent increase in childhood HIV infection rates. While such indiscriminate impacts are often denied by the policymakers that impose sanctions, it is difficult to reconcile this denial with the fact that major macroeconomic factors such as growth rates, oil production, foreign reserves, currency stability, and the cost of essential goods are widely used — often by these very same policymakers — as metrics of “success” of sanctions. That these macroeconomic factors would in turn impact civilians is all but undeniable. In fact, there are significant reasons to believe that the broad economic and humanitarian impacts of certain sanctions regimes are intentional — and therefore are not a matter of calibration, but are inherent to the policy itself. Sanctions Induce MigrationIf migration is driven in part by economic hardship and sanctions can cause great economic and humanitarian suffering, then it follows that sanctions can substantially contribute to migration. This is not just borne out logically, but can be seen in the data. In October 2024, the Journal of Economic Behavior & Organization published what may be the first and only systematic cross-national empirical analysis of how such sanctions impact international migration. The findings are striking. Using data on migration flows from 157 countries over more than half a century, the authors find that Western multilateral sanctions3 have increased emigration from target countries by, on average, 22 to 24 percent. Notably, they also find that “migrant flows return to their pre-sanction level once sanctions are lifted.” In few cases is this relationship between sanctions and migration clearer than in the cases of Cuba and Venezuela. Trump-Biden Sanctions Spur Cuban Depopulation The US embargo against Cuba — referred to by many as a blockade due to its extraterritorial impacts — is the US’s oldest and most comprehensive sanctions regime. Beginning in 1960 with export prohibitions in response to the Castro government’s agrarian reforms and nationalizations, successive administrations soon escalated this embargo into a comprehensive ban on nearly all trade, travel, and financial transactions, with the goal of destabilizing and ultimately toppling the Cuban government. While these sanctions have been periodically tightened or relaxed over the years, this foundational, comprehensive embargo has remained intact for over six decades and has since been enshrined into law through the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996. During his last two years in office, President Barack Obama took significant steps toward the normalization of bilateral relations with Cuba by, among other things, formally resuming diplomatic relations, loosening restrictions on travel and remittances, and removing Cuba from the State Sponsors of Terrorism (SSOT) list, a measure that had effectively cut the island off from much of the global financial system. However, under the first Donald Trump administration, these policies were largely reversed, and the embargo was expanded to an unprecedented level. President Joe Biden, despite campaign promises to change the course of Cuban policy, maintained most of President Trump’s measures. Days before leaving office, Biden issued executive orders undoing Trump’s harshest sanctions measures only to see them predictably rescinded immediately following Trump’s return to the White House. In the case of both Trump and Biden, Cuban policy appears to have been driven in large part by electoral considerations in Florida, where hawkish Cuban American voters have long (and questionably) been seen as a key demographic in both parties’ efforts to win the state. The US embargo has long hindered Cuban economic growth and development, particularly since the late 1980s when the Soviet Union and its COMECON partners discontinued economic support for the island. In 2018, the UN Economic Commission for Latin America and the Caribbean validated the Cuban government’s estimates that the six-decade embargo had cost the country $130 billion. By 2024, that estimate had grown to $164 billion. A recent econometric study on changes in US policy toward Cuba between 1990 and 2020 found a “substantial negative impact of sanctions policy shifts on Cuban economic growth.” Further, “this impact on GDP is concentrated in the component of household consumption” — in other words, Cuban citizens bear the highest burden. Over the last few years, Cuba’s economic situation has deteriorated further, in large part as a result of Trump-Biden policies. Measures such as returning Cuba to the SSOT list (despite no evidence of Cuban support for terrorism), restricting remittances, and prohibiting US citizens from doing business with dozens of “restricted entities” have greatly limited Cuba’s access to foreign exchange. This has, in turn, prevented Cuba from importing many essential goods (including critical pharmaceutical and agricultural inputs) and services (including maintenance services for Cuba’s ailing energy infrastructure), servicing its external debt, and perhaps most crucially, stabilizing the local currency following a major monetary reform in 2021. Another Trump measure — his decision to implement Title III of the LIBERTAD Act — has had a significant chilling effect on foreign investment in Cuba only a few years after the enactment of a reform opening up most sectors of the economy to foreign investors. This controversial provision, which allows for lawsuits against US or foreign persons doing business with Cuban entities that use or benefit from property expropriated at the beginning of the Cuban Revolution, had been waived by prior presidents and by Trump himself, until April 2019. The far-reaching negative impact of these and other Trump measures are part of the reason why Cuba’s economy has failed to significantly recover from the global economic downturn triggered by the COVID pandemic. Cuba has been plunged into the most serious economic and humanitarian crisis of its contemporary history, characterized by repeated blackouts, water shortages, fuel shortages, rising food costs, the deterioration of basic services such as garbage collection, and the spread of preventable diseases. Cuba’s fledgling private sector, which greatly expanded following Obama’s normalization measures and domestic liberalization measures in 2019 and 2021, is facing an uncertain future as a result of the crisis and new, stricter Cuban regulations designed in part to offset the effects of sanctions by capturing increasingly scarce foreign exchange. This economic crisis has in turn spurred a migration crisis. Data from the national statistics office of the government of Cuba shows skyrocketing net emigration following 2020 (see Figure 1). By August 2022, the outflow of migrants had surpassed that of the famous 1980 Mariel boatlift and the 1994 Balsero/Rafter crises combined.   Independent research — later confirmed by the Cuban government — estimates an even larger increase than those published by the national statistics office: the departure of over one million people, representing 10 percent of the country’s entire population, in 2022 and 2023 alone. As one researcher warned in 2022: “Cuba is depopulating.” While not all of these migrants ended up in the United States, the years 2022 and 2023 saw record-breaking numbers of encounters with Cuban migrants by the US Customs and Border Protection (CBP). In 2022, the CBP encountered more Cubans than any other nationality except Mexicans. Cubans constituted more than 10 percent of all encounters.4 Given the Trump administration’s, and particularly Secretary of State Marco Rubio’s, apparent commitment to maintaining the current policy toward Cuba — and perhaps even hardening it with yet more sanctions — we can expect out-migration from the island to continue at record levels for the foreseeable future. “Maximum Pressure” Sanctions Fueled Venezuelan Exodus While the US has maintained limited sanctions on Venezuela since 2005, the current sanctions regime is defined by the “maximum pressure” campaign initiated during the first Trump administration in an attempt to push President Nicolás Maduro out of office. In August 2017, Trump blocked the government of Venezuela, including the state-owned oil company Petróleos de Venezuela, S.A. (PDVSA), from accessing financial markets. In late 2018, Trump sanctioned the gold sector. Perhaps most significantly, the oil sector and PDVSA were designated as sanctioned entities in January 2019. Additional sanctions on the financial and defense sectors and the central bank soon followed, alongside the escalation of secondary sanctions against third parties. The US’s and many of its allies’ policy of nonrecognition of the Maduro government has also led to effective sanctions, such as the loss of access to roughly $2 billion in reserves held at the Bank of England and $5 billion in Special Drawing Rights at the International Monetary Fund. These “maximum pressure” policies were largely maintained under the Biden administration, with a few significant exceptions. Since November 2022, Chevron Corporation has been permitted to produce and export oil from Venezuela. In October 2023, Biden issued a General License temporarily lifting most oil sector and PDVSA sanctions but allowed the license to expire six months later (while leaving a wind-down period). Though Venezuela’s economic crisis — driven in part by both misguided economic policies and falling global oil prices — began prior to the imposition of sanctions, US sanctions have substantially contributed to the severity and longevity of the contraction. Sanctions impact the Venezuelan economy through numerous channels, but perhaps none more significantly than through oil. The Venezuelan economy is highly dependent on oil exports, historically relying on the sector — and its main actor, PDVSA — for 95 percent of its foreign exchange. From 2.4 million barrels per day (bpd) prior to the crisis, oil output hit a low of 0.4 million bpd in mid-2020 — an 83 percent collapse. Even with today’s Chevron license, output has yet to break 1 million bpd. A 2022 analysis by Francisco Rodríguez attributes 797,000 bpd of this decline to the 2017 sanctions alone. Other assessments point to similar figures, with some attributing more than half of the decline to sanctions. As Rodríguez points out, new sanctions are associated with marked downward inflection points in Venezuelan oil output (see Figure 2).   Ultimately, the Venezuelan crisis saw a 71 percent collapse in GDP per capita. As Rodríguez notes, this was the equivalent of three Great Depressions and the largest peacetime economic contraction in modern history. By Rodríguez’s assessments, more than half of this decline was attributable to sanctions and related political acts. Whatever claims policymakers may make about the targeted nature of sanctions, such broad macroeconomic effects inescapably and indiscriminately impact civilians. In addition to the general effects of economic contraction and the loss of foreign exchange with which to import essential goods such as food and medicine, sanctions have also inhibited shipments of COVID vaccines and other medical supplies; contributed to the degradation of the energy grid and frequency of electrical shortages; and otherwise furthered the deterioration of public health, education, and water services. Indeed, the UN special rapporteur on unilateral coercive measures reports that sanctions on Venezuela have “prevented the earning of revenues and use of resources to maintain and develop infrastructure and for social support programs, which has a devastating effect on the entire population of Venezuela, especially — but not only — those living in extreme poverty, women, children, medical workers, people with disabilities or life-threatening or chronic diseases, and the indigenous population.” According to one CEPR estimate, sanctions likely led to tens of thousands of excess deaths in one year alone. Unsurprisingly, such a dire humanitarian crisis has contributed to an unprecedented mass exodus. In the last decade, over seven million Venezuelans have left the country. In one of the few direct quantitative studies on the impacts of sanctions on migration, Francisco Rodríguez finds that over four million of these seven million left “as a result of the economic deterioration caused by sanctions and toxification effects.” Rodríguez further estimates that a return to “maximum pressure” policies would result in the emigration of an additional one million Venezuelans in the coming five years. While the vast majority of these Venezuelan migrants ended up in countries closer to home, such as Colombia and Peru, a growing number have made their way to the US border as well (see Figure 3).   In 2023 and 2024, CBP encountered more migrants from Venezuela than any other country except Mexico.5 According to survey data from the Migration Policy Institute, Venezuela is the single fastest growing country of birth of immigrants to the US since “maximum pressure” began in 2017 (alongside other sanctioned countries, such as Afghanistan — number 2 — and Nicaragua — number 7). The Trump administration was repeatedly warned that mass migration was a likely consequence of its sanctions policy, yet pursued it anyway. According to one senior US Department of State official: “This is the point I made at the time: I said the sanctions were going to grind the Venezuelan economy into dust and have huge human consequences, one of which would be out-migration.” To Address Migration, Lift Economic Sanctions Though migration has many causes, and it is difficult to precisely quantify the contribution of sanctions to overall emigration levels, the following are nonetheless clear: 1. Migration is driven in large part as a reaction to adverse economic conditions.2. Economic sanctions often have profound adverse economic impacts.3. Econometric evidence indicates that sanctions directly contribute to migratory flows.4. In Cuba and Venezuela, economic sanctions are associated with mass migration. While fearmongering and anti-migrant sentiment should be flatly rejected, it is plainly preferable that people in other nations not be forced into circumstances that compel their displacement. To achieve this goal, broad economic sanctions must be lifted. Recognition of the link between sanctions and migration has been growing among US policymakers. In May 2023, 21 members of Congress — led by members representing border states that have witnessed an influx of large numbers of migrants — sent a letter to President Biden urging the easing of sanctions on Cuba and Venezuela to mitigate push factors for migration. A separate letter from over 50 economists and other scholars shortly followed, corroborating the claim that lifting sanctions would help ease migration. Former Mexican president Andrés Manuel López Obrador, whose country is also impacted by migratory flows, has said the same. An Alternative Approach to Migration Is Available This relationship between US economic sanctions and migration further suggests the need for a research and policy agenda that considers migration within the context of global inequalities and underdevelopment and critically considers the role of US foreign policy — including but not limited to sanctions — in reproducing and exacerbating migratory push factors. In other words, addressing migration at its root requires rethinking and rectifying the US’s approach to Latin America as well as other parts of the Global South. While the Biden administration proclaimed a “root-causes” strategy toward addressing migration from Central America, intending to address push factors in countries of origin, including corruption, crime, and economic insecurity, the strategy failed to consider how the US’s own policies might exacerbate these conditions. In contrast, the recently established Congressional Caucus to Address Global Migration and the Migration Stability Resolution introduced by its co-founder, Rep. Greg Casar (D-TX), take a more comprehensive approach, aiming to — in Rep. Casar’s words — “[change] the failed US policies that cause displacement abroad and force people to flee their home countries.” Tackling broad economic sanctions, anti-worker trade agreements, US security assistance for repressive governments, inequalities in the global financial system, and more, these efforts offer an alternative path toward addressing migration: a path that is both more humane and more effective. Footnotes 1. For the purposes of this article, “migration” is used to refer specifically to international migration.2. Moreover, as CEPR Senior Research Fellow Francisco Rodríguez explains, even if there were truth to the U-shaped hypothesis, it would be a story of the long-run structural and societal transformations that accompany development and would not contradict a thesis that short-run economic contractions — such as those that might result from the imposition of sanctions — fuel migration across income levels. Indeed, short-run fluctuations in growth and employment are observed to significantly impact migration.3. While this study assessed joint US-EU sanctions specifically, one can expect a similar relationship to hold in unilateral US sanctions, given the dominant role of the United States in the global financial system and given that EU sanctions policy often follows the lead of US policy.4. Authors’ calculations based on CBP nationwide encounters data, converted from fiscal to calendar years.5. Authors’ calculations based on CBP nationwide encounters data, converted from fiscal to calendar years.

Energy & Economics
Chess made from US and Panama flags on a white background with map

Same But Different: Cold War Strategy in 21st Century Latin America

by Andrew Haanpaa

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Latin America has been a long-standing policy focus for the United States, aimed at keeping external influences out and maintaining stability in the region. This commitment began with the Monroe Doctrine and Roosevelt Corollary and continued through the Cold War. Under the current administration, there has been a renewed emphasis on Latin America due to rising Chinese influence, drug cartel activity, and immigration issues. The most recent National Security Strategy (NSS) states that no region impacts the United States more than the Western Hemisphere and emphasizes the need to “protect against external interference or coercion, including from the People’s Republic of China (PRC).” However, the United States has not had a coherent strategy or policy toward Latin America in decades, leading to outcomes contrary to its stated goals. The PRC has been rapidly expanding its influence in the region. Since 2010, China has nearly tripled its trade with Latin America, with several nations signing on to the Belt and Road Initiative (BRI). Additionally, Transnational Criminal Organizations (TCOs) continue to affect the United States through drug, weapon, and human trafficking, while also forcing migrants north due to unsafe living conditions in their home countries. Given this situation, the United States must develop a coherent two-pronged strategy toward Latin America. This strategy should involve expanding economic investments to counteract Chinese influence while also strengthening regional security to address the threats posed by TCOs. Recognizing that the PRC and TCOs are different from the Soviets and Marxist guerrillas, US policy during the Cold War provides valuable lessons on what this two-pronged approach could entail. US Cold War Policy in Latin America In the early days of the Cold War, the United States was concerned about the spread of communism in Latin America but initially failed to take meaningful action. It relied instead on outdated policies from the 1920s. This approach continued until the late 1950s, when significant changes occurred in the hemisphere. By then, ten of thirteen dictators had been replaced, economic challenges had intensified, and the prices of Latin American exports had plummeted. This social and political unrest carried over into the 1960s, as the region became “aflame” with Marxist revolutions. The CIA reported that twelve out of twenty-three nations in the southern hemisphere were at risk of falling to communism. This urgency prompted the United States to act, determined to prevent the region from succumbing to Soviet influence and instability. The Kennedy administration identified economic struggles and monetary insecurity as the principal vulnerabilities that could allow communism to take root. To address these issues, the administration launched the Alliance for Progress, a ten-year initiative where the United States would provide $20 billion in loans, grants, and investments, while Latin American governments aimed to generate $80 billion in funds and implement land reforms, tax systems, and other socio-political changes. In tandem with economic initiatives, the United States employed covert actions, counterinsurgency (COIN) tactics, and military support to suppress Marxist revolutions. For instance, in Guatemala, US-backed military forces fought against Marxist revolutionaries with American military assistance. Similar operations took place in El Salvador, Chile, Paraguay, and Brazil. Although not executed flawlessly, this two-pronged strategy ultimately succeeded in keeping Soviet and communist influences largely at bay in the region. Economic assistance and support helped stabilize democracy in Venezuela, while land redistribution and reforms from the Alliance for Progress undermined financial support for Marxist guerrilla groups in Peru, Bolivia, and Colombia. Despite being conducted with a certain level of negligence, US-backed COIN operations across the region weakened guerrilla movements, leading to factional splits and self-defeating behaviors. Notably, US-supported operations included the capture of Che Guevara by a US-trained Bolivian military unit in 1967. Applying a Cold War-like Policy Today Economic challenges are once again prevalent in Latin America, and China is seizing the opportunity. Through its Belt and Road Initiative (BRI), China has expanded its influence and bolstered regional ties. Twenty Latin American countries have signed onto the BRI, while Chile, Costa Rica, and Peru have established free trade agreements with the PRC. In 2010, trade between China and South America amounted to $180 billion, which surged to $450 billion by 2021. The United States needs to consider a strategy similar to the Alliance for Progress to effectively compete with the PRC and maintain its influence in the region, as it is currently falling short in this area. In 2023, China invested $9 billion in Latin America through its Outward Foreign Direct Investment (OFDI), while the United States contributed only $2 billion for the same year. As the new administration shapes its foreign policy, it is essential to allocate more economic investment to Latin America. This should involve a deliberate economic policy and investment plan that focuses on trade, port infrastructure, and technological development—all areas where the PRC is currently providing support. The bipartisan Americas Act of 2024 is a good starting point, but it is insufficient to counteract the PRC’s advances. While some might argue that boosting economic investment is too expensive, such efforts would enable the United States to compete with China while stabilizing the region and reducing northward immigration. In tandem with economic investment, the United States must advocate for stronger regional security to combat TCOs, thus fostering stability and improving living conditions. Specifically, the United States should collaborate with Latin American countries to enhance security institutions by expanding advisory and assistance operations with regional militaries, similar to COIN operations during the Cold War. In recent years, the United States military has maintained a significant presence in countries like Colombia, Panama, and Honduras to conduct Foreign Internal Defense (FID) operations, aimed at preparing partner forces to effectively combat TCOs. FID and Security Force Assistance (SFA) operations should include US military support for other nations in the region, such as El Salvador, Bolivia, and Mexico. Historically, countries like Mexico have been hesitant or resistant to accepting US military support; however, this trend has recently shifted. In a positive development, the Mexican Senate has approved a small contingent of US Special Operations Forces (SOF) to assist Mexican SOF personnel. In addition to expanding FID operations, the United States might explore granting broader authorities to allow US military forces to assist regional partners in targeting and operational planning against TCOs. While some may oppose this option, expanded authorities should not come as a surprise, given that the new administration has designated several TCOs as terrorist organizations. This designation opens the door for discussions on expanded authorities. Conclusion During the Cold War, Latin America was a primary focus of US policy. The United States worked diligently to maintain regional hegemony and prevent the spread of communist ideology in the Western Hemisphere. Today, Latin America and the southern border have again become focal points for the current US administration. With the rising influence of China in the region and the ongoing impact of TCOs on American life, the United States must develop deliberate policies and strategies to maintain its hegemonic influence while promoting stability. This strategy should consist of a two-pronged approach that emphasizes both economic investment and regional security. Such an approach could disrupt Chinese influence while fostering a safer and more stable region, ultimately reducing migration northward—a key objective for the current administration. Article, originally written by and published in Small Wars Journal under the title "Same But Different: Cold War Strategy in 21st Century Latin America." Consult here: https://smallwarsjournal.com/2025/03/06/same-but-different-cold-war-strategy-in-21st-century-latin-america/. This translation is shared under the same Creative Commons Attribution-Noncommercial-Share Alike 4.0 license.