PESTLE & MORTAR 28 August 2025

#1

Chinese Foreign Policy and the Global South

Forums like the Shanghai Cooperation Organisation (SCO), which will host over 20 world leaders including Russia’s Vladimir Putin and India’s Narendra Modi, showcase China’s convening power and project an image of post-American global leadership. These platforms are less about producing substantive policy outcomes and more about optics, demonstrating that China can bring together diverse actors across Asia, Africa, the Middle East, and Latin America, despite underlying frictions among members, such as between India and Pakistan. China has become the primary investor and infrastructure provider for much of the Global South, committing over $1.3 trillion to Belt and Road Initiative projects, far exceeding Western alternatives like the U.S. Indo-Pacific Economic Framework, Europe’s Global Gateway, or Russia’s Eurasian Economic Union. While issues of debt distress, governance concerns, and domestic backlash have surfaced in places like Sri Lanka, Pakistan, Kenya, and Zambia, Beijing has demonstrated adaptability by restructuring loans, modifying project terms, and aligning the BRI with local strategies such as the African Union’s Agenda 2063.

In addition, China presents itself as an alternative to U.S.-led hegemony, promoting a narrative of “shared futures” and “mutual respect” while avoiding binary choices. Surveys across Southeast Asia reveal that more policymakers now tie their economic future to Beijing than to Washington or Brussels, in part because China offers tangible projects without demanding political alignment. Yet, while China champions multipolarity, many in the Global South are wary of Chinese dominance replacing Western dominance, particularly as Beijing becomes the largest bilateral lender to developing countries and has resisted participation in multilateral debt relief efforts unless institutions like the World Bank also absorb losses. China’s strategy also capitalizes on the West’s declining soft power and internal divisions. While Washington pressures Global South nations to pick sides by threatening tariffs, secondary sanctions, and exclusion from supply chains, Beijing offers a framework where multi-alignment is acceptable, presenting itself not as a rival bloc leader but as a partner in constructing an alternative international order. Its rejection of universalism and liberal exceptionalism appeals to governments seeking political legitimacy outside Western democratic models, especially authoritarian regimes that view China’s combination of state-led capitalism and centralized political control as an attractive template.

#2

U.S. Immigration Policy Negatively Impacting Economy

The U.S. labor market is entering a period of structural change as net immigration slows sharply, a trend largely driven by the Trump administration’s immigration crackdown, stepped-up deportations, and a deteriorating climate for foreign workers. After historic highs of 3.3 million net migrants in 2023 and 2.7 million in 2024, economists now project that net immigration could turn negative in 2025 for the first time in decades, with estimates suggesting a decline of around 205,000 people. This abrupt reversal has created what Federal Reserve Chair Jerome Powell described as “a curious kind of balance.” While demand for labor has cooled, the unemployment rate remains low at 4.2% because fewer workers are entering the labor force. In the short term, this dynamic prevents unemployment from spiking, but the medium-term consequences are likely far more negative. Immigrants account for the vast majority of U.S. population and labor force growth, meaning slower immigration mechanically constrains the economy’s potential. With baby boomers retiring and fertility rates near record lows, fewer foreign-born workers entering the labor market will reduce the economy’s ability to sustain job creation. Apollo’s chief economist estimates the U.S. could add only 24,000 jobs per month without positive immigration, compared to an average of 155,000 between 2015 and 2024. Sectors heavily reliant on immigrant labor, such as agriculture (42% immigrant workforce), construction (30%), landscaping (24%), and hospitality, are likely to face worsening shortages, driving upward pressure on wages and costs. For consumers, this will translate into higher prices, particularly in food, housing, and services. The broader macroeconomic effects are already becoming visible. Between May and July, the U.S. added just 35,000 jobs per month, the weakest three-month stretch since the pandemic, while GDP growth projections have been revised downward. Economists surveyed by The Wall Street Journal estimate that reduced immigration will subtract roughly 0.2 percentage points from GDP growth in 2025 and 0.3 points in 2026, with compounding effects beyond. Slower labor force growth also worsens long-term fiscal challenges as fewer workers mean lower tax revenues to support Social Security, Medicare, and other entitlement programs at the very moment an aging population increases demand on these systems. Meanwhile, a shrinking working-age population will dampen demand for housing, consumer goods, and services, reducing overall economic dynamism.

#3

Russia’s Energy Market Facing Problems

Russia’s ability to sustain its war in Ukraine is increasingly constrained by severe pressures on its energy sector, which remains the financial backbone of its war effort. Western sanctions have cut Moscow off from vital international investment, advanced drilling equipment, and LNG technology, slowing key projects like Arctic LNG 2 and forcing greater reliance on China for components and markets. At the same time, Ukrainian drone strikes have taken roughly 13% of Russia’s fuel production offline, damaging over a dozen refineries, including strategic facilities like Ust-Luga, and disrupting exports via pipelines such as Druzhba. These attacks have triggered fuel rationing in Crimea and parts of Siberia, driving a 45% spike in wholesale gasoline prices and adding to inflation already hovering near 9%, while the Kremlin has imposed fuel export bans to stabilize domestic markets, reducing much-needed foreign currency earnings. The U.S. has intensified pressure by imposing tariffs on India, one of Russia’s largest crude buyers, and Europe is accelerating plans to phase out Russian gas imports by 2027, threatening long-term export revenues. These combined pressures are slowing Russia’s economy, with the IMF cutting its 2025 growth forecast to 0.9% from over 4% in 2024, and industries from manufacturing to energy are scaling back operations amid rising costs and weakening demand. While these challenges have not yet crippled Russia’s battlefield capabilities, they erode the Kremlin’s strategic endurance, constraining its ability to fund military recruitment, replace equipment, and sustain prolonged high-intensity operations. In a war increasingly defined as a contest of resources, Russia’s mounting energy vulnerabilities suggest that its capacity to continue the conflict at its current scale will weaken over the medium term, forcing greater dependence on China and exposing critical pressure points that Ukraine and its allies can continue to exploit.

#4

Steel Market in U.S. is Disrupted

The United States is undergoing its largest steel industry expansion in decades, with domestic producers adding 21 million tons of annual capacity, about 25% of total 2024 output, as part of President Trump’s vision for a revitalized U.S. industrial economy. Backed by aggressive tariffs that have now doubled to 50%, companies like Nucor, U.S. Steel, Steel Dynamics, ArcelorMittal, Hyundai Steel, and Posco are investing billions in new mills, while Nippon Steel has pledged $14 billion to modernize U.S. Steel’s facilities. The strategy aims to strengthen national security, encourage reshoring, and reduce dependence on imports, which now make up a smaller share of U.S. steel demand. However, the industry faces a significant challenge: domestic demand is stagnant, with shipments flat since 2015 and major consumers like the auto and construction sectors weakening. Despite higher U.S. prices—currently about $400 per ton above foreign markets—spot prices have slipped to around $820 per ton, signaling oversupply and soft consumption. Without sustained GDP growth above 2%, manufacturers remain reluctant to invest in new facilities or ramp up steel purchases, threatening the success of Trump’s reshoring strategy. The economic implications are significant: the U.S. risks structural overcapacity, falling prices, and squeezed profit margins for producers, while downstream industries face rising input costs that reduce competitiveness and could slow production. At the same time, steep tariffs heighten tensions with major trading partners, potentially triggering retaliatory measures and widening trade conflicts. If demand does not recover, the U.S. could end up with high-cost steel, underutilized capacity, and weaker manufacturing growth, creating ripple effects across supply chains and posing broader risks to industrial policy and economic stability.

#5

German Economy Not Doing Well

A new study by EY highlights a deepening downturn in Germany’s industrial sector, underscoring significant risks for both the German and broader European economies. Since 2019, the German industrial workforce has contracted by nearly 245,500 jobs, a 4.3% decline over six years. In the second quarter of 2025 alone, industrial revenue fell 2.1% year-on-year to €533 billion, following a smaller decline the previous quarter. Employment also dropped 2.1% in Q2, leaving just 5.43 million workers across Germany’s industrial base. The automotive sector has been hit hardest, losing 51,500 jobs (a 6.7% reduction in a single year) due to intensifying global competition, high energy costs, U.S. tariffs, and structural challenges tied to the transition toward electric vehicles. German exports have suffered as well, falling 10% to the United States and 14% to China, further pressuring a sector historically dependent on international demand. Industrial production has long been the backbone of the economy, and sustained declines threaten GDP growth, tax revenues, and business investment. Rising unemployment and underemployment reduce household incomes, weaken consumer spending, and erode domestic demand at a time when confidence is already fragile. The contraction in exports further undermines Germany’s trade surplus, particularly in automotive and machinery, where its competitive edge is slipping amid shifting global markets. Politically, this downturn puts significant pressure on Chancellor Friedrich Merz’s government, which faces growing demands to stabilize the economy through tax relief, regulatory reforms, and industrial investment. However, internal divisions within the coalition and labor unrest complicate swift action. The consequences also extend well beyond Germany’s borders. As Europe’s largest economy and industrial hub, Germany’s slowdown threatens to drag down the entire EU. Demand for intermediate goods from neighboring countries is weakening, European supply chains dependent on German components face disruption, and German-led investment initiatives may slow.

#6

Farage Unveils Deportation Plan

On August 26, 2025, Nigel Farage, leader of the anti-immigration Reform UK party, unveiled a controversial plan that would radically transform the United Kingdom’s approach to asylum and immigration. The proposal calls for mass deportations of up to 600,000 asylum seekers and seeks to dismantle many of the UK’s existing legal protections. To achieve this, Farage proposes withdrawing the UK from the European Convention on Human Rights (ECHR), repealing the Human Rights Act, and disregarding international treaties such as the 1951 Refugee Convention and UN anti-torture accords. He framed the issue in stark terms, warning of an “invasion” of migrants and predicting “major civil disorder” unless immediate action is taken. While Reform UK holds just four seats in Parliament, Farage’s party has surged in the polls, giving these proposals political weight far beyond its representation. This episode highlights the increasing radicalization of UK politics. First, it demonstrates how extreme proposals, once considered fringe, are becoming mainstream as public anxieties around migration intensify. Farage’s rhetoric paints asylum seekers as a security threat, legitimizing authoritarian policy solutions and undermining the rule of law. Second, his willingness to break with longstanding international commitments reflects a broader global trend in which sovereignty-first movements challenge traditional norms and agreements. Third, by framing migration as a catalyst for potential civil disorder, Farage taps into existing social tensions, such as the hostility to putting up the English flag, and leveraging unrest to build political momentum. Finally, Reform UK’s surge in popularity pressures established parties like Labour and the Conservatives to shift rightward, normalizing more hardline policies and accelerating polarization in the political landscape. To better understand this issue, listen to Insight Forward’s podcast Boardroom Statecraft episode 6.

#7

Central Banks Concerned About Politicization

At the Federal Reserve’s annual Jackson Hole symposium, central bankers from around the world voiced growing alarm over President Trump’s escalating efforts to influence the Fed, including his push for aggressive interest rate cuts and attempts to remove senior officials such as Chair Jerome Powell. The concern is that if the Fed, long regarded as the anchor of global monetary stability, succumbs to political interference, it could undermine decades of precedent supporting central bank independence worldwide. A perceived loss of credibility would ripple through financial markets, prompting investors to reassess the safety of U.S. Treasuries and other dollar-denominated assets, potentially driving up borrowing costs and increasing global volatility. Central banks in Europe, Asia, and emerging markets would be forced to navigate heightened risks, including pressure on their currency reserves, exposure to U.S. debt, and greater difficulty in coordinating policy with a politically influenced Fed. Moreover, a weakened Federal Reserve could embolden populist governments elsewhere to exert similar control over their own monetary institutions, threatening the ability of central banks to manage inflation, maintain price stability, and sustain market confidence. The result could be a significant erosion of global financial governance, where political priorities increasingly override sound economic policy.

#8

Tech Companies Work With Governments on North Korea Threat

Japan, the United States, and South Korea recently hosted a high-level forum in Tokyo with more than 130 participants from major technology companies to coordinate defenses against North Korea’s sophisticated IT worker infiltration scheme. North Korean operatives have been using stolen Western identities, deepfake-driven interviews, and covert “laptop farms” to secure jobs at leading companies, gaining access to sensitive systems and funneling hundreds of millions of dollars into Pyongyang’s weapons programs. The scheme has been especially damaging to cryptocurrency firms, with DMM Bitcoin and WazirX losing over $500 million, while platforms like Upbit, Rain Management, and Radiant Capital suffered an additional $116 million in theft. The trilateral forum reflects growing recognition that governments and private companies must work together to counter state-sponsored cybercrime, combining corporate agility with governmental authority to share intelligence, coordinate enforcement, and strengthen hiring protocols. Governments can impose sanctions, prosecute facilitators, and disrupt illicit financial flows, while tech firms can improve identity verification and tighten security across platforms. This collaboration not only mitigates immediate risks but also signals to adversarial states that allied governments and industries will act in unison to defend critical infrastructure, financial systems, and national security from coordinated cyber-enabled threats.

#9

Nvidia Earnings Highlights U.S.-China Issues

Nvidia’s upcoming earnings report highlights the deepening fallout from the U.S.–China trade war and the growing intersection of geopolitics and technology. Under new U.S. export restrictions, Nvidia must pay the federal government 15% of its China sales to secure licenses, while Beijing has urged domestic firms to reduce purchases of Nvidia chips amid rising security concerns. China still accounts for about 13% of Nvidia’s revenue, but these restrictions have already cost the company an estimated $8 billion in lost sales in the July quarter and led to a $4.5 billion charge in the previous period. Production of Nvidia’s China-specific “H20” AI chip was paused and replaced with plans for a more advanced model, reflecting how political decisions now directly shape product strategy. Despite strong demand with Q2 revenue expected to jump 53% year-over-year to $46 billion, Nvidia’s profit margins have been squeezed, with analysts projecting a 4-point decline in Q2 and additional pressure in Q3. The situation underscores how strategic industries like AI hardware have become frontlines in geopolitical competition, driving supply chain uncertainty, margin compression, and accelerating China’s push to develop domestic alternatives. Nvidia’s challenges illustrate how corporate performance is increasingly tied to national security priorities and shifting trade policies.