PESTLE & MORTAR 15 January 2026

#1

G7 Meets About Rare Earths

The meeting of G7 finance ministers and key partner countries in Washington in January 2026 focused on how to reduce dependence on China for rare earth elements and other critical minerals essential for defense, semiconductors, clean energy and advanced manufacturing, with participants including the United States, Japan, Germany, France, Britain, Italy, Canada, Australia, South Korea, India, Mexico and the European Union. U.S. Treasury Secretary Scott Bessent urged allies to pursue “prudent de-risking over decoupling,” discussing tools such as price floors, financial incentives, cooperative investment and standards-based markets to build alternative supply chains outside of China, which currently dominates global processing and export of these materials, including recent export controls affecting Japan. Ministers broadly agreed on the need to diversify and strengthen supply chain resilience but did not issue a joint communiqué, reflecting the complexity of aligning national policies on critical minerals. The likelihood of the G7 successfully diversifying rare earth supplies over the near to medium term is mixed and contingent on several structural factors. China still controls a large share of global rare earth mining and especially processing and refining, which creates deep industrial and technical dependencies that cannot be undone quickly. Meaningful diversification will require sustained and coordinated investment in upstream mining, midstream processing, and downstream manufacturing across multiple partner countries, substantial fiscal incentives, and the development of recycling and substitution technologies. While political will is rising among major democracies, economic viability remains challenging because allied efforts must compete with China’s scale, cost advantages and export policy levers. Independent initiatives, such as Australia’s strategic mineral reserve and dedicated investment pipelines, demonstrate growing momentum, but real diversification will likely be gradual and partial rather than rapid or complete. Achieving even a moderate reduction in concentration will hinge on long-term policy alignment, alliance cooperation and technology transfer among G7 states and partners rather than short-term policy declarations alone.

#2

California Implements Data Broker Law

California has implemented one of the strongest data-privacy enforcement mechanisms in the United States through the launch of the Delete Request and Opt-out Platform (DROP) on January 1. The law targets the data-broker industry, which consists of more than 500 companies that aggregate, infer, and sell detailed personal information on individuals, often collected indirectly from consumer platforms, devices, retailers, and service providers. These brokers compile extensive profiles covering purchases, health, travel, devices, family status, and behavioral patterns, which are then sold to marketers, investigators, and other third parties. An earlier law, the Delete Act, gave Californians the right to request copies of their data and demand deletion, but it failed in practice because individuals had to contact each data broker individually. As a result, only about 1% of Californians exercised their rights. DROP fundamentally changes enforcement by allowing residents to submit a single verified request that the California Privacy Protection Agency then distributes to all registered data brokers. Once notified, brokers have 45 days to delete all matching records, including inferred data, and must confirm compliance unless specific legal exemptions apply. The law will materially change how companies manage data, risk, and compliance by introducing systemic data-loss, regulatory, economic, and security pressures across the entire data ecosystem. Firms that rely on brokered consumer intelligence such as marketing platforms, fraud analytics, ad-tech, and background-screening services will see their datasets shrink and become less reliable as DROP requires deletion of both raw and inferred data, degrading existing analytics models and forcing costly rebuilds on thinner data. At the same time, companies that supply data to brokers, including retailers, automakers, app developers, device manufacturers, and travel firms, will face heightened liability and compliance demands, as customer-initiated deletions must propagate through vendor networks, turning privacy from a legal formality into a supply-chain governance and auditability problem. The loss of brokered data will also raise customer-acquisition costs and weaken targeting, credit assessment, personalization, and fraud detection, accelerating a shift toward first-party, consent-based data strategies. Because California effectively sets national compliance standards, similar regimes are likely to spread.

#3

Mexico Rejects US Forces Helping

There is a rapidly deteriorating U.S.–Mexico security and political environment in which President Trump, emboldened by the U.S.-backed removal of Venezuela’s Nicolás Maduro, is signaling a willingness to use military force against Mexican drug cartels and even to impose extraterritorial demands such as the arrest or extradition of Mexican politicians suspected of cartel ties, a posture that President Claudia Sheinbaum has publicly rejected in defense of sovereignty but privately struggles to manage as her own security chiefs fear Washington’s pressure is intensifying. Also, cartel activity is becoming more technologically advanced and overtly confrontational, with large numbers of drones crossing into U.S. airspace for trafficking, reconnaissance, and intimidation, including the use of drone-delivered explosives near the U.S. border, creating the kind of high-visibility security incidents that could provoke unilateral U.S. action. Geopolitically, this marks a shift toward a more interventionist U.S. posture in Latin America that weakens long-standing norms of noninterference and puts Mexico in a politically unstable position between U.S. coercion and domestic nationalist backlash, particularly given López Obrador’s hardline rhetoric and the sensitivities of Sheinbaum’s ruling coalition. From a security perspective, the risk is not only escalation between states but the creation of incentives for cartels to exploit diplomatic strain, expand their technological capabilities, and operate with greater impunity if bilateral cooperation fractures, producing a more volatile, militarized, and unpredictable cross-border threat environment for governments, businesses, and critical infrastructure on both sides of the border.

#4

Terrorism Trends 2026

The reporting and incident data from 2025 show that the terrorism threat across the United States, Europe, and Australia has become more fragmented, decentralized, and ideologically hybrid, even as its lethality and symbolic impact remain high heading into 2026, the twenty-fifth anniversary of the September 11 attacks. Rather than large, centrally directed plots by organizations such as ISIS or al-Qaeda, most attacks were carried out by lone actors or small informal cells using low-barrier tactics such as stabbings, vehicle ramming, arson, firearms, and improvised explosives against public spaces, transportation systems, religious institutions, and symbolic locations, producing a steady tempo of violence with significant psychological and political effects. Salafi-jihadist ideology continues to inspire attacks in all three regions, as seen in mass-casualty incidents in New Orleans, Berlin, Mulhouse, Villach, and Sydney, but it now operates alongside domestic and hybrid forms of extremism, including far-right violence in Europe, anti-government and sovereign-citizen attacks in Australia, and politically or religiously motivated lone-actor terrorism in the United States. In addition, U.S. counterterrorism policy in 2025 expanded dramatically to include drug cartels, transnational criminal networks, and proxy militias as designated terrorist entities, reflecting the growing overlap between terrorism, organized crime, and insurgency, but also raising questions about the effectiveness and sustainability of this broader enforcement approach. Taken together, these trends indicate that the primary risk in 2026 will not be a return to coordinated 9/11-style operations, but a persistent pattern of opportunistic, low-cost, high-visibility attacks, potentially amplified by the symbolic power of the anniversary, that will strain security services, target everyday civilian environments, and complicate prevention because the threat is diffuse, ideologically mixed, and increasingly difficult to distinguish from broader patterns of political violence and criminality.

#5

EU-Mercosur Trade Agreement

The European Union and South America’s Mercosur trade bloc comprising Brazil, Argentina, Paraguay and Uruguay have finalized a comprehensive trade agreement after more than 25 years of negotiation, creating one of the world’s largest free-trade areas by market size and expected to sharply reduce tariffs on the vast majority of goods traded between the two regions. Under the pact, both sides will progressively eliminate duties on most exports over the coming decade and beyond, significantly lowering barriers on European industrial goods such as cars, machinery and wine and opening Mercosur markets to European products, while granting South American agricultural exporters greater access to EU markets. The deal reflects significant shifts in global trade. Latin American governments are diversifying partnerships beyond the United States, where hardline trade tactics have diminished U.S. influence, and drawing closer to Europe as well as China. Economically, the agreement is likely to expand trade volumes, reduce costs for exporters and importers, and integrate trans-Atlantic supply chains, although its benefits will be distributed unevenly. Industrial sectors stand to gain more than certain agricultural producers, and some EU farmers are mobilizing politically against increased competition from cheaper imports. Over time, this agreement will likely reshape global trade dynamics by reducing reliance on China, boosting competitiveness of EU and Mercosur industries, and encouraging further multilateral and bilateral trade arrangements.

#6

Trump’s Politicization of the Market

The Trump administration’s posture toward markets and large corporations is moving from a broadly investor-friendly agenda in 2025 to a more overtly political, “Main Street over Wall Street” approach as the 2026 midterms approach. In a single week, the administration floated or advanced measures that would directly shape market outcomes: proposals to restrict large investors from buying single-family homes, cap credit-card interest rates, and impose new constraints on executive pay and stock buybacks, alongside public pressure on technology firms to prevent consumers from bearing higher electricity prices tied to data-center demand. The most consequential escalation is the Justice Department’s criminal investigation of Fed Chair Jerome Powell, which Powell describes as intimidation intended to force rate cuts. These actions show an administration willing to intervene in pricing, credit allocation, corporate capital return decisions, and interest-rate governance for political objectives centered on affordability and voter sentiment. For companies, the implication is a more volatile operating environment in which policy risk is less about long-run regulatory trajectories and more about rapid, event-driven interventions that can reprice sectors in days, increase uncertainty in capital planning, and raise the cost of capital if investors demand higher compensation for political interference. Firms in financial services, housing, defense, energy, and technology face the most immediate exposure, but the broader takeaway is that corporate strategy must now account for “political affordability” as a policy driver that can translate into constraints on business models (lending economics, investor activity, buybacks), conditionality tied to access to government-linked liquidity (e.g., housing finance channels), and reputational or compliance risk if companies are portrayed as obstructing consumer-focused priorities.

#7

China Rethinks Latin America

Nicolás Maduro’s U.S.-led ouster has forced Beijing into an urgent reassessment of its Latin America strategy, because Venezuela was China’s most important regional partner and the anchor of its rare “all-weather” relationship in the hemisphere, tying together oil access, geopolitical positioning, and more than $10 billion in outstanding Venezuelan debt. Over the last decade China expanded influence across Latin America through infrastructure financing and commodity trade, but that momentum has been weakening since Trump returned to office as key states hedge back toward Washington. Mexico imposed steep tariffs on Chinese EVs to align with the U.S. ahead of the 2026 USMCA review, Panama withdrew from Belt and Road while allowing U.S. military rotations near the canal, and Honduras is now wavering on its recognition switch from Taiwan amid disappointment with promised China market access. Against that backdrop, Xi sent an envoy to Caracas to secure Beijing’s “strategic foundation” in the region only for U.S. special operations to seize Maduro hours later, leaving China with “toxic IOUs” and diminished leverage over a successor government that must prioritize relations with Trump. The United States is now positioned to restructure Venezuela’s debt and redirect oil concessions toward American firms, which would effectively sideline China from strategic energy assets in what Beijing increasingly views as “America’s backyard.” The most likely medium-term outcome is not a full Chinese withdrawal from Latin America but a defensive consolidation. China will prioritize protecting residual stakes while pausing major new advances and using its remaining regional policy posture as bargaining leverage in broader U.S.–China negotiations. The core strategic implication is that Beijing is testing a potential sphere-of-influence tradeoff, but Maduro’s removal simultaneously cuts both ways for China. It may encourage some Chinese hardliners to see U.S. focus on the Americas as an Asia-Pacific distraction, yet it also demonstrates U.S. willingness to use force and raises Beijing’s estimate of American resolve.

#8

Japan to Hold Early Election

Prime Minister Sanae Takaichi is preparing to dissolve Japan’s lower house of parliament and call a snap general election, likely in early February 2026 after the Diet reconvenes on January 23. This move follows multiple reports that she hopes to capitalize on high personal approval ratings since taking office in October 2025 even as her Liberal Democratic Party (LDP) remains unpopular and governs without an outright majority. Takaichi’s objectives include securing a stronger parliamentary mandate for her economic and fiscal programs, such as increased government spending and inflation countermeasures, as well as more assertive defense and national security policies amid tensions with China. However, an early election could delay crucial fiscal legislation, including passage of the 2026 budget unless stopgap measures are adopted, and could expose Japan to “fiscal cliff” risk if deficit-financing legislation is not approved on schedule. Markets have reacted to the prospect of a snap poll with a surge in stocks and a sharp depreciation of the yen amid expectations of aggressive fiscal stimulus. A decisive electoral victory would significantly strengthen Takaichi’s political position in the medium term and allow her to push through her fiscal stimulus plans, inflation-fighting measures, and expanded defense outlays. A solid mandate would also increase her leverage in foreign policy, especially in managing China–Japan tensions and aligning with key partners such as the United States. Conversely, a poor electoral performance or failure to win a clear majority would weaken Takaichi’s medium-term prospects. It would show the electorate’s ambivalence or rejection of her policy agenda and limit her ability to pass key legislation, particularly fiscal and defense initiatives. A narrow or insufficient result would force Takaichi to seek broader coalitions or compromise more heavily with smaller parties, diluting her policy goals and exposing her to intensified internal LDP challenges.