Mission Grey Daily Brief - November 01, 2024
Summary of the Global Situation for Businesses and Investors
The 2024 US presidential election is gripping the world's attention and could have a significant impact on the global economy. The Russian President Vladimir Putin is taking advantage of a distracted and divided United States to push for pro-Kremlin electoral outcomes in Georgia and Moldova and bring North Korean soldiers to Russia to fight Ukraine. China's military incursions into Taiwan's ADIZ and crossings of the median line in the Taiwan Strait have skyrocketed, creating a dangerous new normal. China has imposed sanctions on the US drone supplier to Ukraine, Skydio, banning Chinese companies from providing critical components to the firm. Attackers set fire to the headquarters of a Bangladesh party that supported the country's ousted leader Sheikh Hasina on Thursday night. US airstrikes targeted multiple sites in Syria, killing up to 35 Islamic State militants. The UN General Assembly has condemned the US economic embargo of Cuba for a 32nd year.
US Presidential Election
The 2024 US presidential election is gripping the world's attention and could have a significant impact on the global economy. The vote, held on 5 November, could also have major consequences on international issues ranging from the climate crisis to the reorientation of global supply chains. The Republican candidate is former President Donald Trump and the Democratic candidate is current Vice President Kamala Harris. In China, where election news is filtered through heavily censored state and social media, the focus has been more on spectacle than substance – with a sense that no matter who wins, the tensions of the US-China relationship will remain. People in China have seen their economic prospects dim as the country has struggled to fully rebound following its stringent pandemic controls amid a wider slowdown and property market crisis, among other challenges. Interest in the candidates and their policies appears muted compared with past US elections.
Russia-Ukraine War
The Russian President Vladimir Putin is taking advantage of a distracted and divided United States to push for pro-Kremlin electoral outcomes in Georgia and Moldova and bring North Korean soldiers to Russia to fight Ukraine. New NATO Secretary General Mark Rutte confirmed this week that North Korean military units have been deployed to Russia’s Kursk region for potential battle with Ukrainian troops, who have seized territory there. Pentagon officials estimate that as many as ten thousand North Korean soldiers have been sent to Russia for military training, among them the country’s elite special forces. Even as Russia escalates militarily against Ukraine, it has deployed disinformation, influence operations, and money in Moldova and Georgia, working to turn back pro-Western majorities in both countries that favour eventual integration into the European Union (EU) and other Western institutions.
China-Taiwan Tensions
China's military incursions into Taiwan's ADIZ and crossings of the median line in the Taiwan Strait have skyrocketed, creating a dangerous new normal. Crossings of the median line have become increasingly common since August 2022, when then-House Speaker Nancy Pelosi controversially visited Taiwan, and China has been steadily erasing it altogether. In a recent drill surrounding Taiwan, 111 Chinese warplanes crossed it, marking a single-day high. A nation's ADIZ extends far beyond its territorial airspace, but the area is closely monitored for national security purposes. When Chinese aircraft enter Taiwan's de facto ADIZ, it dispatches combat air patrol (CAP) aircraft in response. In 2021, the Chinese military flew 972 aircraft into Taiwan's ADIZ, and that number nearly doubled in 2022. 1,703 aircraft were recorded in 2023. And 2024 looks to have a record-breaking number, with over 2,000 aircraft documented as of September. They're also no longer limited to a corner of the ADIZ.
China Sanctions US Drone Supplier to Ukraine
China has imposed sanctions on the US drone supplier to Ukraine, Skydio, banning Chinese companies from providing critical components to the firm. Skydio is currently looking for alternative suppliers because of the sanctions, which have also blocked the supply of batteries from the company's sole supplier. The company has asked the Biden administration for help. US officials are concerned that China could undermine US supply chains and make it harder to supply drones used for intelligence gathering in Ukraine. Skydio's crisis highlights the risks faced by US companies dependent on China and comes as foreign businesses worry about China's use of security laws to detain local workers and conduct corporate raids. On 11 October, China imposed sanctions on several US companies, including Skydio which is a private company, in response to Washington's approval of the sale of combat drones to Taiwan. Skydio was recently awarded a contract with Taiwan’s National Fire Agency. The sanctions were imposed before Skydio could find alternative suppliers. One of the sources said that the Chinese authorities had visited Skydio's suppliers, including Dongguan Poweramp, a subsidiary of Japan's TDK that makes batteries for drones, and ordered them to stop working with Skydio. On 30 October, Skydio notified its customers that it was limiting the number of batteries it ships with its drones due to Chinese sanctions and warned that new suppliers are not expected to come on stream until spring. Skydio is discussing the situation with companies in Asia, particularly in Taiwan. One source said that US officials had reached out to Asian allies to discuss ways to support the company. Skydio has also been in contact with Taiwan's Vice President Hsiao Bi-khim on the issue. The San Mateo-based company serves corporate and government clients, including the US military. It said it has sent more than 1,000 drones to Ukraine to gather intelligence and help record Russia's war crimes. Skydio said its newest model, the X10, was the first US drone to pass Ukraine's electronic warfare tests, which makes it harder to jam, and Kyiv has ordered thousands of such drones. China's actions come as the US Congress is considering a bill to ban Americans from using drones made by DJI, the Chinese company that dominates the global commercial drone market.
Further Reading:
Americans are going to the polls. Here’s how the US election works - World Economic Forum
China imposes sanctions on US drone supplier to Ukraine - Ukrainska Pravda
China’s watching the US election – but doesn’t see much hope for better ties - CNN
Luxembourg grain company still profiting despite Ukraine war - Luxembourg Times
Putin is making the most of a distracted and divided United States - Atlantic Council
UN General Assembly condemns the US economic embargo of Cuba for a 32nd year - Toronto Star
Themes around the World:
Political Stability and Economic Growth
The recent political shifts in Japan, including the ruling party's loss of majority, introduce uncertainty that could affect economic policies and investor confidence. Ensuring political stability is crucial for maintaining growth and attracting foreign investment.
Environmental Regulations and Compliance
Increasing environmental regulations surrounding lithium extraction and processing may impose additional compliance costs on companies. Adapting to these regulations is essential for maintaining operational viability and securing investment, as stakeholders increasingly prioritize sustainability in their decision-making processes.
US-India Trade Collaboration
The US and India are exploring collaboration to enhance cargo clearance efficiency, which could strengthen supply chains and reduce dependence on China. This partnership aims to balance rapid trade facilitation with robust security measures.
Cargo Clearance and Security
The U.S. and India are exploring collaboration to enhance cargo clearance efficiency while maintaining security. As global trade becomes increasingly interconnected, balancing rapid clearance with robust security measures is critical to ensuring the resilience of supply chains and protecting national interests.
Inflationary Pressures from Tariffs
The proposed tariffs are expected to increase consumer prices significantly, with estimates suggesting a $90 billion reduction in spending power. This inflationary pressure could dampen consumer confidence and spending, further complicating the economic landscape as households face higher costs for everyday goods.
Inflation and Economic Transformation
Japan's transition to a higher inflation environment signals a potential economic transformation after decades of stagnation. Rising prices and interest rates may stimulate investment, but demographic challenges necessitate significant productivity improvements to sustain growth.
Impact of Global Tariffs
Proposed U.S. tariffs could adversely affect the UK economy, particularly in exports to the EU, which remains a key market. While the direct impact may be limited, the indirect effects on business confidence and trade dynamics could hinder economic growth, necessitating strategic adjustments for UK businesses reliant on international markets.
China's Shift to New Markets
In response to increasing trade tensions, Chinese exporters are diversifying their markets, reducing reliance on the U.S. This shift is evident as trade with Southeast Asia and Africa grows, impacting global supply chains and altering trade relationships.
China's EV Price War
Intense competition in China's electric vehicle market is leading major players like BYD to demand price cuts from suppliers. This price war, exacerbated by economic challenges, threatens the viability of smaller manufacturers and could lead to broader economic repercussions, including job losses in the supply chain.
Impact of Proposed Tariffs
President-elect Trump's proposed tariffs on imports from Mexico, Canada, and China could significantly increase costs for American businesses and consumers. A 25% tariff on goods from Mexico and Canada, alongside a 10% tariff on Chinese imports, threatens to disrupt supply chains, raise inflation, and potentially trigger retaliatory measures from trading partners.
Technological Advancements in Lithium Production
Advancements in AI and machine learning for inventory management and demand forecasting are becoming critical in the lithium sector. Companies adopting these technologies can optimize supply chains, reduce costs, and enhance responsiveness to market changes, positioning themselves favorably in a competitive landscape.
Impact of ICC Arrest Warrants
The International Criminal Court's arrest warrants against Israeli leaders for war crimes may lead to reevaluation of arms sales by Western nations. This could create significant geopolitical risks and affect Israel's defense procurement and international relations.
US-China Semiconductor Tensions
The US has intensified export controls on semiconductor technology to China, citing national security concerns. This move aims to hinder China's military advancements and AI capabilities, potentially disrupting global supply chains and increasing costs for US businesses reliant on semiconductor imports.
US-China Semiconductor Tensions
The US has intensified export controls on semiconductor technology to China, citing national security concerns. This move aims to hinder China's military advancements and AI capabilities, potentially disrupting global supply chains and increasing costs for US businesses reliant on semiconductor imports.
Automotive Sector Challenges
Thailand's automotive production is declining due to weak domestic demand and increased competition from Chinese electric vehicle (EV) manufacturers. The forecasted production drop to 1.5 million units in 2024 underscores the urgent need for Thailand to innovate and adapt to changing market dynamics.
Economic Stagnation and Layoffs
Germany's economy is experiencing a downturn, with over 60,000 layoffs announced by Fortune 500 companies. The manufacturing sector has been in recession since 2022, driven by high energy costs and declining external demand. This economic malaise poses risks for investment strategies and necessitates a reevaluation of operational efficiencies across industries.
International Trade and Tariff Impacts
Potential U.S. tariffs pose risks to the UK economy, particularly affecting exports to the EU and overall business confidence. As the UK navigates post-Brexit trade dynamics, these developments could reshape investment strategies and market access for UK businesses.
Middle-Class Economic Struggles
India's middle class is facing significant economic challenges due to technological disruptions, rising household debt, and a cyclical downturn. This has led to decreased consumption, impacting sectors reliant on middle-class spending, such as FMCG. The situation poses risks to overall economic growth and stability.
Crypto Regulation Uncertainty
Germany's inability to implement the EU's Markets in Crypto-Assets Regulation (MiCAR) due to political instability poses risks for its digital finance sector. This regulatory void could deter investment and innovation, impacting Germany's competitiveness in the rapidly evolving crypto market.
Rising Tariff Threats from Trump
Donald Trump's potential imposition of 100% tariffs on BRICS nations, including India, poses significant risks to India's export sectors, particularly textiles and pharmaceuticals. This protectionist stance could lead to increased costs for Indian exporters, challenging their competitiveness in the US market and necessitating strategic adjustments.
U.S.-China Tech War Consequences
The ongoing U.S.-China tech war, characterized by export controls and product bans, has mixed results. While it aims to curb China's technological advancements, it risks escalating tensions and could backfire, leading to increased Chinese competitiveness in sectors like electric vehicles, complicating U.S. economic security and trade relationships.
Climate Change Trade Measures
India's opposition to climate-related trade measures at COP29 highlights the tension between environmental goals and trade competitiveness. Such measures could lead to increased protectionism, impacting India's export sectors. The situation necessitates a balance between sustainable practices and economic viability for developing nations.
Mixed Economic Signals
Recent mixed labor market data in the US has left economic forecasts uncertain. While some indicators suggest growth, others point to potential slowdowns, impacting investor confidence and business planning in an already volatile environment.
Data Center Investment Potential
Thailand is emerging as an attractive destination for data center investments due to its robust infrastructure and strategic location. Government incentives and a favorable regulatory environment are expected to drive significant foreign investment, creating high-skilled job opportunities and stimulating growth across various sectors.
Cybersecurity Threats and Resilience
The UK faces escalating cyber threats, with state-sponsored and criminal actors targeting critical infrastructure. The National Cyber Security Centre reported a significant increase in cyber incidents, highlighting vulnerabilities in the digital economy. This necessitates enhanced regulatory measures and resilience strategies across sectors, impacting investment in cybersecurity and operational protocols for businesses reliant on digital infrastructure.
KTM Insolvency and Regional Effects
KTM's impending insolvency poses a threat to the construction sector in Upper Austria, affecting local suppliers and increasing unemployment. The situation underscores the interconnectedness of industries and the potential ripple effects on construction projects, which may face delays or increased costs due to supplier instability.
Bond Market Upheaval
There is upheaval in Europe's sovereign bond markets, with investors embracing peripheral bonds from countries like Greece, Italy, and Spain, while the debt of core countries like France and Germany has become less attractive. This shift is due to various factors, including the Next Generation EU programme, the presence of the European Central Bank's Transmission Protection Instrument, and the relative political stability of peripheral countries in recent years.
Climate Investments and Economic Strain
German companies increased climate investments by 12% in 2023, despite economic difficulties. However, high energy costs and bureaucratic hurdles limit further investments. This focus on sustainability could attract foreign investment in green technologies, but the current economic climate raises concerns about the feasibility of long-term climate goals.
Geopolitical Risks in Supply Chains
The ongoing geopolitical tensions between the US and China are prompting companies to diversify their supply chains to mitigate risks. This shift could lead to increased operational costs and necessitate strategic adjustments in sourcing and manufacturing locations.
US-China Semiconductor Tensions
The US has imposed stringent export controls on semiconductor technology to China, aiming to hinder its military modernization and AI advancements. This escalation in trade tensions threatens global supply chains and could lead to retaliatory measures from China, impacting international trade dynamics and investment strategies in the tech sector.
Crypto Regulation Uncertainty
Germany is struggling to implement the EU's Markets in Crypto-Assets Regulation (MiCAR) due to political instability. This regulatory gap hampers the growth of the crypto sector, potentially driving innovation and investment to other EU nations, which could undermine Germany's position in the digital finance landscape.
Drone Production Facility Investment
Summa Defence's establishment of a drone production facility in Finland, in partnership with Ukrainian firms, marks a strategic investment in defense technology. This initiative aims to bolster production capabilities for drones, enhancing security and defense sectors within NATO.
Venezuela Sanctions and Oil Supply
Calls for reinstating maximum sanctions on Venezuela's oil sector could further destabilize global oil markets. The U.S. strategy to regulate cash flow into Venezuela while distancing it from China and Iran may influence energy prices and availability, impacting U.S. energy companies and their investment strategies.
Shift in Energy Policy
Germany's transition away from Russian gas has led to a reconfiguration of its energy landscape. The government is investing in alternative energy sources and infrastructure, impacting operational costs for businesses. This shift is crucial for energy security but presents challenges in terms of investment and adaptation for many industries reliant on stable energy supplies.
Emerging Trends in Process Automation
The process automation market in France is projected to grow significantly, driven by the adoption of IIoT and AI technologies. This trend presents lucrative opportunities for businesses in sectors like automotive and energy, enhancing operational efficiency and competitiveness in the global market.
Humanitarian Aid and UN Relations
Israel's plan to close the UN Palestinian relief agency, UNRWA, within three months is expected to cause further suffering for Palestinians, impacting schools, hospitals, and aid distribution. The US has stepped back from taking action against Israel for failing to meet humanitarian aid demands. The future Trump administration is unlikely to urge Israel to pull back from ending cooperation with UNRWA, potentially impacting US funding for the agency.