Mission Grey Daily Brief - November 18, 2024
Summary of the Global Situation for Businesses and Investors
The G20 summit in Brazil is overshadowed by two major wars and Donald Trump's recent election victory. Heightened global tensions and uncertainty about an incoming Trump administration have tempered any expectations for a strongly worded statement addressing the conflicts in the Middle East and between Russia and Ukraine. Experts instead anticipate a final document focused on social issues like the eradication of hunger — one of Brazil's priorities — even if it aims to include at least a mention of the ongoing wars.
Typhoons in the Philippines have caused tidal surges and displaced massive numbers of people.
Geopolitical tensions simmer as Cop29 heads into its second week in Baku, Azerbaijan. Climate advocates are urging world leaders to commit to a strong finance deal.
Japan and Ukraine have signed a security info-sharing pact to boost cooperation.
Russia-Ukraine War
The Russia-Ukraine war has dragged past its thousandth day, with hundreds of missiles and drones streaking across Kyiv's skies, killing at least two people, leaving a dozen more injured, and damaging the country's already beleaguered energy grid. Russia's relentless aerial bombardment has destroyed half of Ukraine's energy production capacity, according to President Volodymyr Zelensky.
With the harsh Ukrainian winter fast approaching, the country is already suffering from major energy shortfalls, while its outmanned and outgunned forces have been steadily ceding ground to the Kremlin's troops for weeks. Kyiv has implored its Western allies for help to rebuild its energy grid — a hugely expensive undertaking — and to supply its outgunned forces with more aerial defence weapons.
Many in Ukraine fear that Western help will not be as freely given following the imminent return of Trump to the White House in January. The Republican president-elect has frequently questioned the United States' backing for Ukraine, and campaigned with the promise of cutting a quick deal to end the war.
Joe Biden has authorised Ukraine’s use of long-range missiles to strike hundreds of miles inside Russia for the first time, according to reports. The decision marks a major policy shift and comes after Russia warned that Moscow would see the move to allow the use of US-made missiles as an “escalation.” With Biden leaving office in two months, president-elect Donald Trump has indicated he will limit American support for Ukraine and pledged to end the war quickly once he takes office in January.
Ukrainian President Volodymyr Zelensky has campaigned for months to allow Ukraine’s military to use US weapons to hit Russian military targets far from its border, and retains important allies in both parties in Congress. He said Sunday evening that the strikes, if carried out, would "speak for themselves." But he did not confirm the authorization directly.
The Kremlin has said that if the United States allowed Ukraine to use US-made weapons to strike far into Russia, it would lead to a rise in tension and deepen the involvement of the United States in the conflict.
North Korea's Involvement in the Russia-Ukraine War
North Korea may end up sending Putin 100,000 troops for his war, according to people familiar with assessments made by some Group of 20 nations. The analysis is one of several on the evolving partnership between Russian President Vladimir Putin and North Korean leader Kim Jong Un, said the people, speaking on condition of anonymity to talk about private discussions. They stressed that such a move wasn’t imminent and that military support at that scale — if it occurred — would likely happen in batches with troops rotating over time rather than in a single deployment.
Ukraine’s ambassador to South Korea made a similar assessment earlier this month. Dmytro Ponomarenko said in an interview with VOA that Kyiv expected up to 15,000 North Korean troops deployed to fight in Russia’s Kursk region – and possibly in occupied areas of eastern Ukraine – to rotate every few months.
Kim’s decision to send North Korean troops to join Russia’s fight against Ukraine has alarmed Kyiv’s allies, who’ve warned that it risks exacerbating what is already Europe’s largest conflict since World War II. They believe the deepening cooperation between Putin and Kim could also impact the security balance in the Indo-Pacific region, where there’s mounting rivalry between China and the US.
The issue will be raised by several allies at the G-20 Summit in Brazil this week including by German Chancellor Olaf Scholz when he meets Chinese President Xi Jinping, Bloomberg previously reported. Scholz told Putin Friday in a rare phone call that the deployment of North Korean troops was a “grave escalation” of the war against Ukraine.
Scholz will press the Chinese leader at their meeting in Rio on Tuesday to use his influence over Russia and North Korea to avoid further escalation in the war, according to German officials.
The North Korean deployment shows the war is becoming globalized and Scholz and Xi will need to discuss this new dimension of the conflict, the officials said.
Worries were also raised by allies at the APEC gathering in Lima, Peru, this past week, another person said.
Xi has been the biggest benefactor to Putin and Kim in recent years, and sees both leaders as partners in pushing against the US-led world order. But his government has remained silent publicly on the dispatch of North Korean troops to Russia — a sign the Chinese president may be unhappy with the arrangement.
The Kim-Putin partnership risks adding economic pressure on China, just as Xi is bracing for potential disruption from tariffs threatened by US President-elect Donald Trump when he returns to the White House. It also undermines Beijing’s argument that the US shouldn’t have military alliances in the Indo-Pacific region.
China doesn’t “allow conflict and turmoil to happen on the Korean Peninsula” and it won’t “sit idly by when its strategic security and core interests are under threat,” Xi told US President Joe Biden at talks Saturday on the sidelines of the Asia-Pacific Economic Cooperation summit in Lima.
North Korea has so far sent more than 10,000 troops to fight alongside Putin’s army in Russia’s Kursk region, where Ukrainian forces have occupied part of the border territory since a surprise incursion in August. In return, Russia is providing money and helping North Korea increase its capabilities.
South Korea has said there’s a “high chance” that North Korea will seek cutting-edge technology transfers from Russia — including technology related to tactical nuclear weapons, intercontinental ballistic missiles, reconnaissance satellites and ballistic missile submarines.
As well as manpower, North Korea has also sent millions of rounds of artillery ammunition and other weapons to Russia. The Financial Times reported this week, citing Ukrainian intelligence, that Pyongyang has supplied long-range rocket and artillery systems to Russia.
US-China Relations
China’s leader Xi Jinping met for the last time with President Biden on Saturday, but was already looking ahead to President-elect Donald Trump and his "America first" policies, saying Beijing "is ready to work with a new U.S. administration."
During their talks on the sidelines of the annual Asia-Pacific Economic Cooperation summit in Peru, Xi cautioned that a stable China-U.S. relationship was critical not only to the two nations but to the "future and destiny of humanity."
Without mentioning Trump’s name, Xi appeared to signal his concern that the incoming president’s protectionist rhetoric on the campaign trail could send the U.S.-China relationship into another valley.
"China is ready to work with a new U.S. administration to maintain communication, expand cooperation and manage differences so as to strive for a steady transition of the China-U.S. relationship for the benefit of the two peoples," Xi said through an interpreter.
Xi, who is firmly entrenched atop China’s political hierarchy, spoke forcefully in his brief remarks before reporters. Biden, who is winding down more than 50 years of public service, talked in broader brushstrokes about where the relationship between the two countries has gone.
He reflected not just on the past four years but on the decades the two have known each other.
"We haven’t always agreed, but our conversations have always been candid and always been frank. We’ve never kidded one another," Biden said. "These conversations prevent miscalculations, and they ensure the competition between our two countries will not veer into conflict."
Biden urged Xi to dissuade North Korea from further deepening its support for Russia’s war on Ukraine. The leaders, with top aides surrounding them, gathered around a long rectangle of tables in an expansive conference room at a Lima hotel.
They had much to discuss, including China’s indirect support for Russia, human rights issues, technology and Taiwan, the self-ruled democracy that Beijing claims as its own. On artificial intelligence, the two agreed on the need to maintain human control over the decision to use nuclear weapons and more broadly improve safety and international cooperation of the rapidly expanding technology.
There’s much uncertainty about what lies ahead in the U.S.-China relationship under Trump, who campaigned promising to levy 60% tariffs on Chinese imports.
Already, many American companies, including Nike and eyewear retailer Warby Parker, have been diversifying their sourcing away from China. Shoe brand Steve Madden says it plans to cut imports from China by as much as 45% next year.
In a congratulatory message to Trump after his victory over Vice President Kamala Harris, Xi called for the U.S. and China to manage their differences and get along in a new era. In front of cameras Saturday, Xi spoke to Biden — but it was unmistakable that his message was directed at Trump.
"In a major flourishing sci-tech revolution, neither decoupling nor supply chain disruption is a solution," Xi said. "Only mutual, beneficial cooperation can lead to common development. ‘Small yard, high fence’ is not what a major country should pursue."
Biden administration officials have said they would advise the Trump team that managing the intense competition with Beijing will likely be the most significant foreign policy challenge they will face.
On Saturday, White House national security adviser Jake Sullivan said Biden had reinforced to Xi "that these next two months are a time of transition" and that the president would like to pass off the U.S.-China relationship "in stable terms" to the new administration.
Biden has viewed his relationship with Xi as among the most consequential on the international stage and put much effort into cultivating it.
Trump's "America First" Policy
Trump's "America First" policy could shift the Horn of Africa policy and shake up Mideast diplomacy on Iran.
Trump's recent election victory and the imminent return of an America First doctrine may also hamper the diplomatic spirit needed for broad agreement on divisive issues at the G20 summit in Brazil.<co: 11>G20 summit in Brazil.</
Further Reading:
BREAKING NEWS: Japan, Ukraine sign security info-sharing pact to boost cooperation - Kyodo News Plus
Biden approves Ukraine’s use of long-range missiles inside Russia for first time - The Independent
FirstFT: Biden authorises Ukraine to strike Russia with long-range US missiles - Financial Times
Geopolitical tensions simmer as Cop29 heads into second week - The National
North Korea may end up sending Putin 100,000 troops for his war - Fortune
North Korea ‘supplying Russia’ with long-range rocket and artillery systems - Financial Times
Russia launches massive drone, missile attack targeting Ukraine’s power grid - FRANCE 24 English
Trump already shaking up Mideast diplomacy on Iran - Al-Monitor
Themes around the World:
Digital Infrastructure Development
Investment in digital infrastructure, including 5G and Industry 4.0 technologies, is crucial for maintaining Germany's competitive edge. Enhanced connectivity supports efficient supply chains and new business models but requires significant capital expenditure.
Indigenous Relations and Resource Development
Engagement with Indigenous communities is critical for resource extraction projects. Legal and social considerations impact project timelines, costs, and community relations, affecting investment viability and operational continuity.
Taiwan's Export-Driven Economy
Taiwan's economy heavily depends on exports, especially electronics and machinery. Fluctuations in global demand or trade restrictions can significantly impact Taiwan's GDP and, by extension, international businesses integrated into its supply chains.
Consumer Market Trends and Demographics
Shifts in consumer preferences, demographic changes, and urbanization patterns influence demand for goods and services. Understanding these trends is vital for market entry, product development, and marketing strategies tailored to the French market.
Political Stability and Governance
Egypt's political environment remains a critical factor for international investors. While the government maintains control, periodic unrest and governance challenges pose risks to business continuity and regulatory predictability, influencing risk assessments for foreign direct investment and trade partnerships.
Foreign Investment Policies
Recent adjustments in Canada's foreign investment regulations affect the ease and attractiveness of inbound capital. Stricter screening processes and sector-specific restrictions could influence investor confidence and the scale of foreign direct investment, altering the competitive landscape.
US-China Tech Decoupling
Ongoing US-China tensions have accelerated technology decoupling, with the US imposing export controls on semiconductors and AI technologies. This disrupts supply chains, forces companies to diversify manufacturing bases, and increases costs for global tech firms reliant on Chinese components.
Supply Chain Resilience Post-COVID
The COVID-19 pandemic exposed vulnerabilities in Japan's supply chains, prompting companies to diversify suppliers and increase inventory buffers. This shift affects cost structures and operational flexibility for businesses engaged in international trade.
Political Stability and Governance
Mexico's political landscape, including government policy shifts and regulatory unpredictability, affects investor confidence and strategic planning. Stability and transparent governance are critical for long-term business commitments and risk assessment in the Mexican market.
Labor Market Trends and Immigration Policies
Shifts in labor availability due to immigration reforms and demographic changes affect operational costs and talent acquisition. These trends influence sectors reliant on skilled and unskilled labor, impacting production capacity and service delivery.
Trade Agreements and Economic Integration
Vietnam's participation in multiple free trade agreements, including CPTPP and RCEP, enhances market access and attracts foreign direct investment. These agreements facilitate tariff reductions and regulatory harmonization, boosting export competitiveness and integration into global value chains.
Infrastructure Development Initiatives
India's focus on upgrading infrastructure, including transportation networks, ports, and digital connectivity, enhances supply chain efficiency and reduces logistical bottlenecks. Government initiatives like the National Infrastructure Pipeline (NIP) are pivotal in supporting trade facilitation and attracting investment in manufacturing and services sectors.
Political Instability and Governance Challenges
Pakistan faces ongoing political instability marked by frequent government changes and governance issues. This uncertainty undermines investor confidence, disrupts policy continuity, and complicates long-term business planning, thereby increasing country risk for international investors and multinational corporations operating in Pakistan.
Inflation and Monetary Policy
Rising inflation rates have prompted the Central Bank of Brazil to adjust interest rates, influencing borrowing costs and consumer spending. Monetary policy changes affect investment strategies and cost structures for businesses operating in Brazil.
Currency Volatility and Inflation
Iran faces significant currency depreciation and high inflation rates, undermining economic stability. This volatility complicates pricing, contract enforcement, and financial planning for foreign investors and companies operating in or trading with Iran, increasing transaction costs and financial risks.
Supply Chain Disruptions
Sanctions and export controls disrupt critical supply chains involving Russian raw materials and components. Businesses face challenges in sourcing, increased lead times, and cost inflation, necessitating supply chain diversification and contingency planning to mitigate operational risks associated with Russian dependencies.
Infrastructure Development
Investments in transportation, ports, and digital infrastructure enhance Mexico's connectivity and logistics efficiency. Improved infrastructure supports supply chain resilience and reduces costs, attracting foreign direct investment and facilitating export growth.
Social Unrest and Security Risks
Periodic social unrest linked to economic hardships and political dissent poses risks to business continuity. Security concerns may affect foreign investment decisions, insurance costs, and operational risk assessments for companies in Egypt.
Labor Market Constraints
Skilled labor shortages and immigration policy changes impact operational capacities across sectors. Constraints in workforce availability can delay project timelines and increase labor costs, affecting competitiveness in international markets.
Financial Services Sector Evolution
The UK’s financial services sector is adapting to loss of EU passporting rights by expanding global partnerships and innovating in fintech. This evolution impacts capital flows and investment strategies, with implications for international business operations.
Geopolitical Tensions with North Korea
Persistent security concerns on the Korean Peninsula influence investor confidence and regional stability. Military provocations and diplomatic uncertainties pose risks to cross-border trade and multinational operations, necessitating robust risk management and contingency planning for businesses operating in South Korea.
Labor Market Dynamics
Canada's skilled labor force and immigration policies impact workforce availability and costs. Labor market trends influence operational planning, particularly in technology and manufacturing sectors, affecting productivity and competitiveness.
Trade Relations and Free Trade Agreements
Israel's expanding network of trade agreements, including with the US, EU, and emerging markets, facilitates smoother market access and reduces tariffs. These agreements enhance Israel's attractiveness as a trade and investment destination, supporting diversified supply chains.
Infrastructure Development
Ongoing investments in transport, digital infrastructure, and industrial zones aim to boost Thailand's economic growth and attract foreign investment. Improved infrastructure facilitates efficient logistics and supply chain management, critical for export-oriented industries and multinational corporations operating in Thailand.
Aging Population and Labor Shortages
Japan's demographic challenges, including an aging population and shrinking workforce, impact productivity and labor costs. Businesses face increased pressure to automate and innovate, while policymakers consider immigration reforms to sustain economic growth and maintain global competitiveness.
Supply Chain Resilience Efforts
Post-pandemic strategies focus on enhancing supply chain resilience through diversification and digitalization. South Korean firms are investing in alternative sourcing and logistics to mitigate disruptions, impacting global trade flows.
Security and Crime Risks
Persistent security challenges, including organized crime and violence, pose risks to business operations and supply chain integrity. Companies must implement comprehensive risk management and security protocols to mitigate disruptions and protect assets.
Labor Market and Wage Trends
Rising labor costs and evolving labor regulations in Mexico affect manufacturing competitiveness and investment attractiveness. Businesses must adapt to wage increases and labor rights enforcement, balancing cost pressures with the need for skilled workforce retention and compliance.
Geopolitical Tensions and Regional Security
Egypt's strategic location near conflict zones and involvement in regional disputes influence political risk perceptions. Security concerns can disrupt trade routes, increase insurance costs, and affect investor confidence in the stability of the business environment.
Energy Transition and Security
South Korea's commitment to green energy and reducing fossil fuel dependence influences its industrial policies and international partnerships. Energy security concerns amid global market volatility affect manufacturing costs and investment decisions, with implications for global energy markets and sustainability goals.
Supply Chain Disruptions
Sanctions and trade restrictions cause bottlenecks in sourcing critical components and raw materials, leading to delays and increased costs. Businesses reliant on Russian inputs or markets must diversify suppliers and adapt logistics to mitigate these disruptions.
China's Regulatory Crackdown
China's intensified regulatory scrutiny on sectors like technology, education, and real estate creates uncertainty for foreign investors. Stricter compliance requirements and unpredictable policy shifts increase operational risks and may deter long-term investments.
Regulatory Environment and Reforms
Ongoing reforms aim to improve the business climate, but bureaucratic hurdles and inconsistent enforcement remain concerns for investors. Transparency and legal predictability are vital for long-term investment confidence.
Labor Market Dynamics and Talent Availability
Israel's skilled workforce, particularly in technology and engineering, supports its innovation-driven economy. However, labor market challenges such as wage inflation and talent shortages may impact operational costs and project timelines for international businesses.
Currency Volatility and Financial Instability
The Russian ruble experiences significant fluctuations amid economic sanctions and geopolitical uncertainty, affecting foreign exchange risk management. Financial instability complicates cross-border transactions and investment valuations, prompting investors to adopt hedging strategies and reassess capital allocation in Russian markets.
Oil and Energy Sector Dynamics
Iran's vast oil and gas reserves are central to its economy, but production and export face challenges due to sanctions and infrastructure issues. Fluctuations in global energy markets and Iran's ability to maintain output influence global supply chains and energy security considerations.