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.</

Themes around the World:

Crypto Taxation Reforms

Japan's proposed reforms to crypto taxation aim to simplify compliance and attract investment in digital assets. By lowering tax rates from up to 55% to a flat 20%, the government seeks to position Japan as a leader in the blockchain sector, fostering innovation and economic growth.

Impact of Global Economic Conditions

France's economic performance is being adversely affected by global economic conditions, including rising inflation and geopolitical tensions. These factors contribute to a challenging environment for businesses, leading to cautious investment strategies and potential supply chain disruptions.

Rising Borrowing Costs and Market Confidence

France's borrowing costs have surged to levels comparable to Greece, reflecting investor concerns over political turmoil and fiscal management. The potential for a no-confidence vote against the government exacerbates fears of a budget crisis, which could lead to increased borrowing costs and reduced market confidence in French assets.

Cybersecurity Threats and Resilience

The UK faces escalating cyber threats, with state-sponsored and criminal actors targeting critical infrastructure. The National Cyber Security Centre reports a significant rise in incidents, emphasizing the need for enhanced resilience and regulatory measures. This situation poses risks to businesses and public services, necessitating urgent action to safeguard the digital economy.

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.

Data Center Investment Potential

Thailand is emerging as a prime location for data center investments due to its robust infrastructure and strategic geographical position. Government incentives and a strong digital economy are attracting international corporations, promising substantial economic benefits and job creation in the tech sector.

Long-term Economic Growth Concerns

The OECD has downgraded growth forecasts for France, now expecting only 0.9% growth. This stagnation, coupled with political uncertainty, poses risks to long-term economic strategies, affecting investor sentiment and the overall business climate in France.

Supply Chain Expo and Foreign Investment

The China International Supply Chain Expo highlights the importance of maintaining robust supply chains amid rising trade tensions. High-profile U.S. executives, including Tim Cook, are engaging with Chinese officials, signaling a commitment to collaboration despite geopolitical challenges.

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.

Mixed Results of Tech Restrictions

US restrictions on Chinese technology have yielded mixed outcomes, slowing some sectors while accelerating others, like electric vehicles. Policymakers face challenges in balancing economic security with technological competitiveness, risking unintended consequences for US industries.

Impact of Austerity Measures

The proposed austerity budget, including €60 billion in cuts and tax hikes, has sparked political backlash. If implemented, these measures could stifle consumer spending and investment, further slowing economic growth and complicating France's fiscal recovery efforts.

LNG Market Dynamics

France has emerged as a top destination for U.S. LNG exports, reflecting a shift in global energy trade. This trend could enhance energy security but also expose France to fluctuations in global energy prices, impacting overall economic stability.

Cybersecurity and Insurance Market Growth

The increasing reliance on digital platforms has spurred growth in Finland's cyber liability insurance market, projected to expand significantly. This trend reflects the need for businesses, including those in the aluminium sector, to safeguard against cyber threats, influencing risk management and operational strategies.

Japan's Economic Transformation

Japan is transitioning to a higher-inflation environment after decades of stagnation. This economic transformation, coupled with rising wages and increased consumer spending, presents new investment opportunities, although demographic challenges remain a concern for sustained growth.

Impact of Adani's Legal Troubles

The US indictment of Gautam Adani for fraud and bribery poses risks to his business empire and India's economy. As a key player in infrastructure and renewable energy, any fallout could affect investor confidence and raise questions about corporate governance in India, impacting broader economic policies.

Trade Deficits and Currency Risks

Japan's ongoing trade deficits, exacerbated by a weak yen and rising energy prices, pose risks to its economic stability. The potential for increased tariffs under the Trump administration could further complicate trade dynamics, impacting export-driven growth and necessitating strategic adjustments in trade relationships.

Investment in Clean Energy

The Biden-Harris administration has catalyzed over $1 trillion in private sector investments in clean energy and advanced manufacturing. This initiative aims to revitalize U.S. manufacturing leadership and address climate challenges, fostering economic growth and job creation. The focus on domestic production enhances supply chain resilience and positions the U.S. competitively in global markets.

Opportunities from US Tariffs

The potential for increased US tariffs on Chinese imports presents India with an opportunity to capture a larger market share in the US. Analysts suggest that India must enhance its attractiveness for foreign investment and negotiate favorable trade agreements to benefit from this shift in global supply chains.

Israel's Vulnerability to Drone Attacks

Israel's air defense systems are increasingly threatened by low-flying drones, particularly from Hezbollah and Iranian proxies. This vulnerability necessitates urgent upgrades and adaptations in defense strategies, impacting military procurement and international defense collaborations, especially with nations like Ukraine that have combat-tested solutions.

Declining Japanese FDI in Thailand

Thailand is losing its status as a leading destination for Japanese foreign direct investment (FDI), with Japan's investments in Thailand growing only 13% from 2021 to 2023, compared to 54% in Vietnam. This shift highlights the need for Thailand to enhance workforce skills and attract high-value industries to remain competitive.

Economic Decline and Layoffs

Germany's Fortune 500 companies announced over 60,000 layoffs amid ongoing economic malaise, exacerbated by high energy prices and falling external demand. This trend signals a significant contraction in the manufacturing sector, which is crucial for Germany's export-driven economy, potentially leading to reduced consumer spending and further economic instability.

Impact of Tariffs on Trade

The incoming Trump administration's proposed tariffs on imports from Mexico, Canada, and China could significantly disrupt U.S. supply chains, increase costs for consumers, and provoke retaliatory measures from trading partners, potentially igniting a trade war that may stifle economic growth.

Discovery of Undersea Mineral Deposits

Japan's discovery of $26 billion in mineral deposits beneath the sea could significantly bolster its economy and reduce reliance on imports for critical materials. This find aligns with Japan's strategic vision for technological advancement and sustainable resource management, potentially transforming its industrial landscape.

U.S. Steel Acquisition Controversy

The proposed $15 billion acquisition of U.S. Steel by Japan's Nippon Steel faces strong political opposition from U.S. leaders, including President-elect Trump. This deal's potential blockage could impact Japan's investment strategies and U.S.-Japan economic relations, while also raising concerns about supply chain resilience and national security in the steel industry.

Political Instability and Investment Hesitance

Political instability in France, following snap elections, has led to a significant decline in foreign investment attractiveness. Executives express concerns over legislative uncertainties and potential economic reforms, resulting in postponed investment projects. This hesitance could adversely affect economic growth and reindustrialization efforts, as foreign-owned companies contribute significantly to GDP and employment.

Geopolitical Tensions and Alliances

The conflict has heightened geopolitical tensions, with Russia engaging in a sabotage campaign across Europe, including assassination plots and arson. Ukraine has received military aid and funding from Western allies, with the 'Danish Model' being adopted to boost Ukraine's defense manufacturing capacity. China has allegedly provided dual-use goods for Russia's military, and North Korea has sent troops and artillery shells to support Russia.

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.

UK's Critical Third Parties Regime

The UK has published final rules for its Critical Third Parties (CTPs) Regime, which aims to reinforce the operational resilience of financial services firms and financial market infrastructures. This extends regulatory oversight to CTPs, allowing intervention to raise service resilience and mitigate the risk of systemic disruption to the financial sector.

Energy Infrastructure Vulnerability

Continued Russian attacks on Ukraine's energy infrastructure pose severe risks to civilian life and economic stability. The damage to power plants and energy systems complicates recovery efforts and impacts operational capabilities across various sectors.

Competition in Broadband Services

The rivalry between Elon Musk's Starlink and Mukesh Ambani's Reliance Jio in India's broadband market signifies a strategic battle for technological dominance. The outcome will influence India's digital infrastructure and could shape future regulatory frameworks for satellite communications, impacting investment and innovation in the sector.

U.S.-Japan Economic Security Alliance

The strengthening of the U.S.-Japan alliance under the Trump administration presents significant opportunities for Japan. Enhanced cooperation on economic security, tariffs, and defense will likely improve Japan's competitiveness against China, attracting foreign investment and bolstering supply chains, particularly as companies seek alternatives to China.

Deep-Sea Mineral Discovery

Japan's discovery of $26 billion in mineral deposits beneath the sea could transform its economy by reducing reliance on imports for critical minerals. This find supports Japan's technological sectors and aligns with its strategic vision for sustainable resource management.

Electric Vehicle Market

Thailand's electric vehicle (EV) market is growing, driven by Chinese automakers. Chinese companies are investing heavily in Thai auto plants, challenging Japanese brands that have long dominated the market. Thailand's strong automotive infrastructure and ties with China contribute to its appeal as a manufacturing base. The Thai government is reconsidering its tax approach to support the EV sector without destabilizing traditional combustion engines.

Tech Contracts and Human Rights

Google's Project Nimbus contract with Israel raises ethical concerns regarding the use of technology in military applications. The scrutiny surrounding this deal may affect tech companies' reputations and their future engagements in regions with complex human rights issues.

US-China Trade War and India's Role

The renewed trade tensions between the US and China create a favorable environment for India to position itself as a key player in global supply chains. By enhancing its manufacturing and export capabilities, India can capitalize on the shifting dynamics and attract businesses looking to diversify away from China.

Bankruptcy Surge Among Companies

An increase in corporate bankruptcies, projected to reach 65,000 this year, signals economic distress. This trend raises alarms for investors and could disrupt supply chains, as struggling companies may fail to meet contractual obligations, leading to broader economic repercussions.