Mission Grey Daily Brief - November 26, 2024
Summary of the Global Situation for Businesses and Investors
The global situation is marked by geopolitical tensions and economic challenges, with rising risks for businesses and investors. President-elect Donald Trump has threatened to impose tariffs on Mexico, Canada, and China, which could disrupt global supply chains and increase costs for American businesses and consumers. The UAE's growing global influence poses challenges for the West, as it undermines Western sanctions against Russia and supports the Kremlin's war effort in Ukraine. Taiwan has lowered the threshold to trigger air raid alarms in response to China's repeated provocations, raising concerns about civilian safety. US policymakers are considering the effectiveness of existing restrictions on Chinese technology, as Beijing's techno-nationalism poses risks to US economic security. Satellite images show North Korea expanding a weapons manufacturing complex that assembles missiles used by Russia in Ukraine, raising concerns about the conflict's escalation.
Trump's Tariff Threats and Global Supply Chains
President-elect Donald Trump has threatened to impose tariffs on Mexico, Canada, and China, citing concerns about illegal immigration and drug smuggling. These tariffs could disrupt global supply chains and increase costs for American businesses and consumers. The punishing tariffs, if enacted, could wreak havoc on America's supply chains and industries reliant on goods from its closest trading partners. Karl Schamotta, chief market strategist at Corpay Cross-Border Solutions, warned that the measures could hit strategic US industrial sectors hard, add to tax burdens, and raise goods prices. The extraordinary tariffs would raise costs dramatically for Americans for everyday goods that had previously come over the border without import taxes. This stunning shift could stymie economic growth, especially if inflation-weary consumers spend less in the face of higher costs.
The UAE's Growing Global Influence and Western Challenges
The UAE's growing global influence poses challenges for the West, as it undermines Western sanctions against Russia and supports the Kremlin's war effort in Ukraine. The UAE has rallied governments on both sides of the Atlantic by undermining Western sanctions, indirectly supporting the Kremlin's war effort, and giving Vladimir Putin diplomatic cover. The UAE has also undertaken a policy of adventurism, violating arms embargoes, spreading instability, and fuelling conflict and humanitarian disaster in parts of Africa and the Middle East. Biden has struggled to rein in the UAE's more reckless tendencies, and Trump's isolationist instincts may give the UAE an even freer rein. The UAE's destructive foreign policy is driven by its desire for geopolitical heft, pursuit of business ties with warlord allies, and countering Islamism in Libya, Sudan, and elsewhere in the Middle East and North Africa.
Taiwan's Air Raid Alarm Adjustment and China's Provocations
Taiwan has lowered the threshold to trigger air raid alarms in response to China's repeated provocations, raising concerns about civilian safety. Taiwanese defence minister Wellington Koo Li-hsiung said the change was necessary due to China's repeated and escalating hostilities across the Taiwan Strait. China's military began a live-fire exercise near Taiwan, maintaining pressure on the self-ruled island after staging large-scale drills and President Xi Jinping called for troops to prepare for war. Beijing views Taiwan as a renegade province that must come under its control. The median line, an unofficial maritime boundary in the Taiwan Strait, has been repeatedly disregarded by Beijing, raising tensions. The Taiwanese government has accused China of intensifying its military harassment of the island in recent years, sending military vessels and aircraft near it almost daily. The concern is that the adjustment could reduce the amount of time civilians have to seek shelter in case of a real threat during a potential cross-strait conflict.
US Policymakers' Considerations on Chinese Technology Restrictions
US policymakers are considering the effectiveness of existing restrictions on Chinese technology, as Beijing's techno-nationalism poses risks to US economic security. Washington's increasingly restrictive policies have yielded mixed results. While there has been progress in slowing China's semiconductor sector, China has seen even more rapid success in other areas, such as electric vehicles and batteries. There are inherent tensions between Washington's various economic security goals, with progress in some inevitably slowing progress in others. US policymakers have not adequately considered how China and others would adapt to US restrictions. As President-elect Donald Trump returns to power, his administration would be wise to reflect on the fact that existing restrictions on Chinese technology have yielded decidedly mixed results. If the Trump administration pursues an even broader decoupling, the costs will be magnified exponentially.
Further Reading:
Hope grows for India-China economic ties amid Trump’s tariff threats - This Week In Asia
How America’s War on Chinese Tech Backfired - Foreign Affairs Magazine
Trump threatens China, Mexico and Canada with new tariffs - BBC.com
Trump threatens Mexico, China, and Canada with tariffs over immigration and drugs - The Independent
UAE’s growing global influence sets up challenges for the west - Tortoise Media
Themes around the World:
US Political Instability and Global Finance Risks
US political dysfunction, exemplified by government shutdowns and debt-ceiling standoffs, poses systemic risks to the global financial system. The dollar's central role creates a single point of failure, with political gridlock threatening liquidity, market stability, and international confidence in US financial governance.
Strategic Imbalance in US-China Trade
The US's overreliance on China for imports, especially in critical sectors like rare earths, creates strategic vulnerabilities. Persistent trade deficits and supply chain dependencies expose the US to political leverage by China, prompting calls for diversification towards democratic, market-based partners to enhance economic resilience and reduce market volatility.
China's Economic Integration Plans and Taiwan's Frontline Islands
Taiwan monitors China's 15th five-year plan for potential economic integration attempts over sensitive frontline islands like Kinmen. Such moves could extend Beijing's influence, affecting Taiwan's sovereignty and regional economic control, with implications for cross-strait relations and investor risk assessments in the region.
US Dollar Demand Amid Political Uncertainty
Ahead of Taiwan's elections, the central bank has instructed banks to increase US dollar cash supply to mitigate potential political risks. Although demand is lower than previous elections due to increased electronic transactions, this move reflects ongoing concerns about geopolitical instability and currency volatility, influencing liquidity management and investor behavior.
Taiwan Power Market Growth and Challenges
Taiwan's power sector is expanding rapidly, driven by electrification, renewable integration, and smart grid technologies, with major players like Delta Electronics and Taiwan Power Company. However, challenges include aging infrastructure, regulatory risks, fuel price volatility, and cybersecurity threats. Energy security remains critical amid geopolitical tensions, influencing industrial stability and investment outlooks.
Tariff Policy and Trade Negotiations
Mexico's proposed tariff hikes on nearly 1,500 products from China and other Asian countries face delays amid diplomatic talks. These tariffs, intended to protect domestic industries and respond to US pressure, risk raising consumer prices and disrupting trade flows. The outcome will influence Mexico's trade relations, budget forecasts, and investment climate in 2026.
Digital Economy and Fintech Growth
Egypt's expanding digital economy, driven by fintech, e-commerce, and cloud services, attracts global capital and innovation. AI-powered banking solutions and digital platforms are reshaping financial services, improving inclusion and operational efficiency. This sector's growth underpins Egypt's economic diversification and integration into global digital markets.
Dependence on Chinese Drone Components
Ukraine's drone manufacturing heavily relies on Chinese-made components such as semiconductors, magnets, and batteries. This supply chain dependency poses strategic vulnerabilities, as China controls critical rare earth materials and could restrict exports, affecting Ukraine’s defense capabilities and complicating Western military aid integration due to legal restrictions on Chinese technology.
Energy Security and Fuel Supply Risks
Australia's fuel reserves are critically low, with only 28 days of petrol and limited jet fuel and diesel stocks, failing to meet international treaty obligations. This vulnerability poses risks to supply chains, logistics, and essential services in the event of global disruptions, highlighting the need for strategic energy resilience and infrastructure investment.
Strategic Supply Chain Realignments
Companies are actively pursuing 'China plus 1' and 'America plus 1' strategies to reduce reliance on single-country supply chains. This includes relocating manufacturing to Southeast Asia and diversifying funding sources, driven by geopolitical risks and trade uncertainties, which may increase operational costs but enhance long-term resilience and supply chain security.
Fiscal Expansion and Growth-Oriented Policies
Under Prime Minister Takaichi, Japan is pursuing aggressive fiscal expansion focused on strategic public investments in defense, technology, energy, and cybersecurity. This shift from liquidity injections to productivity-enhancing spending aims to modernize Japan’s economy and boost long-term competitiveness. While attracting foreign investment and supporting equity markets, it raises concerns about fiscal sustainability and inflationary pressures amid rising government debt.
US-China Trade Tensions Escalate
Ongoing trade disputes between the US and China, including threats of tariffs up to 155% and export controls on critical technologies, have caused significant market volatility. These tensions disrupt supply chains, increase costs for businesses, and create uncertainty for investors, impacting global trade flows and corporate earnings, especially in technology and manufacturing sectors.
Supply Chain Diversification
Vietnam is increasingly pivotal in global supply chain realignment, benefiting from companies seeking alternatives to China amid geopolitical tensions. Its competitive labor costs, manufacturing capabilities, and policy reforms make it an attractive hub for electronics, machinery, and renewable energy sectors, enhancing regional production networks and export capacity.
Sanctions and Shadow Logistics
Western sanctions have forced Russia to develop alternative supply routes and exploit a 'grey market' for imports and exports. This 'shadow logistics' includes the use of 'phantom fleets' to circumvent restrictions, reshaping global trade geography. Businesses face increased complexity and risk in supply chain management involving Russia due to these covert adaptations.
Energy Sector and US-Mexico Relations
Mexico's energy sector remains a focal point in bilateral relations with the US, especially under potential shifts in US administration. Efforts to strengthen state control and limit private investment have raised concerns among investors and US officials, impacting Mexico's investment climate. Energy policy developments act as a barometer for broader economic and diplomatic ties.
Global Investor De-risking from US and China
Amid escalating US-China tensions, investors and companies in Asia and beyond are diversifying away from heavy reliance on both economies. Strategies include seeking 'America plus 1' or 'China plus 1' alternatives, reducing dollar dependence, and reallocating assets and manufacturing to Southeast Asia and the Middle East, signaling a gradual but complex fragmentation of the global economic order.
Impact of War on Ukraine's Industrial and Trade Contributions
Despite conflict, Ukraine's processing industry and trade sectors remain significant contributors to the national budget, accounting for about one-third of revenues. This resilience underlines the importance of these sectors for economic stability and highlights ongoing operational challenges and opportunities for businesses within Ukraine's domestic market.
Economic Growth and Monetary Policy Challenges
Brazil's economic growth is projected to slow in late 2025 due to high interest rates and global trade uncertainties. Inflation remains above target, driven by energy costs and fiscal risks. The Central Bank's hawkish stance and fiscal constraints pose challenges for economic expansion, influencing investment climate and business operations.
Industrial Decline and Deindustrialization
Germany's industrial core, especially machinery manufacturing, is experiencing a severe downturn with over 22% production decline since 2018. Rising energy costs, regulatory burdens, and weakening global demand have led to job losses and increased insolvencies, threatening the entire economic engine and triggering cascading effects on related sectors and social welfare systems.
Low Economic Resilience and Governance Weakness
Pakistan ranks among the least resilient countries globally due to weak governance, political instability, limited innovation, and low social development. This entrenched vulnerability diminishes adaptive capacity to economic, geopolitical, and climate shocks, deterring long-term investment and sustainable growth.
US Tariffs and Trade Tensions
US-imposed tariffs averaging 19% on Thai exports and escalating US-China trade tensions pose significant risks to Thailand's export-driven economy. These tariffs, coupled with a strong baht, reduce Thailand's competitiveness in global markets, pressuring manufacturers and complicating trade negotiations with the US.
Russian Attacks on Ukraine's Energy Infrastructure
Russia's intensified missile and drone strikes on Ukraine's energy assets have severely disrupted gas production and electricity supply, threatening both Ukraine and broader European energy security. The attacks strain regional energy markets, increase prices, and compel neighboring countries to reconsider energy export restrictions, highlighting the conflict's spillover effects on European supply chains and economic stability.
Security Concerns in Medical Supply Chains
Taiwan is tightening national security to prevent Chinese infiltration in critical medical logistics, especially after revelations of Chinese-linked firms controlling key medical cold chain providers. This raises concerns over data security, supply chain integrity, and national resilience, prompting stricter vetting, regulatory barriers against Chinese capital, and efforts to safeguard healthcare infrastructure from covert influence.
Defense and Industrial Sovereignty Initiatives
Australia is strengthening defense collaboration with the US, investing in advanced manufacturing and critical minerals projects vital for national security. The partnership includes funding for missile systems and underwater vehicles, reinforcing AUKUS cooperation. These initiatives aim to enhance industrial sovereignty, reduce dependency on foreign suppliers, and create strategic economic opportunities in defense-related sectors.
Energy Sector Developments and Foreign Investment
London-listed Pennpetro Energy's acquisition of an oil and gas exploration license in western Ukraine signals foreign investment interest despite conflict risks. This move aims to enhance Ukraine's energy independence and sovereignty, potentially reshaping regional energy supply dynamics and offering new opportunities for investors in the Ukrainian energy sector.
Saudi Stock Market Dynamics and Financial Sector Growth
Saudi Tadawul remains a focal point for capital market development, with steady trading volumes and notable corporate activities. Financial institutions like Banque Saudi Fransi and Standard Chartered are expanding operations, reflecting confidence in the Kingdom's evolving financial ecosystem. Market fluctuations are influenced by oil prices, corporate earnings, and global monetary policies.
US Government Shutdown Impact
The ongoing US government shutdown is causing economic uncertainty, disrupting federal operations, delaying economic data releases, and shaking investor confidence. This political impasse threatens to impair consumer sentiment, complicate Federal Reserve policy decisions, and increase market volatility, affecting business operations and investment outlooks.
Economic Disparities and Social Unrest Risks
Widening gaps between the privileged clerical elite and ordinary Iranians, coupled with inflation and corruption, fuel public discontent. The government anticipates inevitable protests, which could escalate into broader unrest. Social instability poses significant risks to business operations, supply chains, and foreign investment climate in Iran.
Industrial Slowdown and Investment Weakness
Mexico's industrial activity and fixed investment have contracted in mid-2025, with manufacturing and construction sectors declining. Weak public and private investment, coupled with tariff uncertainties and security concerns, undermine economic recovery efforts. The government's Plan Mexico faces challenges in meeting ambitious investment and job creation targets, casting doubt on near-term economic stabilization and growth prospects.
Energy Infrastructure Vulnerability
Russian missile and drone strikes have severely damaged Ukraine's energy infrastructure, including gas production and electricity supply, causing widespread outages and threatening winter energy security. This disruption impacts not only Ukraine but also European energy markets due to Ukraine's role as a transit country and increased gas imports from neighbors.
Strategic Industrial Policy and Economic Pivot
Canada is implementing a new industrial vision emphasizing support for critical sectors, domestic military production, and attracting foreign investment and talent. This strategy aims to enhance economic resilience, adapt to tariff challenges, and foster innovation, impacting supply chains, manufacturing, and long-term competitiveness.
Political Instability and Protests
Spain is experiencing extreme political tensions comparable to those in the US under Trump, driven by divisive domestic politics and pro-Palestinian protests. This unrest raises uncertainty, potentially dampening consumption and investment, and complicates legislative processes, including budget approvals, thereby increasing country risk for investors and businesses operating in Spain.
Tariff Policy and Trade Negotiations
Mexico is reviewing proposed tariff increases on nearly 1,500 products from China and other Asian countries, with potential hikes up to 50%. These measures aim to protect domestic industries and respond to US pressure but risk straining trade relations and investor confidence. Delays and adjustments in tariff legislation reflect Mexico's balancing act between protectionism and maintaining open trade.
US-China Trade Tensions
Renewed trade tensions between the US and China, including threats of 100% tariffs and export controls on rare earth minerals, significantly disrupt global supply chains and market stability. These actions impact technology, manufacturing, and defense sectors, creating uncertainty for investors and businesses reliant on Sino-American trade relations.
Currency Volatility and US Dollar Strength
The British pound faces volatility amid persistent inflation and economic growth concerns, while the US dollar strengthens due to aggressive Federal Reserve policies and safe-haven demand. This currency dynamic impacts UK export competitiveness, foreign investment flows, and the valuation of assets, necessitating careful forex risk management by businesses and investors.
Currency Volatility and External Risk Sensitivity
The South African rand remains highly volatile, influenced by global trade tensions, US monetary policy, and commodity price fluctuations. While recent strengthening reflects improved risk appetite and potential FATF grey list removal, ongoing geopolitical uncertainties and domestic economic challenges sustain currency risk, affecting import costs, inflation, and investor sentiment.