Mission Grey Daily Brief - December 26, 2024
Summary of the Global Situation for Businesses and Investors
The global situation remains tense, with border tensions between Afghanistan and Pakistan, Hong Kong's role in the US-China trade and security tussle, and Russia's ongoing conflict with Ukraine dominating the headlines. Donald Trump's comments on the US acquiring Greenland and the Panama Canal have also caused chaos, with Hong Kong's dollar peg at risk in the wider US-China conflict. A plane crash in Kazakhstan has resulted in the deaths of 38 people, including 38 Azerbaijanis.
Russia-Ukraine Conflict
The Russia-Ukraine conflict continues to escalate, with Russian missile and drone attacks on Ukraine's energy infrastructure on Christmas Day leaving half a million people without heating and causing blackouts in Kyiv and other regions. At least one person was killed and six others wounded in the attack, which Ukrainian officials claim was deliberate and timed to coincide with Christmas. The Ukrainian president said more than 70 missiles, including ballistic missiles, and over 100 attack drones were used to strike Ukraine’s power sources. Nearly 60 missiles and 54 drones were shot down, according to Kyiv’s air force.
The Ukrainian president has condemned the attack as "inhumane", and the Ukrainian prime minister has called for continued support for Ukraine in the face of Russian aggression. The conflict has also been linked to Russia's desire to control Ukraine's vast natural resources, including lithium deposits in the Donbas region, which are crucial for the production of EV batteries.
US-China Tensions
Hong Kong's role in the US-China trade and security tussle has come under scrutiny, with observers expecting Trump to take a new approach to Hong Kong-related issues, including the city's role in helping Russia procure dual-use Chinese products and bypass Western sanctions, the arrests of pro-democracy activists and politicians, and the financial hub's role in alleged money laundering inimical to US interests. The situation has been further complicated by the Hong Kong government's "relentless pursuit of pro-democracy activists beyond its borders", which has led to calls for the UK, US, and Canadian governments to act decisively to shield these activists from transnational repression.
The new arrest warrants may provide more fuel for hawkish American lawmakers to advocate for more sanctions against Hong Kong officials and companies, or even more extreme measures such as the removal of some Hong Kong-based banks from the SWIFT financial transfer system, which could trigger a de-pegging of the Hong Kong dollar and the US buck. The US House Select Committee on the Chinese Communist Party (CCP) has expressed deep concern regarding Hong Kong's alleged increasing role as a financial hub for money laundering, sanctions evasion, and other illicit financial activities.
US-Russia Tensions
A US-sanctioned Russian cargo ship sank in the Mediterranean Sea overnight after an explosion ripped through the engine room, Russia’s foreign ministry confirmed. Two members of the Ursa Major’s crew are still missing after 14 were rescued and brought to Spain on Tuesday morning following the blast. The boat’s operator Oboronlogistika – which was sanctioned by the US treasury in 2022 for links to the Russian military – previously said it was en route to the Russian port of Vladivostok carrying cranes.
The ship left St Petersburg on 11 December and was last seen sending a signal at around 10pm on Monday between Algeria and Spain where it sank, according to ship tracking data. It was in the same area of the Mediterranean as another sanctioned Russian ship, Sparta, when it ran into trouble. The two ships had been spotted heading through the English Channel last week, reportedly under escort.
Earlier this month, Ukrainian military intelligence reported that the Sparta was heading to Russia’s naval base on the Syrian coast at Tartus to move military equipment out of Syria after the fall of Bashar al-Assad. Syrian bases and the port of Tartus have become critical to Moscow’s operations in the Mediterranean and Africa, and the fall of Mr Assad has presented the Kremlin with an intense logistical headache. Russian operations in countries like Libya, Mali, Central African Republic and Burkina Faso have relied heavily on the port and on the Khmeimim air base as a way station and refuelling stop.
US-Greenland Tensions
Donald Trump's comments on the US acquiring Greenland and the Panama Canal have caused chaos, with some comparing his comments to those of Vladimir Putin. Trump's transactional calculus of profit and loss in international affairs is very different from Keir Starmer's – and the EU's, too. Most Europeans are as much at a loss about why anyone might want Greenland as Mao Zedong did 50 years ago, when he asked Henry Kissinger about Greenland's size and whether it had any resources other than ice and snow (Kissinger thought not.)
Today, Chinese companies are developing the rare earths apparently in abundance there. They may be increasingly accessible as the ice sheets retreat. The Arctic's shrinking ice cover has opened up new shipping routes and access to natural resources, but it has also increased tensions between nations vying for control of these resources. China has been toying with developing an alternative to the Panama Canal through Nicaragua, whose veteran Sandinista regime is in very bad odour with both main US parties.
But at the same time, through a mixture of commercial shipping using the canal (and its supply and engineering companies helping with the infrastructure), Beijing is beginning to play the kind of role which alarms Washington’s devotees of the Monroe Doctrine. As so often with Trump’s most outlandish ideas and provocative claims, there is more of a consensus behind them stateside than Europeans like to admit.
Further Reading:
'Putin-esque': Trump's comments on control of Greenland and Panama Canal 'create chaos' - MSNBC
Airstrikes target suspected Pakistani Taliban hideouts in Afghanistan - Toronto Star
Azerbaijan mourns 38 killed in plane crash in Kazakhstan - El Paso Inc.
Border tensions are flaring between Afghanistan and Pakistan - Islander News.com
Hong Kong dollar peg at risk in Trump’s coming fight with China - Asia Times
News Wrap: At least 38 dead after Azerbaijan Airlines crash in Kazakhstan - PBS NewsHour
Trump '100% serious' about US acquiring Panama Canal and Greenland, sources say - Fox News
Trump wants U.S. to take over Greenland, take back Panama Canal - Bozeman Daily Chronicle
US-sanctioned Russian ship sinks in Mediterranean after explosion - The Independent
What the Christmas Day bombing of Ukraine tells us about Putin’s aims - The Independent
Themes around the World:
International Financial Support and IMF Engagement
Pakistan’s receipt of IMF loan tranches and climate resilience funding provides critical fiscal support amid economic fragility. These inflows are pivotal for stabilizing foreign reserves and investor confidence, yet geopolitical risks and policy implementation challenges continue to influence the effectiveness of international financial assistance in sustaining economic recovery.
India-UK Free Trade Agreement
The historic India-UK Free Trade Agreement (FTA) promises to liberalize trade, enhance professional mobility, and boost bilateral investments. It offers Indian exporters near-zero tariffs on 99% of goods, strengthening India's position in global supply chains amid shifts away from China. The FTA is expected to catalyze growth in textiles, pharmaceuticals, steel, and IT sectors, impacting international trade and investment strategies.
Political Transition and Economic Revival
Germany's new chancellor Friedrich Merz assumes office amid economic contraction and geopolitical turbulence. His government plans to deploy substantial fiscal stimulus to rebuild infrastructure and military capabilities. Merz aims to strengthen Germany's EU leadership and transatlantic relations, impacting trade policies, investment confidence, and international diplomatic dynamics.
Undocumented Migration and Social Stability
The influx of undocumented migrants strains South Africa's public services and fuels social tensions, including xenophobic violence. Migrants fill critical labor gaps but also exacerbate unemployment and resource competition. Inefficient immigration systems, corruption, and lack of regional cooperation complicate management, posing risks to social cohesion, labor markets, and the informal economy, with implications for business operations and investment climate.
US-UK Trade Tariff Negotiations
The UK has recently secured a trade deal with the US that reduces tariffs on British steel, cars, and aluminium, but includes strict national security measures such as banning Chinese ingredients in UK-made medicines exported to the US. This deal aims to protect UK jobs and businesses but also imposes supply chain adjustments, impacting pharmaceutical exports and broader trade relations.
Supply Chain Security and Diversification
Australian firms are actively restructuring supply chains to reduce reliance on Chinese manufacturing amid US-led supply chain security clauses. This shift involves increased costs and operational complexity but aims to mitigate risks from geopolitical tensions and tariff policies, affecting trade flows and investment decisions in manufacturing and logistics sectors.
Tourism Sector Crisis and Flight Reductions
Thailand’s tourism industry faces a crisis driven by declining Chinese arrivals, negative foreign media coverage, and safety concerns. Flight capacity from China may be cut by up to 68%, threatening employment and supply chains in tourism-dependent regions. The rollout of the digital TM6 arrival system aims to restore confidence but challenges remain amid reputational damage.
Return of Western Firms to Russia
Despite sanctions and reputational risks, Western companies are quietly re-entering the Russian market. The Russian government is drafting regulations to protect domestic producers while encouraging foreign investment. This trend signals potential normalization of business ties, impacting investment strategies and supply chain decisions for multinational corporations.
Canada-US Political Relations and Sovereignty
US President Trump's repeated threats to annex Canada as the 51st state have strained diplomatic relations, raising sovereignty concerns. Despite provocative rhetoric, Canadian leadership, including Prime Minister Mark Carney, insists on maintaining national sovereignty, complicating political dialogue and influencing investor confidence and cross-border cooperation.
US-China Tariff Conflict and Resolution
The ongoing US-China trade war, marked by tariffs up to 145% on Chinese imports and 125% on US exports, has severely disrupted global supply chains, increased costs, and caused economic uncertainty. Recent negotiations in Geneva led to a 90-day tariff truce with significant tariff reductions, easing market volatility and signaling potential for longer-term trade normalization.
Japanese Corporate Profitability Surge
Leading Japanese corporations like Sony and SoftBank report record net profits exceeding one trillion yen in FY 2024, signaling robust corporate performance. This financial strength supports increased domestic investment, innovation, and global competitiveness, influencing foreign investor sentiment and capital flows.
Regional and Global Strategic Partnerships
High-level diplomatic engagements, exemplified by Indian PM Modi’s official visit and the Saudi-Indian Strategic Partnership Council, foster bilateral cooperation in technology and AI sectors. These partnerships facilitate knowledge exchange, joint ventures, and investment flows, strengthening Saudi Arabia’s AI ecosystem and enhancing its integration into global AI supply chains and markets.
Currency Modernization and Banknote Withdrawal
Bank Indonesia has withdrawn four old rupiah banknote denominations and promoted advanced currency designs to combat counterfeiting and improve currency security. These actions support financial system integrity and public confidence, indirectly facilitating smoother domestic transactions and international trade settlements.
Regulatory Tightening on Traffic and Public Safety
New legislative measures significantly increase penalties for traffic violations, including higher fines and extended license suspensions. These reforms reflect a broader governmental focus on public safety and law enforcement, potentially affecting logistics, transportation costs, and operational compliance for businesses reliant on road transport, while signaling a stricter regulatory environment.
Growth of Indonesia's Digital Economy Investments
Indonesia's digital economy is projected to attract US$130 billion in investments in 2025, representing 44% of Southeast Asia's digital economy. This sector is prioritized amid global uncertainties, supported by government-industry-academia collaboration, and is a key driver for economic resilience, innovation, and new business models impacting trade and investment strategies.
Climate Policy and Economic Growth Tensions
Canada's commitment to net-zero emissions and climate policies under the new Liberal minority government faces criticism for potentially stifling economic growth and investment, particularly in resource sectors. Balancing environmental objectives with business interests remains a critical challenge affecting investor sentiment and sectoral competitiveness.
Geo-Economic Foreign Policy Prioritization
Pakistan’s government emphasizes geo-economics as a core foreign policy focus, engaging with international business councils and foreign investors to strengthen bilateral trade and economic cooperation. This strategic orientation aims to attract foreign direct investment, enhance regional economic integration, and mitigate geopolitical risks through economic diplomacy.
Right-Wing Extremism and Political Stability Risks
The far-right Alternative for Germany (AfD) party's rise and designation as right-wing extremists by domestic intelligence pose risks to Germany's political stability. Extremist rhetoric and potential for increased influence could affect social cohesion, investor confidence, and policy continuity, with implications for domestic and international business environments.
North Korean Missile Threats
Repeated ballistic missile launches by North Korea towards the Sea of Japan heighten regional security risks. Japan's strong protests and defense responses underscore geopolitical instability, potentially disrupting trade routes, increasing defense expenditures, and affecting investor confidence in Japan and the broader East Asian region.
Migration Policy and Border Controls
Merz's government plans to tighten border controls and curb irregular migration, reversing Merkel-era open-door policies. This shift affects labor market dynamics, demographic trends, and international relations within the EU, influencing workforce availability, social integration, and cross-border trade.
US-China Tariff Conflict and Resolution
The ongoing trade war between the US and China, characterized by punitive tariffs up to 145% on Chinese imports and retaliatory Chinese tariffs, has severely disrupted global supply chains, increased costs for US businesses and consumers, and caused economic uncertainty. Recent negotiations have led to a temporary tariff reduction deal, easing market volatility and signaling potential for longer-term trade normalization.
Shift in Russia’s Foreign Trade Partners
Russia is actively redirecting its foreign trade towards neutral and friendly countries, especially in the East, to mitigate Western sanctions. This strategic pivot affects global supply chains, with increased exports of non-energy goods and a slight decline in oil and gas exports, reshaping trade flows and investment opportunities.
Challenges from Mass Organizations and Extortion
Mass organizations in Indonesia have engaged in extortion and disruptive actions against companies and investors, causing significant financial losses and deterring foreign investment. Incidents include demands for project shares and interference in factory operations, notably affecting major projects like BYD's EV factory, posing risks to Indonesia's investment climate and supply chain reliability.
Espionage and Technology Transfer Risks
Trials of German nationals accused of spying for China highlight vulnerabilities in technology transfer and intellectual property protection. The espionage case underscores risks to high-tech industries, dual-use exports, and national security, necessitating stricter controls impacting international business operations and foreign investment.
Financial Crime and International Reputation Risks
Allegations of Turkey's involvement in extensive international money laundering and financial crimes through networks in Iraq, Libya, and Northern Cyprus raise concerns about regulatory oversight and governance. Such accusations risk sanctions, reduced investor confidence, and increased scrutiny from global financial institutions, impacting Turkey's access to international capital markets and trade partnerships.
Geopolitical Stability and Security Concerns
Regional geopolitical tensions, including conflicts in neighboring countries, indirectly impact Saudi Arabia’s AI sector by influencing supply chain security and investor risk perceptions. While Saudi Arabia remains stable, vigilance is required to mitigate risks from regional instability that could disrupt AI-related international trade and investment.
Canada's Economic Dependence on US
Canada's long-standing economic integration with the US, driven by decades of free trade agreements, has entrenched dependence on the US market. This reliance poses risks amid US protectionist policies and political unpredictability, prompting calls for diversification of trade partners and strengthening internal trade to enhance economic resilience.
Political Narratives Affecting International Relations
Controversies such as claims of racial persecution and land confiscations, amplified by foreign political figures, affect South Africa’s international image and diplomatic relations, notably with the US. These narratives influence investor confidence and bilateral ties, requiring careful management to mitigate reputational risks and maintain stable trade and investment partnerships.
Energy Market Realignments and EU Gas Ban
The EU’s planned ban on Russian gas by 2027, amid resistance from some member states, will raise global LNG demand and energy prices. This shift pressures European industries, accelerates energy diversification, and affects Russia’s energy export revenues and global energy market dynamics.
Automotive Industry Tariff Implications
Trump's tariffs on automobiles and parts, including a 25% duty, pose significant challenges for US automakers, with exceptions for vehicles meeting high domestic content thresholds. Tesla stands out as uniquely positioned to avoid many tariffs due to its vertically integrated US manufacturing, while competitors face increased costs and supply chain adjustments.
Inflation and Currency Volatility
Brazil faces persistent inflation above the central bank’s target, driven by rising food, health, and import costs amid a weakening real. High interest rates (Selic at 14.25%, expected to rise) constrain credit, dampen investment and consumption, and create cautious market sentiment. Inflation and currency instability pose risks to trade competitiveness and investor confidence.
Rising Inflation and Fiscal Policies
Inflation in the EBRD regions, including France, has risen to 6.1% as of early 2025, driven by strong domestic demand and wage growth. Anticipated fiscal tightening and increased spending on defense and industrial policies may impact business costs, consumer purchasing power, and investment decisions.
Insurance Sector's Role in Risk Mitigation
The insurance industry in South Africa is called upon to lead in addressing multifaceted global risks, including political instability, economic crises, and social unrest. Engagement with global leaders aims to foster innovative risk management solutions, enhance financial stability, and support sustainable business environments amid increasing uncertainties.
Impact of US Tariffs on UK Economy
US tariff hikes under President Trump have significantly disrupted UK businesses, with half of April's profit warnings citing trade tariff impacts. These tariffs have led to increased costs, supply chain delays, and reduced export demand, contributing to economic uncertainty and dampening investment confidence among UK firms, particularly in manufacturing and shipping sectors.
Australia's Strategic Position Between US and China
Australia is increasingly caught between its major trading partner China and defense ally the US amid escalating geopolitical tensions. The nation faces pressure to balance economic ties with China against security concerns and US-led trade policies, potentially forcing difficult diplomatic and economic choices that could affect foreign investment and trade partnerships.
Japan's Current Account Surplus
Japan logged a substantial current account surplus of 30.37 trillion yen in FY 2024, reflecting strong export performance and capital inflows. This surplus underpins the yen's stability and Japan’s external financial position, affecting currency markets and international investment strategies.