Mission Grey Daily Brief - May 31, 2025
Executive summary
The past 24 hours reveal a world balancing on the edge of shifting power dynamics, with global business and political risk at new highs. The ongoing stand-off between the US and China, deepening China-Russia ties, fresh escalation in the technological arms race, and legal whiplash around Trump’s tariff regime are all entwined in an environment that requires heightened vigilance for international businesses. Meanwhile, Russia's strategy in Ukraine, support from North Korea, and a shifting intelligence landscape underscore the risks of engaging in controversial jurisdictions. Business resilience is being tested as trade war uncertainty, European energy insecurity, and accelerating technological disruption continue to shape the global outlook.
Analysis
1. US-China Tensions and the Trade “Supercycle” Reignite Global Risk
The reactivation of sweeping tariffs under President Trump’s administration has thrown global business into disarray. A recent federal appeals court decision temporarily reinstated Trump’s tariffs, which had previously been deemed unconstitutional by a trade court. This legal limbo is contributing to dramatic market swings, raising costs, and causing companies to pause investment decisions. The International Monetary Fund (IMF) last month downgraded global growth by 0.5 percentage points to 2.8%, warning that the bounce—termed a “sugar rush” driven by stockpiling—could be short-lived as trade friction saps momentum later in the year. Japanese companies, for example, remain exposed due to the US representing 21 trillion yen (approximately $146 billion) in exports, with automobiles counting for 28% of the total. Meanwhile, global companies have reported $34 billion in costs directly attributed to the US trade war—costs that could balloon as tariff uncertainty persists [Global economy'...][BREAKING NEWS: ...][Economic Uncert...][Trump accuses C...][NexUZ-7].
Compounding these economic headwinds, President Trump has escalated rhetoric against Beijing, accusing China of "totally violating" the trade deal, and hinting at a doubling of tariffs on key imports. French President Emmanuel Macron, speaking at the Shangri-La Dialogue in Singapore, has underscored the risk these divisions pose to the global order, calling the US-China split "the main risk confronting the world" [Divisions betwe...].
2. China-Russia “No Limits” Friendship: A Unified Front Against the West
As Washington and Beijing butt heads, China and Russia have seized the moment to tighten their bilateral alignment. During high-profile talks in Moscow, Xi Jinping and Vladimir Putin signed documents to “deepen” what they term a “comprehensive strategic partnership for a new era.” Their joint statement, trumpeted by state media, positions their relationship as “the highest level in history,” aiming for even deeper cooperation in energy, technology, trade, and even satellite navigation [Xi and Putin ag...][China, Russia e...]. In many respects, this partnership is strategically designed to challenge the Western-led global order, with Putin boasting that “together, we defend the formation of a more just and democratic multipolar world order” [Xi and Putin ag...].
However, China faces a unique conundrum: while it seeks leverage over Moscow and sees economic gains from cementing Russia’s reliance, Trump’s push for a US-Russia “reverse Nixon”—cutting a deal on Ukraine with Moscow, sidelining Beijing—has left China scrambling to assert relevance. Recent US overtures to Russia have surprised and unsettled Chinese leaders, resulting in more aggressive diplomatic and economic moves to shore up ties with the EU and court international partnerships as insurance against strategic exclusion [What China fear...][China aims to i...].
3. Russia’s Escalating Hybrid Warfare and the Ukraine Front
On the ground, Russia’s war in Ukraine continues unabated, with Moscow suffering close to 1 million casualties and losing vast stores of hardware—an estimated 10,865 tanks and nearly 40,000 drones. Even as peace negotiations receive public lip service, evidence suggests the Kremlin continues to escalate, massing as many as 50,000 troops for new offensives in northeast Ukraine [Vladimir Putin'...]. North Korea’s support has become crucial: up to 11,000 North Korean troops are reportedly deployed in Russia, with millions of North Korean munitions and over 100 ballistic missiles delivered this year—grave violations of existing UN sanctions [‘Stabbed in the...][Russia and Nort...].
Russia’s response to Western efforts is increasingly subversive. Espionage campaigns, sabotage attempts, and cyber-attacks have intensified across Europe in what NATO officials now label the “largest counterintelligence operation since the Cold War.” Over 750 Russian diplomats have been expelled since 2022, and Russian military intelligence (GRU) units like 29155 and 54654 are aggressively ramping up sabotage operations. This comes as Russia adapts sanctions-busting strategies, maintaining a war chest largely thanks to oil revenues from Europe—Russia has outearned Ukraine threefold since the invasion, primarily from continued European gas and oil purchases [A 'reckless cam...][Russia won’t ag...].
4. The Global Technological Arms Race and Business Adaptation
The technological race—particularly in AI—has become a significant component of the geopolitical struggle. US and Chinese tech giants are now pressuring their respective governments for looser copyright and data regulations, citing the imperative to stay ahead of rivals. Meta’s recent launch of its Llama 4 open-source AI model signals a paradigm shift. Policymakers worry that the country dominating AI will accrue overwhelming economic, military, and cultural power. But the AI revolution is not innocent: deepfakes, digital scams, and regulatory gaps expose significant security and ethical risks, especially as authoritarian actors deploy technology for surveillance or disinformation [AI Radar: Geopo...]. As old supply chains reconfigure, US chip export restrictions are projected to cost tech behemoths like Nvidia up to $8 billion in quarterly sales, underscoring the heavy cost of compliance with the new global tech regime [RECENT GEOPOLIT...].
Conclusions
May 2025 stands out as a watershed moment, with the world entering what some strategists see as a “geopolitical risk supercycle.” The unprecedented legal and regulatory volatility, weaponization of trade, deepened authoritarian alignment, and escalation in hybrid conflict put extraordinary demands on international businesses.
For organizations seeking resilience, now is the moment to diversify supply chains, ramp up scenario planning, and re-examine exposure to jurisdictions with high risk of corruption, opaque governance, or flagrant human rights abuses. The risks of doing business in or with China and Russia have never been clearer. For those committed to the values of transparency, fair competition, and respect for human rights, the message is unequivocal: risk management is the cornerstone of sustainable international growth.
Questions remain: Can Europe and the US manage a united response to authoritarian assertiveness without succumbing to economic self-harm? Will global businesses seize the opportunity to shift toward more resilient, ethical, and diversified structures? As the multipolar world takes shape, who will write the rules—those who uphold them, or those who seek to bend them? The answers will determine not just market outcomes, but the fabric of the international system in the years ahead.
Further Reading:
Themes around the World:
Political Instability and Market Volatility
Indonesia faces significant political unrest marked by protests against lawmakers' high allowances, tax hikes, and inequality. This unrest has led to sharp declines in the stock market and currency depreciation, increasing the equity risk premium and investor caution. The political turbulence threatens to undermine fiscal credibility and investor confidence, impacting foreign investment and market stability.
Fiscal Sustainability and Sovereign Credit Risks
Rising public debt and weakening tax revenues raise concerns over Thailand's sovereign credit rating. Although current debt-to-GDP ratios remain manageable, slower growth and increased spending on aging and infrastructure strain fiscal space. Potential credit downgrades could increase borrowing costs, limit government investment capacity, and negatively impact financial markets and business confidence.
Stock Market Recovery and Investment Opportunities
The Pakistan Stock Exchange has shown strong performance with the KSE-100 index surging nearly 90% over 12 months, driven by corporate earnings growth and stabilizing macroeconomic conditions. Undervalued equities present potential for a generational bull run, supported by easing monetary policy and improved investor sentiment, though political and economic risks remain significant.
Protectionist Tariff Measures and Trade Tensions
Mexico is proposing tariffs up to 50% on imports from countries without free trade agreements, notably targeting Chinese goods such as automobiles and steel. This move aligns with U.S. pressure to limit Chinese influence but risks escalating trade tensions and retaliation, particularly from China, which may restrict critical mineral exports. These tariffs could disrupt supply chains and raise costs for Mexican consumers and industries.
Stock Market Volatility and Foreign Interest
Saudi Arabia's Tadawul stock market shows volatility with recent declines but remains attractive to foreign investors due to low valuations and reforms easing foreign ownership. Foreign investors accounted for 41% of equities buying recently, signaling confidence despite oil price pressures. The market's diversification beyond oil companies supports sustained investment interest.
Federal Reserve Independence Under Threat
U.S. President Donald Trump's attempts to influence Federal Reserve decisions, including firing key governors and pressuring for rate cuts, raise concerns about the Fed's autonomy. Politicization of monetary policy risks undermining credibility, increasing market volatility, inflation, and borrowing costs, which could destabilize financial markets and investor confidence globally.
Rising Challenges for US Firms in China
American companies in China report unprecedented pessimism due to geopolitical uncertainties, fierce local competition, and economic slowdown. The decline in optimism, coupled with a 13.4% year-on-year drop in foreign direct investment, signals a broader global investor pullback, affecting bilateral trade dynamics and investment flows.
Stock Market Performance Amid Economic Uncertainty
The Tadawul All Share Index has experienced fluctuations with recent declines influenced by weak oil prices and global economic concerns. Despite this, some sectors and companies report profit growth, reflecting underlying resilience. Market volatility presents both risks and opportunities for investors navigating Saudi Arabia’s evolving economic landscape.
Rising Inflation and Wage Dynamics
Japan experiences inflation above 3%, driven partly by a weaker yen increasing import costs. While nominal wages have risen, real wage growth remains modest, limiting consumer purchasing power. Inflation pressures affect household budgets and consumption patterns, influencing retail and service sectors. The interplay between inflation and wage growth shapes monetary policy and domestic demand outlooks.
International and Regional Geopolitical Influence
South Sudan's political landscape is shaped by competing international actors: the U.S. seeks democratic reforms, while China dominates oil investments and Russia offers security partnerships. Uganda's military support for President Kiir further complicates peace efforts. These dynamics reduce Western leverage, increase geopolitical competition, and affect regional stability and investment climates.
Geopolitical Instability and Political Risk Insurance Demand
Geopolitical tensions and economic uncertainties have led to substantial investment losses for UK businesses abroad. Interest in political risk insurance (PRI) has surged, mitigating losses from government interference, currency issues, and political violence. However, lack of awareness limits PRI uptake, highlighting a need for better risk management education among firms.
Stock Market Volatility and Growth
The S&P/BMV IPC index reaches historic highs above 60,000 points amid mixed global signals, US labor data, and Fed policy expectations. Market volatility is driven by US political interference in the Federal Reserve, trade tensions, and corporate earnings, influencing investor sentiment and capital flows into Mexico.
Industrial Sector Weakness and Economic Growth Concerns
Mexico's industrial production contracted by 1.2% in July, driven by declines in manufacturing and construction. Combined with cautious growth forecasts and inflationary pressures, this signals challenges for Mexico's economic momentum, potentially affecting employment, investment, and supply chain stability.
Geopolitical Realignment and Strategic Autonomy
Pakistan is navigating a complex global order marked by the decline of US hegemony and the rise of multipolarity, especially China's ascent. The country seeks strategic autonomy by balancing relations with Eastern and Western powers, aiming to leverage its pivotal geographic location to enhance regional trade, security cooperation, and diplomatic influence amid intensifying global rivalries.
UN Sanctions Snapback and Economic Pressure
The imminent reimposition of UN sanctions, triggered by European powers, threatens to severely restrict Iran's oil exports and financial transactions, exacerbating economic challenges. These sanctions, combined with existing U.S. and EU penalties, are expected to reduce Iran's oil revenues significantly, constraining government spending and complicating international trade, thereby increasing country risk for investors and trading partners.
Economic Growth and Investment Challenges
South Africa's GDP growth has modestly improved to around 0.8%-1.2% in 2025, driven by manufacturing, trade, and mining. However, fixed investment remains weak, constraining sustainable growth. Structural reforms and increased private-sector participation are critical to unlocking investment, improving economic resilience, and addressing high unemployment and poverty levels.
Potential of Municipal Bonds to Finance Infrastructure
With soaring defense costs and rising debt, Israel is exploring municipal bonds ('Munis') as a cost-effective financing tool for public projects. This approach could diversify government revenue sources, reduce reliance on taxation and sovereign debt, and support infrastructure development critical for economic resilience amid ongoing fiscal pressures.
Foreign Investment in Russia’s Far East
Russia’s Far East development initiative attracts interest from ASEAN, China, BRICS, and Global South investors, driven by resource wealth and political commitment. This regional focus offers a strategic avenue for Russia to mitigate Western sanctions impacts by fostering partnerships and infrastructure development, potentially reshaping investment flows and economic integration in Asia-Pacific.
US Tariffs and Political Tensions
The US imposed 50% tariffs on most Brazilian imports in August 2025, citing political retaliation linked to former President Bolsonaro's legal troubles. Despite the high tariff rate, exemptions and Brazil's commodity export profile limit economic damage. The tariffs have strained US-Brazil relations, strengthened President Lula's domestic position, and accelerated Brazil's pivot towards China, impacting trade and investment dynamics.
Robust Foreign Exchange Reserves
Egypt's net international reserves hit a historic $49.25 billion in August 2025, bolstered by gold holdings and diversified assets. This financial buffer enhances Egypt's ability to manage external shocks, stabilize currency, and meet import and debt obligations, strengthening investor confidence ahead of key IMF reviews.
Economic Polarization and Domestic Demand Weakness
Despite export-driven growth, Taiwan faces uneven domestic demand recovery with polarized service sector performance. Challenges such as labor shortages, inflation, and credit constraints suppress consumption and real estate activity, while financial and investment sectors show divergent trends, signaling vulnerabilities in sustaining broad-based economic momentum.
Supply Chain Disruptions from Political Instability
Political instability and government changes in Russia, exacerbated by the Ukraine conflict, have disrupted supply chains through sanctions, export controls, and regulatory volatility. These factors increase compliance risks, raise costs, and create uncertainty for international businesses sourcing from or operating in Russia, necessitating adaptive legal and operational strategies.
International Financial Pressures
Political considerations have influenced credit rating agencies and institutional investors, leading to sovereign rating downgrades and divestment from Israeli bonds. These actions increase borrowing costs and complicate capital access, reflecting the intersection of geopolitics and financial markets impacting Israel's economic environment.
India-China Diplomatic and Trade Relations
Amid US tariff pressures, India is cautiously mending ties with China, including restarting direct flights and addressing trade issues like rare earths and fertilizers. While China supports India against US tariffs, deep-seated security concerns and trade imbalances limit the relationship's improvement. Strengthened ties could impact supply chains and regional geopolitical dynamics.
Forex Market Sensitivity to Geopolitics
Geopolitical events significantly affect currency markets through heightened uncertainty and risk aversion, triggering capital flows to safe-haven currencies like the U.S. dollar. Trade wars, sanctions, and regional conflicts cause currency volatility, impacting international trade costs and investment returns, necessitating vigilant forex risk management.
Capital Market Diversification
The Saudi capital market is expanding beyond equities, with non-listed corporate debt surging over 500% year-on-year to SR1.20 billion in Q2 2025. Government debt instruments also rose significantly. These developments, supported by regulatory reforms, enhance investment options, attract diverse investors, and reduce market volatility, strengthening Saudi Arabia's financial ecosystem.
Rising Unemployment and Price Wars
China confronts rising unemployment, especially youth, alongside intense price wars in sectors like electric vehicles. These pressures compress profit margins and challenge domestic consumption growth. The labor market strain and competitive pricing impact economic stability, consumer demand, and corporate profitability, affecting investment climate and policy responses.
Capital Market Reforms and Incentives
Egypt is implementing incentives to encourage large-scale stock listings and deepen its capital markets. Initiatives include tax exemptions on IPO proceeds, introduction of derivatives, and market maker mechanisms. These reforms aim to boost liquidity, attract local and international investors, and enhance market efficiency, thereby supporting private sector growth and economic expansion.
Persistent High Inflation and Monetary Policy
Inflation remains elevated at around 33%, complicating Turkey's monetary policy. The central bank has cautiously cut interest rates, balancing inflation control with growth support. Inflation pressures from food, housing, and education sectors persist, limiting the scope for aggressive rate cuts and impacting borrowing costs for businesses and households.
Security Challenges and Terrorism
Escalating insurgency and terrorism in Balochistan and Khyber Pakhtunkhwa, with a 45% rise in terrorism-related deaths, undermine domestic stability. Attacks on infrastructure, including China-Pakistan Economic Corridor assets, increase project risks and insurance costs, deterring foreign investment and complicating supply chains, thereby impacting economic growth and international trade relations.
Market Volatility and September Risks
September historically brings heightened market volatility, exacerbated by political tensions, Federal Reserve policy uncertainty, and tariff disputes. Investors face risks from rising Treasury yields, tech sector corrections, and geopolitical events, necessitating cautious portfolio management and readiness for sudden market shifts.
Social and Cultural Divides Amid Political Tensions
Internal social rifts, exemplified by the cancellation of major public events and government control over cultural expressions, reflect broader political tensions and public dissatisfaction. These dynamics contribute to domestic instability, affecting workforce productivity and consumer markets, while complicating the operating environment for businesses reliant on social cohesion and stable public sentiment.
Korean Firms’ US Investment Spurs Job Creation
South Korean companies have invested heavily in the US, creating over 1.6 million jobs, particularly in manufacturing sectors. However, domestic job growth in Korea remains sluggish amid structural challenges. The investment drive reflects strategic shifts to comply with US tariff policies but raises concerns about balancing overseas expansion with domestic economic vitality.
Finance Minister Removal and Fiscal Concerns
The abrupt dismissal of Finance Minister Sri Mulyani Indrawati has unsettled investors due to fears of eroding fiscal discipline amid President Prabowo's populist spending agenda. This move has led to rupiah depreciation, stock market declines, and concerns over widening deficits, potentially undermining Indonesia's fiscal credibility and deterring foreign capital.
High Inflation and Monetary Policy Challenges
Inflation surged beyond 10% in early 2025 due to wage increases, a weaker ruble, and supply constraints. The Central Bank’s tight monetary policy, with interest rates between 17-21%, aims to curb inflation but raises borrowing costs, suppressing economic growth. Persistent inflationary pressures complicate financial planning and increase costs for businesses and consumers alike.
India-Nepal Political Instability and Economic Risks
Nepal's political unrest, including violent protests and the Prime Minister's resignation, threatens India's economic interests due to close trade ties and shared borders. Disruptions in cross-border logistics, investment delays, and increased Chinese influence in Nepal pose risks to India's regional strategic and economic position, necessitating vigilant diplomatic and security responses.