## fd-june26-geoeconomics

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---

### Global prospects and immediate disruptions
- Overview findings:
  - The global economy is again disrupted by "the outbreak of war in the Middle East."
  - Rising commodity prices, firmer inflation expectations, and tighter financial conditions are testing recent resilience.
- Cross-chapter note:
  - Defense spending is rising amid intensifying geopolitical tensions; large defense spending booms have become more frequent, especially in emerging market and developing economies.

### Macroeconomics of conflicts and recovery
- Analytic approach:
  - Uses global post–World War II conflict data to assess economic implications of wars.
- Key emphasis:
  - Armed conflicts generate profound macroeconomic consequences that extend beyond direct human costs.

### Excess capacity, trade dynamics, and industrial policy
- Empirical capacity and trade facts:
  - China produced "1,019 million metric tons of crude steel" in 2023.
  - Excess global steel projected to be "644 million metric tons."
  - Solar photovoltaic manufacturing capacity "will soon be twice as high as global demand."
- Trade-policy dynamics:
  - Trade is being reshaped by "tariffs, subsidies, and industrial policies."
  - India seeks to "protect domestic industry from unfair competition while remaining integrated in global markets."
- Policy prescription:
  - A "calibrated approach" to industrial policy to act "as a shield against protectionist forces."

### Demographic divergence and migration
- Demographic differentials:
  - Median age "less than 20 in Africa" and "below 30 in India"; contrast with "shrinking populations in parts of East Asia and Europe."
- Labor and migration implications:
  - Labor surpluses in younger regions versus labor shortages elsewhere.
  - "Productivity gains can offset labor needs" but migration attitudes require reassessment.
  - Migration "must not be framed as a crisis but as an essential orderly response to global labor imbalances."
- Institutional reference and caveat:
  - The "United Nations Global Commission on International Migration" aimed for rational discussion of inevitable migration flows.
  - A younger demographic profile is valuable "only if matched by skills and employment opportunities."

### Technology, skills, and investment needs
- Skills and demand projections:
  - "Only 1 percent of 14- to 18-year-olds in India have received formal skills training."
  - Businesses will need "1.25 million professionals in artificial intelligence by 2027."
- Investment and FDI targets:
  - To secure a greater share of global FDI—"$877 billion"—developing economies must "cultivate a stable and attractive environment."
- Policy imperative:
  - "Massive sustained investment in human capital and R&D" to overcome digital-era inequality and steer AI toward productivity and broad-based progress.

### Fiscal constraints and green-growth linkage
- Fiscal framing:
  - "5.5 percent of GDP. Reaching the next phase of green growth depends on reconciling these imbalances through prudent fiscal policies."
- Cross-cutting requirement:
  - Ensure technological and industrial policies preserve "macroeconomic sustainability and social equity."

### India, middle powers, and multilateralism
- Strategic role and assets:
  - India can help "redefine multilateralism" owing to being a "large, diverse democracy," having "economic scale," a "diplomatic tradition [that] emphasizes dialogue and consensus," and "continued political stability."
- Geostrategic recommendation:
  - Small and middle powers can "nudge" fragmented blocs toward "conscious cooperation" and validate "the old principles of nonalignment."
- Concluding judgment:
  - "India’s choices today will shape not only its own trajectory but the contours of middle powers in the emerging global order."

### Europe’s strategic posture and defense integration
- Power paradox:
  - Europe described as a "middle power" despite large economy and defense spending.
- Structural obstacles to integration:
  - "Long-standing national defense traditions and incompatible standards," "industrial nationalism and entrenched special interests," and "persistent concerns about fiscal transfers and moral hazard."
- Institutional proposal:
  - "European Defence Mechanism" with three core functions—joint procurement and financing; ownership of shared strategic enablers such as satellites and air defense systems; and enforcement of a defense single market.
- Force structure and command:
  - Credible independent high-intensity operations require "its own command structure—and eventually a European army with unified command, procurement, and doctrine."
- Germany’s centrality and risks:
  - Defense spending largely exempt from the constitutional debt brake; Berlin can sustain expenditures "exceeding 3 percent of GDP."
  - Germany "is set to spend more than €500 billion over the next four years on defense."
  - Risk: additional spending may fund "legacy systems" and fail to reduce "dependence on the US"; procurement debates risk capture by "vested national champions."
- Short-term strategy:
  - Rely on "coalitions of the willing" to advance defense integration while other members may join later.
- Strategic aspiration:
  - Europe should act as a "third pole—capable of projecting strength while serving as a moderating and stabilizing force."

### Energy shock, efficiency gains, and uneven impact
- Recent shock:
  - Oil prices rose sharply with "the latest war in the Middle East"; closure of the Strait of Hormuz affects "about a quarter of seaborne oil trade."
- Structural cushions:
  - "Each dollar of output now requires roughly half as much energy as it did in 1980."
  - Oil’s share fell "from about half in 1973 to less than a third today."
- Vulnerability metrics:
  - "More than 80 percent of countries are net oil importers."
  - The most vulnerable entered the episode "with limited room in public budgets."
  - Sovereign and market indicators used: "Net oil exports, percent of GDP" and "Average sovereign credit rating" show clustering of vulnerable countries among "sub-Saharan African and small island developing economies."

### Geoeconomics: mechanisms of power, choke points, and fragmentation risks
- Definition and mechanisms:
  - Geoeconomics = "the use of financial and trade relationships to achieve geopolitical and economic goals."
  - Single-input threats can coerce; control over "multiple economic relationships" increases power.
- Bundling and network effects:
  - Belt and Road packages "loans, infrastructure projects, and access to manufactured goods" to amplify leverage.
  - US pressure to exclude Huawei’s 5G technology amplified impact via network externalities.
- Choke points and concentration metrics:
  - Financial services dominance: the US and its allies control "upward of 80 to 90 percent in many countries" of global financial services.
  - Nonlinearity: moving from "95 percent" to "85 percent" market share produces disproportionately large changes in leverage; 95 percent leaves "almost no viable alternatives."
  - Marginal power dilution: a Chinese alternative growing from "1 percent to 10 percent" would impose a disproportionately large reduction in US geoeconomic power.
- Mitigation and alternatives:
  - Russia’s post-2014 measures reduced dependence on the US-led coalition and lessened later sanctions' effects after 2022.
  - China and India are "building alternative payment and settlement systems"; Euro area countries pursue a "digital currency" to gain "greater monetary sovereignty."
- Trade-off and collective-risk:
  - Trade-off between gains from trade (scale and specialization) and economic security (dependence).
  - Widespread anti-coercion and decoupling policies—though individually rational—can lead to "excessive fragmentation" that reduces gains from trade and financial integration and can leave "everyone, including the hegemon, worse off."

### Hegemonic commitment, institutions, and measurement challenges
- Hegemonic commitment and institutions:
  - A hegemon that credibly constrains its use of coercion can dissuade others from adopting costly anti-coercion policies.
  - Postwar liberal institutions (IMF, World Bank, World Trade Organization) function as commitment devices that keep nations within the same economic system.
  - If rules-based constraints weaken, other countries respond by developing economic security policies, accelerating disintegration.
- Measurement approaches:
  - Use trade modeling and bilateral trade data to estimate harm from losing access to hegemon-controlled inputs; apply same logic to capital flows.
  - Use large language models (LLMs) to analyze analyst reports and earnings calls to capture discussions of geo‑economic threats that were threatened but not taken.
- Measurement caveat:
  - Most powerful geo‑economic threats often will not materialize if targets comply; analyst and executive discussions provide signals.

### LLMs, firm-level evidence, and near-term outlook
- LLM applications:
  - LLMs can extract signals about geo‑economic pressure down to a specific firm, instrument, and reaction, in near real time.
- Firm-level evidence:
  - Geo‑economic pressure affects firms’ pricing, investment, and supply chain decisions.
  - Chinese firms increased domestic research and development in response to US export controls on semiconductors.
  - Western firms largely complied with US demands to lower sales to China of specific technologies.
  - US firms report being overall negatively affected by US tariffs and intending to raise sales prices while facing higher input prices.
- Short-term outlook:
  - The world is unlikely to return to pre‑rivalry globalization; geo‑economic competition is a defining feature of the current moment and the years ahead.
- Strategic policy recommendations:
  - For countries pursuing anti‑coercion policies: targeted diversification in key sectors controlled by the hegemons can dramatically reduce vulnerability without wholesale decoupling.
  - The policy challenge: identify true choke points—sectors where dependence is greatest and alternatives scarcest—and concentrate diversification efforts there while preserving broader integration gains.
  - For hegemons: maintain credible commitments to rules‑based behavior, keep the global system attractive, and reserve coercive instruments for clear and limited purposes.
  - Balance: understand the nonlinearity of power, value of targeted diversification, and principle of self‑restraint to avoid complete fragmentation and preserve shared gains.

### Selected reference insights (summarized)
- Trade cooperation and rivalry:
  - Geopolitical rivalry raises tariff attractiveness; cooperation remains possible if governments weigh citizens’ welfare.
  - Two adjustment paths after a geopolitical shock: a costly war-and-redemption path or an immediate institutional adjustment that may require nonreciprocal transfers.
  - Proposal: a geopolitical exemption permitting discriminatory tariff adjustments between rivals under strict conditions to avoid destructive trade conflicts.
- Nationalization dynamics:
  - Russia seized more than $48 billion in ports, factories, and consumer businesses since 2022.
  - Between 2016 and 2026, disputed valuations of nationalized assets range "between $239 billion–$544 billion."
  - Wave IV (2020–present) focuses on commodities, utilities, mining; drivers include COVID‑19, post‑2022 commodity price surges, and strategic renewables policies.
- Place-based responses to dislocation:
  - Globalization produced geographically concentrated harms; place-based policies (well designed) can subsidize human and physical capital to restore local productivity.
  - Less-effective measures include untargeted tax subsidies; more effective designs condition support on local distress, rigorous selection, and accountability.
- Keynesian lessons:
  - Keynes emphasized ineradicable uncertainty and liquidity preference; policy should recognize "we don’t know" markets, guard against hoarding, and design institutions that mitigate liquidity-driven collapses.
- Global working hours dataset:
  - Database covers 160 countries representing 97 percent of the world’s population.
  - Globally, 59 percent of adults ages 15 and older are employed.
  - Those with jobs work 43 hours a week on average; average adult worldwide (including non-employed) works about 25 hours each week.
- Specialization and trade:
  - Division of labor requires trade and sufficiently large markets; connectivity and infrastructure expand addressable markets but increase systemic risk.
- Trade policy, modeling gaps, and effects:
  - Standard models understate transition costs, geographic immobility, and tariff‑jumping.
  - A study found areas exposed to Mexican import competition under NAFTA experienced a sustained 0.68 percent increase in annual age-adjusted mortality concentrated among working-age men.
  - Empirical evidence that tariffs and trade measures can reshape production and investment (examples: US automobile onshoring; washing machine tariffs; Mercedes‑Benz $4 billion investment citing tariffs).
- Recent trade balance trend and policy context:
  - The overall trade deficit in goods has decreased year over year every month since President Trump began implementing his reciprocal tariff policy in April 2025.
  - The IMF notes durable rebalancing requires action by both surplus and deficit economies; surplus economies need pressure to act.
- Mineral security and supply chains:
  - Processing—not mining—is the hard part for rare earths; processing can involve more than 50 steps to achieve necessary purity.
  - At one point, China was processing 99.5 percent of heavy rare earths.
  - The United States’ critical-minerals list contains 60 minerals.
  - Material intensity: the average internal combustion engine uses 32 kilograms of critical minerals; the average electric vehicle uses 210 kilograms of critical minerals—a sixfold increase.
  - Africa offers broad geographic opportunity but requires stable investment environments, consistent policies, and reinvestment of resource revenues to share benefits.

*Italic: Content derived from the IMF Finance & Development June 2026 articles and essays provided in the source PDF.*

### Chapter 1: Global Prospects and Policies

### Chapter 1: Global Prospects and Policies

### Overview
- The global economy is again disrupted, this time with the outbreak of war in the Middle East.
- Rising commodity prices, firmer inflation expectations, and tighter financial conditions are testing the recent resilience.

### Immediate economic disruptions (as stated)
- Outbreak of war in the Middle East.
- Rising commodity prices.
- Firmer inflation expectations.
- Tighter financial conditions.
- These factors are testing the recent resilience of the global economy.

### Cross-chapter note
- Chapter 2: Defense Spending: Macroeconomic Consequences & Trade-Offs — Defense spending is rising amid intensifying geopolitical tensions. This chapter finds that large defense spending booms have become more frequent, especially in emerging market and developing economies.

*Source: fd-june26-geoeconomics - Chapter 1: Global Prospects and Policies*

### Chapter 3: The Macroeconomics of Conflicts and Recovery

### Chapter 3: The Macroeconomics of Conflicts and Recovery

### Overview
- Armed conflicts generate profound macroeconomic consequences beyond their devastating human toll.
- This chapter leverages global data on post–World War II conflicts to assess the economic implications of wars.

### Major themes and analytic focus
- Assessment of the economic implications of wars using global post–World War II conflict data.
- Examination of macroeconomic consequences that extend beyond direct human costs.

### Key points emphasized in the chapter introduction
- Conflicts produce profound macroeconomic consequences.
- A data-driven, historical perspective (post–World War II) is used to evaluate these effects.

*Source: fd-june26-geoeconomics - Chapter 3: The Macroeconomics of Conflicts and Recovery (IMF Finance & Development, June 2026)*

### 5.5 percent of GDP. Reaching the next

### fd-june26-geoeconomics - 5.5 percent of GDP. Reaching the next

### Excess capacity and trade dynamics
- Global manufacturing imbalances: China produced "1,019 million metric tons of crude steel" in 2023; excess global steel is projected to be "644 million metric tons."
- Solar photovoltaic manufacturing capacity "will soon be twice as high as global demand."
- Trade is being reshaped by "tariffs, subsidies, and industrial policies"; policy response example: India seeks to "protect domestic industry from unfair competition while remaining integrated in global markets."
- Policy prescription: a "calibrated approach" to industrial policy to act "as a shield against protectionist forces."

### Demographic divergence and migration
- Age differentials: median age "less than 20 in Africa" and "below 30 in India"; contrast with "shrinking populations in parts of East Asia and Europe."
- Labor implications: labor surpluses in younger regions vs. labor shortages elsewhere; "productivity gains can offset labor needs" but migration attitudes require reassessment.
- Institutional reference: the "United Nations Global Commission on International Migration" aimed for rational discussion of inevitable migration flows.
- Political framing: migration "must not be framed as a crisis but as an essential orderly response to global labor imbalances."
- Caveat: a younger demographic profile is valuable "only if matched by skills and employment opportunities."

### Technology, skills, and investment
- Skills gap: "Only 1 percent of 14- to 18-year-olds in India have received formal skills training."
- AI demand projection: businesses will need "1.25 million professionals in artificial intelligence by 2027."
- Investment targets and incentives: to secure a greater share of global FDI—"$877 billion"—developing economies must "cultivate a stable and attractive environment" that ensures technological progress "drives productivity while preserving macroeconomic sustainability and social equity."
- Policy imperative: "massive sustained investment in human capital and R&D" to overcome digital-era inequality and steer AI toward productivity and broad-based progress.

### Fiscal constraints and macroeconomic sustainability
- Opening line: "5.5 percent of GDP. Reaching the next phase of green growth depends on reconciling these imbalances through prudent fiscal policies."
- Cross-cutting requirement: ensure technological and industrial policies preserve "macroeconomic sustainability and social equity."

### India, middle powers, and multilateralism
- Strategic role: India positioned to help "redefine multilateralism" and act across layers of smaller coalitions and traditional institutions.
- Political and diplomatic strengths cited: "large, diverse democracy," "economic scale," "diplomatic tradition [that] emphasizes dialogue and consensus," and "continued political stability."
- Geostrategic recommendation: small and middle powers can "nudge" fragmented blocs toward "conscious cooperation" and validate "the old principles of nonalignment."
- Concluding judgment: "India’s choices today will shape not only its own trajectory but the contours of middle powers in the emerging global order."

### Europe’s strategic posture and defense integration
- Power paradox: Europe described as a "middle power" despite large economy and defense spending; characterization risks reducing expectations and responsibility.
- Structural obstacles to defense integration: "long-standing national defense traditions and incompatible standards," "industrial nationalism and entrenched special interests," and "persistent concerns about fiscal transfers and moral hazard."
- Concrete institutional proposal: "European Defence Mechanism" with three core functions—joint procurement and financing; ownership of shared strategic enablers such as satellites and air defense systems; and enforcement of a defense single market.
- Command authority and force structure: credible independent high-intensity operations require "its own command structure—and eventually a European army with unified command, procurement, and doctrine."
- Germany’s centrality and risks:
  - Fiscal capacity: defense spending largely exempt from the constitutional debt brake; Berlin can sustain expenditures "exceeding 3 percent of GDP."
  - Planned spending: Germany "is set to spend more than €500 billion over the next four years on defense."
  - Risk noted: additional spending may fund "legacy systems" and fail to reduce "dependence on the US"; procurement debates risk capture by "vested national champions."
- Short-term strategy: rely on "coalitions of the willing" to advance defense integration while other members may join later.
- Strategic aspiration: Europe should act as a "third pole—capable of projecting strength while serving as a moderating and stabilizing force."

### Energy shock, efficiency, and uneven impact
- Recent shock: oil prices rose sharply with "the latest war in the Middle East"; closure of the Strait of Hormuz affects "about a quarter of seaborne oil trade."
- Buffers and structural cushions:
  - "Each dollar of output now requires roughly half as much energy as it did in 1980."
  - Oil’s share fell "from about half in 1973 to less than a third today."
- Distributional impact: severity of country-level shock depends on "how much oil an economy imports and how much policy space its government has to respond."
- Vulnerability metrics:
  - "More than 80 percent of countries are net oil importers."
  - The most vulnerable entered the episode "with limited room in public budgets."
- Sovereign and market indicators referenced: "Net oil exports, percent of GDP" and "Average sovereign credit rating" used to show vulnerable countries are clustered among "sub-Saharan African and small island developing economies."

### Geoeconomics: mechanisms of power, choke points, and fragmentation risks
- Definition and history: geoeconomics = "the use of financial and trade relationships to achieve geopolitical and economic goals"; historical roots include Albert Hirschman's 1945 work.
- Mechanisms of leverage:
  - Single-input threats can coerce, but control over "multiple economic relationships" increases power.
  - Bundling example: China's Belt and Road Initiative packages "loans, infrastructure projects, and access to manufactured goods" to amplify leverage.
  - Network effects example: US pressure to exclude Huawei’s 5G technology amplified impact via network externalities.
- Choke points and dependencies:
  - Financial services dominance: the US and its allies control "upward of 80 to 90 percent in many countries" of global financial services.
  - Nonlinearity of control: moving from "95 percent" to "85 percent" market share produces disproportionately large changes in leverage; 95 percent leaves "almost no viable alternatives."
  - Marginal power dilution: a Chinese alternative growing from "1 percent to 10 percent" would impose a disproportionately large reduction in US geoeconomic power.
- Examples of mitigation and alternatives:
  - Russia's post-2014 measures to reduce dependence on the US-led coalition lessened later sanctions' effect after 2022.
  - China and India are "building alternative payment and settlement systems"; Euro area countries pursue a "digital currency" to gain "greater monetary sovereignty."
- Trade-off and collective-risk:
  - There is a trade-off between gains from trade (scale and specialization) and economic security (dependence).
  - Widespread anti-coercion and decoupling policies—though individually rational—can lead to "excessive fragmentation" that reduces the gains from trade and financial integration and can leave "everyone, including the hegemon, worse off."

*Italic: Content derived from the IMF Finance & Development June 2026 articles and essays provided in the source PDF.*

### conclusion: Hegemonic powers can increase their

### conclusion: Hegemonic powers can increase their own welfare by voluntarily and credibly constraining their use of coercion.

### Hegemonic commitment and institutions
- A hegemon that commits to limiting its demands (for example, by submitting to the rules of international organizations) can dissuade other countries from pursuing costly anti-coercion policies.
- The hegemon sacrifices some flexibility to coerce but preserves the size and attractiveness of its economic network, which is the source of its power.
- Postwar liberal institutions (IMF, World Bank, World Trade Organization) function as commitment devices: by credibly promising not to exploit dominant positions too aggressively, the US and other hegemons keep other nations within the same economic system.
- If rules-based constraints weaken and hegemons are perceived as willing to exert geo‑economic power unpredictably or erode institutional commitments, other countries rationally respond by developing their own economic security policies and accelerate disintegration from the hegemons’ networks.

### Measurement challenges and empirical approaches
- Theoretical clarity must lead to testable implications and empirical guidance for policy.
- Two promising ways to bring existing theory to the data:
  - Use advances in trade modeling and bilateral trade data to estimate how much a targeted country would suffer from losing access to hegemon-controlled inputs, measuring the quantitative importance of threats. The same logic applies to capital flows.
  - Use large language models (LLMs) to analyze the text of analyst reports and earnings calls regarding multinational corporations that dominate world trade and finance, capturing discussions of geo‑economic actions that have been threatened but not taken.
- Measurement caveat: the most powerful geo‑economic threats often will not materialize if targets comply; analyst and executive discussions provide signals of threatened actions.

### LLM applications and granularity of measurement
- LLMs can extract signals about geo‑economic pressure down to a specific firm, instrument, and reaction, in near real time.
- This approach can measure demands that span multiple domains and are hard to specify in advance (e.g., Do not buy this, do not sell that, or give me a political concession).

### Firm-level evidence reported in this paper
- Geo‑economic pressure measurably affects firms’ decisions regarding pricing, investment, and supply chains.
- Chinese firms responded to US export controls on semiconductors by increasing domestic research and development.
- Western firms largely reported complying with US demands to lower sales to China of specific technologies.
- US firms report being overall negatively affected by US tariffs and intending to raise sales prices while facing higher input prices.

### Short-term outlook and strategic policy recommendations
- Short term: the world is unlikely to return to the era of globalization that preceded heightened US‑China rivalry; geo‑economic competition is a defining feature of the current moment and almost certainly of the years ahead.
- For countries pursuing anti‑coercion policies:
  - Targeted diversification in key sectors controlled by the hegemons can dramatically reduce vulnerability without requiring wholesale decoupling.
  - The policy challenge is to identify the true choke points—sectors where dependence is greatest and alternatives are scarcest—and concentrate diversification efforts there while preserving broader benefits of integration.
- For hegemons:
  - Maintain credible commitments to rules‑based behavior, keep the global system attractive to participants, and reserve coercive instruments for clear and limited purposes.
  - Committing to limited use of power encourages smaller countries to remain in a system that benefits everyone and minimizes defensive responses that diminish hegemonic power.
- Balance to strike:
  - Countries that understand the nonlinearity of power, the value of targeted diversification, and the principle of self‑restraint will navigate the coming decades more successfully.
  - Complete fragmentation is not necessary to achieve economic security, and hegemons need not abandon leverage entirely to preserve it; failure to strike the balance risks a fractured global economy where everyone is poorer and less secure.

*Conclusion from fd-june26-geoeconomics (F&D, June 2026).*

### references

### fd-june26-geoeconomics - references

### Trade cooperation in an age of geopolitics (Aaditya Mattoo, Michele Ruta, Robert W. Staiger)
- Core insight: Geopolitical rivalry increases the attractiveness of protectionist trade policy because governments care about relative power as well as absolute welfare.
- Key analytical results and scenarios:
  - Noncooperative (Nash) equilibrium under rivalry: higher tariffs and less trade than in a world without rivalry.
  - Cooperation remains possible as long as governments care at least somewhat about citizens’ welfare; enlightened self-interest can still undercut protectionism.
  - Two paths of adjustment from an old cooperative equilibrium (B1) to a new equilibrium (B2) after a geopolitical shock:
    - War and redemption: B1 → N2 → B2. Collapse of old agreement, tariffs rise to N2, then prolonged reciprocal negotiations restore a cooperative equilibrium. Economically costly and lengthy.
    - Immediate institutional adjustment: direct B1 → B2 transition along the efficiency frontier. More efficient but requires nonreciprocal transfers and institutional innovation (not compatible with WTO reciprocity).
- Institutional challenge and policy proposal:
  - Problem: WTO principles of reciprocity and nondiscrimination impede efficient, immediate adjustment between strategic rivals (example: Phase One agreement between the United States and China redirected imports and harmed exporters in Europe, Latin America, and elsewhere).
  - Proposal: a geopolitical exemption permitting discriminatory tariff adjustments between rivals under strict conditions.
    - Constraint: discriminatory adjustments must leave world prices between rivals and third countries unchanged to limit trade diversion.
    - Rationale: without such an exemption, adjustments will occur outside the multilateral framework or not at all, risking destructive trade conflicts and harm to neutral countries.

### The new wave of nationalization (Nicholas Mulder)
- Empirical magnitude and recent examples:
  - Russia has seized more than $48 billion in ports, factories, and consumer businesses since 2022.
  - Between 2016 and 2026, disputed valuations put nationalized assets at between $239 billion–$544 billion.
  - The United States took a dominant ownership stake in its only domestic rare earth producer (no dollar amount supplied).
- Causes and drivers:
  - Geopolitical instability, commodity market disruptions, renewable energy development, national security concerns.
  - Nationalizations aim to secure resources (lithium, gold, uranium, nickel, palm oil), capture export revenues, or respond to strategic competition.
- Historical context — four waves of nationalization:
  - Wave I: 1931–38
    - Sectoral focus: Banking and industry.
    - Global trade trend: Increased protectionism.
    - Monetary regime: End of gold standard fixed-rate system.
  - Wave II: 1945–52
    - Sectoral focus: Industry, utilities, transportation.
    - Global trade trend: Increased protectionism.
    - Monetary regime: Bretton Woods fixed-rate system.
  - Wave III: 1970–79
    - Sectoral focus: Energy and commodities.
    - Global trade trend: Increased liberalization.
    - Monetary regime: End of Bretton Woods fixed-rate system → floating-rate system.
    - Empirical facts: Between 1971 and 1980, developing economies nationalized at least $26 billion in foreign-owned property, or 11 percent of total foreign direct investment in the developing world in 1980.
    - Peak episode: In 1975, 28 countries carried out 83 expropriations—one every four days, on average.
  - Wave IV: 2020–present
    - Sectoral focus: Commodities, utilities, mining.
    - Global trade trend: Increased liberalization.
    - Monetary regime: Floating-rate system; inflationary environment.
    - Drivers include COVID-19 (2020), commodity price surge after Russia’s 2022 invasion of Ukraine, and strategic/renewables-driven resource policies.
- Consequences and dynamics:
  - Geopolitical nationalizations increase risk for foreign direct investment between strategic adversaries but may rechannel trade and investment within geopolitically aligned blocs.
  - Nationalizations cluster in waves due to commodity cycles, demonstration effects, inflation (which lowers real compensation costs), and political conviction.
  - Despite high capital mobility today, strong macroeconomic and geopolitical forces have sustained nationalizations in the 2020s.

### Place-based responses to globalization’s dislocations (Gordon Hanson)
- Central diagnosis:
  - Globalization produced large national-level efficiency gains but also deep, geographically concentrated distributional harms—especially manufacturing job losses in import-competing regions of high-income countries.
  - Economists underestimated three features:
    - The geographic concentration of manufacturing and consequent localized exposure to Chinese import competition.
    - The scarring effects of manufacturing job loss, where displaced workers often do not recover prior earnings.
    - Limited geographic labor mobility among less-educated and older workers, making spatial adjustment slow (decades in practice).
- Policy options evaluated (four):
  - Do nothing (market-driven shrinkage): Regions shrink slowly; adjustment may take generations.
  - Expand means-tested entitlement programs: Cushion consumption but do not address local labor-market causes.
  - Trade tariffs: Target symptoms, not root causes; tariffs have done little to restore manufacturing employment or earnings in harmed regions.
  - Place-based policies (preferred when well designed): Subsidize human and physical capital to upgrade local productivity and attract investment.
    - Less-effective measures: Tax subsidies to compete for large firms—lead to winner’s curse and transfer most surplus to firms.
    - More effective designs: Condition subsidies on local distress, rigorous selection and auditing, sectoral worker training (active labor market programs), enterprise zone programs with monitoring, and experimentation.
- Empirical and historical evidence:
  - Pittsburgh’s transformation from steel to health care, life sciences, and robotics took more than a generation; many other former industry towns did not recover similarly.
  - Policy implication: To restore public support for globalization, policymakers must offer credible alternatives to economic nationalism that directly address regional distress.

### Keynes for our times: uncertainty, liquidity preference, and moral economy (Robert Skidelsky)
- Core intellectual claims:
  - Keynes recognized ineradicable uncertainty; probability is a degree of belief justified by evidence, not an objective calculable measure for fundamental future events (e.g., war, commodity prices 20 years hence).
  - In “we don’t know” markets, liquidity preference rises: a flight to cash creates a liquidity premium that can raise interest rates and collapse investment.
- Historical and theoretical development:
  - Quantity Theory of Money: Keynes’s initial instrument to manage elastic currency to fit “needs of trade.”
  - A Treatise on Money: introduced circulation differences (real vs. financial) explaining asset price and unemployment co-movements.
  - Liquidity preference theory (post-1929): explains hoarding behavior, flight to cash, and market seizures (examples cited in the analysis include the global financial crisis of 2008 and the early-COVID-era dash for cash).
- Moral-philosophical dimension:
  - Keynes viewed excessive “love of money” as a moral/psychological vice that can sap economic vitality.
  - Policy lesson: Recognize uncertainty, avoid overconfidence in models that pretend away fundamental unknowability, and design institutions that mitigate liquidity-driven collapses.
- Policy relevance for 2026-era problems:
  - Keynesian insights help address trade and external imbalances and financial disruptions without resorting to blunt protectionist instruments.
  - Emphasizes the role of money, confidence, and institutional design in stabilizing economies facing deep uncertainty.

*Source: fd-june26-geoeconomics - references, IMF Finance & Development, June 2026.*

### part in inducing people to hoard money. He was

### Keynes for today; Global working hours; Revisiting the Wealth of Nations; Economics for the Real Economy

### Keynes’s legacy and policy implications
- Purpose of growth
  - Economic activity is utilitarian (making a living) but should be a means to achieving the good life and “should not be extended beyond what is needed for that purpose.”
  - Policy questions: “How much more growth, and what kinds of growth, are needed to secure the material conditions of the good life? Which economic system can best bring about the required conditions?”
- Saving, hoarding, and public investment
  - Keynes viewed saving as a brake on enterprise: “[I]t is not thrift but enterprise which builds cities and drains fens.”
  - The coexistence of “unimaginable hoarding of wealth with widespread stagnation and underemployment” reinforces Keynes’s argument for public investment.
  - Advocate discarding “currently fashionable lunacies such as the efficient market hypothesis.”
- International monetary reform and the bancor
  - Keynes opposed the gold standard for promoting hoarding by surplus countries (the US as “King Midas”).
  - He proposed replacing the reserve function of the dollar with a new international reserve currency—the “bancor”—or by progressively increasing members’ special drawing rights.
  - Zhou Xiaochuan revived the bancor idea in 2009; the movement for currency reform was “quashed by the US.”
- Facing dangerous times
  - Keynes called for “fearlessly facing dangerous times” and seeking remedies that preserve “efficiency and freedom.”
  - Historical note: full employment was achieved by World War II rather than by The General Theory; Keynes’s ideas are independent of the ends (including military spending) that might employ them.
  - The central dilemma posed: “Is an apocalypse needed to jolt politicians out of their intellectual ruts, or can a better analysis of our problems restore to health our diseased civilization in conditions of peace and freedom?”

### Global working hours—findings from the new dataset (Gethin and Saez)
- Data coverage and definitions
  - Database covers 160 countries representing 97 percent of the world’s population.
  - Time series span more than 20 years in 86 countries.
  - Weekly hours measured in all jobs that contribute to economic production; includes unpaid agricultural work; excludes unpaid home services (cleaning, cooking, caregiving).
- Key aggregate statistics
  - Globally, 59 percent of adults ages 15 and older are employed.
  - Those with jobs work 43 hours a week on average.
  - Average adult worldwide—including those without employment—works about 25 hours each week.
- Life-cycle and gender patterns
  - Working hours are lowest among teenagers, rise during early adulthood, peak in prime working years, and fall sharply after age 60.
  - Men provide roughly two-thirds of total worldwide working hours; women account for just one-third.
  - Disparities arise mainly from differences in employment rates (who participates) rather than hours among those employed.
- Development and working hours
  - Hours per adult follow a mild bell-shaped relationship with income per capita: lowest in poor and rich countries and highest in middle-income economies.
  - Income explains only a small fraction of global variation in working hours.
  - Examples: low working times in France, South Africa, and Afghanistan; high working times in Madagascar, Vietnam, and China.
  - Working time for those with jobs exceeds 45 hours a week in middle-income countries such as India and Pakistan.
  - Structural transformation (manufacturing and services expansion) drives long hours in emerging markets; high-income countries’ regulations and formalization reduce weekly work time.
- Young and old explained by institutions
  - Declines in working time for young people linked to expanding school attendance.
  - Reduced working time for older adults linked to development of public pension systems.
  - “Once we take schooling and pension coverage into account, national income itself no longer predicts working hours at these ages.”
- Gender reshuffling among prime-age adults (20–59)
  - Average prime-age hours (including non-employed) have been stable across development and long historical periods (example: “about 30 a week in 1900—virtually identical to today” in the US).
  - Development redistributes work across genders: male hours decline and female paid-job hours increase; in many regions these offset each other.
  - Result: long-term reduction in gender inequalities in working time.
- Role of taxes, regulations, and social policy
  - Higher labor taxes correlate with fewer working hours, but once accounting for labor regulations and formal employment expansion, the direct tax effect disappears.
  - Stronger regulation of working time, overtime rules, paid leave, retirement systems, and formal contracts are primary drivers of reduced hours at advanced development stages.
  - Conclusion: cultural and social choices encoded in public policy shape hours worked much more than pure economic development.

### Revisiting Adam Smith—specialization, trade, and market size (Michael Spence)
- Core insights
  - Division of labor (specialization) is fundamental to large productivity gains via scale economies, learning curves, and innovation.
  - Two structural elements needed for specialization: trade (prices/currencies as decentralized allocation) and a sufficiently large market (demand to support specialists).
- Technology, connectivity, and market access
  - Technology and connectivity expand addressable markets and enable specialization; infrastructure and removal of trade barriers are critical.
  - Post–World War II specialization and trade greatly accelerated productivity and contributed to the largest reduction in extreme poverty in recent history.
- Risks from specialization and complexity
  - Specialization entails risk: disruptions to trade or market access are dangerous and can constrain specialization.
  - Complexity increases systemic and hidden risks in networks and supply chains; AI may help manage complex systems such as supply chains and smart grids.
  - Growing incomprehensibility of complex systems can create political and social vacuums filled by misleading theories.
- Policy implications
  - Managing the risks of specialization requires investment in connectivity, infrastructure, and institutions that preserve market openness and reliability.

### Trade policy, modeling gaps, and real-world impacts (Jamieson Greer and Straight Talk)
- Critique of past consensus
  - For roughly 30 years, tariffs and import regulation were sidelined by models favoring hyperglobalization; policymakers closed off policy options.
  - Post–Cold War consensus ignored trade risks such as trade imbalances and dangerous import dependencies.
- Failures of standard economic models
  - Typical trade models assume full employment and seamless worker transitions; they understate transition costs and geographic immobility.
  - Models often assume away “tariff jumping through the cross-border reallocation of production,” a key mechanism by which tariffs reshape supply chains.
  - Empirical examples: the “China Shock” led to geographic immobility, permanent earnings losses for incumbent manufacturing workers, and long-term community harm.
- Measured human costs
  - A study by Amy Finkelstein and coauthors: areas with average exposure to Mexican import competition under NAFTA experienced a sustained 0.68 percent increase in annual age-adjusted mortality concentrated among working-age men—this mortality impact “more than erased the welfare gains identified” in a leading economic analysis of NAFTA.
- Evidence that trade measures can reshape production
  - Reagan-era restrictions on Japanese autos led to an onshoring boom with “over 100,000 new American auto jobs at more than 300 new production facilities by the 1990s.”
  - Trump-era safeguard tariffs (2018) on washing machines spurred investment by Samsung and LG in South Carolina and Tennessee; Mercedes-Benz is investing $4 billion in its Alabama plant, explicitly citing tariffs as the cause.
  - McKinsey finds recent tariffs have caused “a large-scale reordering of supply chains.”
- Imbalances, surplus-country policy, and policy responses
  - The US goods trade deficit “exploded to $1.2 trillion annually,” driving the current account deficit and negative net international investment position risks.
  - Recent IMF research: persistent trade imbalances harm deficit economies and benefit surplus ones by reallocating productivity gains.
  - Bank of England: combining industrial policy with consumption suppression (weak social safety nets, capital controls, high precautionary saving) generates persistent trade surpluses and “becomes a beggar-thy-neighbour policy.”
  - Critique of IMF prescriptions: recommending large tax increases and austerity while urging surplus nations to boost demand is politically untenable; models like GIMF may understate tariffs’ rebalancing mechanisms by ignoring tariff-jumping effects.
- Policy options and practicalities
  - Tariffs that directly target primary sources of the deficit are presented as “simpler, and more flexible” solutions compared with complex alternatives (export certificates, market-access charges).
  - Historical legislative precedent: a proposal by Dick Gephardt to impose mandatory large-scale tariffs on persistent surplus economies passed the House (later dropped for Section 301 strengthening).
  - Reported outcomes: US trade deficit with China was “down 32 percent, year over year” (text ends mid-sentence on this figure).

*Italic: Content excerpts compiled from the PDF unit provided (multiple feature articles from June 2026 IMF Finance & Development).*

### 2025. The overall trade deficit in goods

### 2025. The overall trade deficit in goods

### Trade balance trend
- The overall trade deficit in goods has decreased, year over year, every month since President Trump began implementing his reciprocal tariff policy in April 2025.

### Needed empirical models and salient channels to capture
- Models must capture what matters to the real economy, including:
  - distributional consequences of trade
  - labor market frictions
  - network and scale effects in manufacturing
  - effects of regulatory arbitrage on workers and producers
  - impacts of detailed rules of origin on global production networks
  - public health outcomes (noted in light of the new NAFTA research)
- If we want smarter policy, we need richer empirical tools that study how trade actually works.

### US policy stance and international implications
- The United States is using tariffs and agreements on reciprocal trade to:
  - encourage inbound productive investment
  - increase incentives for domestic production
  - open markets for US exports
- The IMF concedes that durable rebalancing requires action by both surplus and deficit economies.
  - Without real pressure a surplus economy has no reason to act.
  - That does not mean that deficit countries must remain inert.
- The United States is taking bold action to lay the foundation for an international economic system grounded in balance, reciprocity, fairness, and resilience.
- A 2025 paper was among the first to show that prospective changes in US tariff policies were likely to generate higher inflation and production losses in the US and among major trading partners.

### Policy implications and priorities for researchers
- Urgent need for economists to update tools and approaches:
  - “Economic conditions are constantly changing, and each generation looks at its own problems in its own way.” (Alfred Marshall quoted)
  - As the global economy changes, so too must the economics profession.
- Priority research areas implied by the text:
  - Development of richer empirical tools to evaluate distributional and sectoral impacts of trade policy
  - Microdata-based analysis of capital flows, supply chains, and firm-level responses to tariffs and industrial policy
  - Assessment of policy mixes that can produce durable rebalancing without leaving deficit countries inert

*F&D, JUNE 2026*

### 1939. But what we’ve not had before

### 1939. But what we’ve not had before

### Mineral security as economic security
- Project Vault demonstrates that mineral security is not just a national security imperative but an economic security imperative.
- Proposed concept: an economic security stockpile for civilian technologies so that auto manufacturers, semiconductor companies, and energy manufacturers can continue making critical products even if a country cuts off access or there’s a Strait of Hormuz disruption.
- Real-world disruptions highlighted:
  - When rare earth export restrictions went into effect, Ford had to stop manufacturing in Chicago.
  - Japan had to stop manufacturing the Suzuki.
  - Vehicle manufacturing in Europe was disrupted.
- Key lesson: whenever supply chains concentrate in one country’s hands, a significant economic risk is created that affects factory floors and households worldwide.

### Mining versus processing; concentration of capability
- Technical distinction:
  - Mining rare earths is comparatively straightforward; the hard part is processing.
  - Processing involves more than 50 steps to achieve necessary purity.
- Geographic and technological concentration:
  - Processing know-how has been concentrated in China.
  - At one point, China was processing 99.5 percent of heavy rare earths.
  - Building processing capacity is not an overnight industry; processing will remain concentrated in the hands of a single country for some time.

### Scale and distribution of critical minerals
- The United States’ critical-minerals list cited contains 60 minerals.
- Contrast with oil:
  - Oil is generally concentrated in a handful of countries, enabling cartels like OPEC.
  - Critical minerals are geographically widespread—“they’re everywhere”—making it much harder to form a minerals cartel.
- Implication: the mineral race requires engagement with a far wider set of countries, particularly in Africa and Latin America, and is therefore far more complex than the historical oil rush.

### Industrial policy and nascent supply chains
- Historical precedent:
  - Japan subsidized Honda until it became profitable.
  - Finland subsidized Nokia until it became commercially viable.
- Rationale for industrial policy now:
  - Supply chains and processing outside China are nascent and often require support to become economically competitive.
  - Forms of support include subsidies, grants to build processing facilities, or equity investments.
  - Hope: support will be temporary until the industry can compete on its own.

### Africa: opportunity and conditions for shared benefits
- Changing global approach:
  - The world is now viewing Africa through a commercial diplomacy lens rather than primarily as an aid recipient.
  - Competition for Africa’s resources creates opportunities for countries to secure better value propositions.
- Policy measures by African countries:
  - Ghana, Namibia, and Zimbabwe have introduced restrictions on mineral exports to capture more in-country value addition—e.g., “If you’re not processing here, minerals aren’t leaving the country.”
- Preconditions for Africa to benefit:
  - Stable investment environments, including consistent policies, particularly around taxation.
  - Commitment to reinvest resource revenues in physical infrastructure, human capital, and sustainable resource management.
  - Developing an investible market where benefits are shared depends on achieving that level of stability, which “remains a struggle.”

### Demand drivers and scale-up requirements for clean energy
- Clean-energy technologies are the biggest drivers of mineral demand.
- Material intensity of vehicles:
  - The average internal combustion engine uses 32 kilograms of critical minerals.
  - The average electric vehicle uses 210 kilograms of critical minerals—a sixfold increase.
- Consequence: clean energy requires a substantial expansion of mining and processing capacity beyond current levels.

*This interview has been edited for length and clarity.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2026/06/fd-june26-geoeconomics.pdf_