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Israel riled by US-Iran pact
The United States and Israel entered the spring of 2026 locked in an unprecedented conflict with Iran. On 28 February the two allies launched a joint offensive aimed at destroying Iran’s ballistic‑missile programme, curbing its support for militant proxies and forcing an end to its nuclear ambitions. The campaign quickly spread across the region: Iranian forces responded with ballistic‑missile salvos and drone attacks, and the United States imposed a naval blockade on Iranian ports. Iran retaliated by closing the Strait of Hormuz, a narrow waterway through which a fifth of the world’s oil flows. By early April both sides had agreed to a fragile ceasefire, but the war’s economic and human cost, coupled with mounting pressure from Gulf Arab states to restore trade, propelled Washington to seek a negotiated settlement.President Donald Trump has now circulated a draft agreement that would reopen the Strait of Hormuz to commercial shipping, lift the U.S. blockade and unlock up to $12 billion of Iran’s frozen assets. Under the memorandum of understanding, shipping lanes would return to pre‑war levels within a month, and a 60‑day negotiating period would be devoted to the future of Iran’s nuclear programme. Discussions on highly enriched uranium, centrifuges and International Atomic Energy Agency supervision would begin only after trade resumed. Iran would renounce nuclear weapons, but its stockpiles and missile arsenal would not be dismantled at this stage. The deal also calls for a permanent ceasefire that would extend to Lebanon, where Israeli forces have been engaged in a separate conflict with Hezbollah. As a diplomatic sweetener, Washington has urged Saudi Arabia, Qatar, Pakistan and other regional powers to normalise relations with Israel by joining the Abraham Accords.In Israel the proposal has provoked a storm of indignation. Senior officials, speaking on condition of anonymity, have branded the emerging accord a “bad deal”. Their chief complaint is that the draft postpones serious constraints on Iran’s nuclear and missile programmes, creating the risk that Tehran will pocket sanctions relief, rebuild its economy and rearm its proxies while negotiations drag on. Israeli strategists note that the memorandum says nothing about Iran’s long‑range missiles or its network of regional militias. They fear that a temporary ceasefire would allow Iran’s allies in Lebanon, Syria and Yemen to regroup and that the release of billions of dollars would enable Tehran to reconstitute military facilities damaged during the war.Opposition leader Yair Lapid, who is attempting to unseat Prime Minister Benjamin Netanyahu later this year, has condemned the plan as “bad for Israel, bad for the region [and] bad for the citizens of Iran”. Lapid has criticised Mr Netanyahu for failing to influence Washington’s negotiating position and warns that Israel’s ability to shape American policy is at an all‑time low. Other Israeli commentators describe the draft as a strategic failure: the war began with publicly declared goals of toppling Iran’s theocratic government, ending its ballistic‑missile threat and severing its ties to militant groups, yet the proposed agreement delivers none of those outcomes. Analysts at the Institute for National Security Studies argue that the enormous gap between the war’s ambitions and the terms of the emerging deal shows how little the campaign’s architects understood Iran. Some call it a capitulation that leaves Iran in a stronger position than before the war.Security officials are particularly alarmed by the prospect of constraints on Israeli military operations in Lebanon and Gaza. The draft calls for a permanent ceasefire not just in the Persian Gulf but across the region, including southern Lebanon where Israeli troops have seized strategic positions and where daily exchanges of fire with Hezbollah have continued despite the pause in the broader war. Israeli commanders insist on “freedom of action” to strike Iranian targets and proxies; they fear that a formal ceasefire would tie their hands and allow Hezbollah to entrench itself further along the northern border. The idea of including Hezbollah in the ceasefire, reportedly floated by Tehran, is anathema to the Israel Defense Forces.The financial dimension of the proposed deal is another source of anger. Iran’s government is demanding access to billions of dollars held abroad to stabilise its economy after months of conflict. For Israel, the thought of unlocking those funds conjures memories of the 2015 nuclear agreement, which lifted sanctions and allowed Iran to re‑enter oil markets. Hawks in both Israel and the United States warn that injecting cash into Iran’s coffers will embolden the Revolutionary Guard Corps and enable renewed investment in missile development and proxy warfare. These critics argue that pressure—not relief—is the only way to force Tehran to dismantle its nuclear infrastructure and curb its regional ambitions. Some even say they would prefer a return to open conflict to the signing of a weak agreement that leaves Iran intact.Israelis are also wary of the diplomatic gambit tied to the deal. President Trump has declared that it should be “mandatory” for countries such as Saudi Arabia, Qatar and Pakistan to recognise Israel as part of the agreement. Pro‑Israel voices in the United States have welcomed the idea, but regional experts point out that Gulf states are not prepared to normalise relations at a time when Israel is still waging wars in Lebanon and Gaza and when Palestinian casualties have fuelled widespread anger. Saudi Arabia has repeatedly said it will not normalise relations without a Palestinian state based on the 1967 borders. For Israel, therefore, the promise of new diplomatic ties offers little comfort; what matters is security, and the current draft does not guarantee it.Beyond Israel, the emerging agreement has drawn criticism from Republican hawks in Washington. Senators Lindsey Graham, Ted Cruz and Roger Wicker have all warned that a 60‑day ceasefire that reopens the Strait of Hormuz while leaving Iran’s nuclear and missile capabilities untouched would be a “disaster”, a “nightmare” and a “disastrous mistake”. Former secretary of state Mike Pompeo has derided the proposal as a retreat from the “America First” stance, arguing that Tehran should not receive a penny until its capability to threaten U.S. allies is eliminated. These voices echo the concerns of Israeli officials who fear that the balance of power in the region will shift in Iran’s favour if the United States compromises.The uproar in Jerusalem is compounded by a feeling of marginalisation. Reports in the Israeli press suggest that Mr Netanyahu has been largely sidelined in negotiations, with Washington seeking input from Gulf allies and Pakistan instead. A senior Israeli security official recently lamented that “Israeli interests were not taken into account throughout the negotiations”, noting that Israel might now face restrictions on its ability to act in Lebanon and Gaza despite fighting alongside the United States in Iran. Such perceived neglect has fuelled domestic criticism of Mr Netanyahu and heightened the sense of betrayal that underpins Israel’s fury at the emerging deal.As negotiations continue, the gap between Israeli expectations and the draft agreement’s provisions remains wide. Israel entered the conflict hoping to eliminate a strategic rival and reshape the Middle East. It now confronts the prospect of a ceasefire that freezes the status quo, leaves Iran’s regime intact, and imposes constraints on Israel’s military freedom. Unless Washington and Tehran can produce a final agreement that addresses Israel’s security concerns—particularly the dismantling of Iran’s missile and nuclear capabilities and the curtailment of its proxies—the anger emanating from Jerusalem is unlikely to subside. The fate of the war, the security of the Gulf and the future of regional diplomacy all hinge on whether these divergent interests can be reconciled in the weeks ahead.
Russia’s dollar pivot
For years, Moscow positioned itself as the standard‑bearer of de‑dollarization. After Western sanctions were imposed in 2022, the Kremlin accelerated efforts to settle trade in local currencies, expanded gold reserves and championed alternative payment systems within the bloc of major emerging economies known as BRICS. Senior officials boasted that the age of the greenback was ending, and state media presented the shift as a moral stand against Western financial hegemony.That narrative now faces an extraordinary test. According to an internal government memorandum circulated among senior officials early this year and reported by multiple media outlets, Russia is exploring a broad economic rapprochement with the United States in return for sanctions relief and progress on a settlement in Ukraine. The document lists seven areas of potential cooperation, from fossil fuels and natural gas to offshore oil exploration and strategic minerals. The most striking element is Moscow’s readiness to re‑enter the dollar settlement system—a reversal of the policy that has underpinned its eastward economic pivot.De‑dollarization and the BRICS currency dreamRussia’s push to reduce dependence on the U.S. dollar has been most visible in its trade with China. By mid‑2023, President Vladimir Putin told a St Petersburg business forum that more than four‑fifths of bilateral trade was being settled in rubles and yuan, noting that reliance on the dollar exposed both sides to risks and costs. The trend accelerated: at the Boao Forum for Asia in March 2024, Deputy Prime Minister Alexei Overchuk said around 92 percent of trade settlement between Russia and China was being conducted in the two countries’ currencies. Bilateral trade volumes reached $240 billion in 2023, up sharply from the previous year, and the share of deals using local currencies climbed from a quarter in 2021 to two‑thirds in 2023.These shifts were part of a broader agenda within BRICS. At the bloc’s summit in Kazan in October 2024, leaders discussed the idea of creating a new reserve currency backed by a basket of their national currencies. On stage, Mr Putin held up a prototype banknote meant to symbolise a BRICS currency. Yet he struck a conciliatory note, stressing that the goal was not to “refuse or fight the dollar” but to prevent its “weaponization” by developing mechanisms for local‑currency trade. Officials from other member states expressed similar caution. The bloc’s New Development Bank made clear there was “no suggestion right now” of launching a new currency.Within BRICS, the shift away from the dollar has been uneven but significant. Roughly 60–67 percent of intra‑BRICS trade is now estimated to be settled in local currencies, according to government data. Russia’s bilateral trade with China and India is said to be 90–95 percent denominated in rubles, yuan and rupees. However, the dollar still accounts for about 88–89 percent of global foreign exchange transactions and remains the dominant currency for energy and commodity trading. Energy contracts are largely priced in dollars, and global capital markets continue to operate primarily in the U.S. currency.A leaked memo and a potential U.S. dealAgainst this backdrop, the leaked Kremlin memorandum marks a dramatic change of tone. The document proposes an “energy dominance” partnership in which the United States and Russia would transition from rivals to partners, focusing on joint investments in liquefied natural gas, offshore drilling and the development of critical minerals such as palladium and nickel. In exchange for a peace framework in Ukraine and the easing of sanctions, Moscow would re‑open its economy to American firms and return to dollar‑denominated trade. The memo describes this shift as an economic realignment rather than a symbolic gesture, arguing that reintegration into the dollar system would expand Russia’s access to global liquidity, lower transaction costs and stabilise its currency markets.Such a pivot would reverse years of painstaking efforts to insulate Russia from U.S. financial pressure. Since 2022, nearly 90 percent of Russia’s trade with China and India has been settled in national currencies, and the share of local‑currency settlement across BRICS has climbed steadily. Russia’s removal from the SWIFT financial messaging system forced banks to adopt alternative channels. Returning to the dollar would restore access to deep capital markets but would also reintroduce exposure to potential U.S. sanctions and financial surveillance.Why Moscow might turn backAnalysts point to several reasons why the Kremlin might consider embracing the dollar once more. First, the de‑dollarization drive has increased Russia’s dependence on China. Using the yuan binds Moscow to a partner whose economic clout far exceeds its own, giving Beijing significant leverage. The leaked memo implicitly acknowledges this imbalance by proposing diversification through renewed engagement with the United States. Second, the dollar’s dominance in global trade and finance remains overwhelming. According to central bank data, the greenback makes up the majority of foreign exchange reserves and still facilitates most energy transactions. Re‑entering dollar‑based systems would improve liquidity for Russian businesses and help stabilise the ruble, which has seen volatile swings against the U.S. currency.A return to dollar settlements could also serve as a bargaining chip. Moscow may hope to leverage its willingness to rejoin the U.S. financial architecture to secure sanctions relief and concessions on Ukraine. In this interpretation, the memo is less a repudiation of BRICS than a pragmatic negotiation tactic. It signals openness to compromise without committing to immediate policy changes. The Kremlin has not publicly confirmed the document’s authenticity, and officials have said that any agreement would depend on complex diplomatic alignments and legislative approval in Washington.Strains on BRICS and relations with BeijingEven the suggestion of a dollar comeback has unsettled other BRICS members. China has invested heavily in internationalising the yuan, and India has expanded rupee settlements. A Russian about‑face would slow the momentum behind alternative payment systems and cast doubt on proposals like BRICS Pay. It could also introduce friction within the bloc: Brazil, South Africa and Saudi Arabia have backed gradual de‑dollarization as a means of strengthening economic sovereignty. For them, Russia’s shift might look like a betrayal of a shared agenda.The move could have significant geopolitical consequences for Russia’s relationship with China. Beijing has been Moscow’s lifeline since the invasion of Ukraine, purchasing discounted oil and gas and providing access to technology. In return, Moscow has become more reliant on Chinese investment and currency channels. A pivot toward the dollar risks antagonising China and weakening a partnership that both sides describe as a “no‑limits” friendship. Some observers suggest that the Kremlin is betting it can balance ties with Washington and Beijing or at least extract concessions from both.An uncertain path aheadFor now, Russia remains deeply integrated into the Chinese economic sphere. Trade in local currencies continues to expand, and the BRICS countries have not abandoned the idea of enhancing payment mechanisms independent of the U.S. dollar. The leaked memo is a reminder that geopolitical strategies are shaped as much by pragmatism as by ideology. Moscow’s de‑dollarization campaign has always been about hedging against Western pressure rather than declaring a clean break. If sanctions were lifted and economic incentives aligned, a return to the dollar would be less ideological surrender than tactical adjustment.Still, the implications are profound. Should Russia re‑enter dollar‑based trade, it would signal that even a leading advocate of alternative currencies sees advantages in the existing system. It would test the cohesion of BRICS and force Beijing to reassess the balance of power within the partnership. Above all, it underscores the resilience of the greenback: despite repeated predictions of its decline, the U.S. dollar remains the anchor of global finance, and even those who challenge it may find themselves drawn back into its orbit.
Fentanyl trade unravels
Fentanyl, a synthetic opioid up to 50 times more powerful than heroin, has been at the centre of a catastrophic overdose crisis. After years of relentless expansion, the market that once claimed tens of thousands of lives annually is contracting. Preliminary data from the United States Centers for Disease Control and Prevention (CDC) indicate that estimated drug overdose deaths fell to about 80,000 in 2024, a 27 per cent decline from the record of more than 110,000 in 2023, signalling the largest one‑year drop in modern history. This article examines why the fentanyl business is faltering, exploring the interlocking impacts of supply‑chain disruption, international diplomacy, law‑enforcement operations and public‑health initiatives.From Peak to DownturnDuring the early 2020s, illicitly manufactured fentanyl flooded the North American drug market, becoming the leading cause of overdose deaths. The pandemic exacerbated the situation: social isolation and disrupted addiction treatment services contributed to a spike of nearly 110,000 U.S. overdose deaths in 2023. Most of those deaths involved fentanyl, which dealers used to replace or adulterate heroin, counterfeit prescription pills and cocaine. Yet by 2024 the tide had turned. CDC data show that overdose deaths fell by roughly 30,000 in one year, and preliminary numbers for 2025 suggest the decline is continuing. The decrease extends across most U.S. states, with notable reductions in Ohio and West Virginia. Such a sustained downward trend had not been seen in decades and prompted researchers to look beyond domestic policy interventions for an explanation.Supply‑Chain Disruption and China’s CrackdownOne of the most significant drivers of the decline appears to be a disruption in the global supply of fentanyl and its precursors. Researchers analysing death trends in the United States and Canada found evidence of a sudden shortage of fentanyl on illicit markets beginning in mid‑2023. A Science journal study led by scholars at Stanford and the University of Maryland concluded that Chinese enforcement actions against chemical suppliers have curtailed exports of fentanyl precursors. Officials in Beijing shut down hundreds of companies, removed tens of thousands of online advertisements and arrested about 300 people after agreements with Washington to restrict the trade. The research suggests these moves reduced the availability of 4‑fluoroisobutyryl fentanyl and other precursors, causing the purity of seized fentanyl to fall and the price to rise. According to the DEA’s 2025 National Drug Threat Assessment, some Chinese suppliers have become wary of shipping controlled chemicals, aware that their government is enforcing updated counter‑narcotics treaties. Mexican fentanyl cooks report difficulty obtaining key precursors and are increasingly relying on designer chemicals to circumvent regulations.Cartel Disruption and EnforcementWhile precursor shortages have choked production, targeted law‑enforcement operations have also shaken the industry. White papers from the National Security Data and Policy Institute detail how the capture of Ovidio Guzmán López — a senior Sinaloa Cartel figure and son of Joaquín "El Chapo" Guzmán — in 2023 destabilised the cartel’s synthetic‑drug division. Experts point to a correlation between cartel ‘decapitation’ operations and sharp but temporary declines in fentanyl seizures and overdose deaths. The killing of Nemesio Oseguera Cervantes, leader of the Jalisco New Generation Cartel in late 2025, likewise rattled the market, although researchers caution that rival factions can quickly reconstitute production. The National Drug Threat Assessment notes that the Sinaloa and Jalisco cartels continue to dominate fentanyl production, but they face greater risk as Mexican and U.S. authorities cooperate to target laboratories and intercept shipments at the southwest border. Seizures at border crossings dropped from 29,000 kilograms in 2023 to 23,000 kilograms in 2024, reinforcing evidence of a supply contraction.Public‑Health Measures and Changing BehaviourThe contraction of the fentanyl trade has amplified the effect of public‑health interventions. Increased distribution of the overdose‑reversal drug naloxone, expansion of medication‑assisted treatment programmes and billions of dollars in opioid settlement funds have collectively improved survival rates. Harm‑reduction services such as supervised consumption sites and drug‑checking kits have proliferated in major cities, allowing users to detect dangerous adulterants like xylazine and medetomidine. Younger Americans appear less likely to initiate opioid use than previous cohorts, and some long‑term users have died or shifted consumption patterns. These behavioural changes mean that a shrinking pool of susceptible individuals is exposed to an increasingly fragmented drug supply.An Evolving Drug MarketDespite the current downturn, the illicit drug market is far from static. The DEA warns that declining fentanyl purity does not equate to reduced danger. To compensate for shortages, traffickers are mixing fentanyl with veterinary tranquilizers and new synthetic opioids such as nitazenes, which can be even more potent. The National Security Data and Policy Institute notes that precursor chemicals still arrive in Mexico’s Pacific ports such as Manzanillo, and cartels are diversifying sourcing through India and alternative trans‑shipment points. According to the DEA, the presence of xylazine in seized powder has risen steadily since 2020, increasing the risk of fatal respiratory depression and flesh‑rotting wounds. Nitazene analogues and other novel substances are appearing in toxicology reports at an accelerating rate in 2026, underscoring how quickly manufacturers pivot when confronted with enforcement pressure.The sharp decline in fentanyl‑related deaths offers a glimmer of hope after years of escalating tragedy, but it is not a definitive victory. The current contraction appears to be driven primarily by disruptions in precursor supply, strategic cartel‑targeting operations and strengthened public‑health responses. Yet the same agility that allowed traffickers to flood markets with fentanyl enables them to adapt to enforcement, shifting to new chemicals, routes and business models. Sustained reductions in opioid mortality will require international cooperation to control chemical exports, continued pressure on manufacturing networks, wider access to treatment and harm‑reduction services, and public education to deter drug initiation. As policy makers debate how to allocate resources, the lesson of the fentanyl collapse is clear: comprehensive, co‑ordinated action across borders and disciplines can save lives.
AI and the Future of Wealth
Artificial intelligence is no longer a futuristic curiosity. In little more than three years, it has attracted more than a billion users worldwide and become integral to everything from banking to education. Large language models write software, compose correspondence and even diagnose diseases. Governments and investors have poured hundreds of billions of dollars into AI infrastructure. This rapid growth is raising a familiar question with a modern twist: will the technology hollow out the middle class and concentrate wealth in even fewer hands?Emerging divides in a global AI boomThe distribution of AI adoption is already uneven. Recent United Nations research estimates that two‑thirds of people in high‑income economies use AI tools, while in many low‑income countries usage remains below five per cent. Analysts warn that this “next great divergence” could widen gaps not only among workers but between nations. Access to fast internet, computing power and education allows wealthier economies to reap the gains of automation while others fall behind. The same report notes that AI could lift annual gross domestic product growth by around two percentage points and raise productivity by up to five per cent, but three‑quarters of firms surveyed expect job losses even as new roles emerge. Female employment is almost twice as exposed to AI as male employment and informality remains high in many developing nations. Without inclusive policies, the technology could deepen structural imbalances.Middle‑skill work in the crosshairsIn advanced economies the middle‑skill, middle‑income jobs that formed the backbone of post‑war prosperity already face pressure from automation and trade. Primary‑school teachers, managers and secretaries still dominate the income distribution, but routine tasks in these occupations are increasingly handled by software. A 2020 study cited by policy analysts found that teachers spend more than ten hours a week on preparation and administration, and roughly half of that time could be reassigned to AI tools. Autonomous vehicles pose a more direct threat: the trucking industry supports millions of drivers, yet economists at a major investment bank have predicted that self‑driving trucks could eliminate about 300,000 jobs annually once the technology matures. Similarly, managers and administrative assistants are discovering that screening résumés and scheduling meetings are tasks that algorithms can perform instantaneously.At the same time, there is evidence that AI can augment rather than replace human labour. Teachers freed from paperwork can spend more time engaging with students. Secretaries still provide the interpersonal glue in offices that machines cannot replicate. Managers will need to supervise AI systems and make judgement calls. The notion that an entire stratum of society will be rendered obsolete is therefore simplistic. Many of the most common middle‑class occupations are likely to be reshaped rather than eliminated.Predictions, panic and perspectiveCommentary about AI’s labour market impact swings between exuberance and dystopia. In 2025 the head of a cutting‑edge research company suggested that generative AI could wipe out half of all entry‑level white‑collar jobs within five years. Leading technologists, including pioneers who helped invent deep learning, warn that artificial intelligence will increase unemployment while boosting profits and that regulators are ill‑prepared to manage the consequences. Corporate leaders are making similar points. In 2026 the chief executive of the world’s largest asset manager used his annual letter to caution that the AI boom risks accelerating a pattern in which the owners of capital capture most of the gains. He noted that transformative technologies historically create enormous value but often concentrate it among those who already hold financial assets, and he worried that the pattern will repeat on a larger scale.These dire warnings coexist with more measured analysis. Research by a leading investment bank estimates that if current AI use cases were applied across the economy and reduced employment in proportion to efficiency gains, about two and a half per cent of United States jobs would be at risk. Even under a broader adoption scenario the bank’s economists put displacement at six to seven per cent. They anticipate a modest, temporary rise in unemployment—perhaps half a percentage point—as displaced workers search for new roles. Historical evidence supports this view: about sixty per cent of U.S. workers are currently employed in occupations that did not exist in 1940, implying that most employment growth over the past eight decades came from technology‑driven job creation. Unemployment linked to productivity‑enhancing technologies typically dissipates after two years. The same report identifies occupations most vulnerable to automation—such as programmers, accountants and customer service representatives—and those least exposed, including air‑traffic controllers, executives and radiologists.Independent analyses paint a similarly nuanced picture. Data from job‑cut trackers show that AI was explicitly blamed for around fifty thousand layoffs in 2025. Several technology firms have announced further reductions in 2026, citing generative AI as a reason to trim corporate staff. Yet the overall labour market remains resilient. The U.S. economy added 178,000 jobs in March 2026 and the unemployment rate fell to 4.3 per cent. Some of the job losses in tech reflect correction after pandemic over‑hiring rather than automation. Analysts expect AI adoption to be gradual; only about nine per cent of companies report using generative AI in production. Forrester, a consultancy, projects that roughly six per cent of jobs—about ten million roles—could be affected by 2030. None of these figures resemble the apocalyptic forecasts circulating online.Unequal gains from new skillsWhat seems more certain is that AI is accelerating job polarisation. An International Monetary Fund study released in early 2026 tracks the diffusion of new skills across advanced and emerging economies. It finds that roughly one in ten job postings in advanced economies now demands at least one new skill, often related to information technology or artificial intelligence. These new skills command wage premiums of three to four per cent and are linked to employment gains in high‑ and low‑skill services. Middle‑skilled workers, however, see little benefit, reinforcing the hollowing of the wage distribution. When focusing specifically on AI‑related skills, the study reports no overall employment gains and even lower employment in regions where demand for AI skills is high. Five years after AI skills appear in a local labour market, employment in occupations that are highly exposed but offer few opportunities for complementarity is 3.6 per cent lower. Young workers and those in white‑collar support roles are particularly at risk.The authors emphasise that new skills spread first in professional, technical and managerial occupations, often in the United States, and then diffuse to other economies. While the demand for these skills increases wages, the supply is concentrated among workers with tertiary education, especially in science, technology, engineering and mathematics. Countries with high demand but limited supply must therefore invest in education, retraining and labour mobility; those with strong supply need policies that encourage firms to absorb new skills through innovation and access to credit. Absent these measures, the diffusion of AI could widen gaps between the highly educated and the rest, leaving many middle‑class workers stranded.A contested path for the middle classThe debate over AI’s impact is less about inevitability than about choices. Evidence suggests that artificial intelligence will reshape tasks rather than annihilate entire professions. In sectors such as education, healthcare and law, AI can relieve professionals of drudgery, allowing them to focus on human engagement and complex judgment. In engineering and finance it can augment productivity, potentially creating new services and markets. At the macro level AI promises to boost growth and productivity, but how those gains are distributed depends on ownership structures, labour institutions and public policy. If the gains accrue to shareholders and highly skilled workers alone, the middle class may continue to shrink. If investment in skills, social safety nets and worker representation keeps pace, AI could broaden opportunity rather than choke it.Policymakers have tools at their disposal. Investments in digital infrastructure and education can narrow the readiness gap between and within countries. Active labour‑market programmes and portable benefits can help displaced workers transition to new careers. Competition policy can prevent excessive concentration of data and compute power. Wage insurance and progressive taxation can cushion temporary dislocations. Above all, transparency and worker participation in AI deployment can ensure that automation complements rather than undercuts human capabilities. The stakes are high. A world in which algorithms amplify inequality is not inevitable, but neither is one where they rebuild the middle class. The path society chooses over the next decade will determine whether artificial intelligence becomes a force for shared prosperity or a driver of division.
Unexpected economic twist
When Donald Trump returned to the White House in January 2025, he promised that the United States would usher in a “roaring” era of prosperity. He hailed his tariff regime as a catalyst for domestic manufacturing, claimed that energy independence would insulate the country from geopolitical shocks and boasted that record‑high stock indices were evidence of his economic stewardship. By the end of his first year back in office, growth was respectable and inflation had eased from the peaks that plagued the previous administration. Yet, as 2026 unfolds, the economic narrative has shifted dramatically. Job creation has stalled, energy prices have surged on the back of conflict in Iran, and corporate leaders are bracing for a downturn. This unexpected twist has renewed debate about whether Trump’s policies – and his confidence in them – were justified.Labour markets show renewed fragilityThe most immediate sign of trouble has emerged in the labour market. After modest job gains in January 2026, the economy shed around ninety thousand non‑farm positions in February, and revisions to earlier months showed that employment was already weaker than initially reported. The unemployment rate for people born in the United States has edged higher, while participation has slipped as more workers drop out of the labour force. Monthly data are inherently volatile, but the pattern suggests that growth in employment has evaporated, with losses spreading beyond manufacturing into transportation, construction, information and professional services. Even health care, a sector that had cushioned previous slowdowns, saw a strike‑related decline.This weakness contrasts sharply with Trump’s pledge that “jobs are going to people born in the United States.” The share of U.S.‑born workers who are unemployed has climbed to levels not seen since the depths of the pandemic. At the same time, American households are increasingly pessimistic about their prospects. A survey by the Federal Reserve Bank of New York showed that the perceived probability of finding a new job if laid off fell to near record lows. In other words, workers feel secure in their current roles but fear they will struggle to secure new employment should they be dismissed.Corporate sentiment mirrors that unease. The Conference Board’s quarterly CEO Confidence index tumbled from 59 to 47 between the first and second quarters of 2026, signalling that pessimists now outnumber optimists. Only fifteen per cent of chief executives say the economy is better than six months ago, while almost half believe conditions will deteriorate further. Nearly a third of respondents plan to reduce staff over the coming six months, exceeding those intending to expand headcount. Such belt‑tightening suggests that labour market weakness may deepen.Energy shocks and surging pricesTrump has long argued that cheap energy is the linchpin of low inflation. Early in 2025 his administration touted falling gasoline prices as proof that his policies were working. But the conflict in Iran has upended that narrative. Strikes on Iranian nuclear facilities triggered a sharp jump in oil prices; Brent crude surged from around $71 per barrel at the start of the conflict to over $100 by early March. Gasoline prices in the United States have risen about nineteen per cent in the past month, lifting the national average to roughly $3.45 per gallon. Goldman Sachs warns that if elevated energy prices persist, inflation could climb back toward three per cent by the end of the year.Trump insists that the spike is temporary and frames the conflict as a necessary cost for national security. Yet higher fuel costs ripple through the economy, eroding households’ purchasing power and increasing production expenses for businesses. This dynamic places the Federal Reserve in a policy bind: cutting interest rates to support growth risks reigniting inflation, while holding rates too high could stifle investment and employment. Analysts refer to this predicament as a stagflation threat – a situation in which both inflation and unemployment rise simultaneously.Tariffs and the cost of protectionismTrade policy is another pillar of Trump’s economic agenda. In 2025 he implemented sweeping tariffs that raised the effective duty rate on imports from roughly two per cent to nearly twelve per cent. The administration argues that these levies protect domestic industries and reduce dependence on foreign supply chains. Evidence suggests a more complicated picture. Economists estimate that more than half of the tariff burden is passed on to consumers, raising prices of everyday goods. Goldman Sachs calculates that the tariff regime could add about one percentage point to inflation between the second half of 2025 and the first half of 2026. Tariffs also increase costs for U.S. manufacturers by raising the price of imported components, undermining the very sectors the policy is intended to support.There is also legal uncertainty. The Supreme Court is expected to rule on whether the president overstepped his authority in imposing many of these duties. A negative judgment could provide cover for a rollback. However, observers note that previous opportunities to retreat have been ignored, and the administration continues to threaten new tariffs in geopolitical disputes. Persisting with protectionism may therefore exacerbate inflationary pressure just as the labour market cools.Fiscal strains and limited policy roomBeyond tariffs and energy, the budgetary backdrop is deteriorating. According to the Congressional Budget Office, the federal deficit will be about 5.8 per cent of gross domestic product in fiscal year 2026, well above the fifty‑year average of 3.8 per cent. Public debt is projected to climb from 101 per cent of GDP to 120 per cent by 2036, surpassing levels seen after the Second World War. Outlays, at 23.3 per cent of GDP, exceed their historical norm, while revenues, at 17.5 per cent of GDP, remain relatively flat. The 2025 reconciliation act, which included tax cuts and increased spending, has expanded deficits by $4.7 trillion over the projection period, partially offset by $3.0 trillion in tariff revenue.High deficits limit the government’s ability to stimulate the economy during downturns. Financial markets are already fretting about the national debt, now around $39 trillion. This concern feeds into broader recession fears. Goldman Sachs recently raised its estimate of recession probability in 2026 from 25 per cent to 30 per cent, citing the confluence of higher oil prices, a fatigued labour market and the fading support of earlier fiscal stimulus. Other banks, including JPMorgan and Bank of America, warn that persistent geopolitical tensions could further raise the risk of a downturn.Productivity gains and the K‑shaped recoveryOne area where Trump can point to success is productivity. Business sector labour productivity increased by 2.8 per cent in the final quarter of 2025, thanks partly to investment in artificial intelligence and automation. Higher productivity should, in theory, lead to rising wages and living standards. Yet the gains have not been evenly shared. Labour’s share of income fell to a record low last year, and analysts describe the economy as “K‑shaped,” with high‑income households benefiting from soaring asset prices while lower‑income workers struggle with debt and stagnant pay. Productivity gains have translated into higher corporate profits rather than broader wage growth.Moreover, the overall pace of economic growth under Trump has lagged his predecessor’s. In his final year, the Biden administration oversaw growth of 2.8 per cent, compared with 2.2 per cent in 2025 under Trump. Inflation, measured by the personal consumption expenditures index, remained at 2.6 per cent in both 2024 and 2025. Trump has avoided the price spikes that haunted earlier years, but he has not delivered stronger growth or more hiring.Stock markets, sentiment and the political lensFinancial markets, which Trump often cites as barometers of success, have delivered mixed messages. The Dow Jones Industrial Average peaked above 50,000 in early 2026 but has since fallen by about five per cent. Investors remain jittery about the war in Iran, the trajectory of interest rates and the durability of corporate earnings. Consumer sentiment data reveal a split: households with stock investments feel more optimistic, while those without exposure remain pessimistic. The divergence underscores how asset ownership influences perceptions of prosperity and adds to the sense of unequal recovery.The political implications of these economic developments are significant. Trump’s party faces midterm elections later this year, and the administration has staked much of its narrative on delivering a stronger economy than its Democratic predecessor. A faltering labour market, rising energy costs and waning business confidence risk undermining that message. On the other hand, if the Middle East conflict eases and oil prices fall, inflation could moderate quickly, boosting purchasing power and allowing the Federal Reserve to cut interest rates. Fiscal support from tax rebates scheduled for later in the year could also lend households some relief.Was Trump right?The question of whether Trump was “right” about the U.S. economy hinges on which metrics one emphasises. His supporters can point to moderate inflation, rising productivity and stock market records as evidence that his policies are working. Critics counter that these gains mask underlying fragility: employment is stalling, wages are not keeping pace with profits, and tariffs are raising prices rather than revitalising factories. The surge in oil prices and the prospect of stagflation illustrate how vulnerable the economy remains to global shocks despite claims of energy independence. High deficits and debts constrain the government’s ability to respond, while the Federal Reserve must balance competing mandates under unprecedented pressure.In sum, the U.S. economy’s unexpected turn in early 2026 reflects a complex interplay of policy choices and unforeseen events. Trump’s declarations of an economic “roar” have met the reality of a labour market slowdown, rising costs and heightened uncertainty. Whether his blueprint ultimately proves successful may depend less on rhetoric and more on how quickly geopolitical tensions ease, energy markets stabilise and policymakers adapt to the challenges ahead.
Beijing's new Taiwan playbook
Beijing's military machinery and political ambitions have moved it closer to a point where it could attempt to seize Taiwan by force. Decades of double‑digit defence spending have yielded advanced amphibious assault vessels, fleets of hypersonic and ballistic missiles and an air force that can saturate airspace around the island. Naval analysts note that the People’s Liberation Army Navy’s new Type 054B guided‑missile frigates incorporate artificial‑intelligence‑enabled sensors to improve anti‑submarine warfare and fleet air defence and can undertake long‑range escort missions. Dozens of civilian‑flagged research vessels, operating under the cover of scientific exploration, have spent years mapping the seabed across the western Pacific and as far afield as Guam and Hawaii to improve Chinese submarine navigation and to erode the United States’ traditional advantage in undersea warfare. Expanded missile launch infrastructure in Xinjiang, featuring scores of launch pads, is intended to increase the survivability of China’s land‑based nuclear forces.Yet despite these capabilities, Beijing has shown little appetite for a near‑term invasion. A recent threat assessment by the United States’ intelligence community concluded that Chinese leaders do not currently plan to execute an invasion by 2027 and lack a fixed timetable for unification. Taiwan’s defence ministry concurs that China’s build‑up is relentless but emphasises that deterrence, rather than assumptions about invasion windows, will shape Beijing’s calculations. Analysts argue that a war would trigger unprecedented economic costs. Taiwan’s semiconductor industry underpins global technology supply chains and about a fifth of world trade transits the Taiwan Strait. Any conflict that closed this artery would reverberate through financial markets, manufacturing and energy supplies. Even without U.S. intervention, Chinese leadership would risk social stability at home if a miscalculated assault stalled or provoked severe sanctions.Against this backdrop, Beijing has refined what some analysts describe as a grey‑zone strategy — a web of coercive measures designed to wear down Taiwan’s morale and manoeuvre it towards “reunification” without firing a shot. People’s Liberation Army aircraft entered Taiwan’s air defence identification zone more than three hundred times a month after William Lai’s 2024 election, only for the number of incursions to fall sharply in 2026 as planners redistributed sorties to training and maintenance. China’s coast guard now conducts routine multi‑ship patrols in the restricted waters around Kinmen and Pratas, two Taiwanese‑administered archipelagos close to the mainland, to normalise jurisdictional claims and erode Taiwan’s threat awareness. As part of the large‑scale “Strait Thunder 2025A” and “Justice Mission 2025” exercises, the People’s Liberation Army practised cutting power and blockading Taiwan’s liquefied natural gas terminals — a rehearsal for imposing energy strangulation during a future crisis.Energy insecurity is a key prong of Beijing’s hybrid approach. Taiwan imports around 97 percent of its energy, with liquefied natural gas accounting for roughly half of electricity generation. When war in Iran temporarily choked off shipments through the Strait of Hormuz earlier this year, Chinese‑language social media channels flooded TikTok and Xiaohongshu with ominous videos claiming Taiwan’s gas reserves would expire within a fortnight and extolling “peaceful unification” as the only remedy. Officials from the Taiwan Affairs Office even offered to supply electricity and gas from the mainland as soon as Taiwan surrendered its sovereignty. Taiwan’s government countered by publicising the diversification of its imports, increasing strategic reserves and conducting joint navy‑coast‑guard drills to escort fuel tankers through potential blockades. Such moves aim to reassure citizens and blunt the psychological impact of Beijing’s energy narratives.Political infiltration forms another component of the grey‑zone campaign. Beijing has long supported parties in Taiwan that advocate a looser relationship with the mainland, but recent cases show a willingness to back actors whose public stance on unification is ambiguous. Taiwanese courts convicted a former spokesperson for the Taiwan People’s Party (TPP) after she accepted funds from Chinese handlers and provided contact lists of government agencies. Investigators say the case is not isolated: election interference and covert recruitment have targeted both the centrist TPP and elements of the governing Democratic Progressive Party (DPP). At the international level, Chinese diplomats persuade or pressure host governments to label Taiwan as a province of China; Taiwan stayed away from this year’s World Trade Organization ministerial in Yaoundé after delegates were issued documents bearing that designation.This cognitive warfare extends to culture and education. President William Lai has warned that video‑sharing platforms may be used to cultivate the notion that Taiwanese and mainland Chinese people are “one family” and to foster resignation towards annexation. His administration has banned certain Chinese apps from public‑sector devices and proposed curriculum changes to strengthen civic identity and debunk disinformation. Opinion polls still show a solid majority of Taiwanese identifying as Taiwanese rather than Chinese, suggesting that Beijing’s narrative campaigns have yet to shift the island’s self‑perception.While China deploys these non‑military tools, Taiwan is struggling to adapt its defence posture. The DPP has proposed a special budget worth around US$40 billion to procure hundreds of thousands of unmanned systems, develop an integrated air and missile defence network and fund the domestic arms industry. Opposition parties controlling the legislature have delayed the budget, preferring a smaller package focused on conventional platforms such as artillery and anti‑tank missiles. Delays threaten to slow deliveries of High Mobility Artillery Rocket Systems, self‑propelled howitzers and anti‑tank weapons from the United States. At the same time, Taipei is investing in its first domestically built submarine and plans to upgrade two Dutch‑built boats from the 1980s. Such measures are meant to raise the cost of aggression and complicate any blockade.Elsewhere in the region, countries are recalibrating their own strategies in anticipation of cross‑strait tensions. Japan has acquired Tomahawk cruise missiles from the United States and is modifying its destroyers to carry them, signalling a shift towards a counter‑strike doctrine that can threaten missile launch platforms on the Chinese coast. The Philippines and Japan have agreed to step up military intelligence sharing and have begun negotiating a boundary in their overlapping exclusive economic zones east of Taiwan. Manila is seeking Japanese anti‑submarine destroyers and anti‑ship missiles to bolster its navy. Such cooperation, alongside the United States’ continued security commitments under the Taiwan Relations Act, suggests that any attempt by Beijing to seal off the island would face a more coordinated regional response.Seen together, these developments reveal why Beijing may perceive hybrid coercion as “something better” than a risky assault. China’s ability to project force across the Taiwan Strait has improved markedly, but its leaders recognise that a failed invasion would jeopardise economic growth and political legitimacy. By combining military modernisation with psychological operations, energy leverage, political interference and calibrated maritime pressure, Beijing hopes to corrode Taiwan’s will and convince its citizens that unification is inevitable. Whether this strategy succeeds will depend on Taiwan’s resilience, the cohesion of its democratic institutions and the willingness of regional partners to deter aggression. For now, the contest remains a test not of who can fire the first shot, but of whose vision for the island’s future will ultimately prevail.