An economic jolt is coming – Europe and South America most vulnerable
Geopolitical Research – 18 Feb 2025 (Delayed and truncated public release on 20 May 2025)
Dear reader
What is unfolding on the world stage this week has not taken us by surprise. We have for years warned about the growing gap between US and European interests and the drifting apart of our values.
Recently we noticed how Britain and the EU were coming together to stand up to Trump’s America – also how US and European views of Freedom of Speech were beginning to differ substantially. For years people have covered up these growing differences. We wanted to celebrate our so-called shared values, so common threats were convenient.
European leaders and probably 2/3 of European voters are seemingly outraged at Vice President Vance’s speech in Munich. Those who have followed our research will have noticed that Europe is becoming America’s no 1 headache and possibly a key potential threat in the short to medium term. Since everybody is catching up with reality and we have expected this Transatlantic clash, we will broaden our view and focus on something else few are paying attention to. Something that is acute and relevant – actually it may affect your finances.
The news flow about peace talks, the frustrated desire of Europe to keep up the war effort without the USA and the heart-wrenching drama of the hostages’ release in the Middle East will soon give way to concerns about the economy and peoples’ finances.
An economic jolt is coming
Although media is failing to report the full extent of the trouble the Western economies are in (risks of defaults and devaluations have been suppressed, but they are a rising again) people around the world sense something has to give .. in the coming months – the 15% rise in the price of Gold in just a few months reflects that. People are smarter than what most politicians think, people are right – here is why
(a) After surviving a doubling of key consumer products’ and house prices, suddenly Americans realise prices are rising again and many things in the country are broken. 2025 could be a year of sacrifices. The aftermath of Bidenomics’ massive fiscal spending will have to be endured. We are just seeing the tip of the iceberg of the reckless spending.
(b) European governments were already deeply and indebted before Covid, the energy transition and the war in Ukraine. Europe is preparing to announce a massive increase in spending and deficits – Germany is about to give up its famous “Schuldenbremse” (debt ceiling). More inflation and tax increases are imminent as cash-strapped Europe prepares to rebuild its military. The already large size of the state in Europe is about to get larger – To avert a default Europe is becoming a state-run economy. America and Europe are on diametrically opposed paths and on collision course.
(c) The Russian economy has surprised Western experts – rather than collapsing, it is almost thriving. The irony is that Western Europe has been more ravaged by the sanctions it imposed on Russia than the Russian economy itself. Now Russia’s military complex is producing weapons at a pace the West cannot cope with. This forces Washington’s hand more than Republicans can admit.
(d) While the Chinese economy is struggling with its shrinking labor force and its debt-ladden construction sector, the growing demand from emerging markets for Chinese products is stunning economists in China and the West. Emerging Markets are a new engine of export growth shielding China from US and European sanctions.
(e) Africa and Latin America remain self absorbed, but overall pragmatic enough to bend with the wind. Key economies are due to hold elections over the next 20 months and leading contenders are signalling a rather pragmatic approach to the new US administration. It seems nobody wants to follow Europe’s defiance of the Trump-Vance administration. Less so after Europe’s humiliation last week. Seasoned economists in “Hispanoamerica” know their nations are not prepared to digest a commercial war with America nor one between East and West. Among Socialist and left leaning governments across Latin America fear (in some cases panic) is spreading about America’s ruthlessness.
Heeding history’s lessons?
When Washington embargoed Japan in 1940, it forced that empire of the rising sun to attack Pearl Harbor. Many are unaware that leading strategists in Tokyo thought Washington needed an excuse to enter WW2 and wanted Tokyo to attack, because a majority of the American population did not want to be dragged into yet another war in Europe. But the “underestimated geniuses” at the Imperial Navy designed a bold way to destroy the American Carriers in a surprise attack and win the war quickly before America could mobilise its giant industrial might. Thus, let’s do what they want us to do. What did the Japanese take advantage of? “The West sees us as inferior and incapable of launching a surprise combined attack so effective that it could force them to settle for peace”. In a second encounter the US destroyed the main Japanese aircraft carrier fleet at Midway, but thanks to an almost divine convergence of events. Confident that Japan was a very inferior enemy with no raw materials, Washington put itself at risk with an embargo. For six months the probability of being overrun was high. But Pearl Harbor also managed to unite the nation with resolve unto victory.
During the past few years Washington may have been underestimating its foes again, this time China and Russia.
Our growing technological embargo of China and Russia over the past 5-10 years has unleashed a technological acceleration in those countries. For them this is war – possibly a matter of life or death for their nations. In the cold war, it came to pass that Russian scientists managed to reproduce Western weapons in less than 8 months – without having our advanced industries and vast capital at their disposal. At times they were able to go ahead of us.
It is one thing to embargo an opponent like Somalia or Eritrea (with the respect due those nations). It is quite another to embargo or sanction China or Russia. A competitor with skilled human resources can become much more ingenious and “better” under pressure.
The smartest policy is to keep an opponent dependent on us, which also allows us to better track their technological evolution and to keep the channels of communication open. In his zeal to want to sanction China and Russia President Trump continues a tradition of Washington and the West that threatens the strategic interests of the West.
President Donald J. Trump (public domain)
Washington puts the economy first
Europe is reeling, but more pain lies ahead
Who will be affected by economic shocks?
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A trade war (resettling of tariffs) is more likely than not. While it could hurt Europe and South America the most, the tax cuts and deregulation of the Trump-Vance administration could help overcome the pains of 2025 to unleash a powerful economic boom in the United States. But as we have said in recent months, the enemies of America are many and they have surely prepared a few surprises for Trump’s 2nd term.
For new readers
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Geopolitical Research Team – 18 Feb 2025 (Delayed and truncated public release on 20 May 2025)
info@geopoliticalresearch.com
Research made in Switzerland
Geopolitical and economic conditions need close monitoring, because they can change suddenly.
No part of this analysis should be taken or construed as an investment recommendation.
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