In dieser Folge spricht Dr. Timo Blenk mit Prof. Jörg Rocholl, Präsident der European School of Management and Technology, über Geoökonomie und die wirtschaftliche Dimension von Geopolitik. Dabei geht es beispielsweise um die Frage, ob die Weltwirtschaft „politischer“ wird und es einen fundamentalen Wandel mit Abkehr vom Grundprinzip des Freihandels gibt?

Executive Summary Cybercrime and cyber insecurity are now among the Top 10 of most severe global risks over the next decade, listed alongside threats including climate change and involuntary migration. As geopolitics and cyber increasingly intertwine, cyber-attacks become more frequent and sophisticated, as both state and non-state actors, in particular from China and Russia, try to disrupt democratic societies, economies, and militaries. In part driven by the military conflict in Ukraine, the EU, the US, and NATO have begun to enhance their own cyber capabilities and to issue new cyber­security regulations that directly impact globally active firms. Implications for International Business Industries need to prioritize cybersecurity as an integral part of their strategies: They should adopt a risk-based approach, implementing security and privacy measures that align with an ever more volatile threat landscape. Cybercrime alone will cost companies worldwide an estimated $10.5 trillion by 2025 , up from $3 trillion in 2015 per annum. At a growth rate of 15 percent year after year, it represents one of the greatest transfers of economic wealth in history. In addition to cyber-attacks driven by the war in Ukraine, business trends like tele-working and digital interconnectedness heighten the probability of successful strikes , putting sensitive data, intellectual property, and financial assets at risk State of Play Global competition moves into cyberspace Cyberspace is becoming a new battlefield and an area of geostrategic competition. The increasing sophistication and frequency of cyber-attacks pose significant risks and threats to governments, companies, and individuals. They include ransomware, malware and zero-day vulnerabilities, social engineering like new forms of phishing, threats against data and large Distributed Denial of Service (DDoS) attacks, destruction of infrastructure and corporate networks, dis- and misinformation, and supply-chain targeting. During peacetime, both states, their proxies, and non-state actors deploy cyber operations to disrupt the smooth functioning of democracies, collect intelligence, undermine legitimate governments, and steal trade secrets or cripple businesses. Cyber-attacks in the EU conducted by state proxies and criminal groups operating from Russia, China, North Korea, and Iran seriously damage Europe’s economic competitiveness and socio-political fabric. In June 2023 alone, Russia-linked attacks targeted European banks, including the European Investment Bank, U.S. federal government agencies, including Department of Energy entities, and Swiss government websites, including the Parliament, the federal administration, and Geneva airport. During wartime, malicious actors use cyber tools to erode their adversaries’ military advantage. In the first half of 2022, Ukraine experienced 1,350 cyber-attacks on its critical infrastructure alongside kinetic attacks conducted by Russia, to which it has proved remarkably resilient. Crucially, it is backed by offensive and defensive cyber interventions from the U.S. Cyber Command, assistance from the tech giants like Microsoft and Google, and networks of international and homegrown information security researchers. Against this backdrop and given the increasing competition of international players, the EU unveiled its Cyber Defence Policy in November 2022. It represents the EU’s first comprehensive effort to outline strategic, policy, operational, and capability development goals in cyber defense. In the case of cyber defense, widespread accessibility to AI-powered tools combined with the refined tactics of state and non-state actors mean that the international threat landscape is becoming ever more dangerous. Key Issues Emerging cyber alliances foster a geopolitical divide Faced with a “geo-politicisation” of the cyber landscape, the EU and NATO adopt a multi-faceted approach. This includes developing robust cybersecurity strategies, increasing interoperability, investing in cutting-edge cyber defense capabilities, conducting cyber deterrence operations, and collaborating with international partners. International alliance-building is paramount in the fight against cyber threats. For instance, in February 2016 the computer emergency/incident response teams of the EU and NATO signed a bilateral Technical Agreement on the exchange of information about threat actors and techniques. Cyber-related intelligence sharing and capacity building with partner countries have also markedly improved. Yet, the sustainability of these efforts depends on shared interests, trust among participants, and effective coordination mechanisms. Elections, like the upcoming U.S. elections in 2024, changes in political leadership in international organizations, or shifts in political priorities and ideological differences can affect the willingness to share sensitive cyber intelligence and collaborate on capacity-building initiatives. The rise of China further complicates the cyber threat landscape, as its growing influence challenges the dominance of cyber powers like the United States. Beijing has begun to move from cyber espionage for economic interests to explicitly aiming at global technological superiority and a (re)shaping of the Internet. To remain competitive, the EU and NATO, member states and like-minded countries need to invest in enhancing their own cyber capabilities and foster international collaboration around responsible state behavior in cyberspace. An open, safe, and secure global cyberspace is one in which businesses can expand their operations globally without cybersecurity risks, as it increases consumer confidence, data protection, and privacy, while public-private partnerships enable businesses to benefit from threat intelligence and cybersecurity best practices. Yet, the absence of accountability mechanisms to curb the impunity of states violating international law and the limited options to enforce the agreed norms of responsible state behavior in cyberspace make it necessary for the EU and NATO to search for alternative policy solutions. The new EU framework establishes cybersecurity standards, requirements, and reporting obligations that apply to certain sectors such as critical infrastructure and digital service providers, to safeguard their systems and services. Businesses can obtain cybersecurity certificates for their products and services, enhancing their credibility, consumer trust, and market competitiveness. In short, the benefits of the peaceful use of cyberspace can no longer be taken for granted. Firms face acute threats and diverse rules Alliance-building in cyberspace across democratic and autocratic fault lines has significant influence on industries around the globe. It enhances cybersecurity efforts by promoting information-sharing between democracies, collaborative defense measures, and coordinated responses between the private-private and civil-military sectors. Yet, there are also risks, such as potential information-sharing dilemmas where sensitive data being exposed to unintended recipients and cyber defence dependencies leaving industries vulnerable to an attack on another alliance member. In turn, any cooperation with autocratic countries like China in the realm of cybersecurity involves various high-risk factors, given its rapprochement with Russia, its cyber espionage and state-sponsored cyber-attacks, surveillance practices as well as ethical and human rights abuses. Conversely, the use of economic sanctions and trade restrictions can potentially impact cyber relations between states and non-state actors. Such measures can limit the availability of certain technologies, restrict information sharing, and hinder cooperation. This can hamper efforts to build resilient cyber ecosystems. In this regard, businesses should actively engage in the development of international and national cybersecurity standards, policies, and norms. By providing input and expertise, they can ensure that initiatives are practical, realistic, and considerate of private sector realities. At the company level, investing in advanced technologies, implementing robust incident response plans, conducting regular risk assessments, and enhancing employee awareness and training are elements of any sound stratgey. In order to adapt to evolving regulatory and legal frameworks across different jurisdictions, firms need to implement robust data protection practices, conduct privacy impact assessments, employ privacy-enhancing technologies, adopt privacy-by-design principles, and establish effective mechanisms for data governance and consent management. Despite the challenges engendered by cyber threats, companies can leverage the opportunities of the digital transformation by adopting a proactive security posture that integrates cybersecurity into every aspect of their operations. This will ensure that businesses can benefit from advanced digital tools and automation processes, access to global markets, data-driven insights and products, as well as innovation, agility, and scalability by adopting AI-powered tools and cloud computing.

Executive Summary As a pivotal node in the global semiconductor supply chain, the Republic of China, Taiwan has become an indispensable part of the global economy , thus making a conflict around the island felt across the world. The geopolitical rivalry between the People’s Republic of China and the United States has zeroed in on Taiwan , which Beijing claims as its own, even though it has never ruled it, and which Washington has broadly declared to defend. Several democracies have begun reinforcing their economic security measures towards China , on particular key industries, their supply chains, and critical raw materials (CRM), while expanding trade links with Taiwan. Implications for International Business A military conflict or blockade in the Taiwan Strait would seriously disrupt shipbound trade between Asia and Europe ; European car and auto part manufacturers in particular should have contingency plans in place. As Taiwanese chips firms diversify production away from China, EU businesses stand to benefit from cooperation on relocating production and services to Japan, Singapore, and Vietnam as well as increased direct investments in Europe. Given Taiwan’s ongoing energy security challenges, European firms’ technology such as offshore wind power offers substantial opportunities for expansion . State of Play Ten weeks into Russia’s war against Ukraine, The Economist called Taiwan the “most dangerous place on Earth” last May. That was a reference to the island’s increased geostrategic relevance, both as a major economic player and the object of China’s ambition for ‘unification’, if necessary, by force. Beijing’s pressure tactics, combined with military maneuvers in the Taiwan Strait, endanger stability in the Indo-Pacific where roughly half of the world’s container ships transit. Beyond that, fears abound that a conflict, military or otherwise, between China and Taiwan would lead to a wider US-China confrontation with global consequences. So far, however, efforts to isolate Taiwan have backfired: the international community, including the EU, is expanding cooperation, not reducing it. Accounting for over a quarter of Taiwan’s foreign direct investments (FDI), the EU saw both its exports to and imports from Taiwan rise in 2021, by 24.1 and 34.6 percent, respectively. Total trade valued €35.6bn, 94.9% of which is in manufactured goods such as electronic components, telecommunications equipment, machinery, transport equipment, and chemicals including pharmaceuticals. Also, political support to Taiwan participating in Inter­national Organizations where statehood is not required has increased, as have con­demnations of Chinese coercion by the G7 and NATO as well as parliamentary delegations visiting Taiwan in a show of solidarity. While no major Western state is expected to recognize Taiwan as a sovereign country anytime soon out of fear of provoking an escalation with China, their aim is to reinforce deterrence against the People’s Republic by strengthening engagement with the island nation. Key Issues The geopolitical stakes are high around the Strait As a country of critical importance to the world economy facing territorial claims by a nuclear-armed global power, Taiwan represents the essence of a challenge that is both geopolitical and geo-economic in nature. The potential military confrontation with China that has increasingly kept strategists busy would have immediate consequences around the globe, from severe trade disruptions to a superpower confrontation not seen for decades. Crucially, Taiwan relies on imports for 98 percent of its energy needs. With most of its LNG imports passing through the South China Sea, Taiwan’s energy supply chain is fragile, its power grid lacks resilience, and its electricity consumption is rising, not least due to firms investing in new capacity at home. Given limited reserves, it is estimated that Taiwan could withstand a Chinese blockade only for a short while, ranging from a mere fortnight regarding natural gas to nearly six weeks for coal or over four months for oil. More broadly, it is estimated that war in the Taiwan Strait would cause $2tn damage to the global economy resulting from severed global supply chains, involving anything from financial services to life sciences. A naval blockade alone would shut down trade through the Taiwan Strait, increasing shipping cost overall for certain raw materials. Moreover, Taiwan’s financial system is highly vulnerable to Chinese cyber and other asymmetric attacks. These would also damage economies exposed to semiconductor-related value chains, including global producers of cars and auto components such as China, the United States, Japan and Germany as well as economies where automotive production represents an important share of domestic production, namely Slovakia, Czechia, and Hungary. In this global setting, Taiwan’s upcoming presidential election is expected to be highly competitive with an uncertain, but possibly decisive outcome. For one, the traditional duopoly of the independence-minded Democratic Progressive Party of incumbent President Tsai Ing-wen and the more mainland-friendly Kuomintang risks being upset by the newly founded Taiwan People’s Party. The latter offers a middle way on China relations by focusing on popular domestic issues such as energy and housing, but with conciliatory tones towards the PRC. For another, Beijing seeks to influence the political debate on the island in its favor through grey-zone activities like dis­information, cyberattacks, military incursions into its airspace, simulations of a naval blockade, and selective economic coercion. In this global setting, Taiwan’s upcoming presidential election is expected to be highly competitive with an uncertain, but possibly decisive outcome. For one, the traditional duopoly of the independence-minded Democratic Progressive Party of incumbent President Tsai Ing-wen and the more mainland-friendly Kuomintang risks being upset by the newly founded Taiwan People’s Party. The latter offers a middle way on China relations by focusing on popular domestic issues such as energy and housing, but with conciliatory tones towards the PRC. For another, Beijing seeks to influence the political debate on the island in its favor through grey-zone activities like dis­information, cyberattacks, military incursions into its airspace, simulations of a naval blockade, and selective economic coercion. Therefore, even if escalation can be avoided through 2023, the cards will be shuffled anew at the beginning of next year. Trading chips, threats, and other goods – or bads Tensions around Taiwan have already reshaped regional relations. Taiwanese firms have begun to re-shore and nearshore away from China, mostly to East and Southeast Asia as well as back home in Taiwan itself. For example, TSMC invested $2.12bn in 2022 to establish a subsidiary in Japan, and Taiwan’s MediaTek Inc. provided a $1bn capital injection in Singapore, while investments in China decreased. Southeast Asian states, in turn, are re-assessing their dependencies with the PRC. Some, such as Vietnam, have increasingly integrated into diversified supply chains, offering alternate location for manufacturing. In fact, stronger regional links could help Taiwan garner support to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a free trade pact including most Pacific nations except China and the United States. Meanwhile, the US and the EU have converged on the need to “de-risk” their China relations to protect key technologies, as opposed to the initial – and farther reaching – idea of a broader de-coupling. The EU now sees Taiwan as a like-minded partner in the Indo-Pacific, with substantial cooperation on information and communication technologies (ICT). Affected by pandemic-induced supply chain disruptions and overreliance on China in critical sectors, the EU has agreed to increase state support to help domestic semiconductor production capacity, and TSMC is considering opening a plant in Germany. Taiwan’s chips are vital to its green and digital transition, so the EU also started to link experts from the two sides in cluster-to-cluster, ecosystem-to-ecosystem cooperation on R&D and supply chain monitoring, connecting the European Commission, Taiwan governmental agencies, companies, and clusters. The closer EU-Taiwan relations get, the harder will be the impact of a conflict in the Strait.

In dieser Folge spricht Dr. Timo Blenk mit Prof. Dr. Oliver della Costa Stuenkel über die politische und wirtscahftliche Lage in Brasilien und Lateinamerika. Dabei diskutieren sie sowohl über braislianische Tech Start-Ups und stratgeische Rohstoffgewinnung als auch über die Rolle südamerikanischer Staaten in der zunehmenden Rivalität zwischen China und den USA. Welche Chancen und Risiken bergern strategische Partnerschaften und Wirtschaftskooperationen mit den Ländern Südamerikas?

In dieser Folge diskutiert Dr. Timo Blenk mit dem ehemaligen hochrangigen Mitarbeiter des Bundesnachrichtendienstes und früheren Direktor des EU Intelligence Analysis Centre, Dr. Gerhard Conrad, über die Rolle von Nachrichtendiensten in den gegenwärtigen geopolitischen Konflikten. Ein besonderer Fokus liegt dabei auch auf der Region des Nahen und Mittleren Ostens.

Executive Summary Western powers unveiled the new India-Middle East-Europe Corridor (IMEC) at the recent G20 summit as a major cross-border initiative for trade infrastructure, but also electricity, data, and hydrogen connectivity. Backed by the United States and European powers, the initiative challenges China’s dominance both in South Asia and the Middle East, not least by seeking to position Saudi Arabia and the UAE more squarely in the western camp . Energy will likely be the primary pillar of the initiative, but increased connecti­vity can yield significant other benefits on food security, supply chains and tourism. Saudi Arabia’s ambitions in particular go far beyond energy trade. Implications for International Business European businesses will benefit from increased connectivity to the Arab Peninsula and the business prospects of a vibrant region, as they can participate in infrastructure development and enjoy improved energy security. However, Indian manufacturers with their favorable access to the Gulf Cooperation Council (GCC) market will provide strong competition for European firms . Despite the project’s geopolitical intentions, Chinese manufacturers are unlikely to be shut out of the Middle East anytime soon, not least as Saudi Arabia and the UAE continue to rely on them for advanced weaponry and nuclear energy. State of Play More than countering China’s ambitions At the G20 summit in New Delhi in September 2023, world leaders announced an am­bitious project to better link the Indian subcontinent to Europe via the Arab Peninsula. The India-Middle East-Europe Corridor (IMEC) aims to enhance connectivity and economic integration through a cross-border ship-to-rail transit network stretching from India via Saudi Arabia, the UAE, Jordan, and Israel up to Greece and Italy. While enhancing existing maritime and road transportation routes, the initiative will also build rail connections as well as new electricity, data, and hydrogen infrastructure. The multimodal transport and energy project is backed by both the United States and the EU, including France and Germany. After the global infrastructure investment scheme “Build Back Better World” launched by the G7 in June 2022, this is the second US-led vehicle to counter China’s Belt and Road Initiative (BRI). The latter, now in its tenth year, has begun to suffer from fewer funds on the Chinese side and meager results on the recipients’ side. Still, the rationale for connecting world regions via the IMEC goes beyond a simple anti-China plot. Termed a “green and digital bridge across continents and civilizations” by European Commission President Ursula von der Leyen during the signing ceremony, the project is set to advance the United Nation’s sustainable development goals, in particular the green transition and digital connectivity. At the same time, it aims to boost economic cooperation between India and Europe as much as between the Gulf states and Israel. The Middle East in particular is conceived as a hub for economic activity, between Asia and Europe but also among its often-antagonistic neighbors. No announcement on financing has been made yet. Instead, a working group of participating countries will develop more detailed plans, including on timelines and funding, over the next two months. As of yet, it is still only a Memorandum of Understanding between a diverse group of states. Key Issues An economic initiative centering on the Middle East… On the surface, IMEC can be seen as a response to the geopolitical and geo-economic challenge that China poses to the West. Some Middle Eastern countries, including Saudi Arabia and the UAE that are typically considered to be in the Western camp, have increasingly become economically reliant on China. By strengthening India’s relations with the Gulf and by tying the latter region to Europe in areas beyond hydrocarbons, IMEC could, in the medium term, undercut Beijing’s ability to project its influence there and reduce Europe’s exposure and reliance on China as well. The initiative also appears to serve other objectives. For one, it seeks to economically integrate Israel with its Arab neighbors from Jordan down to the Arabian Peninsula, which would in itself be a game-changer. Following up on the 2020 Abraham Accords, it should help to create an economic and infrastructure environment to advance the possibility of regional peace. More substantially, IMEC reflects the deepening integration and rising power of the initiative’s main players, India, Saudi Arabia, and the UAE. It recognizes, and possibly formalizes, India’s ambitions to become a global power that can act as a counter­weight to China, especially in Asia and the Middle East. IMEC also strongly positions Saudi Arabia and the UAE. Part of the BRI, both have rejected the idea of the multipolar world and do not subscribe to the idea of having to choose between the United States and China. Each will try to maximize their benefits from both sides, including by approaching China to provide goods and services where the West may not be forthcoming, such as advanced weapon systems and nuclear reactors. Their recent admission into the China-led BRICS group is a case in point. At the same time, Washington recently expanded restrictions of the export of semiconductors to a number of Middle Eastern countries. In the long-term, Saudi Arabia will especially benefit from its role as a major logistics hub, which it believes has been a major limitation in attracting manufacturers. IMEC will also benefit Jordan and Israel as transit countries. From a political perspective, increased trade integration could serve to stabilize the region and increase interdependence, both beneficial to Israel. However, such an outcome largely rests on a just and acceptable resolution to the Palestinian question. Jordan, in contrast, will find the project difficult to implement, given popular sentiment against any cooperation with Israel. Other countries have been quite unpleased with the proposal. Turkey, the gateway between Asian and European markets in its own conception, immediately renounced the initiative. Pakistan, whose strategic importance to the GCC has been in decline for several years, most likely shares the sentiment but has been less vocal. Both also figure centrally in the BRI and very much depend on its economic success. Qatar has also been completely side-stepped in the initiative, and its isolation will be further exacerbated if natural gas becomes included in IMEC. Each of these countries, and others like China, will be tempted to undermine the initiative in their own ways. One major unknown is how IMEC will impact Egypt and the Suez Canal and whether IMEC will offer the country any benefits in return for a possible diversion of trade to other routes. …that could shake up trade routes and markets The initiative’s ambitions are comprehensive and forward-looking, with the possibility to change trade patterns at global level. Energy will be its main pillar, at least in the short-term, from the export of clean energy to the laying of undersea cables and by linking energy grids to expand reliable access to electricity. Europe as well as India are major customers of the region’s oil and gas, but adding hydrogen to the equation is set to open new markets. Europe, in particular, will benefit from increased connectivity and energy security through IMEC. In addition, participating nations envision to expand existing trade and manufacturing to spur the creation of quality jobs while strengthening food security and supply chains, Establishing telecommunication lines to connect communities across the corridor to a secure and stable Internet will boost both business and people-to-people ties. Once implemented, IMEC is likely to increase connectivity, trade, and tourism at large. Ultimately, the initiative’s prospects clearly rest on how much – fresh – funding it can mobilize, including from the private sector, and how quickly it can progress. If IMEC takes off at the moment that BRI loses steam, it could further bifurcate international trade and investment into competing blocs, reflecting the multipolar world emerging after decades of US-led globalization. Such a future could see a Chinese sphere of influence in Central Asia and Africa, where it is already quite well established, and an American-led one in South Asia and Europe. Regions like the Middle East and Southeast Asia will likely be contested regions that will try to please both sides.

In dieser Folge spricht Dr. Timo Blenk mit Leonard Wessendorff, Partner der Agora Strategy Group und Reserveoffizier der Bundeswehr, über den Wandel in der Militär- & Sicherheitspolitik sowie die zunehmende Aufrüstung angesichts neuer geostrategischer Konflikte weltweit. Wie verändert sich die weltweite Sicherheitsarchitektur- und Politik? Welche Staaten werden militärisch an Bedeutung gewinnen? Wie vielversprechend sind europäische und vor allem deutsch-französische Rüstungskooperationen?

In dieser Folge des Geopolitik Podcasts "The Future of Power" Dr. Timo Gerrit Blenk mit dem ehemaligen deutschen Bundesinnen- und Verteidigungsminister Dr. Thomas de Maizière über geopolitische Resilienz, die Entwicklung von Schlüsseltechnologien in und durch Europa und die Wettbewerbsfähigkeit der deutschen Wirtschaft.

In dieser Folge spricht Dr. Timo Blenk mit Dr. Elli-Katharina Pohlkamp über die politische und wirtschaftliche Lage in Japan, die geopolitischen Herausforderungen der Region und den G7-Gipfel. Dabei diskutieren Sie sowohl über Japans neue Sicherheitsstrategie unter Bezug auf die heikle sicherheitspolitische Situation in der Region, als auch über das Verhältnis zu und die Abhängigkeit von China in Bezug auf CRM, Energie und Seewege. Kann Japan durch seine Rolle als wichtiger geopolitischer Akteur als Brückenbauer zwischen Europa und dem Indopazifik fungieren?

Executive Summary The Commission’s recently published economic security strategy suggests that the EU’s free trade paradigm is being taken over by the view that geopolitical tensions increasingly call for restrictions on international trade. Exchanges between advanced economies may become more complicated as partner countries coordinate only some of their China-related policies and progressively adopt industrial policies in favour of domestic production. With the EU’s thinking about economic security in an infant stage, and Brussels in need of private sector expertise and investment, businesses are presented with significant opportunities to shape the direction of EU policy . Implications for International Business Global business will face a growing number of security-motivated barriers to trade emanating from Brussels, including investment screening, export controls, industrial policies, and outright sanctions, especially vis-à-vis China. Firms may find it in their best interest to promote a level playing field among a group of allied countries such as the G7, through granting mutual exemptions from security restrictions and making industrial policies less exclusive. State of Play The price of protection The European Commission’s first-ever economic security strategy, presented on 20 June, marks a critical shift in the EU’s thinking about economic integration. Following a global trend, the free trade paradigm of recent decades has given way to voices that favor limits on economic openness in the name of national security and geopolitics. The EU recognizes that such measures come at a price, and it becomes increasingly clear that Brussels is willing to pay that price. The Commission is anxious about foreign ownership of critical infrastructure and technology; of member states being too dependent on trade with any single foreign country; and of the leaking of military and dual-use technologies to geopolitical adversaries. The EU has already adopted instruments to deal with such risks, such as the Foreign Direct Investment Regulation, the toolbox for 5G telecommunications security, and the Anti-Coercion Instrument. Now, Brussels has more proposals to table: It does not only want a “bolder and faster” use of existing tools, but also to create new tools that together with the existing ones will make up a holistic system to “protect” economic security, “promote” competitiveness, and “partner” with countries who share the EU’s concerns, as by the strategy’s key terms. Key Issues Partners on economic security... Both the Covid-19 pandemic and the war in Ukraine have taught the EU that it cannot take the supply of essentials, ranging from medical equipment to natural gas, for granted. The strongest impetus to prioritise economic security, however, has come from China’s relentless – and sometimes ruthless – rise. Beijing’s investments in the European economy as well as its aggressive foreign policy and economic coercion of EU member states have raised concerns about the EU’s linkages with the Chinese economy. With its new economic security strategy, the EU is trying to position itself among the front-runners in the field like the United States, a prolific user of sanctions, and Japan, which has its own Ministry for Economic Security. And indeed, partnering with such democratic, advanced economies is an important element of the Commission’s strategy. At first glance, this group of states has much in common: The G7, for instance, recently agreed to deepen coordination on “resilient supply chains”, export controls, and joint responses to China’s economic coercion. Yet these countries also differ significantly in how far they are willing to go when it comes to security-motivated restrictions on China. Whereas the US appears to be most determined, EU member states typically prefer more modest options. As a case in point, the EU’s economic security strategy does not even mention China by name, a sign of several member states' apparent unwillingness to provoke Beijing. Moreover, while G7 partners share the alarm about China, many of them are doubling down on efforts to help their own businesses. In practice, this means using industrial policy in favour of domestic production, like the US Inflation Reduction Act or Canada’s “made-in-Canada” plan. Japan, meanwhile, declared in its new national security strategy that it would promote businesses in “critical goods and technologies”, including the semiconductor industry.For the EU, such initiatives include the Net-Zero Industry Act, the Critical Raw Materials Act and the Chips Act. Going forward, businesses may find themselves in an increasingly complicated landscape of allied economies with different sets of incentives and security regulations. To navigate effectively, they may need to invest more in political risk analysis. They could also benefit from thinking about the trade-offs of being present in different countries, as future policies could create new pressures to relocate operations. ... but rivals in industrial policy The Commission has ambitious plans to make the Single Market more competitive and resilient. This includes the creation of “industrial alliances” to foster cooperation between partners in a given value chain in areas such as batteries, raw materials, and cloud technologies. In terms of economic security, three initiatives stand out. First, the Critical Raw Materials Act is designed to facilitate the extraction, processing and recycling of critical raw materials in the EU. Second, the Net-Zero Industry Act is set to boost production of green technology. Third, the European Chips Act seeks to ensure the supply of semiconductors. In these areas, the Commission seeks private sector investments, while recognizing that businesses will be “essential partners” in economic security. Therefore, it wants to draw on the knowledge of firms who are advanced in their thinking about risk mitigation, while encouraging others to conduct due diligence and better manage risks in the field. Consequently, the EU’s new strategy represents the beginning, not the end, of a conversation about European policy. Its direction will be shaped in dialogue with partners in the G7 and elsewhere, especially the EU-US Trade and Technology Council which met in May and will meet again before the end of the year. European thinking about economic security is still at an early stage, and member states have a variety of different objections to the EU’s new instruments, including the idea to screen outbound investments. Going forward, firms may therefore seize significant opportunities to shape Europe’s economic security drive. Some businesses in prioritized areas like solar power, clean hydrogen, semiconductors, or digital services, will be able to profit from industrial policies that favour domestic production and regulations that exclude foreign competitors. However, corporations may also find that a growing web of security restrictions and exclusive industrial policies seriously complicates their operations overseas. Avoiding such trade barriers may not be possible in the case of China and other potential rivals. Allied countries, however, should be able to exempt one another from security restrictions and exclusive industrial policies, effectively fostering frictionless trade and a level playing field among them. Free trade-minded businesses could nudge them in the right direction.

Executive Summary After securing a parliamentary majority on May 14 together with his ultranationalist and Islamist allies, Turkey’s incumbent Recep Tayyip Erdogan has also won a third presidential term in the runoff elections on May 28. Fears of contested election results and a prolonged period of social unrest and political violence dissipated as the opposition conceded quickly and Western leaders congratulated Erdogan without delay. Turkey’s fragile economy, resulting mainly from Erdogan’s unorthodox economic policies and deficit spending, remains the biggest challenge at home and abroad as the president comes under pressure to implement austerity measures. Implications for International Business Firms can once again consider Turkey for nearshoring opportunities, as the risk of prolonged social and political instability has abated – for now. The country’s depleted net foreign reserves, looming capital controls, and lack of a viable plan to return to sound economic policies, in turn, remain deterring factors. State of Play Erdogan secures his third presidential term Despite expectations at home and abroad that Turkey’s dismal economic conditions and cost of living crisis would deny him a third presidential term, Erdogan on May 28 received 52 percent of the votes. The country’s first-ever presidential runoff came two weeks after his coalition of conservative, Islamist, and ultranationalist parties secured a parliamentary majority. Voter turnout of 87 and 84 percent, respectively, in the two rounds as well as his opponent’s immediate concession and quick congratulatory messages from Western leaders dissipated widespread fears of a prolonged period of social unrest and political violence. Nevertheless, the likelihood that the rule of law and democratic standards will erode further spooks markets, as evidenced by the downturn in the Istanbul stock exchange and devaluation of the Turkish lira following Erdogan’s first round victory. Having further consolidated his one-man rule, Erdogan now faces mounting economic challenges. These are mostly his own making, such as by lowering interest rates in the face of rising inflation and compounded by out-of-control deficit spending during the campaign period. Since the president has his eyes on regaining the opposition-held Ankara, Antalya, and Istanbul mayoralties in the March 2024 municipal elections, Erdogan is likely to continue to print liras to boost credits and thereby demand, and with it, hyperinflation. On foreign policy, a politically confident but economically shaken strongman Erdogan will double down on his transactional brinkmanship with Western allies, aiming to extract maximum concessions for example in exchange for unblocking Sweden’s path to NATO, facilitating an extension of the Russian-Ukrainian grain deal, and the EU-Turkey deal on Syrian refugees. Key Issues Assertive abroad and friendly with autocrats Under the two-decade rule of Erdogan’s Islamist-rooted Justice and Development Party (AKP), Turkey has drifted away from the transatlantic alliance and its values. First as prime minister and then as president with full executive powers, Erdogan has veered towards a more assertive and transactional foreign and security policy coupled with authoritarianism at home. After dropping the stated goal of EU accession and democratic reforms from the early 2010s onwards, Ankara has forged a multifaceted relationship with various adversaries of the West, including Iran, Russia, and Venezuela. Following Russia’s attack on Ukraine, the country has drawn Euro-American ire for facilitating sanctions evasion. On the heels of his parliamentary and presidential victories, a politically confident Erdogan will gear up his assertive and transactional foreign and security policy, demanding greater concessions from the West in exchange for refraining from playing a spoiler role on key policy issues, such as Sweden’s NATO membership, and offering its good offices in various African conflicts, including in Libya and the Horn of Africa. Coined as the “Turkish Century,” this approach builds on a long-standing desire to transform the country from a middle power to a great power. Erdogan’s maximalist regional and global policy ambitions, however, run counter to the policies of Turkey’s NATO partners. From its self-perceived position of power, Ankara hopes to continue to reap the benefits of transactionalism by fence-sitting in the Russia-Ukraine war in favour of its position vis-à-vis Moscow in Syria. Erdogan feels that his latest election win will prompt the United States and EU member states to adopt a greater degree of appeasement in relations with Turkey, allowing him to extract concessions in the form of receiving a new batch of F-16 fighter jets and more favorable payments under the migrant deal, among others. Meanwhile, the Turkish government’s growing reliance on various bilateral stopgap measures with non-Western governments to remedy the dramatic nosedive in Turkish net foreign reserves has led to new constraints on Ankara’s policies. These measures include $28 bn worth of currency swaps with China, Qatar, South Korea, and the United Arab Emirates, $5bn Saudi and €1bn Azerbaijani deposits into the Turkish central bank, and a multibillion-dollar deal with Russia to postpone natural gas payments to 2024. Although Europe remains Turkey’s top trading partner with a volume of €198 bn in 2022, the country’s reliance on Russia and China as its top two sources of imports and growing dependence on non-Western capital inflows, could hasten its pivot away from the West. A domestic economy in dire straits for another year The opposition bloc’s loss of both parliamentary and presidential elections has ended optimistic expectations about Turkey’s swift return to sensible and predictable policies as well as a rules-based economy. Having lost most competent members of his economic team to the opposition and lacking skilled replacements, Erdogan will continue to muddle through to avoid a hard landing of the Turkish economy. Meanwhile, the country’s cost of living crisis makes it vital for Erdogan to regain Ankara, Antalya, and Istanbul mayoralties that he lost to the opposition in 2019 so that he can divert urban spoils from these metropolises to his disgruntled clients. The prolonged election campaign until the next municipal elections will likely extend the government’s deficit spending – which led to a nearly $20bn budget deficit within the first four months of 2023 – for ten additional months. Given Turkey’s negative net foreign reserves position and the near depletion of the central bank’s capacity to defend the lira, finance experts predict a 25 percent additional devaluation of the Turkish currency by the end of 2023, and 50 percent by the end of 2024. Further erosion of the independence of the central bank and other regulatory agencies will bring about an even more personalized and less predictable monetary policy, exacerbating the environment of financial and regulatory uncertainty. Against this backdrop, a hard landing is expected before long, with significant risks but also opportunities for global investors. The country’s undercapitalized and overleveraged zombie companies that are solvent only on paper owing to abundant below-market government-backed loans will likely go bankrupt once austerity measures kick in by spring 2024. This will offer value investors the prospect of mergers and acquisitions, while the ongoing Turkish rush for equities, commodities, and other assets seen as a hedge against hyperinflation and devaluation will continue to provide high-risk/high-reward trades for more speculative-minded investors. Turkey’s coming downturn will decrease labor costs in the country, providing a more welcoming labor market for the low-to-mid value-added end of nearshoring investments. Currently, the monthly costs of a minimum wage worker to a Turkey-based employer remains relatively high at $550, making the Balkans and Eastern Europe more competitive locations in the EU’s vicinity. For foreign investors, the increasing likelihood of a sovereign default, a bank run, the freezing of foreign currency accounts, or the introduction of capital controls remain the most salient risks. These might prompt prudent investors to delay their greenfield investments until there is more certainty about the state of Turkey’s public finances, monetary policies, and market dynamics in a year’s time.

Executive Summary Critical raw materials (CRM) are indispensable inputs for a wide set of strategic industries, including the energy, digital, space, and defence sectors. As the geopolitical rivalry between the US and China crosses into the global economy, CRM are in the early stages of becoming strategically ‘weaponized’. The EU and US approaches to secure CRM are not yet fully aligned, and future transatlantic frictions over their supply and value chains are likely. Implications for International Business A loomingglobal metals crisis poses a serious challenge to companies present in the lead markets of the future like renewables, digitization, or e-mobility. As control over CRM supply chains is increasingly used as tool to harm one’s geopolitical opponent, firms must prepare for short-term supply disruptions. Increased diversification and better monitoring of supply chains as well as stockpiling therefore are necessary risk mitigation strategies for firms. State of Play Raw materials needed for high tech CRM play a central role in most key industries of the future. They are needed for clean energy technologies powering the green transition. Lithium, nickel, cobalt, manga­nese, and graphite are crucial to battery performance, longevity, and energy density. Rare Earth Elements (REE), in turn, are essential for the permanent magnets at the core of wind turbines. Also, the digital transition cannot be pursued without semi­conductors, which play an indispensable role in powering computers, smart grids, or fighter jets. Their production relies on palladium, cobalt, gallium, and REE. Currently, the EU lists over 30 and the US over 50 CRM. Their number is going to rise, not shrink, as the global green and digital transformation picks up speed. For example, a typical electric vehicle (EV) requires six times the mineral inputs of a conventional car. An onshore wind plant requires nine times more mineral resources than a gas-fired plant. Yet, global investment to increase availability of CRM mining and refining facilities is falling short. As CRM demand outpaces supply, a metal crunch is expected soon. In addition to their economic relevance, CRM are ‘critical’ due to significant supply risks. The extraction, production, and processing of CRM are highly concentrated in a small number of countries, often within challenging political-economic contexts. The Democratic Republic of Congo is responsible for 70% of global cobalt production. China has emerged as a major force in global supply chains for CRM and the above-mentioned technologies. It dominates the entire downstream EV supply chain, owns most of the world´s solar panel supply chain, and is the source for the mining and refining of key materials in chip production. In the short term it is impossible to divert supply chains away from these countries, and there is a high chance of significant supply disruptions with minimal capacity to contain their effects. Consequently, access to and control over CRM becomes an instrument of geopolitical competition, and Europe’s reliance on a rival like China seriously undermines its economic security. Key Issues Technological dependence creates geopolitical risk If the physical location of oil reserves determined global politics in the past, the whereabouts of CRM and their related supply chains will define geopolitics for the foreseeable future. As the Covid-19 pandemic and Russia´s invasion of Ukraine have shown, reliance on a single provider bears the risk of severe disruptions. At the same time, classical market mechanisms have failed to work for CRM: It was China’s pricing and settlement policy that has made extraction and processing in other countries economically unattractive. As a consequence, Europe´s dependence on REE from China today is far greater than that on Russian energy exports prior to February 2022. Worse, unlike for oil and gas, there are no national strategic reserves of CRM in Europe. A supply stop would have an immediate and far-reaching impact on many industries. With an increasing strategic value of raw materials, the risk of export restrictions also rises. In recent years, about a tenth of the global value of CRM exports faced at least one such measure. In 2010, when the dispute between Beijing and Tokyo over the Senkaku/Diaoyu islands in the East China Sea boiled over, China restricted its REE exports to Japan, immediately paralyzing parts of the industry there. More recently, Indonesia, the world´s largest nickel producer, announced a full-scale export stop of unprocessed nickel, resulting in an official trade dispute with the EU. Earlier this year, Chile and Zimbabwe, two of the world’s largest lithium producers, each announced the nationalization of their lithium reserves, with yet unknown consequences. As security of supply comes into sharper focus, potential distortions to the free trade of CRM become increasingly sensitive. Large car companies therefore entered into offtake agreements and joint ventures with mining companies, and other industries might follow suit. Small and medium-sized enterprises without the means of vertical integration require CRM efficiency and substitution strategies, and possibly state aid. The geoeconomic effects of the US and EU raw material strategies The US Inflation Reduction Act (IRA) passed in August 2022 and the EU’s proposed Critical Raw Materials Act are important measures to create supply security. Under the IRA, tax credits go to each new sold EV if at least 40 percent of the battery's explored, processed, or recycled CRM come from North America or a country with which the US has a free trade agreement. Also, US companies that extract CRM can apply for a subsidy of ten percent of the production costs. Lastly, companies that process, refine, or recycle CRM can claim tax credits of up to 30 percent of their energy cost. In addition, the IRA mobilizes up to $500 million to facilitate an end-to-end US supply chain for the military’s REE demand. The EU’s legislation sets ambitious targets, too. By 2030, at least ten percent of annual CRM consumption should come from domestic mining, while domestic processing should cover at least 40 percent of annual consumption. Recycling is to account for at least 15 percent of yearly use. No more than 65 percent per year of each CRM at each relevant processing stage shall come from a single third country. Finally, “strategic projects" are supported by access to finance and shorter permit periods (12 to 24 months). Overall, the IRA’s incentives appear to be better tailored and, by offering tax credits, administratively simpler to use. Moreover, the EU urgently needs a funding vehicle for domestic projects in mining, processing, or recycling. While Brussels and Washington are both concerned about CRM supply security, their respective domestic considerations clash with the broader geostrategic outlook. Some parts of the IRA are seen critical in Europe because they put European and other foreign companies at a disadvantage. These include the criteria for tax credits for EV, but also “Buy American” or local content requirements in other areas. The fear of “unfriendly” investment diversions is real, as European firms have put their investment plans for green and digital technologies on hold because of the new US subsidies. These developments appear contradictory to Washington's push towards “friend-shoring”, i.e. the restructuring of global value chains in strategic sectors along geopolitical lines. That said, the Transatlantic Raw Materials Partnership announced by European Commission President Ursula von der Leyen and US President Joe Biden on 10 March could enhance transatlantic security of supply, as it lays the foundation for a common market for some CRM. Moreover, information sharing about potential supply bottlenecks will strengthen early warning capacities. The main challenge for both the EU and the US, however, is the growing global supply gap for CRM. It would therefore be also in the interest of companies on both sides of the Atlantic if the EU and the US joined forces in forging raw materials alliances overseas, integrated their respective strategies and partnerships, and offered streamlined support to develop new mining and refining capacities in resource rich countries.