Eurasia Group, the first think tank in the United States: Top 10 global risks in 2025

The original text comes from Eurasia Group’s “ Top Risks 2025 ” and was translated by Odaily Planet Daily jk.

introduction:

In some ways, the year 2025 is extraordinary. If we were an alien species, looking at Earth with an unbiased eye, what would we see? A world of eight billion people in the midst of unprecedented expansion and growth; a world of astonishing opportunity after tens of thousands of years of stagnation.

Even from the geopolitical headlines, there is some room for optimism in 2025. The major wars that dominated the world over the past year are receding. Three years after Russia invaded Ukraine and attempted to overthrow its leadership, negotiations (and even a possible ceasefire) appear to be close. Similarly, in the Middle East, after more than a year of fighting in Gaza and elsewhere, the appetite and intent for expanded violence appear to have waned. In the United States, a hotly contested presidential election produced an undisputed winner, with few questioning whether the election was free, fair, or rigged.

But a closer look reveals that we face a huge problem.

The so-called “community of nations” is now little more than a fairy tale, governed by a failure to meet the needs of its citizens. Our challenges are global, whether climate, technological, economic, or national security, and they cannot be solved without strong international cooperation. Yet within the existing institutional framework, increased international cooperation is neither considered desirable nor feasible. The political forces that have the most power to strengthen global institutions are moving in the opposite direction.

We are returning to a world of the law of the jungle. A world where the powerful can do whatever they want and the weak are left to their fate. And those powerful ones – whether countries, companies, or individuals – cannot be trusted to act in the interests of the weaker ones under their control.

This is not a sustainable trajectory.

1: G0 World Victory

The Eurasia Group has been warning for more than a decade about the growing dangers of a G-0 world: an era in which no single power or group of powers has both the will and the ability to drive the global agenda and uphold the international order. And this deficit in global leadership is becoming extremely dangerous.

By 2025, this situation will become a catalyst for continued geopolitical instability, weakening the world’s security and economic architecture, creating new and expanding power vacuums, encouraging the rise of rogue actors, and increasing the likelihood of accidents, miscalculations, and conflict. The risk of a generational global crisis, or even a new global war, is higher than at any time in our lifetime.

The core problem of the current global order is that key international institutions – such as the UN Security Council, the International Monetary Fund and the World Bank – no longer reflect the actual distribution of global power. This is a geopolitical recession, a “bust cycle” in international relations, and its causes can be traced to three points:

• After the end of the Cold War, the West’s failure to effectively integrate Russia into the international system led to deep resentment and hostility toward the United States and Europe. Today, as a once-powerful country that has now seriously declined, Putin’s Russia has become one of the most dangerous rogue states in the world and is actively building military strategic partnerships with other global destabilizing actors, especially North Korea and Iran.

• In contrast, in the early 2000s, China was integrated into the international order, especially into the World Trade Organization (WTO). The West assumed that global economic integration would prompt the Chinese leadership to liberalize its political system and become a responsible global stakeholder in the Western sense. However, this expectation did not materialize. This ultimately led to growing tensions, even confrontation, between China and the West.

• Ultimately, tens of millions of citizens in advanced industrial democracies have concluded that the globalist values espoused by their leaders and elites no longer serve them. Rising inequality, demographic shifts, and dizzying technological change have left many people fundamentally skeptical of government and democracy itself, undermining these countries’ ability and willingness to lead on the global stage. Most notably, President-elect Donald Trump has both incited and profited from the surge in unilateralist sentiment in the United States.

There are three ways out of geopolitical recession: first, reform existing institutions to make them more efficient and win broad legitimacy; second, establish new alternative institutions to better adapt to the actual distribution of global power; and third, destroy the old system and impose a new set of rules through force.

All three pathways are happening. But in 2025, the biggest efforts will be focused on the third pathway.

The United States, while powerful, has no intention of leading the world. The return of Trump and a more politically secure and thoroughly unilateralist administration than in 2017 will accelerate the United States’ decisive abandonment of its long-standing role as global sheriff, defender of free trade, and champion of global values. The slogan “America First” is not without reason.

Other advanced industrial democracies are more vulnerable than ever to filling the leadership void left by America’s inward turn. Germany’s government has collapsed, and populist parties may gain greater support in the upcoming federal election. France is in the grip of a prolonged political crisis. Britain is led by an unpopular new government that is still struggling to find its footing. Italy, while relatively stable for now, is led by Giorgia Meloni, who is close to Trump, but this is not enough to prop up the global order. Japan’s Liberal Democratic Party has lost its majority, and new Prime Minister Shigeru Ishiba may not last. South Korea is in complete chaos. Canada’s Trudeau is about to step down. For former American allies, the geopolitical strategy now is to keep a low profile and pray not to attract attention to the chaos.

Countries in the global South have little in common other than a general yearning for a more polarized world, and they are neither powerful nor organized enough to lead the world out of geopolitical decline. India, the most powerful and likely global leader among developing countries, remains a low-income country that focuses primarily on building bridges to its national interests. Despite the rising influence of countries such as Saudi Arabia and the United Arab Emirates, they lack the status to push for far-reaching global reforms.

China, the second most powerful country on earth and the only real rival to the United States, cannot lead the world even if it wants to. Not only does it lack the legitimacy and “soft power” needed to attract a stable following, but its continued economic woes and policies focus it on domestic challenges. Meanwhile, China’s partner Russia, a country that is bleeding human and economic capital, has no plausible leadership credentials.

In short, with the world in 2025 facing a growing G0 leadership deficit, the prospect of peaceful reform or renewal of the global order does not exist. All that remains is greater geopolitical instability, chaos, and conflict. With no party able or willing to maintain global peace and prosperity, the risk of economic disruption and dangerous military conflict will continue to grow. Power vacuums will widen and global governance will stagnate, leading to a growing proliferation of rogue behavior and human suffering. The world will become more divided and more dangerous.

The top risk this year is not a single event, but the cumulative impact of the collapse of the global order from the G0 leadership deficit. We are entering a uniquely dangerous period comparable to the 1930s and the early days of the Cold War. This geopolitical reality is the driving force behind all of the top risks in this years report. The tail risk of a truly catastrophic event grows every day.

2: Trump’s “rules of governance”

Trump’s second presidency will be very different from his first. With a landslide victory in the 2024 election and the unwavering support of a united Republican Party, Trump will enter office more experienced and better organized than in 2017. He has surrounded himself with a cadre of battle-hardened, loyal supporters who have a deeper understanding of how to navigate the bureaucracy. His team is more personally loyal to the president-elect than last time, and ideologically aligned: populist J.D. Vance will be vice president, not evangelical Mike Pence.

Trump’s growing grip on congressional Republicans, combined with a 6-3 conservative majority on the Supreme Court and a more favorable media environment (such as the growing influence of Twitter/X and populist podcasts), will help him advance his agenda in a second term.

Trump and his inner circle believe that his first-term agenda was hampered by disloyal appointees and political opponents in the so-called deep state. Therefore, strengthening the White Houses control over the federal government and politicizing independent agencies have become the top priorities of Trump. Judging from his nominations so far, he clearly intends to push forward these efforts, such as clearing out career civil servants in the federal bureaucracy and administration and appointing loyalists to key positions that he believes have been involved in political attacks against him, especially in internal power agencies such as the Justice Department and the FBI.

To control the vast federal spending machinery, Trump will rely on loyal appointees, threaten retaliation against disobedient voters in Congress and, if necessary, seek to unilaterally rescind funding approved by Congress, an effort that could provoke court fights and further tilt the balance of power from the legislature to the executive.

The challenge of the “rule of rule”

Trump believes that the so-called deep state not only hinders his agenda, but also impeached and prosecuted him for political reasons. After the purges, these institutions that he sees as opponents have been weakened, and he is pushing Washingtons political norms to the brink of collapse. His control over the power structure will be used to protect himself and his allies from accountability, while persecuting and threatening political enemies and critics. Although it does not matter whether these purges and persecutions are successful, public threats and onerous investigations alone are enough to curb dissent and call into question the cornerstone of the US Constitution – that everyone is equal before the law. This also means that legal procedures that have long been considered neutral and fair are no longer seen as such.

The erosion of the independence of executive power and the rule of law will make the U.S. policy environment more dependent on the decisions of a strong leader in Washington than on established, politically impartial legal principles. Trump is likely to apply greater regulatory scrutiny to mergers of companies he sees as adversaries. Investors will have to carefully interpret the president-elect’s social media accounts and the shifting opinion leaders in his team to predict whether Trump will follow through on his plans for regulation and tariffs that will affect the global economy. This highly personalized approach to governing could become the biggest risk for businesses in 2025 and beyond.

If Trump systematically rewards business figures who are politically aligned with him, giving them preferential treatment in regulatory, legal, and contractual matters, he will promote a system where success is measured by proximity to power rather than market competition. This will exacerbate crony capitalism in the worlds largest economy, forcing companies to spend more time and money cultivating transactional relationships with Trumps political machine rather than focusing on creating economic value. Companies that are unwilling to cooperate will be at a disadvantage. Although markets and companies may view many of Trumps specific policies positively, this shift will inject structural volatility into U.S. policymaking and weaken the U.S. business and investment environment, potentially undermining long-term economic efficiency, productivity, and growth.

Most importantly, Trump’s destructive impulses will continue to be constrained by his own lack of discipline and interest in governing. During his first term, bureaucratic infighting delayed policy implementation and led to chaotic rollouts, while his casual handling of procedural rules often left policies jeopardized in the courts. Although the current team is more experienced than in 2017, low levels of internal chaos will remain a recurring feature over the next four years.

Still, even if Trump fails to destroy democratic institutions, his disregard for long-standing American values will make 2025 and beyond an open season for political sabotage. Just as unrepaired broken windows signal disregard for property damage and invite more serious crimes, small violations of long-standing political norms, if left unchallenged, will signal that democracy’s safeguards can be ignored. The institutional environment in the United States was very different before Trump was first elected in 2016: his refusal to release his tax returns, his unwillingness to divest his family businesses, his placement of family members in key positions, and his direct communication with the public and foreign leaders via social media all reflect the profound changes that have taken place in institutional norms over the past decade. As more norms are flouted and more windows are broken over the next four years, the erosion of democratic norms, political institutions, and the rule of law is likely to accelerate.

While the history of American presidency has been marked by major corruption scandals—Watergate, Teapot Dove, Iran-Contra—Trump’s second term will mark the first time the United States has experienced a serious institutional backsliding since Reconstruction. And it may not be the last. Once one party breaks precedent, the other tends to follow suit. America’s democratic norms, political institutions, and rule of law have been steadily eroded since the early 21st century. The partisan judicial wars that began with the ideological rejection of Robert Bork’s nomination in 1987, culminated in the elimination of the filibuster for circuit court nominees, and now have culminated in the elimination of the filibuster for Supreme Court nominees without any votes from the opposing party. Republicans were able to eliminate the filibuster for Supreme Court nominees precisely because Democrats had already done so for lower court nominations. This back-and-forth race to the bottom undermines public trust in the rule of law, trust that is much harder to rebuild than to destroy.

3: Deterioration of Sino-US relations

The detente agreement reached between President Biden and President Xi Jinping at Woodside in November 2023 temporarily contained Sino-US tensions, but Trump’s return to power would upset that stability, derail the world’s most important geopolitical relationship, and increase economic turmoil and crisis risks.

The change in the relationship is driven primarily by trade policy. Trump will announce and implement new tariffs on Chinese goods within weeks of his inauguration, intending to use tariffs as a bargaining chip to force concessions from China. Although it falls short of the 60% across-the-board tariffs he has threatened, tariffs on certain products will quickly rise to 50%-60% or even higher, and the average tariff on all Chinese imports will double to about 25% by the end of 2025. Even a more moderate plan—such as the top tariff of only 40% under the efforts of Treasury Secretary nominee Scott Bessant—will touch Chinas bottom line.

Although China enters 2025 with less economic power than in the last trade war, its leaders are prepared to respond more forcefully and are unlikely to back down. Technology policy will be an important area to watch. There is strong resentment in the Chinese government and population against U.S. policies that they see as aimed at freezing China’s technological development and hindering economic progress. Even events beyond Trump’s control, such as the January 19 deadline for ByteDance to divest TikTok, will strike a nerve with ordinary Chinese people. On export controls, Trump’s security hawks will add more Chinese companies to the Entity List, make licensing more difficult, expand controls to new areas such as biotech, close circumvention loopholes, expand the use of extraterritorial tools, and continue the advanced chip restrictions of the Biden administration. In December, China showed it was ready to retaliate against the U.S. technology blockade by restricting exports of key minerals.

Although the policy toward Taiwan is not an immediate trigger for a crisis, it will exacerbate the deterioration of bilateral relations. Hawks such as Rubio and Waltz will push for closer ties with Taipei and challenge the USs strategic ambiguity on the issue of military intervention, seeking to provide Taiwan with clearer security guarantees. Although Trump himself may not be very interested in the Taiwan issue, his administration and Congress will accelerate the expansion of US-Taiwan defense relations and relax restrictions on Taipei in sensitive areas. For example, the US may introduce more asymmetric defense systems for Taiwan, provide military training, and relax restrictions on Taiwan President Lai Ching-te and his team transiting through the United States, but it is not expected to directly challenge the status quo.

For now, China believes its pressure tactics on Lai Ching-te, whom it views as an irredeemable “separatist,” are working. As long as Lai’s popularity remains high and Taiwan’s economy performs well, he is unlikely to take aggressive action. But any unprecedented move between the United States and Taiwan—however unlikely—could provoke a strong response, including violations of Taiwan’s airspace or territorial waters. If China believes Taipei is advancing de facto independence or Washington crosses its “red lines”—such as a visit by the U.S. Secretary of Defense or a U.S. Navy ship docking at a Taiwanese port—it could escalate militarily by blockading or occupying outlying islands. These risks will increase further as Taiwan’s 2028 elections approach and China steps up pressure to prevent Lai from being re-elected, making the “peaceful reunification” narrative even harder to maintain.

Nonetheless, neither China nor the United States has been willing to proactively provoke a crisis this year, with leaders of both countries trying to focus on domestic affairs. However, the structural conditions for a compromise do not exist. The concessions that China can offer—purchases of agricultural products and energy, greater market access for American companies, investment in the United States, and limited assistance on Ukraine issues—are not enough to appease Trump and the hawks in his administration. At the same time, unlike the orderly decline during the Biden era, when then-National Security Advisor Sullivan and Foreign Minister Wang Yi provided direction for Sino-US relations through 25 high-level bilateral channels, the management and communication mechanisms under the Trump administration will be severely lacking, making Sino-US relations even more lacking in backing support.

There are two wild cards in U.S.-China relations this year: Trump and Elon Musk. As Trump’s chief adviser, Musk’s large business interests in China could make him a potential mediating force. However, China may doubt Musk’s ability to deliver on a deal, and he is unlikely to test his influence on such a complex diplomatic issue.

The costs of an unmanaged decoupling would be heavy. Trump’s tariffs would hit Chinese exports, the only bright spot in an otherwise weak economy. Exports to the U.S. account for 3% of China’s GDP, and high tariffs would threaten China’s ability to meet its growth targets. Although China would respond with stronger stimulus to offset the impact, policy support would continue to be gradual and reactive, and domestic demand would remain subdued as China prefers stability over growth. U.S. consumers would also pay the price in the form of higher prices (see Risk #4: Trumponomics). An unmanaged decoupling would disrupt global supply chains, force a restructuring of trade flows, and raise global costs for businesses and consumers (see Risk #7: Global Disaster). As the U.S. erects national security barriers in more and more sectors of the economy, potentially spreading to export and investment restrictions in new areas such as healthcare, the efficiency and innovation of the global economy would suffer.

Although most countries have no intention of getting involved in a new Cold War, the breakdown of Sino-US relations will force key US allies and trading partners such as Japan, South Korea, Mexico and the European Union to choose sides in areas involving national security, with significant impacts on their economies. The deterioration of bilateral relations will deepen suspicion, hostility and distrust on both sides and increase the risk of accidental escalation. Although neither side wants a conflict, avoiding it in the coming year will require extremely sophisticated diplomatic skills.

4: Trumponomics

Trump is inheriting a strong U.S. economy, but his policies will erode that advantage by pushing up inflation and lowering growth.

The U.S. economy has been strong at the start of the year, with output exceeding pre-pandemic trends, unlike other major economies. Unemployment remains around 4%, and inflation is returning to the Fed’s 2% target, creating conditions for interest rates to fall from their peak. Stock markets and business confidence are also optimistic, and the future seems bright.

However, this optimism is about to be shattered. President-elect Trump’s policy agenda poses underestimated risks to the US economic outlook, with two of his core campaign promises being particularly harmful.

First, he promises to significantly increase tariffs (“the greatest invention”) to correct so-called “unfair” trade practices and reduce the U.S. trade deficit, which he sees as harmful to the country. China will bear the brunt, as Trump will impose tariffs of 50%-60% on certain goods and double the average tariff rate on all Chinese imports to nearly 25% (by the end of 2025). Although this falls short of the threatened 60% across-the-board tariff on all Chinese imports, China will still be forced to respond—first by raising tariffs on U.S. imports and then by targeting U.S. reliance on critical minerals and supply chains. U.S.-China relations will thus fall into an unmanaged decoupling (see Risk #3: U.S.-China relations).

U.S. consumers and businesses will pay higher prices for imported goods and raw materials, and a stronger dollar will also make U.S. exports less competitive.

Trading partners with which the United States has large bilateral trade surpluses or are seen as helping China circumvent U.S. tariffs will also be targeted by Tariff Man. In addition, countries that Trump believes are dependent on U.S. protection or are not paying enough will not be spared his tariff threats. Trump will use the threat of tariffs as a means to force concessions from trading partners, but he will not shy away from actually imposing tariffs because he believes it will significantly reduce macroeconomic imbalances and benefit the United States. Mexico, Vietnam, Japan, South Korea, Taiwan, Canada, and Europe are all likely to face tariff threats this year. Many of the targeted countries will compromise to avoid tariffs, despite the high costs. This will give Trump an early win and prompt him to double down on his transactional strategy; Mexico is a case in point (see Risk #10: Mexican stalemate).

The second key pillar of Trumponomics is the president-elect’s border policy. The Trump administration will intensify its crackdown on immigration at the southern border, reinstating programs like Remain in Mexico and Title 42, while cutting humanitarian access programs and providing more funding for law enforcement agencies to conduct mass deportations of undocumented immigrants. While Trump’s promised deportation of 15 million to 20 million immigrants is unlikely to happen (there may not even be that many undocumented immigrants in the United States), Trump, at the urging of immigration hawks Stephen Miller and Tom Homan, could deport up to 1 million people in 2025 and 5 million over his four-year term (3 million to 3.5 million is more likely).

Reduced illegal immigration and mass deportations will shrink the size of the U.S. labor market, raising wages and consumer prices while reducing the economys productive capacity. Legal immigrants will also be unable to fill the gap. Industries that rely on immigrant labor, such as agriculture, construction, and services, will be particularly hard hit as labor shortages become more pronounced. In addition, illegal immigrants are also consumers and taxpayers, and their contributions to Social Security and Medicare, as well as billions of dollars in federal, state, and local taxes, will also disappear as a result of the crackdown, weakening demand growth and widening the federal fiscal deficit.

Taken together, Trumps trade and immigration policies will drag down U.S. economic growth and drive up inflation. Other policies, such as deregulation and tax cuts, can boost growth but cannot make up for the negative impact of tariffs and deportations.

On the deregulatory side, the financial sector, big tech companies, the crypto industry, and fossil fuel producers will benefit from Trumps lighter regulatory policies. However, the impact on the overall economy is limited: the US economy is already the most lightly regulated among developed countries, and most of the low-hanging fruit has been harvested during Trumps first term. For example, domestic energy production is already at a record high, and lower oil prices will curb new production this year. Reforms to oil and gas and infrastructure project approvals could unleash a new wave of investment, but this will emerge gradually over the next few years, not in 2025.

On the tax front, Republicans will push for a permanent extension of Trump’s 2017 corporate and wealthy tax cuts, which were due to expire at the end of 2025, which would add an additional $4.5 trillion in fiscal costs over a decade. However, with the fiscal deficit already at 6.5% of GDP and only a slim Republican majority in the House of Representatives, it is unlikely that Trump will be able to cut taxes further without cutting spending. Even if the “Department of Government Efficiency” (DOGE), led by Elon Musk and Vivek Ramaswamy, can achieve some cost savings and efficiency gains in the federal budget, there will still be limited room for spending cuts. However, the deficit and debt-to-GDP ratio will swell further during Trump’s term, pushing up Treasury yields and long-term borrowing costs, which are already at unprecedented levels in peacetime.

Trumps second term will begin in a completely different macroeconomic environment than his first. Corporate valuations relative to earnings are much higher than in 2017; fiscal deficits have increased structurally, and government debt as a percentage of GDP has soared since the pandemic; inflation remains slightly above target, and interest rates are also high. Compared with 2017, the risks of economic downside have increased significantly.

Moreover, Trump 2.0 is not Trump 1.0. Not only does the president-elect have a unified government and a firm grip on the Republican Party, he has also assembled a more loyal and ideologically unified team than the last one, one that will enter the administration ready to implement, not hinder, Trump’s agenda.

This does not mean that the scale of policy disruption will be exactly in line with Trump’s campaign rhetoric. Implementation of tariffs could be lower than expected, especially if trading partners meet Trump’s demands; some threats may well remain just bluster. Logistical and political hurdles will limit the scale of mass expulsions. Lobbying by big corporate CEOs, advisers like Musk, and Treasury Secretary nominee Scott Bessant could persuade Trump to moderate his most damaging policies. In addition, bad inflation data or a market sell-off before the midterm elections could also force him to soften his stance.

However, Trump will deliver on his core campaign promises more broadly and with greater impact on the U.S. economy than businesses and investors expect. And that’s not all. The policy uncertainty created by Trump’s personal style of governance (see Risk #2: Trump’s Rules) will itself increase volatility and uncertainty in economic policy, acting as a drag on trade, investment, and growth in 2025 and beyond. In the long run, this will jeopardize the predictability and performance of the world’s most dynamic economy, the most important investment destination, and the issuer of the world’s reserve currency.

5: Russia’s ambitions

Russia remains the leading global power, a position that becomes more pronounced as Iran loses its ability to project power (see Risk #6: Troubled Iran). This year, despite a possible ceasefire between Russia and Ukraine, Moscow will pursue more policies that undermine the US-led global order. Russia will take hostile, asymmetric actions against EU countries, especially those on the front line, as they continue to support anti-Russian policies.

At the beginning of this year, both Russia and Ukraine will seek to increase their leverage in future negotiations and therefore be more willing to take risks. This means that both sides will launch more intense missile and drone attacks on each others territory, engage in fierce fighting on the front lines, and escalate the conflict through assassinations of each others elites. This situation will be escalatory.

Against this backdrop, President-elect Donald Trump could achieve his long-sought ceasefire deal later in 2025. He wants the fighting to stop, regardless of the EU’s efforts to shoulder more of the war’s costs. Ukrainian President Volodymyr Zelensky also needs an end to the fighting, as Ukraine is losing ground in the war. Pressure from Trump to push for a ceasefire would ease the potential political fallout from an unpopular decision, as Zelensky could claim that the US president forced him to accept it. Meanwhile, Putin’s forces continue to advance on the battlefield, making it more difficult to convince him to accept a ceasefire. But after 600,000 casualties and three years of sanctions, Russia also faces looming manpower and economic problems, and Putin may agree to a ceasefire in part to preserve his relationship with Trump.

The terms of the ceasefire will freeze the forces of both sides in their current positions, effectively giving Russia control of the occupied territory, a major concession for Russia. The agreement may blur the issue of Ukraine’s relationship with NATO, allowing both sides to claim victory, but the reality is clear: Ukraine’s NATO membership is only a distant future and may never be achieved.

Although the fighting may stop, a peace agreement is unlikely. Russia still wants to change the Ukrainian regime and formally obtain the territories ceded by Ukraine, while Ukraine plans to bide its time in the hope of regaining lost territory in the future. Both sides will rearm during the ceasefire, and sporadic fighting along the Line of Control may continue. This fragile ceasefire may last until the end of the year, but it is unlikely to last longer.

A ceasefire could also weaken Europe’s postwar security architecture, making the continent more vulnerable to a new wave of Russian attacks—not just against Ukraine but also elsewhere. The Nordic, Baltic states and Poland see Russia as an existential threat and have poured all their resources into supporting Ukraine’s military buildup during the ceasefire. Countries such as France, Germany, and Italy are likely to follow the lead of these more hawkish European countries, supporting the deal while trying to provide security guarantees for Ukraine and bolster Ukraine’s and the EU’s defenses. All EU member states, as well as the United Kingdom, are likely to hold off on considering lifting sanctions, in line with a likely U.S. position that would tie the removal of restrictive measures to progress in peace talks. Freezes on Russian assets would also remain in place, as the ceasefire would not involve compensation.

Trump’s transactional approach to NATO also aligns with Russian ambitions, which will weaken the alliance and encourage Putin to do more. While Trump will not seek to withdraw from NATO, the credibility of the Article 5 security guarantee will depend on whether countries meet Trump’s demands, such as increasing defense spending or reducing bilateral trade surpluses with the United States. Trump will retain key military assets in Europe but reduce the rotational deployment of U.S. troops, especially in costly Eastern Europe—which will leave frontline countries more exposed.

After the ceasefire, Russias position relative to Ukraine and NATO will be strengthened because it has achieved at least some of its territorial goals. However, EU countries and Russia will continue to pursue hostile foreign and security policies, and both sides know that a peace agreement is difficult to reach and the ceasefire agreement is fragile and may break at any time.

6: Iran in trouble

The Middle East will continue to be an unstable environment in 2025, largely because Iran’s power is at its lowest point in decades.

Since the October 7 attack, Iran’s geopolitical position has suffered a series of setbacks. First, its proxy group Hamas was defeated in Israel’s ongoing offensive in Gaza. Then, after losing its entire leadership and thousands of fighters, Hezbollah, the core group of its proxy network, finally reached a ceasefire with Israel and withdrew from southern Lebanon in November last year. A few weeks later, Iran’s ally Bashar al-Assad was suddenly expelled from the Syrian regime. This series of blows has basically destroyed the “resistance axis.” Although Iran still has some control over Shiite militias in Iraq and Houthi forces in Yemen, its strategy of relying on proxies to deter Israel and project regional power is nearing its end.

Iran still has a powerful arsenal of missiles and drones, but these weapons are of limited use against Israel, which is thousands of miles away, has overwhelming military and technological advantages, and is supported by the United States. Irans nuclear program makes it a nuclear threshold state that can quickly produce nuclear weapons in about six months, but it will take at least a year to miniaturize the nuclear warhead to install on a missile. However, any move to produce nuclear weapons could be quickly detected and lead to preventive strikes from the United States and Israel. In short, Iran is in an extremely vulnerable state.

Israel, by contrast, is in a favorable position. Confident from the military successes of the past year, Israeli Prime Minister Benjamin Netanyahu sees Iran’s current weakness as a once-in-a-generation opportunity to launch a lethal blow against his arch-enemy. This will not only help further weaken Iran’s allies in the region, but also directly target Iran itself by weakening its conventional military capabilities or its oil production and export facilities. In addition, Netanyahu may also consolidate his domestic political position through successful military operations. This year, Israel is expected to launch more covert operations against Iran through asymmetric means, including assassinations of nuclear scientists and Islamic Revolutionary Guard Corps (IRGC) leaders, sabotage of critical infrastructure, espionage, cyberattacks, etc. Israel’s actions last year proved that it can unilaterally escalate the secret war and missile conflict at any time, and Iran’s ability to retaliate is extremely limited.

Destroying Iran’s nuclear program and potentially promoting regime change in Iran is extremely tempting for Trump and the anti-Iran hawks in his team, and the president-elect is likely to take this action within the next four years, barring a diplomatic breakthrough (which is highly unlikely).

However, this will most likely not happen in 2025. Bombing Iran would be tantamount to declaring war on the Islamic Republic. And despite his reputation for being a “hardliner,” Trump has repeatedly voiced his opposition to getting the United States involved in new wars. Trump would be reluctant to risk a potentially multi-day war in his first year back in the White House that would involve striking at Iran’s air defenses, communications facilities, and hardened nuclear facilities—especially if that could threaten his economic agenda.

That’s because one of the main ways Iran could retaliate would be against the energy infrastructure of the Persian Gulf. These facilities are well within reach of Iranian missiles and drones, and they are more vulnerable than Israeli targets. Attacks on Saudi and Emirati oil facilities could push up crude prices, and if Iran tried to block the Strait of Hormuz—its most extreme retaliatory option—oil prices could soar to more than $100 a barrel. Such a situation is neither what Trump wants nor in the interests of his allies in the Gulf.

Unless Iran makes the first dash to build a nuclear weapon—unlikely given that reformist President Massoud Pezeshkian and Supreme Leader Ali Khamenei want a deal with the United States to ease its economic woes—Trump won’t immediately choose war with Iran. Instead, his administration is likely to return to a policy of “maximum pressure,” trying to force concessions from Tehran through tighter sanctions, stronger enforcement, and increased diplomatic pressure. Even if Trump avoids sanctioning Chinese refineries that buy Iranian crude—a move that would mark an unprecedented escalation against China—he could still cut Iran’s crude exports from 1.5 million barrels per day to less than 1 million barrels by sanctioning the “black fleet” that delivers illicit oil.

Iran will attempt to engage in negotiations in an extremely vulnerable situation, but its regime is unlikely to accept the deep cuts and restrictions on its nuclear program that Trump demands. Meanwhile, Israel will choose to wait for Trumps support for a joint fight against Irans nuclear program rather than act alone. After all, Trump has four years in office, which provides Netanyahu with time to win Trumps support, especially when a diplomatic breakthrough seems hopeless. In addition, although Israel is powerful, it is not invulnerable, and Iran still has a large number of ballistic missiles and drones, as well as Houthi armed forces and Iraqi militias, which may threaten Israels security. Netanyahu also hopes to promote normalization of relations with Saudi Arabia, so he needs to ensure the support of the United States and the Arab world (especially Riyadh, which is currently ambiguous) before he can act on Irans nuclear program with confidence.

Nonetheless, there is a risk of widespread runaway escalation this year. Netanyahu could overdo it, and Trump, with his outsize support for Israel, is unlikely to constrain him. Any aggressive moves could cross Tehran’s fuzzy red lines and provoke a response from Iran. This year, the shadow war could move further into the open. Iran, the wounded lion, still has a vast arsenal of missiles and drones and could be provoked into another direct exchange of fire with Israel. While diplomacy, similar to last year’s conflict, could contain escalation to some extent, any accidents or miscalculations that result in large numbers of Israeli or American casualties could set off a dangerous escalation spiral with material implications for oil supply and prices.

If the Iranian regime faces an internal threat, its leaders, including the top brass of the Islamic Revolutionary Guard Corps (IRGC), may try to expand the conflict as a distraction. With too much to lose and difficulty rebuilding the capabilities of their proxies, they may ultimately decide to build nuclear weapons as the only means to restore deterrence. This likelihood will increase if diplomacy with the United States and the West ultimately fails. Even if Tehran is sincere about reaching a broad deal, Trump may believe it is just bluster—or judge it so under the influence of hawkish advisers and Netanyahu—and bomb Irans nuclear program before it has a nuclear weapon.

In such a complex situation and without a clear leader, conflict with Iran has become the most significant risk in the Middle East.

7: Global economic crisis

Global markets are pinning their hopes on an acceleration in global economic expansion in 2025, but they will soon face a sobering blow. The world’s two largest economies – China and the United States – are poised to export economic instability to the rest of the world, hampering global recovery and accelerating geo-economic divisions.

China is experiencing its weakest economic performance in decades. A deepening real estate crisis, rising debt and collapsing confidence have exposed the limits of its growth model. Faced with this dilemma, the Chinese model is doubling down on what China knows best: exports. Chinese factories are producing far more cars, solar panels and electronics than the domestic market can handle, leading to excess capacity that China is trying to dump overseas. China’s trade surplus now exceeds $1 trillion and continues to expand.

Meanwhile, Trump’s plans to correct “unfair” trade practices against the United States through tariffs are undoubtedly adding fuel to the fire (see Risk #4: Trumponomics). While Trump’s tariff threats have sometimes been successful in forcing concessions from trading partners, tariffs on China will trigger retaliation. In addition, Trump’s policies will strengthen the dollar and keep U.S. interest rates higher, exacerbating the pressure on the global economy at a time when it is least equipped to withstand it.

This combination is disastrous for developed and developing countries alike. They will be mired in the combined pressures of an influx of heavily subsidized Chinese goods and the threat of Trump’s tariffs on exports to the U.S. market. China’s overcapacity is concentrated in strategic industries that many countries are trying to build. For example, Chinese electric car makers have used state subsidies to undercut the prices of their vehicles by 20%-30% of those of European manufacturers, a gap that has prompted an EU investigation and subsequent tariffs. A similar situation is playing out with cheap Chinese solar panels, batteries, semiconductors, steel and aluminum products that are flooding markets like Canada, Brazil and Indonesia.

These countries will have to choose between allowing Chinese imports to crush local producers or erecting trade barriers that would raise consumer prices, slow economic growth and potentially trigger retaliatory measures from China. This dilemma further fragments the global trading system and threatens the pace of economic recovery.

Countries with close ties to both China and the United States, such as Mexico, Vietnam, and the European Union, face the greatest risk. When Mexico, under Trump’s tariff threats, agreed to help prevent China from circumventing U.S. tariffs (see Risk #10: Mexican stalemate), China could retaliate by targeting Mexican manufacturing exports. Each tariff increase and corresponding retaliation will push up consumer prices, drag down economic growth, and disrupt supply chains built over decades. Even the threat of disruption will force companies to build redundant facilities and maintain higher inventories, increasing costs. Simultaneous “beggar-thy-neighbor” policies by the United States and China will accelerate economic and financial divisions, deepen policy uncertainty, and weaken global investment, trade, and growth.

Worse, a strong dollar and higher U.S. interest rates will limit countries’ ability to cushion these shocks through monetary and fiscal policy. As import costs rise and capital flows out of emerging markets, many central banks will face a difficult choice: either raise rates to defend their currencies at the expense of growth, or cut rates to support growth but stoke inflation. Countries that borrow in dollars will face higher debt-servicing costs and heavier debt burdens, forcing their central banks to maintain interest rates higher than their economic conditions require. This will increase tensions between governments and central banks, as we have already seen in Brazil, South Africa, and Indonesia.

Commodity exporters from the Middle East to Brazil and Indonesia will face an extra challenge as weak Chinese demand will pull down commodity prices this year. Many of these countries increased spending during the commodity boom and now face a double whammy: falling revenues and rising borrowing costs.

The timing is particularly bad. Global growth is weak, inflation is stubborn, and debt levels are at historic highs. Most emerging markets have never fully recovered from the COVID-19 fiscal stimulus. Even advanced economies, such as Japan and Italy, are struggling with worrying debt burdens. Against this backdrop, governments that pledged to improve economic prospects in recent elections will face a severe reality check. Their honeymoon will be short-lived, as global economic pressures will quickly turn into political pressures. Many emerging and peripheral economies will have to choose between raising taxes, cutting spending, or accepting lower growth.

Yet this is not just a problem for developing countries. Even within the G7 , the French government fell in a budget dispute and Canada’s finance minister resigned in a fiscal dispute in the face of growing trade tensions with the United States. While few countries face an imminent risk of sovereign default, cracks in government stability will undermine investor confidence. The biggest financial risks may be hiding in plain sight.

Brazil offers an early warning. The country’s recent market turmoil—spurred by disappointment over the government’s fiscal package—shows how domestic challenges can quickly escalate amid external pressures from higher interest rates, a strong dollar and a weaker outlook for global demand. Even countries with stronger fundamentals will find their policy options constrained in 2025.

There will be winners, of course. Some leaders may succeed in striking deals with Trump, gaining market access or avoiding damaging tariffs. India and South/Southeast Asia’s manufacturing hubs may attract more investment as supply chains shift away from China (although Bangladesh, led by a fiercely anti-Trump leader, could see those gains tempered by punitive tariffs). Vietnam could gain market share in electronics despite Trump’s threats. Mexico could benefit from nearshoring trends if it complies with U.S. demands. Lower oil prices would benefit big oil importers like India.

However, the overall impact will be negative, as rising barriers are dividing the global economy, reversing decades of integration that has reduced costs, increased productivity and lifted billions of people out of poverty. The global economy is about to learn a painful lesson: when the worlds two largest economies turn inward, everyone else pays the price.

8: AI, moving towards infinity and no limits

In 2025, AI capabilities will continue to grow, with new models capable of autonomous action, self-replication, and further blurring the line between man and machine. However, with most governments opting for a light-touch regulatory approach and international cooperation stagnating, the risks and collateral damage of unfettered AI will continue to grow.

Last year in Risk #4: Uncontrolled AI, we warned that global efforts to build AI safeguards would fall short due to politics, inertia, disengagement, and the speed of technological change. 2024 did see some notable AI governance initiatives, including from the EU, the European Commission, and the United Nations. But without strong and sustained support from governments and tech companies, these initiatives will fail to keep pace with technological advances.

Less than two years ago, leading AI researchers called for a six-month moratorium on AI development and world leaders gathered in the UK to address AI security risks. Today, however, most governments are hesitant to regulate AI out of concern for economic gain, while some tech executives who once warned of the risks of AI are now publicly downplaying them. Moreover, governments and companies are investing more and more money in training new models rather than strengthening existing safeguards.

In 2025, the already limited AI governance framework will be further weakened. In Washington, President-elect Donald Trump has pledged to repeal the Biden administration’s AI executive order, which was crafted in close collaboration with big tech companies and would threaten safety testing procedures for high-risk AI systems, as well as measures for accountability and transparency. The Trump administration plans to re-employ Silicon Valley veterans such as David Sacks, Peter Thiel, and Marc Andreessen, who have argued that AI safeguards are “woke,” cumbersome, and a hindrance to the United States’ geopolitical competition with China. Even Elon Musk, despite his concerns about AI’s existential risks, will focus more on using AI to weaken regulation than on promoting it; meanwhile, his company, xAI, operates one of the world’s most powerful computing clusters.

Legislative initiatives have similarly faced resistance. The most significant example is California’s SB-1047, which required risk assessments and other safety measures before release for AI models that cost more than $100 million to train, but was vetoed by the state’s Democratic governor (although the bill may make a comeback this year). While other states are implementing a patchwork of AI regulations, none has the reach or ability to match the potential of the California bill to address extreme or existential risks. Despite the bipartisan interest in AI in Congress, comprehensive federal AI legislation remains unlikely.

While U.S. regulation has stalled, open-source AI models have created new facts in practice. Now, anyone with basic technical skills can download and run complex large-scale language models (LLMs) on a personal device. Many of these open-source models lack adequate security protections and can be used for illegal purposes. They can also be distributed peer-to-peer and run completely privately, making them almost impossible to control or contain. And few seem willing to try.

Even the European Union, which has the most comprehensive AI laws in the world, is showing signs of regulatory fatigue and buyer’s remorse. European policymakers are now increasingly focused on ensuring AI sovereignty, downplaying the narrative of existential risk as a distraction from more pressing issues such as sustainability, labor market disruption, and intellectual property protection. The latest version of the UK-sponsored “AI Safety Summit” will be held in Paris in February, but it has been renamed the “AI Action Summit” and expanded with a growth-oriented mandate.

These risks are exacerbated by the deteriorating state of global cooperation as the G0 leadership vacuum deepens (see Risk #1: Victory of the G0). The Trump administration will dismantle key channels for coordinating AI policy with allies, such as the US-EU Trade and Technology Council, and withdraw from AI cooperation within the G7—although technical cooperation among global AI safety research institutions is likely to continue. Meanwhile, most developing countries prioritize acquiring AI technology rather than mitigating its risks.

The greatest danger lies in the rapid deterioration of Sino-U.S. relations. As Washington and China slide deeper into unmanaged decoupling, the AI safety dialogue launched under the Biden administration faces an uncertain future. Despite both countries’ desire to prevent the spread of catastrophic consequences and dangerous capabilities, progress has been excruciatingly slow— it took more than a year just to agree to exclude AI from nuclear weapons decision-making. Growing distrust between the two sides over advanced technologies will make substantive agreement on AI safety unlikely.

As a result, the race to develop cutting-edge models and achieve general artificial intelligence will accelerate in 2025, and the demand for electricity, water, and land resources will reach unprecedented levels. In addition to the impact on energy use and carbon emissions, the disruptive potential of artificial intelligence will increase significantly. New models will be able to pursue goals autonomously with minimal human supervision. These intelligent agents can act independently, interact with real-world systems, and adapt to unexpected situations on the fly.

Such increasingly sophisticated capabilities present extraordinary opportunities, but also unprecedented risks for 2025: they will enable users to manipulate markets and spread false information in ever more efficient ways. At the cutting edge, state-of-the-art models will increasingly show signs of resistance to human control. As AI capabilities advance further and more rapidly with less regulation, the risk of catastrophic accidents or uncontrollable AI “breakthroughs” will grow.

As AI capabilities advance rapidly with few constraints, the risk of catastrophic accidents or uncontrollable AI “breakthroughs” will continue to grow. This risk is further amplified by the gradual integration of AI systems into critical infrastructure, from life-and-death medical decisions to trillion-dollar financial systems, where the consequences of any mishap could be extremely serious. An AI that optimizes supply chains could inadvertently disrupt global logistics, leading to shortages of critical goods. Interactions between multiple AI trading agents could trigger market failures. Advanced models could even learn to manipulate human operators to serve rogue actors, while the increasing integration of AI in weapons systems is pushing the world to the brink of autonomous warfare.

2025 will mark another year of technological development without adequate safeguards and governance frameworks. Due to the incentives to build more powerful AI, true constraints may only emerge when developers encounter hard limits on data, computing power, energy, or funding. Until then, technological capabilities and associated risks will continue to grow unchecked.

9: No Mans Land

The risk of a governance vacuum stems from a deepening G-0 situation (see Risk #1: Triumph of G-0), in which the world’s most powerful actors—particularly a politically divided and dysfunctional United States—are abdicating their global leadership responsibilities. This vacuum exacerbates geopolitical conflict, disruption, and instability; undermines the role of global governance and multilateral cooperation in areas of the public good; and emboldens rogue states and non-state actors. It also leaves many parts of the world, space, and even beyond the Earth as areas of weak or even forgotten governance. Critical global commons such as outer space, the seabed, and even airspace are shrinking as conflict zones expand—a trend highlighted by Russia’s downing of an Azerbaijani plane in December 2024. Missile strikes are now the leading cause of aviation fatalities, forcing commercial airlines to bypass more and more contested airspace.

There is currently no international force both willing and able to bring stability to these places or to help victims of G0. Donald Trump’s unilateralism and retrenchment in US foreign policy will make conditions in these places worse, and efforts by civil society or other actors will not fill the gap. No one is held accountable for what happens in these spaces, including the people who live in them. The human cost is particularly high for the most vulnerable – UNICEF reports that one in six children worldwide now lives in a conflict-affected area, a rate that has doubled since the 1990s.

The Middle East’s conflicts have left five ungoverned spaces—Gaza, the West Bank, Lebanon, Syria, and Yemen. In Gaza, criminal gangs, family organizations, surviving Hamas members, and the Israeli military will rule a devastated Palestinian population for the foreseeable future. Gulf states have been reluctant to intervene in governance, security, or reconstruction, with Saudi Arabia leading the way, saying they are likely to do so only after the withdrawal of Israeli troops and a clear “post-war” plan. While the UAE has shown greater interest in engaging in Gaza in the near term, this is likely to be limited to the deployment of private contractors, whose performance in post-war environments is often mixed. The Palestinian Authority currently has neither the capacity nor the legitimacy to govern Gaza, let alone develop a credible plan to return to the area after 17 years.

At the same time, the Trump administration will avoid direct involvement in this dangerous security environment. The Israeli military will de facto occupy the area, and the suffering of daily life in the Gaza Strip will continue to intensify.

Overshadowed by media coverage of Gaza, the security environment in the West Bank is set to deteriorate further. Militants backed by terrorist groups such as Hamas and Palestinian Islamic Jihad (PIJ) but operating independently have taken root in Jenin, Turkham, Nablus and Tubas in the northern West Bank, turning these cities into hotspots for Israeli military raids. Since October 7, Israeli military tactics have sometimes resembled those used in Gaza, including airstrikes on buildings and an increasing reliance on drones. The increased frequency and scale of these operations have exacerbated already oppressive living conditions for Palestinians in the West Bank. Meanwhile, violence against Palestinians by extremist settlers persists. Israel will continue to approve new settlement construction, while some officials in Prime Minister Benjamin Netanyahus government want to formally annex the West Bank and expect the Trump administration to recognize Israeli sovereignty in the occupied territories.

Lebanon will emerge from war this year as a ceasefire agreed between Israel and Hezbollah last November is likely to remain in place, especially after supply routes from Iran through Syria were cut. Under the US-brokered deal, Hezbollah will withdraw north of the Litani River, while Israeli troops will withdraw from southern Lebanon. At the same time, the Lebanese army will increase its deployment to support the United Nations Interim Force in Lebanon (UNIFIL), the multinational force that has been monitoring the Israeli-Lebanese border for decades. However, Lebanon will remain a failed state due to factional deadlock, a weak economy, and a government that cannot provide stable social services. It will still be unable to prevent Israeli attacks on its territory or control Hezbollah and other militants that are not subject to state authority.

In Syria, the sudden fall of President Bashar al-Assad would create a strong risk of a power vacuum. Multiple rebel groups, some of them embracing extreme jihadist Islam, played a key role in Assad’s fall and will compete for power in the ruins of the old regime. The Sunni armed group Hayat Tahrir al-Sham (HTS), which currently controls Damascus, is trying to establish an inclusive government and consolidate control over the country. If the group can keep other factions in line and gain international recognition and aid, Syria could stabilize and millions of refugees could return home. But if HTS fails and the factions are unable to reach cooperation, Syria will once again fall into anarchy, triggering new refugee flows. If the Trump administration withdraws support for its Kurdish allies, the resulting vacuum could prompt the Islamic State (IS) to resurge within the country.

Yemen could face permanent division. Despite more than a year of US-Israeli airstrikes and economic pressure, the Houthis still control the densely populated north. The severe humanitarian crisis will put millions of Yemenis at risk of disease and hunger.

Libya remains divided and lawless more than a decade after the fall of Gaddafi. Oil revenues offer hope, but unstable production and competition for resources have led to repeated conflicts, hindering national dialogue and political reconciliation.

In Ukraine, Russia has occupied four regions, including Donetsk, with about 3.5 million residents affected by weak governance. A ceasefire agreement is possible, but the terms would de facto cede these territories to Russia. Western attention to these regions is expected to wane quickly.

Unrest in the Sahel region intensifies. Burkina Faso and Niger turn to Russia for symbolic aid. Frequent coups and terrorist activities complicate the situation, and the withdrawal of the United States and France could further undermine stability.

Elsewhere in Africa, civil wars are still affecting the region. Ethiopia is struggling to recover from the Tigray war, with many medical facilities destroyed, civilians lacking basic services, and displaced people unwilling to return home. Since the Sudanese civil war broke out in 2023, 150,000 people have died, 3 million have fled to neighboring countries, public health threats have worsened, and parts of Darfur have entered a state of famine. The Democratic Republic of the Congo continues to be plagued by disputes over mineral resources and armed rebellion, with large-scale human rights violations occurring frequently.

In Myanmar, three million civilians were displaced after the military coup, the Rohingya were systematically persecuted, ethnic tensions escalated, and military brutality continued. In Haiti, the political crisis and gang violence intertwined and the situation continued to deteriorate.

While these regions currently have limited direct impact on geopolitical or market risks, their weak governance and impunity provide a fertile ground for terrorism, organized crime, and drug networks, ultimately threatening global stability.

10: Mexican stalemate

Mexican President Claudia Sheinbaum and her Morena party won last years election in a landslide. She now has a broad mandate and few checks on executive power. However, Sheinbaum will face huge challenges in relations with the United States this year, while also dealing with ongoing constitutional reforms and fiscal pressures at home. Her diplomatic and governance abilities will be quickly tested.

U.S.-Mexico relations are set to become even more strained in 2025. President-elect Donald Trump has threatened to impose a 25% tariff on all Mexican imports if Mexico fails to curb the flow of immigrants and fentanyl into the U.S. In addition, Trump has threatened to impose a 100% tariff on all cars imported from Mexico because they contain a large number of Chinese parts.

In response, Mexican President Sheinbaum adopted a pragmatic response strategy, strengthening Mexicos position in combating drug cartels and controlling immigration flows, showcasing recent achievements and promising further action. At the same time, Mexican officials are ready to make major concessions on China issues to avoid high tariffs. However, these compromise measures may underestimate the severity of the current challenges.

Compared with Trumps first term, the relationship between the two countries now faces greater resistance. At present, the United States hawkish stance on Mexico is more unified and tough, and Trumps policies are no longer constrained by the moderate cabinet. At the same time, from fentanyl, immigration to trade disputes, bilateral conflicts have increased significantly, making the negotiations far more complicated than before. Trumps high demands and the concessions that Mexico needs to make may exceed the expectations of the Mexican government, and the consolidation of the Morena Partys power in the country has also weakened Sheinbaums space for resistance on the grounds of domestic political constraints.

Trump plans to prioritize Mexicos crackdown on transit investment and curb Chinese companies from entering the US market through Mexico to circumvent tariffs. In response, Sheinbaum will respond positively, providing Trump with an early victory. But the United States will also pressure Mexico to implement stricter rules of origin in areas such as the automotive industry, and may require Mexico to take measures similar to the US tariffs on China. This will increase economic pressure in Mexico and push up inflation.

On the border issue, Trump is expected to take tougher measures to combat illegal immigration, while requiring Mexico to curb the flow of drugs and immigrants into the United States, and may require Mexico to accept citizens of third countries. Although Sheinbaum strives to have the United States directly deport immigrants to their countries of origin, he may eventually compromise to avoid tariffs. In addition, if Trump implements a policy of taxing remittances, it will deal a heavy blow to the Mexican economy, and his plan to combat drug cartels through military means is more likely to trigger sovereignty disputes and increase tensions.

Challenges of the USMCA

The review of USMCA, which could start in 2025, is complex and lengthy. Trump’s trade policy is even more opaque than during his first term, and longtime hawk Peter Navarro will take a senior position, further blurring policy responsibilities. In addition, Canada may seek separate negotiations with the United States after Conservative leader Pierre Poliev takes office, which is less likely to succeed but will slow down the negotiation process and complicate Mexico’s position. Although USMCA may survive, negotiations are expected to be more confrontational and challenging.

Sheinbaums personal relationship with Trump may be functional, but it is difficult to establish a close connection. Compared with his predecessor Andrés Manuel López Obrador (AMLO), who has something in common with Trump as a populist, Sheinbaum, as a modern progressive and technocrat, has a lower fit with Trump.

This difference, combined with a host of uncertainties, will affect US-Mexico relations and have a dampening effect on the Mexican economy. AMLO’s constitutional reforms, including direct elections for federal judges starting in 2025, will weaken judicial independence, reduce checks and balances on the ruling party, and erode investor confidence. In addition, Scheinbaum’s plan to further promote direct elections for the leadership of autonomous institutions could exacerbate policy instability. Although she has appointed a professional cabinet and delegated power to technocrats to reduce policy risks, the overconfidence of the Morena Party may lead to misguided decisions, and the weakening of institutional checks and balances will further amplify risks.

Mexico’s economy faces a near-term period of low growth and a high fiscal deficit (6% of GDP). Sheinbaum will be held responsible if he fails to achieve the politically sensitive balance of fiscal consolidation while maintaining social spending priorities.

Mexico has the conditions for long-term success, with its young demographics, low labor costs, and opportunities for nearshoring of global supply chains. However, to unlock this potential, Sheinbaum must overcome strong policy and economic headwinds and ensure political and economic stability during his first year in office.

This article is sourced from the internet: Eurasia Group, the first think tank in the United States: Top 10 global risks in 2025

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