Asia-Pacific

Trade disruptions, shifting military conflicts and domestic political turbulence will shape global affairs in 2025. 

Annual

Global Trends

The United States will announce (and in some cases implement) tariffs to pressure its trading partners into trade negotiations, triggering retaliatory threats against the United States and protectionist measures by other countries seeking to shield themselves from goods diverted from the U.S. market. The <a href="/article/what-second-trump-term-could-mean-global-trade-who-trump-would-tariff-and-how-they-would">United States</a> is unlikely to implement a broad 10% to 20% tariff in 2025, but rather to use the threat of large tariffs to drive countries to offer concessions such as promises to buy more U.S. exports or restrict exports of certain goods to the United States. As part of this strategy, the United States may announce a small tariff increase to demonstrate its resolve to implement the large tariffs. Any broad tariffs would likely have large carve-outs for certain goods, like raw materials, or for certain countries, like those with a trade surplus with the United States. The United States is also unlikely to proceed with the <a href="/article/trumps-tariff-threats-alone-likely-chill-north-american-investment">25% tariff threatened</a> on Mexico and Canada, as both Ottawa and Mexico City will work with Washington to address U.S. concerns about immigration and drug flows. As both flows will likely continue regardless, the tariff threat will likely linger through 2025, stifling investor confidence in North America, and particularly in Mexico. The United States is more likely to proceed with new large tariffs on China relatively quickly, with new tariffs on Chinese goods likely to be announced and perhaps implemented in 2025, though the size of &mdash; or the goods &mdash; targeted by the tariffs remains unclear. In most countries and trading blocs, any U.S. tariffs will trigger retaliatory measures targeting U.S. exports, with agricultural products and U.S. manufactured goods produced in Republican-controlled states bearing the brunt of any retaliation. Large U.S. tariffs on China will also likely eventually cause some other countries to place their own tariffs on some Chinese goods to protect their own markets from an onslaught of cheap Chinese goods previously being sold to the United States.

The New U.S. Government Leads to Cascading Tariffs

The Trump administration&#39;s push for an end to the Ukraine conflict will accelerate the timeline for at least a temporary halt of hostilities, but &nbsp;even as the United States presses Israel to end its wars in Gaza and Lebanon, the administration&#39;s likely maximalist pressure on Iran will keep Middle East tensions high. Trump will likely <a href="/article/how-us-election-will-impact-war-ukraine">launch talks with Moscow</a> on ending the conflict in Ukraine, dangling continued U.S. military aid and support for Ukraine as leverage to drive Kyiv to the negotiating table. Russia is likely to jump at the opportunity that the U.S. push affords to enter talks that would at least temporarily halt hostilities, increasing the likelihood of a deal to end hostilities in 2025. Talks will be contentious, however, and any agreement will likely be fragile and fail to resolve many fundamental issues separating the West and Russia, and Ukraine&#39;s relationship with both. The United States will press Israel to <a href="/article/essential-geopolitics-us-middle-east-relations-under-second-trump-term">conclude conflicts in Gaza and Lebanon</a>, but the lack of a clear post-Gaza war governance structure for the strip and lingering concerns about Hezbollah attacks reemerging will keep Israeli action in both areas high. At the same time Trump will resume his so-called Maximum Pressure campaign on Iran and boost sanctions enforcement to drive up economic pressure inside the country. As a part of this strategy, Trump is likely to be more willing to authorize more aggressive Israeli action against Iran and its nuclear program directly, creating the possibility of regional conflict reintensifying.

The U.S. Will Push for an End to Conflicts in Ukraine, Middle East

The U.S. government&#39;s tariffs, crackdown on immigration and expansionary fiscal policy will have negative economic and financial impacts on the rest of the world. New U.S. tax cuts and deregulation will support short-term economic growth, but tariffs and a widening fiscal deficit will weigh on the medium- to long-term outlook. An expansionary fiscal policy and higher tariffs will lead to tighter global financial conditions. While higher U.S. growth would normally support economic growth in the rest of the world, higher U.S. tariffs and broader uncertainty about the global economic outlook and the future of international trade will negatively impact the global economy. The negative economic effects will be even more significant in the likely event that the <a href="/article/what-trumps-return-office-means-european-union">European Union</a> and China retaliate against U.S. protectionist measures. Depending on the size, extent and duration of the U.S. tariffs, the global economic and financial effects could be very adverse. Moreover, a severe U.S. crackdown on immigration, including the deportation of millions of immigrants, would put further upward pressure on a tight U.S. labor market, wages and even inflation. A crackdown on such a scale would also negatively impact the countries of origin of migrants by reducing remittances and adding to unemployment, and would be particularly pronounced in <a href="/article/what-trumps-focus-immigration-trade-and-ideology-means-latin-america">Central America</a> and <a href="/article/what-another-trump-term-means-mexico">Mexico</a>.

Uncertainty About the Future of the Global Economy To Grow

The risk of financial distress will increase for developing and emerging economies, and will be particularly high for countries with high levels of dollar-denominated debt. U.S. economic policies in 2025 will lead to higher inflation, higher interest rates and a stronger dollar. As a result, emerging and <a href="/article/politics-developing-economy-debt-restructuring-part-1">developing economies</a> will see lower capital inflows and lower export earnings, increasing the risk of financial distress, particularly in financially fragile developing economies, especially in sub-Saharan Africa. In addition, lower commodity prices would negatively impact net commodity exporters on the back of a strong dollar. A stronger dollar and higher U.S. interest rates will have a particularly negative effect on economies with high levels of dollar-denominated debt, predominantly concentrated in sub-Saharan Africa and parts of the Middle East and North Africa and <a href="/article/what-challenges-lay-ahead-sri-lankas-new-president">South Asia</a>. Tighter global financial conditions will coincide with weaker exports, particularly if the United States imposes blanket tariffs, leading to a deterioration of their balance of payments. Emerging markets with lower levels of net dollar debt, floating exchange rate regimes and independent central banks, such as <a href="/article/reassessing-brazils-economic-outlook">Brazil</a>, Mexico or South Africa, will also be negatively impacted. But they will be able to avoid broader financial instability, though they will tend to experience higher inflation and lower economic growth. High U.S. tariffs on China will weaken <a href="/article/faced-slowed-growth-and-deflation-risks-china-unveils-new-stimulus-package">Chinese economic growth</a> and negatively affect import demand from emerging and developing economies. China is the largest trade partner of roughly 130 countries, illustrating the breadth of potential impacts. Finally, lower oil prices will force Saudi Arabia and other Gulf countries to tighten spending, focusing on cutting extravagant projects, increasing non-oil revenue through taxes and expanding investments in artificial intelligence as part of economic diversification. &nbsp;

Higher Risks for Emerging and Developing Economies

Global cooperation over climate change will weaken in 2025 as the United States pulls back from international climate negotiations, disincentivizing non-Western countries from submitting ambitious climate goals and accelerate the phase-out of fossil fuels. The United States is likely to announce it is <a href="/article/paris-and-beyond-climate-change-accord-without-us">exiting the Paris Agreement</a>, though there is a 12-month withdrawal process. The Trump administration will also try to dismantle the Biden administration&#39;s climate policies and boost support for the coal and oil and gas sectors, making it easier for other countries to announce similar support or otherwise reduce their climate ambition. The timing of U.S. policies&#39; impact on climate change is critical, as countries are due to submit new nationally determined contributions &mdash; countries&#39; individual climate and energy transition plans &mdash; by February 2025. The new NDCs are supposed to strengthen 2030 commitments and set new commitments for 2035. The Trump administration is also likely to adversely affect initiatives to <a href="/article/what-watch-years-finance-cop-azerbaijan">boost climate finance</a> agreed to at COP29, and to undermine any talks on new finance issues ahead of COP30, to be held in Brasilia.

Global Climate Cooperation to Weaken

Middle East and North Africa

Iran will seek to engage in talks with the United States to buy itself time to manage its domestic and regional challenges, but Tehran&#39;s weakened deterrence will keep the possibility of future Israeli military action against Iran on the table. Iran&#39;s entire national security strategy has suffered significant damage from the ill fate of regional allies ranging from Hezbollah to the Assad regime in Syria. The former was severely weakened and the latter collapsed in 2024. As a result, Tehran will adapt its national security strategy in 2025 to the new regional reality. Iran will seek to drum up negotiations with the United States to soften economic pressure and allow itself and its allies to recuperate. But the Trump administration will apply a maximum pressure campaign on Iran, so any talks in 2025 will not bear fruit. Iran&#39;s weakened deterrence will lead to <a href="/article/israels-october-strike-iranian-nuclear-facility-indicates-more-strikes-ahead">more Israeli actio</a>n targeting Iran&#39;s military and nuclear programs, with another round of overt military action on the table. If it becomes clear to Tehran that the Trump administration is unlikely to be interested in talks at any point over the next few years, Iran&#39;s strategy is likely to become more aggressive, potentially resuming attacks against regional oil and gas infrastructure. Iran may increase enrichment activities. But it is unlikely to fully restart its dormant nuclear weapons program. Its limited deterrence and the attacks by Israel on the program that would be likely were Iran to fully resume it will keep Tehran from doing so, at least during 2025.

Iran Recalibrates in 2025 Following Disastrous 2024

Israel will engage in wars of attrition in Gaza and Lebanon, where ceasefires are unlikely to end the conflicts. Meanwhile, its progressive annexation of territories in the West Bank will likely result in a violent uprising. Israel will remain in Gaza throughout 2025, building permanent military installations and signaling its intent to restart settlement and remove Palestinians permanently from parts of the strip. This will result in a Hamas-led insurgency and keep alive the drivers of the regional conflict between Israel and Iran. Meanwhile, <a href="/article/will-hezbollah-israel-truce-collapse">Israel and Hezbollah</a> will remain in a slow-moving open-ended conflict in Lebanon. Israel will take advantage of U.S. backing to strike Hezbollah and prevent ITS full rearmament in a dynamic that could rapidly escalate back into open war and more Israeli ground maneuvers in southern Lebanon. Israel will also make progress toward the annexation of settlements in the West Bank, announcing plans to absorb territories in a piecemeal fashion (though actual annexations may occur later than 2025). This will make the West Bank increasingly unstable, with the potential for a full-scale uprising emerging in the year.

Israel's Multifront Conflict Continues

Egypt will remain largely committed to its IMF deal, allowing Cairo to improve its foreign exchange reserves to manage its energy shortcomings, while Turkey&#39;s monetary policy will become somewhat laxer to boost economic activity. Egypt will follow its $8 billion IMF program, but will likely delay implementing some of the <a href="/article/egyptians-brace-more-austerity-measures-cairo-eyes-more-imf-loan-tranches">austerity measures</a> (especially additional subsidy cuts) to soften some of the economic impact on the public. Egypt will also continue its privatization efforts with likely sales of state and military-owned stakes, including in the banking, pharmaceutical, investment and industrial sectors, to increase government revenue and expand the private sector. Increased foreign exchange reserves will allow Egypt to continue importing <a href="/article/egypts-energy-crisis-isnt-going-anywhere">liquefied natural gas</a> and pay off its arrears to international oil and gas companies, increasing their investment confidence in Egypt&#39;s energy sector. Turkey will meanwhile largely continue its orthodox monetary policy to prioritize reducing inflation, but Ankara will likely take more <a href="/article/will-political-imperatives-reverse-turkeys-tighter-monetary-policy">expansionary economic measures</a> to boost economic growth and address the high cost of living by gradually cutting interest rates and increasing the minimum wage.

Egypt To Follow IMF Program; Turkey To Juggle Disinflation and Economic Expansion

The drawdown of U.S. forces in Iraq will intensify intra-Shiite competition following parliamentary elections as Iran seeks to boost its influence, jeopardizing counterterrorism operations in the country. The next 18 months will prove critical for Iraq as the U.S.-led military mission is slated to end by September, leading to a drawdown of coalition forces in the country &mdash; a process incoming U.S. President Donald Trump may accelerate given his desire to exit conflict regions. The reduced U.S. presence will allow Iran to more proactively influence the government formation process after Iraqi parliamentary elections, due by October. A more assertive Iran will intensify personal rivalries in the largely pro-Iran Shiite Coordination Framework between Prime Minister Mohammad Shia al-Sudani and former Prime Minister Nouri al-Maliki. It will also heighten rivalries between pro-Iranian militias, political figures and Iraqi nationalists like Shiite cleric Muqtada al-Sadr, creating a potentially violent and politically disruptive election and government formation process. Infighting between Shiite militias and the drawdown of U.S. forces will also weaken Iraq&#39;s counterterrorism efforts, creating more opportunities for jihadist groups to expand, particularly if a larger security vacuum persists in Syria amid its renewed civil war.

As the U.S.-led Military Coalition Ends in Iraq, Intra-Shiite Splits Intensify

Syria will spend 2025 on an unsteady political transition path that will be prone to fractures and violence as foreign powers maneuver to secure their interests, which could benefit militant groups like the Islamic State. The <a href="/article/syria-sets-out-toward-new-and-uncertain-future">rebel factions</a> will negotiate over a timeline for elections and a new constitution, with an elected provisional government possible in 2025. But they will lack consensus on a post-Assad political system, with some favoring centralized ones and others a decentralized government. Islamists and secularists will also clash, while sectarian tensions &mdash; particularly between the defeated Alawites and the victorious Sunnis &mdash; will simmer. Israel will shift its anti-Iranian <a href="/article/israel-expands-its-presence-post-assad-syria">campaign in Syria</a> to an anti-jihadist one, using force to maintain a buffer zone as the provisional Syrian government forms and deploying covert means to undermine the political transition process if it believes Syria will produce another hostile state. It will also use Syria as a space to pressure Hezbollah, now isolated in Lebanon from its patron, Iran. The U.S. will debate withdrawal, potentially announcing it in 2025, as Washington loses interest in Syria post-Assad. This will fuel a resurgence of militant groups like the Islamic State that will take advantage of the country&#39;s power vacuum. Turkey will escalate its campaign against the Syrian Kurds, invading the region and by using its proxies and allies to influence the political transition to make the formation of an autonomous Kurdish region impossible. Anti-Islamist states like the United Arab Emirates will also deploy cash and diplomats to influence the political transition away from Islamism, and will build up proxies in Syria favorable to the secular UAE political worldview.

The Post-Assad Era Begins in Syria

U.S. tariffs will spur further Chinese economic retaliation, fueling Western decoupling from China and gradually triggering more Chinese stimulus to preserve domestic stability. The United States will <a href="/article/trumps-win-will-ripple-across-world">impose tariffs</a> early and often on China, while U.S. tech restrictions and sanctions on China will also expand. China will launch retaliatory measures, particularly tariffs and import restrictions &mdash; such as on U.S. agricultural and aerospace goods &mdash; and export restrictions on critical minerals used in electronics and defense industries. China is also likely to expand its application of seldom-used legal tools, like the Anti-Foreign Sanctions Law and Unreliable Entity List, to target select U.S. companies with market access or procurement restrictions, asset freezes, denial of visas, or business licenses and fines, accelerating Western decoupling from China. Beijing will be somewhat more reserved in wielding these tools against other countries that <a href="/article/chinese-electric-vehicles-prepare-hit-great-wall-western-tariffs">levy new economic restrictions</a> on China. U.S.-China trade talks could commence, but are unlikely to progress significantly in 2025. Meanwhile, China will likely <a href="/article/faced-slowed-growth-and-deflation-risks-china-unveils-new-stimulus-package">gradually expand</a> fiscal stimulus proportional to U.S. tariffs, issuing trillions of yuan in sovereign debt to support exporters, <a href="/article/chinas-third-plenum-will-cater-xis-statist-vision-economic-reform">stabilize debt risks</a>, and fund investments (e.g., water infrastructure) and consumption (e.g., goods trade-in programs).&nbsp; &nbsp;

U.S. Tariffs Catalyze Chinese Retaliation and Fiscal Support

Fragile governments in Japan and South Korea will be internally focused, slowing regional security cooperation with the United States. A lingering slush fund scandal will likely see Japan&#39;s ruling Liberal Democratic Party <a href="/article/japans-ldp-loses-its-majority-snap-ballot-portending-policy-gridlock">lose its majority</a> in July upper house elections, but small opposition parties aligned with the LDP will prevent the collapse of the government. Prime Minister Shigeru Ishiba <a href="/article/japans-pm-ishiba-survives-struggle-another-day">may resign</a> amid pressure from LDP elders &mdash; such as in the event of Cabinet scandals or bungled political funding reforms &mdash; but his party replacement would represent policy continuity. These dynamics will see Tokyo internally focused, especially on economic issues like household tax cuts. Though Japan will <a href="/article/japan-us-relationship-serves-model-indo-pacific-security-bad-omen-china">push security cooperation</a> with the United States, budget committee opposition will limit new defense appropriations, e.g., for new missile platforms, impeding efforts to deter China around Taiwan and the South China Sea. In South Korea, <a href="/article/south-koreas-president-yoon-not-impeached-his-end-nigh">President Yoon Suk Yeol</a> is likely to have his impeachment confirmed by the Constitutional Court in the first half of 2025 following his Dec. 3-4 <a href="/article/south-koreas-yoon-quickly-scraps-his-martial-law-order-political-damage-has-been-done">martial law declaration</a>. With a liberal president likely to succeed the conservative Yoon, security cooperation with the United States and Japan will wane as Seoul seeks to improve economic ties with China and reduce <a href="/article/rising-risk-military-clashes-korean-peninsula">risks of border clashes</a> with North Korea. This may pave the way for a <a href="/article/north-koreas-foreign-affairs-hit-inflection-point">resumption of talks</a> between North Korean leader Kim Jung Un and U.S. President Donald Trump about curbing U.S. sanctions in return for North Korean security assurances, which could yield modest sanctions relief for Pyongyang in 2025. If Yoon&#39;s impeachment is not confirmed, however, policymaking will grind to a halt amid political disputes while protests grow larger and more violent as union strikes cause greater industrial disruptions.

Fragile Politics in South Korea and Japan Constrain U.S. Regional Security Efforts

Australia&#39;s federal elections will determine the trajectory of energy and mineral exploration policies, <a href="/article/significance-australia-and-vietnams-move-upgrade-relations">defense cooperation</a>, and trade with China. Australia will hold elections for both houses of parliament in mid-2025. A victory by the conservative Liberal-National Coalition would accelerate defense spending, eventually exceeding Labor&#39;s target of 2.4% of GDP by 2033-34. The coalition would prioritize the acquisition of nuclear submarines and defense industrial cooperation with Washington and London under AUKUS Pillar II. Its more <a href="/article/covid-19-tensions-place-australian-farmers-chinas-crosshairs-argiculture-exports-economy-trade-tariffs">confrontational approach</a> to Beijing would heighten scrutiny of Chinese investments and risk <a href="/article/conflicting-security-priorities-will-haunt-australia-china-rapprochement">renewed trade restrictions</a> on Australia&#39;s agricultural and natural resource exports. Domestically, the conservative Liberal-National Coalition would scale back renewable subsidies and other green policies and expand fossil fuel exports and critical mineral exploration, including for lithium and rare earths. On the contrary, a Labor reelection would maintain steady defense spending, balancing AUKUS commitments with efforts to stabilize <a href="/article/china-cracks-open-door-improved-ties-australia-and-south-korea">trade ties with China</a>. Labor would also subsidize renewable energy investments while generally scaling back reliance on fossil fuels.

Australian Federal Elections Will Mark Policy Divergences

The Philippines&#39; May midterm elections will decide whether President Ferdinand Marcos Jr. retains the legislative support needed to implement his regional defense engagement, <a href="/article/how-might-us-presidential-election-impact-ties-philippines">including with the United States</a> to deter Chinese aggression in the South China Sea. A pro-Marcos legislature would support defense modernization and expanded implementation of the <a href="/article/revamped-us-philippine-alliance-starts-come-fruition">Enhanced Defense Cooperation Agreement</a>, potentially enabling U.S. military access to <a href="/article/us-and-philippines-race-deepen-ties-potential-policy-shifts">additional Philippine bases</a> and joint exercises aimed at countering Chinese actions in the South China Sea. It would also facilitate deeper engagement with Japan and Australia on regional maritime security. On the contrary, if the rival Duterte faction becomes stronger, it could use congressional budgetary powers to shift resources toward internal security priorities, such as counterinsurgency operations in Mindanao, and delay the approval of international defense agreements. A stronger opposition bloc could exploit legislative hearings and budget reviews to slow Marcos&#39; policies and scrutinize foreign agreements, undermining his ability to meet U.S. defense commitments.

Midterm Elections in the Philippines To Drive Foreign Security Engagement

The Trump administration will seek to strengthen security ties with members of the Association of Southeast Asian Nations, heightening U.S.-China competition in Southeast Asia, though tariff risks several ASEAN nations face could hinder cooperation. U.S. defense ties are likely to deepen with the Philippines, <a href="/article/indonesia-previewing-prabowo-presidency">Indonesia</a> and Vietnam to varying degrees. Joint military exercises and arms transfers, particularly naval equipment, will increase, while <a href="/article/reviewing-2024-asean-summit">ASEAN countries</a> will leverage U.S. training and assets <a href="/article/examining-multi-alignment-asia-pacific">without compromising nonalignment</a>. <a href="/article/political-stability-will-help-malaysia-hit-its-economic-and-foreign-policy-goals">Malaysia</a>, <a href="/article/thai-military-establishment-replaces-another-prime-minister">Thailand</a> and <a href="/article/what-expect-following-death-vietnams-top-leader">Vietnam</a> will face a moderate to high risk of U.S. tariffs because of their trade surpluses and U.S. concerns about these countries rerouting Chinese goods. Malaysia&#39;s semiconductors and palm oil, Thailand&#39;s automotive and agriculture, and Vietnam&#39;s electronics and textiles sectors are some of the main sectors that will face U.S. scrutiny. Tariffs risk disrupting regional supply chains, driving these countries to intensify trade diversification, implement stricter trade regulations (e.g., local content requirements and origin verification) and deepen <a href="/article/economic-and-geopolitical-diversity-hinders-aseans-path-deeper-integration">intra-ASEAN economic integration</a>. ASEAN&#39;s balancing role in the U.S.-China rivalry will keep the region contested yet stable as the region seeks to avoid dominance by either side.

A U.S. Tack Toward ASEAN Under Trump

Americas

The United States will extend tax cuts, reverse Biden-era environmental and technology regulations and push aggressively to reduce migration and deport undocumented migrants. The <a href="/article/2024-elections-united-states">United States</a> will pass legislation extending most provisions of the Tax Cuts and Jobs Act of 2017 due to expire in 2025. While Republicans are likely to discuss legislation to raise tariffs on imports &mdash; in addition to the tariffs Trump will likely implement through executive action &mdash; to boost tax revenue, passage remains unlikely. The United States is unlikely to implement large reductions in public spending to make up for the tax cuts, which will worsen the country&#39;s debt outlook. The Trump administration will roll back most of the Biden administration&#39;s climate initiatives, including the Inflation Reduction Act&#39;s tax credit for electric vehicles, which will slow the energy transition in the United States and make many lower cost EVs unaffordable for many Americans. Separately, the United States will increase the deportation of undocumented immigrants and threaten Mexico with tariffs to secure cooperation in reducing the flow of migrants across the border. These policies will hurt many U.S industries, as undocumented workers are crucial in low paying and labor-intensive jobs in sectors like construction and agriculture. Trump is also likely to reverse <a href="/article/reviewing-bidens-ai-executive-order-and-how-it-compares-eu-legislation">Biden&#39;s 2023 AI executive order</a>, which primarily comprised voluntary measures for AI developers. As most companies will still adhere to the order&#39;s voluntary measures, the impact of Trump&#39;s move will likely prove limited. The U.S. government will likely still pursue some <a href="/article/washingtons-antitrust-push-unlikely-threaten-us-tech-firms-global-dominance">antitrust cases</a> targeting large technology companies, which could result in more conditions on companies like Google, or in an extreme outcome, in forced divestitures or breakups.&nbsp;

U.S. to Focus on Energy Deregulation, Immigration 

The Conservative Party will likely win Canada&#39;s general election, ushering in a reversal of many of green policies adopted by Ottawa in the last decade. Pierre Poilievre and his Conservative Party will campaign heavily on scrapping <a href="/article/trudeaus-struggles-will-paralyze-policymaking-canada-ahead-elections">Prime Minister Justin Trudeau</a>&#39;s controversial carbon tax, which provinces of Alberta and Saskatchewan have challenged in court. A formal repeal of the law is unlikely until 2026 if the election occurs as scheduled in October, though early elections, which are likely, would advance the reversal&#39;s timetable. Poilievre&#39;s government will also likely revise or reverse new regulations requiring Canadian oil producers to slash emissions to about 35% below 2019 levels by 2030. While Poilievre has not offered specifics about the rest of his agenda, it will likely include cutting taxes and reducing immigration, mirroring the policy priorities of previous Conservative governments and similar developments in the United States. Poilievre will also likely try to work closely with the Trump administration on issues like immigration, revising the United States-Mexico-Canada Agreement to increase local content requirements when it comes up for review in 2026 and security.

The Return of Canada's Tories Dials Back Environmental Policies

The Mexican government will work pragmatically to mitigate the impact from U.S. tariffs on Mexican goods while pursuing social reforms domestically. President Claudia Sheinbaum&#39;s biggest challenge in 2025 will be handling the <a href="/article/what-another-trump-term-means-mexico">Mexico-U.S. relationship</a> amid tariff threats in response to immigration and drug trafficking. Although she may resort to tough rhetoric and threaten retaliation, Sheinbaum will work to address U.S. demands, such as by deploying the National Guard to deter migration flows and fight cartels. Mexico is also likely to adopt tighter rules of origin for manufacturing to ease concerns in Washington and Ottawa about the United States-Mexico-Canada Agreement. Domestically, Mexico will approve additional measures to expand workers&#39; rights and fight gender inequality, including within the private sector. The first election for members of the judiciary &mdash; a key aspect of controversial 2024 reforms &mdash; will take place by the end of the year. These and other constitutional changes to Mexico&#39;s institutions will not reduce the country&#39;s attractiveness as an <a href="/article/interventionist-constitutional-reforms-unlikely-deter-foreign-investment-mexico">investment destination</a>, especially amid a stronger global push for nearshoring. Mass deportations from the United States could, however, pressure Mexico&#39;s economy. Declining remittances and rising unemployment could force Sheinbaum to expand social spending amid a fiscally challenging environment. &nbsp;

Mexico To Prioritize Good U.S. Relations and Pursue Labor and Gender Policies

Brazil will use its presidency of BRICS+ and COP30 to promote environmental and social agendas while maintaining a broadly neutral approach to the U.S.-China rivalry. Brasilia will leverage its leadership positions in global forums throughout 2025 to advocate for global action on social inequality, climate change and the energy transition while aiming for a balanced relationship with Washington and Beijing, pursuing investments and cooperation from both countries. Since the United States has a trade surplus with Brazil, the country is unlikely to become a priority of Trump&#39;s tariff threats, but Brasilia&#39;s defense of BRICS+&#39;s dedollarization efforts could lead to trade restrictions from Washington. If that happens, Brazil would likely become more reliant on <a href="/article/implications-brazil-joining-chinas-belt-and-road-initiative">commodities exports</a> to China, leaving its agribusiness vulnerable to potential political and economic developments in Beijing. Domestically, persistent high social spending will generate uncertainty about the government&#39;s <a href="/article/brazil-lulas-obstacles-passing-economic-policies-continue-mount">commitment to fiscal discipline</a> in financial markets. Against this backdrop, financial volatility, currency depreciation, higher inflation and elevated interest rates will likely challenge businesses 2025.

Brazil Seeks a More Prominent Role on the Geopolitical Stage

Argentina will reap the economic benefits of its harsh fiscal adjustment, and the government will secure additional seats in Congress and gradually lift capital controls. Buenos Aires will <a href="/article/what-expect-argentina-after-mileis-first-year-office">advance economic stabilization</a> efforts throughout 2025, resulting in further disinflation, while pro-business regulatory changes and tax cuts will attract additional foreign investment, particularly in extractive industries. The Central Bank will likely be able to increase reserves while IMF support will enable debt rollovers, likely preventing a default. Although recurring protests will occur due to high poverty rates and austerity policies, President Javier Milei&#39;s Freedom Advances party will likely gain seats in Oct. 26 legislative elections, lessening its need to negotiate with other parties to pass legislation. Despite this, electoral promises such as full dollarization or eliminating the Central Bank will not materialize due to legal, legislative and logistical constraints. Amid an <a href="/article/milei-puts-argentinas-economy-better-footing-can-it-last">improving macroeconomic environment</a>, the government will likely gradually lift capital controls, resulting in a medium- to long-term increase in foreign direct investment, though some restrictions will remain by year&#39;s end.

Argentina's Macroeconomic Environment To Improve Amid Persistent Social Challenges

Europe

EU-U.S. relations will deteriorate amid trade tensions and reduced U.S. support for Ukraine and NATO, adding momentum to initiatives for boosting EU competitiveness and defense self-reliance. <a href="/article/what-trumps-return-office-means-european-union">U.S. tariffs</a> on European goods will particularly impact countries with a large trade surplus with the United States, like Germany, Italy and Ireland, and will result in a coordinated reprisal by the bloc. Retaliatory EU tariffs will likely target politically sensitive U.S. products, while Brussels could also deploy <a href="/article/eu-advances-its-economic-security-strategy">defensive trade tools</a> like the Anti-Coercion Instrument, allowing it to implement a broader range of trade, investment or funding restrictions should negotiations fail. The European Union will try to use these tools as leverage to negotiate a truce with Washington. Brussels may promise increased EU purchases of U.S. natural gas (enabled by a <a href="/article/markets-shrug-russias-gas-cut-austria">tighter global LNG market</a> in 2025) and defense equipment (aided by rising defense spending and looser criteria for using EU funds on non-EU products), but any deal is unlikely to fully remove U.S. tariffs. On the other hand, the European Union may need to impose additional tariffs on Chinese goods to mitigate the likely diversion of Chinese exports to the bloc due to higher U.S. tariffs. European countries will maintain military support for Ukraine, aiming to bolster Kyiv&#39;s position in upcoming negotiations with Moscow. Should the United States halt or significantly reduce aid, however, Europe would only be able to fill the gap temporarily amid fiscal and political constraints, eventually prompting a push for a settlement with Moscow. Meanwhile, U.S. trade and defense policy will contribute to pressure on the European Union to <a href="/article/can-eu-deliver-draghis-dream-more-competitive-europe">boost competitiveness and defense self-reliance</a>. The bloc will unveil or approve initiatives such as the European Defence Investment Program &mdash; with progress also likely on financing aspects of increased joint defense spending in the bloc &mdash; a European tech strategy to boost technological capabilities and digitalization, and a Clean Industrial Deal to strengthen industrial competitiveness in the net-zero transition. &nbsp;

EU Accelerates Competitiveness and Strategic Autonomy Push 

The United Kingdom will aim to strike a middle ground between the U.S. and the European Union amid strained trans-Atlantic relations, seeking sector-specific agreements with both while avoiding taking sides. The small British trade surplus and its special relationship with the United States will likely shield it from significant trade restrictions. Even were the United States to impose tariffs on the United Kingdom, the impact would be modest, as services &mdash; key to the British economy &mdash; are unlikely to face tariffs. The impact on sectors such as pharmaceutical and automotive sectors would also be relatively limited. Although U.K.-U.S. trade talks may resume, long-standing hurdles make a comprehensive deal unlikely, prompting the United Kingdom to seek sector-specific agreements in areas including digital trade, defense and financial services instead. Simultaneously, London will pursue a <a href="/article/after-14-years-what-would-uk-labour-government-look">cautious improvement</a> in trade, energy and security ties with the European Union. Negotiations for a defense and security pact will start in the second quarter. Trade talks will focus on provisions of the post-Brexit trade agreement expiring in 2026, like fishing rights and energy trading, and low hanging fruit like migration, climate and critical raw materials. Meanwhile, the United Kingdom will balance stricter economic security measures vis-a-vis China aligned with U.S. policies (including tighter investment screening and export controls on sensitive technologies like AI and semiconductors) regarding trade engagement with Beijing.

The U.K. Balances U.S. Ties and an EU Reset

Germany&#39;s general election will open the door to a more efficient government and a constitutional reform to increase public spending, while Poland&#39;s presidential election could streamline decision-making or, if the opposition wins, deepen policy disruptions. Far-right and far-left parties will perform strongly in Germany&#39;s general election in February, but mainstream parties will work together to prevent them from entering government. This will complicate postelection coalition-building efforts, leaving Berlin without a fully functional government for months. The new government will likely be a coalition led by the center-right Christian Democratic Union/Christian Social Union alliance alongside one or more junior partners, like the center-left Social Democrats, the Greens or the pro-business Free Democrats. A two-party coalition would provide a stable and efficient decision-making process in Berlin, while a three-party alliance could <a href="/article/economic-divides-topple-germanys-fractious-coalition-government">prove inefficient</a> and internally divided. The new government will prioritize approving the 2025 budget and measures aimed at stimulating Germany&#39;s ailing economy &mdash; including a reform to constitutional borrowing limits to create additional space for investment in infrastructure, defense and industrial subsidies &mdash; while maintaining continuity in foreign and defense policies despite more hawkish support for Ukraine in its war against Russia. In Poland, <a href="/article/political-polarization-fuels-uncertainty-ahead-polands-2025-presidential-election">political turbulence</a> and policy uncertainty will intensify in the run-up to presidential elections in May, with opposition-aligned President Andrzej Duda using his veto powers to disrupt Prime Minister Donald Tusk&#39;s agenda, while government efforts to purge opposition allies from public institutions may exacerbate rule of law concerns. Should a government-aligned president win, it would streamline governance by eliminating the presidential veto threat. An opposition win would meanwhile prolong the legislative gridlock, undermining reforms and potentially harming the country&#39;s investment climate.

Key Elections in Germany and Poland

France&#39;s political crisis will continue in 2025 as the country struggles to pass any policies amid rising social discontent and political fragmentation, something early legislative elections are unlikely to resolve. France&#39;s <a href="/article/barniers-budget-gambit-triggers-political-showdown-french-parliament">political instability</a> will continue in 2025 as the government and the National Assembly disagree on virtually every policy, including much needed measures to reduce the country&#39;s fiscal deficit, which will maintain <a href="/article/frances-post-election-economic-outlook">public finances</a> on a path of rising debt. Despite recurring pressure on French assets, France&#39;s strong institutional framework and economic resilience will keep the likelihood of a financial crisis low in 2025. But persistent political and policy uncertainty will continue to weigh on business and consumer confidence. Against this backdrop, another early parliamentary election could occur after July, especially should the budget deadlock repeat itself in 2025. Even a new election would be unlikely to break the legislative impasse, as the most likely outcome would be <a href="/article/france-keeps-far-right-bay-hung-parliament-still-raises-political-risks">another hung parliament</a> given France&#39;s fragmented political landscape. Despite pressure from the far right and the far left, President Emmanuel Macron is unlikely to call an early presidential election, preferring instead to exhaust all alternatives before prematurely ending his second and final term. Adding to political volatility, the verdict in Marine Le Pen&#39;s EU funds embezzlement trial is expected in March. A guilty ruling and an immediate ban on her holding office would likely fuel anti-establishment sentiment, bolstering other far-right candidates in the 2027 presidential race. &nbsp;

France's Political Deadlock and Fiscal Challenges Continue

Eurasia

Ceasefire negotiations between Russia and Ukraine are likely, but any deals to stop hostilities would be fragile while a long-lasting peace agreement to end the war will remain elusive because of disagreements over Western security guarantees for Ukraine. The Trump administration will threaten Moscow with increased sanctions and additional military help for Ukraine while also threatening Kyiv with reduced financial and military support in a bid to pressure both governments to enter ceasefire talks. As Western governments pressure Kyiv to pursue negotiations and foreign support for Kyiv proves insufficient to halt Russian advances amid political, industrial and fiscal constraints, the probability of Ukrainian President Volodymyr Zelensky accepting some of Moscow&#39;s demands will increase. Growing questions over the viability of Ukraine&#39;s war strategy and the need to lower the mobilization age below 25 (which would spark emigration from the country) will also contribute to domestic pressure on Zelensky. As a result, ceasefire <a href="/article/growing-prospect-cease-fire-ukraine">talks are likely in 2025</a>, but while Ukraine is likely to accept making territorial concessions to stop the fighting, the issue of Western security guarantees to prevent future Russian attacks will remain the main obstacle to a more long-lasting peace deal. Western reluctance to offer Ukraine a path toward NATO membership and internal divisions within the West over <a href="/article/bracing-protracted-war-ukraine-narrowing-path-ukrainian-victory">deploying troops</a> to Ukraine to guarantee a peace deal will delay a long-lasting deal. In any case, if a ceasefire happens in 2025 it would likely only be temporary. Against this backdrop, presidential and parliamentary elections in Ukraine &mdash; which should have taken place in 2024 and 2023, respectively &mdash; are unlikely unless a ceasefire deal is reached. If the elections happen, Russia will undertake disinformation efforts to try to destabilize Ukraine and influence the outcome.

Ceasefire Talks Commence, but a Peace Deal Will Remain Elusive

Russian forces will likely continue advances on the battlefield amid Ukraine&#39;s manpower deficit, which will give Moscow leverage during negotiations with Kyiv and the West. Russian forces will continue to advance on the battlefield in 2025 as the Ukrainian military will struggle to mobilize and match Russia&#39;s monthly manpower intake, allowing the <a href="/article/us-greenlights-limited-ukrainian-strikes-inside-russia-long-range-missiles">Russian army to maintain</a> its battlefield advantage. Russian advances are likely in several locations along the frontline, primarily the southern portion of the Donbas, and Russia will likely also push Ukrainian forces out of the Kursk region. The Kremlin could forgo major escalation in the opening months of the year to facilitate a <a href="/article/how-us-election-will-impact-war-ukraine">start of direct contacts</a> with Washington on a ceasefire, but as talks fail to show rapid progress, Moscow will seek to gain additional territory to maintain negotiating leverage. Moscow will also escalate its airstrike campaign against Ukraine with increasingly modern and larger quantities of weapons while threatening direct retaliation against NATO. Washington, for its part, will maintain some military support for Ukraine to prevent a collapse in Kyiv&#39;s negotiating position. Russia could conduct another mandatory mobilization with manageable social and economic repercussions as the Kremlin would present it as necessary to achieve a settlement with the West under Moscow&#39;s terms. Russia will experience high levels of inflation amid a worsening labor shortage and lower ruble exchange rate, but these developments will not have broader near-term implications for military procurement or the economy because even a fall in oil prices will not prevent Russia from receiving sufficient revenues from its energy sales, other exports and tax increases.

Russia Continues Battlefield Advances, Maintaining Negotiating Leverage 

The South Caucasus will remain a battleground for geopolitical influence as Armenia and Azerbaijan seek foreign support to bolster their positions in peace negotiations. Armenia and Azerbaijan will likely continue <a href="/article/armenia-azerbaijan-negotiations-head-right-direction-have-long-way-go">progress toward a peace deal</a>, but disagreements on constitutional changes in Armenia, the details of the complete demarcation of their border and opening transit links will likely block a peace agreement in 2025. Some of these issues could be set aside for a follow-up agreement, but so long as there is no deal, the <a href="/article/assessing-prospect-azerbaijan-invading-armenia">possibility of flare-ups</a> in the region will remain as Baku uses its military advantage to maintain leverage in talks. Both sides will court foreign backers to help them maintain negotiating leverage. Azerbaijan and Armenia will avoid antagonizing Moscow, seeing Russia&#39;s strong leverage over a possible ceasefire in Ukraine and the pro-Russian Georgian government as increasing Moscow&#39;s resources to influence the South Caucasus in the coming years. Armenia&#39;s efforts to secure strong support from the United States will be thwarted as the Trump administration prioritizes strong relations with Baku as a regional counterbalance to Russian, Iranian and Chinese regional influence. Armenia will instead rely on military equipment from France and seek to boost trade with the European Union. Armenia will use these growing political and defense ties with the West to try to deter Azerbaijan from escalation, and resist Baku&#39;s strongest demands in peace talks, namely regarding transit across southern Armenia.&nbsp;

South Caucasus Tensions Persist Despite Possible Azerbaijan-Armenia Peace Deal

Georgia&#39;s authoritarian drive will continue as relations with the West remain tense, while Kazakhstan will deepen cooperation with Russia and pro-EU forces will remain in power in Moldova. Though sporadic protests will continue in Georgia, pro-Western forces will <a href="/article/georgias-protest-movement-faces-uphill-battle-after-parliamentary-elections">fail to change</a> the government&#39;s authoritarian course because of their inability to paralyze life in the capital over several months. Relations between the Georgian Dream government and the European Union and United States will remain tense, and Tbilisi will increasingly rely on China for economic cooperation, most notably through the start of a Chinese consortium&#39;s construction of the Anaklia Deep Sea Port, Georgia&#39;s largest ever infrastructure project and a major node in Beijing&#39;s Belt and Road Initiative. In the meantime, Kazakhstan will continue its <a href="/article/will-economic-liberalization-be-enough-attract-foreign-investment-kazakhstan">policy of geopolitical balancing</a> between Russia, China and the West. But amid perceptions of a possible end to the Ukraine war largely on Russia&#39;s terms, Kazakhstan will likely avoid antagonizing Moscow and will sign major energy and economic cooperation deals with Russia, including natural gas deals helping Moscow boost exports to Central Asia. In Moldova, pro-European forces will <a href="/article/close-results-moldovas-referendum-raise-fears-pro-russian-government">likely lose seats</a> in parliamentary elections in mid-2025, but retain a slim majority, preventing an end to Moldova&#39;s European integration prospects. As a result, Chisinau will continue to receive political and economic support from Brussels, but Moldova&#39;s economic difficulties and political polarization will keep opportunities for pro-Russian forces to try to destabilize the country.

Georgia, Moldova and Kazakhstan at the Crossroads of East and West

South Asia

India will implement measures to boost domestic manufacturing, make concessions to the United States to avoid a trade war and seek warmer relations with China, though national security concerns will prevent a major improvement in New Delhi-Beijing relations. The Bharatiya Janata Party&#39;s weaker than expected election performance in 2024 has increased its reliance on its National Democratic Alliance political partners, slowing progress on key land and labor reforms due to insufficient parliamentary support, a challenge likely to persist into 2025. Instead, the government will focus on boosting India&#39;s domestic manufacturing sector by imposing import restrictions on laptops, tablets and computers to encourage local production. Additionally, the government will offer up to $5 billion in incentives for local and global firms to boost local electronics manufacturing and reduce reliance on China. While these measures will somewhat reduce import dependency and stimulate industry growth, India&#39;s underdeveloped infrastructure and regulatory uncertainty will likely limit their effectiveness. India&#39;s <a href="/article/what-trumps-second-term-means-south-asia">trade surplus with the United States</a> increases the risk of the White House imposing higher tariffs on Indian goods, which would negatively impact India&#39;s export sectors and force New Delhi to retaliate with tariffs on U.S. goods. To avoid a trade war, India may increase purchases of U.S. energy products and defense equipment, aligning with its own needs while supporting U.S. exports. Meanwhile, the United States is likely to push for closer alignment on regional policies, particularly in ensuring a free and open Indo-Pacific, potentially involving greater Indian investment, arms purchases and enhanced maritime cooperation, such as joint naval exercises in the South China Sea. While India will engage in these areas to strengthen its capabilities, it will maintain its broader nonalignment strategy, including efforts to reduce <a href="/article/after-tense-few-years-india-and-china-try-turn-down-heat">tensions with China</a> on their shared border. Still, India is unlikely to significantly relax restrictions on Chinese investment due to national security concerns and lingering mistrust from the 2020 border skirmish between Indian and Chinese forces. There may be a slight thaw in relations in 2025, however, including the resumption of direct flights and eased visa restrictions for Chinese technicians.

India To Manage Ties With the U.S. and China

Bangladesh&#39;s interim government will prioritize judicial and electoral reforms, while likely election delays will increase the risk of social unrest and a political crisis. Judicial reforms, including ending executive control over appointments and creating a Supreme Court secretariat, alongside electoral reforms to establish a new election commission focused on ensuring more transparent elections are likely in 2025. Divergent expectations, the absence of experienced politicians in the government and limited resources will, however, likely limit the effectiveness of these reforms. Dhaka will also likely focus on purging the influence of the Awami League party from existing institutions. The interim government&#39;s claim that extensive reforms are needed before elections suggests a vote is unlikely in 2025, risking heightened <a href="/article/bangladesh-improving-security-does-not-spell-stability">political instability</a> and social unrest, as the interim government was originally expected to stay in power for only a short period. While political parties and elements of civil society opposed to <a href="/article/bangladesh-hasinas-resignation-portends-greater-political-and-economic-uncertainty">ousted Prime Minister</a> Sheikh Hasina may tolerate this in the short to medium term, failure to implement reforms amid ongoing economic challenges and political divisions could lead to pressure on the government to hold elections to restore political stability. In the longer term, delays in reforms and holding elections could trigger unrest, threatening the continuity of the government. In a more extreme scenario, Bangladesh could shift toward authoritarianism, with the interim government&#39;s <a href="/article/bangladeshi-militarys-expanded-role-politics-after-sheikh-hasina">close military ties</a> helping to consolidate power, further eroding democratic institutions and deterring foreign investment, particularly in the ready-made garment sector.

Bangladesh To Face Election Delays Amid Extensive Reforms

Sri Lanka will remain committed to its IMF program in 2025, opening the door to economic reforms and debt restructuring agreements that improve the country&#39;s financial outlook and reduce the risk of another crisis. Sri Lankan President Anura Dissanayake&#39;s November 2024 decision to comply with the country&#39;s <a href="/article/previewing-sri-lankas-parliamentary-elections">IMF bailout program</a> will pave the way for IMF-backed economic reforms and improved economic certainty and investor confidence. The IMF Executive Board will likely approve the third review of the program in 2025, unlocking a $333 million tranche. The approval is bolstered by the completion of a $12.5 billion bondholder debt restructuring Nov. 26, though it remains contingent on the completion of a $10 billion <a href="/article/whats-stake-sri-lanka-struggles-restructure-its-debt">debt restructuring</a> with bilateral creditors, including Japan, China and India, which the government aims to finalize in 2025. Additionally, the government will present a final budget in the first quarter, which may include some tax relief and welfare subsidies, but largely is expected to maintain austerity measures. The continuation of austerity measures and Dissanyake&#39;s shift in policy will likely face backlash and protests, though not on the scale of the demonstrations in 2022. Dissanayake&#39;s lack of ties with the families that have governed the country for decades and the absence of corruption scandals suggests that Sri Lankans will be more tolerant of his austerity program and more patient than with previous governments, at least in the short to medium term.

Sri Lanka Will Continue With IMF-Recommended Measures

Pakistan will introduce economic reforms to qualify for IMF funding, but delays in implementation will risk increasing debt restructuring risks. In the first quarter of 2025, Pakistan will undergo the first review of its IMF program. The success of the review is contingent on conditions that Pakistan must complete, including securing $2.5 billion in financial assurances from creditors including China and the United Arab Emirates. Both creditors gave assurances before the program&#39;s approval, so they will likely materialize, potentially ahead of the 2025 review. This is further supported by Saudi Arabia&#39;s renewal of its $3 billion deposit with Pakistan&#39;s central bank Dec. 5. Delays in loans from bilateral creditors by the time of the review would prevent the IMF from releasing funding, heightening the risk of debt restructuring because of insufficient external financial support. This could lead to a depletion of foreign exchange reserves and an inability to meet debt obligations. Program approval also hinges on addressing revenue shortfalls, particularly through implementing an Agricultural Income Tax under the purview of provincial governments. The regional assembly in Punjab, Pakistan&#39;s largest agricultural province, has approved the tax, signaling the potential for similar moves in provinces like Khyber Pakhtunkhwa, where the bill has been approved but not yet tabled. While controversy and unrest may hinder progress, provincial assemblies will likely approve the tax, a key condition for IMF approval of its program, due to pressure from Pakistan&#39;s powerful military and the <a href="/article/challenges-facing-pakistans-new-government">national government&#39;s allies</a> in Sindh province. &nbsp;

Financial Assurances and Tax Reforms Critical for Pakistan's IMF Review

Sub-Saharan Africa

The United States will push to reduce Chinese influence in Africa, likely finding some success with U.S. allies and resource-rich countries, but many African nations with strong Beijing ties may resist, risking reduced U.S. aid. Although Africa is set to remain of limited importance for the United States under the Trump administration, the White House is likely to make U.S. aid and military cooperation more conditional on African countries mitigating cooperation with China. The United States will likely remain broadly committed to the <a href="/article/washingtons-flagship-africa-project-new-supply-line-central-african-mining-exports">Lobito Corridor</a>, which aims to connect Zambia and the Democratic Republic of the Congo&#39;s mining heartlands to the Atlantic Ocean, and could strike transactional agreements with African countries involving new purchases of U.S. military equipment or U.S. companies&#39; gaining preferential access to <a href="/article/zambia-banks-green-rush-copper">critical minerals</a> in exchange for limited debt relief or pledges to curb economic ties with China. While this approach could result in close U.S. allies <a href="/article/what-expect-stronger-us-kenya-ties">such as Kenya</a> pausing a further expansion of ties with Beijing, China&#39;s status as the leading trading partner for most African countries means that several countries on the continent will likely resist U.S. demands. The Trump administration could respond by reducing U.S. aid for those countries and removing them from the Africa Growth and Opportunity Act, which grants duty-free access to the U.S. market, should the legislation be renewed, as it is currently slated to expire in September 2025.&nbsp;

Trump's Return Fuels U.S.-China Rivalry in Africa 

Nigeria will fail to step up as a regional leader to ease growing political uncertainty in West Africa, leaving a leadership vacuum that threatens to result in new regional trade barriers and hinder efforts to defuse potential postelection crises in Cote d&#39;Ivoire and Cameroon that Russia will likely exploit to <a href="/article/what-future-holds-russia-africa">expand its influence</a>. Mali, Niger and Burkina Faso are likely to <a href="/article/what-mali-niger-and-burkina-fasos-exit-ecowas-means-west-africa">formally exit</a> the Economic Community of West African States in late January, when their formal notice of departure is due to take effect. This could result in new trade barriers between the three Sahelian countries and ECOWAS members outside the West African Economic and Monetary Union, escalating political uncertainty in the region. Against this backdrop, Nigeria is unlikely to become a regional leader, as it will continue to face <a href="/article/despite-reforms-and-prudence-nigerias-economy-will-still-challenge-government">severe domestic challenges</a>. On top of France&#39;s receding influence in West Africa, this will fuel a leadership vacuum in the region that will risk hindering efforts to reduce tensions surrounding presidential elections in Cote d&#39;Ivoire and Cameroon slated for October 2025. In Cote d&#39;Ivoire, President Alassane Ouattara&#39;s decision to seek a fourth consecutive term would likely lead to deadly violence, especially as Russia will likely indirectly support opposition candidates given Ouattara&#39;s close ties with the West. In Cameroon, the election is set to be contested and trigger protests regardless of whether 91-year-old <a href="/article/cameroon-braces-volatility-amid-concerns-about-president-biyas-health">President Paul Biya</a> runs for an eighth consecutive term. If Biya does not run, elite infighting could erupt, making a coup more likely, especially if large-scale protests follow the vote.

Nigeria Struggles To Stabilize Its Neighborhood as ECOWAS Fractures

South Africa&#39;s coalition government will likely advance reforms to the power and transport sector, but a gradual increase in tensions between the African National Congress and the Democratic Alliance and potential unrest if former President Jacob Zuma is found guilty in a corruption case risks hampering these efforts. South Africa&#39;s government will present its first annual budget in February, which is likely to maintain the current pace of fiscal consolidation but is unlikely to accelerate it significantly. The government is also likely to advance reforms to the power and transport sectors, including efforts to secure the participation of private sector operators in South Africa&#39;s railways. Disagreements between President Cyril Ramaphosa&#39;s African National Congress and the center-right Democratic Alliance <a href="/article/challenges-facing-south-africas-new-coalition-government">could delay reforms</a>. While the coalition government is unlikely to collapse in 2025, potential violence linked to an upcoming corruption trial against Zuma could heighten intracoalition tensions, as the parties may have different approaches to tackling the violence. Internationally, Ramaphosa will leverage South Africa&#39;s G20 presidency to persuade U.S. officials to renew the African Growth and Opportunity Act, which provides duty-free access to the U.S. market for more than 30 African countries and expires in September 2025. Many Trump administration officials&#39; critical views on South Africa&#39;s foreign policy will hinder these efforts, meaning South Africa could lose access to AGOA even if Congress renews it.

South Africa Advances Sectoral Reforms Amid G20 Presidency 

Somalia and Ethiopia will hold bilateral talks over Ethiopia&#39;s bid for maritime access, but a failure to finalize a deal by April will increase the likelihood of skirmishes. Sudan&#39;s civil war will meanwhile likely persist, keeping spillover risks into Chad and South Sudan high. Somalia and Ethiopia will <a href="/article/ethiopia-and-somalia-crack-open-door-compromise-maritime-access">negotiate over commercial agreements</a> that would enable Ethiopia to secure maritime access through Somalia. But disagreements are likely to emerge regarding the pricing, location and duration of Ethiopia&#39;s leasing rights, while Somalia will likely insist that Ethiopia formally scrap its <a href="/article/drivers-and-risks-ethiopias-historic-pact-somaliland">port deal</a> with its breakaway region of Somaliland. If Ethiopia and Somalia fail to finalize negotiations by April as agreed, tensions will resurge, which could result in localized clashes, which would increase the risk of a severe escalation. Conversely, a breakthrough would consolidate the reduction in tensions and pave the way for Ethiopia to diversify its maritime access via Djibouti. Domestically, Ethiopia will likely face <a href="/article/unrest-amhara-threatens-destabilize-northern-ethiopias-tenuous-peace">heightened violence</a> in its northern Amhara region due to sustained militant attacks. In Sudan, an agreement <a href="/article/security-implications-sudans-ongoing-civil-war">to end the civil war</a> between the Sudanese Armed Forces and the Rapid Support Forces is unlikely, portending growing fragmentation as both sides increasingly rely on local proxies. While localized and temporary truces are possible, sustained violence will keep the risk of spillover of the conflict into neighboring Chad and <a href="/article/coup-rumors-south-sudan-highlight-continued-risk-political-instability-and-civil-war">South Sudan</a> high.

2025 ANNUAL GEOPOLITICAL FORECAST

Asia-Pacific

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