Overseas Development Assistance (ODA) has long been a cornerstone of international cooperation aimed at reducing poverty, improving livelihoods and fostering sustainable development in the Global South. While Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC) figures indicate a marginal increase in ODA over recent years, the future of aid as a robust foreign policy instrument looks increasingly uncertain.
Governments once at the forefront of global development efforts are either withdrawing or reshaping their approach in ways that prioritize strategic corporate and national interests over traditional humanitarian and development goals. The closure of dedicated aid agencies, the shifting priorities of donor countries and the rising influence of private foundations and corporate social responsibility (CSR) initiatives all suggest that ODA–as we have known it–is on the decline.
Declining Role of Traditional Donors
Bilateral aid agencies such as the United Kingdom’s Department for International Development (DFID), the Canadian International Development Agency (CIDA) and Australian Aid (AUSAID) historically played a leading role in shaping international development. The closure or absorption of these agencies into broader government departments reflects a shift in priorities.
British Prime Minister has announced the country’s aid budget is to be cut from 0.5 percent to 0.3 percent of Gross Domestic Product (GDP) to cover the costs of increasing defense expenditure. The UK folded DFID into the Foreign, Commonwealth and Development Office (FCDO) in 2020. Critics argued the move diluted the focus on poverty alleviation and sustainable development–aligning aid more closely with geopolitical and commercial interests. AUSAID was merged into the Department of Foreign Affairs and Trade (DFAT) in 2013 while CIDA was integrated into Global Affairs Canada the same year. These shifts underscore how ODA is becoming more closely linked to national foreign policy objectives rather than being guided solely by development imperatives.
The United States of America, once the world’s largest aid donor, is undergoing a seismic shift in development strategy. The sudden closure of the United States Agency for International Development (USAID) and the implications for Washington’s foreign policy are still being digested. USAID has been criticized for inefficiencies and strategic misalignments, but its dissolution is not out of sync with the broader trend amongst donor countries to downsize or dismantle development sections or departments. These trends clearly indicate ODA is being deprioritized by traditional development partners–making way for alternative funding mechanisms.
Diminishing Role of ODA as a Foreign Policy Tool
For decades, ODA served as an essential instrument of foreign policy providing donor nations with opportunities to strengthen diplomatic ties, promote stability and expand economic influence. The Marshall Plan, Cold War-era development programs and more recent infrastructure initiatives in Africa and Asia demonstrate how aid has been wielded as a tool of strategic engagement. In today’s increasingly multipolar world, emerging economies such as China, India and Turkey play increasingly significant roles in development financing as traditional development partners reevaluate their commitments.
Western countries appear less inclined to use ODA as a means of influence, focusing instead on trade agreements, security partnerships and economic investments. China’s Belt and Road Initiative (BRI) has demonstrated an alternative model of development financing prioritizing infrastructure and economic growth over social development objectives. Rather than reinforcing traditional aid commitments, Western development partners appear to be retreating leaving a vacuum increasingly filled by alternative models of development assistance.
The recent halt in U.S. foreign aid disbursements has underscored a critical vulnerability in global development: the over-reliance on donor-driven models. As the Global Programs Director at Oxfam International in Kenya Adama Coulibaly argues, the disruption of aid flows has not just caused temporary funding gaps, but exposed deep structural weaknesses in the sector. International non-government organizations (INGOs) and local development actors have been forced to re-organize, highlighting the urgent need to shift power, resources and financial autonomy to more resilient, locally-led models that are not so easily destabilized by geopolitical decisions.
The Rise of Foundations and Corporate Social Responsibility (CSR)
As traditional government-led ODA recedes, philanthropic foundations and corporate CSR initiatives are stepping up to fill the gap. Private actors such as the Bill and Melinda Gates Foundation, Rockefeller Foundation, Mastercard Foundation and the Open Society Foundation have expanded their roles in global health, education and social development. Their ability to deploy large sums of capital rapidly and with relatively less bureaucracy positions them as attractive partners in development efforts.
A fundamental lesson from the shifting aid landscape is the necessity for alternative financing mechanisms that empower communities rather than reinforce dependency. Coulibaly’s emphasis on South-South philanthropy, remittance-driven investment and community-based savings models such as rotating savings and credit association (ROSCA) and tontines provide compelling ways to rethink development finance. These models have long demonstrated resilience and provide viable paths forward to reduce reliance on Northern donors and foster genuine local ownership of development initiatives.
Corporations are aligning their strategies with environmental, social and governance (ESG) principles and the United Nations’ Sustainable Development Goals (SDGs). Multinational companies are recognizing that long-term profitability is closely linked to sustainable and inclusive growth increasingly incorporating social impact into their business models. CSR programs, once viewed as peripheral to business strategy, are now becoming a central part of corporate identity and stakeholder engagement.
While this shift presents opportunities associated with increased funding and innovative approaches to development; it also raises important questions. Unlike traditional ODA that is, at least in principle, accountable to taxpayers and subject to parliamentary oversight; private and corporate-led initiatives are often less transparent. Motives behind corporate philanthropy is oftentimes more closely aligned more with brand-building and market expansion than genuine social transformation. An unchecked reliance on private actors can lead to fragmented development efforts with priorities dictated by neo-liberal corporate interests rather than comprehensive, country-led development strategies.
The Future of Development Finance
The future of ODA is likely to be shaped by a more diversified landscape where traditional government-to-government aid plays a diminished role while private philanthropy, CSR and blended finance models take center stage. Several key trends are expected to influence this transformation.
A major shift is the increased involvement of the private sector in development. As the effective implementation of ESG aligned with the SDGs becomes more integral to corporate strategies; businesses will be increasingly interested to embed development objectives into operations. Bigger businesses engaging in larger scale more long-term projects are usually better resourced to manage social and environmental issues.
Multinational operators, usually more closely tied to international value chains, generally demonstrate greater compliance with global standards–not withstanding notable exceptions. Micro, small and medium sized enterprises (MSME) are often less well equipped to oversee and manage the implementation of effective ESG initiatives. Many MSME’s are more inclined to satisfy the bare minimum standards and have demonstrated a higher tendency to cut corners wherever possible. Ensuring compliance and evaluating whether contributions genuinely address development needs remains a crucial challenge.
Another critical trend is the continued expansion of South-South cooperation. Emerging economies are increasingly playing an active role in development assistance, providing alternatives to the traditional Western-led ODA framework. Initiatives such as China’s BRI, India’s development partnerships and Turkey’s growing engagement in Africa illustrate this shift indicative of a broader redistribution of development influence.
As traditional ODA declines, INGOs are at a crossroads. Without meaningful reform, many INGOs will struggle to remain relevant and collapse under outdated structures or fail to transition into meaningful partnerships with local actors. This shift is already apparent as an increasing number of institutions recognize that effective impact requires deeper localization. The challenge for the sector is not only financial adaptation, but the decolonization of aid governance, decision-making and leadership.
Blended finance approaches are emerging as a significant development model. By combining public, private and philanthropic capital, these mechanisms, including impact investing, development bonds and social enterprises are gaining traction. These approaches aim to maximize financial sustainability and effectiveness leveraging multiple funding sources.
Technology is also revolutionizing development finance. Digital finance, artificial intelligence and blockchain innovations are poised to transform development assistance including many aspects of aid delivery, monitoring and evaluation. As technology advances, development partners and implementing institutions will need to adapt to remain effective and responsive to evolving needs.
ODA will continue to evolve moving away from traditional donor-driven models toward a more dynamic and multifaceted development landscape. The challenge will be to ensure these changes contribute to genuine development progress and prioritizes equity, accountability and long-term impact over short-term economic or geopolitical interests.
Christopher Burke is a senior advisor at WMC Africa, a communications and advisory agency in Kampala, Uganda. He has over 25 years’ experience working on a range of issues in social, political and economic development with a strong focus on governance, environmental issues, renewable and non-renewable extractives, international relations and peace-building based in Asia and Africa.
Let’s talk about the pink elephant in the financial inclusion room: why don’t financial service providers design products intentionally for women?
The success of all products and services hinges on a few critical elements – it must add value to the user’s life, address a problem they face, and be deeply rooted in their lived realities. While some in the financial inclusion industry have undertaken exercises in customer-centricity, many have not – and they continue to leave business opportunities on the table when it comes to women, who have proven to be excellent clients.
Pinkwashing – where companies superficially design for women by simply turning products pink – will no longer cut it. Financial inclusion means women have access to useful and affordable financial products and services that truly respond to her realities.
While access to finance has grown in the past decade, it has largely benefited men and excluded women. Women face systemic barriers to participation in the formal financial sector, fundamentally operating with less of everything: less mobility, less access to education, training, and financial services, fewer rights, fewer assets, less market access, less negotiation power, less control – the list goes on and on. The solution isn’t just “pink-wrapped” bank accounts but creating an environment where women entrepreneurs also have access to credit, insurance, and financial products. Designing for people facing the greatest barriers – often women — makes financial products more convenient, adaptable, and accessible for all. By addressing the challenges of those struggling most to start businesses or access credit, we create better solutions that drive economic growth and profitability.[1]
So how do we come together to design for these needs?
Design for differences – don’t just “Pink-It and Shrink-It”
Everywhere you look, the world is not equally designed for men and women.
Women experiencing medical emergencies in public are 23% more likely to die than men because CPR training focuses on “male” mannequins, leaving bystanders hesitant to perform chest compressions on women.
When astronaut Anne McClain needed a medium spacesuit for a spacewalk, she was grounded because there was no space suit available in her smaller size.
Women face twice as many adverse medication side effects since drug dosages have long been based on male-centric clinical trials.
This snapshot reveals a clear problem: the world we live in is often designed-by-men-for-men. No matter the sector, the distinct needs of women are frequently overlooked or inadequately addressed. To create a market system that truly serves women, we must fundamentally rethink our approach to designing financial services. Enter women-centered design (WCD). Building on the foundations of human-centered design, this approach involves actively listening to women, testing products and services with them, and iterating based on their feedback. WCD doesn’t exclude men, but rather, results in products that are more flexible, have fewer requirements, and are more convenient for all – expanding choice not just for women, but for many segments of the market – while also driving profitability. To better understand it, let’s take a look at an example in a sport over 5 billion of us love – soccer.
The soccer industry long relied on a “pink-it and shrink-it” approach to women’s cleats -resizing and recoloring men’s cleats for women. Not made to support their feet, female athletes are 2–8 times more likely to tear an ACL due to poorly designed cleats. Women-owned IDA Sports, seeing an opportunity to create more effective and safe products for women and also tap into a new market opportunity, addressed this by creating cleats based on women’s physiology, posted consecutive tripled year-over-year revenue growth in 2023 and 2024.
This shift demonstrates the power of intentional, women-centered design—an approach that can be both inclusive and moneymaking. Our experiences affirm that, while the process requires time and dedication, designing specifically with and for women not only leads to successful products for them, and even attracts male customers, highlighting the strong market appeal for the work.
Women-Centered Design for entrepreneurs: An intentional approach
Image from: Can Van Linh/CARE
What does WCD look like for women entrepreneurs? At CARE, through our Strive Women program, we work with women to ensure they feel equipped to grow their businesses, so they gain economic power in their households, communities, and economies. Grounded in WCD principles, addressing the syndrome of pinkwashing is at the very core of what we do.
Through the Ignite program, phase one of Strive Women, CARE successfully used WCD in partnership with financial service providers to adapt a portfolio of financial products.
In Peru: Collaborating with microfinance institution Financiera Confianza identifying barriers such as the requirement for a husband’s signature on loans and the demand for short-term loans. In response, we developed flexible loan products that also included health insurance for breast cancer screenings. These were delivered by trusted loan officers and supported by digital technology.
In Vietnam: Partnering with commercial bank VPBank creating affordable digital services tailored for women who were time-constrained and digitally capable that needed to access services quickly. With Thanh Hoa MFI, launching a highly successful loan product that increased loan amounts without raising requirements.
In Pakistan: With partner UBank, eliminating male guarantor requirements and leveraging gold as collateral- based on the insight that South Asian women have one particular asset – gold for marriage.
In each of these countries, we achieved significant success, with low non-performing loan rates and high demand for the women-centered products. In Pakistan, we even had 100% repayment on one loan product. Global data confirms this – showing that women are better savers, better repayors, more loyal clients, and are just good for business.
A new chapter in women’s economic growth
While our Women’s Entrepreneurship practice at CARE focuses on tailoring financial products to women’s needs, the lessons learned have far-reaching implications. Financial service providers, donors, and development organizations must move beyond brightly-colored marketing gimmicks and prioritize listening to target audiences and designing to address the specific barriers they face. The success of CARE’s programming illustrates that designing with women not only leads to meaningful inclusion but also unlocks untapped markets and build stronger businesses. Other organizations can leverage these insights to create innovative, impactful solutions in their respective sectors—whether it’s healthcare, education, or climate resilience.
We invite you to contribute to this journey, accelerating progress and enabling women to thrive. Together, a significant impact on women’s economic growth worldwide is within reach.
About CARE: Founded in 1945 with the creation of the CARE Package®, CARE is a leading humanitarian organization fighting global poverty. CARE places special focus on working alongside women and girls. Equipped with the proper resources, women and girls have the power to lift whole families and entire communities out of poverty. In 2024, CARE worked in 121 countries, reaching 53 million people through 1,450 projects. To learn more, visit www.care.org.
About Strive Women:Mastercard Strive is a portfolio of philanthropic programs supported by the Mastercard Center for Inclusive Growth and funded by the Mastercard Impact Fund. With programs around the world, Mastercard Strive aims to support 18 million small businesses to go digital, get capital, and access networks and know-how. Strive Women started in 2023 as an evolution of the Ignite program and uses women-centered design to deliver tailored financial products and support services, such as digital skills building and strengthening women’s networks. The program addresses the unique barriers faced by women-led businesses in Pakistan, Peru, and Vietnam. Strive Women aims to reach over 6 million entrepreneurs through its campaigns.
In the regions where CARE operates, structural disparities for women and girls are profound. Around 2.4 billion women of working age are not afforded equal economic opportunity and more than 1 billion women do not have access to finance. In lower and middle income countries, there are 265 million fewer women than men using mobile internet. Globally, 496 million women make up nearly two-thirds of the worlds illiterate adults, highlighting a significant gap in literacy. Addressing these challenges is crucial, as enhancing women’s economic participation can drive business growth, expand the financial sector, and foster overall market development.
Rathi Mani-Kandt is the Director of Women’s Entrepreneurship and Financial Inclusion at CARE. With over 15 years of experience, she specializes in designing financial and non-financial services that work for low-income populations, particularly low-income women. Rathi’s work focuses on supporting women-owned micro and small businesses through innovative, tailored products and support services.
In today’s retail landscape, efficiency is not always the golden rule. Some of the largest large retailers have mastered the art of controlled chaos, using supply chain failures to stimulate demand and boost profits. In short, what if chaotic logistics was the key to marketing success? Gilles Paché sets out to explore how unpredictability exacerbates consumer desire, influences pricing strategies and gives companies a competitive edge.
Regularly reading the trade press and listening to Europe’s top executives makes it clear that logistics is a crucial factor in the success of the retail sector—whether offline, online, or both. A seamless supply chain, optimized inventory levels, and strict delivery management are generally considered essential for ensuring customer satisfaction, maximizing company profitability, and delivering strong returns to shareholders. In e-commerce, the quality of fulfillment operations is often highlighted as critical for building a sustainable competitive advantage [1]. However, this dominant view overlooks a far more complex reality: powerful large retailers are thriving despite logistics that, by conventional performance standards, would be deemed “chaotic.” Yet, rather than being a weakness, these inefficiencies appear to drive sales. This raises an intriguing question: could what is typically seen as logistical underperformance serve as a powerful lever for marketing success?
There is no doubt that this perspective on supply chain management is iconoclastic—perhaps even provocative. But is it really? On the contrary, three key insights highlight the relevance of a heterodox approach to logistics—thinking outside the box, as I explored in a recent book [2]. First, stockouts in-store or online, along with extended wait times, can unexpectedly enhance a product’s appeal and create a sense of desirable scarcity, increasing consumer demand. Second, chaotic logistics can foster an opportunistic and agile business model, prioritizing adaptability and responsiveness over rigid planning while reducing operational constraints. Third, what appears to be logistical inefficiency can serve as a strategic justification for pricing and assortment management policies that maximize a large retailer’s profitability and strengthen its market position. A closer and more nuanced analysis of these perspectives reveals their strategic significance.
Perceived Scarcity: Amplifying Demand
Traditionally, stockouts in-store or online are viewed as failures that harm a large retailer’s profitability. However, research suggests that, in certain contexts, product unavailability can have the opposite effect, as demonstrated by Barton et al.’s [3] meta-analysis. When a product becomes difficult to obtain, its scarcity enhances its perceived value. Faced with the possibility of missing out, consumers feel a heightened urgency to purchase, increasing the likelihood of a sale. This phenomenon aligns with scarcity theory, which posits that goods perceived as rare or difficult to access are often seen as more valuable [4]. Large retailers can strategically leverage this mechanism, turning a disruption into a powerful driver of desirability. By applying this approach, a large retailer can encourage customers to return frequently—whether to physical stores or online—fostering loyalty while generating sustained demand for products that are not always in stock.
On the other hand, companies like Brico Dépôt (home improvement and DIY), Costco (warehouse club and wholesale), and Action (non-food consumer goods) deliberately employ strategies that make their products temporarily inaccessible. These large retailers cultivate a “treasure hunt” experience, where consumers understand that if they do not act quickly, the product may soon be gone [5]. While this is not a new approach, it has become increasingly prevalent in sectors such as food, electronics, and fashion, where promotional items and exclusive products are often available in limited quantities. The scarcity of products on shelves—or the speed at which certain items sell out—compels customers to return frequently, ensuring they do not miss out on a deal. Rather than viewing stock discontinuity as a weakness, these businesses harness it as a strategic tool to attract shoppers, maintain steady foot traffic, and stimulate impulse purchases. Not only does this approach drive rapid inventory turnover, but it also fosters a sense of anticipation and excitement that strengthens brand loyalty.
Some companies take this approach even further, turning logistical constraints into strategic selling points. Announcing long wait times or limited quantities becomes an intentional marketing tool, leveraging consumer psychology. Shoppers, eager to acquire something rare or exclusive, often accept delays or less-than-ideal conditions if it means securing a coveted product. This phenomenon is particularly evident in luxury markets, where scarcity is not just a supply issue but a core branding strategy [6]. Hermès, with its highly sought-after Birkin bags, and Rolex, with long waiting lists for premium watches, deliberately cultivate exclusivity to heighten desirability. Even outside luxury, brands use similar tactics. Limited-edition sneakers from Nike or Adidas are released in small batches to generate hype, while electronics companies such as Sony and Nvidia leverage supply shortages to sustain demand for PlayStation consoles and graphics cards. The perception of rarity fuels anticipation, making products seem even more valuable and desirable.
A similar dynamic is at play with Aramisauto, a key player in the French car distribution market. Unlike traditional franchised dealerships, which maintain planned inventories and predictable delivery schedules, Aramisauto operates with an opportunistic sourcing model. The company buys vehicles in bulk whenever manufacturers like Renault or Stellantis need to offload unsold stock. As a result, its vehicle selection is constantly changing, with no guarantee that a specific model will be available at any given time. Delivery times also fluctuate significantly, ranging from a few days to several months, depending on the vehicle’s origin and logistical factors. However, this approach offers a significant advantage: by acquiring cars at deeply discounted prices, Aramisauto can sell new vehicles at prices up to 30% lower than traditional franchised dealerships. While the unpredictability may frustrate buyers seeking a specific model, the ever-changing inventory creates a sense of urgency, prompting quicker purchasing decisions.
Logistical Chaos and Marketing Agility
Large retailers that excel at accurately forecasting demand, optimally managing stock, and minimizing costs are often seen as “masters of logistics.” In contrast, a more “chaotic” approach enables some companies to respond better to unexpected challenges. Hard-discount companies like Aldi and Action exemplify the urgent need for organized logistical chaos. Rather than relying on rigid forecasts and constantly renewed stocks, they frequently adjust their offerings in response to market opportunities. This strategy allows them to secure highly competitive prices by negotiating exceptional deals with suppliers [7], without being constrained by long-term assortment planning. The fluctuating assortment also becomes a key asset in attracting consumers, as customers know they will not always find the same products with each visit, fostering a sense of excitement and anticipation. This dynamic keeps customers coming back, enhancing both engagement and sales potential.
This business model is based on a high level of responsiveness to buying opportunities, allowing these companies to offer a wide range of products while staying highly competitive. Logistical chaos, therefore, becomes a key advantage for hard-discount companies, which leverage it to quickly adapt to a constantly changing market. By replacing rigid planning with resilient flexibility, these companies optimize operating costs while minimizing waste. In addition, they benefit significantly by reducing fixed costs related to logistical facilities. Reactive inventory management minimizes the need for large warehouses or centralized platforms, instead favoring local supply systems like urban micro fulfillment centers [8]. This operating model not only enables them to stay agile in the face of market fluctuations but also allows them to rapidly adjust their offerings to shifting economic conditions, particularly during times of crisis or inflation. The adaptability of this approach supports long-term sustainability, even in uncertain times.
Moreover, this approach provides significant financial flexibility, which can be reinvested into other strategic areas, such as marketing or customer experience management. For instance, a large retailer adopting this logic can allocate additional resources to promotions, advertising campaigns, or enhancing store design. This strategy can be an effective means of retaining price-sensitive customers while simultaneously boosting foot traffic and increasing sales. Furthermore, the variability in product offerings creates a dynamic buying environment, where consumers are encouraged to return frequently, fearing they might miss out on valuable opportunities. Rather than focusing on occasional stockouts, these large retailers embrace controlled instability, a tactic that does not necessarily harm their overall performance. By leveraging more fluid and opportunistic logistics, they successfully combine competitiveness with adaptability to shifting consumer trends, ensuring sustainable profitability, and long-term growth in an unpredictable, rapidly evolving market.
This is particularly evident in the case of Action, founded in 1993 in the Netherlands, which has experienced significant growth across Europe in recent years, largely driven by its strategic pricing approach. The large retailer consistently offers nearly 1,500 items priced under one euro, covering a wide range of products, from household goods to office supplies. This pricing strategy encourages frequent store visits, as customers aim to take advantage of the deals, even at the expense of leaving the shelves in disarray. The product assortment is regularly updated, creating a sense of urgency that drives impulse purchases, as customers are aware that stock levels are limited, and high-demand items may sell out quickly. At the core of Action’s approach is this “bargain-hunting” dynamic, which ensures a steady flow of shoppers without the need for active management of stockouts. Conversely, when products are unavailable, customers often attribute the shortage to their own delay in arriving at the store.
Inefficient Logistics: A Winning Strategy
Instead of fighting against stockout situations in-store or online, large retailers have increasingly recognized that it makes strategic sense to integrate these occurrences as a key competitive lever. Rather than viewing stockouts as failures, they deliberately cultivate them to maintain an aura of scarcity around their products. By controlling supply and artificially extending delivery times, these companies create a sense of urgency and heightened consumer desire. This phenomenon is particularly effective in sectors where exclusivity, originality, and prestige are key values, such as luxury or limited-edition products. More surprisingly, logistical inefficiencies are also used strategically as leverage to justify price hikes, because when supply difficulties are cited, companies find it easier to convince their customers that price increases are unavoidable [9], as we witnessed during the Covid-19 pandemic and the ongoing war between Ukraine and Russia. This strategy successfully capitalizes on consumer behavior, leveraging scarcity to boost demand and sales.
Founded in France in 2011, Le Slip Français (“The French Brief”) exemplifies how intentionally creating logistical inefficiencies can become a powerful marketing strategy. Specializing in the production and physical distribution of high-quality, locally made underwear for men and women, the brand quickly set itself apart with its unique marketing approach. This includes releasing limited-edition collections, which generates a sense of urgency, encouraging customers to make purchases before items sell out. The company intentionally limits production and distribution, leveraging consumers’ desire for rare and exclusive products to build an emotional connection with its audience. Through its strategic scarcity, Le Slip Français creates an aspirational image of exclusivity and desirability. The brand has successfully turned the logistical challenges faced by its competitors into a strategic advantage. Far from diminishing the perceived value of its offer, these disruptions enhance it, creating anticipation and loyalty among its growing customer portfolio.
Large retailers adopting this innovative strategy are not only boosting their margins, but they are also shaping customers’ perceptions of the product assortment value. By maintaining a degree of opacity around the causes of stockouts, they transform a logistical constraint into a potent marketing argument. The temporary absence of an item heightens the desire to purchase it once it becomes available again, either in-store or online. Powerful large retailers take advantage of this dynamic to segment their customer base, offering programs that guarantee priority access to items in short supply. This enhances the feeling of exclusivity and strengthens the loyalty of regular buyers, especially when they are given timely updates after a stockout [10]. The phenomenon extends beyond luxury goods, as limited promotions and seasonal offers are based on similar principles. Therefore, far from being a mere logistical inconvenience, stockouts are increasingly becoming a powerful lever, influencing purchasing decisions and justifying higher prices.
Large retailers not only increase their margins but also shape customers’ perceptions of the value of their products. By maintaining a certain level of opacity around the causes of stockouts, they turn a logistical constraint into a powerful marketing tool. The temporary absence of an item heightens the desire to purchase it once it is back on the shelves, creating a sense of urgency that fosters impulse buying. This phenomenon was observed and studied in the context of panic buying after lockdowns were lifted during the Covid-19 pandemic [11]. Some large retailers capitalize on this dynamic to segment their customer base, offering priority access to high-demand products. This reinforces the sense of exclusivity, strengthening the loyalty of regular buyers and encouraging anticipatory behavior among occasional shoppers. The phenomenon extends beyond luxury items, as limited promotions and seasonal offers operate on similar principles. By deliberately orchestrating logistical chaos, large retailers create the illusion of controlled scarcity, which paradoxically drives increased consumption.
A Deeper Understanding of Contexts
There is no denying it: achieving a high level of logistical performance is generally considered to be an inescapable imperative in the retail industry, and this managerial doxa is taught to MBA students around the world. Yet some companies in the retail industry are succeeding by adopting a more innovative approach that defies this logic. Far from being systematically perceived as harmful, stockouts in shops or online create a scarcity effect that benefits demand. Similarly, chaotic logistics enhance commercial agility, reduce fixed costs, and encourage a more opportunistic approach to conquering new markets. Finally, apparent logistical inefficiency is sometimes used as a strategic lever to justify higher prices, generate in-store traffic, or stand out from the competition. This non-traditional approach has proven successful, even in rapidly shifting market conditions. In short, has not the time come for a serious rethink of the classic performance criteria in the retail industry?
Rather than striving for ultra-optimized logistics at all costs, powerful large retailers are capitalizing on a certain degree of disorder and unpredictability to maximize marketing impact. This approach, grounded in flexibility and responsiveness, offers significant advantages in a competitive environment where consumer expectations are rapidly shifting. While unpredictability may seem risky at times, it allows companies to stand out by providing a more memorable and unique shopping experience. Of course, this is not to say that logistical chaos is always the best choice—this business model is not suitable for every sector or company. It is essential to carefully define the specific contexts in which this approach is beneficial versus harmful [12]. Therefore, additional research is needed to better understand the conditions under which a successful balance between order and chaos can become a sustainable, long-term competitive strategy. Understanding these nuances will help businesses adapt to changing markets and continuously improve their approach.
Gilles Paché is Professor of Marketing and Supply Chain Management at Aix-Marseille University, and Director of Research at the CERGAM Lab, in Aix-en-Provence, France. He has more than 650 publications in the forms of journal papers, books, edited books, edited proceedings, edited special issues, book chapters, conference papers and reports, including the recent two books: Variations sur la consommation et la distribution: Individus, expériences, systèmes (2022), and Heterodox logistics (2023).
[2] Paché, G. (2023). Heterodox logistics. Aix-en-Provence: Presses Universitaires d’Aix-Marseille.
[3] Barton, B., Zlatevska, N., and Oppewal, H. (2022). Scarcity tactics in marketing: A meta-analysis of product scarcity effects on consumer purchase intentions. Journal of Retailing, Vol. 98, No. 4, pp. 741-758.
[4] Robbins, L. (2007 [1932]). An essay on the nature and significance of economic science. Auburn (AL): Ludwig von Mises Institute.
[5] Rouquet, A., and Paché, G. (2017). Re-enchanting logistics: The cases of pick-your-own farm and large retail stores. Supply Chain Forum: An International Journal, Vol. 18, No. 1, pp. 21-29.
[6] Fan, L. (2019). Effects of resource scarcity in consumer behavior. Unpublished doctoral dissertation, Hong Kong Polytechnic University.
[7] Voigt, K.-I., Buliga, O., and Michl, K. (2017). Business model pioneers: Management for professionals. Cham: Springer.
[8] Karaoulanis, A. (2024). The role of micro fulfilment centers in alleviating, in a sustainable way, the urban last mile logistics problem: A systematic literature review. Sustainability, Vol. 16, No. 20, Article 8774.
[10] Kumar, P., Rossiter Hofer, A., and Peinkofer, S. (2023). The role of scarcity-inducing post-stockout disclosures on consumer response to stockouts. International Journal of Physical Distribution & Logistics Management, Vol. 53, No. 9, pp. 946-966.
[11] Cham, T.-H., Cheng, B.-L., Lee, Y.-H., and Cheah, J.-H. (2023). Should I buy or not? Revisiting the concept and measurement of panic buying. Current Psychology, Vol. 42, No. 22, pp. 19116-19136.
[12] Breugelmans, E., Campo, K., and Gijsbrechts, E. (2006). Opportunities for active stock-out management in online stores: The impact of the stock-out policy on online stock-out reactions. Journal of Retailing, Vol. 82, No. 3, pp. 215-228.
The study of Germany’s economy is crucial, as it has long been regarded as one of the most developed among advanced capitalist nations. Until recently, it was hailed as a successful export-led growth model and ranked as the fourth-largest economy globally and the largest in the European Union (EU) in terms of GDP. However, in recent years, Germany’s economic trajectory has faced significant challenges.
This paper critically examines the country’s economic decline based on key macroeconomic indicators and economic policies that have disproportionately favoured large corporations and elites at the expense of workers and low-income groups. The neoliberal policies adopted in the 1980s have contributed to deepening socio-economic disparities, rising unemployment, economic uncertainty, and environmental challenges (Siddiqui, 2024a).
Germany, once the symbol of capitalist success, has not experienced substantial economic growth over the past three years. Investment and employment have been in decline, eroding its status as Europe’s economic powerhouse. While Germany remains the fifth-largest economy in the world and the largest in Europe, its economic downturn raises concerns about its long-term stability (Eddy, 2024).
II. Deepening Crisis in Germany
Adding to these challenges, Germany faces external economic pressures, particularly from U.S. trade policies. The country’s trade surplus with the United States reached a record €65 billion (£54.7 billion) by the end of 2024, making it a likely target for tariffs imposed by Donald Trump’s administration. Furthermore, the German government is under increasing pressure to boost defence spending in response to Trump’s demands on NATO allies. This has led to indications that decarbonization policies may take a backseat to efforts aimed at supporting struggling industries.
Economists have warned that Germany’s economy is in “permanent crisis mode.” The Handelsblatt Research Institute has described the current downturn as the “greatest crisis in post-war history,” projecting a third consecutive year of recession in 2025 (Wolf, 2024).
As Germany navigates these challenges, its economic policies and strategic responses will play a crucial role in determining its future trajectory.
The ongoing crisis has weakened labour demand and reduced job vacancies, particularly impacting key industries such as automotive manufacturing. Volkswagen, for example, has undertaken significant cost-cutting measures in response to declining demand. Government statistics reveal that Germany’s economy contracted for the second consecutive year in 2024, shrinking by 0.2%, following a 0.3% contraction in 2023 (IMF, 2025).
These figures highlight a troubling economic slowdown, with recessionary trends continuing into 2025. As Germany navigates these challenges, its economic policies and strategic responses will play a crucial role in determining its future trajectory.
The International Monetary Fund (IMF), in its World Economic Outlook (2025), forecasts a decline in global inflation to 4.2% in 2025 and 3.5% in 2026. Additionally, the IMF projects that Germany’s economy will experience a modest recovery by the end of 2025 and into 2026. However, this growth is expected to remain below the historical 2000–2019 average of 3.7%.
Despite these projections, the IMF report overlooks critical structural challenges facing the German economy. Notably, real wages have been declining relative to rising labour productivity, negatively impacting household incomes, domestic demand, and consumption. Furthermore, increasing competition from China and East Asia poses a significant threat to Germany’s export markets, which could have serious long-term consequences for its export-driven economy (Siddiqui, 2024b).
The IMF study (2025) also projects that the U.S. economy will grow by 2.1% in 2026, while the Eurozone is expected to expand by just 1.1% in the same year. Germany’s overall GDP growth is forecasted at 1.1% in 2026, a stark decline compared to the 3.6% growth recorded in 2021. Figure 1a illustrates Germany’s GDP growth trends and projections through 2029. And Figure 1b provides an overview of long-term growth trends from 1965 to 2022. Figure 1c highlights the particularly bleak outlook for 2025, with Germany’s GDP growth expected to be the lowest among major economies at just 0.3%.
Similarly, Table 1 presents the IMF’s economic forecasts for major capitalist economies in 2025 and 2026, offering little cause for optimism. Per capita income data further underscores Germany’s economic struggles—after experiencing a sharp decline in 2008, income levels recovered by 2013, only to fall again in 2021, even before the onset of the Russia-Ukraine war (Figure 2). Among major capitalist economies, Japan has recorded the worst long-term performance (Siddiqui, 2015).
Given these grim forecasts, it is difficult to foresee a strong economic recovery in the coming years. Moreover, Germany’s economic slowdown will not only impact its domestic population but also have broader implications for the global economy.
Figure 1a: Germany: Growth Rate of the Real Gross Domestic Product (GDP) from 2019 to 2029.
Among macroeconomic indicators, capital investment is a crucial variable to examine, as changes in investment levels directly impact economic growth rates, employment, productivity, and incomes (Siddiqui, 2023). In Germany, capital investment as a percentage of GDP hit its lowest point in 2008 before gradually increasing. However, since 2022, it has once again started to decline, as illustrated in Figure 3.
Additionally, the ongoing recession has led to a slowdown in labour force growth across all major advanced capitalist economies. However, in Germany, this decline has been particularly sharp (see Figure 4).
Figure 3: Germany: Capital investment as Percentage of GDP.
Trade is a crucial economic variable for analysis, particularly for Germany, which has long been highly dependent on international trade. Over the years, trade steadily increased, but since 2022, it has declined, as illustrated in Figure 5.
Germany is the second-largest exporter in the world, with exports accounting for more than one-third of national output. The export of high-value-added products has been the primary driver of economic growth in recent years (Siddiqui, 2018). Trade, measured as the sum of exports and imports of goods and services as a share of GDP, has fluctuated: Germany’s trade-to-GDP ratio for 2023 was 90.11%, reflecting a 9.77% decline from 2022. In 2022, the trade-to-GDP ratio stood at 99.88%, marking a 10.72% increase from 2021 (Wolf, 2024).
Germany’s economy has faced significant trade disruptions due to geopolitical and structural challenges. The Russia-Ukraine war has led to severe energy supply cuts, particularly in oil and gas, resulting in higher energy costs (Siddiqui, 2022a). Additionally, economic sanctions imposed on Russia by the U.S. and the EU have severely impacted German exports, particularly in the automobile sector, where manufacturing exports to Russia have disappeared.
Germany’s heavy reliance on energy left it vulnerable, as the country was slow to diversify its energy supply before 2022. The phase-out of nuclear power, combined with rising global energy costs, further exacerbated price increases for German industries. Moreover, Germany’s export-led economy has suffered due to global shifts in demand and an inability to adapt quickly to digital technologies, affecting its productivity.
The large manufacturing sector, a key pillar of Germany’s economy, has been disproportionately affected by the surge in energy prices following Russia’s invasion of Ukraine three years ago. At the same time, German manufacturers face increasing competition from China, particularly in the automotive industry (Siddiqui, 2020).
Germany’s three major automakers—Volkswagen, Mercedes-Benz, and BMW—are grappling with rising costs as they transition from internal combustion engine vehicles to electric vehicles (EVs). This transition has become even more challenging as Chinese EV manufacturers, such as BYD, offer lower-cost alternatives, putting German automakers under significant pressure.
IV. Germany’s Economic Crisis and the Limits of Neoliberal Policy
The neoliberal approach to economic management, which relies heavily on monetary policy while sidelining fiscal measures, is often seen as the preferred strategy for combating recessions. However, this approach is likely to fail because it does not challenge the status quo or impose sacrifices on the ruling elites and large corporations, which have long benefited from tax cuts. Instead of expanding domestic consumption and demand, this policy continues to prioritize export-led growth, making Germany vulnerable to external economic fluctuations.
The European Central Bank (ECB) is expected to cut interest rates aggressively this year, more so than other developed economies. However, monetary policy alone may not be sufficient to stimulate growth. One alternative would be to eliminate the “debt brake”, a fiscal rule imposed in 2009 in response to the global financial crisis. This restriction limits the German government from running a structural budget deficit of more than 0.35% of GDP per year, thereby constraining public investment and spending.
Germany’s economic downturn intensified in 2024. In the first half of the year, the economy contracted by 0.2% compared to the same period in 2023. Several key factors contributed to this decline: Weak domestic and foreign demand for manufactured goods. High economic uncertainty, discouraging investment in equipment. Labor shortages and declining demand in the construction sector. Increased household savings, as low consumer confidence led to restrained spending
Despite a rise in real disposable income, private consumption failed to support economic growth. However, with lower inflation expected in 2025, real household incomes are projected to recover, leading to a gradual increase in private consumption, albeit at a slow pace.
The economic crisis has also taken a toll on the labour market: Labour demand weakened, and job vacancies fell by 23%—dropping to 1.3 million between 2023 and 2024. Job creation stagnated, leading to a rise in unemployment, which increased by 0.5 percentage points to 3.5% by the end of 2024.
Looking ahead, the deterioration of the labour market is expected to be contained as economic growth gradually resumes. Additionally, Germany’s ageing population will continue to weigh on labour supply, potentially limiting further job losses
A dominant perspective on Germany’s economic stability today comes from the Varieties of Capitalism (VoC) school, which has arguably become hegemonic in comparative political economy debates (Siddiqui, 2022b). This framework conceptualizes Germany as an ideal type of a Coordinated Market Economy (CME), in contrast to the Liberal Market Economy (LME) model exemplified by the United States.
The VoC approach theorizes national institutional systems in terms of economic complementarity—the positive interactions between institutions that reinforce firms’ competitive strategies. In LMEs, market-based institutions enable rapid adjustments, allowing firms to respond quickly to competitive pressures, reducing costs, and fostering innovation. In contrast, CMEs rely on non-market coordination, particularly in providing long-term capital investment (“patient capital”) and fostering industry-specific, non-transferable worker skills, which support sustained industrial competitiveness.
Germany’s financial sector has undergone significant liberalization, strengthened market forces while weakened traditional non-market coordination in economic governance. Notable changes include: The unwinding of cross-shareholding among corporations, particularly by banks and insurance companies. Relaxation of legal barriers against corporate takeovers, exposing firms to increased financial market pressures. A shift in major private banks towards investment banking—often with limited success. The rise of private equity firms and hedge funds, which have become increasingly influential in corporate governance.
These changes have made German companies more vulnerable to short-term value maximization strategies, particularly from activist investors and financial market fluctuations (Baccaro & Howell, 2017). The erosion of coordinated economic governance poses a fundamental challenge to Germany’s historical model of stability and long-term industrial strategy.
V. Challenges Facing Germany’s Industrial Sector
Since 2018, Germany’s industrial production has contracted by more than 12%, reflecting deep-seated structural challenges. Many of Germany’s leading industrial firms, including BMW, Mercedes-Benz, Volkswagen, and numerous automotive suppliers, chemical, and pharmaceutical companies, have significant investments in the United States. However, these companies rely heavily on exports from their U.S. operations, making them vulnerable to potential trade conflicts, particularly if U.S. President Donald Trump escalates tariff policies.
The outcome of this election will determine whether new leadership can implement policies to revive Germany’s industrial sector and restore economic growth.
Germany’s economy is now experiencing a second consecutive year of zero growth, with industry leaders increasingly pessimistic about the economic outlook. The potential imposition of tariffs by the Trump administration is a major concern for German manufacturers. For instance, Bosch, Germany’s largest auto supplier, announced plans to cut 5,500 jobs starting in 2027, with more than two-thirds of these losses occurring in German factories (Eddy, 2024).
Several factors have exacerbated Germany’s economic difficulties, including: High energy prices, which have increased production costs. Declining public infrastructure investment, affecting business efficiency. Geopolitical instability, disrupting trade and supply chains. Amid these challenges, the current government has collapsed, prompting early elections on February 23. The outcome of this election will determine whether new leadership can implement policies to revive Germany’s industrial sector and restore economic growth.
VI. Germany No Longer the World’s Leading Exporter
For decades, Germany’s export-led growth model followed a straightforward formula: import raw materials and components at competitive prices, leverage German engineering expertise and affordable energy, and transform them into high-value products proudly labeled “Made in Germany.” However, this model has been under increasing strain in recent years.
By 2024, it became evident to many policymakers that Germany’s macroeconomic framework—built on cheap energy and easily accessible export markets—was no longer sustainable. The country has been caught between cyclical downturns and deeper structural challenges, with manufacturing struggles and intensifying global competition, particularly from China, exposing long-term vulnerabilities.
Germany’s economic performance has continued to decline, making it the only G7 economy projected to contract in 2024. The economy is expected to shrink by 0.2% this year, down from earlier forecasts of 0.3% growth, following a 0.3% contraction in 2023. These figures highlight the country’s prolonged structural weaknesses, including an overreliance on manufacturing and growing pressure from foreign competitors.
According to the International Monetary Fund (IMF): “Germany’s GDP per capita shrank by 1% between 2019 and 2023, ranking 34th out of 41 high-income economies. Among G7 nations, only Canada performed worse. The UK saw a smaller decline of 0.2%, while France recorded a modest increase of 0.4%. Meanwhile, the U.S. economy grew by 6% over the same period, placing it in a league of its own.” (Wolf, 2024)
Germany’s terms of trade deteriorated significantly following Russia’s invasion of Ukraine, as natural gas prices soared, increasing production costs and damaging competitiveness. However, with natural gas prices returning to 2018 levels, some economic stabilization is expected in 2025—though whether this translates into sustained growth remains uncertain.
While energy-intensive industries in Germany have contracted, they account for only 4% of the economy, leaving automobile production to show more promising growth, with an 11% increase in 2023 and a 60% rise in electric vehicle exports. Despite falling industrial production, manufacturing value-added has remained steady, signalling those long-term structural issues, rather than temporary shocks, are driving the country’s economic challenges.
Germany faces a declining labour force, with a projected fall of 0.66 percentage points in the growth of its working-age population (ages 15-64) from 2025 to 2029, compared to the period between 2019 and 2023 (Wolf, 2024). This demographic shift poses significant challenges to economic sustainability, especially as labour shortages may exacerbate existing economic pressures.
VII. Neoliberal Policies and Their Consequences
The neoliberal push for privatization has resulted in the socialization of losses while privatizing profits. This process often involves public-private investment policies, such as buying up infrastructure and charging monopoly rents, which place an unfair burden on ordinary citizens who must pay for the use of these resources.
The rise of Donald Trump as U.S. President represents a significant shift in global politics, marking a collapse of the liberal centre and the growth of support for either Left-wing movements or extreme Right-wing (neo-fascist) ideologies, especially in contexts where trade unions are weak. The political philosophy underlying this shift can be traced back to classical liberalism, which emphasized the free market and opposed state intervention.
During the Great Depression of the 1930s, John Maynard Keynes demonstrated that laissez-faire capitalism failed to address widespread unemployment. He argued that state intervention was essential to boost aggregate demand and achieve full employment. Despite this, Keynesianism was never fully embraced by finance capital, which feared that any systemic intervention would undermine its dominance—especially that of financial capital.
The post-war economic boom in the U.S. and Western Europe was characterized by state intervention, which expanded aggregate demand and employment, although it also contributed to rising inflation from 1955-1972. Additionally, the decolonization process removed mechanisms that had previously kept commodity prices low, further complicating global economic dynamics. As inflation rose, neoliberalism emerged as a solution, promising to restore investor confidence and profitability by rolling back state intervention.
However, neoliberalism resulted in immense suffering for workers both in advanced capitalist countries and in the Global South. The growth rate of the world economy significantly slowed during the neoliberal era, and the 2008 financial crisis marked a particularly severe downturn. As monopoly capital faced increasing challenges, it shifted its support towards the Right-wing or neo-fascist movements in order to maintain its hegemonic control, further weakening the liberal centre and exacerbating the crisis of liberalism.
Donald Trump’s economic agenda appears to be focused on protecting the U.S. economy from foreign imports, not just from China, but also from the European Union. However, protectionism alone will not revive the U.S. economy. While it may encourage domestic production, it cannot expand the domestic market, which requires an expansion of state expenditure—financed either through fiscal deficits or by taxing the wealthy (see Figure 6). Without such measures, the protectionist policies will likely fall short of achieving long-term economic growth.
Figure 6: Public Investment in Germany, gross public investment as a share of GDP, 2018-22 (%)
Over the past three decades, as finance became dominant in Germany and other advanced capitalist countries, corporate investment behaviour increasingly shifted toward a shareholder-value orientation. Remuneration schemes based on short-term profitability directed management’s focus toward shareholders’ objectives. Unregulated financial markets further favoured asset purchases over asset creation, undermining long-term growth prospects (Siddiqui, 2023).
Under capitalism, the decline in the labour share and stagnant real wages have been sources of a realization crisis for the system. Profits can only be realized if there is enough effective demand for the goods and services produced. However, stagnant wages harm consumption, as spending from profit income tends to be lower than that from wages. This reduction in demand diminishes investment incentives, as capital spending depends on the demand for the products that capital produces. In Germany, rising unemployment and the increased reliance on market forces have led to greater poverty and inequality.
For example, government policies that aimed to drive down wages in the name of global competition replaced the previous unemployment insurance system with the punitive Arbeitslosengeld II. This law effectively removed social security protections after twelve months, leaving individuals with nothing after paying into the system, a stark shift toward workfare.
If one country saves more than it invests, other countries must absorb the difference, often accumulating debt.
It is clear that the export-led growth model in Germany has failed. It has not reduced income inequality, protected jobs, or safeguarded the environment. The country’s massive structural savings surpluses, which finance its current account surpluses, are hailed by mainstream economists as evidence of international competitiveness. However, this view is misleading. For the global economy to function, savings and investment must balance. If one country saves more than it invests, other countries must absorb the difference, often accumulating debt. Therefore, Germany’s trade surpluses must be reduced to raise output, trade, and employment in deficit countries.
The solution is for Germany to use its surplus savings to address its low public investment levels. This can be done by allowing the government to borrow from domestic markets and invest more in the country’s infrastructure. Additionally, raising wages and improving incomes for low-income groups would boost aggregate demand and consumption. Over the past twenty-five years, net public investment has been near zero, leading to a consistent decline in the ratio of public capital to GDP. It is nonsensical for a country with substantial surplus savings not to use them to boost domestic consumption and generate demand, benefiting both Germany and the Eurozone.
In summary, it has become evident that capitalism in Germany has failed as a social system. It no longer provides jobs or social security to the people. The economy is mired in stagnation, financialization, and inequality, accompanied by rising unemployment and social unrest. Liberal democracy is on the verge of collapse, with the rise of fascism and other regressive ideologies such as patriarchy, racism, imperialism, and war. These trends are not confined to Germany; they are visible in other advanced capitalist countries as well, where investment stagnation is often punctuated by financial bubbles under the guise of the free market (Siddiqui, 2024c). Despite rising productivity, real wages for most workers in Germany have barely increased in recent decades.
As Karl Marx wrote, “Humanity inevitably sets itself only such tasks as it is able to solve, since closer examination will always show that the problem itself arises only when the material conditions for its solution are already present or at least in the course of formation” (Siddiqui, 2025). The solutions to Germany’s crises lie in the economic, social, and ecological realms. These require rational regulation between human beings and nature, under the control of an associated humanity—one that regenerates and maintains the vital processes of healthy ecosystems at the local, regional, and global levels, ultimately achieving human development and sustainability.
Dr. Kalim Siddiqui is an economist specializing in International Political Economy, Development Economics, Trade and Economic Policy. Since 1989, he has been teaching economics at various universities in Norway and the UK. Dr. Siddiqui’s research interests encompass a wide range of topics, including political economy, international trade, and economic history, South Asia, and emerging economies. He has presented papers at international conferences across numerous countries, reflecting his global engagement in the field. His scholarly pursuits span six broad domains: Political Economy, Development Economics, Economic History, Economic Policy, Globalization, and International Trade. Dr. Siddiqui has made significant contributions to research in areas such as trade policy, globalization, and political economy. His work has been published in chapters of edited books and articles published in peer-reviewed journals. For inquiries, Dr. Siddiqui can be reached at: [email protected]
References
1. Baccaro, L. and Howell, C. (2017) Trajectories of Neoliberal Transformation: European Industrial Relations Since the 1970s. Cambridge: Cambridge University Press.
3. IMF. (2025) World Economic Outlook, January, Washington DC: International Monetary Fund.
4. Siddiqui, K. (2025) “Neoliberalism and the Performance of the UK’s Economy: A Critical Review”, World Review of Political Economy, forthcoming.
5. Siddiqui, K. (2024a) “Climate Change, Capitalism, and Invisible Hands of the Market: A Critical Review” World Financial Review, April.
6. Siddiqui, K. (2024b) “China’s Growth Miracle and Development Strategy Since the 1980s” World Financial Review, December.
7. Siddiqui, K. (2024c) “Deepening Economic Crisis in the Advanced Capitalism” World Financial Review, June.
8. Siddiqui, K. (2023) “Marxian Analysis of Capitalism and Crises” International Critical Thought 13(4):525-545.
9. Siddiqui, K. (2022a) “Ukraine-Russia War and the Impact on the Global Economy” World Financial Review, November-December.
10. Siddiqui, K. (2022b) “Capitalism, Imperialism, and Crisis” European Financial Review, June-July.
11. Siddiqui, K. (2020) “The Rise of the Chinese Economy and Growing Concerns in the United States” World Financial Review, September-October.
12. Siddiqui, K. (2018) “David Ricardo’s Comparative Advantage and Developing Countries: Myth and Reality” International Critical Thought, 8(3):1-28, September.
13. Siddiqui, K. (2015). “Political Economy of Japan’s Decades Long Economic Stagnation” Equilibrium Quarterly Journal of Economic Policy 10(4):9- 9.
Analysing China’s social sector performance is crucial for several reasons. The remarkable achievements in poverty alleviation and healthcare improvements are often overlooked by mainstream economists, particularly the role played by the Communist Party of China (CPC) and its members, as well as the coordinated efforts of government and party officials. The CPC set clear targets, and government and party officials worked with great determination to achieve them. The fact that China managed to accomplish these goals within a remarkably short period is nothing short of a historic milestone – an achievement unprecedented in human history (Siddiqui, 2024a).
This issue is particularly significant because, like many other developing economies, China historically had a large proportion of its population living in poverty. Understanding how China successfully eradicated extreme poverty provides valuable lessons for other developing nations, offering a model that can be adapted to their specific conditions (World Bank, 2022).
When the People’s Republic of China was founded in 1949, the government implemented radical land reforms to dismantle land monopolies and promote greater rural equality. However, despite the abolition of the feudal land system, rural poverty remained widespread due to low agricultural productivity and limited investment in rural development (Siddiqui, 2019a). To address this challenge, in 1978 the Chinese Communist Party endorsed economic reforms and fully supported the government’s decision to open the economy to foreign investment and technology (Jiang and He, 2024).
In 1978, nearly 250 million people in rural China were still living in poverty, with an incidence rate of 30.7% (Office of Household Survey of the National Bureau of Statistics, 2020, p. 294). The highly centralized people’s commune system, while initially aimed at collective development, ultimately constrained economic growth and social progress. It became evident that this system was incompatible with the evolving demands of rural production and economic expansion (CPC, 2021).
According to Chinese official statistics, individuals earning below the poverty line of 2,800 yuan per year account for approximately 0.04% of the population, or 5.51 million out of 1.4 billion people. In 2013, the Chinese government adopted the “Targeted Poverty Alleviation” strategy, which has played a crucial role in achieving substantial progress in poverty eradication (Zhang, 2023).
A key component of this policy is the promotion of private enterprises, which have significantly contributed to employment generation and socio-economic growth.
Aligned with China’s governance structure, President Xi Jinping’s poverty alleviation strategy emphasizes a multifaceted approach. A key component of this policy is the promotion of private enterprises, which have significantly contributed to employment generation and socio-economic growth. At the same time, state-owned enterprises, particularly in China’s major commercial centres, have also focused on raising wages for workers, further supporting national poverty reduction efforts.
II. Poverty Alleviation Measures in China
Over the past 45 years, China’s economic reforms and openness to foreign investment and technology have led to remarkable progress in poverty alleviation. According to the World Bank, nearly 800 million people in China have been lifted out of poverty (as shown in Figures 1a and 1b). On a global scale, this achievement represents an unprecedented large-scale poverty reduction effort, often described as nothing short of a miracle (Siddiqui, 2015).
China’s share of the world’s poor declined dramatically from 46.38% in 1980 to 1.3% in 2016, ultimately reaching zero in 2020 (see Figure 2). As a result, China has contributed more than two-thirds of global poverty reduction and has become the first developing country to achieve the poverty reduction target set by the United Nations Millennium Development Goals (MDGs). These accomplishments have significantly improved real incomes for millions of people and have played a pivotal role in advancing the global fight against poverty.
Over the past few decades, market liberalization and economic reforms have fuelled a dramatic increase in trade, driving unprecedented economic growth in China (Siddiqui, 2009). The government has leveraged rising prosperity and incomes to implement development-driven poverty alleviation strategies, intensifying its poverty reduction efforts in recent years. As a result, China has witnessed a remarkable decline in the number of its impoverished citizens (Jiang and He, 2024).
Based on the poverty standard set by the Chinese government in 2010, the rural poor population fell from 770 million in 1978 to 5.51 million by the end of 2019. Over this period, approximately 760 million rural residents were lifted out of poverty, reducing the incidence of poverty from 97.5% to just 0.6%. Absolute poverty, which was widespread in rural areas 40 years ago, has now been completely eradicated (Zhang, 2023).
At the same time, the income structure of rural residents has steadily improved. The share of property income and transfer income in disposable income increased from 6.3% in 1978 to 26.2% in 2023. Meanwhile, the spending power of rural households rose sharply, driven by expanding employment opportunities in China’s rapidly growing manufacturing sector (Siddiqui, 2024b).
Following the 2008 global financial crisis and a decline in China’s export demand—particularly from advanced capitalist markets-the Chinese government shifted its focus toward public investment in infrastructure and housing. This strategic move led to a significant rise in employment and income levels over the past seventeen years (World Bank, 2022).
Additionally, China has diversified its economy and significantly increased trade and investment in developing countries through the Belt and Road Initiative (BRI). This initiative has further strengthened China’s global economic influence while supporting economic development in other countries (Siddiqui, 2019b).
Figure 2: The Number of Impoverished People and Poverty Incidence from 1978 to 2019.
Sources: National Bureau of Statistics of China, 2020; Sun, 2024.
To eliminate mass poverty and improve the efficiency of rural productive forces, China initiated rural economic reforms, integrating institutional changes into its poverty alleviation strategy. A key component of these reforms was the establishment of the household contract responsibility system (Sun, 2024).
In 1978, a village in Fengyang County, Anhui Province, took the lead in contracting production responsibilities to individual households or groups of households. In September 1980, the CPC Central Committee formally discussed strengthening and refining the system of responsibility for agricultural production, leading to the nationwide promotion of the “contracting production to the household” policy (CPC Central Committee, 1982, p. 546).
These rural policy reforms granted peasants the right to use land for production, clarified basic production relations in the countryside, and significantly enhanced farmers’ motivation for agricultural work. As a result, the development of rural productive forces accelerated, and peasant incomes rose. Additionally, the establishment of a rural market system encouraged rural commodity production and the rapid growth of township enterprises, further boosting farmers’ earnings (The State Council Information Office of the People’s Republic of China, 2009).
In 1980, nearly 97% of China’s population lived in rural areas, with the vast majority in extreme poverty. Even in urban areas, the poverty rate was as high as 70% of the total urban population. However, the introduction of the household contract responsibility system in the rural sector marked a turning point, stimulating farmers’ interest in economic reforms and allowing them to capitalize on new opportunities. Since then, rapid economic growth has enabled hundreds of millions of people to escape extreme poverty, migrating from villages to cities in search of employment. Additionally, agricultural production increased, leading to higher farmer incomes and improved living standards (Sun, 2024).
Between 1986 and 1993, the Chinese government launched large-scale, development-based poverty alleviation initiatives. As anti-poverty efforts intensified, the nature of China’s poverty problem evolved from widespread deprivation to regional disparities, shifting the government’s approach from relief-based assistance to development-oriented strategies (World Bank, 2022).
In 1994, the government introduced the “National Seven-Year Plan of Poverty Alleviation for 80 Million People.” This plan provided a comprehensive assessment of poverty at the time, outlining clear goals, guidelines, and strategies, as well as defining the methods for fund allocation and implementation (Zhang, 2023).
A new phase of poverty alleviation and development began between 2001 and 2012. In 2001, the government adopted the “Outline of China’s Rural Poverty Alleviation and Development Program (2001–2010),” aimed at accelerating poverty reduction in impoverished regions and further advancing the country’s anti-poverty efforts (Office of Household Survey of the National Bureau of Statistics, 2015, p. 112).
While widespread poverty that had persisted for decades was greatly alleviated, impoverished populations became increasingly concentrated in western provinces and remote rural areas.
Between 1985 and 1993, the government significantly increased funding for poverty reduction programs, leading to substantial improvements. While widespread poverty that had persisted for decades was greatly alleviated, impoverished populations became increasingly concentrated in western provinces and remote rural areas. During this phase, the government shifted its focus from assisting poor regions to targeting individual households, addressing their specific socio-economic conditions to ensure more effective poverty reduction (Sun, 2024).
From 1980 to 2022, China underwent a series of economic reforms, with the Chinese Communist Party (CPC) playing a leading role in both mobilizing and implementing these reforms to achieve its poverty alleviation targets. The bureaucracy and the Party worked in coordination to meet projected goals for economic development and poverty reduction. The government defined its primary objective as “unleashing and developing the productive forces, lifting the people out of poverty, and helping them achieve prosperity in the shortest time possible” (CPC Central Committee, 2021).
As a result, China has witnessed a remarkable decline in the number of impoverished citizens. Based on the poverty standard set by the Chinese government in 2010, the number of rural poor fell from 770 million in 1978 to 5.51 million by the end of 2019. Over this period, approximately 760 million rural residents were lifted out of poverty, reducing the poverty incidence from 97.5% to just 0.6%. Absolute poverty, which was widespread in rural areas 40 years ago, has now been completely eradicated (Zhang, 2023).
China’s approach to poverty reduction has evolved from a quantitative focus—reducing the sheer number of impoverished individuals—to a qualitative approach aimed at improving overall living standards. Driven by economic growth and wealth creation, the effectiveness of rural poverty alleviation is reflected in the significant rise in rural income levels and the continuous optimization of income structures. Between 1978 and 2023, the real per capita disposable income of rural residents increased more than 162 times, rising from 133.6 yuan (measured at 1985 price levels) to 21,691 yuan (Zhang, 2023).
III. Improvements in the Health Sector
China’s healthcare system demonstrated remarkable efficiency during the COVID-19 pandemic, providing free services including testing, vaccines, and treatment. In contrast, many advanced capitalist economies struggled to respond effectively to the medical needs of their populations during the crisis. The pandemic highlighted the limitations of market-driven healthcare systems, particularly in delivering services to low-income groups, whereas state intervention policies proved far more effective in ensuring universal access to healthcare under such conditions (Siddiqui, 2020a).
During the COVID-19 outbreak, China’s healthcare performance compared favourably to that of the United States, where health services struggled to cope with the crisis. China’s effective health delivery system was further strengthened by increased government spending, leading to the expansion of medical insurance coverage and improved access to healthcare resources across the country.
Historically, China’s healthcare system was shaped by the Soviet developmental model. In the 1950s, the system was primarily designed to support rapid industrialization, leading to an urban bias in healthcare services. In 1951, the government established labour health insurance exclusively for urban industrial workers, leaving rural farmers—who made up 90% of the population—without coverage. This urban-centric policy continued until the 1970s, exacerbating health inequalities between urban and rural areas (Siddiqui, 2021).
During the Great Leap Forward and the famine (1959–61), total grain output plummeted, resulting in widespread food shortages and a significant increase in mortality rates. Recognizing the urgent need for rural healthcare, the government launched the Rural Cooperative Medical System in 1965 and deployed barefoot doctors—community health workers—based on their willingness to serve rural populations. This initiative brought substantial improvements in public health outcomes. Between 1965 and 1975, life expectancy at birth in China increased from 49.5 to 63.9 years, while the child mortality rate (under five years old) dropped from 210 to 100 per 1,000 live births.
By the early 2000s, only about 25% of the Chinese population had some form of health protection—with coverage rates of 50% in urban areas and just 10% in rural areas. The majority of people lacked health insurance and had to pay out-of-pocket for medical expenses. Recognizing these shortcomings, the government acknowledged in 2005 that market-driven health sector reforms had been “unsuccessful.” In response, it launched an expanded health insurance program, significantly increasing coverage in rural areas. As a result, health insurance coverage rose dramatically from 22.1% in 2000 to 95.1% in 2022. Moreover, government spending on healthcare increased substantially as a share of total health expenditures.
Between 2012 and 2022, China’s infant mortality rate was cut in half, declining from 10.6 to 5.0 per 1,000 live births. Public healthcare spending per capita nearly doubled, rising from US$167.74 to $304.16 (in constant 2015 US dollars) between 2012 and 2020, while its share of GDP increased from 2.53% to 3%. These investments led to substantial improvements in healthcare infrastructure: Hospital beds per 1,000 people increased by 48.6%, from 4.24 to 6.3. Healthcare workers per 1,000 people increased by 36.7%, from 5.3 to 7.3. Health insurance coverage expanded from 95.6% of the population in 2013 to 97.1% in 2018.
Despite these advancements, China’s government spending on healthcare remains low compared to that of advanced capitalist countries (Siddiqui, 2020b). Due to insufficient public funding, out-of-pocket expenses continue to place a financial burden on many citizens, particularly low-income and disadvantaged groups. Between 2012 and 2019, medical costs as a share of total household consumption increased from 6.4% to 8.1% for urban households and from 8.7% to 10.7% for rural households (China Statistical Yearbook, 2020).
Figure 3: Medical Spending as a Percentage of Total Consumption, 1992–2020.
Source: National Bureau of Statistics, China Statistical Yearbook (Beijing: China Statistics, 2020).
IV. Market Reforms in China’s Public Health System
In the late 1970s, China implemented market reforms in its public hospitals, paralleling the reform of state-owned enterprises. Under these reforms, public hospitals were allowed to retain profits for purposes such as employee bonuses and collective welfare expenses, effectively linking doctors’ incomes to the economic performance of hospitals. It was argued that without connecting revenue generation to hospital performance, it would be impossible to establish effective competition and incentive mechanisms, and the quality of health services would inevitably decline.
Since then, China’s public hospitals—which make up the majority of hospitals in the country—have largely operated under “self-funded, for-profit” principles, similar to private hospitals. Their main sources of revenue are government insurance and out-of-pocket payments from patients, which cover medical procedures and prescribed medications. Direct government funding now plays a minor role in their finances. For example, in 2002, government budgetary allocations accounted for only 7.5% of the total revenue of government hospitals. By 2019, this figure rose slightly to 9.7%, though it still only covered 28.3% of personnel expenses. This means that nearly 90% of a public hospital’s revenue—and more than 70% of its wage bill—is generated from the sale of checkups, procedures, drugs, and medical consumables.
To sustain a healthy population and workforce, China must continue to adapt its health sector to meet evolving environmental conditions and public health demands.
Healthcare is a critical component of a nation’s overall health and well-being. Improved health outcomes not only enhance the quality of life but also increase labour force productivity, which in turn boosts national output and reduces welfare spending. Despite nearly universal health insurance and improved access to healthcare resources in China, there has been deterioration in some of the country’s major health indicators. Notably, the rise in chronic diseases among younger cohorts deserves focused attention. Medicine alone is insufficient to address these chronic health challenges; health programs focusing on behavioural and lifestyle modifications are also necessary.
On a positive note, China’s public health has benefited greatly from its unique institutional infrastructure. A 2019 study published in the Proceedings of the National Academy of Sciences found that China successfully reduced excess deaths attributable to particulate matter by 370,000, or 92% of the total avoided deaths in 2017. This achievement was the result of a series of stringent measures implemented since 2013, including strengthening industrial emission standards, upgrading industrial boilers, phasing out outdated industrial capacities, and promoting clean fuels in the residential sector.
To sustain a healthy population and workforce, China must continue to adapt its health sector to meet evolving environmental conditions and public health demands. This includes addressing a wide range of health determinants, such as working conditions, housing, income inequality, gender issues, fiscal austerity, and deregulation.
V. Conclusion
China has achieved a monumental breakthrough, transitioning from a period of economic backwardness and poor living conditions to becoming the second-largest economy in the world. The country has seen a remarkable improvement in its people’s living standards – once a population struggling to meet basic needs, China now has a generally well-off population with aspirations to improve all aspects of life (Siddiqui, 2024c).
However, significant challenges remain. By the end of 2010, according to 2008 poverty standards, 26.9 million people in rural China were still living in poverty, with an incidence rate of 2.8% (Office of Household Survey of the National Bureau of Statistics, 2015).
This study finds that, in global terms, China’s poverty alleviation efforts are unparalleled in human history. The country has contributed more than two-thirds to global poverty reduction and is the first developing nation to achieve the poverty reduction target outlined in the UN Millennium Development Goals. This accomplishment represents an extraordinary achievement by any government—successfully transforming the lives of millions and improving their quality of life and income. It is a testament to the power of policy-driven change and deserves global recognition.
Karl Marx argued that capitalist systems, based on private ownership of the means of production, inherently prioritize profit maximization and wealth accumulation, which leads to poverty and increasing economic inequality. Marx believed that true poverty elimination could not occur within the capitalist framework, and that only through sweeping away existing societal structures, institutions, and modes of production could poverty be eradicated at its root. In Marx’s anti-poverty theory, he proposed that the establishment of socialist public ownership – based on public control of the means of production – could overcome the systemic limitations of neoliberalism, offering a solution to poverty.
Dr. Kalim Siddiqui is an economist specializing in International Political Economy, Development Economics, Trade and Economic Policy. Since 1989, he has been teaching economics at various universities in Norway and the UK. Dr. Siddiqui’s research interests encompass a wide range of topics, including political economy, international trade, and economic history, South Asia, and emerging economies. He has presented papers at international conferences across numerous countries, reflecting his global engagement in the field. His scholarly pursuits span six broad domains: Political Economy, Development Economics, Economic History, Economic Policy, Globalization, and International Trade. Dr. Siddiqui has made significant contributions to research in areas such as trade policy, globalization, and political economy. His work has been published in chapters of edited books and articles published in peer-reviewed journals. For inquiries, Dr. Siddiqui can be reached at: [email protected]
2. Office of Household Survey of the National Bureau of Statistics (2020) Peoples Republic of China.
3. Jiang, Y. and He, Y. (2024) “The Process, Characteristics and Prospects of the Century-Long Fight against Poverty by the Communist Party of China” International Critical Thought, 14(3):339-360.
4. Siddiqui, K. (2024a) “China’s Growth Miracle and Development Strategy Since the 1980s”, World Financial Review, December.
5. Siddiqui, K. (2024b) “The BRICS Expansion and the End of Western Economic and Geopolitical Dominance”, World Financial Review, November.
6. Siddiqui, K. (2024c) “Impact of Population Changes and Economic Growth in China and India”, World Financial Review, November.
7. Siddiqui, K. (2021). “The Political Economy of Industrial Policy” World Financial Review, May-June.
8. Siddiqui, K. (2020a) “The Impact of Covid-19 on the Global Economy” World Financial Review, May-June.
9. Siddiqui, K. (2020b) “The Rise of the Chinese Economy and Growing Concerns in the United States” World Financial Review, September-October.
10. Siddiqui, K. (2019a). “Economic Transformation of China and India: A Comparative Political Economy Perspective” Asian Profile, 47(3):243-259.
11. Siddiqui, K. (2019b). “One Belt and One Road, China’s Massive Infrastructure Project to Boost Trade and Economy: An Overview” International Critical Thought 9(2):214 – 235.
12. Siddiqui, K. (2015). “Perils and Challenges of Chinese Economic Development”, International Journal of Social and Economic Research 5 (1):1-56.
13. Siddiqui, K. (2009). “The Political Economy of Growth in China and India”, Journal of Asian Public Policy 1(2):17-35.
14. Sun, Y. (2024) “China’s Achievements of Poverty Alleviation, and the Prospects for the Anti-poverty Battle” International Critical Thought, 14(3):361-377.
President Donald Trump escalated tensions with Ukraine by calling President Volodymyr Zelensky a “dictator” during a speech in Florida. His remarks followed Zelensky’s criticism of recent U.S.-Russia talks in Saudi Arabia, from which Ukraine was excluded, accusing Trump of operating in a “disinformation space” influenced by Moscow.
Trump claimed Zelensky “played Joe Biden like a fiddle” and accused him of refusing elections, despite Ukraine being under martial law since Russia’s invasion in 2022. European leaders, including German Chancellor Olaf Scholz and UK Prime Minister Sir Keir Starmer, condemned Trump’s remarks, defending Zelensky’s democratic legitimacy.
Zelensky, whose term was set to end in May 2024, reiterated that elections during wartime were impractical. He is set to meet U.S. envoy Keith Kellogg to discuss continued cooperation.
Meanwhile, Trump continued his attacks on social media, blaming Ukraine for the war and alleging Europe had “failed to bring peace.” He also criticized Ukraine’s handling of rare-earth minerals, suggesting a broken deal.
Russian President Vladimir Putin welcomed Trump’s comments, while EU leaders vowed new sanctions against Russia. Despite Trump’s claims of Zelensky’s unpopularity, polls show the Ukrainian leader still holds majority support at home.
In the rapidly evolving financial landscape, investors are increasingly looking for models that offer both transparency and sustainable returns. Traditional financing structures, such as venture capital and debt financing, often come with high risk, extended time horizons, and limited liquidity. Revenue-Based Financing (RBF) is emerging as a compelling alternative, offering predictable returns tied to company performance rather than equity dilution or rigid repayment schedules.
DFI CAPITAL has integrated this approach into its investment strategy, creating an ecosystem where investors benefit from a structured and performance-driven financial model. Unlike conventional models that rely solely on market speculation or long-term appreciation, DFI CAPITAL’s model ensures that investors see consistent revenue distribution directly linked to the financial performance of the companies in which they invest.
By implementing RBF, DFI CAPITAL offers a framework where 95% of the generated revenue is allocated to DFI Capital as interest and profit, while 5% is retained by the company for growth and innovation, reinforcing its commitment to a fair and advantageous investment structure.
Why Revenue-Based Financing is Reshaping Investment Strategies
RBF presents a scalable and risk-mitigated approach to investing. This model is built on a performance-based revenue-sharing structure, which means that companies return a portion of their earnings to investors, directly aligning financial incentives.
The Key Advantages of RBF Include:
✔ Risk Mitigation: Investments are linked to tangible revenues, rather than uncertain equity appreciation.
✔ Regular and Transparent Returns: Instead of waiting for an exit event, investors receive earnings consistently as businesses generate revenue.
✔ Aligned Interests: Both investors and companies share the same financial objectives, creating a model that encourages long-term stability and profitability.
Traditional equity financing often places pressure on companies to pursue rapid, sometimes unsustainable growth to satisfy investor expectations. Conversely, RBF structures allow businesses to scale organically, while investors benefit from recurring revenue flows.
Net Asset Value (NAV) and Intraday Strategies
To further enhance the predictability and security of its investment model, DFI CAPITAL utilizes advanced NAV (Net Asset Value) calculations and intraday trading strategies. NAV serves as a critical metric in measuring the true value of portfolio assets, ensuring greater transparency and informed decision-making.
How NAV and Intraday Strategies Strengthen Investment Security:
Continuous Performance Monitoring: NAV updates in real-time, allowing precise tracking of investment growth and risk exposure.
Optimized Trading Operations:DFI CAPITAL employs proprietary intraday strategies to adjust portfolio allocations dynamically, capitalizing on market fluctuations while minimizing downside risk.
Reduced Volatility: Strategic real-time adjustments help maintain portfolio stability, reducing exposure to extreme market swings.
“Our goal is to simplify complex financial mechanisms, making them accessible, transparent, and efficientfor all investors, regardless of experience,” says Stefano Cammarano, CEO of DFI CAPITAL.
A Secure and Regulated Investment Ecosystem
DFI CAPITAL’s commitment to investor protection extends beyond financial strategy. The firm has established strategic partnerships with leading industry entities to create a secure and well-regulated investment environment.
Strategic Partners Enhancing Investment Security:
Ancova Capital Management – Providing institutional-grade risk assessment and portfolio oversight.
NAV Fund Services – Ensuring accurate valuation and independent fund administration.
FinCode FZCO – Implementing cutting-edge financial technology solutions to optimize execution and security.
This network of regulated financial partners reinforces DFI CAPITAL’s mission to deliver a reliable and high-performance investment structure, allowing investors to operate with confidence and security.
The Future of Transparent and Sustainable Investment
As financial markets evolve, investors are seeking models that balance risk, liquidity, and transparency. Revenue-Based Financing has emerged as one of the most innovative solutions, offering predictable returns while reducing speculative exposure.
By integrating RBF with NAV-based investment strategies and robust regulatory partnerships, DFI CAPITALprovides a structured, secure, and performance-driven financial model. This approach not only enables greater investment accessibility but also ensures sustainability and long-term wealth generation.
For those looking to engage in a data-driven, transparent, and scalable investment ecosystem, DFI CAPITALrepresents a forward-thinking choice in modern finance.
US tariff wars have begun, broadening from US’s biggest trade partners to huge industry sectors, the EU and the entire world. The stakes are now global.
After the first Trump tariffs targeted the big US trade partners – Mexico, Canada and China – tariff threats are shifting from steel and aluminum to computer chips and pharmaceuticals, the European Union; even the world.
The US also has a major trade deficit with multiple trading economies, including Germany, Japan, South Korea and Vietnam, which are likely to be next in the firing line.
Tariff is a tax levied on imported goods and services. Yet, the Trump administration has shuffled aside concerns about these levies fostering inflation or snarling global supply chains. That’s a serious mistake. In the US, wholesale prices are already rising on higher food and energy costs, adding to the growing pile of bad inflation news ahead of more US tariffs. Internationally, these risks are real, costly, and huge.
China’s stabilizing economy
As the tariff wars begin, China’s economy has showed progressive signs of stabilization since the fourth quarter of 2024, as the impact of the November stimulus measures has kicked in. In the period, growth accelerated from 4.6% to 5.4% with annualized 5.0% last year. Hence, too, the recent upgrade of China’s GDP growth by the International Monetary Fund.
What’s fueling these gains? Industrial production has proved resilient on the back of both domestic and international demand, particularly in electric cars and solar cells. The most prominent part of the growth story is the strong expansion of China’s advanced technology, electronics and automobiles; and the pace in industrial robotics is almost as strong. Meanwhile, consumption has been fueled by equipment and durable goods upgrade.
Two main challenges remain. At home, the nearly 11% fall in real estate investment suggests property markets are still ailing. But in 300 Chinese cities, the decline of residential inventory is slowing.
The external challenge involves the impending trade/tech wars that the Trump administration initiated in 2017, the Biden administration expanded and the new Trump White House is broadening and escalating worldwide.
Tariffs as economic coercion in the Americas
On February 1, President Trump imposed 25% tariffs and 10% duties on energy products on Canada and Mexico, and 10% tariffs on China. These are America’s greatest trade partners and the US has a trade deficit with each. These tariffs alone would cost an average US household over $1,200 a year.
Starting with the heated US exchanges with Colombia, the White House used US economic muscle hoping to push Canadian Prime Minister Justin Trudeau and Mexico’s President Claudia Sheinbaum into a US-controlled North American bloc against China. Hence, too, Secretary of State Marco Rubio’s pressure over Panama and President José Raúl Mulino’s decision to end a key development deal with China, to avoid the US threat to retake Panama Canal by force.
After talks, levies against Canada and Mexico will be delayed for 30 days. Yet, the proposed tariffs on Canada and Mexico would reduce long-run GDP by 0.3%, the imposed tariffs on China by 0.1%, and the proposed expansion of steel and aluminum tariffs by less than 0.05%, by some estimates. But as foreign retaliations kick in, so will these numbers change again.
Moreover, a trade war between the US and its two largest trading partners would penalize US income, hurt employment and accelerate inflation.
As Trump’s tariffs went into effect against China, Beijing announced a broad package of economic measures on February 10 targeting the US – and more will follow if needed.
Huge costs of unwarranted tariffs
Half a decade ago, Trump tariffs on imports from China accounted for $396 billion or more than 90% of the trade affected. Yet, the first round of the Trump tariffs with Canada, Mexico and China alone would cover far more trade in dollar value.
Trump’s four tranches of tariffs on Chinese goods in 2018-19 covered imports valued at $360 billion at the time. Today Canada and Mexico and China supply more than two-fifths of all US imports. New tariffs on the two countries plus additional tariffs on China could cover imports valued at over $1.3 trillion in 2023. That’s over 3.5 times more than half a decade ago.
It is just the opening salvo in a series of US tariff moves anticipated in the coming weeks. Factor in the potential/likely retaliation rounds by US tariff targets and the Trump administration’s new “reciprocal tariff” plan, and the final toll could prove far higher.
The darkened global economic prospects
Ironically, US tariffs are legitimized by a flawed victimization narrative in which America is depicted as a target of wrongful economic and geopolitical measures. In reality, the imposed tariff levels are about geopolitical coercion, not about economic facts.
The threatened wave of tariffs could worsen trade tensions, lower investment, hit market pricing, distort trade flows, disrupt supply chains and undermine consumer confidence. And that’s just an overture for what could ensue in the next four years.
We are in for a far costlier, global déjà vu all over again.
The original commentary was published by China Daily on February 20, 2025.
Dr. Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/
In a significant shift from previous U.S. policy, President Donald Trump’s administration held high-level talks with Russia in Riyadh on Tuesday, leaving Ukraine and NATO allies out of the negotiations. The move has raised concerns that Washington may be willing to offer concessions to Moscow at the expense of Kyiv’s sovereignty and European security.
Trump’s remarks further inflamed tensions, as he falsely claimed Ukraine “started the war” and referred to President Volodymyr Zelenskiy as a “dictator without elections.” His administration’s decision to exclude Ukraine from the discussions marks a stark departure from the Biden-era stance of “nothing about Ukraine without Ukraine.”
The talks, led by a relatively inexperienced U.S. team, resulted in agreements to restore diplomatic functions and set up future negotiations. However, there was no indication that Russia had made any concessions in return. European leaders, alarmed by Trump’s approach, are now discussing the possibility of deploying peacekeepers, though Russia has rejected the idea.
Trump has signaled his intent to meet with Russian President Vladimir Putin later this month, further stoking fears that his administration may be willing to accept a settlement that cements Russian territorial gains. Critics, including U.S. lawmakers and foreign policy experts, warn that such an outcome could embolden Moscow and undermine global security
A Covid hangover combined with more persistent economy-sapping problems are likely to see governments in the West losing power in elections across 2025, just as they did last year. And unless incumbents manage to tackle the root causes of incumbency curse, it could be around for some time.
All the signs are that administrations in Canada, Germany, Central and Eastern European countries, and possibly Australia, will share similar electoral fates as those of South Korea, France, the United Kingdom and the US – all defeated at the ballot box in 2024, a year that witnessed an unprecedented number of polls around the world.
Voter disquiet over economic issues, seized upon by many resurgent populist and conservative opposition forces, were key to bringing about the changes in leadership last year and will most probably determine the outcome of ballots over the course of the coming months, possibly even those scheduled for early next year.
Governments opened the fiscal spigots in 2020 to get their countries through the pandemic.
Governments opened the fiscal spigots in 2020 to get their countries through the pandemic. Few got the electoral benefit for doing so. They have since struggled to claw back the debt, which has slowed recovery and worsened deeper economic ills, such as sustained sclerotic growth and productivity that has plagued western countries ever since the global financial crisis.
At the same time, a surge in inflation, driven by Covid-era supply chain disruption and the Ukraine war-generated energy crisis, exacerbated cost-of-living grievances and longstanding immigration concerns – for which incumbents, many long in power, and looking weary if not exhausted, had little answer.
Populists put incumbents on backfoot
Untainted by spells in government during high inflation, parties of the right could credibly advance agendas that largely spoke to these concerns, including calls for an end to the Ukraine war, big curbs on immigration and stopping the dash to decarbonise. The solutions, though untested, put incumbents on the backfoot, and made them look ineffectual. Ultimately, this contributed to their demise. And could be their counterparts’ undoing this year as well.
In Germany, a very unpopular Social Democrat-led government appears on the way out, with the economy in the doldrums. In Canada, the long-in-the-tooth ruling Liberal Party is set to be taken to the woodshed by voters, having overseen a very difficult few years. Opposition parties of the right are forecast to get the most votes in Norway’s election. The country most likely to buck the trend is Australia, where the governing Labor Party might survive – but it will be a close-run thing.
In elections across Central and Eastern Europe, anti-establishment and Ukraine-sceptic parties pose a serious challenge to incumbents.
In elections across Central and Eastern Europe, anti-establishment and Ukraine-sceptic parties pose a serious challenge to incumbents. While the latter won’t always lose, they may see their vote share decline significantly, causing administrative instability and cohabitation troubles in the region’s governing coalitions.
Following last year’s allegations of Russian interference, a re-run of the Romanian presidential elections could see victory for a controversial right-wing candidate, even after his surge in popularity in last year’s poll led to its annulment. A presidential ballot in Poland, meanwhile, is too close to call. If the reformist government cannot win, it will be hamstrung. And in parliamentary elections in the Czech Republic and Moldova, right-wing opposition parties are expected to win in the former and come close to doing so in the latter.
The flagging electoral fortunes of western governments, so manifest last year, look set to persist this year because incumbents are struggling to revive economic growth. They got no credit for shielding their countries from the worst of the pandemic. And when inflation surged, Central Banks could only respond by seeking to suffocate demand through higher borrowing costs, alienating voters. They couldn’t tackle the causes of inflation by boosting the supply of grain or gas.
Over the course of 2025, the Covid hangover will likely start wearing off – a little at least – possibly improving the electoral prospects of incumbents in polls later in the year. But not by much. That’s because residual structural problems of low growth and productivity show little or no sign of diminishing, exacerbated by the West’s ongoing demographic crisis. Low birth rates and falling fertility is reducing the pool of workers, which in turn is shrinking the tax base, putting a huge strain on finance ministries, already finding it hard to support ageing citizens.
The resort to immigration
Western governments have been looking to solve the workforce puzzle through technology – notably automation and generative AI – and investment in skills-based training. But, under pressure from perennially short-staffed industries keen on immediate solutions, most governments have resorted to immigration to boost economies. Populists and centre-right parties capitalised on social tensions over migrants in their electoral campaigns last year and will doubtless do the same this year.
In response, incumbents are being pressed to reverse course on immigration. Many already have. Some might prefer a pivot to smart, selective immigration, like the points-based system in Australia. But at the moment, it’s hard to find a European politician willing to make the argument for such policies, probably because the migrant issue has become too divisive. Even Canada is closing its traditional open door. Moreover, it’s not even clear that immigration is a GDP growth booster at present. Britain has received record numbers of migrants recently but is a growth laggard.
As the Covid hangover eases over the course of the year, governments will still be left to deal with more structural economic problems, notably persistently low growth.
If immigration weren’t enough of a thorny issue, there’s another – decarbonisation. While the US under Trump has, once again, abandoned Net Zero, western countries remain committed to the target and their electorates are broadly in favour. But the process of decarbonisation can generate public resentment and opposition, if for instance it raises household costs (some renewable energy sources), causes inconvenience (ultra-low emission zones) or is seen to blight the landscape (onshore wind farms). Just as with immigration, stirrings of dissent are red meat to the populist right who oscillate between de-prioritisation to disavowal of decarbonisation.
As the Covid hangover eases over the course of the year, governments will still be left to deal with more structural economic problems, notably persistently low growth. Alert to the political perils of immigration, some have been exploring other means of re-energising their workforces. The UK is focusing on stemming economic inactivity. Japan has for some time tried to boost female workplace participation. While decarbonisation will ultimately boost economic expansion, some European governments are backpedalling on the greening of their economies, worried about costs and the reliability of renewable energy supply.
They are, it seems, a long way from resolving the growth conundrum. Not that the parties of the right challenging them at the ballot box are closer to doing so. Indeed, those that came to power in 2024 and the ones that do so this year, could in time face the incumbency curse that did for the governments they replaced.
By Terence Tse
CFOs are evolving into AI-driven transformation orchestrators, balancing finance, technology, and strategy while upskilling teams, managing risks, and driving measurable business value.
A key insight from this year’s AI for CFOs event, organized...
The World Financial Review uses cookies to improve site functionality, provide you with a better browsing experience, and to enable our partners to advertise to you. Detailed information on the use of cookies on this Site, and how you can decline them, is provided in our Privacy Policy and Terms and Conditions. By clicking on the accept button and using this Site, you consent to our Privacy Policy and Terms and Conditions. ACCEPT
Privacy & Cookies Policy
Privacy Overview
This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
Christopher Burke is a senior advisor at WMC Africa, a communications and advisory agency in Kampala, Uganda. He has over 25 years’ experience working on a range of issues in social, political and economic development with a strong focus on governance, environmental issues, renewable and non-renewable extractives, international relations and peace-building based in Asia and Africa.
Rathi Mani-Kandt
Gilles Paché
Dr. Kalim Siddiqui
Nick Redman
