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Fragile ceasefire agreements have broken down between Israel and Hamas in Gaza and come under pressure with Hezbollah in Lebanon. This has led to a renewed Israeli air and ground campaign in Gaza, where Israel now controls more than 50% of territory. In Lebanon, both Israel and Hezbollah have accused each other of ceasefire violations. Yemen-based Houthis have also resumed targeting Israeli and U.S. assets, leading to the largest U.S. retaliatory strikes to date. Iran and its proxies and partners remain significantly diminished, with Iran weaker than it has been in decades. The U.S. and Iran are working towards reaching a new nuclear deal, with President Trump threatening military action if Iran fails to negotiate. In Syria, the fall of the Assad regime is one of the most significant events in the region in decades – and a major blow to Iran’s regional position and to Russia’s role in the Middle East. We are watching closely as Syria’s domestic consolidation and foreign relations take shape, and note President Trump is slated to visit the Gulf in mid-May.
In the wake of U.S. trade actions, U.S.-China relations are in their most difficult position since the establishment of formal relations in 1979. The U.S. national security team holds hawkish views on China and is committed to countering China in the Indo-Pacific. Military tensions may be poised to escalate, in our view. China continues extensive and aggressive naval exercises near and around Taiwan, most recently in early April. In the South China Sea, frictions between China and the Philippines continue to pose a meaningful risk of miscalculation or accident. U.S. Defense Secretary Pete Hegseth recently visited Manila and said Washington would be “doubling down” on its defense partnership. The nuclear area could be an emerging risk area, as China aims to match the U.S. and Russia in terms of operational nuclear weapons by the end of the decade.
AI is at the center of U.S.-China strategic competition. The Trump administration has emphasized AI leadership as key for U.S. economic and national security and sees the contest as zero sum. The U.S. strategy has been to protect and extend its AI lead, in part by denying China access to advanced tech and hardware and concentrating the AI buildout in the U.S. – though U.S. tariffs may raise construction input costs. We expect the administration to keep focusing on export controls (recently tightened to include NVIDIA H20 chips), data security and increasingly biotech to counter the China tech challenge. The National Security Commission on Emerging Biotechnology recently released a report to Congress calling for expanded export controls and outbound investment restrictions in the sector, and we are watching for legislative proposals to this effect. We are also monitoring what the Trump administration will decide on the AI Diffusion Rule – a global framework set forth by the Biden administration to determine who gets advanced chips and under what terms – before a May 15 deadline.
Mounting geopolitical competition is causing cyber attacks to increase in scope, scale and sophistication. Around the world, new AI technology has enabled more adaptable and destructive malware capable of rendering current security tools ineffective. A proliferation of new AI models has also raised concerns over their vulnerability to hacking and manipulation, prompting alarm in national security circles. State-backed hacking remains a significant risk that is increasingly centered on political espionage, infecting critical infrastructure with malware and the industrial-scale theft of intellectual property. State-backed operations surged last year, with some critical industries seeing a 300% spike in targeted attacks, according to CrowdStrike’s 2025 Global Threat report. We are also focused on threats to cloud infrastructure and the potential for cyber risks to increase in conflict zones and election cycles.
The threat of terrorism against U.S. interests remains at an extraordinarily high level. Al-Qaida and the Islamic State have demonstrated persistent motivation to conduct and inspire attacks abroad in recent years, as seen in January’s Islamic State-inspired terrorist attack in New Orleans. We see risks stemming from instability in the Sahel, the reconstitution of extremist groups in the Middle East and individuals motivated by events abroad to attack the U.S. We also worry about terrorists’ ability to leverage emerging technology such as drones and 3D printing for malicious purposes. Trump designated certain drug cartels as foreign terrorist organizations in February and has used this designation to justify elements of his immigration policy. He also redesignated the Houthis as a foreign terrorist organization in January. The continued U.S. campaign of airstrikes against the group is the new administration’s most forceful military action to date.
As the world faces a new era of global trade confrontations (see our Global trade protectionism risk), emerging market economies are poised to experience different outcomes based on their underlying economic structures and trade relationships. Export-dependent economies will face the greatest pressure, we think, with currency realignment likely serving as the primary adjustment mechanism. As the U.S. conducts a series of trade negotiations before the 90-day “reciprocal” tariff pause expires, many emerging market countries are avoiding retaliation and looking to reach quick deals with the U.S. Southeast Asian economies are in a particularly challenging position, given close ties to China, reliance on the U.S. market and high levels of exposure to U.S. sector-specific tariffs on areas like autos, steel, aluminum, semiconductors and pharmaceuticals – both imposed and likely to come. Latin America, by contrast, is positioned quite well. China’s continued export of industrial overcapacity remains a particular concern for countries poised to receive additional Chinese trade flows diverted from the U.S.
North Korea has taken a series of escalatory actions that risk greater tension in and beyond the Asia Pacific region. These include renunciation of peaceful reunification with South Korea as a key policy goal and the deployment of munitions and troops to directly support Russia in its war against Ukraine. Meanwhile, North Korea’s nuclear program continues unabated. Trump has said he would reach out to Kim Jong Un and may seek to again moderate North Korea through personal diplomacy. A victory for South Korea’s center left party in June elections could prompt Seoul to diplomatically reengage Pyongyang as well. Compared with Trump’s first term, North Korea is emboldened by its stronger relationships with Russia and China as well as its own military advances. As a result, it may be less inclined to seek better relations with the U.S.
We’ve seen a fundamental reordering of the U.S.-Europe relationship since the start of the second Trump administration. The U.S. has indicated that Europe would no longer be a primary security priority, applied large-scale tariffs and is pursuing a direct relationship with Russia. In response, we’ve seen unprecedented action to construct an independent European defense capability and pursue an accelerated economic reform program. Germany has announced significant defense and infrastructure investments, and the EU has unveiled new measures to help member states ramp up defense spending as well. Europe also coordinated a joint response to Trump’s 25% steel and aluminum tariffs, though this and other potential retaliatory measures are on pause while the U.S. and Europe seek to negotiate a trade agreement. The breach with Europe represents a sharp departure in U.S. foreign policy, and we expect to see continued separation on issues including defense, trade, technology, climate and ideology. While these changes have boosted European unity in the short-term, the risk of longer-term breakdown remains – for Europe as a whole and also for European governments, many of which became fragmented after a series of elections in 2024.