Editor-in-Chief Atul Singh and FOI Senior Partner Glenn Carle, a retired CIA officer who now advises companies, governments and organizations on geopolitical risk, survey a turbulent opening to 2026 marked by accelerating geopolitical fragmentation and mounting institutional strain. From trade diplomacy and military posturing to domestic unrest and market volatility, January offered an early snapshot of a world adjusting to a more confrontational and transactional international environment.
In this portion of the January 2026 episode of FO Exclusive, Singh and Carle trace how governments, markets and institutions are responding to rising uncertainty. Their analysis connects Europe’s trade hedging, unrest in Iran, political reckonings across Asia and Africa, intensifying US immigration enforcement and warning signs from global markets into a single pattern: a steady erosion of predictability as power, rather than rules, increasingly shapes outcomes.
Trade hedging and the rewiring of global commerce
January 2026 opened with evidence that governments were hedging against a more protectionist United States. The EU signed a trade agreement with India, timed to New Delhi’s Republic Day celebrations on January 26. This deal symbolically underscored political alignment alongside economic integration. Earlier, the EU finalized another trade deal with the South American trade bloc, Mercosur (meaning, “Southern Common Market”) — comprising Argentina, Brazil, Paraguay, Uruguay and Bolivia — to lower tariffs and deepen access to commodity and industrial markets. In both cases, analysts widely interpreted the agreements as insurance against US tariffs imposed under US President Donald Trump.
Strategic timing makes these deals notable. They reflected a growing determination among major economies to reduce reliance on a single market whose trade policy had become unpredictable. They are treating trade diversification as a form of geopolitical risk management.
That same logic appeared clearly in global trade data. China reported a record $1.2 trillion trade surplus in 2025. Chinese exports to the US fell by 20%. In 2025, only 11% of Chinese exports went to America — the lowest share since the 1990s — as trade pivoted toward Africa (up by 26%), the Association of Southeast Asian Nations (up by 13%) and the EU (up by 8%). Rather than collapsing under tariff pressure, Chinese manufacturing reoriented geographically, revealing the limits of unilateral trade coercion in a global market.
Industrial competition follows this pattern. In the automotive sector, Tesla delivered roughly 1.6 million electric vehicles in 2025, down 9% year-on-year, while China’s BYD sold about 2.3 million, up 28%. The deeper story lies in China’s growing advantage in the electric vehicle sector. Scale, cost and technology, along with extensive state subsidies, have helped China become a world leader in electric vehicles.
There is some good news for the US though. In aerospace, Boeing recorded 1,075 net aircraft orders in 2025, narrowly surpassing Airbus’s 1,000 and marking Boeing’s first lead since 2018. Signs of strain for European companies emerged too, with Porsche sales falling 10% in 2025 — the fancy German carmaker’s steepest decline since the 2008 global financial crisis.
Taken together, these signals suggest that the international economy is adapting to political pressures instead of completely succumbing to them.
Transactional diplomacy and the personalization of power
Following European backlash, Trump backed away from earlier threats to seize Greenland by force. Instead, he promoted a self-styled “Board of Peace” involving Egypt, Israel, Turkey, Saudi Arabia and the United Arab Emirates. He invited Russian President Vladimir Putin to participate. Former British Prime Minister Tony Blair is involved in Trump’s initiative, reinforcing the perception that personality and spectacle were substituting for institutional diplomacy.
The episode illustrated a defining feature of Trump’s foreign policy style: maximalist signaling followed by abrupt recalibration once resistance emerges. The Board of Peace, loosely defined and institutionally thin, stands in stark contrast to treaty-based diplomacy and underscores a preference for ad hoc leader-to-leader arrangements over durable frameworks.
Iranian protests and East Asian politics
Iran experienced a violent internal crisis. Large-scale protests against Ayatollah Ali Khamenei’s regime erupted across multiple cities, drawing hundreds of thousands into the streets. The Islamist regime responded with force. Iranian security forces killed 4,500 protesters and packed off around 26,000 to prison. While street demonstrations have subsided, the underlying drivers — inflation, unemployment and regime illegitimacy — remained unresolved. The absence of a viable alternative power center enabled the regime’s survival.
Iran’s unrest highlights a recurring pattern in contemporary uprisings: Mass mobilization can shake regimes but rarely dislodges them without an organized alternative capable of contesting power.
In East Asia, Japanese Prime Minister Sanae Takaichi called a snap election for February 8, seeking to convert personal popularity into a stronger parliamentary mandate. In South Korea, Han Duck-soo, who had served as prime minister during the December 2024 declaration of martial law, was sentenced to 23 years in prison for insurrection. This marked one of the harshest legal reckonings for a senior South Korean official in decades.
These developments illustrated diverging democratic responses to crises. Japan’s snap election reflected confidence in institutional continuity, while South Korea’s sentencing demonstrated a willingness to impose severe accountability on elite actors. Both stood in contrast to the erosion of restraint elsewhere.
The decline of the rule of law
Africa offered a darker contrast. Ugandan President Yoweri Museveni secured another term amid an Internet blackout and repression by security forces. His son, Muhoozi Kainerugaba — commander of the army — publicly claimed responsibility for killing 22 opposition supporters and issued threats against rival Bobi Wine, who went into hiding.
In the US, immigration enforcement became a flashpoint. ICE raids intensified in Minneapolis, Minnesota, prompting demonstrations after multiple civilians — most infamously Renée Good and Alex Pretti — were killed by federal agents. This was a crisis regarding the rule of law and involved state violence against noncombatants.
The State Department suspended visa processing for applicants from 75 countries deemed likely to become “public charges,” a significant expansion of restrictive immigration policy that initially drew limited public attention. The second Trump administration has definitively changed American immigration policy.
Across very different political systems, January revealed a common reality: Coercive state power often proved more durable than popular outrage, even in societies that formally claimed strong legal protections.
Institutional confidence also took a hit. The Justice Department issued subpoenas linked to Federal Reserve Chair Jerome Powell’s testimony on renovation costs. In a pithy, pointed and unprecedented response, Powell warned that the Trump administration was using criminal threats to pressure the Fed and influence monetary policy. A dozen central bankers, including European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey, publicly backed Powell, declaring their “full solidarity.”
Bond markets reacted nervously: US long-term yields rose amid a broader sell-off, while yields on 30-year Japanese government bonds jumped the most since 2003. Gold prices surged from roughly $4,329 per ounce on January 2 to above $5,319 by January 28, signaling rising demand for safe havens.
By the end of January, markets were signaling unease not only about growth and inflation, but also about central banks and leading global currencies themselves.
[Lee Thompson-Kolar edited this piece.]
The views expressed in this article/video are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
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