EU Agrees on World’s First Comprehensive AI Regulations 

The European Union reached a deal to create the world’s first comprehensive regulations for artificial intelligence in programs like ChatGPT and biometrics. The legislation will not go into effect until 2026. Some fundamental regulations that the EU will be implementing include: 

• “High-risk AI systems” related to health, safety, rights, democracy, etc. will be required to do a “fundamental rights” impact assessment, but “limited-risk AI systems” will only have to do some disclosures of content.  
• The use of AI in biometric IDs in public spaces will only be allowed for kidnapping, human trafficking, sexual exploitation, and direct terrorist threats.  
• “General purpose AI systems” will have stringent transparency requirements to comply with copyright law, and they will be required to do significant risk assessments.  
• AI will be prohibited that uses sensitive characteristics of persons, facial recognition from CCTV footage, emotional recognition at workplaces, and those that manipulate human behavior.  

 Europe leads the world in tech regulations, but the continent’s tech industry has fallen behind the United States and China, and they have no way of catching up. Rather, Europe has attempted to use their economic might to regulate technology globally. There are two major economic negatives likely to happen with the new regulations, though not directly because of them. These regulations are a signal to technology companies that innovation is not welcome in Europe, and Europe is highly likely to fall further behind in the short-to-medium term. Second, this will exacerbate the balkanization of technology as China and other Asian countries reject several of the regulations found within the legislation. Therefore, the new regulations are highly likely to limit innovation and increase the balkanization of technology. 

COP28 Sets Unrealistic Goals for Fossil Fuels 

The COP28 climate conference ended with more than 200 countries agreeing to reduce the global consumption of fossil fuels, and the agreement is meant to indicate the seriousness with which the world takes climate change. The agreement seeks for the world to transition “away from fossil fuels in energy systems, in a just, orderly and equitable manner ... so as to achieve net zero by 2050 in keeping with the science." Despite the agreements extraordinarily lofty goals, it is extremely unlikely to change anything when it comes to energy over the medium-to-long term. First, OPEC controls nearly 80% of the world’s proven oil reserves, and these countries lack a diversified economy. Without fossil fuels, they will have a significant economic decline. Second, the world does not have the requisite resources, e.g., enough lithium, or the needed infrastructure that can handle renewable energy, to be able to move away from fossil fuels within the timeline. Businesses should understand that while some countries like the United States will be able to pursue electric vehicles and certain types of renewable energy, it is extremely unlikely that developing countries could abandon fossil fuels over the coming decades. A lack of progress in meeting climate and fossil fuel targets will drive activism and increases the risk of more radical action by environmentalists. 

Diego Garcia Point of Great Power Politics 

A seemingly minor geopolitical issue in the Indian Ocean has larger implications concerning the U.S.-China competition. The United States and the United Kingdom met about the former’s “vital” base at Diego Garcia, which is a controversial issue in the region. The U.S. has repeatedly asked Britain not to transfer Diego’s sovereignty to Mauritius because it is critical to U.S. strategic bombers. However, by not transferring sovereignty, Britian is helping China win influence in the region as the U.S. and U.K. are perceived as imperial powers. This became more critical after the Maldives removed Indian troops to pivot towards China. This is an indicator for the problems facing great power competition and shows that these issues will permeate the entire world. Businesses will need to consider even tertiary issues while navigating between the United States and China. 

Federal Reserve Doesn’t Raise Interest Rates 

The Federal Open Market Committee (FOMC) made the decision to hold interest rates as they are, and indicated likely cuts in 2024, causing the Dow Jones Industrial Average (DJIA) to increase by 400 points. The decision to keep benchmark rates between 5.25-5.5% was due to inflation easing and the U.S. economy remaining stable. In addition, scheduling a possible three cuts depending on continued market indicators shows that the Fed believes the U.S. will see continued reduction in inflation, which will be good for businesses and consumers. Importantly, the scheduled cuts are likely to only be a quarter each, which means interest rates will still stay relatively high and are unlikely to go below 3% before 2026. 

Argentina’s President Implements Austerity Measures 

Argentina continues to experience significant inflation at a rate of almost 150% as President Javier Milei prepares steep austerity measures to combat the major problems facing the country. Inflation is so impactful because 40% of the country lives in poverty currently. The first major step in Milei’s agenda was to allow the peso to decrease 50% against the dollar. This will be followed by reducing energy subsidies, cutting the size of government, and stopping public works tenders. His administration is also increasing payments for the poorest Argentinians in the hope social insurance will alleviate several of the problems. These are all likely positive steps for the economy. Unpegged currencies tend to help economies perform better over the long term, but there are likely to be negative social impacts over the medium term. It is still too early to forecast how the economic policies will work, but they will have regional implications with how they unfold.  

NDAA to Include Data Center Regulations 

A proposed amendment to the National Defense Authorization Act (NDAA) called the Federal Data Center Enhancement Act would direct the General Services Administration with establishing minimum requirements for federal data centers concerning resiliency, cybersecurity, availability, and sustainability. This will be important for businesses because often times the requirements set at the federal level are accepted by industries, so there will likely be a shift to more secure and sustainable data centers over the medium term. 

Human Trafficking Fueling Scam Centers 

Interpol has stated that its first operation targeting human-trafficking fueled cyber fraud demonstrated that the industry is now global, going beyond Southeast Asia. Scam centers are now seen in Latin America. Essentially what is happening is that criminal gangs are kidnapping and trafficking people to work in scam centers. Although this acknowledgement by Interpol does not alter the security position of corporations, it is important for analysts to understand how different types of criminality are connected to better assess the situation for their clients. Different types of crimes are deeply connected, and cyber issues are no longer separate from physical ones.