Geopolitical Scan - Midyear 2026

A 3 part digest of key signals that may impact strategic investments and decisions...

Part 1: The Physical Layer Always Gets a Vote

What Ukraine, the dollar and defense manufacturing reveal about strategic power

In the S3T Strategic Awareness model, the Physical Layer is foundational.

It includes geography, energy, water, climate, raw materials, industrial capacity, transportation, population and the unavoidable constraints imposed by physics.

The layers above it—Capital, Economics, Politics and Society—can temporarily misunderstand or ignore these realities. Markets can misprice scarcity. Governments can postpone maintenance. Political leaders can promise outcomes that industrial systems cannot deliver.

But eventually, the Physical Layer gets a vote.

This is especially important in geopolitics. You could say geopolitics the study of how nations address scarcity. Nations are continually trying to secure energy, food, minerals, trade routes, industrial capacity, defensible territory and access to technology.

The important strategic question is therefore not just:

Which country has the most resources?

It is:

Which country is best at converting its physical advantages into resilient, adaptable systems?

The following segments compare how different nations are faring.

The dollar: erosion is not collapse

For decades, the United States has received significant advantages from issuing the world’s principal reserve currency.

Those advantages are not disappearing overnight. The dollar remains the preeminent reserve currency and retains unusually deep, liquid financial markets.

But its share of reported global foreign-exchange reserves has declined from approximately 71% in 1999 to 56.77% at the end of 2025.

That does not support predictions of an imminent dollar collapse. But it does suggest that the advantage is becoming less exclusive as central banks gradually diversify into a broader range of currencies.

The United States should not assume yesterday’s monetary advantages will compensate indefinitely for weaknesses in industrial capacity, fiscal discipline or alliance management.

Industrial capacity is a form of national power

The United States still spends more on defense than any other country, but spending and usable capacity are not the same thing.

The Government Accountability Office has repeatedly documented delays, rising costs and difficulties delivering major weapons systems quickly. The Department of Defense’s own National Defense Industrial Strategy calls for more resilient supply chains, greater production capacity, larger stockpiles and a broader supplier base.

These are unusually direct acknowledgements that the existing system is not sufficiently responsive to rapidly changing threats.

Recent drone production provides a stark comparison.

Ukraine is expected to produce between six million and seven million small attack drones during 2026. A senior Pentagon official recently acknowledged that American industry remains years away from matching Ukraine’s wartime production rate.

The comparison is imperfect. The United States builds many types of complex military systems that Ukraine does not. But this does exposes an important difference in operating models.

The American system tends to optimize for exquisite platforms, lengthy requirements processes and a relatively small number of major contractors.

Ukraine has been forced to optimize for:

Speed
Iteration
Distributed production
Continuous battlefield feedback
Rapid replacement
Acceptable rather than perfect technology

Ukraine’s experience suggests that smaller states can offset some disadvantages in conventional military scale when they combine committed allies with decentralized innovation.

The new economics of asymmetric power

Modern technology gives smaller nations and non-state actors more ways to impose disproportionate costs on their opponents.

An inexpensive drone can force the deployment of a far more expensive interceptor. A cyberattack can require years of defensive investment. A strike on a difficult-to-replace refinery component can create greater economic disruption than an attack on a more visually dramatic target.

Ukraine has increasingly used long-range drones to target Russian energy and military infrastructure. This does not neutralize Russia’s enormous advantages in territory, energy resources and industrial scale. But it demonstrates how a smaller force can identify critical nodes inside a much larger system and impose costs far beyond the price of the attacking technology.

Russia’s geography and natural resources create a large strategic margin for error. It remains one of the world’s leading producers of oil and natural gas.

But size also creates infrastructure that must be defended across extraordinary distances. Pipelines, refineries, ports, rail systems and communications networks become potential points of vulnerability.

The Physical Layer can provide both an advantage and a liability.

The strategic lesson

The wars of the future will not necessarily be won by the country with the largest inventory at the beginning.

They may be won by the country—or coalition—that learns, manufactures and adapts fastest.

Strategic power increasingly depends on the ability to connect five things:

Physical resources
Industrial capacity
Technology
Trusted alliances
Fast operational feedback

A nation can possess substantial resources and still squander them through slow institutions, brittle supply chains or strategic complacency.

It can also begin with fewer resources and create leverage through speed, focus and cooperation.

The Physical Layer gives nations their starting conditions. Their institutions determine what they do with them.

Supporting references and recommended reading

Part 2: China Is Competing Across the Whole Technology Stack

Solar panels, AI models, semiconductors and biotechnology are parts of the same strategic story

The competition between the United States and China is often described as an AI race.

That framing may be too narrow.

While crucial, Artificial intelligence is only one component of a much larger competition involving energy, manufacturing, semiconductor capacity, scientific research, biotechnology, supply chains and access to global markets.

China is not placing a single bet. It is building a portfolio.

While the US and other nations may seek to be dominant, indicators suggest China's strategy is to be indispensable.

Solar power: turning scale into strategic leverage

China now accounts for more than 80% of global manufacturing capacity at every major stage of the solar-panel supply chain, including polysilicon, wafers, cells and modules.

While that manufacturing scale has contributed to falling solar prices worldwide, while also giving China superior energy surplus for the AI race. It has also produced significant overcapacity and destructive price competition inside China, with manufacturers experiencing collapsing margins and substantial losses.

This reveals both sides of China’s industrial model.

Massive investment can accelerate learning, reduce costs and establish global market share. But it can also misallocate capital and create industries that produce more than the market can profitably absorb.

For other countries, the strategic issue is not whether inexpensive Chinese solar products are good or bad.

The issue is dependency.

Low prices accelerate the energy transition, but extreme concentration means that trade disputes, geopolitical tensions or supply disruptions could affect an essential source of future electricity.

AI: the frontier is becoming more crowded

The release of Moonshot AI’s Kimi K3 reinforces the expectation that Chinese developers will continue narrowing parts of the capability gap with leading American AI companies.

Kimi K3 is a 2.8-trillion-parameter mixture-of-experts model with approximately 104 billion parameters activated during inference, native visual capabilities and a context window of up to one million tokens.

Moonshot has released the model weights, allowing organizations to download, customize and operate it independently.

The company reports frontier-level performance in coding, knowledge work and long-horizon agent tasks. Importantly, its own technical paper acknowledges that the model still trails the most powerful proprietary models overall.

Independent evaluation will be necessary. Developer-produced benchmarks should never be accepted uncritically.

But the strategic implication is clear: Open-weight Chinese models are increasing the number of credible alternatives available to businesses. This will put pressure on the pricing power of American frontier-model companies, especially for customers that do not require the best possible performance on every task.

The emerging AI Router segment will make it easy to route tasks to the most cost effective model based on customer preferences and budgets.

The comparison is no longer simply:

Which company has the smartest model?

It is also:

Which model is good enough for the task?
What does it cost to operate?
Can it be deployed privately?
Can the organization control its data?
How dependent is the customer on one provider?
What political or regulatory risks accompany the provider?

For non-regulated companies, Chinese models may offer compelling economics, but these organizations will have to evaluate cybersecurity, data governance, intellectual-property and geopolitical risks.

For regulated companies the value proposition of Chinese models may not be as clear: Cheap intelligence is not automatically trustworthy intelligence.

This has an implication for growth and adoption that hinges on the question: will revenue growth and ROI come primarily from regulated industries or non-regulated industries?

Taiwan: maritime insurance (more than the Chinese Navy) may be the ultimate bottleneck for chips

Even as AI models become more widely available, advanced semiconductor manufacturing remains geographically concentrated.

Taiwan produces most of the world’s leading-edge chips, while Taiwan and South Korea together account for nearly all advanced semiconductor fabrication capacity.

That concentration gives Taiwan enormous strategic importance.

It also constrains China.

A blockade or major military confrontation would not merely harm Taiwan or its Western customers. Research from the Center for Strategic and International Studies estimates that approximately $2.45 trillion in goods passed through the Taiwan Strait in 2022, including substantial Chinese trade.

A blockade would therefore create severe costs for China itself.

This is one reason domestic semiconductor capacity matters so much to Beijing. Every improvement in Chinese chip production potentially reduces the economic cost of coercion and strengthens China’s ability to operate under sanctions or disrupted trade.

But semiconductor self-sufficiency is not a single technical achievement. It requires progress across lithography, design software, materials, fabrication equipment, advanced packaging and manufacturing expertise.

Taiwan’s importance will not disappear simply because China opens more fabrication plants.

Biotechnology: the less visible competition

China’s progress in biotechnology may be just as strategically consequential as its advances in AI.

The value of pharmaceutical licensing deals involving assets originating in China increased from approximately $5 billion in 2020 to more than $50 billion in 2024—roughly 30% of global licensing value.

Global pharmaceutical companies are increasingly acquiring or licensing Chinese-developed drug candidates, particularly in oncology and advanced therapeutic platforms.

China benefits from:

Large patient populations
Expanding clinical-trial infrastructure
Lower development costs
Faster recruitment
Significant scientific investment
Increasingly experienced biotechnology companies

This does not mean that China has surpassed the United States across biotechnology. American universities, pharmaceutical companies, capital markets and research institutions retain enormous strengths.

But it does mean that leaders should stop treating Chinese biotechnology primarily as a lower-cost manufacturing story.

It is becoming an innovation story.

The strategic conclusion

China’s progress in solar power, AI, semiconductors and biotechnology should not be evaluated as four unrelated developments.

Together they demonstrate a national operating model:

Invest at enormous scale.
Build domestic production capacity.
Accept short-term inefficiency.
Use intense competition to accelerate learning.
Lower costs sufficiently to reach global markets.
Convert commercial scale into strategic leverage.

The model has weaknesses. It can produce waste, overcapacity, quality problems and fragile corporate balance sheets.

But it also creates something Western leaders frequently underestimate:

Rapid cumulative learning.

The correct response is not to copy every feature of China’s system.

It is to understand what the system is producing—and to recognize that the competition is taking place across an entire industrial and scientific stack, not inside one AI benchmark.

While other nations pursue a perhaps outdated definition of "dominance", China appears focused on simply being indispensable. That is turning out to be a very influential approach.

Supporting references

Implications: Go Long on Abundance

4 places where today’s constraints may become tomorrow’s opportunities

Much of strategic awareness involves identifying constraints before they become crises. But this should not make us permanently pessimistic: Constraints expose what the world needs next.

Energy shortages reveal the value of new generation and storage. Degraded ecosystems reveal the value of restoration. Material scarcity reveals the importance of recovery and reuse. The cost of operating in space forces us to ask which space activities create genuine value rather than merely consuming capital.

There are at least four large opportunities worth leaning into.

1. Build around abundant energy

The transition toward renewable energy is no longer supported only by environmental arguments.

It is increasingly supported by economics.

According to the International Renewable Energy Agency, 91% of the utility-scale renewable projects commissioned during 2024 produced electricity more cheaply than the least-expensive new fossil-fuel approach.

In 2025, the global average cost of new solar generation remained approximately $44 per megawatt-hour, while the cost of new onshore wind fell to approximately $33 per megawatt-hour.

These figures do not mean that the energy transition is effortless. Generation costs are not the same as total system costs. Transmission, storage, backup capacity, permitting, grid stability and mineral supply chains still matter.

But the general direction is increasingly clear:

Countries that resist lower-cost energy technologies for ideological reasons may impose unnecessary costs on their own industries.

The opportunity is larger than building solar panels or wind turbines. It includes:

Grid modernization
Energy storage
Demand management
Power electronics
Geothermal systems
Industrial heat
Local microgrids
Recycling energy infrastructure
Reducing water and energy consumption in data centers

The winners may not be the companies that generate the most energy.

They may be the companies that make each unit of energy more usable.

2. Treat nature restoration as productive infrastructure

When we hear “nature restoration,” we may picture volunteers removing invasive plants or collecting trash along trails. Highly valuable, but restoration can be understood more broadly.

Healthy ecosystems provide flood protection, water filtration, cooling, pollination, soil formation, carbon storage, wildfire resilience and habitat. These are productive services, even when conventional markets fail to assign them a price.

Our economic system is very good at pricing branded consumer products.

It is much less consistent at pricing clean air, stable watersheds, biodiversity or protection from extreme heat.

A rough parallel: imagine a market place structured on goods and services that supply everything listed in Maslow's hierarchy of needs. Now imagine that the lower layers have no pricing mechanism and are just treated as if they are infinite. This would be a rather distorted and dysfunctional economy...like ours. It would seem functional only to those who are most comfortable.

This creates both risk and opportunity.

The United Nations Environment Programme estimates that annual investment in ecosystem restoration must rise from approximately $64 billion in 2022 to $296 billion by 2030 to meet international restoration goals.

Governments currently provide most of this funding, but the gap is too large to be closed by public spending alone.

The next generation of nature businesses might include:

Reforestation and long-term forest management
Wetland and watershed restoration
Regenerative agriculture
Native seed and plant production
Wildfire-risk reduction
Biodiversity measurement
Ecological monitoring
Restoration-performance insurance
Financing tied to measurable ecosystem outcomes

“Start businesses that create forests” sounds idealistic.

It may also be a practical description of an emerging industry.

The challenge will be building revenue models that reward real ecological outcomes rather than superficial claims or low-quality offsets.

3. Turn cities into material mines

We have not yet innovated an efficient means of recycling discarded urban spaces and buildings.

The modern city contains enormous quantities of steel, copper, aluminum, glass, timber, concrete, electronics and other valuable materials.

Yet buildings are still commonly demolished as though they were waste rather than inventories.

Urban mining treats existing buildings, infrastructure and discarded products as sources of future materials.

This can include:

Deconstructing rather than demolishing buildings
Recovering bricks, timber and structural components
Extracting critical minerals from electronics
Creating digital material passports
Designing buildings for disassembly
Establishing regional markets for reclaimed materials
Converting underused properties instead of continually building from scratch

Urban mining cannot eliminate the need for newly extracted resources. Collection, separation and reuse can also be expensive.

But it can reduce waste, improve supply security and keep more economic value inside local communities.

The strategic opportunity is not simply recycling more effectively.

It is redesigning products, buildings and markets so that yesterday’s assets can become tomorrow’s inputs.

4. Demand an economic purpose from space

The global space economy is already substantial, but most of its value comes from activities that serve people on Earth:

Communications
Navigation
Weather observation
Scientific research
Earth imaging
Disaster response
Agriculture
Defense
Financial and logistical infrastructure

These are real economic systems with identifiable customers and measurable benefits.

A future settlement on Mars is a much more difficult economic proposition. Consider these questions:

What would a Martian economy produce that people on Earth would purchase? How would goods or services cross the enormous distance between the planets?
Whatever resources are on Mars, could they be obtained more economically from other closer sources (like Earth, the Moon or asteroids)?
Could a Martian economy become self-sustaining, or will it become an economic sinkhole? Would it remain dependent on transfers of capital and equipment from Earth?

These are not arguments against exploration. They are questions about value creation.

NASA’s work on in-situ resource utilization illustrates the practical problem. Sustainable activity beyond Earth will require people to produce water, fuel, oxygen and construction materials from local resources rather than continually transporting everything from Earth.

The strongest near-term space businesses will probably be those that either:

Provide valuable services to Earth, or
Reduce the cost of operating sustainably in space.

The weakest will be those whose economics depend primarily on excitement, prestige or an indefinitely available stream of investor capital.

Edmund Burke argued before the American Revolution that Britain should recognize the commercial strength and independent character developing in its colonies rather than relying on coercion.

The analogy is imperfect, but it raises a useful question for the space economy:

Could an established economy benefit by helping launch a genuinely productive new one? Only if that new economy can produce something more than expenses.

Work across borders

None of these opportunities can be developed entirely inside one discipline or one country.

Energy systems connect engineering, finance, politics and land use. Nature restoration connects ecology, insurance, agriculture and public health. Urban mining connects architecture, logistics, manufacturing and local government. Space connects science, communications, security and international law.

Good change does not come only from policy. It also comes from people working across boundaries to build better systems.

The future will still contain scarcity.

The opportunity is to create organizations whose success increases the supply of something the world genuinely needs:

Usable energy. Healthy ecosystems. Recoverable materials. Reliable knowledge. Resilient communities.

That is what it means to go long on abundance.