Pakistan imports 22 GW of solar panels while local manufacturing dies. This $4.1B spending spree enriches China but impoverishes the poor—here’s the hidden cost of green energy without green jobs.

The rooftops of Lahore, Karachi, and Islamabad glitter with crystalline silicon—a testament to Pakistan’s renewable energy revolution. By mid-2025, solar power will provide over 25% of the nation’s electricity, surpassing any single fossil fuel source. Yet beneath this gleaming facade lies a disturbing paradox: Pakistan has become the world’s second-largest importer of Chinese solar panels, hemorrhaging $4.1 billion in foreign exchange over four years while building precisely zero manufacturing capacity at home.

This is not the story of a green transition. It’s the story of a missed industrial revolution—one where Pakistan’s energy independence is being mortgaged panel by panel, and where the poorest citizens will ultimately pay the price for the wealthy’s escape from the grid.

The Import Addiction: Trading One Dependency for Another

Between July 2023 and January 2025 alone, Pakistan imported 22 gigawatts of solar capacity—enough to power nearly 15 million homes. The scale is staggering, the pace unprecedented. Walk through any upscale neighborhood in Pakistan’s major cities and you’ll see the evidence: rooftop after rooftop adorned with imported panels, each one a small declaration of independence from the dysfunctional national grid.

But zoom out, and the picture darkens. According to Pakistan Bureau of Statistics trade data, the country has funneled over $4.1 billion into imported solar equipment since 2020, with China capturing nearly 95% of this market. Pakistan now ranks as China’s second-largest export destination for solar products globally, trailing only the European Union. For a country perpetually scrambling for foreign exchange, burning through billions on imports—while creating no domestic production—represents economic policy malpractice.

The employment calculus tells an equally grim story. While solar adoption has created thousands of installation and maintenance jobs, these are low-skill, low-wage positions. The high-value manufacturing jobs—producing polysilicon, wafers, cells, and modules—remain in China. Pakistan imports the finished product, screws it onto rooftops, and calls it progress. The $4.1 billion spent could have seeded an entire manufacturing ecosystem, generating skilled employment for engineers, technicians, and factory workers. Instead, it’s a one-way transfer of wealth with no multiplier effect.

Energy Justice or Energy Apartheid?

Perhaps most troubling is the equity dimension that policymakers conveniently ignore. Pakistan’s solar boom is overwhelmingly concentrated among affluent households and businesses—those who can afford the $3,000-$10,000 upfront investment in rooftop systems. These solar adopters effectively exit the grid’s financial obligations while still relying on it for backup power during cloudy days and nighttime.

The problem? The grid’s fixed costs—transmission infrastructure, substations, grid maintenance—don’t disappear when consumers generate their own power. According to National Electric Power Regulatory Authority (NEPRA) estimates, approximately PKR 200 billion in fixed grid costs must still be recovered. As wealthier consumers defect, this burden cascades onto those who remain: the poor and middle class who cannot afford solar installations.

NEPRA has already signaled that base tariffs for non-solar users could increase by 17% to compensate for revenue shortfalls. This creates a perverse outcome where Pakistan’s green energy transition is being financed by those least able to afford it—shop owners in small towns, factory workers in Faisalabad, farmers in rural Sindh. Energy justice demands that the benefits and costs of transitions be distributed equitably. Pakistan’s current model does the opposite, creating what amounts to energy apartheid.

The Policy Architecture of Failure

Why hasn’t Pakistan developed local manufacturing despite obvious incentives? The answer lies in a toxic combination of misaligned tax policy, regulatory instability, and bureaucratic dysfunction.

“Pakistan has become the world’s second-largest importer of Chinese solar panels—a consumer, not a producer, in the very revolution meant to secure its energy future.”

Consider the case of ReneSola, one of the few companies attempting local assembly in Pakistan. The company faces an absurd tax structure: imported finished panels enter Pakistan duty-free (0% tariff), while manufacturers trying to produce locally must pay 18% sales tax on raw components and machinery. This creates what industry insiders call “structural impossibility”—it is literally cheaper to import finished products than to manufacture them domestically.

The perverse incentives don’t end there. Local manufacturers face an 18% general sales tax on imported manufacturing equipment, while importers of finished panels enjoy streamlined customs processing and minimal documentation requirements. The government has essentially subsidized imports while penalizing domestic production—the exact opposite of every successful industrialization strategy in modern economic history.

Beyond tax policy, regulatory instability has scared away potential investors. Chinese foreign direct investment in Pakistan—once flowing robustly through the China-Pakistan Economic Corridor (CPEC) framework—dropped by 40% in 2024 according to State Bank of Pakistan data. Industry representatives cite inconsistent policy signals, frequent rule changes, and high perceived credit risk as primary deterrents. Solar manufacturing requires capital-intensive investments with 10-15 year payback periods. No investor commits that kind of capital in an environment where policies shift with every cabinet reshuffle.

Then there’s the institutional fragmentation. Responsibility for solar policy is scattered across the Ministry of Energy, Ministry of Commerce, Ministry of Industries, Alternative Energy Development Board, and provincial governments. Each entity has overlapping mandates, competing priorities, and limited coordination. A comprehensive solar manufacturing policy has been “under consideration” for nearly three years, perpetually delayed by inter-ministerial turf battles and bureaucratic inertia. While committees meet and draft papers, the import bill grows and the manufacturing window narrows.

The 5S Framework: A Localization Blueprint

Pakistan doesn’t need to reinvent the wheel. Successful solar manufacturing ecosystems exist in India, Vietnam, Thailand, and Morocco—each offering lessons applicable to Pakistan’s context. What’s required is a coherent, multi-year strategy executed with political consistency. The “5S Framework” provides such a roadmap:

Strategy: Establish Institutional Clarity Pakistan needs a National Solar Industrialization Task Force—a dedicated body with Cabinet-level authority and representation from relevant ministries, provincial governments, and private sector stakeholders. This task force should produce a binding 10-year Solar Manufacturing Policy with clear targets, incentive structures, and accountability mechanisms. India’s Production-Linked Incentive (PLI) scheme for solar manufacturing offers a proven template: guaranteed subsidies tied to production milestones, creating predictable returns that attract serious investment.

Subsidies & Tax Rationalization: Fix the Duty Structure The current duty structure must be inverted. Pakistan should implement a phased tariff schedule on imported finished panels—starting at 5% in year one, scaling to 15% by year three, and reaching 25% by year five. Simultaneously, all duties and sales taxes on solar manufacturing components (polysilicon, wafers, glass, aluminum frames, inverters) and manufacturing equipment should be eliminated entirely. This creates a “manufacturing advantage” that makes local production commercially viable without requiring permanent subsidies.

Standards: Build Quality Infrastructure Pakistan must establish a National Solar Certification Body modeled on India’s Bureau of Indian Standards or Thailand’s Thai Industrial Standards Institute. This body would certify both imported and domestically produced equipment against international benchmarks (IEC standards), ensuring quality while creating the regulatory foundation for future exports. Quality certification also protects consumers from the flood of substandard panels that currently plague the market.

Special Economic Zones: Create Integrated Clusters Rather than scattering investments across the country, Pakistan should develop integrated solar manufacturing clusters within existing Special Economic Zones under CPEC 2.0. The Rashakai SEZ (Khyber Pakhtunkhwa) and Allama Iqbal Industrial City (Punjab) offer ideal locations with existing infrastructure, power supply, and logistics connectivity. These zones should offer 10-year tax holidays, subsidized land, and streamlined approvals specifically for solar value chain investments—from upstream polysilicon and wafer production to downstream module assembly and inverter manufacturing.

Science & Knowledge Transfer: Leverage CPEC 2.0 The recently announced CPEC 2.0 includes an “Innovation Corridor” framework for technology collaboration. Pakistan should negotiate explicit technology transfer protocols with Chinese solar giants like Longi, JA Solar, and Trina Solar. The model: joint ventures where Chinese firms provide technology and management expertise while committing to gradually increasing local content over five years—from 30% in year one to 80% by year five. Vietnam successfully employed this strategy with Samsung electronics; Pakistan can replicate it in solar.

The China-Pakistan Win-Win

Skeptics might ask: why would China help Pakistan build manufacturing that competes with Chinese exports? The answer lies in changing global dynamics and mutual strategic interest.

First, Chinese solar manufacturers face growing protectionism. The United States has imposed 250% tariffs on Chinese solar products; the European Union is considering similar measures. By establishing production facilities in Pakistan, Chinese firms can bypass these restrictions, labeling products “Made in Pakistan” while accessing markets otherwise closed to them. Pakistan becomes a strategic production base—just as Mexico has become for Chinese EV manufacturers seeking U.S. market access.

Second, China’s domestic solar industry suffers from massive overcapacity. Chinese firms produced 720 GW of solar panels in 2024—nearly triple global demand. This overcapacity has crashed prices and squeezed profit margins. Diversifying production to friendly markets like Pakistan allows Chinese firms to better manage capacity while maintaining market share.

Third, Pakistan offers a geographic gateway to untapped markets. With production facilities in Pakistan, Chinese solar technology can more easily penetrate the Middle East, Africa, and Central Asian markets—regions with enormous solar potential but limited current penetration. Pakistan’s location, combined with improved market access through trade agreements, makes it an ideal export platform.

For Pakistan, the calculus is straightforward. Chinese investment brings not just capital, but technology, management expertise, and access to global supply chains. The goal isn’t autarky—complete self-sufficiency is neither possible nor desirable. The goal is value capture: moving up the manufacturing chain so that more of the $4 billion currently spent on imports circulates within Pakistan’s economy, creating jobs, tax revenue, and technological capabilities.

A Crossroads Moment

Pakistan’s FY26 budget cycle, beginning in June 2025, represents a make-or-break moment. If the upcoming budget fails to include a comprehensive solar manufacturing policy with concrete incentives, the window for green industrialization will effectively close. By 2027, Pakistan’s solar market will likely reach saturation—most viable rooftops will already be covered, and growth will plateau. The import bonanza will end, but Pakistan will have nothing to show for it except a depleted foreign exchange reserve and a legacy of missed opportunities.

The alternative path requires political courage and bureaucratic competence—admittedly scarce commodities in Pakistan’s governance ecosystem. But the economic logic is irrefutable. Every successful industrial economy in modern history—from South Korea to China to Vietnam—moved from importing finished goods to manufacturing them domestically. Pakistan has natural advantages: a large domestic market providing guaranteed demand, cheap labor for assembly-stage manufacturing, and a strategic partner in China willing to invest if conditions are right.

What Pakistan lacks is not resources or potential, but policy coherence and political will. The country can either continue as a passive consumer in the global solar value chain—enriching foreign manufacturers while burdening its poorest citizens with the costs—or it can pivot to become an active partner, building the industrial base that generates employment, captures value, and secures genuine energy sovereignty.

The solar panels glittering on Lahore’s rooftops are not, by themselves, symbols of progress. They will only become so if Pakistan learns the fundamental lesson of industrialization: energy independence isn’t built on imported panels; it’s forged in local factories, designed in domestic R&D centers, and powered by the skilled hands of Pakistani workers. The choice is Pakistan’s to make—and the clock is ticking.

The 2024 Nobel laureate explains why democracy’s survival depends on working-class prosperity—and what happens when institutions fail to deliver

When only 28% of Americans express satisfaction with how their democracy functions—a historic low recorded in January 2024—the warning signals are impossible to ignore. This isn’t merely a statistical artifact of partisan frustration. It represents something more fundamental: a crisis of delivery, where democratic institutions have systematically failed to fulfill their core promises to ordinary citizens.

Daron Acemoglu, the MIT economist who received the 2024 Nobel Prize in Economic Sciences, argues that liberal democracy flourished when it pursued its core promises of shared prosperity, democratic governance at the local and national level, and the free pursuit of knowledge. But those promises now ring hollow for millions who have watched inequality skyrocket while their own economic prospects stagnate. The question facing advanced democracies isn’t whether they’re under threat—the data confirms they are—but whether they possess the institutional capacity to reform themselves before it’s too late.

The Polycrisis: When Multiple Failures Converge

We live in what scholars call a “polycrisis”—a condition where multiple, overlapping emergencies compound one another in ways that transcend their individual impacts. The numbers tell a stark story: between 2016 and 2024, the number of people living with democratic rights fell from 3.9 billion to 2.3 billion. This isn’t gradual erosion; it’s a democratic recession affecting nearly 1.6 billion people in less than a decade.

The Varieties of Democracy (V-Dem) Institute documents this retreat with precision. As of 2024, 42 countries are experiencing ongoing episodes of autocratization, a process where elected leaders systematically dismantle the very institutions that brought them to power. What makes this wave particularly insidious is its legalistic veneer—authoritarianism advancing through the ballot box rather than military coups.

But the democratic crisis doesn’t exist in isolation. It intersects with economic turbulence that has reshaped the social contract across industrialized nations. Consider the wealth concentration dynamics: In the United States, households in the top 10% of the wealth distribution own more than half—specifically 52%—of all total household wealth, with this share reaching as high as 79%. Meanwhile, income inequality measured by the Gini coefficient varies dramatically across OECD countries, ranging from approximately 0.22 in the Slovak Republic to more than double that in Chile, Costa Rica, and the United States.

This economic bifurcation creates what Acemoglu calls the preconditions for democratic decay. When democracy stops delivering shared prosperity, citizens begin questioning whether democratic institutions serve their interests at all.

Acemoglu’s Diagnostic: The Narrow Corridor and Institutional Balance

To understand how democracies survive—or fail—Acemoglu and his longtime collaborator James Robinson developed what they term “the narrow corridor” theory. The concept, detailed in their 2019 book of the same name, rejects the notion that liberty emerges naturally from either strong states or weak ones. Instead, freedom arises from a delicate balance between state power and an empowered society, where institutions provide education, healthcare, infrastructure, and protection from violence while remaining constrained enough that they cannot become predatory.

This framework helps explain puzzling variations in democratic outcomes. Why did some countries successfully democratize while others with similar initial conditions descended into autocracy or chaos? The answer lies in institutional design and the continuous tension between state capacity and societal mobilization.

Acemoglu’s research with Robinson and others has found that democracy directly contributes to economic growth, though it takes time—countries that democratize generally grow faster and invest more in education and health. But this relationship isn’t automatic. It depends on whether democratic institutions remain genuinely inclusive or become captured by narrow elites.

The extractive-versus-inclusive framework provides the analytical foundation. Extractive institutions concentrate power and wealth in the hands of a small elite, extracting resources from the broader population. Inclusive institutions, by contrast, distribute political power widely and create incentives for education, innovation, and broad-based economic participation.

History offers abundant examples. For three decades following World War II, democracy delivered shared prosperity as real (inflation-adjusted) wages increased rapidly for all demographic groups and inequality declined, but this trend ended in the late 1970s and early 1980s. Since then, the compact has broken down. Wages for workers without college degrees have stagnated while inequality has exploded—creating precisely the conditions under which populist demagogues thrive.

Economic Foundations of Democratic Fragility

The connection between economic inequality and democratic backsliding isn’t merely correlational. It operates through specific mechanisms that Acemoglu has spent decades documenting.

Democracy is in crisis throughout the industrialized world because its performance has fallen short of what was promised, with far-right and extremist parties benefiting from the fact that center-left and center-right parties are associated with wage stagnation, rising inequality, and other unfavorable trends. This isn’t hyperbole—it’s observable reality across Europe and North America.

The wealth inequality data reveals the scale of the problem. Brazil, Russia, and South Africa top global rankings for wealth inequality, each posting Gini coefficients around the low 0.8s on a scale where 0 represents perfect equality and 1 represents maximum inequality. But even wealthy democracies show troubling patterns. Among OECD countries in 2021, the ratio of average income between the richest 10% and poorest 10% of the population was 8.4 to 1.

These disparities matter because they shape political behavior. More than 60% of respondents across surveyed countries declared that disparities in income and wealth were too high or far too high in their country. When large swaths of the population feel economically abandoned, they become receptive to politicians promising to overturn the existing system—democratic norms be damned.

Acemoglu’s recent work emphasizes how technological change amplifies these dynamics. Automation and artificial intelligence threaten to further concentrate wealth and eliminate middle-skill jobs, precisely the economic foundation that historically sustained democratic stability. Without deliberate policy interventions to ensure technology creates broadly shared prosperity rather than extracting value for a narrow class of owners and investors, the economic pressure on democracy will only intensify.

The Polarization Multiplier

Economic anxiety doesn’t operate in a vacuum—it interacts with political polarization to create a toxic feedback loop threatening democratic stability.

In spring 2024, only 22% of U.S. adults said they trust the federal government to do the right thing just about always or most of the time, up slightly from the previous year’s historic low of 16%. This institutional mistrust reflects and reinforces partisan divisions. The Centers for Disease Control, for instance, received a 78% favorable rating among Democrats but only 33% approval from Republicans in 2024—a 45-percentage point chasm reflecting not scientific evidence but tribal identity.

The share of Americans who consider themselves on the far left or far right of the political spectrum is particularly high in the United States, with 11% placing themselves on the far left and 19% on the far right. Compare this to Germany, where only 6% identify as far left and 7% as far right, and the distinctive character of American polarization becomes clear.

This affective polarization—the emotional hostility between political tribes—proves more destabilizing than mere policy disagreements. Research shows it enables voters to excuse antidemocratic behavior by their own side while viewing identical actions by opponents as existential threats. Three-quarters of Americans said in 2023 that the future of American democracy was at risk in the 2024 presidential election, with both sides viewing the other as the primary threat.

The international context provides little comfort. Since 2000, 45 countries have experienced significant decline in the free and fair nature of their elections, relating to the spread of misinformation, interference from foreign actors, and erosion of public trust. These trends aren’t unique to any single nation—they represent a global pattern threatening the third wave of democratization.

Institutional Resilience: Pathways Forward

Despite documenting democracy’s current travails, Acemoglu’s analysis isn’t fundamentally pessimistic. The narrow corridor framework suggests that democratic renewal remains possible—but only through specific institutional reforms and renewed social mobilization.

Democracy has long promised four things: shared prosperity, a voice for the citizenry, expertise-driven governance, and effective public services. Rebuilding these pillars requires concrete policy changes, not merely rhetorical commitments.

First, the economic compact must be restored. This means policies explicitly designed to ensure technology creates good jobs rather than merely automating existing ones. Acemoglu and co-author Simon Johnson argue in their recent work that AI deployment should be shaped by tax policy, regulation, and public investment to favor labor-augmenting rather than labor-replacing technologies.

Second, political institutions need structural reforms to rebuild representativeness. This includes addressing gerrymandering, campaign finance distortions, and the ways money translates directly into political power—all of which allow narrow interests to capture democratic processes.

Third, strengthening the civic infrastructure that enables ordinary citizens to organize, deliberate, and hold power accountable. Some countries like Austria, Chile, Nepal, and South Africa faced early warning signs of deterioration but demonstrated onset resilience to autocratization, providing examples of how mobilized societies can push back against democratic backsliding.

The comparative evidence suggests these interventions work. Countries that have successfully reversed democratic decline share common features: active civil society, reformed electoral systems, and economic policies that deliver tangible improvements in living standards for working families.

The Working-Class Imperative

Perhaps Acemoglu’s most urgent recent argument concerns democracy’s relationship with working-class voters—the constituencies that democratic institutions were originally designed to empower.

While Democrats have won recent elections with support from Silicon Valley, minorities, trade unions, and professionals in large cities, this coalition was never sustainable because the party became culturally disconnected from, and disdainful of, precisely the voters it needs to win. This diagnosis applies beyond American politics to center-left parties across the industrialized world.

The policy implications are clear: More good jobs—finding ways to create good jobs in communities and spreading prosperity that way—must become the organizing principle of democratic governance. This isn’t about nostalgia for manufacturing employment but about ensuring that economic growth translates into broadly shared gains rather than concentrated windfalls for asset owners.

Historical precedent supports this emphasis. The golden age of democratic stability in advanced economies—roughly 1945 to 1980—corresponded precisely to the period when working-class incomes grew fastest. Democracy thrived when it delivered economic security. It now struggles because that delivery system has broken down.

Technology, AI, and Democratic Futures

The technological landscape adds new complexity to democracy’s challenges. Artificial intelligence, in particular, presents both opportunities and acute risks for democratic governance.

On one hand, AI could enhance state capacity, improve public service delivery, and accelerate scientific progress in ways that benefit everyone. On the other, it threatens to concentrate economic power even further, eliminate millions of middle-skill jobs, enable unprecedented surveillance, and flood information ecosystems with AI-generated propaganda.

Acemoglu has testified before the U.S. Senate warning that AI deployment, if left to pure market forces, will likely accelerate inequality and undermine social cohesion. The technology itself is neutral, but its institutional context determines whether it strengthens or erodes democracy. Companies designing AI systems for automation rather than augmentation—replacing human judgment rather than enhancing it—make choices that ripple through the entire political economy.

The policy challenge involves steering technology toward inclusive outcomes without stifling innovation. This requires active industrial policy, thoughtful regulation, and potentially significant changes to how we tax capital versus labor. None of this is simple, but the alternative—allowing technological change to further hollow out the economic middle class—represents a clear pathway to democratic collapse.

Can Democracy Deliver Again?

The central question isn’t whether democracy faces a crisis—democracy is going through a very, very tough stretch, in part because it has not realized its promise for all people, particularly those at the lower end of the labor market. The question is whether democratic systems retain sufficient institutional capacity to reform themselves.

Acemoglu’s framework suggests cautious optimism grounded in historical realism. Democracies have weathered serious challenges before—the Great Depression, World War II, the civil rights struggles. Each time, reform came not from benevolent elites but from mobilized citizens demanding that institutions live up to their stated values.

The narrow corridor theory reminds us that democratic liberty has never been the default state. It emerges only from continuous struggle—the Red Queen effect, where state and society must keep running just to stay in place. Complacency leads to drift toward either despotism or anarchy.

Current global trends provide both warning and possibility. In Thailand, Zambia, and other nations, democracy eroded but people resisted growing authoritarianism, allowing these countries to partially or fully restore previous levels of liberal democracy. These reversals demonstrate that when democracy deteriorates, its fate isn’t sealed—institutions can be reclaimed through organized citizen action.

The Stakes: Liberty and Prosperity

The conversation with Acemoglu ultimately centers on what we risk losing. Democracy isn’t merely a set of procedures for selecting leaders—it’s the institutional foundation for both human liberty and shared prosperity.

It’s very difficult to maintain economic inclusion when ruled by the iron fist of an autocrat, Acemoglu notes. The extractive institutions that characterize autocracies systematically prevent the broad-based innovation, education, and entrepreneurship that drive sustained economic growth.

The stakes extend beyond economics to human dignity and freedom. Autocratic alternatives promise efficiency and decisive action, but they deliver neither. Instead, they concentrate power in ways that ultimately serve narrow interests while suppressing the very social dynamism that makes societies vibrant and productive.

For liberal democracy to survive this age of spiraling crises, it must rediscover its core promise: building inclusive institutions that genuinely serve the broad public rather than narrow elites. This requires confronting economic inequality, repairing social trust, reforming broken political systems, and ensuring that technological change serves human flourishing rather than extractive concentration.

The narrow corridor ahead is treacherous. But it remains navigable—if we choose to walk it with clear eyes and determined purpose.

About the Research

This analysis draws on Daron Acemoglu’s extensive body of work, including “Why Nations Fail” (2012) with James Robinson, “The Narrow Corridor” (2019), and his recent Project Syndicate commentaries on democratic crisis and working-class politics. Data sources include the Varieties of Democracy (V-Dem) Institute, OECD inequality statistics, Pew Research Center political surveys, and World Bank inequality metrics.

A Political Analyst’s Reflection on Twelve Months That Redefined Power, Progress, and Planetary Limits

When historians thumb through the annals of the early 21st century, 2025 will stand out—not for a single cataclysmic event, but for the way disparate forces converged to accelerate transformations already underway. It was the year artificial intelligence moved from boardroom buzzword to economic driver, when climate records tumbled with disturbing regularity, and when geopolitical fault lines cracked open in ways that will shape international relations for decades.

I’ve covered politics and global affairs for two decades, but few years have felt as consequent as this one. From my perch watching these events unfold, 2025 revealed something fundamental: the post-Cold War order isn’t gradually evolving—it’s being actively dismantled and rebuilt, often simultaneously, by forces ranging from Silicon Valley boardrooms to Kathmandu’s streets.

The AI Gold Rush: When Technology Became Infrastructure

If 2023 introduced the world to generative AI’s possibilities, 2025 was the year it became undeniable infrastructure. The numbers tell a staggering story: global AI spending reached approximately $1.5 trillion this year, according to Gartner projections, while private investment in AI companies surged to $202.3 billion—a 75% increase from 2024.

The United States dominated this landscape with almost imperial confidence. U.S. private AI investment hit $109.1 billion in 2024 data, nearly twelve times China’s $9.3 billion. The San Francisco Bay Area alone captured $122 billion in AI funding this year—more than three-quarters of U.S. investment. When President Trump announced the $500 billion “Stargate” project with OpenAI, SoftBank, and Oracle, it wasn’t just industrial policy; it was a declaration that whoever controls AI’s commanding heights will shape the global economy.

But this gold rush came with costs that extend beyond quarterly earnings. Business usage of AI jumped from 55% of organizations in 2023 to 78% in 2024, and that acceleration continued through 2025. Yet as JP Morgan economists noted, AI-related capital expenditures contributed 1.1% to GDP growth in the first half of 2025—actually outpacing consumer spending as an engine of expansion.

The human toll proved harder to quantify. Companies increasingly cited AI adoption when announcing mass layoffs. The technology stands accused of fueling misinformation campaigns, faces mushrooming copyright lawsuits, and has sparked fears of a speculative bubble reminiscent of the 1990s dot-com crash. China’s DeepSeek R1 demonstrated that the computing gap between Beijing and Silicon Valley is narrowing faster than many anticipated, adding geopolitical urgency to what was already an economic arms race.

By year’s end, 88% of organizations reported regular AI use—but most had yet to embed these tools deeply enough to realize material benefits. The promise of transformation remains largely that: a promise, expensive and unproven at scale.

Trump’s Return: Disruption as Governing Philosophy

Donald Trump’s return to the White House on January 20 marked more than a political restoration. At 78, he became the oldest person to win the presidency and only the second to serve non-consecutive terms. But age and precedent mattered less than the velocity of change he unleashed.

Within hours of taking office, Trump signed executive orders withdrawing from the World Health Organization and the Paris Climate Agreement, initiated what he termed “mass deportations” of undocumented immigrants, and set in motion the dismantling of diversity and inclusion programs across the federal government. The National Guard deployed to Democratic-voting cities. Media outlets faced presidential intimidation. The administrative state found itself under systematic assault.

Yet Trump’s most consequential policy lever proved to be the one Alexander Hamilton championed in the Federalist Papers: tariffs. What began as campaign rhetoric evolved into the most aggressive trade policy since the Great Depression. The administration imposed a minimum 10% tariff on all trading partners, with China facing rates reaching 60%, and specific sectors like steel, aluminum, semiconductors, and pharmaceuticals hit with targeted increases.

The economic impact unfolded like a slow-motion collision. The Tax Foundation calculated that Trump’s imposed tariffs would raise $2.1 trillion over a decade while reducing GDP by 0.5%—and that’s before accounting for foreign retaliation. Penn Wharton’s Budget Model projected even grimmer consequences: an 8% GDP reduction and 7% wage decline, costing a middle-income household approximately $58,000 over their lifetime.

Real-world effects arrived swiftly. The U.S. economy actually contracted at an annual rate of 0.6% in early 2025 as businesses braced for the tariff onslaught. Brazilian coffee exports to the United States fell by 32.2% after facing 50% tariffs. Switzerland’s economy shrank in the third quarter at the fastest rate since the pandemic. By November, only 36% of Americans approved of Trump’s economic stewardship—his worst mark in six years of polling.

The tariffs raised $30 billion monthly by August, but revenue projections kept declining as economists factored in reduced trade volumes, foreign retaliation, and slower economic growth. What Trump positioned as economic nationalism increasingly resembled fiscal folly: the largest tax increase as a percentage of GDP since 1993, implemented to fund tax cuts that benefited primarily the wealthy while raising consumer prices for everyone else.

Climate’s Unrelenting March

While politicians debated policy, the planet delivered its verdict. Data from multiple scientific agencies confirmed 2025 as either the second or third warmest year on record, with global average temperatures running 1.42°C above pre-industrial levels through August. More ominously, the three-year average for 2023-2025 exceeded 1.5°C for the first time—the threshold scientists had long warned against breaching.

The past eleven years, from 2015 to 2025, now constitute the eleven warmest in the 176-year observational record. Arctic sea ice extent after winter freeze reached the lowest level ever recorded. Ocean heat content hit new records. And approximately 7% of Earth’s surface experienced record warming in just the first six months of the year.

These weren’t abstract statistics. The Los Angeles wildfires that erupted January 7 burned for a month, destroying more than 16,000 structures and killing 30 people. With costs estimated between $76 billion and $131 billion, it became one of the costliest disasters in U.S. history. Typhoon Kalmaegi killed more than 200 people across the Philippines, Vietnam, and Thailand in November. Catastrophic flooding in Southeast Asia claimed over 1,700 lives when tropical cyclones struck in late November, demonstrating how climate change intensifies the water cycle—for every degree Celsius of warming, air holds 7% more moisture.

The World Meteorological Organization projected that without dramatic emission reductions, multi-decadal global temperatures will at least temporarily exceed 1.5°C within the next decade. UN Environment Programme modeling found the world now heading toward 1.8°C warming before potentially falling back below 1.5°C before century’s end—but only if nations implement aggressive mitigation policies they’ve mostly failed to enact.

“Each year above 1.5 degrees will hammer economies, deepen inequalities and inflict irreversible damage,” WMO Secretary-General Celeste Saulo warned. Yet greenhouse gas concentrations continued rising throughout 2025, and the gap between climate commitments and climate action grew wider, not narrower.

Gaza: A Fragile Peace After Years of Devastation

Few conflicts commanded global attention like the Gaza war, which entered its third year before President Trump brokered a ceasefire that went into effect October 10. The numbers behind the agreement were staggering and tragic: the war had killed at least 67,869 Palestinians according to Gaza’s Health Ministry, following the Hamas-led attack on October 7, 2023, that killed 1,144 Israelis.

Trump’s 20-point peace plan, announced September 29, required Hamas to release all living hostages and hand over deceased hostages’ remains within 72 hours of Israeli forces withdrawing to designated “yellow lines” within Gaza. Israel agreed to release 2,000 Palestinian prisoners, including 250 serving life sentences. On October 13, all 20 remaining living Israeli hostages walked free.

But if the ceasefire formally ended the war, it did little to resolve the underlying conflicts. According to Gaza’s Government Media Office, Israel violated the ceasefire at least 875 times between October 10 and December 22—through shootings, raids, bombings, and property demolitions. Since the ceasefire began, Israeli attacks killed at least 406 Palestinians and injured 1,118 more.

The deadliest incident occurred October 29, when Israel killed 104 people, including 46 children, after accusing Hamas of ceasefire violations. Trump defended the strikes from Air Force One, saying Israel “should hit back” and warning that Hamas would be “terminated” if they didn’t “behave.”

The peace plan’s subsequent phases remain mired in fundamental disagreements. Israel refuses to allow a Palestinian state. Hamas refuses to disarm. The UN Security Council approved a U.S. resolution on November 17 establishing an International Stabilization Force for Gaza and calling for the Palestinian Authority to assume governance by 2027, but implementation faces massive obstacles. The World Bank estimates Gaza reconstruction will cost more than $70 billion—and no one has explained where that funding will come from.

The Gen Z Uprising: Youth Demand Their Voice

September 8 marked the beginning of the most dramatic Gen Z protest of 2025: thousands of students in Nepal took to the streets to oppose the government’s sweeping social media ban. The uprising created vivid images—protesters hanging a Jolly Roger flag from the manga One Piece on gates as the Singha Durbar government complex burned behind them. By the time the demonstrations subsided, at least 22 people were dead, hundreds were injured, and Prime Minister K.P. Sharma Oli had resigned.

Nepal’s revolt formed part of a broader pattern. From Morocco to Indonesia, young people under 30 led mass movements against poor living standards, social media censorship, and elite corruption. Australia implemented a social media ban for those under 16 on December 10, applying to YouTube, Facebook, Instagram, X, and TikTok. India’s government grappled with youth protests over economic opportunities. In Morocco, the government promised social reforms but then prosecuted more than 2,000 demonstrators.

These movements enjoyed mixed success, but they revealed something significant: a generation that came of age during global financial crisis, pandemic lockdowns, and climate anxiety refuses to accept the world older generations are handing them. They’re digitally native, globally connected, and increasingly willing to risk state violence to demand change.

Ukraine: The War That Wouldn’t End

The war in Ukraine ground through its fourth year with punishing arithmetic. Russia lost roughly 1,000 soldiers daily, according to estimates, yet increased its control of Ukrainian territory by less than 1% throughout 2025. Those meager gains came at costs that strain comprehension—both in lives and treasure.

Russia intensified its missile and drone campaigns, repeatedly striking Ukrainian cities and causing heavy civilian casualties. In March, Russian forces reclaimed Kursk province, which Ukraine had seized in a surprise invasion the previous August. Ukraine stunned observers in June with Operation Spiderweb—a covert drone strike deep into Russia that hit five air bases. Yet the attack failed to change the war’s basic dynamics.

President Trump’s approach oscillated between engagement and confrontation. In February, he berated President Zelensky in the Oval Office, accusing him of risking World War III. An August summit with Putin in Alaska ended early, with Washington accusing Moscow of not being serious about peace. Trump later imposed his first major sanctions package on Russia. By November, international negotiations based on a draft U.S. plan commenced, though Kyiv and European allies initially considered the proposal largely favorable to Moscow.

Experts continue debating how long both sides can sustain the conflict, but most agree Ukraine’s position looks increasingly precarious. The EU approved a €90 billion loan for Ukraine over two years, structured so Kyiv only repays once Russia pays reparations—a condition that acknowledges peace remains distant and uncertain.

The Bondi Beach Massacre: Terror Returns to Australia

December 14 brought Australia’s deadliest terrorist incident in history when a father and son opened fire on a Hanukkah celebration at Sydney’s Bondi Beach, killing 15 people and injuring more than 40. Police fatally shot one gunman; both were said to be motivated by Islamic State ideology.

The attack shook a nation that had implemented some of the world’s strictest gun laws following the 1996 Port Arthur massacre. It raised uncomfortable questions about radicalization, security screening, and whether bureaucratic delays in gun licensing contributed to the tragedy. An Australian state leader later revealed the main suspect faced lengthy delays in obtaining a gun license due to administrative backlogs, not suspicion.

The massacre also highlighted the persistent threat of ISIS-inspired violence even as the Islamic State’s territorial caliphate had collapsed years earlier. The ideology proved more durable than the territory, capable of inspiring attacks from New Orleans (where a man inspired by ISIS drove into crowds on New Year’s Day, killing multiple people) to Sydney’s beaches.

The First American Pope and the Church’s New Direction

On May 8, the College of Cardinals elected Cardinal Robert Prevost as Pope Leo XIV, making him the first American pontiff in Catholic Church history. The Chicago-born clergyman, who spent nearly 20 years as a missionary in Peru and obtained citizenship there, took the papal name Leo XIV at age 69.

Pope Leo XIV inherited a church grappling with declining attendance in the Global North, clergy abuse scandals, and questions about its relevance to younger generations. His predecessor, Pope Francis, had died April 21 at age 88 after hospitalization for respiratory issues. Francis had been canonized for his focus on the poor, migrants, and the environment—causes Leo XIV signaled he would continue.

Yet the new pope also offered reassurances to conservative circles by ruling out, at least in the short term, the ordination of women as deacons and recognition of same-sex marriage. This balancing act—progressive on economic justice and climate, traditional on doctrine and gender roles—will define his papacy and likely determine whether the Church can retain influence as secularization accelerates across developed nations.

Carlo Acutis, who died at age 15 from leukemia, was canonized on September 7, becoming widely venerated as “the first millennial saint” and “the patron saint of the Internet” for his interest in using digital communication to teach others. His canonization reflected the Church’s attempt to remain relevant in an increasingly digital age.

Democracy Under Strain: Elections and Erosions

The year delivered a mixed verdict on democratic governance. In New York City, Zohran Mamdani, a self-described democratic socialist, won the mayoral race on November 4, defeating better-known candidates with promises to make the city more affordable. India won its first Women’s Cricket World Cup on November 2, a cultural milestone in a nation where women’s sports traditionally received little support or recognition.

But democratic backsliding accelerated elsewhere. Charlie Kirk, the conservative activist and Trump ally who founded Turning Point USA, was assassinated on September 10 while speaking at Utah Valley University. His killing sent shockwaves through American political movements on both left and right, raising fears of escalating political violence.

Elections across Europe and Asia revealed voters’ discontent with incumbent governments yet offered few clear alternatives. Czech elections on October 3-4 saw former Prime Minister Andrej Babiš win a plurality but fail to reach a majority. Bulgaria’s government resigned in December following major protests, extending a political crisis that began in 2021. Chile elected José Antonio Kast as president, marking a rightward shift in a nation that had recently elected progressive leaders.

The pattern suggested voters everywhere wanted change but disagreed fundamentally about what kind. Populism continued gaining ground, traditional parties fragmented, and the center struggled to hold.

Notable Passages and Cultural Moments

Not everything in 2025 spoke to crisis. Rebecca Yarros published Onyx Storm, the third installment in her Empyrean “romantasy” series on January 21, breaking sales records with more than 2.7 million copies sold in its first week—the fastest-selling adult fiction title in 20 years. The cultural hunger for escapist fantasy suggested audiences wanted relief from a relentlessly difficult present.

Inter Miami CF, led by Lionel Messi, won its first Major League Soccer Cup on December 6, marking a triumph for both the legendary player and American soccer’s growing ambitions. The fictional K-pop group from the Netflix series K-Pop Demon Hunters saw their song “Golden” hit No. 1 on the Billboard Hot 100, becoming the first K-pop girl group, real or fictional, to reach the top slot. The movie became Netflix’s most-watched film of all time.

On October 19, thieves dressed as workers used a furniture ladder to break into Paris’s Louvre Museum, fleeing on scooters with Crown Jewels valued at €88 million (though they dropped a diamond-encrusted crown during their escape). Three suspects were charged and jailed, but the stolen treasures remained missing—a crime that sparked worldwide headlines and debates about security at the world’s most-visited museum.

And on December 16, the world celebrated the 250th anniversary of Jane Austen’s birth, a reminder that some cultural touchstones endure regardless of technological disruption or geopolitical turbulence.

What 2025 Revealed About Our Trajectory

Standing at year’s end, several patterns emerge from the chaos. First, the American-led international order that structured global affairs since 1945 is dissolving faster than any replacement is being built. Trump’s tariffs, his simultaneous courtship and confrontation with traditional allies, and his transactional approach to alliances all signal that the rules-based system is giving way to something more Hobbesian—though what precisely remains unclear.

Second, climate change has moved from future threat to present reality in ways that penetrate public consciousness even as political action remains inadequate. When Los Angeles burns and Southeast Asian floods kill thousands, the connection between fossil fuel emissions and human suffering becomes harder to dismiss as alarmist speculation.

Third, artificial intelligence is reshaping economic structures at a pace that makes measured policy responses nearly impossible. By the time regulators understand last year’s technology, next year’s innovation has already been deployed. The $1.5 trillion in AI spending this year will seem quaint when we look back from 2030.

Fourth, young people globally are losing patience with systems that offer them diminishing opportunities while demanding their compliance. From Kathmandu to New York, Gen Z is increasingly willing to take risks their parents avoided. Whether this energy produces meaningful reform or violent backlash will shape the decade ahead.

Fifth, the search for peace in long-running conflicts—Ukraine, Gaza, Yemen—keeps producing agreements that paper over rather than resolve fundamental disagreements. Ceasefires hold, barely, while the underlying causes of war remain unaddressed. This is not stability; it’s a fragile pause before the next round.

Looking Forward: 2026 and Beyond

As we enter 2026, several questions demand answers. Can AI deliver on its enormous promises without triggering economic dislocation or enabling authoritarian control? Will democracies find ways to address voter anger, or will that anger keep empowering demagogues who offer simple answers to complex problems? Can the international community mobilize the resources needed to prevent climate change from triggering mass displacement and resource wars?

And perhaps most fundamentally: Is the post-1945 liberal international order worth saving, or should we accept that we’re entering a multipolar world where might increasingly makes right?

The optimist in me notes that humanity has navigated periods of comparable disruption before. The pessimist observes that such transitions typically involved considerable suffering before new equilibria emerged.

What’s undeniable is that 2025 represented not an aberration but an acceleration. The forces reshaping our world—technological, environmental, political, demographic—aren’t slowing down. If anything, they’re compounding, creating feedback loops that make prediction increasingly hazardous.

Those of us who chronicle these changes bear a responsibility to document not just events but patterns, not just what happened but what it might mean. And what 2025 meant, I believe, is this: the old world is dying, the new world struggles to be born, and in this interregnum, many monsters appear.

Whether 2026 brings us closer to resolution or deeper into crisis, one lesson from 2025 endures: change is the only constant, and our capacity to shape that change depends on our willingness to see clearly, think honestly, and act courageously in the face of enormous complexity.

The year ahead will test whether we’re equal to that challenge.