ISA Monthly Issues to Watch - February 2026
Trump Isolates the US
In recent weeks, President Donald Trump has accelerated his efforts to isolate the United States from much of the rest of the world. Most noticeably, he has strained the US’ relationship with many of its closest allies. In the Asia-Pacific region, US allies such as Japan, South Korea and Australia are concerned that the US will not back them in a potential dispute with China. In Europe, President Trump’s calls for the United States to seize Greenland has convinced many of the US’ closest allies in Europe that the US might be a threat to European security, forcing them to seek a greater level of strategic autonomy.
At the same time, the United States has withdrawn from many international organizations in recent weeks, in many cases becoming the only major country in the world not to be a member of these organizations. Moreover, President Trump continues to impose tariffs on nearly all of the US’ leading trade partners, forcing them to seek trade deals with other countries. The more this isolation takes hold, the harder it is to see how it will benefit the United States over the long-run.
What We Learned from 2025’s Economic Results
Some major economies have released their results for 2025, and we are beginning to learn more about how the global economy fared last year. First, China’s economy expanded by 5.0% last year (astoundingly meeting the Chinese government’s annual growth target once again). This growth was driven largely by exports, as domestic demand in China remained subdued. The European Union’s economy did a little better than expected, growing by 1.5% last year, despite weak growth in its three largest economies.
Elsewhere, it has been a mixed bag, with some economies (Vietnam and Taiwan) growing much faster than expected, while others (South Korea, the Philippines and Mexico) recorded disappointing growth last year. While the United States has yet to release its results for 2025, it is expected that growth will be better than had been expected earlier in the year. That being said, many risks that threatened the global economy last year have been pushed into 2026, including over-concentrated growth, economic bubbles (AI, crypto, debt), inflation and major trade disputes.
China’s Opportunity
While the United States is self-isolating, China is finding itself with a unique opportunity to expand its global reach and influence. Economically, China’s domestic market weakness means that it needs to export more to meet its growth targets. Despite US tariffs on Chinese imports, China’s trade surplus rose to a record-high of $1.2 trillion in 2025, thanks to surging exports to other Asian countries, Europe and Latin America.
Geopolitically, China has also been provided a major opportunity by the global shake-up caused by the United States’ change of direction. In particular, China now has the opportunity to dramatically strengthen its strategic position in Asia, its primary near-term geopolitical goal. This has to be a concern for Taiwan and others that have territorial or maritime disputes with China.
How Far Will the US Dollar Fall?
The United States dollar enjoyed a prolonged period of strength between 2014 and 2024. In fact, with all of the chaos and uncertainty in the world today, the US dollar should be appreciating against most other major currencies, as the US dollar has been the world’s leading safe haven investment in recent decades. At least that was the case until the Trump Administration has been both purposely and inadvertently allowing the US dollar to weaken considerably in recent months. On one hand, the Trump Administration wants a weaker dollar in order to boost US exports. On the other, investors are losing confidence in the Trump Administration’s economic policies.
As these factors remain in place, the US dollar could depreciate further in the weeks and months ahead. This would normally boost US exports, except for the fact that the US is feuding with most of its leading export markets. Meanwhile, outside of the United States, a weaker US dollar could help reduce inflation as most commodities are still priced in US dollars.
Key Elections in February
While some of 2026’s most-anticipated elections will take place later in the year, February will be a month with three critical elections that are taking place in Asia. First, early House of Representative elections will be held in Japan as Prime Minister Sanae Takaichi seeks to build upon her high approval rating. With tensions rising with China, this election may strengthen her hand amid a major geopolitical shake-up in East Asia.
That same day, voters will go to the polls in Thailand to take part in parliamentary elections and a referendum on a new national constitution. This election will take place amid major internal divisions in Thailand as well as an on-again, off-again conflict with Cambodia. Finally, Bangladesh will hold its first parliamentary elections since the 2024 student-led protests that overthrew the authoritarian government of Sheikh Hasina and the Awami League. With the Awami League barred from taking part in these elections, their long-time rivals, the Bangladesh Nationalist Party (BNP), is the favorite to emerge as the winner.
What is Next for Iran?
With conflict risk remaining high in many parts of the world, the flashpoint that holds the most immediate danger is Iran. The recent anti-government protests in that country were a major challenge to Iran’s clerical regime, which eventually launched a crackdown on these protests that left as many as 30,000 people dead and communications in that country severed.
In response, the United States has built up a major naval force in the waters near Iran, leading to the possibility of major US air and missile strikes on government, military and economic targets across Iran. Should this take place, it is likely that Iran will launch counter-attacks US installations and allies the region. Moreover, a large-scale attack could revive the anti-government protests that triggered this unrest in the first place, threatening to finally bring an end to nearly half-a-century of clerical rule in Iran.