A Risky Future?

In this column, we have already referred to the analyses and reports carried out by the Eurasia Group, perhaps the most successful company in the field of political risk analysis. In these times, so marked by uncertainty, it seems appropriate to share with my dear readers what this consultancy considers to be the main risks in the international political arena for 2020.

After a decade of recovery and globalization following the 2008 crisis, the year 2020 presents great risks, which hasn’t been the case for a decade. Eurasia Group describes a context in which countries close their borders to trade and cooperation. The trade war between the United States and China puts at risk one of the central parts of the contemporary economic system: information technologies. Also, economists expect the recession to take hold in 2020 and 2021, and that trade conflagration and political conflicts could break fragile balances. In this scenario, Eurasia Group describes 10 global risks for 2020.

In first place, the publication lists the 2020 U.S. election. Eurasia Group — for the first time — lists internal sources within the U.S. political system as a global risk. The uncertainty about the outcome of the U.S. election rests on the decision of Congress regarding the impeachment of President Donald Trump. This creates a climate of uncertainty, in place of a previously firm forecast of Trump’s reelection. This trend is accompanied by a loss of confidence in institutions; only 53% of Americans think that the next election will be fair. Thus, we will see a more divided U.S. Congress after the election.

As the second risk, the trade war between the United States and China can be interpreted as a major technological decoupling: the end of cooperation to improve technology and form links of common value. Xi Jinping has called for an end to his country’s dependence on U.S. technology, just as Trump has mentioned his intention to relocate the factories that have moved to China. This decoupling will affect the information technology industries, which currently represent $5 trillion globally. The focus of the dispute in this field is strategic technology, such as semiconductors, cloud computing and the start of 5G networks, elements that impact the security of both countries.

This technological decoupling will further separate trade between the two countries, financial markets and the exchange of human talent: the third risk. The decoupling will lead to an escalation in security issues and a breach of cooperation in the markets, as well as bring into question whether there really is a solution to the commercial war. Technological distancing is likely to deepen in the future. Meanwhile, in the short term, the trade war can escalate into a financial war between the two countries.

As the fourth risk, Eurasia Group lists multinational corporations less connected to social and global problems. They will not fill leadership gaps in managing global concerns, such as climate change, the alleviation of poverty and the liberalization of trade and investment. These companies represent more than 50% of world trade, a third of production and a quarter of employment. The regulatory reforms of national governments will increase transaction costs and increase emphasis on profits. Of most importance in 2020 will be data privacy policies in Europe, the OECD global digital tax and China’s Unreliable Entities Blacklist.*

As the fifth risk, the social and military policies agenda of Narendra Modi in India could reduce Indian growth to 4.5% in 2020. Modi has spent much of his second term promoting social policies without clear guidance in their formulation. The impacts in 2020 will manifest themselves in internal polarization and in foreign policy, but mainly as lower growth. After his reelection, efforts to increase nuclear capacity against Pakistan and a more protectionist agenda derived from his political party have the potential of reversing the economic gains of the Modi administration.

Ursula von der Leyen, the new president of the European Commission, and French President Emmanuel Macron share a more active vision of the future of Europe, for example, by regulating U.S. technology monopolies. In the short term, tariffs on European cars by the United States could impact 9 billion euros ($9.99 billion), principally in Germany, but also in an automotive value chain distributed throughout Eastern Europe. The European Union could set retaliatory tariffs against threats from the United States or Britain.

Failure to meet the environmental commitments of the Paris Agreement is the seventh risk, for the factors of climate change will become more acute. The exit of the United States from the agreement is one of the first signs of lessened cooperation. The costs of climate change are still too widespread for global companies to adopt. Countries may not be able to prevent the rise of 1.5 degrees Celsius by the end of the century. On the contrary, they will reach a high-risk threshold of 2 degrees with the current warming rate.

As an eighth risk, the situation in Iran after the assassination of Qassem Soleimani and the reactions of both countries triggered alliances in the region. However, none of the actors want an escalation of the conflict, and the United States, in particular, seeks to maintain a moderate position. With an intervention, the mistakes of Barack Obama and Trump in Syria could be repeated in the conflict with Iran. Also, the actions of Iran have put Iraq at risk in global markets; it is the second-largest producer among OPEC countries.

As the ninth risk, discontent in Latin America can strongly alter its economies. This lack of trust reduces the ability of governments to take austerity measures. The election of anti-establishment presidents in Argentina (2019) and Brazil (2018) put stability reforms at risk. In Argentina, President Alberto Fernández was elected by voters who were angry about the austerity reforms of Mauricio Macri. Meanwhile, in Chile, protests forced President Sebastián Piñera to increase social spending and reform the constitution. In Mexico, President Andrés Manuel López Obrador maintains the highest popularity among the countries in the region, but his promise to maintain fiscal stability and increase spending will be difficult to maintain in an atmosphere of deceleration and lower oil production.

As the 10th risk, the government of Turkish President Recep Tayyip Erdogan has entered a period of sharp decline in presidential approval. Erdogan has promoted nationalist policies that have led to confrontations among different factions of society. Also, Erdogan will use unconventional means to defend the currency, which will damage the confidence of investors. In 2020, state banks will intervene in the market with currency sales, an action that the financial market will punish.

Thus, the picture is not very satisfying. I do not think I am mistaken in describing the global future as a risky one. We will see.

*Translator’s note: With the establishment of a list of companies it calls “unreliable entities,” China is planning to sanction foreign companies that damage their Chinese counterparts.

About this publication

About Patricia Simoni 182 Articles
I began contributing to Watching America in 2009 and continue to enjoy working with its dedicated translators and editors. Latin America, where I lived and worked for over four years, is of special interest to me. Presently a retiree, I live in Morgantown, West Virginia, where I enjoy the beauty of this rural state and traditional Appalachian fiddling with friends. Working toward the mission of WA, to help those in the U.S. see ourselves as others see us, gives me a sense of purpose.

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