eBusiness Weekly
The world is changing fast and 2019 promises to be another bewildering and chaotic year. The rise of China in the East and populists in the West means that, by mid-2018, economies run by mainstream democratic parties accounted for just a third of the combined gross domestic product of the Group of 20 nations, down from 83 percent in 2007, according to Bloomberg Economics.
And that was before the election of two more populist presidents, Andres Manuel Lopez Obrador in Mexico and Jair Bolsonaro in Brazil.
“In 20 years I haven’t operated in an environment like this, ever, because there were always safe havens before. Countries we thought easy to predict are becoming harder to read now,” says Claire Simpson, global claims director at Willis Tower Watson, a global risk advisory and insurance company.
Whether this upheaval is due to a technological revolution, income inequality, a clash of civilisations or Western arrogance (choose your poison), the trend is set to continue.
In 2019, a number of these transitions from the post-Cold War era have the potential to come to a head, each carrying “worst case” risks. To help navigate them, we’ve compiled a calendar of some of the key moments to watch, organised by topic. Happy New Year.
Trade Wars
The 90-day tariff truce that Trump and President Xi Jinping agreed at the recent G-20 expires at the end of February. If they fail, US tariffs would rise on a $200 billion tranche of imports from China. The whipsaw on the S&P 500, as events repeatedly boosted and then undermined belief in the truce, show the stakes.
Worst case: A full-fledged trade war that expands into an open struggle for strategic dominance by the end of the year, undermining growth and security around the globe? Risk: High
Also by February, the US Commerce Department is due to rule on whether automobile imports constitute a national security threat, a designation that would let the US slap higher tariffs on imports of cars without technically breaching World Trade Organisation rules. European, and in particular German car manufacturers have most to lose. US trade talks with Japan could take place any time from January, with more scope for a deal than with the EU. The Japan G-20 summit could be tense as a result.
Worst case: The US raises tariffs on auto imports, triggering a full-fledged trade war with Europe. The G-20, made impotent by rising nationalism, loses relevance.? Risk: High
To close out the year, unless the US stops blocking appointments to the appellate body of the WTO in Geneva, the trade body will on December10 lose the minimum three judge quorum needed to issue rulings.
Worst case: The world loses its dispute resolution mechanism for trade disputes? Risk: High
European Disunion
2019 has potential to become an annus horribilis for the European Union. While Italy looks to have averted for now EU fines for running an excessive deficit, the fragile coalition of two EU-skeptic populist parties in Rome is unlikely to wait long until it next takes on Brussels. A recession and early elections are possible, as they are in Spain. In December a far right party, Vox, won seats in a Spanish regional election for the first time since the death of General Franco. The stakes are high for Europe as a whole.
Worst case: Greece on steroids, a new crisis that breaks up the euro? Risk: Low
Then comes Brexit. The March 29 deadline for the UK to leave the EU approaches with no terms yet agreed and the British parliament so divided that it’s hard to predict an outcome. Brexit is big. London is the seat of European finance and the UK has one of the EU’s largest economies and militaries. The Bank of England, controversially, has projected Brexit to cost anywhere from 1,5 percent to 10,5 percent of gross domestic product (currently $2,6 trillion) over five years, depending on how the UK leaves.
Worst case: A bitter, disorderly Brexit without agreement on its terms that imposes heavy economic costs on both sides and damages security cooperation against common threats? Risk: Low, though as BoE Governor Mark Carney put it, still “uncomfortably high”.
A third challenge to the EU comes from elections to the European Parliament. The May 23-26 vote is shaping up as a major test of the EU’s popularity and of the upstart nationalist and populist parties straining against it. Former Trump strategist and alt-right hero Steve Bannon has said he will co-ordinate the campaigns of nationalist parties across the bloc. Leading the charge against them? A diminished French President Emmanuel Macron and lame duck German Chancellor Angela Merkel. All of the above will feed into the always fraught selection, by late October, of the next presidents of the European Central Bank, European Commission and European Council.
Worst case: The populists win big, gaining enough seats in parliament both to hobble the EU’s legislative process and boost prospects for nationalist victories and agendas across Europe.? Risk of populist gains: High
Trump
The US president gets his own category, too. If the last two years have been eventful, 2019 will be more so. The Mueller investigation into alleged collusion between the 2016 Trump election campaign and Russia could deliver its findings in the first part of the year.
These won’t necessarily be made public, or produce any impeachable offense. Yet they will add to turmoil and distraction in a White House that, after November’s midterm rout of Republicans in the House and the departure of Mattis and other key officials seen as stabilising factors on the mercurial president, will increasingly be on the defensive with a hostile Congress spoiling for new investigations, including into Trump’s finances.
The political temperature will only rise through the year, as both Trump and his opponents move to campaign ahead of the presidential election in 2020.
Worst case: Political gridlock in Washington and yet more Twitter bombs launched into sensitive foreign policy issues to draw attention away from the investigation? Risk: High
A New Arms Race
On December 4, Donald Trump gave Russia 60 days to comply with the Intermediate-range Nuclear Forces Treaty or see Washington trigger a six-month notice period to end its commitments not to produce land-based missiles and launchers that have a range of 500 kilometres to 5 500 kilometres. The clock runs out at the end of February.
The 1987 treaty was negotiated between the US and then-Soviet Union to dismantle thousands of middle-range nuclear missiles in Europe. Shorter trajectories made them hard to respond to and therefore destabilising. That remains true today, but non-signatory China wasn’t covered and now has a large arsenal of them. Russia says it hasn’t breached the treaty’s terms. — Bloomberg.
