The world is changing fast and this year promises to be another bewildering and chaotic one.
The rise of China in the east and populists in the West means that, by the middle of last year, economies run by mainstream democratic parties accounted for just one-third of the G20’s combined GDP, down from 83 percent in 2007, according to Bloomberg Economics.
And that was before the election of two more populists: Mexican President Andres Manuel Lopez Obrador and Brazilian president-elect Jair Bolsonaro.
Illustration: Yusha
“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,” said Claire Simpson, global claims director at Willis Tower Watson PLC, a global risk advisory and insurance company.
Whether this upheaval is due to a technological revolution, income inequality, a clash of civilizations or Western arrogance, the trend is set to continue. This year, a number of these transitions from the post-Cold War era have the potential to come to a head, each carrying “worst case” risks.
A calendar of some of the key moments to watch, organized by topic:
NEW ARMS RACE
On Dec. 4, US President Donald Trump gave Russia 60 days to comply with the Intermediate-range Nuclear Forces (INF) Treaty or see Washington trigger a six-month notice period to end its commitments not to produce land-based missiles and launchers with a range of 500km to 5,500km.
The 1987 treaty was negotiated between the US and the former Soviet Union to dismantle thousands of middle-range nuclear missiles in Europe. Shorter trajectories made them hard to respond to and therefore destabilizing. That remains true today, but non-signatory China was not covered and now has a large arsenal of such missiles.
Russia has said that it has not breached the treaty’s terms.
Worst case: The US exits and Russia points previously banned missiles at its Western neighbors, supercharging an arms race in high-tech weapons already underway, and tossing a political grenade into NATO as the US, and eastern and western European members divide over whether to respond in kind.
Risk of INF treaty collapse: High. Risk of new nuclear arms race in Europe: Medium.
RUSSIA
A survey held last year for Willis Towers Watson found that its larger clients suffered the most losses in Russia, often as a result of sanctions. So, Russia gets its own category. The Kremlin might have given up on cultivating Trump after he canceled two meetings with Russian President Vladimir Putin toward the end of the year.
Russia’s meddling in foreign elections, and its efforts to extend influence in the Balkans and former Soviet republics look set to continue, with further US sanctions in response. A summit between the nations’ leaders in Washington, previously floated for this year, appears to be in jeopardy, although they could potentially meet at the next G20 summit in Japan in June.
Trump’s sudden decisions to pull US troops out of Syria and Afghanistan — longstanding Russian demands — and the departure today of US secretary of defense James Mattis, a Russia hawk, won praise from the Kremlin, but officials there remain skeptical that a genuine detente is possible.
Worst case: US-Russian relations descend into open hostility, affecting arms control and areas where they had until now been able to cooperate.
Risk: High.
TRADE WARS
The 90-day tariff truce that Trump and Chinese President Xi Jinping (習近平) agreed at the G20 meeting in Buenos Aires expires at the end of next month. If they fail, US tariffs would rise on a US$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 shows the stakes.
Worst case: A full-fledged trade war erupts 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 next month, the US Department of Commerce is due to rule on whether automobile imports constitute a national security threat, which would let the US slap higher tariffs on imports of cars without technically breaching WTO rules. European and in particular German car manufacturers have the most to lose. US trade talks with Japan could take place any time from this month, with more scope for a deal than with the EU. The G20 summit in Japan could be tense as a result.
Worst case: The US raises tariffs on auto imports, triggering a full-fledged trade war with Europe. The G20, 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, it will on Dec. 10 lose the minimum three-judge quorum needed to issue rulings.
Worst case: The world loses its dispute resolution mechanism for trade disputes.
Risk: High.
WAR
US pressure on Iran will build, after Trump withdrew from the 2015 nuclear deal and, in November last year, reimposed so-called secondary sanctions on companies from other countries that breach US sanctions. The strategy, backed by Israel, Saudi Arabia and the United Arab Emirates, is to squeeze Iran out of Yemen, Syria, Lebanon and Iraq, and back to the nuclear negotiating table. So far, the effort has had both limited cost and success, but with sanctions taking full effect, this could be an eventful year. With so many flashpoints, the potential for escalation is clear.
Worst case: Iran restarts nuclear fuel production, prompting a rapid escalation. Pressured, Tehran tries to block the Strait of Hormuz, where it has naval exercises scheduled for August and through which 30 percent of the world’s crude oil passes.
Risk: Medium.
North Korea would have topped any list of global security threats at the start of last year, but a summit in June between Trump and North Korean leader Kim Jong-un defused an escalatory spiral of threats and ballistic missile tests. Things remain calm, but Kim shows no sign of genuinely dismantling his nuclear or missile programs, and likely used the detente to stockpile nuclear material and improve his weapons systems.
Kim has said that the arrogance of US demands is to blame for the lack of progress. Trump has said that he wants another meeting, this or next month. Annual US-South Korean military exercises usually take place in March and August.
Worst case: a summit bust-up that leads to a renewed cycle of escalation.
Risk: Low.
The conflict in Ukraine returned to the headlines in November last year, when Russian special forces rammed, fired on and seized three Ukrainian naval vessels making their way into the Sea of Azov. Russia had been restricting commercial shipping to Ukrainian commercial ports in the sea for months before. The rhetorical fireworks between Kiev and Moscow are unlikely to die down before Ukrainian presidential elections on March 31.
>
Worst case: political instability and an incident that escalates to a renewed Russian-Ukrainian war.
Risk: Medium.
Afghanistan is to hold presidential elections on April 20. The US, anxious to find an exit from a war that is now in its 18th year, is raising the pace of peace talks with the Taliban, which ruled the country at the time of the Sept. 11, 2001, attacks on the US. Washington is also pressuring Pakistan to cooperate. Trump’s plan to cut the US troop presence in half, if it happens, could further undermine the government and its weak army, emboldening the Taliban to take an even tougher line.
Worst case: The war intensifies and the government loses more ground as the Taliban pushes its advantage amid the US pullout.
Risk: High.
The war in Syria looks certain to continue for an eighth year with the planned US military withdrawal strengthening Syrian President Bashar al-Assad, and his Russian and Iranian backers. Turkey put off its planned offensive against Kurdish fighters who control much of northeast Syria after Trump’s surprise announcement of his plan to pull out of the country, but has vowed to defeat the erstwhile US allies. Trump’s move could also open the way for Iran to expand its presence in Syria, sparking more intense skirmishes with Israel. Russia might call time on a truce in which it agreed not to attack Idlib, the last major territory held by rebels. The truce is designed to give Turkey time to clear militants and heavy weaponry from the area.
Worst case: The war escalates into a wider conflict among regional powers, driving more refugees to Jordan, Lebanon and Turkey.
Risk: High.
Nigeria holds elections on Feb. 16 and an intensified campaign by an Islamic State-allied faction of Boko Haram is expected. After declaring victory, Nigeria’s military has struggled to reassert control over swathes of the country and has suffered a succession of humiliating defeats as Boko Haram overran under-resourced military posts to seize their weapons stores. There is fear of a major campaign to come.
Worst case: Boko Haram gets a fresh wind as a demoralized Nigerian military fails to protect polling booths and civilians from attack.
Risk: High.
The opening of Ethiopia’s much delayed US$4.8 billion hydroelectric dam project on the Blue Nile is now expected this year. The effects of filling the dam on Egypt have led to intense negotiations over how long the process should take, with a possible range of three to 15 years. That is too short and Egypt, which is already water-starved, could lose 20 percent of its supply. Ethiopia is anxious to start generating power to defray the investment cost. At times, Egyptian leaders have hinted at a military solution, but for now, diplomacy rules.
Worst case: Ethiopia starts filling the dam at a high rate with no agreement in place, triggering an Egyptian response.
Risk: Medium.
EUROPEAN UNION
This year has potential to become an annus horribilis for the EU. While Italy looks to have averted EU fines for running an excessive deficit, the fragile coalition of two euroskeptic 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. Last month, a far-right party won seats in a Spanish regional election for the first time since the death of dictator Francisco Franco. The stakes are high for Europe as a whole. French and German banks held more than US$400 billion of Italian debt last year, compared with US$115 billion of Greek debt at the start of that country’s debt crisis in 2010.
Worst case: Greece on steroids, a new crisis that breaks up the euro.
Risk: Low.
The March 29 deadline for the UK to leave the EU approaches with no terms yet agreed and the UK parliament so divided that it is 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 (BOE), controversially, has projected that Brexit could cost anywhere from 1.5 percent to 10.5 percent of GDP (US$2.6 trillion last year) over five years, depending on how the UK leaves.
Worst case: a bitter, disorderly Brexit without agreement on terms that imposes heavy economic costs on both sides and damages security cooperation against common threats.
Risk: Low, but, as BOE Governor Mark Carney put it, still “uncomfortably high.”
A third challenge to the EU comes from the European Parliament elections. The vote from May 23 to May 26 is shaping up as a major test of the EU’s popularity and of the upstart nationalist and populist parties straining against it.
Former White House chief strategist Steve Bannon has said that he would coordinate the campaigns of nationalist parties across the EU. 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 to hobble the EU’s legislative process and boost prospects for nationalist victories and agendas across Europe.
Risk of populist gains: High.
DONALD TRUMP
If the past two years have been eventful, this year will be more so. US Special Counsel Robert Mueller’s investigation into alleged collusion between the 2016 Trump campaign and Russia could deliver its findings in the first part of the year.
They will not necessarily be made public or produce any impeachable offense, yet they will add to turmoil and distraction in a White House that, after November last year’s midterm rout of Republicans in the US House of Representatives, and the departures of Mattis and other key officials seen as stabilizing factors on the mercurial president, might increasingly be on the defensive, with a hostile US 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 2020 presidential election.
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.
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
As Maldivian President Mohamed Muizzu’s party won by a landslide in Sunday’s parliamentary election, it is a good time to take another look at recent developments in the Maldivian foreign policy. While Muizzu has been promoting his “Maldives First” policy, the agenda seems to have lost sight of a number of factors. Contemporary Maldivian policy serves as a stark illustration of how a blend of missteps in public posturing, populist agendas and inattentive leadership can lead to diplomatic setbacks and damage a country’s long-term foreign policy priorities. Over the past few months, Maldivian foreign policy has entangled itself in playing
A group of Chinese Nationalist Party (KMT) lawmakers led by the party’s legislative caucus whip Fu Kun-chi (?) are to visit Beijing for four days this week, but some have questioned the timing and purpose of the visit, which demonstrates the KMT caucus’ increasing arrogance. Fu on Wednesday last week confirmed that following an invitation by Beijing, he would lead a group of lawmakers to China from Thursday to Sunday to discuss tourism and agricultural exports, but he refused to say whether they would meet with Chinese officials. That the visit is taking place during the legislative session and in the aftermath