Eurasia Group Warns A "Major Geopolitical Crisis" May Be Coming In 2018

Eurasia Group’s Ian Bremmer says that 2018 is “by far the greatest geopolitical risk environment that we’ve ever seen" and that this could be the year where the international community witnesses the geopolitical equivalent to the financial crisis.

With the Dow Jones Industrial Average nearing 25,000 and the pace of economic growth in the US climbing back above 3%, the economy has seldom been in better shape since the crisis – a fact that President Trump never misses an opportunity to highlight. However, lingering geopolitical tensions that have been simmering for years finally came to a head in 2017. The result? The US is now mired in what Bremmer calls “a geopolitical recession.”

 

China

Put simply, this means the decline of US influence in the world will accelerate in 2018, as the US’s mix of soft power and economic and political liberalism faces a crisis of credibility.

Meanwhile, some of the US’s largest geopolitical rivals will seek to claim some of the authority ceded by the “America First” Trump administration, which is opposed to trade deals, supports slashing funding for the United Nations and is virulently anti-immigration.

Which brings us to Eurasia Group’s  top risks for 2018…which begins with...

…China.

No. 1: China Loves a Vacuum:

Bremmer believes Xi Jinping’s speech at November’s Nineteenth Party Congress will be remembered as one of the most important geopolitical events since the fall of the Soviet Union.

The reason? As the US retreats under Trump, China is setting international standards in more ways than ever before.

This is true in three ways:

Trade and investment. No country today has developed as effective a global trade and investment strategy as Beijing. China is writing checks and creating a global architecture while others are thinking locally or bilaterally. This model generates both interest and imitators, with governments across Asia, Africa, the Middle East, and even Latin America tacking more toward Beijing’s policy preferences because the direct transactional consequences have become much more impactful.

 

China

Technology. China and the US are leading the charge on investment in new technology—in artificial intelligence (AI), in particular. For the US, leadership comes from the private sector. In China, it comes from the state, which aligns with the country’s most powerful companies and institutions, and works to ensure the population is more in tune with what the state wants. That’s a powerful stabilizing force for the authoritarian and state capitalist Chinese government. Other governments will find the model compelling, especially those most worried about potential social unrest within their borders. And China’s economic clout will align tech sectors within smaller nations with Chinese standards and firms.

Values. The only political value that China exports is the principle of non-interference in other countries’ affairs. That’s attractive for governments that are used to Western demands for political and economic reform in exchange for financial help. With the advent of Trump’s “America First” foreign policy and the many distractions for Europe’s leaders, there is no counter to China’s non-values-driven approach to commerce and diplomacy.

But importantly, China is still a regional power when it comes to national security. China has not been a player in the war against terrorism. And US defense spending is far greater than China’s.

But in time, this may begin to change as China’s military becomes increasingly active in the Pacific.

No. 2: Accidents

While the world isn’t on the brink of WWIII, tensions between the US, China, Russia and North Korea remain elevated. The likelihood of geopolitical accidents has risen significantly, a trend that will continue. At some point, there could be a mistake that leads to a confrontation. A few worth thinking about for 2018:

Cyberattacks. The risk of a major cyberattack has risen at a time when international mistrust and the erosion of common norms, standards, and architecture has made it more difficult to coordinate responses to attacks when they occur. That makes the risk of overreaction high, even when reaction is warranted. The threat comes both from states (Russia, China, North Korea) and non-state actors (such as Anonymous); the capacity to wreak havoc is rapidly growing, especially given security vulnerabilities and high-level leaks from within the US National Security Agency. The prospect today of an economy-shaking cyberattack is real— be it via the destruction of a critical piece of infrastructure or through forced transparency that cripples the credibility of a leading corporation, bank, or marketplace; or even a takedown of the internet itself (several states have reportedly probed the resilience of the internet’s backbone infrastructure). If an actor goes after these targets, we’re in uncharted territory. Of all the unexpected geopolitical “accidents” listed here, cyber deserves to be at the top of the list.

North Korea. The world’s most obvious risk of geopolitical accident. An unsatisfactory (and eroding) status quo remains the most likely outcome in 2018. Everyone knows that the US has only unpalatable military options. The North Koreans aren’t suicidal; further North Korean missile tests are likely, but a direct strike on an adversary is nearly inconceivable. Yet, rocket tests over Japanese territory are intrinsically dangerous and could provoke an escalatory response. So too the expanded military exercises and overflight by the North Koreans, Americans, and allies within easy shooting range of one another. Elevated tensions combined with less trust/coordination among all actors means that mistakes, when they occur, are more likely to ignite a conflagration. The possibility of war, which would risk severe damage to a key US ally and impact global supply chains, remains unlikely. But it’s much more thinkable today than it has ever been.

 

Syria

Syria. The war in Syria will continue to wind down in 2018, but there will still be plenty of destructive hardware in the field carried by actors in close proximity who don’t like or trust one another. Russian and US bombers regularly fly into each other’s demarcation zones, and strikes in the wrong place could kill US or Russian troops. US soldiers are embedded with Kurdish forces around Raqqa and other areas east of the Euphrates, and they could become a target for Russia and Iran. It’s the Washington-Tehran relationship that’s most dangerous in Syria. Trump wants Iran out of the country.

Terrorism. Conventional terrorist attacks continue to be far more likely, and dangerous, in the Middle East, North Africa, and South/Southeast Asia than in the developed world. But the end of the caliphate in Iraq and Syria has pushed many foreign fighters back to their homelands, creating increased risk in Europe, and the online sophistication of the Islamic State has facilitated more copycat attacks. A catastrophic attack in the US remains unlikely.

No. 3 Technology

The convergence of AI, big data and high-speed networks will help usher in the next technological revolution. Also, as the epicenter of progress shifts away from Silicon Valley, the race to develop the best and most productive technology could quickly fracture along national lines. It could easily become another arena for the US vs. China dynamic to unfurl.

A race for breakthrough technology is underway between the US and China. Both countries’ tech giants are speeding to master AI and supercomputing among other highly investment-intensive, next generation technologies. The winner could well dominate the coming decades, both economically and geopolitically.

Technology

A struggle for market dominance will continue to rage in third-party countries and regions that will have to decide whose products and standards to embrace. Think Africa, India, Brazil, and even Europe. China and the US are engaged in a global competition to be the lead technology supplier for their various international partners. This fight plays out in three areas: civilian infrastructure (from fiber-optic cabling to cloud storage), in consumer goods (putting next generation smartphones in every hand), and in government procurement and security equipment. The latter is of utmost importance, as—just like the traditional arms deals of yesteryear—a linkup between two governments on cybersecurity creates long-lasting technical dependencies that translate into strong political ties.

No. 4 Mexico

A successful NAFTA renegotiation in 2018 is still possible. Trump would probably hesitate to act on his threat to initiate withdrawal from the deal; even if he does, this would be a ploy to enhance US leverage in future negotiations rather than an attempt to destroy the agreement. Unfortunately, that’s where the good news stops. Renegotiation of the 23-year-old deal started last August and dominated the second half of the year, with scant results.

Increasingly protectionist US proposals have slowed negotiations. Canada, the US, and Mexico share the goal of reaching a deal to revamp the agreement by the end of March, before the presidential campaign begins in Mexico. But successful renegotiation depends on the US softening its stance; Mexico and Canada have few incentives to compromise with the Trump administration, as they know the US business community firmly opposes NAFTA withdrawal.

Mexico

If there is no deal or if Trump initiates a withdrawal process, this would not mark the end of NAFTA, but it would put an end to negotiations. Canada and Mexico would, at least initially, walk away, creating uncertainty over billions of dollars of economic activity in the world’s most prosperous region. Though the pain would be shared, the Mexican economy and those who invest in it would suffer disproportionately, given the country’s deep reliance on trade with the US.

Meanwhile, the whole process could hit a wall once the Mexican presidential race starts in March. The campaign’s frontrunner is Andres Manuel Lopez Obrador, known as AMLO, who offers anti-US rhetoric and a statist economic policy platform.

No. 5 US-Iran Relations

As Iran struggles with the largest wave of civil unrest in years as citizens take to the streets to express their discontent with the country’s languishing economy, there’s a very real chance that the Iran nuclear accord – known as the JCPOA – might not last the year.

If the nuclear agreement collapses, the US and Iran enter a new and dangerous geopolitical dynamic. Regarding sanctions relief and Iran’s nuclear program, two scenarios are possible, according to Bremmer: In the most likely, vigorous US enforcement of secondary sanctions forces most European and Japanese companies to leave Iran.

Iran

Oil importers in Europe, South Korea, and Japan decide against purchasing Iranian oil. But China and India would not acquiesce to a US demand to significantly reduce their imports. If Iran offers both buyers a significant discount, about 300,000 barrels per day would probably come off the market. Iran would ramp up its nuclear program. It would at least break the seals on its advanced centrifuges currently in storage and begin large-scale experimentation and production on more-advanced models. The threat of US and/or Israeli strikes would again hang over the region and boost oil prices.

In a less-likely scenario, Europe, Russia, and China agree to a “JCPOA 2.0” with Iran. While the pace of foreign investment would slow, firms already established in Iran would stay and others would eventually join them. European and Asian importers continue purchasing Iranian oil. Iran continues to comply with the JCPOA’s nuclear limits.

No. 6 The Erosion of Institutions

Even the strongest institutions will erode over time if nothing is done to maintain them. Across the developed world (with the notable exception of Japan), popular trust in technocratic-bureaucratic institutions has declined, in some instances as a result of direct political interference in their work.

And so most of the advanced industrial democracies - those countries on the top right side of the “J Curve” (describing the relationship between stability and openness) - are starting to edge down to the left. This will be an important global story in 2018.

In the UK, there is criticism of “remainers talking the country down” by fighting over the terms of Brexit. In the US, partisan attacks on the non-partisan Congressional Budget Office have become commonplace. Greek courts found the former head of the statistical office guilty of insubordination and breach of duty for revealing the true size of the country’s deficits.

In the US, the legitimacy of the mainstream media has dramatically decreased. Much of the public now believes that reporting is habitually “politicized,” feeding the growth of conspiracy theories and political movements that previous generations would have considered unacceptable.

This will present the greatest risk in countries with already weak institutions (i.e. Venezuela). But even in the US, these trends are beginning to erode public trust in the intelligence community and regulators, which could have repercussions for the market and investment.

No. 7 Protectionism 2.0

Governments aren’t just trying to protect comparative advantages in traditional sectors such as agriculture, metals, chemicals, and machinery out of concern for lost jobs or domestic economic interests. They’re also intervening in the digital economy and innovation-intensive industries as protecting intellectual property becomes an increasingly important priority.

But instead of traditional measures such as import tariffs and quotas, today’s tools of choice include “behind-the-border” measures such as bailouts, subsidies, and “buy local” requirements designed to bolster domestic companies and industries. These measures don’t necessarily circumvent WTO commitments; they rely on a collective inability to update and strengthen existing global trade rules.

Institutions

And because this new protectionism will coexist with a continuing push for regional free trade agreements, the global regulatory environment will become more complex and contradictory. Companies and investors will have to manage more complicated supply chains and navigate more restrictions to data flows and other barely discernable or invisible barriers. The cost of doing business will rise, and supply chains will be less reliable. Consumers will bear the brunt of losses.

No. 8 The United Kingdom

Acrimonious Brexit negotiations and tumultuous domestic politics will make 2018 another difficult year for the UK.

December’s deal to move Article 50 negotiations from divorce issues to those concerning future relations won’t lead to smooth sailing for Prime Minister Theresa May. The issues that must now be negotiated are too complex and the politics too divisive.

On the question of British leadership, May will probably retain the premiership in 2018, but her management of the Brexit process could cost her the job. There are two: The prime minister could lose her job over her management of the Brexit process possible scenarios if she goes—both market negative.

 

UK

In the more benign, May would be replaced by a more hardline Tory figure through a sort of palace coup. This would significantly complicate Article 50 negotiations.

The more negative scenario is a new election that leads to Labour Party leader Jeremy Corbyn replacing May. This would hurt both Article 50 negotiations and domestic economic policy.

Read the whole report below: (pdf link)

 

Comments

shitshitshit Wed, 01/03/2018 - 04:23 Permalink

As is the case in every crumbling empire, I'm surprised there is no mention of the faith and morale of troops in the imperial forces as well as in the population. They critically impact efficiency of operations and economy and from there ought to be debated accordingly. 

Hint: they are at the lowest and will sink even lower. 

Handful of Dust ACP Wed, 01/03/2018 - 07:08 Permalink

After 16 years of pathetic USA leadership under the idiot Bush and the Skinny Socialist Obama, it's no wonder the world is falling apart, as is the USA.

And with all the far left + deep state toadies fighting Trump and middle class America, it's a difficult job ahead to correct the "American Disaster" which all those groups left the nation in.

In reply to by ACP

Moe-Monay Handful of Dust Wed, 01/03/2018 - 08:36 Permalink

How appropriate that was done while riding in a horse and buggy in the center of bankster's New York.

Outdated and from a New Yorker's point of view.  But I repeat myself.

So the economy is ok so they have to invent a subjective "recession".  Additionally they totally ignore that the Islamic extremism appears to be stoked by our very own CIA.  I suspect without the CIA's hard work we would nary see an act of extremism.  Youtube is full of Moslems with a much more reasonable point of view.  ( still too lefty for me because I'm a liberal.  A real liberal and that means a classic liberal AKA conservative )

Last but NOT LEAST: 

Vladimir Putin has been repeatedly showing himself not to be a problem but world class statesman.  Repeatedly the Empire of Chaos does things that merit them being hit and Putin ducks and weaves to avoid giving the Empire what it wants.  He defeats  CIA - ISIS and these 2 turds say "Russia is just causing problems".  How could I take them seriously?

In reply to by Handful of Dust

JerseyJoe Lordflin Wed, 01/03/2018 - 08:33 Permalink

Like why the FUCK are you letting all these barbarians of this violent cult into our cozy socialist nest?   Is it because you know you can't pay our pension bennies so you need to bring in more ponzies?   

Or is that you really are Marxist scum trying to destroy Europe?

Or is this some Zio payback for the WWII camps?   

What ever it is - it is too late for Europe without mass deportations and a shut down of the welfare spigot.  And we know that ain't happenin'. 

In reply to by Lordflin

fairmontobsever shitshitshit Wed, 01/03/2018 - 17:58 Permalink

    Your username is extremely offensive, especially when deliberately placed next to the most precious symbol of the Russian Orthodox Church.  The Russian Orthodox Church lost 40,000 clergy, more than 100,000 monastics, and 40,000 churches to Communist massacres.  It is a miracle that it still exists, and you are showing cultural-religious hatred by using our sacred symbol with your offensive username.

    It is very offensive for you to use the Russian Orthodox Christian cross, no matter what you think of yourself and your moral standing (reflected in your username). You have nothing to do with Christianity in Russia. Otherwise, I and others will consider that usage (symbol + word) an actual example of Nazi-like propaganda. Are you going to use other religions' most beloved symbols in your demonic hatred of all things good?

In reply to by shitshitshit

SmittyinLA Wed, 01/03/2018 - 04:27 Permalink

You forgot all of China building "disposable buildings", they can't maintain the pace of new construction to replace decaying construction, then there's all the debt on all those disposable buildings, and the health liability from their coal and steel policies, they took the quick profits and moved to Vancouver.

Internet-is-Beast Wed, 01/03/2018 - 04:31 Permalink

Frankly, I'm counting on an asteroid, a supervolcano, and methane gas in the arctic. That would entail a natural death, at least. The Neocons need to have more faith in Mother Nature who can destroy the planet and kill more people even better than they can, and graciously step out of her way. (Unfortunately, graciousness is not in their genes.)

P.K.Snosage Wed, 01/03/2018 - 04:52 Permalink

Oh goodness; the setting up of a hotline between North and South Korea already serves to undermine the analysis; which, of course, in the end of

the day was purely speculative guesswork to begin with.

Sandmann Wed, 01/03/2018 - 04:59 Permalink

political liberalism

 

That's what Mattis is doing in Syria is it ? That is why US is building new underground complex in Jordan near Amman ? 

That is why US Special Forces operate in 129 countries ?

That is why US is taking over British bases in Germany in 2019 after UK withdraws - so Germany can have total occupation !

Conscious Reviver Wed, 01/03/2018 - 05:48 Permalink

Countries want to deal with China because it's "impactful" says the author. 

More like China wants to do deals and the AAZ wants to destroy, kill and maim.

Without the PetroDollar the US would not have the money to fund terrorists and destabilize the world. 

So the rest of the world concludes that the PetroDollar system must die. 

Better to do deals with China. 

Batman11 Wed, 01/03/2018 - 06:18 Permalink

The US was the global hegemon when the Berlin Wall fell, but they allowed the wealthy to maximise their returns and in no time at all they had created a new multi-polar world.

The West needs to get a grip on reality.

When wealthy individuals are left to make their own investment decisions they will maximise returns by investing in Asia rather than at home.

After WW2, the American’s discovered more money was flowing from Europe to America than was being loaned from America to Europe through the Marshall Plan. Wealthy European’s were looking to maximise returns and had no interest in helping their nations recover after the war.

The wealthy are not guided by any national loyalty, but have lots of influence over the politicians and through their own self-interest will naturally run any nation into the ground.

The US is now experiencing this first hand.

In the US they use the left hand side of the brain to get the best return on their investments and the right hand side of the brain to worry about the new multi polar world.

The left side of my brain tells me to invest in China for higher profits.

The right hand side of my brain worries about a powerful China

Never the twain shall meet.

 

Batman11 Batman11 Wed, 01/03/2018 - 06:19 Permalink

The wealthy are just looking to maximise their returns.

Disposable income = wages – (taxes + the cost of living)

The minimum wage is set when disposable income equals zero.

The minimum wage = taxes + the cost of living

As an international investor I want to minimise wages to maximise profit.

Where do I invest, the West or Asia?

The maths always leads to Asia, or Mexico after NAFTA.

In reply to by Batman11

Let it Go Batman11 Wed, 01/03/2018 - 07:36 Permalink

Boeing will have a tough time in the future. China's fledgling aviation industry is ramping up and when it hits its stride we can expect cutthroat competition. China is investing big in this vision with its State media touting the "advanced technologies" that will be used.

 This means we should not expect this industry to grow organically

http://brucewilds.blogspot.com/2016/09/chinas-aviation-industry-quickly.html

In reply to by Batman11

Brazen Heist Wed, 01/03/2018 - 06:24 Permalink

Any empire that wants full spectrum dominance over the world is a dead man walking.

The US empire's zero hour is approaching. But the fuckers in power will try to drag the rest of the world down with them.

Let it Go Wed, 01/03/2018 - 07:33 Permalink

China has an economic system that causes conflict. People are naive if they do not recognize the distinct advantage a state-driven economy has over free enterprise, at least initially.

A bit predatory in nature, such a system can quickly exploit the weaknesses of its competitors. It is important we recognize China is a state-run economy based on a business model that is geared to expand by crushing the competition.

Subsidizing those companies working within its system in a multitude of ways helps it achieve this goal. Countries that export goods at slightly below cost in exchange for manufacturing jobs are not stupid they are predatory and we in America are their prey. The article below explores the ramifications of this.

 http://China State-Driven Business Model.Geared To Expand html

nuerocaster Wed, 01/03/2018 - 09:05 Permalink

Uhhh, let's see, ummm, kleptocrats gone wild? What are the protests in Iran all about?

Anyone notice similar themes worldwide irrespective of ideological mumbo jumbo?

Aren't the OPM rackets grand? See #6 above, hilarious. Ya gotta love the ingenuity of parasites.

Bubuzinho Wed, 01/03/2018 - 09:27 Permalink

Bremmer...really?  The guy is a leftist-globalist Linked-In whore who has always been wrong about EVERYTHING.  ZH, who will you be publishing next, Krugman?