Global Risk Themes 2020, #1: Disruptive and Unpredictable US

Assessments vary on the outlook for the global economy in 2020, with some economists forecasting the onset of recession, whilst the IMF and World Bank are predicting another year of modest growth. However, there is broad consensus on two points: first, the overall trend is towards stagnation and a consequently increasing likelihood of recession in the next 1-2 years; second, US policy on trade and tariffs will be a key variable shaping the health of the global economy in the next twelve months.

The indicators from 2019 are not positive in this respect. There have been multiple fluctuations in the US-China trade war but few signs of a durable long-term solution emerging. The US has meanwhile extended, threatened or imposed new tariffs or sanctions against the EU, Russia, Venezuela, Iran, Cuba, North Korea and Turkey. Restrictions on trade are firmly established as the Trump administration’s foreign policy weapon of choice.

The coming year will see further peaks and troughs in the relationship with China and probably additional flashpoints with Mexico as Trump returns to the themes that won him the 2016 election. Tariffs imposed on the EU in late 2019 were rooted in a long-running dispute over subsidisation of Airbus and do not necessarily signal a wider trade confrontation. However, the European Commission taking office in November 2019 has an ambitious legislative agenda on climate change and technology regulation that will aggravate points of transatlantic friction. An election campaign in the US makes it more likely that this will trigger hostile responses.

Whilst consistently belligerent on trade, Trump has so far proved reluctant to go over the brink into military conflict. His appetite for war will probably diminish further in the coming months given a 2016 campaign pledge to reduce overseas military commitments. His wish for a foreign policy success story that can be leveraged on the campaign trail could meanwhile yield breakthroughs in relationships that are currently poor, such as with North Korea or Iran. However, the president’s tendency to emotional, personality-driven and deliberately unpredictable policy positions means that areas of apparent progress could be reversed as suddenly as they emerge.

Business metrics that are exposed to US foreign and security policy – for example through the price and supply of oil and other commodities impacted by tariffs – therefore face another year of volatility. US companies with supply chains and value linked to China and Mexico will again need to be agile. Those stalling longer-term investment decisions in countries facing US sanctions face another year of wait-and-see. In countries and regions where US commitment is perceived by local governments to be waning, the competitive advantages of state-backed companies from China, Russia and elsewhere will increase proportionately.

Sibylline Annual Forecast 2020: Global Themes

This post is part of a series of eight global themes to watch in 2020. These form part of our annual forecast product, released to clients in December and including regional deep dives on the Americas, Europe, MENA, Africa, Eurasia and Asia Pacific in addition to an overview of key events and flashpoints in the year ahead. Please contact us if you are interested in receiving this product or finding out more about the World Risk Register.