Reckoning With North Korea: Though the threat of war on the Korean Peninsula can't be ruled out, the United States will probably try to avoid a costly preventive strike against the North's nuclear weapons program that would plunge the global economy back into recession. Instead, Pyongyang's demonstration of a viable nuclear deterrent next year will spawn a new and more unstable era of containment.
Hedging All Around: Deepening collaboration between China and Russia will pose a strategic threat to the United States, spurring Washington to try to check the budding partnership by reinforcing its own allies in the Eurasian borderlands. The fluidity of alignments among great powers will increasingly define the international system as Moscow and Beijing balance against each other, just as many U.S. allies hedge their relationships with Washington.
Putting Trade Ties to the Test: The White House will forge ahead with an aggressive trade agenda that targets China, Mexico, South Korea and Japan. While the U.S. trade agreement with South Korea hangs by a thread, congressional and legal checks on U.S. executive power will have a better chance of keeping the North American Free Trade Agreement intact. The United States' increasing unilateralism in trade will expose the weaknesses of the World Trade Organization, but it won't shatter the bloc or trigger a trade war.
Revisiting Iran: North Korea's nuclear weapons achievements will fuel a hard-line U.S. policy toward Iran, jeopardizing the Joint Comprehensive Plan of Action. As the United States, Saudi Arabia and Israel close ranks against Iran, proxy battles across the Middle East will intensify. But Iran won't walk away from its nuclear deal with the West. Russia will nevertheless exploit the tension mounting between Washington and Tehran, as well as its advantage on the Syrian battlefield, to expand its influence in the Middle East at the United States' expense.
Managing an Oil Exit Strategy: Major oil producers hope to stay on track to rebalance the global oil market in 2018. As the expiration of their pact to limit production and draw down inventories approaches, compliance will slip among OPEC and non-OPEC participants alike. Even so, Saudi Arabia and Russia may be able to work together to counteract an expected uptick in U.S. shale output.
The Next Phase of China's Reform: Chinese President Xi Jinping will take on entrenched local interests as the central government tackles the next phase of its reform agenda: wealth redistribution. A slowing property sector and corporate debt maturities will compound financial pressures on China's northeastern rust belt in 2018, but Beijing has the tools it needs to prevent a systemic debt crisis.
France Finds Its Voice: France will find itself on more equal footing with Germany next year as it defends Southern European interests and debates eurozone reform. The possibility of a more Euroskeptic government emerging in Italy will send jitters through financial markets, but the country won't leave the currency zone.
Populism Persists in Latin America: Popular frustration with the political establishment will make for a more competitive election season in three of Latin America's biggest economies: Mexico, Brazil and Colombia. Should a populist president take office in Mexico, Congress will block him from enacting any sweeping policy changes. Meanwhile, Brazil and Argentina will have a narrow window in which to implement domestic reforms and push ahead with trade talks in the Common Market of the South before political constraints start piling up against them.