The Great Power Competition Intensifies. The United States will escalate its strategic offensive against China with tariffs, sanctions, regulatory buffers around emerging technologies, stronger backing for Taiwan and a more assertive posture in the South China Sea. At the same time, failing arms control pacts will accelerate an arms race among the United States, Russia and China. The edgier geopolitical climate will create strategic opportunities for more vulnerable borderland powers, such as Poland and Taiwan, but will also create massive headaches for middle powers trying to find neutral ground, such as Turkey, India and Vietnam.
Increased Geopolitical Risk for Business. Citing national security threats, the United States will lean heavily on Europe, Japan, Australia, Canada, South Korea and Taiwan to erect stronger barriers to Chinese investment. This will affect research and trade in strategic areas, from artificial intelligence to 5G network rollouts beginning in 2019. China's imperative to catch up in critical areas like aerospace and high-end semiconductor development will only increase cyberthreats to corporations and compel an overall more offensive U.S. policy in cyberspace. In addition, corporations will have to contend with supply chain disruptions and heavier fines and lawsuits for data breaches.
Measuring Trade Volatility in the Global Economy. A U.S. showdown with the World Trade Organization could paralyze the body's dispute settlement process, forcing countries into a less predictable bilateral track to resolve their trade differences. Canada, Mexico, Japan and South Korea have a better chance of negotiating quotas to mitigate the threat of U.S. auto tariffs, but the European Union's trade talks with the United States are doomed to fail. And while additional U.S. tariffs on China will add to trade uncertainty, the overall effect on the global economy from White House trade policy in 2019 will be relatively muted.
Hair-Raising Scenarios for Italy and Brexit. A defiantly populist Italian government will pose the biggest threat to the eurozone in 2019 as concerns grow over the country's rising debt levels and fragile banking sector. Financial markets and dangerously wide spreads in bond yields — rather than threats from Brussels — will prove to be Rome's biggest disciplinarians. Brussels will simultaneously work to avert a no-deal Brexit scenario with the United Kingdom, but a British parliamentary veto remains the single biggest obstacle to its orderly exit from the European Union.
The Next Steps in the Anti-Iran Campaign. With far-reaching secondary sanctions in place, the United States will forge ahead with its campaign to isolate Iran regionally and weaken the country from within. This will increase friction between Washington and Tehran and diminish the already scant likelihood of a constructive negotiation. A common agenda opposing Iran will help insulate strategic, high-level ties between the United States and Saudi Arabia despite rumblings within the royal family and foreign governments over Saudi Crown Prince Mohammed bin Salman's leadership.
An Eye on Growing Supply in Global Energy Markets. Saudi Arabia and Russia will carefully manage oil output to prevent a price plunge as they monitor the effects of residual Iranian exports on the market. There is also the potential for production growth out of Iraq and Libya and a significant easing of export capacity constraints on the United States later in the year. Global liquified natural gas markets will be shaken up when the United States assumes its place among the top three LNG exporters in the world in 2019.
Disruptive Forces at Work in the Americas. Hard-line and U.S.-aligned governments in Brazil and Colombia could drive an atypically proactive regional effort to contain spillover from Venezuela's ongoing crisis. Brazil's efforts to shake up and reform the Mercosur trading bloc will come up against a politically hamstrung Argentina. The power of the referendum will meanwhile be put to the test in Mexico, where an aggressive populist agenda will raise investor risk.
Ethiopia Drives Big Change in the Horn of Africa. Ethiopia's ambitious agenda is generating economic interest and attracting outside powers to the Horn of Africa. But internal challenges to the current leadership and ethnic strife risk slowing Addis Ababa's momentum.