Iranian Brinkmanship Threatens Global Oil Supply, By Design. Iran will be prepared to run the risk of a limited military clash with the United States and Saudi Arabia, using the threat of escalation — and widespread fear of what a major oil supply disruption will do to an already skittish global economy — to push the United States back into a narrow negotiation centered on de-escalation in exchange for sanctions relief. European and Asian powers, along with front-line Persian Gulf states, will remain active in mediation efforts.
Brexit Uncertainty Is Prolonged. British Prime Minister Boris Johnson will push the United Kingdom to the brink of a no-deal Brexit in the second half of October, but London will once again avert a worst-case scenario. The politics of brinkmanship could produce a compromise over the Irish backstop, but, more likely, Johnson's resignation or a no-confidence motion will pave the way for another extension and an early election.
Testing the Groundwork for a Narrow U.S.-China Trade Deal. The White House will temper its ambitions for a comprehensive trade deal with China ahead of the 2020 U.S. presidential election, vying instead for a preliminary deal that brings some relief to U.S. farmers and that could result in some easing of export restrictions on Huawei. Nonetheless, several sticking points — and a heavy load of tariffs — will continue to weigh on the global economy. So long as the U.S. economy remains relatively stable, another breakdown in talks and tariff escalation cannot be ruled out.
WTO Limbo Invites More Trade Uncertainty. The United States will drive the World Trade Organization to an existential point when the appellate body of the organization becomes paralyzed in December as the White House deliberately blocks appointments to it. The move is in line with its long-standing argument that the consensus-ruled multilateral organization is not equipped to bring major trade abusers and influences like China into compliance. The shift from a rules-based system in governing trade disputes to one based principally on power and bilateral negotiations will inject more trade uncertainty into the global economy.
Easy Trade Wins Will Not Apply to the EU. As the White House tries to score smaller trade victories, Japan will be able to mitigate the threat of U.S. auto tariffs with the culmination of an initial trade deal. India, Mexico and growing trade targets like Vietnam will have a better shot at averting U.S. tariffs this quarter. U.S.-EU trade relations, however, will become rockier at a time when Germany is already at risk of recession.
Pushback in the Chinese Periphery. Persistent unrest in Hong Kong is unlikely to draw a heavy-handed Chinese intervention. However, the prolonged political standoff will diminish Hong Kong's reputation as a financial hub, diverting capital and investment to Singapore and Taiwan. The push against Beijing and the associated economic costs will feature prominently in Taiwan, where pro-independence and more Beijing-friendly candidates will be campaigning in the lead-up to a high-stakes election in January.
Populism and Financial Havoc Return to Argentina. A likely win for populist candidate Alberto Fernandez in Argentina's Oct. 27 presidential election will deepen financial turmoil, resulting in tighter capital controls. Black market influence will grow and difficult talks with the International Monetary Fund will follow as the new government tries to renegotiate the terms of its bailout agreement. A rise in protectionist barriers will derail EU-Mercosur trade relations and deepen frictions with Brazil.
Distractions Abound for the United States. An escalating crisis with Iran and troubled negotiations in Afghanistan will complicate the U.S. struggle to minimize distractions, deploy resources and fortify alliances in its competition with China and Russia. China will rely on economic incentives and implicit threats alongside Russia to dissuade the Philippines, South Korea and Japan from hosting U.S. land-based intermediate-range ballistic missiles. A trade war between Japan and South Korea will persist, further hampering U.S. efforts to shape a stronger allied front in balancing against China.