A Trade Truce Won't End the U.S.-China Trade War. A deal on trade between the United States and China is imminent. However, competition between two of the world's most dominant powers will continue this quarter, even broadening out to envelop other sectors — including but not limited to emerging technologies. Beijing won't sit idly by in the face of continued U.S. action and will attempt to counter Washington's activities using its economic heft, trade relationships, market access and considerable influence to compel other countries. Those on the sidelines will be increasingly drawn into the fight, and even countries trying to balance between Washington and Beijing will be pulled into the fray as harsher measures are applied to force a choice for one side or the other.
The United States is the Key Dynamic Actor on the World Stage. Washington will make a decision on whether or not to enforce its tariff threat against auto imports in Q2. Most major exporters to the United States will receive some type of exemption, though exceptions for Japan and the EU will not be indefinite. Because of this, Washington will wield the continued specter of tariff implementation to wrest serious concessions on pending trade deals from Tokyo and Brussels. The United States is also making tangible changes to its military posture and focus throughout the world, most notably in Syria and Afghanistan, forcing regional actors to take up the slack. The eventual U.S. departure from certain theaters, such as Syria, increases the potential for state-to-state conflict and could facilitate a resurgence of regional and transnational militancy.
Key Pillars of the Global Economy Will Experience Tremors. In the Asia-Pacific region, China's economy will slow throughout the second quarter, affecting a number of local trading partners in the short term. Europe is experiencing a similar economic malaise. Italy and Germany have both slashed growth estimates, and Rome's banking sector faces the most economic risk in the eurozone. On top of this, there is much uncertainty on the Continent surrounding exactly how the United Kingdom exits the European Union. Within the quarter, however, there will be no hard Brexit.
Nuclear Deals and Negotiations Hang in the Balance. Iran will be increasingly dissatisfied with the Joint Comprehensive Plan of Action (known as the JCPOA or the Iran nuclear deal) but will stay within the framework for now. European payment mechanisms such as INSTEX will keep an economic lifeline open for the Islamic republic and are contingent upon Tehran complying with the terms of the deal. Still, this will not be enough to offset the pain from continued U.S. sanctions, though Iran won't resume nuclear activities prohibited by the JCPOA this quarter. On the Korean Peninsula, the abrupt end of the nuclear summit between North Korea and the United States doesn't mean that negotiations are dead. They will, however, remain in a stalemate this quarter as regional stakeholders — primarily China and South Korea — work to reset the talks.
Venezuela Under Pressure From Within and Without. Starved by U.S. sanctions, Venezuela will experience increasing support for the country's political opposition over the quarter. The ultimate success of a forced political transition, however, will depend on the country's armed forces breaking from Maduro en masse. In the coming weeks, lower-level military personnel will continue to throw in with the opposition while crucial high-ranking officers debate their prospects. Protests will continue to grow and more violence is expected. The United States and its allies will exert influence from afar, but a foreign military intervention is unlikely.
EU Parliament Elections Will Suck All the Oxygen From the Room. The leadup to — and results of — the European Parliament elections will fundamentally delay decisions on significant issues beyond the quarter. Major structural reform initiatives will be put on hold until the end of May, when voting concludes and results are announced. Following the elections, a more fragmented body can be expected as Euroskeptic parties gain influence. Though pro-EU parties will ultimately maintain control, representatives of EU countries will be more heavily guided by domestic concerns when it comes to deciding matters of the Continent, leading to a political stalemate in Brussels.