On the Record
It would be the rule of the jungle and only the most strong would survive ... and maybe not even them.
EU trade chief Cecilia Malmstrom, warning of the consequences
of the United States dismantling the World Trade Organization
On Our Radar
High-Stakes Tech Battles. The latest court battle between Qualcomm and Apple over the former's patent model of licensing out technology kicks off April 15, and a ruling by the Federal Trade Commission is expected to drop any day now on whether Qualcomm has a monopoly in selling wireless chips. If Qualcomm loses these suits under antitrust rulings, the leading cellular technology company in the United States would be broken up and the country would lose its leadership status in future 5G and 6G cellular technology — much to the delight of Qualcomm's Huawei and Samsung competitors. Huawei is already trying to take advantage of the bad blood between Apple and Qualcomm and Apple's frustrations with U.S.-based chip manufacturer Intel over production delays by offering to license its own 5G chipset for use in the new 5G iPhone. The offer could allow Apple to meet its goal of debuting its 5G iPhone in 2020 following Samsung's 5G smartphone release. The offer, however, is bound to attract scrutiny from the U.S. government as it works to create more distance between U.S. and Chinese tech companies.
Off to the Races With Trade Negotiations. On Monday, Japan's economy minister will be in Washington to kick off trade negotiations with U.S. Trade Representative Robert Lighthizer. The European Union will also vote and likely greenlight the launch of trade negotiations with the United States. While both are trying to avoid getting slammed with U.S. auto tariffs, Japan is the only one with a decent shot of succeeding. Japan is ready to negotiate tariff reductions on agricultural goods, bringing relief to U.S. farmers who were left out of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The European Union, however, is offering a limited trade negotiation that focuses on industrial goods, leaves out agriculture and could include a French demand for climate change provisions. An EU threat to retaliate against premature U.S. tariffs over an aircraft subsidy dispute is another big dampener to an already thorny trade negotiation.
Italy Ain't Looking Pretty. The Italian government has admitted the country's economy will slow down this year, while the levels of debt and deficit will be higher than originally announced. Even so, Rome is moving ahead with expensive campaign promises to implement a flat tax and citizen's income. The calm from the European Commission and financial markets won't last long. The European Commission's assessment on the health of the Italian economy in June and Rome's budget plans for 2020, due around October, will be big reminders of the unsustainability of Italy's debt.
The Terrorist Designation. The U.S. State Department's designation of Iran's Islamic Revolutionary Guard Corps (IRGC) as a foreign terrorist organization — the first time the United States has labeled an entity of another sovereign nation as such — marks a significant departure from the usual U.S. practice of relying on an executive order to target individuals or entities linked to a terrorist target. This designation legally enables the U.S. government to prosecute anyone with a link to the IRGC on criminal charges and raises a compliance nightmare for companies that may have multiple degrees of separation from an IRGC-linked entity. Iran responded in kind by designating U.S. Central Command a terrorist organization, but Tehran is likely to be more cautious and covert in challenging the United States to avoid handing it a casus belli.
Reviving CAATSA. In a shift, the Trump administration has openly threatened to apply sanctions on Egypt under the Countering America's Adversaries Through Sanctions Act (CAATSA) if Cairo goes through with a significant purchase of fighter jets from Russia. The sanctions are designed in part to intimidate partners into cutting their defense ties with U.S. adversaries like Russia. The ultimatum approach has been openly rebuffed by a number of U.S. allies and the Trump administration itself has been more reticent to enforce sanctions against critical allies like India and Vietnam, resorting to waivers to protect those relationships. But with countries like Turkey openly resisting the United States through a big S-400 missile defense system deal with Russia, a U.S. attempt to shore up the credibility of CAATSA could point to bigger irritants ahead in some of the United States' most critical alliance networks.
A Miscalculation in Libya? Khalifa Hifter and the Libyan National Army launched an offensive on Tripoli on April 4 in hopes of gaining a commanding position in Libya's civil war, but the offensive has met stiff resistance, stalling out on the city's outskirts. This risks a prolonged conflict and that means that Libya's oil recovery could stall and even relapse. The Libyan National Army controls almost all of the oil industry but the revenue flows through a rival central bank. If Hifter decides to cut off that source of revenue, Libya's production could collapse by as much as 800,000 barrels per day. Meanwhile, Hifter is appealing to Saudi Arabia, the United Arab Emirates, Egypt and Russia for more support. How much he gets will go a long way in determining his success.
The Battle for Istanbul. Turkey's ruling Justice and Development Party (AKP) is exhausting every legal avenue it can to appeal recent municipal poll results in Istanbul that awarded the prized mayorship to the party's secularist opponent, the Republican People's Party. So far, the AKP is being careful to avoid any big moves that would rattle financial markets and draw Western scrutiny, but we're still on the lookout for more subtle moves that indicate the AKP is preparing to reallocate more of the municipality's economic and political powers to the executive branch as the political battle drags on.
Israel's Election Wrapup. Israeli Prime Minister Benjamin Netanyahu will likely be asked by Israel's president to form the next Israeli government, which will end up as a right-wing coalition filled out with nationalist and smaller religious parties. Confident in his tight relationship with the Trump White House, there is real potential for Netanyahu to follow through with a campaign promise to annex parts of the West Bank. Israel's rule of law is also soon to be tested as Netanyahu makes history as the first-ever Israeli prime minister to fend off a corruption indictment while in office.
Indonesia Goes to the Polls. Next week's national elections will serve as a litmus test to incumbent President Joko "Jokowi" Widodo. If Jokowi wins, Indonesia will see continuity through 2024 in his push to build the country's indigenous resource-processing sector, check Islamist populism and seek out free trade deals. His opponent, Prabowo Subianto, has pushed for greater self-reliance even in sectors such as food and fuel, while criticizing Chinese infrastructure projects and the trade deficit with China. While a Prabowo victory would not radically change Indonesia's foreign or economic policies, it would bring greater scrutiny on investment and trade in the country, leading to some disruptions.
On Our Minds
Another One Bites the Dust in the Sahara. Just nine days after President Abdel Aziz Bouteflika stepped down in Algeria, Sudan's Omar al Bashir was ousted in a military takeover. But, just as we're seeing in Algeria, Sudan's protesters are resisting the Egyptian model of a military-led transition, pointing to a rocky path ahead. This week also revealed signs of a growing anti-corruption purge in Algeria targeting the Bouteflika clan that will put national oil company Sonatrach in focus. As we've observed from case studies in Thailand, Turkey, Egypt, Pakistan and other countries that have grappled with military-civilian handovers, the political transitions currently underway in the Sahara raise some broader questions on the complicated optics around creating a military council to oversee a transition, whether there are other institutional pillars strong enough to balance against the army in sorting through a succession, the civilian drive to "coup-proof" the constitution through reform and how the degree of economic entrenchment — and corruption — of the military factors into the succession equation.
No Followers for France. French President Emmanuel Macron has big ambitions for the European Union, but his growing isolation in the bloc is leaving most of his ideas in the dust. This week France was the outcast pushing for a short Brexit delay and next week Paris probably will be outvoted again by its EU peers when it comes to giving the European Commission a mandate to negotiate a trade agreement with the United States. France's traditional adversaries in Northern Europe, meanwhile, are growing louder in their criticism of Macron's plans for the eurozone (they recently rejected France's plans for a eurozone budget), while a populist coalition in Italy, which should be a natural ally for France in pushing for more flexible spending and deficit targets, is at odds with Macron on issues ranging from Libya to immigration. Spain, another potential ally, is also too focused on domestic issues to be a useful partner.
Another Negative Russian Demographic Report. New data from the Russian Presidential Academy of National Economy and Public Administration showed a significant drop in the number of migrants moving to Russia in 2018, marking the first time in a decade that Russia was not been able to make up for its domestic population decline through migration. This trend carries significant implications for Russia's ability to maintain a viable workforce and military while trying to stay relevant in a great power competition with the United States.
In Case You Missed It
On Our Calendar
In the coming week, the United States and Japan are meeting to negotiate a limited trade deal, Indonesia holds presidential and parliamentary elections and India's general elections continue, with a second phase of voting in 13 states. For more, see our Geopolitical Calendar.
Join the Discussion
Will Brazil ultimately be able to lock in Argentina's support for Mercosur trade reforms? If not, do you think Brazilian President Jair Bolsonaro will follow through on his threat to pull Brazil out of the Mercosur bloc?
Visit The Daily Round-Up to join more discussions with Stratfor members.