Eurasia Group Publishes Top Risks for 2018

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#1 risk is “China loves a vacuum” — the decline of US influence in the world leaves a leadership void for China to fill

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"America First and the policies that flow from it have eroded the US-led order and its guardrails. We now see more clearly a world without leadership." - Ian Bremmer, Eurasia Group president

Eurasia Group President Ian Bremmer and Chairman Cliff Kupchan are pleased to present this year's Top Risks report, which identifies the most challenging political and geopolitical trends and stress points for global investors and market participants in 2018, as well as a few red herrings—issues that, despite media attention, are unlikely to pose a significant threat or drive instability in the coming year.

“America First and the policies that flow from it have eroded the US-led order and its guardrails, with no other country or set of countries ready or interested in rebuilding it,” said Bremmer. “We now see more clearly a world without leadership.”

Topping the list in 2018 is the risk presented by China’s role in a global leadership vacuum: “China’s political model is now perceived as stronger than it has ever been—and at a time when the US political model is weakened,” Bremmer and Kupchan write. “Combine that with the strongest Chinese president since Mao Zedong and one of the weakest US presidents in modern history, and you end up with a moment of global reordering.”

Below is a summary of all ten Top Risks for 2018. Click here for the full report and an exclusive video.

Bremmer and Kupchan will host an on-the-record conference call today at 11:00 EST/16:00 GMT to discuss the risks and take questions. Dial-in information is below.

1- China loves a vacuum
At a moment of policy incoherence and dysfunction in Washington, China’s government has redefined the country’s external environment, set new rules within it, and developed the world’s most effective global trade and investment strategy, all while using Chinese tech companies to advance state interests. Beijing invests and extends its influence by promising noninterference in the political and economic lives of other countries, which are now more likely to align with and imitate China. The global business environment must adapt to new sets of rules, standards, and practices. US-China conflict, particularly on trade, will become more likely in 2018.

2- Accidents
There’s been no major geopolitical crisis since 9/11, and none created by governments since the Cuban missile crisis. But there are now many places where a misstep or misjudgment could provoke serious international conflict. The likeliest risk of accident comes from competition and conflict in cyberspace, the fight over North Korea, battlefield accidents in Syria, growing US-Russia tension, and the dispersal of Islamic State fighters from Syria and Iraq.

3- Global tech cold war
The world’s biggest fight over economic power centers on the development of new information technologies. The US and China will compete to master artificial intelligence and supercomputing, and will struggle for market dominance in Africa, India, Brazil, and even Europe, where governments must decide whom to trust and whose products and standards to embrace. Fragmentation of the tech commons creates both market and security risks, particularly as domestic companies battle global viruses.

4- Mexico
2018 will be a defining moment for Mexico as the NAFTA renegotiation comes to a head and voters choose a new president. A collapse of NAFTA talks would not kill the deal, but uncertainty over its future would disproportionately harm the Mexican economy given the country’s deep reliance on US trade. Ahead of July’s presidential election, public anger at government is running high thanks to high-profile corruption cases, drug gangs, and sluggish growth. Demand for change favors Andres Manuel Lopez Obrador, who represents a fundamental break with the investor-friendly economic policies of recent years, particularly for the newly opened energy sector.

5- US-Iran relations
Donald Trump has it in for Iran. The nuclear deal will probably survive 2018, but there’s a substantial chance that it won’t. Trump will support Saudi Arabia and work to contain Iran in Syria, Iraq, Lebanon, and Yemen. The US will more frequently sanction Iran for ballistic missile tests, perceived support for terrorism, and human rights violations. Iran will push back. If the nuclear deal fails, Iran would ramp up its nuclear program, and the threat of US and/or Israeli strikes would again hang over the region, boosting oil prices.

6- The erosion of institutions
The institutions that support and sustain peaceful and prosperous societies—governments, political parties, courts, the media, and financial institutions—continue to lose the public credibility on which their legitimacy depends. In 2018, the populism apparent in the Brexit vote and Trump’s election will create a toxic, antiestablishment populism in developing countries. The resulting political turmoil, or a turn toward authoritarianism in some countries, will make economic and security policy less predictable.

7- Protectionism 2.0
The rise of antiestablishment movements in developed markets has forced (in some cases, enabled) policymakers to shift toward a more zero-sum approach to global economic competition and to look as if they’re doing something about lost jobs. As a result, walls are going up. Protectionism 2.0 creates barriers in the digital economy and innovation-intensive industries, not just in manufacturing and agriculture. New barriers are less visible: Instead of import tariffs and quotas, today’s tools of choice include “behind-the-border” measures such as bailouts, subsidies, and “buy local” requirements. Lastly, measures will more often be micro-targeted at political rivals.

8- United Kingdom
Britain faces both acrimonious Brexit negotiations and the risk of domestic political turmoil. On Brexit, the principle that “nothing is agreed until everything is agreed” will encourage endless fights over details between and within the two sides. On domestic politics, management of Brexit could cost Prime Minister Theresa May her job. If so, she will likely be replaced by a more hardline Tory figure, significantly complicating the Article 50 negotiations. Or Labour Party leader Jeremy Corbyn could replace her after new elections, creating risks for both Article 50 talks and domestic economic policy.

9- Identity politics in southern Asia
Identity politics in southern Asia comes in several forms: Islamism, anti-Chinese and anti-other minority sentiment, and an intensifying nationalism in India. Islamism in parts of Southeast Asia fuels local forms of populism, most prominently in Indonesia and Malaysia. Resentment of ethnic Chinese, who hold a disproportionate share of wealth in several countries, has made a strong recent comeback, particularly in Indonesia. Persecution of Myanmar’s minority Muslim Rohingya has triggered a humanitarian crisis. In India, the risk is that Prime Minister Narendra Modi’s use of Hindu nationalism to consolidate support ahead of the 2019 elections could give cover to radicalized elements of society that want to target Muslims and lower-caste Hindus.

10- Africa’s security
In 2018, negative spillover from the continent’s unstable periphery (Mali, South Sudan, Somalia) will affect Africa’s core countries (Cote d’Ivoire, Nigeria, Kenya, Ethiopia). The principal threats come from militancy and terrorism. The dangers posed by Al Shabaab in East Africa and Al Qaeda in West Africa are not new, but they’re likely to intensify. Foreign partners that have helped stabilize weak governments in the past are distracted. Kenya, Nigeria, Uganda, and Ethiopia face increased security costs at a time when their governments need to reduce spending, and attacks would undermine foreign investor sentiment.

Red herrings
A besieged Trump administration has little ability to enact destabilizing, or any other kind of, policies. The Eurozone will again shrug off political risk in the new year. Venezuela’s political conflict appears frozen for the moment as President Nicolas Maduro proves surprisingly resilient.

Top Risks Conference Call Dial-in (11:00 EST/16:00 GMT)
+1 (877) 888-4291 (US, CANADA)
+1 (785) 424-1878 (INTERNATIONAL)

Eurasia Group is the world's leading global political risk research and consulting firm. By providing information and insight on how political developments move markets, we help clients anticipate and respond to instability and opportunities everywhere they invest or do business. Our expertise includes developed and developing countries in every region of the world, specific economic sectors, and the business and investment playing fields of the future. Headquartered in New York, we have offices in Washington DC, London, San Francisco, Brasilia, Sao Paulo, Singapore, and Tokyo, as well as on-the-ground experts and resources in more than a hundred countries. "Politics first” grounds our work: Politics is the lens through which we view the world, and we are committed to analysis that is free of political bias and the influence of private interests.

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Alexsandra Sanford, Director of Communications
Eurasia Group
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