The year 2018 was tumultuous by any measure. But two ongoing global affairs of state could well become a prelude to era defining events.
Present Period. Nearly 160-years ago Charles Dickens’ A Tale of Two Cities began with perhaps the most celebrated first sentence in publishing history. “It was the best of times, it was the worst of times…” And while the beginning is often quoted, the long run-on sentence also contains the prescient statement, “we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period…”
Dickens’ story was published in 1859. The story itself was notably set during the French Revolution, which began in 1789 and the Reign of Terror that subsequently followed. They both were chaotic periods with their own, what we would now call, “disruptors” built in. As we look at 2018 and move towards a new decade in 2020, it is worth taking a moment to look at the “present period” and where we might be going.
2018 has been end-to-end tumultuous – a reality show with no off switch. A steady stream of headline screaming news running non-stop. But when put into context, there are reasons we may well look back on this period as a beginning to a turning point in world history much like 1859 or 1789.
This year - 2018 - has provided fertile ground for many potential economic and social “disruptors.” Climate change is certainly at the top of the list, although it is not exclusively the province of 2018. The same can be said for AI and the rise of internet companies, especially in the supply chain (see Matt Miller on page 2). But two events this year that stand out as deal makers or breakers with potentially global implications for decades to come are the Sino-U.S. Trade War and Brexit.
Sino-U.S. Trade War et al
The Sino-U.S. Trade War is potentially world altering on a number of levels that are often buried in the barrage of tweets, newscasts and stories. Following the G-20 meeting in Argentina, a 90-day truce was declared, potentially giving the principals until March 2019 to sort out their differences. Otherwise the Trump Administration will impose a 25% tariff hike and presumably Xi Jinping’s administration will respond in kind. At the moment, the U.S. has tariffs on $250 billion worth of Chinese goods while China has retaliatory tariffs on U.S. goods worth $110 billion. At this writing, there might be a deal in the making to reduce U.S. auto tariffs in China, signaling a thawing in relations. However, the Chief Financial Officer Meng Wanzhou of China tech giant Huawei Technologies was arrested in Canada for reasons related to U.S. sanctions on Iran. Meng, who is also the daughter of Huawei’s founder is expected to be extradited to the U.S. The detention obviously threatens the fragile trade war truce between Washington and Beijing.
Nominally speaking, the Trump administration’s reasoning for using tariff tactics is to address the U.S. trade imbalance (noting that it is debatable among economists as to whether the trade imbalance is really an economic problem), foreign investment policies and IP (Intellectual Property) protection.
The Trump administration’s decision to go it alone rather than through the WTO (World Trade Organization) mechanism is part of the trend to move away from a collective approach to global trade issues. The Administration’s decision to leave the TPP (Trans Pacific Partnership) and the Paris Climate Agreement, the renegotiation of NAFTA, the decrease in funding for UN programs and the confrontational approach to NATO relations are just a few examples of the lone wolf approach to global affairs.
A feature of the fallout from the go-it-alone approach is that the U.S. and foreign companies are being forced to make unanticipated choices – where to build and invest and how to make their supply chains more resilient not only to normal economic challenges and natural disasters, but political ones like tariffs. Nations and trading blocs like companies are being forced to choose. How does Asia’s ASEAN states work between an ambitious China with its Brick and Road policies and U.S. policies? The same can be said for the Americas, where China has made significant economic inroads.
Until present, the U.S. has been a builder of global pacts, politically and economically – alliances were an offshoot of the Cold War policy of encirclement of Russia and China. But with diplomacy on the wane and both Russia and China with more ambitious global agendas what new global structure will rise from the old alliance structure? Will the U.S. in a post-Trump era, try to return to the historic role of pact builder or is the genie (aka disruptor) out of the bottle forever?
Brexit and the EU
As the final days of 2018 wind down, British PM Theresa May is fighting for her political life (and she might not be PM by this paper’s release) as she tries to find a way for Britain to leave the European Union (EU) with as little economic, political and social disruption as possible. However, on March 29th 2019 with or without an agreement, Britain is scheduled to leave the EU.
What is clear in all the Brexit chaos is that there will be real economic and social pain in the exit. When the referendum took place, the idea that there would be a real price to be paid in the messy divorce from the EU wasn’t entirely understood. The reality is just coming home and neither PM May, her Conservative Party nor the opposition Labour Party have a solution for this Gordian knot.
Since the United Kingdom is economically, politically and socially enjoined to Europe in an inconceivably large number of ways – it’s like neurosurgery to be able to carefully separate the multiple intertwined interests from financial, regulatory and trade not to mention social without suffering severe pain – and/or a potential recession in the U.K.’s case. It’s not one sided whether the Europeans would like to admit it. The loss is arguably the EU’s most important partner – a counter balance to Germany and France – for the EU as an organization.
London in particular stands to be a big loser in Brexit. The role as a springboard to Europe will be challenged by other metropolitan alternatives. Paris, Dublin, Amsterdam and more are lining up to be the next financial capital of Europe – or at least to get a larger slice of global investments. Taken for granted is the ease of movement of goods and people between Europe and the U.K. There is no guarantee this will remain. Equally what about Scotland, Northern Ireland or even Wales? The United Kingdom is looking less united with Brexit rapidly approaching.
But at this writing, nothing is clear. Will a new deal get done? Will nothing get done? Will a new referendum take place? And if so, will Brexit be put off? Finally, even if the divorce is annulled, can there be a return to “normalcy” after this stretch of strained relations? There is also the EU itself, especially Germany and France. Intra-EU relations are also to be impacted by Brexit and other factors. The push back against Brussels and the Eurocrats is evident all around the group – a redefining of the EU may be in the works. Will it be more EU centric with the reduction of U.S. and U.K. roles in the EU or conversely will the nationalistic goals weaken the pact? If weakened will China be a beneficiary?