Eurasia Group names the top 10 geopolitical risks in 2020

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With both economic and geopolitical trends pointing downwards, economists fear a recession in 2020 or 2021. The deteriorating environment is also a major threat and much more likely to produce a global crisis. For these and many more such reasons, year 2020 looks worrying. Here are top 10 biggest geopolitical risks we are most likely to face in 2020, according to consultancy firm, Eurasia.

Rigged!: Who governs the US?

US elections are most likely to be viewed as illegitimate, uncertain and a foreign policy environment made less stable by the resulting vacuum. Donald Trump, who has been impeached in the House of Representatives, will be acquitted by the Senate. This dynamic will delegitimize the November presidential election. Democrats will feel impeachment was politically quashed to place the president above the law, while Trump will feel empowered to interfere with election outcomes, with impeachment no longer a credible instrument of political restraint.

The election will be perceived as "rigged" by a larger percentage of the population who already doubts election transparency. According to a 2019 poll by IPSOS, just 53% of the public believed the presidential election will be fair. In 2016, 84% of Democrats believed that year's election was fair; the number fell to 39% in September 2019 when asked about this year's election. Once the election is over, serious issues will emerge. If Trump wins amid credible charges of irregularities, the election process will become contested. If he loses, the same will hold true.

The Great Decoupling

The decision by China and the United States to decouple in the technology sphere is the single most impactful geopolitical development for globalisation since the collapse of the Soviet Union. This decoupling, already disrupting beneficial flows of technology, talent, and investment between the two countries, will move beyond strategic technology sectors at the heart of the US-China dispute (semiconductors, cloud computing, and 5G) into a broader array of economic activity.

It will affect not just the entire $5 trillion global tech sector, but a host of other industries and institutions from media and entertainment to academic research, creating a hard-to-reverse business, economic, and cultural divide. After a series of escalatory US policy moves in 2019, Beijing has concluded that decoupling is inevitable. Caught off-guard by the US actions, President Xi Jinping has called for a new "Long March" to break China's technological dependence on the US. At the same time, China will expand efforts to reshape international technology, trade, and financial architecture to better promote its interests in an increasingly bifurcated world.

US-China tensions

As this decoupling occurs, US-China tensions will lead to a more explicit clash over national security, influence, and values. The two sides will continue to use economic tools in this struggle-sanctions, export controls, and boycotts-with shorter fuses and goals that are more explicitly political. Companies and other governments will find it harder to avoid being caught into the crossfire. Divergences between the two countries' political structures are bringing irreconcilable differences to the fore. Thus, the US-China rivalry will increasingly be waged as a clash of values and animated by patriotic fervor.

MNCs not to the rescue

Since World War II, US-led globalisation has been a boon for MNCs, as it expanded and entrenched global supply chains based on cheap labour and resource inputs from around the world. They now account for more than 50% of global employment. MNCs have become influential politics actors as governments shaped global trade, regulatory, and tax regimes in their favour. And these firms have in turn exerted influence on policy. Markets overseas where MNCs from the United States invest in manufacturing receive lower tariff rates from the US government. So too, World Bank projects involving MNCs are more likely to get better financing terms because of their ability to influence the bank's largest governmental backers.

Many observers believe multinational corporations (MNCs) will fill the gaps in global governance and the liberal order left by the G-Zero worlds. Specifically, the private sector will step in to lead in areas such as climate change, poverty relief, and even trade and investment liberalisation. We're skeptical. Especially as corporate face a significantly more confrontational regulatory and geopolitical environment in the year ahead.

India gets Modi-fied

Prime Minister Narendra Modi has spent much of his second term promoting controversial social policies at the expense of an economic agenda. The impacts will be felt in 2020, with intensified communal and sectarian instability, as well as foreign policy and economic setbacks. The government has revoked the special status for Jammu and Kashmir and implemented a system to identify immigrants in the northeast, stripping 1.9 million people of citizenship.

The government also passed a law that, for the first time, makers religion a criterion for migrants from neighbouring countries to formally acquire Indian citizenship. Behind these moves is Amit Shah, the former head of Modi's Bhartiya Janata Party (BJP),now home minister. The economic spill over is also noteworthy with quarterly growth falling to a six-year low of 4.5% and forward-looking indicators looking softer still. India's fiscal situation is also precarious, as the government faces a widening fiscal deficit, marked by the underperformance of the goods and services tax. A weakened economy will in turn feed further economic nationalism and protectionism, weighing on India's troubled course in 2020.

Geopolitical Europe

The new leadership of the European Commission and the European Union's most powerful leader at present, French President Emmanuel Macron, share a sober view of world affairs. They think the EU has been naive in expecting its main commercial partners to play by the rules and want to equip themselves to react to unfair practices and anticipate further unilateral decisions. European Commission President Ursula von der Leyen and Macron believe the EU should be "the guardian of multilateralism." That such principles are under attack has convinced von der Leyen that the EU should actively defend itself against competing economic and political models.

On regulations, the European Union's top antitrust official, Margrethe estager, is battling North American tech giants through the innovative use of EU state-air law to question their tax arrangements. On trade, the EU will bring this more assertive aproach to new areas, for instance by making compliance with the Paris climate agreement a condition for new deals and by retaliating in kind against punitive tariffs. On military matters, the EU is not about to stand its own continental army, but it will take steps toward using the world's largest internal market to break down cross-border barriers to military trade and technological development.

Politics vs. economics of climate change

The politics of climate change aren't working. Dozens of countries signed the Paris agreement five years ago to limit warming to 2 degrees Celsius by the end of the century. But nation-states have to date failed to implement policies that come close to achieving that goal. This year that failure will lead to suboptimal corporate decision-making, operational business disruptions, and political instability.

Corporate decision-making will face a squeeze. Over one-third of global capital has some type of environmental, social, and corporate governance (ESG) mandate, and trillions of dollars in investment already exclude companies and countries that won't meet the 2-degree threshold. Social pressure will create costly operational and investment-flow disruptions.

Shia crescendo

US policy toward the major Shia-led nations in the Middle East is failing. That creates significant risks for regional stability, including a lethal conflict with Iran; upward pressure on oil prices; an Iraqi state that is either in Iran's orbit or failing; and a rogue Syria fused to Moscow and Tehran. In Iraq, the United States is on its way to persona non grata status, which will leave more running room for an already influential Tehran. US policy in Iran, Iraq, and Syria will drive regional risk in 2020, to the detriment of the regional political and economic order.

Discontent in Latin America

Public anger will keep the risk of political instability high across the region. Voter complaints include sluggish growth, corruption, and low-quality public services. Even worse for governments, new and vulnerable middle classes want more spending on social services, and Latin American societies are deeply polarized. The election of right-wing presidents in Argentina (2015), Brazil (2018), Colombia (2018), Chile (2017), and Ecuador (2017) has proven to be a backlash against incumbents and political establishments rather than an endorsement of market reforms.

In Ecuador, an angry electorate forced President Lenin Moreno to back down from a fuel price hike he negotiated with the IMF, leaving him severely weakened. Public anger and protests in Chile forced President Sebastian Pinera to dramatically ramp up social spending and start the process of rewriting the constitution in 2019. In Mexico, President Andres Manuel Lopez Obrador remains popular, but his promise to maintain fiscal stability while increasing spending will be difficult to maintain. He's committed to boosting social and infrastructure spending while grappling with a slowing economy and lower oil production.

Turkey

President Recep Tayyip Erdogan has entered a period of steep political decline. Erdogan has a long history of provocative behavior in response to threats, sparking confrontation with both foreign and domestic critics. This year, his weakness will lead him to lash out. The response will further damage Turkey's already ailing economy. Erdogan will take tough stances to try to bolster his political support. Internationally, he will refuse to cooperate with US authorities if Halkbank is fined, putting Turkish state assets in the United States at risk. He could enact countersanctions on the US, provoking an escalatory cycle.

Erdogan may also expand drilling in the eastern Mediterranean, further exposing him to European sanctions and potentially risking military conflict with Greece. Erdogan will maintain high levels of repression at home to undermine the strength of rival political parties and cooperation between them. That in turn will prompt harsher sanctions and further political and economic instability. Turkey gets worse before it gets better.