The 10 biggest risks the world faces in 2017

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2016 saw a repositioning of the pieces on the geopolitical board, with shocks like the rise of populism and rejection of globalism, Britons voting to leave the EU, the failed coup in Turkey, Russia’s military intervention in Syria, the end of America’s pivot to Asia, and so on.

But perhaps the biggest surprise of all was the November election of Donald Trump, whose isolationist rhetoric could suggest a world with no global leader.

“The triumph of ‘America first’ as the primary driver of foreign policy in the world’s only superpower marks a break with decades of US exceptionalism and a belief in the indispensability of US leadership, however flawed and uneven,” Eurasia Group president Ian Bremmer and chairman Cliff Kupchan wrote in the firm’s annual overview of top risks.

“With it ends a 70-year geopolitical era of Pax Americana, one in which globalization and Americanization were tightly linked, and American hegemony in security, trade, and promotion of values provided guardrails for the global economy,” they continued. “In 2017 we enter a period of geopolitical recession.”

We put together Eurasia Group’s top 10 risks for 2017, along with their analysis of the risks, and, as a bonus, a list of red herrings, below.

1. Independent America

President-elect Donald Trump’s “America first” philosophy rejects the traditional Wilsonian approach to foreign policy centered on US-backed international alliances and institutions and instead sees multilateral institutions and international affairs as transactional. Rather than aiming for longer-term global order and common values, he believes the US should act on near-term national interests and should be more flexible in dealing with rapid shifts on the global stage. 

This creates pockets of political risk. Chief among them, according to Eurasia Group: near-term chaos that comes from an absent superpower, broader weakening of institutional architecture, the rise of China and a growing potential for direct conflict with the US, and the fact that “Russia can act as a rogue and disrupter — and get away with it.”

Source: Eurasia Group

2. China overreacts

2017 is a big year for the Communist Party of China. Next autumn, the party will host the 19th National Congress, which will determine the top leadership and set up the country’s political future. 

“Two risks flow from the upcoming power consolidation,” according to Eurasia Group. “First, because Xi will be extremely sensitive to external challenges to his country’s interests at a time when all eyes are on his leadership, the Chinese president will be more likely than ever to respond forcefully to foreign policy challenges. Spikes in US-China tensions are the likely outcome.”

“Second, by prioritizing stability over difficult policy choices in the run-up to the party congress, Xi may unwittingly increase the chances of significant policy failures.”

Source: Eurasia Group

3. A weaker Merkel

After years of strong German leadership in the EU, Chancellor Angela Merkel now faces various political and economic challenges, including ongoing domestic dissatisfaction with the refugee crisis, corporate crises such as Deutsche Bank, and the rise of populism. 

Heading into the September 2017 elections, she faces no serious opposition. However, she will need to appease far-right critics, which will “leave her a diminished figure,” according to Eurasia Group.

Moreover, her position on the geopolitical front is disintegrating as well. And should Marine Le Pen be elected president in France and call a referendum on EU membership, then “her government will become Merkel’s antagonist.”

Source: Eurasia Group

4. No reform

Leadership will sag on the domestic front in various countries as well this year. Specifically, Eurasia Group outlines four different reasons reform could slow down going forward:

1. National leaders who feel they have already done their part, including India’s Narendra Modi and Mexico’s Enrique Pena Nieto.

2. Political leaders who will likely avoid reforms until after elections, in countries like China, Russia, France, Germany, and Argentina.

3. Those who are not interested in genuine reform at all, including Turkey, South Africa, Italy, and the UK.

4. Leaders who will strive to push forward with reforms, but will face a plethora of obstacles, including Saudi Arabia’s Mohammad bin Salman and Nigeria’s Muhammadu Buhari.

Source: Eurasia Group

5. Technology and the Middle East

Eurasia Group outlined a number of ways in which technological innovation stands to further increase political instability in the Middle East.

On the economics front, the energy revolution in the US has hurt OPEC, which stands to weaken the social contract between governments and citizens. Separately, automation is taking away opportunities from a region that already suffers from high youth unemployment.

Moreover, Iran is now less constrained in its use of cyber-weapons and regional terrorists increasingly are developing cyber abilities to undermine computer systems.

Source: Eurasia Group

6. Central banks get political

Central banks in developed markets have been pulled into the political hotzone for the first time in decades as politicians now scapegoat the banks for domestic economic problems. “These attacks represent a risk to global markets in 2017 by threatening to upend central banks’ roles as technocratic institutions that provide financial and economic stability,” according to Eurasia Group.

Regarding the Federal Reserve specifically, the firm writes that Trump could appoint a “personal ally” as the next Fed Chair (after Janet Yellen leaves in January 2018) in “a move that would undermine the Fed’s reputation for years.”

“It’s a no-win situation for the Fed this year — its standing will take a hit no matter what,” the firm added.

Source: Eurasia Group

7. The White House versus Silicon Valley

There are several areas in which Silicon Valley (save Peter Thiel) and Trump might square off, according to Eurasia Group. First is the media sphere, where the new agenda to curtail the spread of “fake news” and proliferation of bots is “a direct threat to [Trump’s] ability to maintain his popularity — and the appeal of his brand — and one he’ll feel the need to combat.”

There could also be tensions over broader economic patterns. Although Trump often discussed the negative effects on US employment from trade, he failed to address the problems associated with automation. But as automation increasingly puts people out of work, he will have to address the problem, and he may target the Silicon Valley companies driving the trend.

“Firms that aren’t friendly to him, especially those whose business models center on the use of artificial intelligence and taking labor out of the marketplace, will offer a juicy political target,” writes Eurasia Group.

Source: Eurasia Group

8. Turkey

Since the failed coup in July 2016, Turkey’s president Recep Tayyip Erdoğan has cracked down on the judiciary, academic, bureaucratic, and media sectors. Now, he is aiming to legitimize his position, and Turkey will be holding a referendum regarding his expansion of presidential powers in the spring.

“Erdogan’s drive to centralize powers will exacerbate many of the existing pressures on Turkey’s domestic governance, economy, and foreign relations,” argue the analysts at Eurasia Group. “Ever-fewer checks on executive power will leave the private sector vulnerable to political whims.”

Source: Eurasia Group

9. North Korea

“2017 will be a big year for North Korea. That’s not a good thing,” writes Eurasia Group.

The Hermit Kingdom has advanced its nuclear and missile programs, and is getting closer to possessing intercontinental ballistic missile capability that could hit the West Coast of the US. American policy continues to push for a complete elimination of the nuclear program. 

“There are two main risks. First, the Trump administration ramps up coercive action against North Korea, and this precipitates a crisis in US-China relations,” they write. “The second risk: South Korean President Park Geunhye is forced from office and replaced with a center-left government that favors diplomacy with North Korea over coercion.”

Source: Eurasia Group

10. South Africa

South Africa has seen political infighting over the last year as President Jacob Zuma clashed with opponents within and outside of the ruling African National Congress. 

This infighting “will undermine the country’s traditional role as a force for regional security,” writes Eurasia Group. “This leadership failure is deepening at exactly the wrong time, because events in coming months will challenge regional stability.” 

One example they note is Zimbabwe, which will likely see an uptick in opposition protests — which president Robert Mugabe will probably suppress — in the lead up to the 2018 elections. “In 2008, then-South African President Thabo Mbeki helped broker a power-sharing deal when an election in Zimbabwe spun out of control. Today’s divided and distracted South Africa is much less able to repeat that role,” they added.

Source: Eurasia Group

BONUS: The Red Herrings going into 2017

In their report, Eurasia Group also included three “red herrings” for the year:

US domestic policy. The team writes that Trump’s cabinet is coherent on domestic issues and, moreover, the US’ legislative structure is decentralized.

India versus Pakistan. Although there have been several recent cross-border attacks and incursions, the team does not see a broader military conflict in 2017 given that both countries’ prime ministers are focused on domestic issues.

Brazil. There has been a plethora of political and economic issues in Brazil recently. But although these will be challenges for the current administration, they will also force legislators to act quickly.

Source: Eurasia Group

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