The current series of crises that are causing economic uncertainty around the world are the result of a cyclical “geopolitical recession,” according to political analyst and entrepreneur Ian Bremmer, president of political risk consultancy Eurasia Group, during the 2022 ULI Fall Meeting in Dallas.
In a general session titled “Managing Risk in an Unstable World,” Bremmer explained: Like economic downturns, “geopolitical downturns are cyclical. In a boom cycle, countries in power create institutions that align with their priorities. This is what happened after the Second World War, when the United States and its allies created the United Nations, the Security Council, the World Trade Organization, the International Monetary Fund, the World Bank. Over time, however, the balance of power shifts enough that these institutions don’t work as well, he said.
Reforming them is difficult and slow, until a crisis occurs big enough – like Russia’s recent invasion of Ukraine – to require action. “Suddenly NATO is stronger, the G7 is stronger,” he said. “Russia has become a rogue state, a pariah cut off from all the rich countries of the world.”
Next year will be more difficult as Europe’s gas reserves are running out. “The level of recession in Europe in 2023 is likely to be much higher than what we currently think.” He predicted that major industrial companies would follow the example of chemical company BASF, which is shrinking its footprint in Germany. “You’re going to see a huge shift in industrial power from continental Europe to the United States, Canada and Mexico.”
Tech trade dispute with China
As for China, Bremmer said President Xi Jinping’s consolidation of power and the ongoing conflict with the United States posed significant challenges, but the battle to watch was over technology, not Taiwan. “The Americans have decided to contain the Chinese on advanced technologies, especially on talent and investment capital, and on the advanced semiconductor supply chain,” he said. He predicted that China would invest in its own semiconductor industry and to keep pace, the United States would also have to invest heavily in its semiconductor production.
The good news, he noted, is that no other country wants China to be isolated from the global economy. “They will act as a mitigating factor to how far Americans can go to decouple these two economies that need each other,” Bremmer said. “It’s not just the allies, it’s also the private sector in the United States. Coca-Cola, Walmart, Goldman Sachs, Blackrock – these guys see China as one of their most important growth markets in the world for the next decade, and they have lobbying power.
In the United States, he sees the result of the 2024 presidential election as a turning point. “The most dangerous thing is if we have a broken election, like in 1876,” he said. “Then for a while you don’t know who is running the country, and there will be massive fighting between the blue and red states. In the worst case, red versus blue would become an investment risk. This would affect foreign investment and capital flowing into the United States.
The good news, he said, is that the likelihood of this scenario is low. “There is a 5% chance that we could cause significant, systemic and permanent economic damage to our economy. But the more likely outcome is that the United States is still very robust, we’re still the dominant economy, the dominant currency, we’re where people want to be.