The year 2019 turned out to be volatile as the trade war between China and the U.S. escalated before leading to a preliminary deal. Next year, all eyes will be focused on the U.S. elections in November and the status of the trade war. But what could be next year’s surprises? We look at three issues brewing underneath the surface regarding European unity, protests in Latin America, and U.S. foreign policy.

 

Our observations

  • European unity has been under pressure for several years. As the U.K. is leaving the EU, the fragility of the Southern European economies, primarily Italy, will most likely predominate in the coming years. As a result, European unity (and the survival of the EU) will constantly be questioned by nationalist politicians, financial markets and global media.
  • Protests all over the continent destabilized Latin America in 2019. Sudden violent protests in Chile forced Sebastián Piñera to commit to higher social spending and draft a new constitution. Protests in Colombia made reform even more difficult for the minority government of Iván Duque. Violent protests followed Ecuador’s unpopular IMF-backed reforms. In Peru, Martín Vizcarra dissolved Congress in his attempt to push through institutional reform. Social unrest in Bolivia forced Evo Morales, who had governed since 2006, to resign.
  • For many years (since long before Donald Trump came to power), the U.S. has followed strategies to contain the rise of China (e.g. the “Pivot to Asia”, the TPP) and has used its financial dominance to impose its will on other countries (i.e. sanctions).

 

Connecting the dots

The year 2019 was marked by the trade war and controversial elections in the EU, India, the U.K., Spain, Argentina, Indonesia, the Philippines, South Africa and Nigeria. Looking ahead, in 2020 there will be no important elections besides in the U.S. Indeed, all eyes will be trained on the U.S. presidential election and its impact on the trade war. Still, we should also look out for events that may surprise us in different parts of the world. We are not talking about low probability events; by definition, those cannot be anticipated. Indeed, we will focus on events that are already brewing under our radar. Here are three examples from our list:

1) A new impulse for European unity. The EU has been under pressure for several years, but in 2020, there will be opportunity for a new impulse for unity. The U.K., often critical of Brussels’ pan-European projects, is leaving the EU, whereas Germany and France, the EU’s biggest powers, increasingly support these projects. What’s more, the conflict between the U.S. and China has shown EU member states that they need Europe to stay competitive in the new era of great power competition. Of course, the fundamental differences between member states will not disappear (many member states have already dismissed the new European Commission’s plans as unrealistic), but that is beside the point. The new push for pan-European projects may not unite all member states, but it willpersuade many that are reluctant to follow the Commission’s plans to gradually change policies at home (in order not to be constantly in the crosshairs of Brussels). As such, the emerging European project will gain support among member states, as it already has in the form of the European Green Deal, the European Gaia-X cloud network, the European Battery Alliance, and the European satellite system Galileo.
 
2) Reform of the Latin American powerhouses. Protests flooded the streets of Latin America in 2019, but the situation in the continent’s two most powerful countries is much different. To understand why, the protests should be seen against the background of the ending of the commodities boom in 2014, which hurt Latin American economies that mostly depend on commodity exports. As state incomes declined, governments were forced to tighten the belt on their populations, leading to social unrest. It should be noted that Brazil and Mexico have thus already experienced the unrest that is now destabilizing the rest of the continent. That is what broughtpopulists Jair Bolsonaro and Andrés Manuel López Obrador to power in 2018. Indeed, whereas most Latin American leaders are now highly unpopular, making reform very difficult, Bolsonaro and Obrador still have high approval ratings. In fact, despite the controversies around their governments, they have implemented important reforms. In Brazil, pension reforms were passed after decades of failed attempts. In Mexico, a $44 billion infrastructure plan was announced for transportation, tourism and telecommunications. In 2020, Bolsonaro will try to cut Brazil’s fiscal deficit and Obrador will attempt to launch a similar infrastructure plan for the energy industry. If these reforms are passed in 2020, Brazil and Mexico may have found a way forward.
 
3) Maximum pressure by the U.S. Despite the preliminary trade deal between the U.S. and China, the U.S. will not lose its appetite for putting pressure on its adversaries in 2020. Both “containing China and “resetting trade relationships are long-standing motivesdetermining U.S. strategy. Indeed, there are two parts to this story. First, China. It should be noted that the Trump administration has sought a preliminary trade deal with China, not to prevent conflict from escalating, but in order to stabilize the U.S. economy in the run-up to the 2020 election (the U.S. still has huge leverage against China as it’s kept significant tariffs in place, making the deal very fragile). In 2020, it is therefore likely that the U.S. will increase pressure on China by other means (which do not harm its own economic interests), such as targeting Chinese tech companies, Taiwan, Hong Kong and controversies around the treatment of ethnic minorities in Xinjiang. Second, the resetting of trade relationships. It is still likely that the U.S. will continue to reset trade relationships with countries that do not pose a meaningful risk to the U.S. economy (e.g. France, Brazil, Argentina, Vietnam), which means that these countries could suffer from U.S. trade policy even though the trade conflict seems to have calmed down.

Implications

  • Building on the momentum of the new European Commission, in 2020 we should expect more proposals for pan-European initiatives. It is also possible that there will be some alleviation of the stringent regulations that prevent the mergers of European companies (e.g. Siemens and Alstom).
  • Although we have noted that Latin America will build on its tradition of progressivism, natural resource abundance, and its future on the Western Hemisphere, the most stable region of the world, to become a dynamic economic system, this will not be a theme for 2020. Next year will see even more social unrest in Latin America, which will threaten the implementation of crucial reforms.
  • With elections in the U.S., Taiwan and Hong Kong in 2020, China will go on the defensive rather than seek confrontation with the U.S. Itwill focus on becoming self-sufficient in tech industries, protect key relationships across Eurasia and maintain the status quo in Taiwan and Hong Kong.