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posted on 03 February 2018

Addressing The State Of The World

from STRATFOR

-- this post authored by Reva Goujon

U.S. President Donald Trump is preparing to deliver his first State of the Union address. The speech, scheduled for Jan. 30, will carry all the usual pomp and ceremony: the flurry of autographs and handshakes as the president enters the U.S. House chamber; the vice president and speaker of the house's awkwardly intense gazes on the president as he gives the address; the contrived anecdotes about special guests in the audience designed to underscore the president's populist image; the opposition party's coordinated acts of protest by refusing to stand and applaud. Political theater aside, however, the president will be addressing his country - and, by extension, the world - in a year in which anxiety over the future of trade and the prospect of great power conflict tempers tepid optimism toward global growth. As an accompaniment to this year's State of the Union address, I'll take a stab at summarizing the State of the World.

Self-proclaimed globalists, patriots and nationalists of the world:

We find ourselves in an age in which technology is advancing at a relentless pace, and many nations - under mounting economic and social strain - are resorting to desperate measures to try to keep up.

The United States is trying to find its footing in the emerging world order. Given the country's outsize influence on the global stage, the transition has been understandably raucous. Yet while the current administration regularly leers at multilateral institutions in prioritizing its interests above those of other nations, the United States is not about to tear down the global trading order or leave long-standing allies in the lurch. Checks and balances will continue to moderate the more sensational impulses of the White House as it tries to crack down on so-called economic predators and demand more of its partners.

Bracing for Uncertainty

And while the United States has no qualms about broadcasting a protectionist agenda, it is hardly alone in this position. India and China will tout open markets as they carefully guard their own industries. Even France's zealous young leader has adopted a protectionist stance, which he cleverly masks with globalist rhetoric. Growing protectionism will not overpower pragmatism in global trade, however. In fact, alarm over U.S. trade policy has spurred Latin American, Asian and European powers to bend in trade negotiations, reviving the Trans-Pacific Partnership and pushing to expand into new markets.

In some parts of the world, a race against the clock for economic reform will feed authoritarianism. Chinese President Xi Jinping already is using his absolute control over his country to take on entrenched local interests with an eye toward shuttering unprofitable "zombie" enterprises, sealing up risky financial channels and driving more sustainable growth. Saudi Arabia's intrepid Crown Prince Mohammed bin Salman has amassed an array of portfolios, sidelined relatives and shaken down important princes in a bid not only to increase his power but also to remove any obstacles that could hinder development of a dynamic private industry. Egypt's military establishment, meanwhile, is making arrangements to ensure that President Abdel Fattah al-Sisi emerges victorious from this year's election with many more politically risky economic reforms to come. Though power grabs may be a pre-requisite for economic repair in some cases, they will create more vulnerabilities for each of these governments down the line.

At the same time, the world is entering a more dangerous age in nuclear deterrenceand proliferation. Unwilling to wait around for renegotiations over arms treaties that are riddled with violations anyway, the United States will be taking more active steps to modernize and expand its nuclear arsenal in competition with China and Russia. Nuclear rivals India and Pakistan are lowering their threshold for conflict as New Delhi promises devastation should Islamabad try to deploy tactical nuclear weapons. North Korea is on the verge of proving to other aspiring nuclear powers that decades of hardship, manipulation and resource investment can yield a viable nuclear deterrent under the nose of "responsible" nuclear stakeholders. As things heat up in the east, South Korea and Japan may eventually entertain obtaining nukes of their own if they come to doubt the reliability of the U.S. security umbrella. And while Iran works with Europe to try to salvage its nuclear deal with the West, a concerted effort by the United States, Saudi Arabia and Israel to destabilize the Islamic republic will reinvigorate a debate in Tehran on the merits of pursuing a nuclear deterrent.

The greatest challenge that lies ahead is also the most nebulous.‚Äč

History is repeating itself across Eurasia. In Iraq and Syria, Turkey is trying to shove the Russians and Americans out of its way as it sweeps through the lands of its former empire. In Europe, an age-old division between north and south has resurfaced in the debate over eurozone reform. Germany faces pressure from its neighbors in Northern Europe to stand its ground and fight for financial prudence, while from the south, Italy is badgering France to boost spending and loosen fiscal rules. Russian President Vladimir Putin, meanwhile, is battening down the hatches at home as he looks for partners in China to help his country compete with the United States and in Saudi Arabia to keep it relevant in the energy sphere.

The Tech Revolution Expands

But the greatest challenge that lies ahead is also the most nebulous. As the world naturally succumbs to the economic pressures that come with aging demographics, we will rely ever more on technological innovation to keep us moving, trading, communicating and competing efficiently. Even so, the joints holding our society together will creak with every leap of progress we make. If adopting robotics in the manufacturing industry over the past three decades has created the intense level of social angst we are experiencing today, imagine what will happen when algorithms replace entire industries of middleman services, such as insurance and health care. We're on a timeline that leaves little space for politicians to gamble with the expectation that economic benefits will eventually trickle down to the masses. And blunt attempts at banning technological platforms, including social media and cryptocurrency exchanges, can only buy so much time.

This is a world that requires nations, corporations and individuals to think not in terms of quarterly reports or midterm elections, but in decades. For it is within this century that nations will have to rewrite a social contract with their citizens, whether that day of reckoning comes by force or by political will.

"Addressing the State of the World" is republished with permission of Stratfor.

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