What to worry about: 6 top risks to watch for in 2020

2019 brought no great surprises or “black swans.” But the fragile world order did move further down the path of unraveling. What to worry about in 2020? Some nasty disruptions may lie ahead. Here’s the top of my list of things to watch out for in 2020:

• 2020 elections: Either a Trump reelection or a victory for a Democratic challenger is bound to deepen U.S. political tribalism. A Trump victory would likely result in four more years of U.S. withdrawal from the multilateral world order and a global leadership deficit, while a narrow Trump loss could cause domestic political turmoil. A Democratic victory and left populist economic policies could also fuel uncertainty and turmoil in markets; 

• Brexit: One certainty is that Brexit will finally occur, with the United Kingdom out of the European Union by January 31. But political and economic uncertainties abound. A U.K.-EU trade deal may drag out beyond 2020. Brexit may lead to the breakup of the United Kingdom, as the Scottish Nationalist Party pursues another independence referendum and Irish nationalist MPs strong election performance in Northern Ireland positions them to ponder their future; London’s global financial hub is also at risk;  

• North Korean defiance: This is the most immediate challenge of what seems a new nuclear age now taking shape (e.g., the demise of U.S.-Russia arms pacts, and Iran and Saudi Arabia as potential proliferators). Whether or not there is another Trump-Kim summit, as Kim offered in his New Year’s day speech, tensions are likely to rise in 2020 as Pyongyang continues developing strategic weapons. Kim escalated his blackmail efforts, again threatening a “new path” with powerful strategic weapons if the U.S. fails to make concessions. A façade of diplomacy may continue, but Kim appears to be inching close to a strategic choice:  That is the meaning of Kim’s New Year Speech — and 13 sets of ballistic missile tests since May. Despite claiming to prefer a still undefined denuclearization, Kim’s goal appears to be to buy time as he enhances his missile and nuclear arsenal. After 25 years of denuclearization diplomacy, prospects for a genuine, verifiable denuclearization appear slim to none. Kim is set to pursue the “new path” he warned about. This may unleash a new cycle of “fire and fury” rhetoric, threatening confrontation with a serious risk of conflict sparked by miscalculation. But war remains an unthinkable, catastrophic option, and mutual deterrence should hold. Next phase: How to live with a nuclear North Korea. 

• The great unraveling: With the demise of its arbitration mechanism, the World Trade Organization (WTO) – the key enabler of 70 years of prosperity and a rules-based economic order – may also become defunct. In the best case, after a lapse of six to 24 months, a new arbitration mechanism with a much-reduced mandate and a reformed, but also diminished in scope and authority, WTO may emerge. But universal rules and enforcement will be less important in shaping the terms of trade than large countries using their market size to weaponize trade via tariffs. Meanwhile bilateral and multilateral preferential trade arrangements will take on more importance in shaping rules. The latter group – often excluding the United States – could become the new normal for global trade.

• A bifurcated world: Despite a modest U.S.-China trade deal, the decoupling of the world’s two largest economies amid growing techno-nationalism on both sides is driving a new global economic dynamic reflected in the WTO’s fate. The main elements of Beijing’s predatory mercantilism (substantive subsidies to state-owned enterprises and “national champions,” “digital sovereignty” in pursuit of “Made in China 2025,” and economic coercion of foreign investors) remains largely undiluted. Washington is seeking to disrupt supply chains linking the United States and China, cutting off investment, scientific exchanges, and tech exports and imports from China. Decoupling will occur largely in the telecom/5G and electronics/IT sectors, and sensitive national security-related industries, resulting in a fragmented internet and e-commerce. The disruption in global innovation and supply chains will render Washington’s “Indo-Pacific policy” problematic. The fact that China is the number-one trading partner of all U.S. Asian allies and partners, and a top trading partner with the EU and many Latin American nations offers a preview of the costs to the U.S. of a bifurcated global economy.

• Gray Swan: A China reckoning/world financial crisis: A perfect storm involving a simultaneous slowdown in the three economic centers and the U.S.-China decoupling could catapult the global economy into another deep economic crisis. China’s internal contradictions are growing, including massive public, household, and corporate debt (300 percent of gross domestic product), aging demographics (labor shortages, pension and health care demands) and sagging growth (2 to 3 percent in real terms). The United States also suffers from a growing debt problem at the federal government level, plus substantial corporate debt at a time of record low interest rates. The U.S. Federal Reserve worries that its fiscal and monetary instruments may not be up to the job of dealing with even just a recession. Equally, slowing growth and the EU’s divisions in the wake of its uneven recovery from the 2008 financial meltdown make it an unlikely candidate to pull the world out of a recession.

 This is by no means, an exhaustive list, but an assessment of top risks to watch for. Overlapping conflicts in the greater Middle East – Syria, Libya, Yemen, Iran – are percolating, and proxy or real U.S. conflict with Iran is within the realm of the plausible. All things considered, 2020 promises to be a wild ride. The one risk you won’t have to worry about is boredom.

Robert A. Manning is a senior fellow of the Scowcroft Center for Strategy and Security at the Atlantic Council and its Foresight, Strategy, Risks Initiative. He served as a senior counselor to the undersecretary of state for global affairs from 2001 to 2004, as a member of the U.S. Department of State Policy Planning Staff from 2004 to 2008, and on the National Intelligence Council (NIC) Strategic Futures Group, 2008-2012. Follow him on Twitter @RManning4.