The current spate of crises causing economic uncertainty around the globe is the result of a cyclical “geopolitical recession,” according to political analyst and entrepreneur Ian Bremmer, president of the political risk consultancy Eurasia Group, speaking at the 2022 ULI Fall Meeting in Dallas.
At a general session titled “Managing Risk in an Unstable World,” Bremmer elaborated: Like economic recessions, “geopolitical recessions are cyclical. In a boom cycle, the countries in power create institutions that align with their priorities. That’s what happened after World War II, 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 changes significantly enough that these institutions do not function as well, he said.
Reforming them is difficult and slow, until a crisis comes along that is 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 in the world.”
Next year will be harder as Europe’s gas reserves run low. “The level of recession in Europe in 2023 is likely much greater than what we are presently thinking.” He predicted that large industrial companies will follow the lead of chemical company BASF, which is reducing its footprint in Germany. “You’re going to see an enormous shift of industrial might from continental Europe to the United States, Canada, and Mexico.”
Tech Trade Conflict With China
As for China, Bremmer said that President Xi Jinping’s consolidation of power and the ongoing conflict with the United States posed significant challenges, but the battle to watch is over technology, not Taiwan. “The Americans have decided to contain the Chinese on advanced technology, specifically on talent and on investment capital, and on the supply chain for advanced semiconductors,” he said. He predicted that China will invest in its own semiconductor industry, and that to keep up, the United States would have to similarly invest heavily in its semiconductor production.
The good news, he noted, is that no other countries want China isolated from the world’s economy. “They will act as a mitigating factor on how far the 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 consider China 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 outcome of the 2024 presidential election as a crucial tipping point. “The most dangerous thing is if we have a broken election, like in 1876,” he said. “Then for a period of time, you don’t know who is running the country, and there will be massive fighting between blue and red states. In the worst-case scenario, red versus blue would become an investment risk. That would affect foreign investments and capital coming into the United States.”
The good news, he said, is that the likelihood of this scenario is low. “There’s a 5 percent chance that we could do meaningful economic damage that is systemic and permanent to our economy. But the most likely outcome is that the United States is still very robust, that we’re still the dominant economy, the dominant currency, we’re where people want to be.”