April 10, 2018
Ian Bremmer outlines the rise of China—and the uncertainty surrounding the U.S.
Dr. Ian Bremmer, president and founder of Eurasia Group, a global political risk research and consulting firm, is credited with applying the lens of political risk to financial markets. He’s a prolific thought leader, author and noted lecturer.
Try to keep up as Bremmer takes us on a bi-partisan round-the-world trip, sharing some of his “in the know” insights and perspectives about the world as it stood in February during TD Ameritrade Institutional’s 2018 National LINC conference.
Are we in the middle of a world upheaval?
We are, and two speeches really reflect a change in the world as we know it. When Mikhail Gorbachev announced the dissolution of the Soviet Union in 1991, we all knew that it meant that the U.S. was the only superpower left in the world.
The second speech happened on October 2017, when President Xi Jinping announced at the 19th National Congress of the Chinese Communist Party that China was prepared to become a global superpower. People have been saying for decades that China wants to reassert its stature in the world, but this is the first time that China has accepted that role.
In 10 years, we will look back at Xi’s speech and say that it was the beginning of a transformation in the world order. Nothing else going on politically around the world is close to as important.
Why is this so transformative?
China’s economy is now 64% of the size of U.S. GDP and growing. In a world that has very few strong leaders, other than possibly Emmanuel Macron in France and Shinzō Abe in Japan, China has the strongest leader since Mao Zedong.
Xi has consolidated power and his anti-corruption campaign has been a big success, removing 1.4 million party officials from power and putting them under investigation—that’s the population of San Antonio.
We don’t live in a global free market economy any more. We live in a hybrid economy where the Chinese have more economic influence than the U.S. China may not be a military or diplomatic power, but they are an economic superpower.
China has waited to show its hand. Why now?
The Chinese believe that they now have an opportunity to assert their power without pushback from other countries due to weak European and U.S. leadership. With Trump’s “America First” declaration, our allies aren’t sure just how much they can count on us.
China will write big checks for infrastructure projects all over the world, forcing an enormous amount of debt on other countries. Countries are telling us that they are increasingly listening to Beijing more than Washington. It’s not because they like the Beijing plan—they don’t—but they believe that it is the future.
The good news is that we don’t expect a U.S./China trade or currency war in the near future since the U.S. and China are economically interlinked.
But you should worry about a technology war.
What do you mean by technology war?
Only two countries matter in the development of artificial intelligence (AI): the U.S. and China. But in China, the government actively supports monopolies for companies such as Alibaba, Tencent, and Baidu. And Amazon and Google don’t have access to the Chinese markets.
There are far more AI scientists in the U.S., but Chinese companies control more data. It’s better to have more data than scientists. The ability and willingness of the U.S. government to address this in the near term is functionally zero. We are more focused on manufacturing and military.
What else are you seeing in Asia?
Japan is basically a single-party democracy that doesn’t have the polarization you find in the U.S. and Europe. Abe has a lot of support, which allows the country to apply Abe economics long-term. With no immigration, there’s cultural homogenization. Japan is a stable, safe market.
I’m excited about India’s trajectory. Prime Minister Narendra Modi and the people around him are not corrupt. The country is increasingly technology sophisticated. They have universal IDs with biometrics. Everyone gets a bank account. It’s a great market, but it’s so far behind China. China spends 10 times more than India on infrastructure.
And North Korea?
You have to give President Trump credit for getting China to accept tougher sanctions for North Korea. That didn’t happen under Presidents Obama or Bush.
Under Trump there is a greater chance of a breakthrough with North Korea. He doesn’t care about human rights violations; he wants to do a deal. If there was a 1% chance of a deal before, maybe now it’s 10% or 20%. But here’s the problem: There was a 1% chance of war before. Now that’s also increased to 10% or 20%.
North Korea knows that they have to prove they have intercontinental ballistic missiles (ICBM) because there is a chance that Trump will hit them. That makes North Korea more dangerous.
Why don’t the markets reflect the risk of a war with North Korea?
The markets never short the geopolitical risk of something they don’t know how to time.
What about the Middle East?
Saudi Arabia’s Crown Prince Mohammad bin Salman is only 32 years old and he’s probably the most revolutionary leader in any major economy in the world today. He’s bringing women into the workplace and moderating political Islam. He’s anti-corruption and trying to diversify out of oil.
I want Salman to succeed, but I don’t think Saudi Arabia will make it. They are starting too late. They don’t have an educational system and unlike the United Arab Emirates, no expat wants to live there, so they won’t have the talent. Plus, there are wars all around them that they can’t fix.
Saudi Arabia won’t collapse but it will become more like Egypt than the Emirates.
Politically Europe is not bad. Brexit is an economic disaster. Trump and Brexit have made continental Europe understand that further exits are a really bad idea. France and Italy no longer want a referendum on an exit. But far right political parties are still popular: Germany now has a nationalist party. You have seething discontent, but you have a lot of weak governments that don’t want to rock the boat.
What about President Trump?
It is a different kind of presidency, so let me give you my honest take. Domestically, in terms of economic policies and judicial appointments, what Trump is doing is not dramatically different than what any of the other 16 Republican candidates would have done.
On national security, Trump looks quite different than Obama. He’s actually more like Hillary Clinton with strong support for Israel, a hard line on Iran, and a willingness to bomb Syria.
The big difference in the Trump presidency is in multilateralism and unilateralism. He left the Paris Climate Accord. He moved the Israeli embassy to Jerusalem.
Trump as a person is also very different. Trump is not interested in checks and balances. The good news is that the people around him who were authoritarian—like Steve Bannon, Mike Flynn and Sebastian Gorka—are almost all gone, so I’m not worried about autocracy in the U.S.
What does worry me is Trump’s incompetence and the likelihood of significant miscalculation due to a lack of knowledge and willingness to listen to experts in a crisis. Trump loves information, but it has to validate the views he already has. That creates risk for the markets.
TD Ameritrade and Dr. Ian Bremmer are separate and unaffiliated and are not responsible for each other’s policies or services. The views and opinions expressed here are solely those of the Dr. Ian Brenner and may not be reflective of those held by TD Ameritrade.