RiskMap 2020

Geopolitics and the US campaign trail | Top 5 Risks | RiskMap 2020

Top 5 Risks

Jonathan Wood

  1   Geopolitics and the US campaign trail


US President Donald Trump’s disruptive foreign policy proves that “elections have consequences”. But how will the election campaign impact US foreign policy and geopolitics in 2020? What will this mean for business?
 

Four key dynamics will be important in 2020:

1. US foreign policy will be more centralised. Constantly pursuing historic breakthroughs – and historic breaks from past administrations – Trump speaks for himself and has few credible surrogates abroad. Advisers are being culled from the National Security Council, while the State Department is depleted, demoralised and increasingly politicised. Trump’s Twitter account will continue to set the agenda.

2. Domestic politics will drive US foreign policy. Having hitched his campaign to the stock market and unemployment rate, Trump can ill afford policies that threaten the slowing US economy in 2020. However, this does not preclude populist moves favouring farmers or factory workers as Trump seeks to shore up his base in key swing states. Trade and investment risks will remain elevated.

3. Congress will not restrain the White House. Congressional Republicans will rally behind Trump as the election approaches. Meanwhile, opposition Democrats disapprove of Trump’s abrasive and coercive methods but not necessarily his populist objectives. If anything, they will race to outflank him on getting tough on China, ending foreign wars and rebalancing US trade relations.

4. US allies and adversaries will try to exploit the campaign. The campaign will focus foreign policy on managing crises, distracting US attention from non-urgent issues and geographies. Trump’s thirst for deliverable “wins” before the election, meanwhile, will amplify foreign leverage in trade and security relations. Finally, Trump’s desire to avoid a pre-election war will increase US tolerance – and therefore the likelihood – of provocations by Iran, North Korea, and other state and non-state actors.

 
With these dynamics in mind, US foreign policy will be impacted by – and have outsized influence on – three main regions in 2020: Asia, the Middle East and Europe.

Asia: Breakthrough or breakdown?

Since his inauguration in 2017, Trump has vacillated between grand bargains and alarming escalations with both China and North Korea. As the election looms, 2020 could finally force his administration into sharper choices.

In the US-China trade war, the options are a shallow deal that safeguards US economic interests or further escalation to force fundamental change on Beijing. (A grand bargain is not on the cards for 2020.) Trump remains torn: his instinct for escalation with Beijing potentially means going to the polls with a struggling economy and a lack of promised big wins. However, accepting a limited deal will trigger accusations of going soft on China (from both Congressional hawks and his presidential rivals) and “losing” the trade war. Midwestern farmers – a critical voting bloc in 2020 – would undoubtedly question if the deal was worth years of “patriotic” suffering from China’s retaliatory tariffs.

Nor is the choice entirely Trump’s: Chinese President Xi Jinping wants a compromise for stability but would rather escalate than capitulate to US demands that challenge China’s political-economic system. Beijing still believes it can outlast any US administration in a trade war and must show strength to deter future foreign pressure and maintain domestic credibility.

A similar dilemma colours US policy towards North Korea: achieving a historic deal before the election will require Trump to accept North Korea as a de facto nuclear state (and absorb resulting political backlash). Conversely, insisting on full denuclearisation is likely to prompt Pyongyang to make good on threats to resume missile and nuclear testing in 2020, safely calculating that Trump would not risk a punishing war in an election year. A North Korea crisis would not hit US pocketbooks quite like trade war escalation, but ICBM range maps overlaid on a swathe of Trump-supporting “red” states will certainly not look good for re-election.

On both fronts, US foreign policy will hinge more on short-term decisions made at critical junctures than long-term strategy. Any truce with Beijing or Pyongyang would be partial, fragile and temporary. The question is not if unsettling tit-for-tat dynamics will continue but how far and fast these extend into international business.

Middle East: the post-Washington consensus

US foreign policy is likely to continue to cause disruption in the Middle East, even as the US’s partners and adversaries plan for a future where Washington’s influence is diminished.

The Trump administration’s continuation of its “maximum pressure” approach to Iran has the most potential to cause instability. As violent crackdowns on popular unrest in late 2019 demonstrate, Tehran has little appetite to compromise despite the economic pain of sanctions. Instead, it is likely to continue to meet “maximum pressure” with “maximum resistance”, sustaining the potential for further attacks in the Gulf region and spikes in global oil prices. However, Trump’s unwillingness to retaliate against militarily provocations – short of direct attacks on US personnel – is likely to solidify as the US election approaches.

Meanwhile, some US partners in the region, once eager to use the Trump administration’s hostility towards Iran for their own ends, are recalculating. Trump’s iconoclastic, transactional approach – on top of a basic desire to draw down commitments in the region – is a strategic liability for countries used to sheltering under the US security umbrella.

Saudi Arabia and the UAE are concerned about Trump’s reliability as well as a loss of bipartisan support on Capitol Hill – and especially the potential for a more sceptical Democratic administration after 2020. Jordan, Kuwait, Oman and Qatar are bracing for another year of erratic decision-making that could negatively impact their interests. The Trump administration has had little to say – and little policy response – to the waves of popular unrest wracking the region.

As a policy priority for evangelical voters, meanwhile, Israel in 2020 will continue to receive the double-edged sword of Trump’s attention. A drip feed of blatant pro-Israel policy shifts on Jerusalem, Golan, and settlements has reassured the political establishment of US support while scuppering near-term prospects for reconciliation with the Palestinians. Depending on the outcome of Israeli politics, the administration’s secret peace plan, already rejected out of hand by many in the region as assuredly one-sided, may never see the light of day. Yet favouritism towards Israel is already complicating US efforts to craft a unified front against Iran.

As US political attention turns inward in 2020, countries in the region will have even stronger incentives to independently secure their interests, including cultivating new economic and security partners – Russia, China and Europe. As a result, regional realignment will continue in 2020, with the US an influential but not necessarily decisive player.

Europe: Strategic divergence continues

The 2020 campaign opens a window of opportunity for Europe to project international influence – if it can overcome domestic political instability, sluggish economic growth and internal foreign policy divisions.

By accentuating the US administration’s isolationism – including the inevitable recapitulation of Trump’s “America First” campaign slogan – the election cycle will strengthen Europe’s drive for strategic autonomy. France and Germany, in particular, envision better foreign policy coordination, enhanced collective military capabilities and more active engagement in conflicts around Europe’s periphery. (Nota bene: the UK post-Brexit would remain essential to the credibility of any future European army.) Europe can also advance its leadership on climate change against US environmental deregulation and planned withdrawal from the UN climate accord in 2021.

US and European policies towards Russia are likely to diverge further, not least because of Ukraine’s central role in the continuing US impeachment process. Germany and France – not a US diplomatic corps in disarray – will lead on conflict resolution in eastern Ukraine, which will in turn strengthen EU member calls for sanctions relief and political dialogue with Moscow. US officials, however, remain convinced Russia will attempt to interfere in the 2020 election, which could trigger new sanctions that impact European companies and banks. Of course, Europe also remains collaterally exposed to US sanctions on Iran and the fallout from the US-China trade war.

More broadly, Europe itself is uncomfortably on trial in the US campaign, as Republicans decry “European-style socialism” in the face of a Democratic platform substantially aligned with European attitudes and policies towards healthcare, climate change, anti-trust regulation, data protection, the Iran nuclear deal and multilateral institutions. Even if Europeans avoid the appearance of endorsing Trump’s opponent, the administration is likely to remain antagonistic towards Europe and its interests for ideological reasons.

 

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