_Risk Monitor

"From this day forward, a new vision will govern this land. From this day forward, it’s going to be only America first.” 

With these two short, yet immensely symbolic sentences, spoken as part of his inauguration address in Washington DC on 20 January 2017, America’s 45th President Donald Trump formally called time on seven decades of interventionist US foreign policy.

Seven decades that since the Second World War have seen the world’s most powerful nation attempt to wield its influence to imprint its own values on the rest of the globe. 

While Mr Trump’s supporters welcomed his pledge to make America great again, to rebuild its strength from within and to focus on addressing their own domestic woes, many other Americans were more nervous about the future. Across the Atlantic, speaking at The World Economic Forum in Davos, Switzerland, Ian Bremmer, founder and President of Eurasia Group reiterated his brief obituary: “Pax Americana is dead.” 

It comes as little surprise to hear him say this. A couple of weeks earlier in his office on the 15th floor of a building on Fifth Avenue in Manhattan’s fashionable Flatiron district, Dr Bremmer had told me why he thinks the death of what he calls “Indispensable America” and the nation’s rebirth in the shape of “Independent America” is bad news for the world. 

So bad, potentially, that it tops Eurasia’s eagerly awaited annual list of the 10 biggest geopolitical risks currently facing the world. Top Risks 2017 was released a few days before our meeting, and Dr Bremmer had spent most of the week touring New York’s TV studios explaining that choice and why, when combined with Eurasia’s other risks, in particular a China liable to overreact (Risk 2) and a weakened Angela Merkel less able to hold Europe together (Risk 3), he thinks we are entering what he describes as a “geopolitical recession”.

“I like to think I’m a pretty optimistic guy, but 2017 is the most significant year for political risk since World War Two,” he warns.

A quick scan of the numerous grip-and-grin photographs lining the walls and shelves of his office gives some clue as to why he so values the 70-year era of American exceptionalism and laments its passing.

Many feature a fresh-faced Dr Bremmer with leaders of the ex-Soviet republics. His first trip abroad as a young man was to Russia and far from the closed, inward-looking society he expected to find, he discovered a generation of young people gazing outwards, inspired by the freedoms and culture of the US. What followed were the collapse of the Soviet Union and the fall of the Berlin Wall. 

Without an America willing to take the lead, many of the bonds that maintain global stability, such as agreements covering trade, the environment and defence, will weaken or fall apart, says Dr Bremmer. “You are so eroding the trust between major governments, you are so eroding the guardrails provided by the multilateral institutions and architecture that the Americans have set up, that when crises inevitably occur the potential for them to escalate quickly or unwisely is actually much more significant.”

Potential flashpoints 

The list of places where such flashpoints could occur around the world is worryingly long. Turkey (Risk 8) makes it into Eurasia’s top 10 for the second year running, but the fact that later this year China’s Communist party is holding its 19th National Congress, which will thrash out the details of the country’s leadership succession, makes parts of Asia, including debut entrant North Korea (Risk 9), particularly volatile, Dr Bremmer says. 

“Trump’s new appointees on trade make it very clear that his hawkish line on China is something that is going to continue, but let’s keep in mind that this is possibly the single worst time for the US to try this approach. If ever there was a year when Xi Jinping was going to be maximally unwilling to show weakness, or softness or restraint in response to a perceived slight, it would be this year. He has got to be seen as tough, unyielding and uncompromising.” 

However, he concedes, it is possible that Trump’s unorthodox approach could succeed where Barack Obama’s foreign policy failed, and help to establish a more stable world order. “We could end up with a tit-for-tat trade row that could seriously hurt both economies in 2017, lead to military confrontations, see the Japanese take a big hit in trade and tourism and the South Koreans, with a new government from the liberal opposition, flip towards Beijing. 

“But then if Xi Jinping has his successful leadership transition and Trump has his Jesus moment – ‘Wow, the Chinese really hit me and I need to do a new deal’ – things could look very different. Trump, like Nixon, could end up creating the basis of a G2 [Dr Bremmer coined the phrase G-Zero to describe the world today, where he believes no single country has the power or inclination to shape a truly global agenda] between the US and China. It’s possible, but it won’t be in 2017 and we’re going to have to get through a lot of volatility before Trump can make it happen.” 

The other big alpha male of global politics, Vladamir Putin, doesn’t explicitly make it into the Eurasia top 10, but he’s certainly going to be part of the mix, ready to take advantage of the power vacuum created by America’s unwillingness to lead, and of ongoing political and economic discord within Europe.

Having this time last year unequivocally stated that Donald Trump would not become the US president, Dr Bremmer is understandably not ruling out a victory by the right-wing Marine Le Pen in this year’s French presidential elections. “Independent America leaves Putin with a lot of running room,” he says. 

^{Politics matter: Angela Merkel and Theresa May}

Technology, in the form of energy, connectivity or automation, is a theme that also resurfaces frequently in Dr Bremmer’s commentaries, sometimes as an opportunity – “technology has helped lift over a billion people out of poverty” – but often at a risk. Automation, for example, is now a far bigger threat to blue-collar jobs in the US than globalisation, he believes.

As well as creating tension between the White House and Silicon Valley (Risk 7), he also sees a number of festering technology issues potentially colliding in the Middle East, with worrying implications for the stability of the region (Risk 5).

“The first billion people that had access to the internet were wealthy elites in the developed world and emerging markets that were largely aligned with the status quo,” he says. “But when you actually start hooking up the global rank and file a lot of people are very discontented. That’s particularly true in the Middle East.”

That discontent is increasingly being honed into something more virulent by the spread of partisan or extremist news and social media outlets across the web that allow left or right-wing consumers to only listen to the points of view they hold themselves, says Bremmer.

“That doesn’t matter in the US because frankly most Americans are politically apathetic. But in the Middle East if you’re connected and you’re not watching Al Jazeera, you’ll be watching sectarian news. It’s Sunni versus Shia, it’s tribe versus tribe – and it’s ripping these countries apart.”

The energy revolution of the past five years has also severely affected the ability of Middle Eastern governments to use oil revenues to uphold the lifestyles of their citizens, adds Dr Bremmer. “Suddenly, Saudi Arabia wasn’t the swing producer any more: it was America. New technology destroyed the social contract in the Middle East. 

“When you put these things together, you realise that it’s not just about the borders that were set up by the Europeans but don’t align with historic notions of identity, and it’s not just that the US doesn’t want to be the policeman after failed wars; it’s really the explosive nature of technology that these governments can no longer deal with.”

So, all things considered, how risky is the outlook? Pretty risky, it turns out. “If you’d talked to me at any point since I started this company and asked, ‘Ian, do you think there is any risk of war between key governments?’ I would have said no. I still don’t think it’s likely, but I can’t say that now.” 

And what are the implications for the world’s wealthiest people? After all, by and large, they bounced back pretty quickly from the global financial crisis. “Global economic growth in a world of recession is going to be low, and the quality of growth is going to be lower.

When emerging markets are responsible for most of the world’s growth, there will be higher volatility – and that means UHNWIs are going to be paying more attention to the safety of their capital than the size of their returns,” says Dr Bremmer. 

But the biggest risks aren’t necessarily economic, he points out. “As inequality grows, walls are going up and people in positions of great wealth are increasingly being targeted. The Panama papers were not about the middle classes, they were about the wealthy.

Now, ultra- high-net-worth individuals' (UHNWIs’) biggest concern is not their capital, it’s their personal safety. As the dangers of kidnapping, for example, go up, they will need to consider how they want to live their lives, how they interact with the world as a whole, and how they feel about themselves as human beings. What kind of future do they want for their children? What kind of society do they want to live in? They need to think more about that, frankly. That should be the principal concern that they have.” 

Despite all this, Dr Bremmer isn’t all bearish about the outlook for UHNWIs in 2017, particularly those living in the US. Ironically, while an Independent America may be a big risk to the world, it could be good news for domestic wealth creators, he reckons, in the short term at least. 

“Certainly, if you look at the orientation of Trump’s initial cabinet appointments it appears to be a safe bet that you’re going to see less regulation, lower corporate taxation and more support for infrastructure and privatisation. When you’ve got a billionaire running the country, the chances are it’s going to be a good place to be a rich person.” 

The world’s key urban hubs also have reason to be optimistic, he believes. “The places that are doing very well and are going to do a lot better are cosmopolitan global cities. Dubai, Singapore, Shanghai, Auckland, Copenhagen, London and New York are all going to do exceptionally well.” Dr Bremmer believes these are the places that over the next 10 years or so will benefit most from new technologies like driverless cars, which will help create “much more liveable environments”. 

However, the rise of the city brings its own challenges. “They are not countries, so you’ll see that central leadership erodes as the legitimacy of governments gets weaker. The ability to drive national policies to help raise all boats becomes much more challenging. The great thing about Singapore is that it’s a country and a city at the same time, so you can do both of those things.”

The declining power of governments to address society’s big problems brings the conversation on to wealth inequality, the issue that in one shape or another really drives most of the risks facing the world today. Last year, on these pages of The Wealth Report, our keynote interviewee, Lynn Forester de Rothschild, expressed a hope that the Movement for Inclusive Capitalism, which she champions, would help create a fairer system of capitalism and globalisation. 

But as Brexit, the US elections and numerous other populist driven political outcomes show, voters aren’t prepared to wait for those running the system to mend it gradually. Instead, they are pinning their hopes on a new breed of politician wielding a scalpel. Is wealth inequality a problem that can be fixed, I ask Dr Bremmer. 

“No,” comes the short answer. “I think that we will address it in many different ways around the world. Some will be successful, some will merely kick the can a bit further down the road, and some will be incredibly explosive. In the US, for example, you’ll see some very effective policy responses to inequality, but they’ll happen in certain municipalities and certain states, they won’t happen nationally. Inequality across America as a whole will grow.”

Part of the problem, Dr Bremmer argues, is that the data used to measure wealth inequality is “way out of date”. “Full employment, for example, is no longer a very useful metric because you’ll have so many people employed in the gig economy where labour will be on demand. You’ll need to look at whether these people have satisfying lives, are they able to think of themselves as productive and think of future pathways for their children. Those are the questions that I think governments have been very inadequate at answering.” 

The ability of politicians to answer the questions now being asked of them by electorates eager for change, will define how much riskier the world really becomes in 2017. “What we do has never felt so important,” says Dr Bremmer, as we wrap up our chat. Hopefully those who can make a difference are listening.