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Stratfor: 2019 Annual Forecast

The Great Power Competition Intensifies. The United States will escalate its strategic offensive against China with tariffs, sanctions, regulatory buffers around emerging technologies, stronger backing for Taiwan and a more assertive posture in the South China Sea. At the same time, failing arms control pacts will accelerate an arms race among the United States, Russia and China. The edgier geopolitical climate will create strategic opportunities for more vulnerable borderland powers, such as Poland and Taiwan, but will also create massive headaches for middle powers trying to find neutral ground, such as Turkey, India and Vietnam.

Increased Geopolitical Risk for Business. Citing national security threats, the United States will lean heavily on Europe, Japan, Australia, Canada, South Korea and Taiwan to erect stronger barriers to Chinese investment. This will affect research and trade in strategic areas, from artificial intelligence to 5G network rollouts beginning in 2019. China's imperative to catch up in critical areas like aerospace and high-end semiconductor development will only increase cyberthreats to corporations and compel an overall more offensive U.S. policy in cyberspace. In addition, corporations will have to contend with supply chain disruptions and heavier fines and lawsuits for data breaches.

Measuring Trade Volatility in the Global Economy. A U.S. showdown with the World Trade Organization could paralyze the body's dispute settlement process, forcing countries into a less predictable bilateral track to resolve their trade differences. Canada, Mexico, Japan and South Korea have a better chance of negotiating quotas to mitigate the threat of U.S. auto tariffs, but the European Union's trade talks with the United States are doomed to fail. And while additional U.S. tariffs on China will add to trade uncertainty, the overall effect on the global economy from White House trade policy in 2019 will be relatively muted.

Hair-Raising Scenarios for Italy and Brexit. A defiantly populist Italian government will pose the biggest threat to the eurozone in 2019 as concerns grow over the country's rising debt levels and fragile banking sector. Financial markets and dangerously wide spreads in bond yields — rather than threats from Brussels — will prove to be Rome's biggest disciplinarians. Brussels will simultaneously work to avert a no-deal Brexit scenario with the United Kingdom, but a British parliamentary veto remains the single biggest obstacle to its orderly exit from the European Union.

The Next Steps in the Anti-Iran Campaign. With far-reaching secondary sanctions in place, the United States will forge ahead with its campaign to isolate Iran regionally and weaken the country from within. This will increase friction between Washington and Tehran and diminish the already scant likelihood of a constructive negotiation. A common agenda opposing Iran will help insulate strategic, high-level ties between the United States and Saudi Arabia despite rumblings within the royal family and foreign governments over Saudi Crown Prince Mohammed bin Salman's leadership.

An Eye on Growing Supply in Global Energy Markets. Saudi Arabia and Russia will carefully manage oil output to prevent a price plunge as they monitor the effects of residual Iranian exports on the market. There is also the potential for production growth out of Iraq and Libya and a significant easing of export capacity constraints on the United States later in the year. Global liquified natural gas markets will be shaken up when the United States assumes its place among the top three LNG exporters in the world in 2019.

Disruptive Forces at Work in the Americas. Hard-line and U.S.-aligned governments in Brazil and Colombia could drive an atypically proactive regional effort to contain spillover from Venezuela's ongoing crisis. Brazil's efforts to shake up and reform the Mercosur trading bloc will come up against a politically hamstrung Argentina. The power of the referendum will meanwhile be put to the test in Mexico, where an aggressive populist agenda will raise investor risk.

Ethiopia Drives Big Change in the Horn of Africa. Ethiopia's ambitious agenda is generating economic interest and attracting outside powers to the Horn of Africa. But internal challenges to the current leadership and ethnic strife risk slowing Addis Ababa's momentum.

Section Highlights

  • A great power rivalry among the United States, China and Russia will accelerate a high-stakes arms race and increase competition in cyberspace. Global governance around these building threats will prove elusive as divisions deepen in the international system.
  • Even as the United States escalates a strategic offensive against China with additional tariffs and regulatory blocks, sanctions, increased backing for Taiwan, and maritime challenges in the South China Sea, Beijing will rely on its heavy economic leverage to chip away at U.S. alliances.
  • A White House showdown with the World Trade Organization could grind the body’s dispute settlement process to a halt, forcing countries back to a less predictable bilateral track to sort out their trade frictions.
  • As Iranian oil exports diminish under sanctions, U.S. production is set to increase, and as the global economy experiences more sluggish growth in 2019, Saudi Arabia and Russia will remain highly reactive to global oil markets to prevent a steep price plunge. Global liquefied natural gas markets, meanwhile, will grow more competitive as the United States earns its place among the world’s top LNG exporters in 2019.


A New and Uncomfortable Global Reality

More than a year ago, Stratfor noted that the intensifying competition among the United States, China and Russia would emerge as the defining feature of the international system, creating a conundrum for the middle powers caught in the throes of great power rivalry. It didn’t take long for trade wars, cyberattacks, shifting defense strategies and arms races to convince the world that this is the new and uncomfortable global reality.

Great power competition is set to only intensify in 2019. The White House will double down on its attempts to short-circuit China’s advances across a number of strategic fields. Beijing will take some blows along the way, but China still has the means and more motivation than ever to accelerate its timetable and efforts toward reaching parity with the United States. And while there is no love lost between China and Russia, the potential for a tighter alignment in 2019 is likely to overcome the friction points in their uneasy partnership.

The year will expose the limits the United States faces in trying to isolate China both from within tightly interwoven supply chains and from even the most dependable U.S. allies, caught between maintaining a tight security relationship with the United States and a growing need to expand their economic ties with China. This global dynamic will create a massive headache for middle powers and globally exposed businesses trying to navigate this complex landscape. Even as major European powers try to assert EU sovereignty on the global scale to avoid becoming collateral damage, they will remain largely reactive to the broader competition. And for those powers lying along the borderlands, from Poland to Turkey to Taiwan, a tenser geopolitical climate will translate in some cases into strategic opportunities as they try to work quickly to shore up security alliances and extract special economic benefits from powerful suitors.

Disruptive technologies and fractured treaties will reshape military arsenals in the years ahead.

The rapid development of disruptive weapons technology combined with the steady deterioration of arms control pacts will accelerate the high-stakes arms race among the United States, Russia and China. Washington's likely imminent withdrawal from the Intermediate-Range Nuclear Forces Treaty and a shakier negotiation over the New Strategic Arms Reduction Treaty will deepen divisions in Europe as Western powers try to avoid getting caught in an arms buildup while states on the front lines with Russia, like Poland, the Baltic states and potentially Romania, volunteer to host U.S. military assets. At the same time, the United States will be freeing itself to build up a formidable arsenal to challenge China, all while Beijing strategically avoids entering such arms pacts and continues apace with its own buildup in the Western Pacific.

The ideological dimension to the great power competition will play out more subtly. The United States is rising to the challenge of competing with a China-Russia axis, but it is relying on unorthodox tactics and a broadly unilateral course that will risk alienating many of the middle-power allies it needs on its side. With the Western front divided and the United States no longer actively defending — and in some cases actively battling — the postwar rules-based system of managing the global order, China will find plenty of inroads among middle powers to blunt the U.S. offensive. Moreover, the technology-driven form of digital authoritarianism that China is harnessing to manage affairs at home and export abroad will offer a compelling alternative to powers with autocratic leanings that have grown wary of the liberal political conditions that traditionally come with partnering with the West.

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