Ian Bremmer
President

Cliff Kupchan
Chairman

1 Rigged!: Who governs the US?
2 The Great Decoupling
4 MNCs not to the rescue
5 India gets Modi-fied
3 US/China
6 Geopolitical Europe
7 Politics vs. economics of climate change
9 Discontent in Latin America
10 Turkey
8 Shia crescendo

OVER

VIEW

Ian Bremmer

Cliff Kupchan

President

We’ve lived with growing levels of geopolitical risk fornearly a decade, but without a true international crisis.
Outside of geopolitics, global trends have been strongly
favorable. That’s now changing.
Globalization is key. The most important feature of the
post-war era landscape—people, ideas, goods, and capitalmoving faster and faster across borders around the planet—
has created extraordinary wealth and opportunity. It’s
increased global equality (even as it’s created moreinequality within many countries), reduced poverty,
extended lifespans, and supported peace and prosperity.
But with China and the United States decoupling from one
another on technology, a critical piece of the 21st-century
economy is now fragmenting in two. Countries across thedeveloped world have become more polarized, increasing
the power of tribalism. Add the shrinking of supply chainswith changes in the politics, economics, and technology
of manufactured goods and services, and suddenly
globalization has a split personality.
Then there are the economic and geopolitical trends. Bothare now cycling downward. The global economy, after
emerging from the great recession of 2008 with the longest
expansion of the post-war period, is now softening. Moreeconomists expect a recession in 2020 or 2021. And theworld is now entering a deepening geopolitical recession,
with a lack of global leadership as a result of American
unilateralism, an erosion of US-led alliances, a Russia
in decline that wants to undermine the stability andcohesion of both the US and its allies, and an increasingly

empowered China under consolidated leadership that’sbuilding a competitive alternative on the global stage.
Lastly, climate change is beginning to constrain economic
growth and to matter on the global political stage as neverbefore. That’s only going to increase over time (unlike
the cyclical economic and geopolitical trends, which
sooner or later will become more favorable). In 2020, we
have a combination of negative trend lines that we’ve notexperienced in generations.   

The cycles driving the world
Climate/resource constraints

Global well-being

2020 is a tipping point.

ChairmanGlobalization

Geopolitical cycles

Economic cycles

Period of economic
recession (duration of US
real GDP contractions)

1930

1940

1950

1960

1970

1980

1990

2000

2010

2020

Source: Eurasia Group

This deteriorating environment is much more likely
to produce a global crisis. The resources available togovernments and the private sector make it easier than in thepast to respond. But the scale of the challenges is greater, andthe geopolitical recession undermines global cooperation.
For all these reasons, 2020 looks troubling indeed.

Rigged!: Who governs the US?
We’ve never listed US domestic politics as the top risk, mainly
because US institutions are among the world’s strongest andmost resilient. This year, those institutions will be tested in
unprecedented ways. We face risks of a US election that many willview as illegitimate, uncertainty in its aftermath, and a foreign
policy environment made less stable by the resulting vacuum.
Institutional constraints have prevented President Donald Trump from realizing
major parts of his agenda (much as they have presidents preceding him), butthey haven’t stopped him from dividing the nation. Can a country this polarized

eurasia group TO P R I S KS 20203

How much confidence do you have that the presidential election will be
open and fair?
Total percentage of “a great deal” and “a fair amount”
2016

2019

84%

72%

55%
46%

Republican

39%
Democrat

45%

Independent

64%
53%

TOTAL

Source: Ipsos September 2019 poll, Pew October 2016 poll

move forward? Trump has been impeached in the House of Representatives, andhe will be acquitted by the Senate. This dynamic will delegitimize the November
presidential election. Democrats will feel impeachment was politically quashed toplace the president above the law, while Trump will feel empowered to interferewith election outcomes, with impeachment no longer a credible instrument ofpolitical restraint. At the same time, there will be external interference in US
elections, especially from Russia, and the president and the Senate will do little tominimize the damage via tighter election security measures.
In other words, we’ll have an election that—in advance—will be perceived as “rigged”
by a large percentage of the population. Public opinion polls already show this risk
is on the rise. According to a 2019 poll by IPSOS, just 53% of the public believed thepresidential election will be fair. But the biggest drop in confidence has come among
Democratic voters. In 2016, 84% of Democrats believed that year’s election was fair;the number fell to 39% in September 2019 when asked about this year’s election.
Legal challenges, which will likely fail in a conservative-leaning Supreme Court,
could even lead to calls from some quarters for the vote to be postponed or
boycotted, which would be unsuccessful but further undermine electoral legitimacy.
Alternately, if Trump feels he’s likely to lose, he could blame external actors such as
Ukraine for interference and attempt to manipulate outcomes (especially in existing
but vulnerable red states, where Trump allies hold political sway) in the name ofensuring election security. It will be the worst political climate for a national electionthat the US has experienced since the (effectively failed) election of 1876.

Once the election
is over, serious
issues will emerge.
If Trump wins amid
credible charges ofirregularities, theelection process
will becomecontested. If heloses, same.

American Brexit
What happens then? If Trump wins amid credible charges of irregularities, theelection process will become contested. If he loses, same. Particularly if the voteis close, and it’s likely to be. That would lead to lawsuits reminiscent of the Al
Gore-George W. Bush election in 2000 that was ultimately decided in the Supreme
Court. But unlike Gore-Bush, it’s hard to see a scenario in which the high court rules
and the loser graciously accepts the outcome as legitimate, especially if the loser
is Trump. In other words, the 2020 election is an American Brexit—a maximallypolarized vote where the risk is less the outcome than the political uncertaintyof what the people voted for. It’s uncharted political territory, and this time in acountry where uncertainty creates shockwaves abroad.

eurasia group TO P R I S KS 20204

Meaningful (France-style) social discontent becomes more
likely in that environment, as does domestic, politicallyinspired violence. Also, a non-functioning Congress, withboth sides using their positions to maximize politicalpressure on the eventual election outcome, setting aside
the legislative agenda. That becomes a bigger problem if
the US is entering an economic downturn, on the backof expanded spending and other measures to juice theeconomy in the run-up to the election.

Pet the dog
The challenge extends to foreign policy as well, because
any decisions Trump makes on security or trade questionsin that environment would be viewed as lacking authority.
Enemies will see the US presidency as the weakest it’s
been since Richard Nixon was embroiled in Watergate,
and this time, there’s no Henry Kissinger. Reckless pursuitof diplomacy is safer than reckless pursuit of war—
Trump’s preference is to “pet the dog” rather than “wagit” (making bad deals with foreign governments rather
than launching attacks on them)—but that still means
unprecedented efforts by Trump to align US policy with
the interests of antagonists and frenemies such as Russia
and Turkey. Meanwhile, with allies and partners, Trump’s
policies coupled with turmoil in Washington will confuse
and further destabilize longstanding relationships,with big question marks over countries that already feeleurasia group TO P R I S KS 2020

particularly exposed: think South Korea, Japan, Taiwan,
and Saudi Arabia. And Trump is also more inclined
to miscalculate (and increasingly unconstrained byadvisers when he does so), making tail risks around thosegeopolitical confrontations that occur more unpredictable(see Iran) … and dangerous.
More broadly, both US allies and enemies over the
past years have come to wonder whether the UnitedStates intends to lead—and they’ve hedged their bets
accordingly. In the midst of a disputed 2020 election, manyof those countries will wonder whether the US can govern
itself. It’s a period of unusual geopolitical vulnerability toshock and escalation.
To be clear, we’re not worried about the long-term
durability of US political institutions. The United States
doesn’t face the danger of losing its democracy in 2020.
Nor are we as alarmed as the markets about a “lurch to
the left” in US policy—a Bernie Sanders or Elizabeth
Warren presidency remains plausible but unlikely; andmore importantly, the next president will face the same
congressional and other institutional constraints Trump
has (though please see risk #4 on the broader pushback
against multinationals). But a broken impeachment
mechanism, questions of electoral illegitimacy, and aseries of court challenges will make this the most volatile
year of politics the US has experienced in generations.

5

The Great Decoupling
The decision by China and the United States to decouple in the technology
sphere is the single most impactful geopolitical development for
globalization since the collapse of the Soviet Union.
After a series of escalatory US policy moves in 2019, Beijing has concluded that decouplingis inevitable. Caught off-guard by US actions, President Xi Jinping has called for a new “Long
March” to break China’s technological dependence on the US. At the same time, China will
expand efforts to reshape international technology, trade, and financial architecture to better
promote its interests in an increasingly bifurcated world.

eurasia group TO P R I S KS 20206

Decoupling will affect not just the entire $5 trillion global
tech sector, but a host of other industries and institutions
from media and entertainment to academic research.
This decoupling, already disrupting beneficial flows
of technology, talent, and investment between the twocountries, will move beyond the handful of strategic
technology sectors at the heart of the US-China dispute(semiconductors, cloud computing, and 5G) into a
broader array of economic activity. It will affect not justthe entire $5 trillion global tech sector, but a host of otherindustries and institutions from media and entertainment
to academic research, creating a hard-to-reverse business,
economic, and cultural divide.
In the tech sector, Xi’s focus on building “resilient supply
chains” will raise the stakes of the US-China technology
competition. That’s bad news for US tech companies with big
China footprints. Huawei has already started manufacturingbase stations that will power next-generation 5G mobile
networks that it says do not contain US-sourced technology,
and this process of the US and China “designing out” eachother’s technologies will continue. Huawei and other
Chinese companies will also develop alternative software
ecosystems, chipping away at US leadership in mobile
operating systems and enterprise software.
Markets are braced for tougher controls on US technology
exports to China and the use of Chinese components inIT systems that help run US critical infrastructure. But
they’re not prepared for the effects of China’s response, adramatic increase in support for indigenous innovation
through initiatives such as its new $29 billion national
semiconductor fund and its effort to foster the creationof a new Silicon Valley in the sprawling 100-millionperson Greater Bay Area in southern China (including
Hong Kong, but that’s another story).   
The big question: Where will the new virtual Berlin Wallgo up? Which side will countries choose?
Taiwan will take on increased strategic importanceto China as a key source of non-US-origin equipment,
especially the cutting-edge semiconductors that Chinesecompanies such as Huawei rely on to compete at the
global cutting edge. South Korea will increasingly tilt
toward China for the same reason. The shift toward China
will be most palpable in Southeast Asia, sub-SaharanAfrica, eastern Europe, and Latin America, in that order.
Countries in all these regions will become battlegrounds
where the US and China compete to decide who will
supply consumers with tools to navigate the 21st-century
economy—not just smartphones and the networks thateurasia group TO P R I S KS 2020

power them, but mobile payments, e-commerce, andfinancial services, too.
Lastly, both the US and China have demonstrated they’rewilling to weaponize global trade and supply chains. For theUS, this includes the export ban on Huawei and other Chinese
tech companies. For China, it includes blocking imports
from trade partners involved in foreign-policy disputes with
Beijing (for example, Canada and its canola exports). Whenthe two largest economies politicize their most important
trading relationships, innovation and supply chain systems
become more regional and less global.
As the rifts widen, they’ll risk becoming permanent,
casting a geopolitical chill over global business.

Decoupling driven by three major factors ...

         

Centered on the USTR Section 301 investigation

AI, quantum computing, 5G, supercomputing, semiconductors

The US-China tech cold war... with wide-ranging consequences     

US-China trade tensions are accelerating theongoing restructuring of global value chains R&D decoupling, US actions against Chinese
STEM researchers, students, and personnel

Falling investment levels, US looking at Chinesecompanies’ US stock markets listings   

China’s data governance regime will be difficult
for foreign companies to navigate; lack of global
consensus on data flows drives growing riskof separate internets

Source: Eurasia Group

7

US/China
As this decoupling occurs, US-China tensions will lead to a more
explicit clash over national security, influence, and values. The twosides will continue to use economic tools in this struggle—sanctions,
export controls, and boycotts—with shorter fuses and goals thatare more explicitly political. Companies and other governments
will find it harder to avoid being caught in the crossfire.
This struggle has hard-edged realism—great power rivalry—at its core. It’s not
yet as starkly ideological as the classic Cold War formulation of capitalism vs.
socialism. But as tensions escalate, divergences between the two countries’ politicalstructures are bringing irreconcilable differences to the fore. The US-China rivalry
will increasingly be waged as a clash of values and animated by patriotic fervor.

eurasia group TO P R I S KS 2020

8

The United States sees China as a repressive regime thatwill use its economic clout to punish its foes and limit
criticism from overseas, as we saw in the snap NBA
boycott in response to an executive’s tweet in support of
pro-democracy protesters in Hong Kong. China sees theUnited States as a hegemon that wants to stunt the growthof, and sow division within, its rival, a narrative that Xi hasused to enhance the Communist Party’s legitimacy and his
own consolidation of power.
The trade war has been fought to a standstill and won’t
go away, with a truce in place but little chance of abreakthrough. The US foreign policy establishment isfocused on how to contain China rather than competewith it, amplifying bilateral tensions. China-bashing willfeature prominently in the US presidential campaign,and an already China-skeptical Trump will have mixed
intentions and limited capacity to stop his administrationfrom taking tough action against China on national
security and foreign policy issues.
Furthermore, Hong Kong’s political crisis will persist, while
Taiwan’s January 2020 vote will likely see a reelection of
Beijing’s foe Tsai Ing-wen, bolstered by stronger nationalist
sentiment within the population. The United States willemphasize military and diplomatic support for Tsai’s regime

and at least moral support for Hong Kong’s protesters(driven by Congress), prompting angry objections from
Beijing over interference in its domestic affairs.
As a consequence, the US will take tough measures against
China, including financial sanctions (over Xinjiang,
Iran, Hong Kong), designation of officials, technology
controls, and efforts to limit US capital flowing toChinese firms. These actions will also create tail risks
for an already softening Chinese economy. Meanwhile,
China will punish US and other foreign firms viewed
as supporting Washington’s “containment agenda.”
The “unreliable entities” list will grow longer, andChina will continue to restrict space for foreigners by
reducing their ability to get visas. The politicization ofChina’s economic relationships will intensify as Beijing
looks for ideological “outlets” to vent over an aggressive
Washington and slowing economic growth at home.
Meanwhile, as Trump faces a challenging reelection
campaign, Xi may test Trump’s willingness to push backaggressively in areas such as Hong Kong and Taiwan,
sensing that while trade matters for Trump, he is lessinterested in security questions. That’s dangerous,
because the US president is unpredictable.

US turns to China’s “core interests”
HONG KONG

S. CHINA SEATAIWAN

XINJIANG

TECH/INDIGENOUS
INNOVATION“Statesovereignty”“National
security““Territorial integrity“ and“national reunification““China’s political systemestablished by theConstitution“ and“overall social stability““The basic safeguards for
ensuring sustainableeconomic and social
development“

Source: Eurasia Group, State Council Information Office, The People’s Republic of China

Divergences between the two countries’ political structures
are bringing irreconcilable differences to the fore. Thus, the
US-China rivalry will increasingly be waged as a clash ofvalues and animated by patriotic fervor.

eurasia group TO P R I S KS 2020

9

MNCs not to the rescue
Many observers believe multinational corporations (MNCs) will
fill the gaps in global governance and the liberal order left by the
G-Zero world. Specifically, the private sector will step in to leadin areas such as climate change, poverty relief, and even tradeand investment liberalization. We’re skeptical. Especially as
corporates face a significantly more confrontational regulatoryand geopolitical environment in the year ahead.
Since World War II, US-led globalization has been a boon for MNCs, as it expanded
and entrenched global supply chains based on cheap labor and resource inputs
from around the world. They now account for more than 50% of global trade,
one-third of global output, and about one-quarter of global employment. MNCs
have become influential political actors as governments shaped global trade,regulatory, and tax regimes in their favor. And the firms have in turn exerted
influence on policy. Markets overseas where MNCs from the United States invest
in manufacturing receive lower tariff rates from the US government. So too, WorldBank projects involving MNCs are more likely to get better financing terms becauseof their ability to influence the bank’s largest governmental backers.
But today, nation-states are reasserting themselves, presenting new risks to thecapital and assets of corporations. Structural factors motivate governments:

eurasia group TO P R I S KS 202010

slowing global growth, widening socioeconomic
disparity, rising populism and nationalism, and techcompetition between the United States and China thatmakes trade riskier.
In the European Union, governments are turning toindustrial policies to promote domestic firms and counter
China’s statist approach. In the United States, regulating“Big Tech” is an increasingly prominent idea in politics. US
national security officials are pushing to protect criticalinfrastructure and limit foreign investment, including fromthird-country firms. They are also attempting to compel
Western corporates to embrace a Washington-centric viewof “trusted vendors” and ownership transparency as partof broader efforts to curtail US market opportunities for
Chinese firms. And even as a divided US Congress stallschanges in some areas, individual states are increasingly
regulating on issues from privacy to antitrust. In China,
decoupling from the United States translates into moreaggressive industrial subsidies in the high-tech arena,
from electric vehicles to semiconductors.

Global FDI inflows are falling as national policies
turn more restrictive$ trillions (left axis)

Number of restrictive changes
to national investment policies*(right axis)

$2.5

35

2.0

30

1.5

25

1.0

20

0.5

15

0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 201810

*Changes in national investment policies that put new restrictions on investment, according
to UNCTAD
Source: UNCTAD

It’s not just the “move fast and break things” techfirms that face elevated risk. In years past, companies
succeeded in “capturing” state institutions to forestall or
diminish unfavorable regulations. In the US, firms spent$3.5 billion on corporate lobbying in 2018 and were on

track for a similar amount in 2019—up from $1.5 billion
in 1998. They will face backlash to these efforts fromrising anti-trade populist movements, particularly indeveloped markets. A win for a further-left candidate suchas Sanders or Warren is not our basecase in the US, but
the resonance of their economic message will influence
more centrist policy thinking on issues such as regulating
the private equity industry, enforcing antitrust policies,and controlling pharmaceutical pricing. Both sides ofthe political aisle recognize the salience of anti-corporate
sentiment—a recurring theme for Trump and part of his
campaign message in 2016.
Multilateral free trade agreements once gave MNCs
leverage to reduce regulatory pressures, or at least makeregulation consistent across many markets, smoothing
compliance costs. No longer in 2020, as governments
instead pursue bilateral agreements that are productive
in isolation but create new inconsistencies in global
regulations and tariff rates.
New regulatory risks will strain corporate reputations
and make public and government affairs management
more difficult. Government affairs will need to be more
involved in strategy and boards more conversant onpolicy and regulatory risk. Companies can’t be all things
to all people. They will maximize gains in areas where
regulatory pressures align with their core business models(think Apple on data privacy and Tesla on sustainability)
while minimizing risks of fallout elsewhere.
The ability of MNCs to generate wealth, growth, andjobs will take a hit. Shareholders will need to adjust
expectations. Nation-state pushback comes at a time whenearnings projections for next year are already buffeted bygeopolitical risk. Investors are balancing the potential foran easing of US-China tariffs against forced technologicaldecoupling and softer economic growth projections in theworld’s biggest markets. Increasing and more disparate
regulatory demands from national governments will add
to transaction costs and put further pressure on profits.
Data privacy policies in Europe, a digital tax push in theOECD, and an “unreliable entities” list in China are just the
beginning of the list of challenges.
And so MNCs won’t be as much help with global governanceor supporting the global order. Given new headwinds,
most will need even sharper focus on their bottom lines.
Yet another driver of the G-Zero world.

Nation-states are reasserting themselves,presenting new risks for corporations.
eurasia group TO P R I S KS 202011

India gets Modi-fied
Prime Minister Narendra Modi has spent much of his
second term promoting controversial social policies
at the expense of an economic agenda. The impacts
will be felt in 2020, with intensified communal andsectarian instability, as well as foreign policy andeconomic setbacks.
Modi and his government have been busy in recent months. They
revoked the special status for Jammu and Kashmir and implementeda system to identify illegal immigrants in the northeast, stripping
1.9 million people of citizenship. The government also passed a law
that, for the first time, makes religion a criterion for migrants fromneighboring countries to formally acquire Indian citizenship. Behindthese moves is Amit Shah, the former head of Modi’s Bharatiya Janata
Party (BJP), now home minister.

Sectarian and religious conflict
will grow this year.

Sectarian and religious conflict will grow accordingly.
Kashmir is a powder keg, with political leaders still underarrest and internet access cut off. Protests have alreadyspread around India as many citizens fear the loss ofIndia’s secular identity. The government’s harsh response,in turn, will provoke still more demonstrations. But Modi
will not back down, and as the government pursues its
new agenda, state-level opposition leaders will directly
challenge the central government.
This focus on the social agenda will also have harmful
effects for India’s foreign policy. Its actions on humanrights will be under closer scrutiny by many nations, andits reputation will take a hit. India’s relations with the US,
which have been a bright spot under Modi, will face achallenge in 2020. Some members of the US Congress areconcerned with India’s policies generally, and in particularwith its plans to buy the S-400 missile defense system from
Russia. Congress could impose sanctions. At the least, theanti-missile system purchase will impede further sales of
US military equipment to India, the strongest plank of thebilateral relationship.
The economic spillover is also noteworthy. The social
agenda has empowered a key part of Modi’s base, theRashtriya Swayamsevak Sangh (RSS)—Hindu nationalists
who oppose market opening and support economic
nationalism. The RSS is the ideological parent to Modi’s
BJP and helped ensure his reelection. An empowered RSS
means that Modi has less room to maneuver on structuralreforms, just as the economy is starting to sputter, withquarterly growth falling to a six-year low of 4.5% andforward-looking indicators looking softer still. The RSS
influence was evident in Modi’s decision to drop out ofeurasia group TO P R I S KS 2020

the Regional Comprehensive Economic Partnershipnegotiations last year and will be a big reason why India isunlikely to rejoin in 2020.

Sliding growth adds to Modi’s challenges
GDP growth, %
8.0
Q1

7.0
Q2

6.6
FY19 Q3
5.8
Q4
5.0
Q1

Source: Government of India (MOSPI)

FY20

4.5
Q2

India’s fiscal situation is also precarious, as thegovernment faces a widening fiscal deficit, marked by
the underperformance of the goods and services tax. A
weakened economy will in turn feed further economic
nationalism and protectionism, weighing on India’s
troubled course in 2020.

13

Geopolitical Europe
For years, Europe has talked a big gameabout charting its own course on foreign andtrade policy. So far, it has proven unable orunwilling to effectively push back where it
disagreed with Washington or, increasingly,
Beijing. This is about to change.
The new leadership of the European Commission and theEuropean Union’s most powerful leader at present, French
President Emmanuel Macron, share a sober view of world
affairs. They think the EU has been naive in expecting its
main commercial partners to play by the rules and want toequip themselves to react to unfair practices and anticipate
further unilateral decisions. European Commission
President Ursula von der Leyen and Macron believe the
EU should be “the guardian of multilateralism.” That suchprinciples are under attack has convinced von der Leyenthat the EU should actively defend itself against competing
economic and political models.
On regulation, the European Union’s top antitrust official,
Margrethe Vestager, is battling North American tech giants
through the innovative use of EU state-aid law to question
their tax arrangements.

eurasia group TO P R I S KS 202014

On trade, the EU will bring this more assertive approach to new areas, for instance bymaking compliance with the Paris climate agreement a condition for new deals andby retaliating in kind against punitive tariffs. Member states and the commission
are also putting pressure on China to level the playing field on procurement, withthe threat of using new “international procurement instruments” against Chinese
firms if European firms don’t get improved access to the Chinese market.
On military matters, the EU is not about to stand its own continental army, but
it will take steps toward using the world’s largest internal market to break downcross-border barriers to military trade and technological development. Seen fromthe US, this will be an affront, especially since few European capitals have fulfilled
their NATO promises on defense spending.

Chinese FDI into the EU by country,
cumulative 2000-2018% of 2018 GDP

Finland 3.2
Sweden 1.2
Estonia 0.4

0.0

Denmark 0.4

UK 1.8The EU’s newleaders think the
bloc has been naive
in expecting its
main commercial
partners to playby the rules, andthey want to equipthemselves to react
to unfair practices.

Latvia 0.3
Lith. 0.3

7.0

Neth. 1.3

Ireland 0.9

Belgium 0.5
Lux. 4.1
France 0.6

Portugal 6.0

Source: Rhodium Group

Spain 0.4

Germany 0.7

Poland 0.3

Czech Rep. 0.5

Slovakia 0.1

Austria 0.3
Slovenia 0.7

Hungary 1.7
Romania 0.4
Croatia 0.6
Bulgaria 0.7
Italy 0.9
Greece 1.0

Malta 6.5

Cyprus 1.0

This more independent Europe creates risks with the United States. Washington
could lash out at Brussels, especially because Trump is no supporter of theEuropean Union. Retaliatory tariffs are no longer taboo, and a Europe-wide digitaltax could provoke punitive tariffs on some of Europe’s more export-driven sectors,
such as automobiles and consumer goods. Data sharing is also at risk. There is
growing concern about the EU becoming too aggressive in pushing its regulatory
lead, particularly via the so-far successful General Data Protection Regulation(GDPR). As the European Union takes on US tech giants, the United States is likely
to pursue a more aggressive approach to countering the GDPR.
A more geopolitically active EU will also create more tension with Beijing. To date,
China has achieved many of its goals in Europe: Firms are still welcome to invest
in infrastructure and wariness of China’s Belt and Road Initiative (BRI) has yet tospread to most member states. But Beijing fears that Macron will push for morebinding EU-wide screening of BRI projects. A tougher EU stance on antidumping
will exacerbate tensions. EU-China friction over issues such as Xinjiang and theSouth China Sea will intensify. Much as China insists that the world accept One
China, Two Systems, a more geopolitical Europe will try to insist that China accept
One System, 28 States. That’s not going to sit well in Beijing.

eurasia group TO P R I S KS 2020

Potential impact of US
section 232 auto tariffs
against Europe
Billions of Euros

-5.1
-9.0
Germany

EU28
Source: Ifo Institute15

Politics vs. economics of climate change
The politics of climate change aren’t working. Dozens of countries
signed on to the Paris agreement five years ago to limit warming to2 degrees Celsius by the end of the century. But nation-states have todate failed to implement policies that come close to achieving that
goal. This year that failure will lead to suboptimal corporate decisionmaking, operational business disruptions, and political instability.

The world is currently on pace for a 3.5-degree warming. The world’s largest emitter, China, ison a 3-degree path and unwilling to compromise economic growth ambitions on the necessary
scale. The US is on a 4-degree pathway that’s hard to reverse, no matter who wins the November
election. That leaves India as the only country among the top three polluters with a national
plan consistent with 2 degrees, though India is already falling behind its targets.

eurasia group TO P R I S KS 202016

Progress on intended nationally determined
contributions (INDCs) by country

Germany. In the United States, any Democrat running forpresident will be a “dark green” environmentalist seeking
ambitious change—but even if a Democrat defeats Trump
in November, progressive climate action will face highlegal, regulatory, and political hurdles in 2021 and beyond.
That puts politics on a collision course with a growing
percentage of investors, companies, and society at large,
which will carry higher costs this year.

4°C

FAIR SHARE RANGE

3°C

2°C

1.5°C

Critically insufficient: Commitments with this rating
fall well outside the fair share range and are not at all
consistent with holding warming to below 2°C, letalone with the Paris agreement’s stronger 1.5°C limit. If
all government targets were in this range, warming
would exceed 4°C.
Highly insufficient: Commitments fall outside the fairshare range and are not at all consistent with holding
warming to below 2°C. If all government targets were inthis range, warming would reach between 3°C and 4°C.
Insufficient: Commitments are in the least stringent partof their fair share range and not consistent with holding
warming below 2°C. If all government targets were in thisrange, warming would reach over 2°C and up to 3°C.
2°C compatible: Commitments are consistent with the2009 Copenhagen 2°C goal and therefore fall within
the country’s fair share range. If all government targets
were in this range, warming could be held below 2°C,
but will still be too high to be consistent with the Paris
Agreement’s 1.5°C limit.
1.5°C Paris agreement compatible: The rating
indicates that a government’s efforts are in the moststringent part of its fair share range and are consistent
with the Paris agreement’s 1.5°C limit.
Role model: This rating indicates that a government’s
efforts are more than consistent with the Paris
agreement’s 1.5°C limit.
No country data

Source: Climate Action Tracker

Even countries whose political leaders have ambitious
climate plans won’t have it easy. Some will face an antielite backlash to climate action, as we’ve seen in France.
Others will struggle to meet existing high-bar targets, as in

Corporate decision-making will face a squeeze. Over onethird of global capital has some type of environmental,social, and corporate governance (ESG) mandate,
and trillions of dollars in investment already exclude
companies and countries that won’t meet the 2-degree
threshold. Faced with shareholder activism and pressure
from their own employees, and looking to seize business
opportunities that arise from becoming more sustainable,
more than 600 global companies have committed toreducing their emissions consistent with 2 degrees.
C-suites will feel they have to choose between aggressive
ESG mandates and their bottom lines.
Social pressure will create more costly operational andinvestment-flow disruptions. Civil society will press
investors and companies it believes are moving too
slowly—particularly oil and gas firms, airlines, carmakers,
and meat producers—a trend led by growing grass roots
movements such as Extinction Rebellion and Fridays for
Future. Related supply chain disruption will become ameaningful risk. In turn, investors will reduce exposures
to carbon intensive industries—including critical sectors
such as steel and cement—impacting asset prices.
There’s also a growing risk of public unrest over climate,with increasingly dangerous actions being taken byprotesters. Opposition to cuts in fuel subsidies/higher
prices will have a direct impact on climate policy and also
trigger heavy-handed responses from governments that
could push protests out of control.
All of which is happening as a warming planet makes
natural disasters more frequent and more severe. For the
first time in history, the Anthropecene is itself creating
economic constraints on globalization. That requires
mention on any global risks list going forward.

Politics is on a collision course withinvestors and society at large.

eurasia group TO P R I S KS 202017

Shia crescendo
US policy toward the major Shia-led nations in the
Middle East is failing. That creates significant risks forregional stability, including a lethal conflict with Iran;upward pressure on oil prices; an Iraqi state that iseither in Iran’s orbit or failing; and a rogue Syria fused
to Moscow and Tehran.
The 2 January killing of Qods force chief Qassem Suleimani, ordered by
Trump, escalated already significant US-Iran tensions. This is a #8 risk,
not higher, because of strong structural pressures against a major war(see red herring #1). Iran is a committed adversary of the United States
but also has a clear understanding of US military power … as well as(now) a better sense of Trump’s red lines and deterrence capacity. Iranfurther has a history of backing down in the face of an overwhelming
military threat. For his part, Trump still seeks to avoid large-scaleeurasia group TO P R I S KS 202018

military entanglements on his watch, especially as theelection campaign gears up.
But the US-Iran relationship will be deadly andgeopolitically destabilizing. Lethal skirmishes in Iraq
between US and Iranian forces are likely. Iran willcontinue to disrupt tanker traffic in the Gulf. Tehran also
has a penchant for hitting adversaries in unpredictable,
asymmetric ways, including through its robust offensive
cyber capabilities and proxy network across the region
with the capacity to target the citizens and assets of theUnited States and its allies. A more dangerous if still
limited US-Iran regional conflict is less likely but possible.
Iran tensions will put a minimum of a $5-$10 premium
into the oil price this year and increase volatility.
In Iraq, the United States is on its way to persona non grata
status, which will leave more running room for an alreadyinfluential Tehran. US bombings and the Suleimani killing
have alienated much of the Shia Iraqi political class.
The chance is rising that the government will expel US
troops this year. While the US is losing big, Iran is only arelative winner, as protests over poor social services andcorruption were also focused on Iranian interference.
This popular discontent has outsized importance for theregion, as it will strain if not break the fibers of the Iraqi
state—OPEC’s second-largest oil producer.
Finally, Syria. The US is still a player if it keeps troops in
the energy-rich east of the country (though a withdrawalof US forces from Iraq would undermine US supply chains,intelligence, and operational support). But it’s played apoor hand; in fact, neither Barack Obama nor Trump has
had a coherent Syria policy. Vladimir Putin won the war
with help from Tehran. The outcome has led to increased
Russian prestige and influence, especially in the Middle
East. Significant sway for a country with a poor humanrights record and a tradition of hacking into other nations’affairs is not stabilizing. Meanwhile, Iran’s interest in
Syria is about a land-bridge to Hizbullah, not improving
the lives of the population.
Feckless US policy in Iran, Iraq, and Syria will drive
regional risk in 2020, to the detriment of the regional
political and economic order.

US policy toward the major Shia-led
nations in the Middle East is failing.
Iran’s regional reach
SYRIA
313 Force
Liwa al-Baqir
Local Defense Forces
Quwat al-Ridha

Iran-linked militias
and proxies

LEBANON
Hizbullah
PALESTINIANTERRITORIES
Hamas
Palestinian Islamic Jihad

IRAQ
Asaib Ahl al-Haq
Badr Organization
Harakat Hizbullah al-Nujaba
Kataib Hizbullah

IRAN

BAHRAIN
Al-Ashtar

AFGHANISTAN
Liwa Fatemiyoun

PAKISTAN
Liwa Zainabiyoun

YEMEN
HouthisSource: IISS

eurasia group TO P R I S KS 202019

Discontent in Latin America
Public anger will keep the risk of political instability high acrossthe region. Voter complaints include sluggish growth, corruption,and low-quality public services. Even worse for governments,
new and vulnerable middle classes want more spending on social
services, and Latin American societies are deeply polarized.
This discontent reduces governments’ ability to undertake needed austerity
measures. The IMF and investors will press for fiscal prudence, but governments
across the region will respond half-heartedly. These pressures will generaterisks across Latin America: Protests will occur, fiscal balances will deteriorate,eurasia group TO P R I S KS 202020

Discontent reduces governments’ ability
to undertake needed austerity measures.
election outcomes will be less predictable, populist andantiestablishment politicians will grow stronger, andsentiment will worsen.
The election of right-wing presidents in Argentina (2015),
Brazil (2018), Colombia (2018), Chile (2017), and Ecuador(2017) has proven to be a backlash against incumbents
and political establishments rather than an endorsementof market reforms.
And examples abound of popular discontent leading
to market-negative political change. In Argentina,
President Alberto Fernandez was elected by angry andhurting voters. He will increase state intervention andtry to boost growth by abandoning fiscal and monetary
prudence. Negotiations with private creditors and the
IMF will be contentious. Fernandez will try to minimize
debt repayments during his term, and he’ll balk at
implementing pension and labor reforms.

Brazil is the one major economically promising country in
the region for 2020. President Jair Bolsonaro, like many of
his colleagues, was elected as an outsider. He has passed
landmark pension reform legislation and is pursuingother overhauls, including on taxes. His approval ratings
are low (44%) but stable, and he has a loyal base. But while
the Brazilian economy is trending favorably, public anger
will come quickly if current forecasts for a rebound don’t
pan out. That in turn would limit Bolsonaro’s ability to
implement reforms, potentially turning his administration
toward more overt nationalism and/or helping the returnof the opposition in 2022—either way a challenge for theregion’s largest economy.

Presidential approval ratings (%)
100

Argentina

Brazil
46%

80

33%

60
40

In Ecuador, an angry electorate forced President Lenin
Moreno to back down from a fuel price hike he negotiatedwith the IMF, leaving him severely weakened. He’ll struggle
to cut spending or raise additional revenue, puttingpressure on the fiscal balance and the IMF program. Thesedevelopments heighten the likelihood that a populist
candidate will emerge ahead of the 2021 elections.
Colombian President Ivan Duque will struggle to maintainfiscal stability. Eighteen months into a four-year term,
his approval rating stands at 24%. Without a majority inCongress and facing growing pressure from the streets,
Duque will fail to pass meaningful structural reforms, andvoter discontent will grow.
Public anger and protests in Chile forced President
Sebastian Pinera to dramatically ramp up social spending
and start the process of rewriting the constitution in 2019.
The unrest was the result of deep-seated discontent with thestatus quo. Constitutional changes will hurt the economy
by triggering higher spending, more regulation, andpersistent uncertainty over the substance of the changes.
In Mexico, President Andres Manuel Lopez Obrador
remains popular, but his promise to maintain fiscal
stability while increasing spending will be difficult
to maintain. He’s committed to boosting social andinfrastructure spending while grappling with a slowing
economy and lower oil production. Lopez Obrador will
push through austerity measures and raise taxes, butthese won’t be enough. Security conditions will worsen.

eurasia group TO P R I S KS 2020

20
0

100

2007

2019*

32%

31%

60

2019*

Colombia

Chile

80

2007

40
20
0

100

2007

2019*

Ecuador2007

Mexico

2019*

72%

80
60

25%

40
20
0

100

2007

2019*

Peru

2007

2019*

Venezuela
55%

80
60

13%

40
20
0

2007

2019*

2007

2019*

*Average to date
Source: Poliarquia, Ibope, Adimark, Cadem, CID Gallup, Cedatos, Reforma, El Financiero,
Ipsos, Datanalisis21

Turkey
President Recep Tayyip Erdogan has entered a periodof steep political decline. Erdogan has a long historyof provocative behavior in response to threats,
sparking confrontation with both foreign anddomestic critics. This year, his weakness will lead
him to lash out. The response will further damage
Turkey’s already ailing economy.
It’s in the arena of foreign policy, especially relations with the UnitedStates, that Turkey will fall to new lows. US congressional sanctions will
likely take effect in the first half of this year, undermining the country’s
reputation and investment climate for corporates and putting furtherpressure on the lira. Measures will include a mandatory reduction ineurasia group TO P R I S KS 202022

Erdogan’s popularity is slipping, especiallyamong young people.
military sales to Turkey and actions against some Turkish
officials. In addition, the trial of Halkbank in New Yorkstate will pose major financial risks. It could result in afine of billions of dollars and will almost certainly involve
the release of embarrassing details about Erdogan or
those around him.
On the political front, Erdogan’s popularity is slipping,
especially among young people, and his ruling coalitionis shaky. The president is suffering defections from theruling Justice and Development Party. Popular former party
officials are in the process of establishing two new politicalmovements. The partnership with the Nationalist Movement
Party may not last given the poor health of its leader.
Erdogan will take tough stances to try to bolster his politicalsupport. Internationally, he will refuse to cooperate with US
authorities if Halkbank is fined, putting Turkish state assets
in the United States at risk. He could enact countersanctions
on the US, provoking an escalatory cycle. Erdogan may

also expand drilling in the eastern Mediterranean, further
exposing him to European sanctions and potentially risking
military conflict with Greece.
Erdogan’s reaction in the economic sphere will leadto another set of risks. As sanctions further strain the
Turkish economy, he will turn to his bag of unorthodox
economic tools and dig an even deeper hole. Erdogan will
use unconventional means to defend the currency, which
will backfire and hurt investor confidence. The president
is inclined to order state-owned banks to intervene in themarket with sales of foreign currencies, and Turkey will
face a significant risk of capital controls this year.
Erdogan will maintain high levels of repression at home
to undermine the strength of rival political parties andcooperation between them. That in turn will prompt
harsher sanctions and further political and economic
instability. Turkey gets worse before it gets better.

The impact of politics on Turkey’s currency during Erdogan’s presidency
Turkish lira per US dollar

July 2018
June 2018-2

31 March 2019

Presidential andparliamentary elections-3

Local elections

23 June 2019-4

Istanbul
election rerun

July 2016

Coup attempt-5August 2018

-6
-7
2014

Erdogan names son-in-law
Berat Albayrak as finance minister

Pastor Brunson crisis with the US and Trump
doubles tariffs on steel and aluminum
2015

2016

2017

2018

2019

Source: Bloomberg, Eurasia Groupeurasia group TO P R I S KS 2020

23

RED
HERRINGS

The new axis of evil
Iraq has graduated from the “axis of evil,” but Iran and North Korea
remain US bogeymen. Add Venezuela and Syria to the list, and you’ve
got quite a group of committed US adversaries. But unlike Bush’s originallist, which precipitated US regime change in Iraq, Trump isn’t going to
do much to topple his antagonists and accordingly the United States isunlikely to open a new war in 2020.
Iran is the biggest challenge. After the US’s assassination of Suleimani,
the Islamic Republic will need to retaliate. That includes a faster ramp up
of its nuclear program, an expansion of its proxy war, and probably evendirect strikes against the US and allies. But neither Trump nor Tehran
wants war. The US president abhors foreign ventures; a fight with Iranwould be a big one that could hurt him during the election campaign.
For all their bluster, Iranian elites retain a healthy respect for US power.

eurasia group TO P R I S KS 202024

Meanwhile US allies (especially Saudi Arabia and Israel) arechastened by a lack of US support for confrontation; Saudi
Arabia in particular is looking for ways to ease tensions. A
diplomatic resolution remains a longshot, but we’d still bet
against a major US-Iran war.

break (please see our next red herring). For its part, Japan
has sidestepped the political phenomenon of populism,
the result of a unique combination of low inequality,
limited migration, aversion to military adventurism, andthe comparatively small reach of “fake news.”

North Korea will play “hard to get” over the coming months.
Pyongyang knows that Trump is desperate for a foreignpolicy win and that it’s better off with him than any otherplausible US president. So it will feel safe pushing ahead
with headline-grabbing escalation—provocations with themissile program and maybe even a satellite launch or anintercontinental ballistic missile test. Still, that’s ultimately
about securing sanctions relief, not bringing the US to thebrink. We’re taking the under.

This doesn’t mean these countries will be insulated from
populist policies indefinitely. Slowing global economic
growth, climate change, and labor displacement will
strengthen populist politicians over time. But for 2020,
there’s not much policy impact.

Compared with Iran and North Korea, Trump cares little
about the fortunes of Syria or Venezuela. He’ll continue
to draw down troops in Syria, despite the inevitableconsequences that Russia and Iran will benefit and theIslamic State can reorganize. Venezuelan President Nicolas
Maduro will continue to preside over a government thathas destroyed its nation but poses little risk to anyone but
its neighbors. The odds of Trump taking military action in
Venezuela are close to zero.

Populist policies in thedeveloped world
Populism continues to surge around the world, capturing
more media attention along the way. Yet, for all theaggressive rhetoric and colorful characters, the world’s
most-established democracies remain well-positioned toweather the populist storm for at least the next year …
though for different reasons.
In the United States, the policymaking process remains
captured both by special interests and the country’s
professional policy corps (what Trump calls the “deepstate” but is actually a “deep bureaucracy”). In Europe,
individual countries continue to experience a surge by
populists at the national level, but their disruption has
been limited by the supranational architecture of theEuropean Union, a durable set of rule-making institutions
staffed by the most technocratic personnel on that sideof the Atlantic. The United Kingdom—in leaving the EU—
is the exception, but under the majority leadership of a
maximally unideological Boris Johnson, gets a short-termPost-Brexit
Finally, the United Kingdom gets a break. A big win forJohnson and his Conservative Party—and an even more
historic loss for Jeremy Corbyn’s shambolic election
efforts—gives the Brits some much needed breathing room.
The UK will (finally!) leave the European Union on 31
January, putting to rest nearly four years of unprecedented
political uncertainty. Johnson’s new Conservative majority
will vote through the withdrawal agreement and “politicaldeclaration” to formalize the UK’s exit later this month.
Johnson will lead a “divergence government”—one thatprioritizes the UK’s regulatory freedom from Europe to do
things differently—even if this limits access to the single
market and creates substantial headwinds for the UK’s
economy and its industrial heartlands. Despite this, there
is unlikely to be much impact in 2020. The United Kingdom
will remain in a standstill transition for all of this year,
even as negotiations get rocky (which they invariably will).
This will offer investors a degree of certainty through allof the noise, if only for 2020.
And having just won in Brussels, Johnson isn’t about torisk the union. So while Scotland will also be noisy, there
is no chance this year of an independence referendum.
True, Nicola Sturgeon’s Scottish National Party’s strong
showing in December’s election has buttressed her claimthat Scotland’s interests are being ignored. But it is only
over time that the UK’s creaking economy will reinforce
her push for independence.
This is not a top risk year for the UK. But not to worry for
those who miss it—there’s surely more political trouble
down the road.

In the near term, populist politicians will
have little impact on policy.
eurasia group TO P R I S KS 202025

We started Eurasia Group back in 1998. It was a simpler
time. It was a geopolitically more confident time. Twenty-two
years later we find ourselves missing Y2K and the hole in theozone layer. We’re a lot more worried about the future.
But as we ring in the new year and the 2020s, we’re also
resolved to find more purpose through our global challenges.
To be grateful but not overwhelmed. That seems just about
manageable. And as our first step this year, we wish to offer
our deep thanks to you for being a part of our extended
family. We wouldn’t be here without you.
With good wishes,
Ian and Cliff

Brasília

London

New York

San Francisco

São Paulo

Singapore

Tokyo

Washington D.C.

This material was produced by Eurasia Group for use by the recipient. This is intended as general backgroundresearch and is not intended to constitute advice on any particular commercial investment, trade matter, or issue
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