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Buckle Up For Geopolitics in 2017

In an exclusive Q&A, Janice Stein talks about our “hinge moment”

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geopoliticsAs a speaker at this spring’s Global Investment Conference at the Banff Springs Hotel in Banff, Alberta, (March 29 to 31, Janice Stein, founding director, the Munk School of Global Affairs, University of Toronto, will talk about how the geopolitical situation has changed in the wake of Brexit and the election of U.S. President Donald Trump. In advance of the conference, we asked Janice a few questions about the pressures in the global system, the rise of populism and the balance among the global powers.

Are we at a hinge moment where the liberal international order breaks apart?

The liberal international order, that took 70 years to build, is clearly under strain right now.

Historically, globalization with its accompanying trade and movement of people took off in modern times in 1890, after a great depression in Europe that lasted 20 years. When war broke out in 1914, a period of regression began; we did not return to the prewar level of mobility of people and of goods and services until 1970.

In 2017, we may again have hit a roadblock. Why I take this moment so seriously is not because President Trump was elected. We need to reverse the causal arrow: President Trump was elected because the forces that opposed globalization had been building for a decade.

What galvanized opposition to globalization?

Two seminal events created the pressure in the system that finally exploded in 2016 in Europe and in the United States. The first of these was the attack on 9/11. In the wake of that attack, governments increased their spending on security and began to thicken their borders. Even though the attacks were not an economic event, they changed the expectations that people had about a world that was going to be increasingly better connected, increasingly easier to navigate, increasingly easier to move in.

Equally serious was the global financial crisis. They happen rarely. We know from history, that when they do happen, recovery usually takes a decade. We’re just now coming to the end of that decade. The recovery is real, but it did not restore many of the jobs that were lost. The loss of jobs is only partly a function of globalization and of deepening trade. It is far more a function of technology that is changing the nature of work in very profound ways.

In Europe, the currency incorporates and exacerbates a structural imbalance. Is it sustainable?

A shared currency does not work without a capacity to redistribute. In the United States and Canada, we redistribute all the time in multiple ways from the richer to the poorer parts of the economy. The Euro zone does not have that capacity and, therefore the Euro is like a straitjacket or an iron cage; it cannot survive over time.

Add to that the populist wave that swept through Britain and much of Europe. The Brexit vote was very much rural England against the City of London, older people against younger people, better educated against less well educated. These divides create a poisonous politics of ethnic nationalism that is very dangerous. Our current crisis is not a global crisis, but one in the liberal-democratic world. This part of the world – the Europeans and the North Americans — thought that they had put that kind of nationalism behind them. They were wrong.

What lies ahead?

There are four elections this year are in the heartland of the European Union. These elections will give us a better sense of the depth and strength of the populist wave. If Germany and France resist — and there are some grounds for optimism – that might break the momentum that Brexit and Trump’s election have created.

With European weakness and apparent American isolationism, is the balance of power shifting?

A superpower oils the wheels of the global infrastructure, recognizing the benefits that it gets from a stable world order where everybody, including other great powers, plays by the same rules. Britain played that role throughout much of the 19th century and the United States did so in the 20th. In the last century, Russia and China, even though they were authoritarian regimes, joined the liberal international order. China, for example, joined the WTO and played by the rules, more or less. If Trump means what he says, the United States will no longer play that role. He appears not to want to deliver on international commitments. It’s about America first and the only price he is willing to pay is one that benefits the U.S. directly, He seems to have little concern for the stability of the global order.

If that proves to be the kind of foreign policy that he pursues, then we will be in a different world. The international order will become tri-polar: the Russians will return to their historical areas of interest, which are in central and Eastern Europe and in Central Asia and the Chinese will assert their historical dominance in South Asia and East Asia. The world will become much more dangerous; when three powers are balancing one against the other, miscommunication and mistakes happen. The result can be inadvertent war.

What are we looking at below the politics?

Below the politics is deep structural uncertainty. There has always been uncertainty in forecasts of the future. But that kind of uncertainty, which focuses on the relative importance of particular drivers that nevertheless operate within known parameters, is much more tractable. When uncertainty is structural, the parameters are unknown. That’s where we are now, and that is the most difficult world to navigate.

I suspect that in the short term, we have to pay more attention to politics as a leading indicator than we generally do. I believe that 2017 is going to be a very important – and diagnostic – year. We will know at the end of 2017 how resilient Europe is and we will know far more at the end of 2017 than we know now about Donald Trump’s popularity. If he stimulates the economy through huge tax cuts and curtails immigration, so that labour markets heat up, it’s conceivable that his popularity could go up. If his popularity goes up, there are very few restraints on this president. If his popularity goes down, the Republicans in Congress facing election 18 months from now will act to constrain President Trump and reclaim their party. Buckle up for a wild ride.

To learn more about the Global Investment Conference, please visit the conferences section of the CIR website. If you are interested in attending this event, please email Alison Webb to be considered, as limited space available.

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