Nuclear threats, financial risks and trade agreement breakdowns — what's ahead for 2018

What will the geopolitical stage look like in 2018? The annual forecast by research firm Stratfor Worldview includes predictions that North Korea will become a viable nuclear power while the U.S. will continue to put its trade relationships to the test.

Over the course of 2017, President Donald Trump reversed several Obama-era policies and pulled America away from the global stage as part of his "America First" credo.

He's heavily criticized the North American Free Trade Agreement, pushed for the construction of a border wall between the U.S. and Mexico, taken a more publicly aggressive stance than other presidents when it comes to countries perceived as threats, instituted a refugee ban, pulled the U.S. out of the Paris climate agreement and withdrew from the Trans-Pacific Partnership in one of his first acts in office. 

All of these actions have a ripple effect throughout the globe. And the U.S. isn't the only country facing radical changes — Italy has an election this March and China is trying to push through its reform agenda. 

Here are some of Stratfor Worldview's key forecasts on what trends that will shape the global balance of power this year:

Nuclear threats

North Korea’s missile tests throughout 2017 highlighted its growing sophistication with nuclear weaponry. In December, the United Nations voted in favor of additional sanctions on the country, a move supported by Trump.

Stratfor Worldview’s report said that while the threat of war on the Korean Peninsula can’t be ruled out, the U.S. will probably try to avoid any preventative strikes against North Korea’s nuclear weapons program because of the cost.

“Instead, Pyongyang’s demonstration of a viable nuclear deterrent next year will spawn a new and more unstable era of containment,” the reported noted.

In a separate report, Stratfor notes that deterring North Korea would look a lot different than deterring the Soviet Union during the Cold War. The U.S. could ramp up its ballistic missile defense development, which may prompt other countries to respond similarly, or create tension between the U.S. and powerhouses like China and Russia. The U.S. could also lift the payload limit in place on South Korean ballistic missiles or sell its Asian allies more advanced military equipment. But if South Korea or Japan expand their capabilities and ever initiate their own offensive against North Korea, “it could drag the United States into a war that was not of its choosing.”

All this talk of nuclear war with North Korea may also lead the U.S. to develop a harder stance on Iran and jeopardize the nuclear deal it has with the country. Under the deal, Iran has agreed to a series of restrictions that include cutting down on certain stockpiles of uranium and eliminating some of them entirely. With increasing tension between the two regions, Russia could exploit any conflict and “expand its influence in the Middle East at the United States’ expense,” Stratfor said.

Financial risks

Italy is facing various financial challenges, with a government debt that was more than 130 percent of its GDP in 2016 (the most recent year available). And the possibility of a government more opposed to the growing power of the European Union (or euroskeptic) will “send jitters through financial markets,” the Stratfor report says.

The country is holding a general election next year, and Italy’s euroskeptic center-right is seeing a resurgence in the polls.

Because Italy is the eurozone’s third-largest economy, it won’t be easy for other EU countries to bail it out.

“If Italy’s economy really goes bad and they need to assist them in paying back their loan ... so that they don’t default, there’s really not enough funds to do that,” Mark Frascatore, an economics professor from Clarkson University, told Marketplace in an interview.

China will also face growing pains as it tackles wealth redistribution, the next phase of its reform agenda.

“A slowing property sector and corporate debt maturities will compound financial pressures on China’s northeastern rust belt in 2018,” according to the Stratfor report. However, the report is optimistic that Beijing would be able to prevent a systemic debt crisis.

Trade agreements

The U.S. will put its trade relationships with other countries to the test and move ahead with a trade agenda that targets China, Mexico, South Korea and Japan, according to Stratfor.  

The country is starting to move away from the integrated global economy and adopting a more protectionist stance, which includes pushing for restricted steel imports and the "impulse" of renegotiating existing trade pacts, said Reva Goujon, Stratfor’s vice president of global analysis.

Back in November, the U.S., Mexico and Canada completed several rounds of renegotiation talks for the North American Free Trade Agreement that did not lead to any breakthroughs.

However, the Stratfor report noted that checks on U.S. executive power have a better chance of keeping NAFTA intact compared to, say, the U.S. trade agreement with South Korea, which “hangs by a thread.”

“You'll see this continued frenzy toward trying to make more progress in what have been long stagnant free-trade negotiations,” Goujon said. “Every country is going to be hedging against one another, whether they're calling themselves allies or not.”

 

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