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Mar. 10, 2015 - Updated 04:16 UTC

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Outlook for Asian Economies 2017, Part 1

Yuko Fukushima

Jan. 10, 2017

Business anchor Yuko Fukushima traveled to New York, where she talked with experts about the prospects for the economies in Asia this year, for a 2-part series. In the first installment, she speaks with Ian Bremmer, a political analyst specializing in global political risks.

Heads of state and the CEOs of multinationals go to him when they want advice. Bremmer is known for his assertion that the world will soon face a period when there will be no international leadership, as the US increasingly pursues its own interests.

He has termed this "G zero," referring to a situation in which the world order shifts away from the G-7 industrialized countries and the expanded G-20. Every year, many investors focus on Bremmer's Top 10 risks that he announces at the beginning of each year.

So what's Bremmer saying for 2017? These are the issues that Bremmer considers the top risks for the year. As you can see, the United States and China are the top 2 risks.

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For the U.S., he says that under President Trump, the country will abdicate its role as global leader, with repercussions around the world. And for China, he warns the leadership transition will create risks that matter far beyond that country's borders.

He also lists North Korea. Bremmer says the country has advanced its nuclear and missile program substantially. He says for the past decade, North Korea has been a problem but not a significant risk. That changes in 2017.

Bremmer says in 2017, we'll enter a period he refers to as a "geopolitical recession," with the most volatile political risk environment in the postwar period. I asked Bremmer what he means by geopolitical recession and what that means for the global economy, especially for Asia.

I met him in his New York office one day after he had announced his top 10 risks for 2017. Ian Bremmer is the president of Eurasia Group, a political risk consulting firm that provides expertise about how political developments move markets and global economies.

Fukushima: So first thing I ask is the political recession that you mentioned in your report. So what changed from last year and especially for the Asian region?

Bremmer: Well, the big thing that changed is that the United States elected, in a shock, Donald Trump as president. Now the United States is the world’s only superpower, and a president who actively rejects the indispensable nature of US power, rejects US exceptionalism, rejects the United States as the global policeman and the architect of global trade or the cheerleader of global values, is a unique experience in the post war period. With the election of Trump, it happens now, 2017 -- pax Americana is over, we are in the G-zero.

Every 7 to 8 years on average since World War 2, we have had economic recession, whereas with geopolitical recession, the last one was World War 2. Now the difference between the geopolitical recession and the global economic recessions is that economic recession really hits everybody, right? Because the market is all interlinked.

With a geopolitical recession, you know, the United States says it doesn’t want to provide the leaderships and no one else can, so the old order is undermined. Well, you think about that, that’s the huge problem in cross-border tensions, and failed states in the Middle East, the big problems of growing arms race in Asia. It is a big problem for refugees and terrorists in Middle East and in Europe.

Fukushima: Now, looking back the 2016, there were lot of political events that affected the global market, and the global economy. Now how will this geopolitical recession situation affect the global economy?

Bremmer: Well, if you look at the United States, at least in 2017, there is good reason to believe that growth will continue. So, I certainly do believe that Trump together with the Republican House and Senate in Congress are likely to be market positive.

But at the same time, in Asia, it can go 2 ways. On one hand, the Chinese have an opportunity to build infrastructure, build architecture, spend a lot of money, get countries aligned to them. So the gravity, the center of gravity for trade and capital flows, people flows, start moving more towards Beijing. That’s one thing.

But secondarily, there becomes a real risk of direct confrontation between the U.S. and China. And if that happens, the economic implications will be sharply negative.

Fukushima: What would be the worst case scenario if that happens?

Bremmer: War. Sure, that’s the worst case scenario. Look, I mean, I've run this company for 20 years now. And I have never, I would have never told you that there was a possibility of war between the major states, this wasn’t on the agenda. I don’t think it is going to happen. But it’s possible. You’ve asked me what is the worst case scenario. What we are seeing is that the trust between major governments is eroding dramatically. The support for U.S. led multilateral institutions like the United Nations, the IMF, the World Bank is eroding dramatically.

And certainly, when I see President-elect Trump tweeting that the North Koreans will be stopped from developing further nuclear the weapon programs, well how is he going to do that? Is he going to attack them? Or is he going to sanction the Chinese? And what is the Chinese reaction going to be? Are they going to put more military in the regions? These are the kind of the things that can spiral. The more likely outcome is that we have more confrontation, that the economics of the world become less Americanized, more fragmented, less efficient. There are drains on the ability of the global economy to grow. That is the likely scenario.

Fukushima: Right, so you mentioned China and you give the biggest, second biggest risk this year be China’s overreaction."

Bremmer: The Chinese president is going to have this 5-year party congress in the fall and that means that this is the singular times that he will be most insecure, and least willing to tolerate any perception of potential weakness. So if he gets hit by the Americans, he is going to hit back much more strongly than he might normally been inclined to do over the last 4 years. And clearly, this is the wrong year to push the Chinese in terms of their own internal political dynamics."

Fukushima: What will happen after the geopolitical recession?

Bremmer: We could see the new order not being fundamentally about state governments, but instead being decentralized, much more about the cities, municipalities, much more about local leaders, much more hybridized world order.

I am someone who clearly believes that the future of the world order is not going to be dictated by only 300 to 400 million people in the United States. You've got over 7 billion people in the world. Most of them are in Asia. So the future of the world order is going to be more dictated by what happens outside the U.S. than what happens inside the U.S. But that order may not be a global order. That order may be a very fragmented order and Asia, may look fundamentally much more different. It could end up that the next recession might not be a global recession, right? That's possible, depending on what happens with technology. The world is changing very fast.


Yuko Fukushima joins anchors Sho Beppu and Aki Shibuya in the studio.

Beppu: Listening to the interview, I was left thinking that there are people who think the United States has done harm, in its role as superpower, as we saw with the US invasion in Iraq. So isn't it a good thing that the US is rejecting the role of global leader?

Fukushima: Well, Bremmer acknowledges in his report that a series of US military interventions has produced expensive failures that were widely denounced around the world. What he's saying is that America under Trump will pursue a more hawkish foreign policy than the Obama administration. That's to say, the US will intervene in global affairs but only when it's in America's interests, shaking off burdens placed on it by multilateral institutions and its allies. However, Bremmer says as flawed as US global leadership may have been, it's brought some stability to the world. Without that, he says we'll see confusion and crisis in the near term, and therefore a period of geopolitical recession.