“Geopolitical recession” doesn’t exist as a defined term. But it should, according to Ian Bremmer. If relations among global powers were framed in economic terms, we would be in the “bust” phase of the business cycle, he said.
Bremmer is the president and founder of the Eurasia Group, a leading global political risk research and consulting firm. He was the keynote speaker at VettaFi’s Exchange ETF conference on February 6.
Geopolitical cycles are longer and harder to recognize than economic ones, Bremmer said. But the evidence of the deterioration in global relations is the Russian invasion of Ukraine, worsening U.S.-China relationships, the failure to address climate change, and increasing tensions in the Middle East, particularly with respect to Iran.
The institutions and architecture set up to deal with those issues – like the IMF, UN, and World Bank – are no longer able to respond because of the shifting balance of power. For example, Russia’s veto power in the UN Security Council – which it was given because it was victorious in World War II – prevents action in several areas, most obviously Ukraine.
Japan, which was defeated in World War II, has no such veto power.
“To recover, old institutions must adapt, or new ones must emerge,” Bremmer said. “In the interim, we will see more geopolitical conflict.”
Bremmer discussed three themes running through global relations – two of them negative and one positive.
Stronger, more disruptive global actors
“We are dealing with stronger, more disruptive global actors than we have seen in our lifetimes,” Bremmer said. Leaders like Vladimir Putin, Xi Jinping and Iran’s Ali Khamenei have surrounded themselves with “yes men,” and built organizations without checks and balances on their power. That means they can make “massively disruptive decisions,” Bremmer said.
By invading Ukraine, Putin made the biggest miscalculation since the fall of the Berlin Wall, according to Bremmer. He thought he could get away with it, Bremmer said, but he overestimated the strength of his military because he relied on bad information.
“There is no way back to pre-invasion for the Russians,” Bremmer said. There will be a bigger role for NATO in that region and much greater military spending. Russian assets will be seized to rebuild Ukraine, Bremmer predicted.
“Russia is losing geopolitically regardless of how the war goes,” he said. Global powers will eventually see the conflict as a war against NATO, and it could turn into a war between NATO and Russia. Cyberattacks and pipeline attacks mean the war cannot be confined to Ukraine, according to Bremmer.
China is much more stable than Russia, Bremmer said, and has better relations with the U.S. But Xi has gotten rid of term limits and disloyal party members, cementing his role as a permanent leader. Xi can make mistakes, like Putin did, because of bad information. Letting go of China’s zero-COVID policy was an example. It was good for growth and revived China’s supply chain and economy. But the process was flawed, because the checks on Xi’s authority were gone, driving greater uncertainty for the global economy.
China’s demographics will be a “disaster” over the next 80 years, Bremmer said, as it reaches its maximum population in the next year. But it can forestall the consequences of a diminished workforce by raising the start of pensions from 55 (for women) and 60 (for men) by 10 years. It can reduce the 25% of its population that works in agriculture, moving them to more productive, industrial jobs. It can spend more on education.
“Demographics won’t impact China in the short term,” he said, and added that he is very bullish on the country.
The much-publicized balloon was an embarrassing mistake for Xi, according to Bremmer. But he emphasized that the underlying U.S.-China relationship is more stable than is commonly believed, and the two countries are not in a cold war. Every American ally wants a stronger alliance with the U.S. because of our military power, and they want a stronger Chinese economy and U.S. trade relationship.
Iran presents the third risk of disruptive power, in that it has 60% uranium enrichment and is nearing breakout capabilities for nuclear weapons. It is imprisoning thousands of its citizens and supporting Russia militarily. The potential for Iran to make misjudgments has “gone way up,” Bremmer said.
The growing gap between developed and developing countries
The COVID pandemic has divided developed and developing countries. Bremmer said shortages of food, fertilizer, and energy were most profound in emerging markets. Wealthy countries get those commodities, he said, along with support for issues like climate change.
But the afflicted emerging markets see the West as “completely hypocritical,” Bremmer said. Brazil blames the U.S. for the war in Ukraine. South Africa provides military support for Russia, and India increased its purchases of Russian oil by a factor of 33.
Those countries “don’t see any reason to listen to the U.S.,” Bremmer said. The non-commodity-producing emerging markets will be in the most trouble. They will respond with protectionism, or their leaders will be voted out of office. That is true for most of Latin America, Turkey, Sri Lanka, Egypt, and sub-Saharan Africa.
“The emerging markets with large dollar-denominated debts are in a lot of trouble,” he said.
The G7, NATO and the EU are getting stronger, according to Bremmer, but globalization is eroding.
Democracy triumphs
Democracies are more resilient than the conventional wisdom, according to Bremmer.
There was a “negligible” risk of a Constitutional crisis in the U.S. following the January 6 uprising. Brazil’s response to its January 6 crisis meant there was “zero chance” of overthrowing its government. The response to Brexit has made the EU stronger and more aligned with the U.S. when it comes to healthcare, fiscal discipline, defense, and technology.
Even Southern Europe is getting significant fiscal support from the EU, and it is becoming more aligned with EU policies. That is a departure from the financial crisis, when Greece defied the EU’s fiscal guidelines.
U.S. policy under President Biden has not deviated from Trump’s with respect to relations with China, including positions on tariffs and restricting TikTok. There is more coordination among U.S. politicians than one might think, Bremmer said, and American institutions are “stronger than we appreciate.”
The new world order
Globalization is adrift, Bremmer said, but we do not face “deglobalization.” That was evident in the enactment of the new NAFTA. Russia has decoupled, and China has “strategically decoupled” when it comes to certain technologies, like 5G, where the U.S. has withdrawn support. The U.S. has engaged in some “tactical protectionism” to support certain industries, Bremmer said.
Globalization is an ongoing trend, according to Bremmer, but it is no longer driven by a small group of countries with the U.S. leading the way.
Bremmer said he was most optimistic that the developed world would be seen as a “flight to quality.”
“In this environment,” he said, “the U.S. looks asymmetrically stronger militarily and industrially.”
Robert Huebscher is the founder of Advisor Perspectives and a vice chairman of VettaFi.
Read more articles by Robert Huebscher
“Geopolitical recession” doesn’t exist as a defined term. But it should, according to Ian Bremmer. If relations among global powers were framed in economic terms, we would be in the “bust” phase of the business cycle, he said.
