EC 2017 Annual Forecast
The convulsions to come in 2017 are the political manifestations of much deeper forces in play. (Win McNamee/Oleg Nikishin/Abd Doumany/Hannelore Foerster/AFP/Getty Images)
The convulsions to come in 2017 are the political manifestations of much deeper forces in play. In much of the developed world, the trend of aging demographics and declining productivity is layered with technological innovation and the labor displacement that comes with it. China's economic slowdown and its ongoing evolution compound this dynamic. At the same time the world is trying to cope with reduced Chinese demand after decades of record growth, China is also slowly but surely moving its own economy up the value chain to produce and assemble many of the inputs it once imported, with the intent of increasingly selling to itself. All these forces combined will have a dramatic and enduring impact on the global economy and ultimately on the shape of the international system for decades to come.
These long-arching trends tend to quietly build over decades and then noisily surface as the politics catch up. The longer economic pain persists, the stronger the political response. That loud banging at the door is the force of nationalism greeting the world's powers, particularly Europe and the United States, still the only superpower.
Only, the global superpower is not feeling all that super. In fact, it's tired. It was roused in 2001 by a devastating attack on its soil, it overextended itself in wars in the Islamic world, and it now wants to get back to repairing things at home. Indeed, the main theme of U.S. President-elect Donald Trump's campaign was retrenchment, the idea that the United States will pull back from overseas obligations, get others to carry more of the weight of their own defense, and let the United States focus on boosting economic competitiveness.
Barack Obama already set this trend in motion, of course. Under his presidency, the United States exercised extreme restraint in the Middle East while trying to focus on longer-term challenges — a strategy that, at times, worked to Obama's detriment, as evidenced by the rise of the Islamic State. The main difference between the Obama doctrine and the beginnings of the Trump doctrine is that Obama still believed in collective security and trade as mechanisms to maintain global order; Trump believes the institutions that govern international relations are at best flawed and at worst constrictive of U.S. interests.
No matter the approach, retrenchment is easier said than done for a global superpower. As Woodrow Wilson said, "Americans are participants, like it or not, in the life of the world." The words of America's icon of idealism ring true even as realism is tightening its embrace on the world.
Revising trade relationships the way Washington intends to, for example, may have been feasible a couple decades ago. But that is no longer tenable in the current and evolving global order where technological advancements in manufacturing are proceeding apace and where economies, large and small, have been tightly interlocked in global supply chains. This means that the United States is not going to be able to make sweeping and sudden changes to the North American Free Trade Agreement. In fact, even if the trade deal is renegotiated, North America will still have tighter trade relations in the long term.
2017 Annual Forecast is republished with permission of Stratfor.