To Keep You Up At Night: Top Risks 2018

The United States is deliberately narrowing its role in the world. Bold new contenders are looking to fill the gap. Popular trust in institutions is plummeting. New technologies are at the heart of international tensions and conflict. What could possibly go wrong?


Every January, our parent company Eurasia Group lists the ten biggest global risks for the coming year, as well as a few red herrings that you may not need to worry about. You can read the whole report here, but if you want a shortcut to geopolitical anxiety, we’ve got you covered:

#1 China loves a vacuum: Trump’s “America First” approach seeks to reduce America’s global role and responsibilities precisely as China is now angling to become a global superpower itself. In trade, technology, and even soft power competition — fresh friction between the world’s two largest economies will ripple across all sectors and regions this year.

#2 Accidents: There hasn’t been a major geopolitical crisis since 9/11, but in a fragmenting world without common understandings or leadership, 2018 could be the year something goes badly wrong: that might be a major cyberattack on critical infrastructure, a military miscalculation between rival powers in Syria, a misstep in North Korea, or… you tell us what worries you. We’re here for you.

#3 Global tech cold war: Mastery of artificial intelligence and big data will be essential for any 21st century global power — and so a new “space race” has begun as countries seek to dominate these technologies. The main event? China’s rigorous state-driven model versus the decentralized innovation of America’s powerful private sector. It’s on. Alexa’s not sure what her mother tongue will be in ten years’ time.

#4 Mexico: NAFTA hangs in the balance. Trump keeps needling Mexico about that wall. Rising anti-US sentiment has helped make anti-establishment candidate Andres Manuel Lopez Obrador the frontrunner for July’s presidential election. His victory would usher in a period of profound political and economic uncertainty for Latin America’s second largest economy.

#5 US-Iran relations: Trump and the Mullahs — little love lost. The US will work harder this year to crush Iran’s growing influence in the Middle East, raising the stakes in a region already riven by proxy conflicts between Tehran and US-ally Saudi Arabia. What’s more, the possible collapse of the Iran nuclear agreement could open the way to direct military confrontation with Iran.

#6 The erosion of institutions: Across the developed world, popular trust in media and government institutions is falling, undermining governance, accelerating anti-establishment sentiment, and increasing the prospect of unpredictable social and political outcomes.

#7 Protectionism 2.0: A fresh form of protectionism is targeting “new” sectors of the economy like IP and cross-border data flows, while implementing “behind the border” barriers to free trade and investment. With no common rules here — or anyone leading the charge for greater cooperation — the global landscape of trade rules is turning into a confusing and costly kaleidoscope.

#8 United Kingdom: So where’s the new UK-EU border going to be? That’s just one of many unresolved Brexit issues. Stalled or bungled negotiations could cost UK Prime Minister Theresa May her job. And if that happens, buckle up for a wild ride in the UK this year, as avowed socialist Jeremy Corbyn could be within striking distance of the premiership.

#9 Identity politics in southern Asia: Nationalism rocked Europe and the US in 2017, and in 2018 it’ll come to play in Asia. Southeast Asia will see rising sectarian and anti-Chinese tensions, while in India Hindu nationalism and anti-secularism are gaining fresh traction. Will these ideas stoke divisions in a way that undermines the region’s stellar economic and political progress?

#10 Africa’s security: For many years, the continent’s economic success stories such as Cote d’Ivoire, Nigeria, Kenya, and Ethiopia, have been reasonably insulated from the negative impacts of volatility elsewhere in the region. But this year, domestic political challenges and sparser external support will make them more vulnerable, in particular to the impact of militancy and transnational terrorist groups.

Facebook unveiled plans for a new cryptocurrency and payment system on Tuesday. It's called the Libra, and it's not-so-modest goal is to "reinvent money," and "transform the global economy" so that "people everywhere can live better lives." Ambitious much, Zuck?

This is a huge political gamble, but the rewards could be enormous. Here's a quick look at the tradeoffs:

The risks: Facebook is asking its 2.5 billion users — and government regulators — to entrust it with something that's vitally important to people everywhere and a power that governments jealously protect: access to money. And it's doing so at a time when trust in Facebook and other big Silicon Valley companies is at a low ebb.

Whether it's a concern that Big Tech has become too powerful or that it's not doing enough to protect privacy or put a stop to fake news, it's a heck of a time to launch a new techno-utopian project that could give Silicon Valley much more power — including the ability to track not just what people say they like but how they spend their money.

Mark Zuckerberg understands this — the Facebook founder is setting up Libra as a Swiss-based non-profit that will be governed by an "association" of 28 tech and financial companies and non-profits of which Facebook is just one member. He's also promising that Facebook will not mix personal data with payment information, and to cooperate with regulators.

But this will always be Zuckerberg's baby, and by launching Libra, he's painting a big new political bullseye on his own back.

The payoff: If Libra can survive the inevitable political and regulatory storm (and convince its billions of users that they can trust the underlying technology and financial stability of the new cryptocurrency) the upside could be enormous.

How enormous? The Libra website claims that more than 30 percent of the world's population — about 1.7 billion people — currently lack access to traditional bank accounts. Many more pay steep fees to transfer money using traditional payment services. Libra, by contrast, promises access to anyone in the world with a simple smartphone — and to make payments as inexpensive as sending a text message.

Plug those capabilities into a social network whose user base is roughly double the population of the biggest country in the world, and the results could be revolutionary — not just for billions of people who would gain new access to financial resources, but for Facebook's business model, and for central banks and governments that have traditionally sought to control the flow of money through their economies.

That would be a techno-utopian dream come true, but it's a power that governments won't willingly surrender.

If Willis's story on Tuesday about Argentina being plunged into darkness after a nationwide power failure didn't get you packing a flashlight and checking that your car has a full tank of gas, this one should. Over the weekend, the New York Times said anonymous US officials had revealed a US campaign to plant "potentially crippling malware" inside Russia's power grid "at a depth and with an aggressiveness that had never been tried before."

Quick thoughts:

This is a big provocation. It's the cyber equivalent of mining a harbor — an aggressive move that falls short of actual conflict but sends an unmistakable message: mess with us, and we'll mess you up.

The leak was probably intentional. The campaign fits with the new US strategy, launched under the Trump administration, of trying to deter cyber adversaries like Russia, China, and Iran from hacking its critical infrastructure. By disclosing the US campaign, US officials are effectively telling Russia (and by extension China and Iran), that they've got a loaded gun cocked and pointed at their economies.

That's dangerous. People — and governments — may not always behave rationally when a gun is pointed at their heads. Russia might be even more inclined to lash out. And unlike more conventional forms of conflict, cyber isn't a domain where the US can be sure it has an overwhelming advantage if push comes to shove.

It gets worse. The Times said US cyber officials described a "broad hesitation" to go into details of cyber operations against Russia with President Donald Trump because they feared he might cancel it or tell other governments about it. Among other things that are disturbing about this story, a lack of communication between the President and US cyber warriors could send mixed signals that further embolden US adversaries.

It's no secret that cyberattacks are becoming more commonplace. But where do most of them originate and what countries do they target most? The graphic above shows the most significant offenders and victims since 2006. Hackers in China, Russia, Iran, and North Korea account for three-quarters of all major attacks. Nearly a fifth of attacks, meanwhile, have targeted institutions or companies in the United States.

(At least that we know of: this chart highlights known attacks on government agencies, tech companies, and other operations that caused more than $1 million in economic damage. But many cyberattacks are never disclosed, and some countries are more transparent than others, so consider this a cross-section of a much bigger — and more disturbing — picture.)

China's outrage against Swiss bankers – Paul Donovan, an economist at UBS and a former colleague of your Wednesday Signal author, ended up in hot water last week after he wrote that an outbreak of swine fever that had pushed up pork prices in China, "matters if you are a Chinese pig. It matters if you like eating pork in China. It does not really matter to the rest of the world." The Swiss bank put Donovan on leave after a nationalist tabloid picked up the story, unleashing a torrent of invective from angry Chinese citizens, industry groups, and clients. Although we're a bit puzzled at the intensity of the outrage, we're following this story closely. The anger of 1.4 billion people is a powerful thing, and if the US-China standoff over tech and trade continues to escalate, US firms could soon find themselves on the receiving end.

What we are ignoring: Trump on ICE

Trump's Deportation Threats – As Donald Trump revved up his official reelection campaign in Florida on Tuesday, he took to Twitter to vow mass deportations of "millions of illegal aliens" starting next week. We are ignoring this for two reasons: First, it looks more like a campaign trail stunt than a well-thought-out plan — the scale of deportations Trump envisions would require massive logistical coordination, and it's not clear that Immigration and Customs Enforcement (ICE) can deliver it — even if the federal force got help from local police, who may be reluctant to participate in mass arrests in their communities. Second, while this type of rhetoric may play directly to Trump's base, images of crying children torn from their parents will galvanize the president's opponents — and, in particular, the suburban women crucial to his 2016 victory. We're not ignoring the pain and trauma that mass deportations would inflict on immigrant communities if Trump delivers on this threat. We're ignoring a boast that's likely to prove a political bust.