Challenges Ahead in 2009 for the Big Three of Geopolitics: Russia, China and the U.S.
FDD – January 02, 2009
Detroit may have its Big Three automakers, but Geopolitics has its own big three – Russia, China and the U.S. and they’re facing even bigger challenges than Detroit. Here are my predictions:
1. A Resurgent Russia
Russia wants its superpower status back and higher oil prices gives them the cash and clout to do so. Despite some very recent setbacks with lower oil revenues, Russia is poised for a comeback.
Their foray into Georgia last summer, which the world criticized but nonetheless watched from the sidelines, has given Russia confidence to do the same with Ukraine. They won’t need tanks or troops on the ground this time, though. Russia can force Ukraine’s government to rethink its independence from Russian by merely turning off the gas, and leave the Ukrainians shivering and in the dark.
In fact it’s already happening. Here’s this from the Associated Press on Friday:
On New Year’s Day the Russian state-controlled energy giant Gazprom said Ukraine, with a population of 46 million, had failed to pay an outstanding $2.1 billion bill – and stopped pumping gas.
The move came after Ukraine made a $1.5 billion overdue payment.
Russia is demanding another $600 million, including $450 million penalties for the late payment for gas shipped in November and December.
Prediction: Expect Ukraine to drop plans for NATO membership and slip steadily back into Russia’s orbit. And expect Europe, which generates most of its electricity from Russian gas imports, to go along with it.
2. China Hits the Skids
The phenomenal growth China has enjoyed for the last decade is about the come to a screeching halt as the world’s economy slows. As consumers around the world tighten their belts, demand will fall for products bearing the label “Made in China.” The World Bank estimates China’s economy will grow by only 7.5 % next year, down from almost 12% in 2008. While that might still sound good to most countries, China needs at least 7% growth to keep up with the rising demands from its own population. They need to create more than 20 million jobs a year for new graduates. Two hundred million of China’s workers are migrants. What happens when those jobs don’t materialize?
Prediction: Expect social unrest in China, especially toward the end of 2009. The Chinese government will crack down ruthlessly and restore social order, but there could be a period where the world watches another Tiananmen Square-type incident.
3. America Faces its Year of Reckoning
The U.S. is faced with a once-in-a-lifetime choice over its economy. It could take the tough steps now, or put them off for another generation to solve. Either way, a reckoning is inevitable – we can’t avoid it, we can only delay it.
Within months, Washington will be faced with a choice of bailing out and industry after troubled industry, or refusing to do so, and watch some companies and industries take draconian measures to reform or risk going under.
The easier choice politically will be bailouts – in effect nationalizing large sections of the US economy. But longer term it will lead to our economic decline, as American industries fail to adapt to consumer demands and no longer remain competitive. By the middle of the next decade America could look like Great Britain did in the late 70′s – huge deficits, confiscatory taxes and economic stagnation.
The more difficult choice is to take tough steps now so American industries are forced to reform and reinvent themselves — by retooling factories, renegotiating labor contracts, retraining, retiring or relocating workers. Will Washington streamline the legal and regulatory system to make it easier for new industries and small businesses? Will it re-up for the free market system?
Prediction: Can Washington summon up the courage make this the year of reckoning or will it put off the inevitable for another generation? My heart hopes our leaders have the guts to face our problems now, but my head thinks otherwise.