Year in Review: The good, the bad, and the ugly of 2018 | US & Canada





From Brexit to trade disputes, US sanctions on Iran, the gruesome murder of a Saudi journalist and eye-catching scandals of Facebook, Counting the Cost takes a look at the year’s major economic and political stories.

Global trade war

Political and economic risk was highly visible in 2018. The International Monetary Fund (IMF) and the World Bank warned trade tensions that threatened to rip apart the global economy. Soaring debt is also threatening to spoil the party, with the IMF advising governments to prepare buffers to protect their economies.

“We’re not in a trade war yet, but we’re in the risk of a trade war,” explains Gregor Irwin, chief economist from Global Counsel. “One of the concerns of a trade war is that it wouldn’t just involve the US and China. It would inevitably drag in other countries as well, or other countries would be caught up in the crossfire between the US and China.”

“It’s fair to describe US policy as unpredictable, and also quite aggressive. Equally, also when you look at China’s policy stance, what the Europeans might do if there are any significant measures into just targetting China, we can expect to see retaliation and that’s where the trade war scenario begins to potentially become a real one.”

On the upside, the world’s largest and second largest economies recently agreed to postpone new trade tariffs for three months. But the pause doesn’t mean the trade war is over. The US and China’s differing opinions over intellectual property protection need to be ironed out, according to Greg Swenson, the founding partner of London-based Brigg Macadam, a merchant banking house for emerging and frontier markets.

“What he (Trump) seems to dwell on is the trade deficit and he picks these arbitrary numbers or targets for trade deficit reduction, which is a mistake. What he should focus on is that China is violating all kinds of free-market and open-market policies and rules. The US has taken China to the WTO 16 times in the last couple of years, and they’ve won all 16 times, but that doesn’t seem to be fixing the major problems, which are theft of IP and the complete disregard for free-market principles.”

Swenson says that Trump has “somewhat lost the narrative or the messaging battle because it looks like the US is provoking a trade war, when, in fact, he’s trying to fix something that needs to be fixed.”

“I don’t think these tariffs will stay in place because they’re self-defeating. It’s not really going to hurt the American consumer or the American economy. In many ways, the president’s playing with the house’s money; the economy is kicking on all cylinders.”

A Middle East reset

Qatar became the first Middle East country to leave the OPEC cartel in 2018 and Saudi Arabia became a riskier place to do business. The murder of Saudi journalist Jamal Khashoggi at his country’s consulate in Istanbul shocked the world and put the country, and its young Crown Prince Mohammed bin Salman under closer international scrutiny. It toyed with the possibility of using oil as a weapon.

So, how seriously should the world take Saudi threats to curtail oil output and how much influence does it really have over the global economy?

Saudi oil is “actually quite important, particularly in the short-run”, according to Chris Garcia, CEO of Vicar Financial and former deputy director of the US Department of Commerce under President Donald Trump. “This is why when we look at some of the potential retaliation tactics that the Saudis have threatened, we have to take them seriously.”

“It’s the short-run repercussions of the Saudis cutting [oil] output that would send shockwaves throughout the global economy, but I would say that’s leverage that would diminish in the long run unless they diversify as the world continues to diversify itself from its energy resources,” explains Garcia.

Another big story this year was the US sanctions reimposed on Iran, effectively shutting out Tehran from the dollar-dominated financial system. The sanctions are aimed at the heart of the Islamic Republic’s economy, oil. They also target shipping, banks, and financial entities that enable Iran’s oil trade.

Eight countries have been given a six-month waiver to trade with Iran: China, Taiwan, India, South Korea, Greece, Italy, Japan and Turkey. That helped to keep the lid on any global oil price disruption, for now.

While the US tries to use its currency as a weapon, “all of the eight countries that are importing oil from Iran – none of them are going to give any types of currency back to Iran,” explains Sara Vakhshouri, founder and president of SVB Energy International. “Iran can only import humanitarian goods or necessary goods, those goods that are not subject to sanctions back to Iran, so they’re kind of bartering for food and medicine.”

Additionally, the European Union is exploring “specific channels of trade with Iran banking and transactions with Iran, and if these channels are built for more formal or usable ways of working with Iran, this will of course weaken the dollar as a weapon”, says Vakhshouri.

“Also, Iranians are selling their oil in local currency to these eight countries, so if we push this more or if we want to use [the dollar] as a weapon, it’ll lose its influence.” But at the same time, “we cannot deny the fact that all of these things have their own consequences on Iran’s economy”.

Backlash against big tech

More people in 2018 have access to the Internet than safe drinking water. And the world’s digital population continues to grow. But there are fears the world is not reaping the so-called “digital dividends” of this transformation. More than two billion people actively use Facebook on a monthly basis, which has had a decisive year.

“Facebook has been particularly hard hit by some of the concerns that have arisen over the different scandals that have taken place in terms of the access to data and the use of that data related to elections,” explains Alasdair Reid, Principal Researcher and Policy Director at the European Future Innovation System Centre.

“The younger generations are also looking for other tools and moving to other apps and platforms. So there is a natural trend linked to the hit that they have taken from the privacy abuses that have taken place related to Brexit and other referendums and elections in the last year or so, and that’s had a negative effect.”

“Is it the peak of Facebook? Well, I am not sure that’s the case. I think they’re in a very strong position. But it’s a very good example for where there is a need for clear regulation and checks on the use of the data that’s collected by such a company.”

Source: Al Jazeera



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