The year ahead will be dominated by America’s presidential election and a global slowdown, says Zanny Minton Beddoes. And these two subjects will hog headlines around the world in 2020: America’s presidential-election campaign and the weakness of the global economy. Both will induce anxiety and each will influence the other. It will be a volatile year, characterised by unstable, angry and polarised politics, and an enfeebled economic outlook for the world, regardless of who wins on November 3rd, when American voters go to the polls.
Many elements of the election remain uncertain, from the impact of the impeachment trial that is all but certain to precede the head-t0-head presidential battle, to who will be the Democratic nominee to challenge President Donald Trump. But there seems little doubt that the tenor of the 2020 campaign will be uglier than any in modern American history. In 2016, already a notably nasty contest, a Trump presidency was a pinch-me prospect that too many people discounted; in 2020 millions of voters, on both sides, will feel the very fabric of their country’s democracy to be at stake. Outside America many more millions will wonder if an extraordinary four-year interlude is about to end, and whether the country that has been the anchor of the post-war world order has been irrevocably transformed.
Thanks to the American president’s ability to make policy by executive action and the reach of his Twitter feed, Mr Trump will be the impresario of the election show, setting the terms on which the contest is fought and the tone with which it is conducted. He will brand whoever is his challenger as a dangerous socialist, bent on flooding America with immigrants and embarking on a radical far-left agenda that will enfeeble the country. The trope will seem more plausible if his opponent is Elizabeth Warren, the senator for Massachusetts and former law professor whose plan to remake American capitalism is genuinely radical. But the rhetoric will be similar even if the Democrats choose a more centrist candidate, such as the former vice-president, Joe Biden, or just possibly Pete Buttigieg, the newly prominent mayor of South Bend, Indiana, who did a tour of duty in Afghanistan and will turn 38 in January.
Unfortunately for Mr Trump, a noticeable cooling of the American economy will challenge his claim to have made America great again. Global growth has already slowed in 2019, as damage from the Sino-American trade war accumulates, hitting manufacturing and trade flows, and denting business confidence. America itself has hitherto been least affected. Buoyed by rising wages, a lingering boost from tax cuts Mr Trump introduced in 2017 and the lowest jobless rate in half a century, consumers will end 2019 still confident and keen to spend.
But that confidence will start to ebb in 2020, as the stockmarket wobbles, the fiscal boost disappears and the jobless rate inches upwards. America will escape a formal recession, particularly since the Federal Reserve, which cut interest rates in July, September and October 2019, will act promptly to reduce rates yet further. But the mood will be one of growing gloom that the country’s longest expansion on record is coming to an end.
The political maelstrom will make things worse. Mr Trump will search for scapegoats. His attacks on the Federal Reserve and its chair, Jerome Powell, will intensify. The president will vilify any firms that lay off workers. He will demand more tax cuts and then denounce a do-nothing Congress for failing to pass them. Ironically, politics will constrain the most sensible route to supporting growth: an end to the economic confrontation with China. Although Mr Trump will succeed in signing a mini-deal with President Xi Jinping, the bulk of America’s levies on Chinese goods and its growing determination to limit China’s access to American technology will continue. That is because Mr Trump cannot afford to be branded “soft on China” by his Democratic challenger. No Democratic candidate will run a campaign championing a more co-operative strategic relationship with China. If anything, the pressure to be more aggressive will grow, as Democrats lambast Mr Trump’s tolerance of China’s human-rights abuses in Xinjiang and his failure to support pro-democracy protesters in Hong Kong.
If the Democrats choose a more left-wing candidate—Ms Warren or Bernie Sanders, the 78-year-old senator for Vermont—a second, destabilising link between politics and economics could kick in. Fearful of a radical overhaul of swathes of American business (Ms Warren’s plans, for instance, would transform industries from health care to finance to technology), financial markets may stumble further if, as could well be the case, the election seems close. Mr Trump will be quick to blame any stockmarket weakness on the spectre of socialism. But as consumers’ confidence falls it will get harder for the president to base his campaign on the idea that, thanks to him, America’s economy is strong.
Worries around the world
Wobbles in the world’s biggest economy will compound weakness elsewhere. China’s economy will slow further, though gradually, as its government strains to provide enough stimulus to keep its growth targets in sight. Yet in doing so it will have to balance its need to make up for the loss of trade and its fear of letting loose another surge in excess credit.
Europe will face a particularly difficult year. Because of its reliance on foreign demand, especially from China, Germany will begin 2020 close to recession and with the grand coalition under the chancellor, Angela Merkel, looking more fragile than ever. Political paralysis in the waning days of the Merkel era, alongside a cultural aversion to deficit spending, will prevent Germany from grasping the obvious policy response: a fiscal stimulus focused on domestic public investment. France’s president, Emmanuel Macron, will try to galvanise a bolder approach at the European level, but it will founder on petulant arguments about how to make up for the shortfall Brexit will leave in the European Union’s seven-year budget. That means the burden of propping up European demand will, yet again, be left to the European Central Bank (ECB), even as that institution adjusts to its change of leadership and reaches the limits of what its rules allow.
And in 2020 reliance on the ECB may bring a new danger, as Mr Trump, in search of scapegoats for America’s economic slowdown, points to the ECB’s negative rates as an unfair trade advantage. His campaign speeches could be peppered with the threat of tariffs on European goods frequently enough to unnerve investors. The stockmarket gyrations that this would cause might perhaps be sufficiently alarming to discourage Mr Trump from opening up a major second front in the trade war.
Climate of discontent
Nonetheless, the more Mr Trump indulges in tariff threats, the more that approach will appeal to others. In the run-up to a big climate summit in Glasgow in November 2020, the coming year may well be when European politicians start seriously to discuss carbon tariffs (which they will call “border adjustment taxes”). Though the rationale has some legitimacy, the prospect of adding tariffs to the climate-fighting arsenal will add a further, unnerving risk to global trade.
All these factors form multiple feedback loops between wild politics and a weakening economy. Whatever their outcome, it will mark a big change. For the past few years the global expansion has seemed all but impervious to political shocks. Financial markets have shrugged off angry and polarised politics. In 2020 the opposite will be true.
Such volatility will not be confined to the economy. A similar dynamic will be at work in geopolitics, too. A more inward-looking America has widened the scope for disruptive behaviour around the world. Recent examples range from Turkey’s move into northern Syria to Iranian mischief-making against Gulf shipping and Saudi oil facilities to an outbreak of trade hostilities between Japan and South Korea.
With America’s politicians distracted by electoral rivalry at home, opportunists elsewhere will be tempted to try their luck. If that exposes the superpower’s weakness, the embarrassment could in turn push an argument over America’s role in the world to the heart of the election campaign—potentially precipitating an international crisis as the president feels himself compelled to react decisively.
Such a crisis is the last thing a faltering economy needs. But America’s febrile politics of 2020 make one likelier than usual. Get ready for a wild ride.