Political Disruption, October 25
Geopolitical risk in sanctions, trade, tech, cyber, finance and culture.
Good Morning!
Welcome to a new week of Political Disruption! This week we give an overview of all geopolitical risk that happened the past two weeks and we zoom in on how the volatility of geopolitical risk is increasing.
Hans
Geopolitical risk
Sanctions
Donald Trump lifts sanctions on Turkey while at the same time members of the European Parliament are eyeing sanctions against Ankara over its incursion in Syria against the Kurds.
Ilhan Omar, a representative in the US Congress questions in a Washington Post opinion piece the extended use of sanctions by the Trump administration.
Trade
The EU risks creating further turmoil on the trade field by considering a carbon border tax.
U.S. firms fear a mass boycott by the Chinese. Meanwhile American toymaker Hasbro is already suffering from the US-China trade war
Tech
In a new report, the EU warned of the political risks from 5G suppliers and Huawei admits that US sanctions are hurting its business.
Cyber
Facebook removed more than 200 fake accounts linked to either Russia or Iran, showing both that influence peddling for the 2020 election is gearing up and that social media firms are taking much more action than previously.
In a demonstration of how difficult it can be to understand who is attacking you in cyberspace, the U.S. National Security Agency (NSA) and Britain’s GCHQ’s National Cyber Security Centre explained how Russian group hijacked Iranian spying operations
Big tech
Mark Zuckerberg, Facebook’s CEO, was in Congress to defend his Libra digital currency project but was not very successful at that and received a lot of questions on Facebook dealing with disinformation campaigns and wasn’t always able to give clear answers.
Even without plans for a global currency, Facebook will be more in the spotlight in the coming election year as top Democratic Presidential Candidate suggested breaking up Facebook.
Finance
As US financial sanctions reach ever farther and deeper, countries are looking for alternatives beyond the dollar. Russia and Turkey have signed an agreement to use the rouble and the lira in their cross-border transactions. Russia is looking further to find ways to settle its energy transactions in roubles or euros.
Culture
China has a history of trying to influence the content of Western movies by threatening to ban them. Given China’s huge market, this often works. But now China is on the other side of controversy as “Malaysia’s film censors have ordered a scene to be removed from the animated movie Abominable”. The movie shows China’s controversial nine-dash line in the South China Sea, claiming among other disputed territories a part of the South China Sea that Malaysia also claims.
Last Wednesday Malaysia also “banned a controversial belt and road comic for cultural insensitivity, promoting communism”
Increased volatility
Recently we saw an increase in geopolitical risk. The main reason is that we are increasingly combining a very globalised world, where goods, money and data stream over borders with an increase in geopolitical competition. In a world where states are economically very dependent on each other, full-scale military conflict would be extremely expensive for both parties, but it allows states to manipulate the other’s states dependencies for political gain.
And that’s what we’re seeing. States use other states vulnerabilities in trade, data and financial networks to pressure them politically. We can see this in three important phenomena:
Sanctions: While sanctions were until recently mainly used by the EU, the US and the UN to deal with ‘rogue states’ (North Korea, Libya, Iran…), they became a more accepted tool of statecraft for other states like Saudi Arabia that sanctioned both Qatar and Canada for political reasons or Japan that put up an export ban of chemicals to South Korea after a dispute dating from the Second World War.
At the same time, we saw a take over of trade policy by broader foreign policy goals as in the case of President Trump’s tariffs on aluminium and steel (and soon cars?) that were framed as national security concerns. And this geopolitisation of trade policy is very present in the trade/tech/geopolitical competition between the US and China. (here’s an analysis of the US-China trade conflict)
Finally, we see a lot of ‘informal measures’ by states like China that use their control over their economy to push for boycotts of foreign products in case of a political dispute. This week we saw China CCTV station not showing the NBA game that starts the season, something which it traditionally does. (more on this issue)
The increase in the number of actors using economic statecraft and the fact that the US policymaking is increasingly becoming more erratic under present Trump makes that we can expect more political disruption in the near term.