Business | davos special 2019

A unique space for discussion in the face of uncertainty

Experts stress the necessity of finding solutions to unresolved issues amid tense geopolitical climate

by Sayuri Daimon

Staff Writer

The year 2019 is full of uncertainty.

The U.S.-China trade war started by U.S. President Donald Trump seems to be accelerating with no signs of abating. Whether Trump will meet North Korean leader Kim Jong Un for a second time remains to be seen. How Brexit will turn out and how populist sentiments across Europe will play out in the European Union’s parliamentary election in May will set the future course of the EU. Tensions between Japan and South Korea and efforts to solve the decades-old territorial issues between Japan and Russia are holding the attention of foreign policy experts.

In many ways, major policy issues that were left unsolved in 2018 may have to be carried by world leaders to 2019. Some experts say the World Economic Forum’s annual meeting in Davos, Switzerland, that begins Jan. 22, will be the first good opportunity for those issues to be discussed among the world’s top political and business leaders.

“It is always hard to predict what bilateral or multilateral issue will capture the most attention in Davos — mainly because we live in such volatile and uncertain times,” said Lee Howell, a member of the WEF’s Managing Board.

“As the two largest economies in the world, U.S.-China relations will always warrant close attention in trade, but also technology and climate change policies. Given where the stock markets are now in both countries, I would expect much more attention on trade disputes between the U.S. and China in the new year,” Howell said.

Davos conference participants will certainly have a full agenda to discuss. Over 3,000 global leaders from government, society, academia, the arts and media will gather under the theme “Globalization 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution.”

Last year, Trump’s participation in the WEF meeting made world headlines, as it was the first for a sitting U.S. president since Bill Clinton attended in 2000. At the annual meeting, Trump told the hall packed with global elites that he would always promote “America first,” as he expected other world leaders to do for their own countries. “America first does not mean America alone; when the United States grows, so does the world,” he said.

This year, the American president, who is currently mired in a series of issues at home ranging from a border wall with Mexico to intensifying trade wars with many countries over tariffs, said he will not attend the Davos conference. However, if he were to participate at the last minute, his possible remarks would likely capture global media attention.

Prime Minister Shinzo Abe, who was the only missing figure among Group of Seven leaders last year, is expected to return to Davos for the first time since 2014.

On the macroeconomic front, the International Monetary Fund and other international institutions expect the global growth rate in 2019 to be somewhat moderate. However, many agree that escalating tension between Washington and Beijing on trade, as well as political challenges such as Brexit, could weigh heavily on the global economy this year.

In what appears to be a good indicator of how closely the American and Chinese economies are linked, stock prices plunged in the U.S. at the start of the new year after Apple Inc. lowered its revenue expectations due to disappointing iPhone sales in China.

“Generally speaking, the global economy is unlikely to experience significant slowdown this year, but there is always tail risk that might occur in 2019,” said Mitsumaru Kumagai, chief economist at Daiwa Institute of Research, referring to the risk of rare events that may have a huge impact on the economy.

For example, if Trump takes an even stronger protectionist approach that results in the depreciation of the dollar against the yen, that could push down Japan’s gross domestic product by 0.6 percent. Likewise, if Europe’s economy is hit hard by the negative impact of Brexit, it could also lower Japan’s GDP by 0.7 percent. Other tail risks include China’s further economic slowdown and rising oil prices due to turmoil in the Middle East, he said.

Adding those external factors to domestic risks, such as the scheduled consumption tax hike in October, Kumagai said the country’s GDP could drop by as much as 3.9 percent in total.

“In addition, because fiscal conditions of many countries are deteriorating, it is becoming more difficult for governments to implement emergency measures. The very presence of President Trump is also making policy coordination harder among key players in the international community,” Kumagai said.

Ian Bremmer, president of the New York-based Eurasia Group that analyzes geopolitical risks for investors, also pointed out the danger of leaving possible risks unsolved.

“The political risk outlook for 2019 is reasonably good,” said Bremmer in announcing this year’s Top Risks report earlier this month. “But nearly all of the geopolitical developments that matter are now trending in the wrong direction. That’s unprecedented in my lifetime. These issues, if left unaddressed, will lead to big trouble down the road.”

The report said that the most serious geopolitical risks, such as cyber confrontation with Russia, war with Iran, implosion in Europe and a true U.S.-China trade war, are more plausible than they’ve been, but none are particularly likely to play out in 2019.

Corporate leaders in Japan and other East Asian countries also appear to be worried about the bellicose approach by Trump and Chinese President Xi Jinping over bilateral trade.

A survey conducted by Japanese business daily Nikkei, the Chinese daily Global Times and South Korea’s Maeil Business Newspaper from Nov. 27 to Dec. 13, also shows more than 70 percent of corporate leaders in China, Japan and South Korea expect the trade war to damage their businesses.

About 79 percent of respondents from Japan, 73 percent from China and 81 percent from South Korea said the trade war would deal a blow to their operations, according to the poll of about 100 executives in each country.

With regard to investment plans for this year, 33 percent of Chinese companies said they would reduce investment in the U.S. compared to 2018. Hit by the slowdown of the Chinese economy, only 14 percent of Japanese companies responded that they would increase investment in China from last year.

Experts are concerned about the spread of populism and say that many political leaders have become myopic and cannot think of longer-term strategies. Because of that, Davos’ uniqueness can offer a different level of discussions, they say.

“Not all global leaders who will come to Davos are politicians who have to go through elections. So, I hope these leaders (from various public and private sectors) will not only seek their own national interests, but work to create a framework, which will enable international policy coordination,” Kumagai said.

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