The 73rd United Nations General Assembly opens on Tuesday in New York with world leaders bracing for the next global crisis – and the rest of us uncertain about what they would do if it comes.
Don’t be fooled by the fact that U.S. markets hit record highs this past week, that global growth remains steady, or that the Trump administration in its first two years has escaped any crisis of the sort that came with the 9-11 terrorist attacks of 2001, the 2003 Iraq War or the Lehman Brothers meltdown just a decade ago.
In my many years of taking the global pulse around UN week, where more than 120 leaders will gather, I’ve seldom seen or sensed such uneasiness and uncertainty. I’ve never known a time when the potential sources of volatility have been so widespread geographically.
The debate, hence, should be less about whether such a crisis will occur and more about what form it might take, with what severity it will strike, and whether world leaders will have the capacity to contain it. They worry above all that America looks unbalanced; and thus the default source of stability during such crises feels like more of a wild card.
Reporters next week will focus their attention on what President Donald Trump says in his speech to the General Assembly at the opening and again a day later, when he personally chairs a special session of the UN Security Council on stopping nuclear proliferation. (Expect a mixture of vilifying Iran and praising North Korean leader Kim Jong Un, whom he branded as “rocket man” on the same stage last year.)
However, excessive focus on Trump’s words would miss the more consequential story. A crisis is brewing in the cauldron of excessive debt, growing trade tensions and mounting geopolitical risk. The stakes are historic in nature during our new era of global competition, characterized by Chinese efforts to displace U.S. leadership, Russia’s actions to disrupt it, and American uncertainty over how and whether to preserve it. (See last week’s Inflection Points on this new clash of major powers).
The list of potential sources of instability are many.
It could come in the form of economic war or financial crisis. Those odds grew this week with Trump’s new tariffs on $200 billion of Chinese goods, China’s return volley on $60 billion of U.S. imports and Trump’s threat to turn the screw yet another notch. It’s not a good indicator that China has decided to cancel plans to send a delegation to the United States in the coming days to seek a solution.
It could come as a security crisis out of the Mideast, a prospect underscored by this week’s Syrian shoot-down of a Russian military reconnaissance plane. Initially, Moscow blamed it on Israel, but the incident only underscores the perils of so many potent parties operating over contested territory. Mideast crises rarely remain within the region’s borders, having expressed themselves as extremist ideology, terrorist strikes and refugee flows.
It could grow out of the political populism and nationalism that is unsettling Europe through Brexit, Italy’s big debt and disruptive leadership, the rise of an anti-immigrant German right and the new EU sanctioning of Hungary. European Union institutions have seldom faced so many simultaneous, centrifugal challenges.
Worth watching most closely is how relations unfold with China. A U.S.-Chinese crisis, if not contained, could poison the most significant bilateral relationship for the global future.
Markets appear to be betting that Trump’s new tariffs are merely another negotiating tactic, one that will ultimately result in a de-escalating deal. The optimists even believe this trade conflict may even create more value as China opens up markets and reforms its unfair trade practices.
What that underestimates is that this drama is about far more than trade for China. In a recent conversation, a Chinese official told me that his leadership is growing more concerned every day that Trump’s real purpose isn’t to get a deal but to undermine China’s rise.
Chinese President Xi Jinping’s response will also be informed by historic memory of foreign humiliations past. It’s worth remembering that the First Opium War in the early 19th century grew out of a trade deficit being settled. The British East India Company balanced a substantial trade surplus with the Qing Empire by paying for Chinese goods with opium it grew in India.
Though it’s unlikely anyone at the White House was aware, Trump announced his tariffs just as the Chinese were commemorating the 87th anniversary of the Mukden incident, when a fake attack by dissident Japanese soldiers served as pretext for the Japanese invasion of Manchuria.
Markets make a mistake in believing this trade fight will be short-lived, can be easily contained or will be restricted to economic issues.
The Wall Street Journal’s editorial page argues that Trump has chosen the right trade target in China but is going about the struggle all wrong. Before escalating with Beijing, he should have settled the trade fights he had started with his allies, whether over Nafta or in Europe, and he should have re-entered the Trans-Pacific Partnership that he abandoned in the first days of his administration.
“Then lead a coalition to confront Xi Jinping from a position of strength with targeted trade enforcement rather than scattershot tariffs,” writes The Wall Street Journal. “The real worry is that Mr. Trump supports tariffs for their own sake, and he may not want a China deal. With Donald Trump and trade, you never know.”
And not knowing can result in the sort of misunderstandings or miscalculations that breed crises.
Frederick Kempe is president and chief executive officer of the Atlantic Council. You can follow him on Twitter @FredKempe. This blog post is based on his weekly InflectionPoints newsletter. Read the newsletter in full here.
I’m delighted that the top, commentary section of Inflection Points will appear in similar form regularly as a CNBC.com column.