Top Global Risks of 2020: Regionalization & Isolation

Nationalism is one of the central reasons why states pursue isolationist policies. Nationalist sentiment among citizens and politicians may occur in conjunction with skepticism towards other cultures, religions, and ethnicities and often results in more restrictive immigration policies. Isolationist policies reinforce the decline of multilateralism and pose a risk to international cooperation and trade. Much like isolation, regionalization is an inward-focused policy movement, a withdrawal from externally-focused interaction. Yet regionalization differs from isolation in that it also entails greater regional integration and cooperation. Isolation and regionalization are expected to create both business risks and opportunities in 2020.

 

The Central Risks of Regionalization and Isolation

Establishing a liberal international economic system has been a goal of the United States since World War II, yet recent isolationist policies mainly from the US but also other countries like the UK point towards a reverse trend – a decoupling of the established global economic system through regionalization and isolation. Bilateral trade wars demonstrate this pivot away from international economic cooperation. Regionalization and isolation, therefore, imply a decrease in international trade, which poses a major risk to multinational corporations as they struggle to manage their access to international markets, trade barriers and tariffs, foreign investment plans, and supply chains. The following aspects indicate additional salient risks and opportunities:

  • Targeting of companies: Certain companies may become targets of boycotts based on their country of origin. The ban of Chinese telecommunications corporation Huawei in the US in the context of the US-China trade war exemplifies this.
  • Employment and migration: Regionalization and isolation have a direct impact on employment and the international mobility of workforces. Non-nationals may have greater difficulty finding employment abroad as immigration regulations become more rigorous.
  • Procurement of resources: If isolationist policies weaken international trade, access to resources and products that are not regionally available may become restricted. Cars, refined petroleum, and integrated circuits are among the world’s most traded goods. This means that the procurement of these products could become more costly as trade barriers and tariffs are imposed. Key importers and exporters that are particularly vulnerable to such restrictions on international trade include the US, China, Germany, and Switzerland.
  • Incentive for tailored innovation: A benefit of regionalization is that it can foster economic growth as regional integration is fortified. Companies may compete for regional leadership, which can become an incentive for innovations that are tailored to the needs of regional markets.

Isolation Trends in the West

US President Donald Trump’s “America First” strategy is a primary example of an isolationist policy. President Trump has initiated the withdrawal from numerous international agreements, including the Trans-Pacific Partnership (TPP), the Joint Comprehensive Plan for Action (JCPOA, also known as the Iran nuclear deal), and the Paris Climate Agreement. On the other side of the Atlantic Ocean, the United Kingdom has pursued an isolationist policy by withdrawing from the European Union, commonly referred to as Brexit. The UK has thus turned away from regional integration in favor of political and economic independence. Brexit must also be understood in a nationalism context. Nationalist movements and right-wing populism in Europe have gained traction ever since the European migrant crisis of 2015, indicating that governments with strong nationalist, right-wing fractions could further promote isolationist policies in 2020. The rise of nationalism in several European countries, such as Italy and Hungary, can create a domino effect that Europe must continue to be aware of in 2020.

 

Regionalization Trends in Asia

While isolationism has emerged in the West, regionalism has become a policy trend in the East. The rise of China has challenged the unipolar international order led by the US and initiated a shift towards multipolarity. This has allowed Asian regionalism to flourish. Although Asian states are still pursuing their individual strategic interests, many have also contributed to the development of regional integration. The Association of Southeast Asian Nations (ASEAN) is an example of this economic interdependence. Through negotiations on the Regional Comprehensive Economic Partnership (RCEP), ASEAN has taken another step towards regional economic and political collaboration to reinforce regionalism in Southeast Asia and the Indo-Pacific. The RCEP is of particular significance, as it has the potential to become the world’s largest free trade agreement (FTA). This gives other states and regions the incentive to either compete (and reinforce regionalization trends) or cooperate (through international trade agreements) with ASEAN in the future.

 

Future Outlook

In conclusion, a fragmentation of the global economic order through regionalization and isolation could become a continued trend in 2020. Isolationist policies can be the result of nationalist sentiments and conflicting state interests. Depending on the outcome of the 2020 US election, however, the foreign policy position of the US could shift away from isolation towards increased international collaboration once again. Monitoring key indicators for isolation policies, such as the US-China trade war, economic regionalization in Asia, and nationalist movements in Europe, reveals how likely associated risks may occur.

About the Author

Yasemin Zeisl

Yasemin Zeisl is a Risk Analyst at Global Risk Intelligence. She earned her MSc in International Relations and Affairs from the London School of Economics and Political Science (LSE). She is currently based in Austria. Yasemin is fluent in German and English and possesses advanced Japanese language skills.

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