Legend has it that a journalist asked former British Prime Minister Harold MacMillan about the biggest challenge for his government. His reply: Events, dear boy, events… While global economic dynamics are to a large extent a function of broad political or macroeconomic trends, important events – just as powerful persons – can make a big difference in their shaping. Therefore, here are our picks for political events that could have huge effects on the world economy in 2019.
1. February 17 – Deadline For Investigation on U.S. Tariffs on Car Imports
In May 2018, the Trump administration announced that it would launch an official investigation under Section 232 on whether imports of automobiles and parts harm US national security. The deadline for providing the findings of this investigation carried out by USTR (US Trade Representative) is February 17. This date is worth keeping in mind because previous investigations under Section 232 on steel and aluminum concluded that imports do harm US national security and were followed by the introduction of punitive tariffs. If such tariffs were levied on car imports, this could harm the car exporting economies (Here’s looking at you, Germany.) bigly!!
2. March 1- Deadline for U.S.-China Trade War Ceasefire
On the sidelines of the G20 summit in Buenos Aires at the beginning of December 2018, the US president and his Chinese counterpart agreed on a “ceasefire” in the trade war between the two countries. Both sides agreed to not implement any further tariff increases during a 90 day period of negotiations on ensuring better intellectual property protection in China and actively combating technology theft. Should these negotiations be successful, the Trump administration announced it is ready to lift all existing punitive tariffs on Chinese goods. But even if there is a deal at the end of the 90 days period, it will be very difficult to monitor whether it is actually being enforced.
3. Mid-March – deadline for Assessment of New North American Free Trade Agreement
Our American report trilogy ends with U.S. President Donald Trump’s signature project for re-defining U.S. trade relations: the “new” NAFTA. In substance, the new deal between Canada, Mexico, and the U.S. involves just enough changes for President Trump to claim a (short-term) win. On style, the aggressive U.S. posture has probably damaged diplomatic relations with two key trading partners (in the long-run). In any case, ratification is still pending. In the U.S., Democrats and Republicans have voiced concerns over lack of strong labor, environmental or enforcement provisions. The economic assessment of the bipartisan U.S. International Trade Commission, due in Mid-March, could sway the debate in one or the other direction. However, the deadline may not stand as the current government shutdown is delaying the work of the commission.
4. March 29 – Article 50 Deadline for Brexit
The Article 50 two-year timer will expire on March 29, 2019 at midnight (Central European Time, 11pm UK time). At that time, the UK’s membership in the EU will come to an end. But not only that: unless another agreement is struck between the negotiating partners, also all treaties between the EU and the UK as well as treaties with third countries that the EU has negotiated on behalf of the UK will cease to apply to the UK. The repercussions could be potentially severe: tariffs would be introduced, air traffic halted, financial transactions frozen. This scenario is not as unlikely as it may seem: in the UK parliament, there is no majority for the Withdrawal Agreement negotiated between the EU and the UK. Neither is there a majority for anything else, such as calling off Brexit, launching a new election or holding a second referendum. The EU is currently preparing emergency legislation intended to mitigate the worst effects. This is however a unilateral EU decision that would only be enacted if reciprocated by the UK side and could be revoked unilaterally at any time.
5. April/May – Indian General Election
A number of major emerging economies will hold general elections in 2019: Nigeria in February, Indonesia in April and Argentina in October. But India’s election for the Lower House is the most highly anticipated one. Despite solid GDP growth and good approval ratings, the re-election of incumbent president Narendra Modi is no foregone conclusion. Polls predict a tight race between his National Democratic Alliance and the United Progressive Alliance. A new government would certainly need some time to find its course to steer through India’s notoriously complex foreign relations. If there were no outright majority for any of the usual suspects or even a hung parliament, political insecurity about India’s future direction could dampen economic prosperity within and beyond its borders.
6. May 23 – European Parliamentary Elections
The stakes in the European Parliamentary Election are still high. With populists expected to continue their winning streak at the voting booth, Euro-skepticism and nationalism are likely to increase. Conversely, if the voting share of the center further erodes, the new Parliament will see more fragmentation and less stable coalitions. Both organizationally and culturally, the body will have to adjust to the absence of British members, as their seats are scheduled to drop out or be re-allotted. As a result, we are likely to end up with a composition that makes approving free trade agreements, such as EU-MERCOSUR, or finding a compromise on the 2021-2027 budget framework a lot more difficult and protracted.
7. June 28 – G20 Meeting in Japan
At the G20 Summit in Buenos Aires 2018, the leaders called for a reform of the WTO and for progress to be reviewed at the next summit. In light of trade wars and widespread attacks on the multilateral trading rules, reform of the WTO should become an international policy priority. However, while there is agreement on the need for reform, the positions of the protagonist countries are far apart – doubt is permitted on how much progress can be achieved in just 7 months. The question however is whether the US will use a likely lack of progress to intensify its attacks on the WTO or will allow a reform process in the necessary time.
8. July/August – 2020 U.S. Presidential Candidate Announcements
On the one hand, the U.S. presidential election in November 2020 seems a long way down the road. On the other hand, President Donald Trump has never ceased to hold rallies and many possible candidates have already started fundraising and courting voters in early primary states. If the last three election cycles are any guide, major contenders should have declared their firm intention to run by summer. While they will only sharpen their platforms during the primary season in 2020, their strengths and weaknesses will be well-known right from the start. As a result, tactical considerations should start to inform congressional and administration activities after the summer break and turn the president sooner rather than later into a full-time “campaigner-in-chief”.
9. September 30 – End of U.S. Fiscal Year
Alongside the interpretation of the Mueller findings, the budget process will be the major battleground between the divided branches of the U.S. government. With the Democrats in charge of the House, the administration will encounter more opposition on fiscal issues. As a result, we are likely to witness – and bear the economic fallout – of several rounds of fiscal trench warfare: In March, the suspension of the debt limit expires. So does, in September, the agreement to relax caps on defense and non-defense discretionary spending. And then, there is the annual budget process whose deadlines are tough to meet even in the most pleasant political climate. Probability of another government shutdown in the second half of the year: very high.
10. October 31 – End of Mario Draghi’s Term as ECB President
The change at the helm of the European Central Bank (ECB) comes at a crucial time. Presently, the ECB is cautiously reducing its stimulus to the economy, preparing a normalization of monetary policy. Many of the more hawkish northern European central bank governors have called for a quicker normalization while southern European central bankers fear the impact this may have on a fragile economic recovery and precarious public finances. The field of contenders to the top ECB post reflects this policy controversy: they range from the more hawkish Jens Weidmann, the more pragmatic Erkki Liikanen to the more dovish Francois Villeroy de Galhau or Benoit Couré (among many other candidates).
11. November – Start of Terms of New European Commission and European Council President
Since all European Commission (EC) spots and the Presidency of the European Council are up for grabs as well, the choice of the next ECB President will be part of a package deal. The battle for political direction and proper member state representation of the world’s second largest economic area will go into its crucial phase after the EP election. It will not only bring arduous negotiations among member states but could also involve a struggle for the balance of power between member states and the EP. An inconclusive EP majority structure will come in handy for member state leaders whose aversion to the EP-driven Spitzenkandidaten process is well known. As a result, a compromise candidate – Michel Barnier has been mentioned frequently – and could eventually end up at the EC’s helm.