As 2019 stretches out ahead of us, the World Economic Forum will meet this week and is likely to highlight the rise of competition over collaboration between countries, and the implications for the global economy. The global oil market is not immune to these forces. Notwithstanding the “cooperation” represented by the recent OPEC deal, falling OPEC exports and rising US exports will be unsettling this year. Competition in the oil markets is likely to intensify by the end of 2019. That is generally bearish for oil prices.
The World Economic Forum in Davos this coming week will take place without the U.S. President and with only a small U.S. government delegation due, in large part, to the ongoing partial U.S. government shutdown. The lack of U.S. participation is not the only damper on the public-private partnership event dedicated to: “demonstrate[ing] entrepreneurship in the global public interest while upholding the highest standards of governance.” Davos has been a forum to discuss ongoing economic cooperation between the public and private sectors, across borders, and among nations. However, the policies and expressed policy preferences of many of the political leaders of the world’s largest economies points less to cooperation and more toward competition with an emphasis on beggar-thy-neighbor policies. Much of this, in turn, is driven by the domestic
politics of the countries in question, with leaders either acting on long-held views on economics or seeking to consolidate political support in the face of concerns about slowing economic growth and less local control over economic futures.
In the case of the United States, President Trump has broken with a fairly robust bi-partisan preference for multilateralism and free trade agreements modeled on the liberal economic order that Washington helped to design and establish in the wake of the Second World War. President Trump has acted on his longstanding belief that the liberal international trading system – and particularly its multilateral institutions and trade agreements — has disadvantaged the Unites States. His policy preferences in his first two years of office have been to change the terms of trade through either pulling out of multilateral negotiations or tearing up existing multilateral agreements, through threatening and levying tariffs, and through a domestic political rhetoric that emphasizes direct transactional relationships. In addition to these policies, the United States – partly
directed by the Trump administration and partly through Congressional action – has continued to use targeted economic sanctions as a primary tool of foreign policy against adversaries and declared great power competitors such as Iran, North Korea, Russia, and China.
China’s leader, Xi Jinping, relies on continued economic growth and prosperity – despite the lack of democratic mechanisms in China – to bolster his and the Communist Party’s legitimacy and possession of exclusive political power. China’s economic growth is slowing as its economy matures, and the now heightened trade disputes with the United States (including tariff wars) are not helping. Moreover, Washington and other states are cracking down more heavily on China’s massive industrial espionage against the West, using law enforcement and economic measures. China, with close to 19% of its economy reliant upon exports, has a slowing economy and is attempting to figure out how best to use the U.S. pullback from the liberal international order to its best advantage while still maintaining enough growth to ensure no domestic political unrest.
The UK is in the midst of an attempt to leave the European Union, giving up on a broad-based system of economic cooperation in hopes – to the mind of some citizens and politicians – of doing better either through bilateral trade and investment deals or through some other mixture of cooperation and competition.
In sum, the idea of positive sum gains through economic (and political) cooperation seems to have fallen upon hard times in many of the world’s major economies, and important domestic political forces in many of these countries are amplifying that message because it supports their political prospects as well as beliefs about how the world works.