A panel of leading economic experts spoke at the Council on Foreign Relations World Economic Update in New York on Tuesday, discussing a matrix of global risks—with highly fluid potential outcomes—facing the global economy in 2020.

A non-exhaustive list of this year’s risk outlook includes possible political reverberations across the Middle East of recent U.S. military action in Iran; the 2020 U.S. election; worsening climate risks; trade tensions; what’s looking like a hard Brexit; and–the unanimously acknowledged wild card–a recent Coronavirus outbreak in the Far East, and the extent to which an outbreak on the scale of the 2003 SARS epidemic could negatively impact China’s economy.

Trade tantrum 2.0

Catherine Mann, Global Chief Economist at Citigroup, observed that even last week’s Phase 1 China trade deal signing may not spell the end of trade belligerence from the Trump administration.

She urged that Phase I should be understood in the broader context of the White House’s essentially bilateral approach to trade relationships. While the Phase 1 signing—whose quantitative targets on particular sectors are not yet known and therefore cannot be adequately enforced—may dial back near-term tensions, “it would be a mistake” to assume that trade tensions had ended, or that further lashing out against other trade partners this year could be ruled out.

Her bet as the next likely target for Trump’s trade ire? The European Union.

Mann noted with respect to the muted impact on oil prices following recent U.S. military action in Iran that the range between analysts’ bull and bear scenarios is the widest it’s been in a year, making it particularly hard to bet on a middle-case scenario for oil.

With electoral uncertainty in the U.S. adding to an emerging “wait-and-see” posture, she said, this itself could pose market risk as economic stakeholders postpone major investment activity until year end, further restraining growth.

Democrats: Different this time

Pointing to economic risks tied to the upcoming U.S. election, Lewis S. Alexander, Nomura Securities’ Chief U.S. Economist and Head of Fixed Income Research in the Americas, pointed to what he expects will be a sea change in Democratic Party economic policy.

He noted that this fundamental shift will likely not be conditional on [Bernie] Sanders or [Elizabeth] Warren winning the Party nomination, as has been widely assumed, and how aggressively these candidates might campaign on issues like financial market regulation.

Instead, he predicts that Democrats will pursue a fundamentally different direction than under the Clinton and Obama administrations, one that encompasses greater access to health care, a more overtly redistributive tax structure, and climate issues, with long-term platform implications.

“These issues aren’t going away, even if the nominee is Biden,” he said, adding that in the event that a Democrat is elected in 2020, “Larry Summers is not going to be driving the economy policy. It’s going to be different.”

Brexit bluffing

Panel moderator Sebastian Mallaby, a Senior Fellow at the Council on Foreign Relations, pointed to economic risks to the U.K. economy from a hard Brexit and the difficulty of discerning how much of the current rhetoric coming from Boris Johnson’s Government is “bluffing.”

Recent signals from the Johnson Government that the U.K. will pursue greater regulatory independence could come at Britain’s peril, Mallaby said. Brussels will likely take pains to block product and social dumping on the part of the U.K., and to make trade access contingent upon explicit policy synchronization.

“The cost to the European Union of a messy Brexit is lower than for the U.K.,” he said. “Their (the EU’s) position will be that if you [the U.K.] want free trade with us, you need to have regulatory and policy alignment…Regulatory freedom [for the U.K.] means less trade access.”

Despite this tradeoff, he said, the U.K. Government is signaling that regulatory independence, however irritating to Brussels, could be the position they’ll pursue.

“It won’t be good for the economy but it may be the political direction they’ll take,” he cautioned.

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