Eurasia Group | Eurasia Group Publishes Top Risks for 2021

Eurasia Group Publishes Top Risks for 2021

4 January 2021

#1 risk for 2021: 46*—Biden's election heralds era in which half of America's voters view every new president as illegitimate

NEW YORK, 4 January – As we begin 2021, the United States is the most powerful, politically divided, and economically unequal of the world's industrial democracies. China is America's strongest competitor, a state capitalist, authoritarian, and techno-surveillance state that is increasingly mistrusted by most G20 countries. Germany and Japan are much more stable, but the most powerful leaders both nations have had in decades are out (former Japanese Prime Minister Abe Shinzo) or on their way out (German Chancellor Angela Merkel). Russia is in decline and blames the US and the West for its woes.

Even as the world grapples with its worst crisis since World War II, some risks are more potent, deadly, and likely to change the course of world politics. These are Eurasia Group's Top Risks for 2021, the firm's annual prediction of the ten greatest threats to the trajectories of nations, global politics, industries and institutions. Unveiled each January, Top Risks helps investors, companies and the public anticipate and respond to opportunities wherever they invest or do business. The report is co-written by Eurasia Group President Ian Bremmer and Chairman Cliff Kupchan.

The #1 risk for 2021 is “46*”—the opening of an era in which the occupant of the White House is viewed as illegitimate by roughly half the country. Donald Trump's refusal to accept the outcome of an election that he declares was stolen is unique in American history, underscoring how divided America has become—and will remain.

“A superpower torn down the middle cannot return to business as usual,” write Bremmer and Kupchan. “And when the world's most powerful country is so divided, everybody has a problem. The geopolitical recession—and our G-Zero world—will deepen as a result.”

Bremmer and Kupchan go on to argue that the strength of Trump's base and political divisions in the US will force allies to consider the possibility that any commitments made by the incoming Biden administration could be overturned in four years with the election of another “America First” president.

Other Top Risks in the report include the ongoing impact of the coronavirus pandemic, climate change, the US-China conflict, data and cybersecurity, and distinct threats facing Turkey, the Middle East, Europe, and Latin America. The report also includes several “red herrings”—issues that, despite media attention, are unlikely to pose significant threats or drive instability in the coming year.

Top Risks has an impressive track record for being both early and accurate in its predictions. Eurasia Group's 2020 Top Risks report, for example, correctly predicted a contested US election as its #1 risk.

Bremmer and Kupchan will host an on-the-record press conference call today, 4 January, at 10:30am EST/15:30 GMT to discuss the risks and take questions. To participate, please register here.

Below is a summary of all ten Top Risks for 2021. Please click here for the full report.

Top Risks 2021

When the world's most powerful country is as divided as the United States is now, the G-Zero geopolitical recession is sure to deepen. The world needs the leadership and cooperation that an engaged and well-functioning superpower can help provide, because, just as the healthcare response to the coronavirus pandemic defined 2020, the economic response to its lasting damage will define 2021.

#1 – 46*

Following a 2016 Trump victory that many Democrats believe Russia helped him win, Biden's term opens the era of the asterisk presidency, a time when every Oval Office occupant is seen as illegitimate by roughly half the country—and the lawmakers that election skeptics send to Congress. Most of the risk here is domestic, but the consequences of extreme polarization for democratic legitimacy extend well beyond US borders. Apart from a shared desire to contain China, Republicans and Democrats will disagree sharply—with each other and among themselves—over the objectives of US foreign policy. In addition, the size of Trump's base, and the broadening of that base to include more minority voters, leaves allies and potential partners wondering whether the next “America First” president and foreign policy are just four years away.

#2 – Long Covid

In 2021, the lingering symptoms of Covid-19 will threaten not just lives but political stability and the global economy. Countries around the world will struggle to meet ambitious vaccination timelines, and the pandemic will leave a legacy of high debt, displaced workers, and lost trust. The distribution of vaccines will divide haves from have nots, both within and among nations, stoking anti-incumbent anger and public unrest in many countries. Some emerging markets will experience a debt crunch this year. With inflation and borrowing costs rising, they'll have far less room than the US and Europe to cushion Covid's economic blow.

#3 – Climate: net zero meets G-Zero

Climate policy will move from playground of global cooperation to arena of global competition. Across a range of clean technologies, China's longstanding industrial policy approach will now face a much more aggressive climate push from Washington. Some parts of the clean energy supply chain will face bifurcation pressures like those seen in 5G. The push for net zero emissions targets will create enormous opportunities for private capital, especially the growing pool of environmental, social, and governance dollars and euros, but winners and losers will be determined as often by political factors as by market forces.

#4 – US-China tensions broaden

A shared desire in Washington and Beijing for stability in US-China relations will briefly ease headline tensions, but intensifying vaccine diplomacy and climate and tech competition will combine with longstanding frictions in other areas to further complicate their rivalry. Disagreements over trade, Hong Kong, Taiwan, and the South China Sea will carry over into 2021. Collectively, these points of dispute will boost the risk of miscalculation and escalation toward crisis.

#5 – Global data reckoning

A slowdown or halt to the free flow of sensitive data across borders will raise costs for companies and disrupt popular apps and internet business models. This risk begins with the US and China, but it doesn't end there. Even as the data-driven 5G and AI revolutions gain steam, other governments concerned about who is accessing their citizens' data—and how—will erode the foundation of the open global internet. Business models for AI and other innovative tech sectors will suffer. App bans and other issues will hamper global cooperation on public health and climate challenges.

#6 – Cyber tipping point

There is no single factor that raises the risk of a major disaster in cyberspace in 2021. The digital realm, where any computer or smartphone can become an entry point for hackers and nation states, and criminals act with relative impunity, is too unpredictable for that. Instead, a combination of low-probability but high-impact risks and inexorable technology trends will make 2021 the year that cyber conflict creates unprecedented technological and geopolitical risk in cyberspace.

#7 – (Out in the) cold Turkey

Economic setbacks in 2021 and Turkey's poor Covid response will leave President Recep Tayyip Erdogan struggling to win back voters disillusioned with his two-decade rule. These dynamics will stoke social tensions, prompt a crackdown against the opposition, and encourage Erdogan to launch more foreign policy adventures to fuel nationalism and distract his supporters. But this year, Turkey's president won't have international friends to shield him from the consequences.

#8 – Middle East – low oil takes a toll

Energy-producing countries in the Middle East and North Africa faced a collapse in global energy demand in 2020 that left governments from Algeria to Iran with less cash flowing into their coffers—even as the pandemic sickened citizens and weakened economies. 2021 will be worse, because energy prices will remain low. Many of these governments will cut spending, damaging vulnerable private sectors and fueling unemployment. Reforms will slow, and protests will grow.

#9 – Europe after Merkel

Angela Merkel's departure later this year after 15 years as chancellor will drive the continent's top risk in 2021. Europe faces an economic hangover from intensified lockdown restrictions in several countries, and Merkel won't be there to encourage flexibility in the multilateral response. Without the German leader to serve as a strong and neutral negotiator, diplomatic efforts to resolve energy and territorial disputes in the Eastern Mediterranean will struggle, as will the UN process to address Cyprus issues. The EU position will become more hawkish as France pushes more member states to get tough with Turkey, raising the odds of diplomatic rupture.

#10 – Latin America disappoints

Governments in Latin America face intensified versions of the formidable political, social, and economic problems they were confronting before the pandemic. There will be no large-scale vaccinations until late in the year, and countries are poorly positioned to deal with another Covid wave before then. Political and economic pressures will intensify as Argentina and Mexico hold legislative elections in 2021, and voters in Chile, Ecuador, and Peru vote for president.

Red Herrings

Trump's friends in trouble – Trump-friendly leaders such as Erdogan, Brazil's Jair Bolsonaro, the UK's Boris Johnson, and Israel's Binyamin Netanyahu will engage with the new US president where they can.

Techlash in US – US lawmakers won't declare war on the tech companies helping to restore post-pandemic growth.

Iran-US confrontation – Ties between the US and Iran will be neither as productive nor destructive as many fear.

About Eurasia Group:

Eurasia Group is the world's leading global political risk research and consulting firm. By providing information and insight on how political developments move markets, we help clients anticipate and respond to instability and opportunities everywhere they invest or do business. Our expertise includes developed and developing countries in every region of the world, specific economic sectors, and the business and investment playing fields of the future. With our best-in-class advisory and consulting offerings and GZERO Media, the Eurasia Group umbrella provides the marketplace with a complete political risk solution. Headquartered in New York, we have offices in Washington, London, San Francisco, Brasilia, Sao Paulo, Singapore, and Tokyo, as well as on-the-ground experts and resources in more than a hundred countries. "Politics first” grounds our work: Politics is the lens through which we view the world, and we are committed to analysis that is free of political bias and the influence of private interests.

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