Illustration: Natalie Peeples/Axios
The world’s wealthiest economy — with the deepest and most liquid market — is a riskier place than it used to be for investors. And politics is a big reason.
Why it matters: “Political risk” is an investment thesis used to evaluate developing economies with histories of weak governance and social instability. . .
Yes, but: Clayton Allen, U.S. director at Eurasia Group, explained to Axios in an email that, “for domestic investors, there would seem to be little reason to change the way they perceive the U.S. relative to the rest of the world."
- The world is becoming more volatile, but the U.S.' relative strength in institutions…means that this is still the first option for investment,” he said.
- “The same dynamic looks different when you are looking at the U.S. from the vantage point of an increasingly destabilized and decentralized world, and even a less stable U.S. likely appears more attractive as a haven from global trends than other markets.”
The bottom line: For all its flaws, the U.S. is still what most investors consider the cleanest dirty shirt in a global economy wracked by instability. That said, “it does mean that investors must consider political risk more heavily in the context of the U.S. than they have in decades, perhaps ever,” Allen says."
From Ukraine to Myanmar, These Are the Conflicts to Watch in 2022
"After a year that saw an assault on the U.S. Capitol, horrific bloodshed in Ethiopia, a Taliban triumph in Afghanistan, great-power showdowns over Ukraine and Taiwan amid dwindling U.S. ambition on the global stage, COVID-19, and a climate emergency, it’s easy to see a world careening off the tracks.
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But maybe one could argue things are better than they seem.
After all, by some measures, war is in retreat. The number of people killed in fighting worldwide has mostly declined since 2014—if you count only those dying directly in combat. According to the Uppsala Conflict Data Program, figures through the end of 2020 show battle deaths are down from seven years ago, mostly because Syria’s terrible slaughter has largely subsided.
The number of major wars has also descended from a recent peak. Despite Russian President Vladimir Putin menacing Ukraine, states rarely go to war with one another. More local conflicts rage than ever, but they tend to be of lower intensity. For the most part, 21st-century wars are less lethal than their 20th-century predecessors.
A more cautious United States might also have an upside. The 1990s bloodletting in Bosnia, Rwanda, and Somalia; the post-9/11 Afghanistan and Iraq wars; Sri Lanka’s murderous campaign against the Tamils; and the collapse of Libya and South Sudan all happened at a time of—and, in some cases, thanks to—a dominant U.S.-led West. That recent U.S. presidents have refrained from toppling enemies by force is a good thing. Besides, one shouldn’t overstate Washington’s sway even in its post-Cold War heyday; absent an invasion, it has always struggled to bend recalcitrant leaders (former Sudanese leader Omar al-Bashir, for example) to its will.
Still, if these are silver linings, they’re awfully thin.
Battle deaths, after all, tell just a fraction of the story. Yemen’s conflict kills more people, mostly women and young children, due to starvation or preventable disease than violence. Millions of Ethiopians suffer acute food insecurity because of the country’s civil war. Fighting involving Islamists elsewhere in Africa often doesn’t entail thousands of deaths but drives millions of people from their homes and causes humanitarian devastation.
Afghanistan’s violence levels have sharply dropped since the Taliban seized power in August, but starvation, caused mostly by Western policies, could leave more Afghans dead—including millions of children—than past decades of fighting. Worldwide, the number of displaced people, most due to war, is at a record high. Battle deaths may be down, in other words, but suffering due to conflict is not.
Moreover, states compete fiercely even when they’re not fighting directly. They do battle with cyberattacks, disinformation campaigns, election interference, economic coercion, and by instrumentalizing migrants. Major and regional powers vie for influence, often through local allies, in war zones. Proxy fighting has not so far sparked direct confrontation among meddling states. Indeed, some navigate the danger adeptly: Russia and Turkey maintain cordial relations despite backing competing sides in the Syrian and Libyan conflicts. Still, foreign involvement in conflicts creates the risk that local clashes light bigger fires.
Standoffs involving major powers look increasingly dangerous. Putin may gamble on another incursion into Ukraine. A China-U.S. clash over Taiwan is unlikely in 2022, but the Chinese and U.S. militaries increasingly bump up against each another around the island and in the South China Sea, with all the peril of entanglement that entails. If the Iran nuclear deal collapses, which now seems probable, the United States or Israel may attempt—possibly even early in 2022—to knock out Iranian nuclear facilities, likely prompting Tehran to sprint toward weaponization while lashing out across the region. One mishap or miscalculation, in other words, and interstate war could make a comeback.
And whatever one thinks of U.S. influence, its decline inevitably brings hazards, given that American might and alliances have structured global affairs for decades. No one should exaggerate the decay: U.S. forces are still deployed around the globe, NATO stands, and Washington’s recent Asia diplomacy shows it can still marshal coalitions like no other power. But with much in flux, Washington’s rivals are probing to see how far they can go. . .
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