One thing I should start off with saying, is the fact that in the early days, you would never see the United States on this list because the US had political institutions that were very strong, and leadership that was pretty unquestioned inside the country. And so whether that was for good or for bad, and of course, depending on the issue, you’re talking about, people have different views across the board there, but, nonetheless it wasn’t driving uncertainty and risk. The risks were either about broad geopolitical conflict emanating from the Middle East, or sort of, China, you name it. Or it was about country risk from individual developing countries and you know, the rest.
These days, increasingly the United States is not only on the list, but it’s a fundamental driver of risk. And that is because the level of uncertainty, politically in the US is so great. The US today remains like it was when I started the firm in 1998, by far the most powerful country in the world. Indeed, the percentage of the United States and global GDP today, compared to 1998, is about the same. Europe and Japan have gone down. China’s gone up. The US is pretty constant. And US power, military power, technological power, the role of its educational institutions, its energy production, its food production, its reserve currency, its banking system, I mean, these are all incredibly powerful. And yet, the United States is by far the most politically divided of the G7 economies. And as a consequence, its election process is increasingly seen as illegitimate.
I was literally stunned to see just this morning, a poll come out from NPR and Ipsos, that some 64% of Americans believe that US democracy is in crisis, and might indeed break. It’s inconceivable in 1998 you’d have a number remotely close to that. It’s inconceivable in 2001, after 9/11 attacks, that you would see anything remotely like that. But of course, in just a couple of days, on January 6th, we will see a response to a domestic US crisis, that does not bring the country together, but rather divides it more fundamentally. And that of course, is also true when we think about the US elections going forward, the midterms, where the former President of the United States has control of the Republican Party, and doing everything possible to take control of those that are able to certify 2024 elections. Secretaries of State in swing states, Governors in swing states, and of course, both the House and the Senate. This will be the most important midterm elections of our lifetimes, as a consequence.
And while it will not itself immediately drive a crisis, if the outcome is as expected, it will make 2024, a political crisis in the United States. One that both sides of the political spectrum will increasingly see as delegitimized. Very hard to stitch that together easily. So that’s a big concern, and that’s a big change from what we had before.
Another big change of course, is the pandemic, but this is a better news story. In the sense, that increasingly in much of the world, we are shifting towards living with the virus. Some of that is being driven by science, by the fact that we have a new variant that is very infectious, but is not as deadly. And as a consequence, is not as much of a problem for people that end up getting infected by it. But also, the backdrop in wealthy countries, far more vaccinated, far more boosted, and increasingly therapeutics, that will allow you, if you get tested quickly, to respond very effectively to a COVID case, and not be hospitalized. In the wealthy world, that means within weeks, we are moving from this explosive caseload, to life that feels much more normal than at any point in the last two years.
The problem, China. China is not moving towards living with the virus. In fact, they’re moving towards harder, zero-COVID policies, that worked incredibly well, best in the world, among a large economy, back two years ago when the pandemic started out of China. And allowed them to get their economy back up and moving faster than anybody else. But in 2022, it’s the least effective policy, in responding to a different pandemic, the omicron pandemic, which is much, much more transmissible, and the Chinese vaccines don’t work well against it at all. Furthermore, few people in China have gotten COVID, so their antibody levels are low.
And, the fact that this is all about Xi Jinping, saying, this is our policy, at a time that he’s about to get a third term, means he’s not going to back away from it. So, you’re going to have a policy that is going to lead to far more lockdowns, will lead to much more dislocation, will create more supply chain challenges. And, with China as the country that was the most important driver of global economic growth before the pandemic, is increasingly a big uncertainty in 2022. It’s also a diplomatic problem for China, because Xi Jinping has not left China, since January of 2020. And yeah, that makes it harder for China to influence countries and create stability in its relations with countries all over the world. So this is going to be a really tough one for China. The good news that comes out of that story, is China’s not looking for a crisis with the Americans this year, certainly not before Xi gets a third term, and the US administration understands that.
So despite the fact that politics are increasingly driving nationalism, because it’s expedient in both countries, the reality is that the economic interdependence of that relationship, is doing more of the driving in 2022. So no big crisis over Taiwan, no US-China Cold War. But instead, big problems, because the Americans are very domestically focused, the Chinese are very domestically focused, and there’s lots of dysfunction in both places. I’d much rather be the Americans economically, than the Chinese. I think that from an authoritarian perspective, you’d much rather be the Chinese politically this year in terms of stability, than the United States. But both are deeply problematic, when we think about the global environment going forward.
Now, a couple more points I would raise. Russia is high on the list this year. And that’s because, unlike the US-China relationship, President Putin sees opportunity in both, the level of division, and the vulnerability, especially of the Europeans, in the next coming months. They need energy, and the Russians see an opportunity to change the status quo, in their relationship with Ukraine, as well as the European security environment.
It’s very interesting in the last few hours that Olaf Scholz, the German Chancellor came out and said, he wants a meeting with Putin. Let’s see how that goes. It has the potential to be difficult. Because it may not be completely aligned, with that of the United States. Will be very important. It’s not that Putin is about to invade Ukraine. I think that’s actually quite unlikely. But, the possibility of the Putin administration, deciding that they’re going to take action against the Ukrainians committing genocide, as they say, which is false, against Russian citizens in the Donbas. What if they formally annex it? What if they move troops in? Will the Europeans support the kind of sanctions the Americans are talking about then, I don’t think so. And yet, Biden will be in a very vulnerable position, if his bluff has been called, and he’s not able to stand up in a multilateral way, to the Russians, and Putin surely knows that.
Putin is not going to make this easy for Biden. Easy for Biden would be sending troops, Russian troops into Ukraine, and taking more territory, overturning the Ukrainian government. That is not the likely outcome. But short of that, especially with asymmetric warfare capacity, something that Putin is very capable of doing, and very aware, those are possibilities. So, I think that’s a danger too.
Plenty to chew on, in this. I hope you take a look at it. Feel free to send me questions. And I hope everyone’s doing well. Take it easy. Talk to you soon.