Global Tensions Far From Over, Despite the Calm

Alan Penny

13 January 2020

3 min read

fist bump between boxing gloves depicting US and China flag

  • US and China to sign “Phase 1” this week
  • US-Iran calm, but still have major issues

Over the last month or so, there has been tension around the world: a simple extension of what has been the case for most of the year. Because of this, the markets have been very volatile, but recently the United States and China have come to terms, at least in theory.

Meanwhile, the Americans and the Iranians have eased the threat of a shooting war. However, there are still very significant fundamental issues out there that could flare up.

US-China relations

The heralded “Phase 1 deal” between the United States and China will be signed this week. While that is a positive development, the reality is that it is probably already baked into the market. There has long been an assumption that the two nations would eventually come together for some type of “skinny deal”, which is essentially what we are looking at.

The Chinese are about to have another year like last year

However, once the negotiators get past the idea of simple purchases of agricultural products and opening up the Chinese market, things will become much more difficult. After all, the Chinese are dealing with swine flu, and although they have been buying more soybeans from places like Brazil, there is no way for them to get enough produce without dealing with the US.

This is something that even Donald Trump has admitted, suggesting that “Phase 2” could come “after the election.” This will involve tougher issues such as intellectual property, something that the Chinese certainly have an interest in now that they are starting to produce their own high-end software, AI, and the like.

For years, the Americans have railed against the Chinese for IP theft, something that is rampant. Although things have calmed down for the moment, it’s very likely tensions will flare up again during the year. This will be especially true if Trump decides that he needs to rally his base, which is decidedly anti-Chinese. Furthermore, this is one of the few areas of agreement with the Democrats. The Chinese are about to have another year like last year.

US-Iran situation

While it is true that the Iranians did more of a face-saving operation than anything else in reaction to the assassination of General Soleimani, the reality is that the underlying issues are still there.

One of the things that is helping the tensions calm down right now is that the Iranians are suddenly dealing with quite a bit of internal turmoil, as there are massive protests over the military shooting down a Ukrainian airliner.

It’s very likely that, with the United States adding more sanctions over the last couple of weeks, the Iranians will continue to be very hostile towards the American regime. And if the last 40 years are any indication, not much will change this year.

While we may have avoided a larger-scale shooting war, there will still be various attacks. There have already been several smaller-scale rocket attacks lately, showing that some of the proxy fighters that Iran backs are still very much active.

Tensions ahead in 2020

Going forward, it’s very likely that the market will continue to see a lot of tensions between all participants. Therefore, 2020 will more than likely be very much like 2019.

With that in mind, volatility should continue to be a major issue for traders and investors around the world.

Written By
Alan Penny

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