Persistent political instability around the world poses significant risks to the global economy.
One of the most serious challenges the world has faced in recent years was the Covid-19 pandemic. The crisis, triggered by government-imposed restrictions in most countries, led to a 3.2% decline in global GDP. The global economy has yet to fully recover from the pandemic’s aftermath.
Economic turbulence continued through 2022 and 2023, and it shows no signs of abating in 2024. According to expert forecasts, we shouldn’t expect significant economic growth or a substantial slowdown in inflation in the near future.
The main challenges of 2024 include local conflicts in various parts of the world that cause economic instability; tensions between China and the United States; and the upcoming presidential election in America this November.
The U.S.-China Trade Standoff: A Deepening Economic Conflict
The economic clash between Beijing and Washington didn’t start yesterday. During his first term, President Donald Trump significantly raised tariffs on Chinese imports, accusing China of dumping goods and aggressively expanding into international markets.
In response, China imposed new export restrictions in 2023, requiring special government permits for technology exports to Western countries. These controls affected germanium and gallium, essential for computer chip production, certain types of graphite, and technologies for extracting and refining strategic materials crucial for electric vehicle production.
In May 2024, President Joe Biden announced a substantial increase in tariffs on a range of Chinese goods, citing the same rationale—protecting American manufacturers from China’s dumping practices. These tariffs primarily targeted electric vehicles, a market segment where Chinese manufacturers dominate global demand, including in the U.S.
The new tariffs on Chinese electric vehicles were set to rise to 100% starting August 1, 2024, but the U.S. Trade Representative postponed their implementation. Additionally, plans are in place to raise tariffs on Chinese aluminum and steel to 25%. In 2025, tariffs on semiconductors will increase to 50%, and in 2026, tariffs on natural graphite and permanent magnets will reach 25%. Further hikes on medical goods are also anticipated.
Biden’s decision was part of his re-election campaign, from which he quickly withdrew. Entering the presidential race, Donald Trump, a long-time adversary of China, announced in July that he would also raise tariffs on all Chinese imports, ranging from 60% to 100%, if he were elected.
The U.S.-China trade wars could significantly impact global trade, potentially slowing it down. The U.S. continues to express concern over China’s excessive production capacity, which has negative repercussions for the global economy. Meanwhile, China, facing overproduction in several sectors, urgently needs to expand its foreign trade.
One of Washington’s clear objectives is to prevent Beijing’s rapid technological advancement, particularly in the military-industrial sector. Amid this economic standoff, fears of a U.S.-China conflict over Taiwan are intensifying, further escalating global geopolitical tensions.
Military Conflict in Gaza Strip
The Palestinian-Israeli conflict, which erupted into full-scale violence last October, has introduced another layer of instability to the global economy. By the fall of 2023, Israel’s economy had already suffered a significant blow, with nearly 8% of its active workforce being conscripted into the military. Economic decline continued into early 2024, with the country’s GDP dropping by 20%.
Analysts are raising alarms about the potential for a broader conflict in the Middle East in the medium term. A direct confrontation between Israel and Iran is considered the worst-case scenario. Such a conflict could trigger a massive spike in oil prices, wreaking havoc on the global energy market.
Another potential driver of a sharp increase in oil prices could be a significant reduction in Russian oil supplies. This could occur if sanctions leave Russia with fewer markets for its crude. A scenario where oil prices soar to $150 or even $200 per barrel would be detrimental to both consumers and suppliers, as such high prices would stifle demand and lead to a substantial downturn in the global economy.
Red Sea Shipping Disrupted by Houthi Attacks
One of the immediate repercussions of the Gaza conflict became evident by the fall of 2023. Commercial vessels in the Red Sea began facing attacks from Yemeni Houthi rebels, who support the Palestinian group Hamas. The Red Sea and the Suez Canal are critical trade routes, traditionally seeing nearly 20,000 ships pass through annually. Due to the Houthi attacks, the number of container ships transiting the Suez Canal weekly has plummeted by almost 70%.
The ongoing threat from Houthi attacks has forced major shipping companies to reroute their vessels around the Cape of Good Hope. This detour has led to longer shipping times and significantly higher costs. Additionally, insurance premiums for maritime transport have surged, driving up freight costs.
The impact of these logistical changes and increased shipping expenses is inevitably passed down to consumers through higher prices for goods. The instability in this region is particularly detrimental to China and European countries, which rely heavily on the Suez Canal for their trade routes. If this instability persists, its effects could ripple across the globe, affecting a substantial portion of the world’s population.
The Russia-Ukraine Conflict
One significant source of global instability has been the conflict that erupted in the heart of Europe in February 2024 — between Russia and Ukraine. Now in its third year, the conflict continues to impact both the Russian and global economies.
The European Union and the United States have imposed extensive sanctions against Russia. Major Russian banks have been cut off from the international SWIFT payment system. A large number of Western companies have exited the Russian market. The export of critical technologies essential for economic development to Russia has been halted, delivering a severe blow and forcing Russia to turn to China as a strategic trading partner.
In the summer of 2024, sanctions extended to the Moscow Exchange, resulting in the cessation of euro and U.S. dollar trading on the exchange. The exchange of «unfriendly» currencies continued on the over-the-counter market. Sanctions against the Moscow Exchange created additional challenges for importers.
However, the situation with imports into Russia had already significantly worsened earlier in 2024, following the introduction of secondary sanctions by the U.S. Treasury for aiding the Russian military-industrial complex. Financial institutions from third countries conducting transactions for Russian companies involving dual-use goods also faced the threat of being added to sanctions lists.
Russian businesses experienced serious issues with payments to China, as banks in the People’s Republic of China, fearing secondary sanctions, significantly restricted transactions.
All of this inevitably led to a decline in imports from China and an increase in the cost of goods imported into Russia.
The European economy has also suffered over the more than two years of military actions in Ukraine. A price cap on Russian oil was introduced, set at $60 per barrel. The European Union, G7 countries, and Australia agreed not to purchase Russian oil at higher prices.
The reduction in imports of Russian energy resources to European countries has negatively affected the overall condition of the European economy. The loss of cheap energy supplies from Russia has led to a prolonged downturn in the manufacturing sector of the Eurozone and widened the gap between the economies of the United States and the European Union, with the latter showing slower growth.
The European Commission forecasts a 1% growth in the EU economy in 2024, which is relatively positive compared to the 0.4% growth in 2023. However, some European politicians believe that Europe needs much more robust economic growth.
The Upcoming U.S. Elections: A Pivotal Moment
It’s not just military conflicts that are causing global unease; the upcoming U.S. elections are also sparking anxious anticipation. Analysts believe these elections will not only determine the balance of power in Congress but could also influence the outcomes of conflicts in Gaza and Ukraine. The uncertainty tied to the U.S. elections will only be resolved in January 2025, when the newly elected president is inaugurated.