OBSERVATION: What Awaits in 2020 - Watch Out for These Black Swans

Here are the top 20 black swan incidents that are most likely to disrupt global economies and international relations in the new year.

Xu Wu
    Dec 25, 2019 3:00 PM  PT
OBSERVATION: What Awaits in 2020 - Watch Out for These Black Swans
author: Xu Wu   

The year 2020 will be written into the annals of history as a turning point that disrupts the past.

After a prolonged trade war between China and the United States, both sides have swallowed the bitter fruit and saw that the world economy suffered huge and perhaps irreversible pains and costs.  

In the new year, a dozen countries or regions will hold elections to choose their leader. Among them, the U.S. presidential election bears the most significance both in itself and to the rest of the world. Already marked by impeachment, scandals and conflicts, the upcoming U.S. election has the potential to usher in a nasty constitutional crisis.

From the perspective of Western astrology, 2020 will be the starting point of three major planetary conjunction cycles. These include Saturn, a sign of crisis and warning, and Pluto, a sign of control and turbulence. The last time this multi-planetary conjunction occurred within one year was from 1881 to 1882, over 100 years ago.

In 2020, the globalized trains that have been advancing rapidly for more than 30 years after the Cold War will decelerate and may even derail quickly, entering a slow path of economic protectionism. Meanwhile, after two years of suspicion and hostility, the public sentiment in China and in the United States may slide irreversibly towards the ice-cold cave. The ultimate severing of Sino-U.S. relations is based not on rational analysis and thoughtfulness, but more on collective irrational impulses as well as the wild spirit of animals.

As the former U.S. Secretary of State Henry Kissinger warned at the just-concluded Beijing Innovation and Economic Forum, the separation between China and the United States, if not resolved, will have more negative consequences than the two World Wars that ravaged the world in the 20th century.

A Western proverb says: "No snowflake in an avalanche ever feels responsible." Similarly, the old Chinese saying goes, "How can you find an intact egg in a dropped bird's nest?" For many companies facing the ever-changing market at any given time, it is no longer enough to simply talk about the public relations doctrine of "reviewing the current situation and preparing for the future." It is necessary and even mandatory for all the corporations to apply the most cautious attitude to assess the worst-case scenarios and carry out the most extreme stress test, as well as to be ready to deal with that black swans flying out from different corners.

Below, based on the geopolitical transitions in the world, as well as the circumstantial conditions and subjective speculations, the author of this observation lists the top 20 black swan incidents that are most likely to disrupt global economies and international relations in 2020. The rank order reflects not only the probability of a crisis but also the actual consequences caused by its actual occurrence.

Of course, no one can truly predict the future, let alone pin down these devastating events fairly within the 366 days of the coming year. As the famous American baseball player, Bella, said, "It's tough to make predictions, especially about the future." In view of this, the following 20 crisis scenarios are not meant to scare people, but to send some early warnings with a kind heart.

Twenty Foresights

1. The Sino-U.S. trade war continues to worsen. On top of the increased tariffs, the governments on both sides begin to punish each other's business entities. At the same time, consumers in both countries begin to boycott each other's products on a large scale. In addition to the high-tech companies, the consumer goods and services sectors of both countries also get involved in the intensifying trade war.

2. The turbulent situation in Hong Kong has not substantially eased, the economy is in recession and people are full of grievances. After the withdrawal of a large number of international funds from Hong Kong, the Hong Kong dollar and Hong Kong stocks have crashed, causing property prices to plummet, and the wave of financial crisis spreads to the rest of the world.

3. Days after the New Year 2020 celebrations, North Korea announces that it will suspend nuclear negotiations with the United States and restart nuclear tests and strategic missile tests. The Trump administration announces stricter comprehensive sanctions and freezes all banks and financial institutions dealing with North Korea. Many Chinese banks are put on the list of sanctions and their normal operations suffer tremendously as a result.                          

4. The global economic recession caused by the trade war erupts in the first wave of the negative impact in the spring. The global market, led by the U.S. stock market, experiences an instant "flash crash" similar to the one that occurred in 1987. Global stock markets and bond markets plummet within a short period of time, which triggers a new round of global financial crisis.           

5. Trump's impeachment proceedings create a constitutional crisis in the United States, which leads to a stalemate between the two parties. As a result, the government is closed down. Meanwhile, to rally voters, presidential candidates from both parties sharpen their attacks on China. The United States and China are moving toward a total decoupling, even a cold war.       

6. Against the background of the stalemate in the Sino-U.S. trade war, the U.S. Congress and federal agencies pass bills prohibiting U.S. pensions and federal government funds from investing in "Chinese stocks" and companies with Chinese backgrounds. Chinese companies listed in the U.S. stock market must disclose their government-connections, and many face penalties and risks of delisting.

7. Deutsche Bank is found to have deliberately covered up large losses, rendering it essentially insolvent, and it is on the verge of bankruptcy. The subsequent interbank chain reaction resembles the Lehman Brothers collapse of 2008. The Federal Reserve and the European Central Bank launch emergency mechanisms to stabilize international financial markets, but with limited results.

8. The out-of-control repo rate of U.S. interbank borrowing in September 2019 will reappear in mid-2020. Although the Federal Reserve once again injects funds into the market, it will not be able to stabilize interest rates in the short term. Within a few days, a number of international banks experience shortages of funds and run-outs, and the international financial market is instantly frozen.

9. There is a fierce conflict between the navies of the United States and China in the South China Sea, which leads to major incidents of ship collision and casualties. Both sides blame the other for wrongdoing. The United States dispatches a couple of aircraft carrier battle groups to the South China Sea, and China and the United States are on the verge of a hot war. International trade routes through the South China Sea have been greatly affected.

10. Iran's domestic turmoil has developed into a national riot under the intervention and provocation of the United States. To retaliate, the Iranian government announces the blockade of the Persian Gulf and the international oil price spikes over $100 per barrel in an instant. However, neither side retreats and the Middle East is once again mired in terrorism and turmoil.  

11. The abrupt climate change in the second half of 2019 causes global food and meat shortage in 2020. The swine fever epidemic in China has spread to other Asian nations. Rising prices bring in huge inflation, which leads to a sharp fall in housing prices and a series of social unrests.           

12. Brexit finally came to fruition after several delays, but its negative impact on the British and EU markets gradually becomes salient. The pound falls sharply, and the European Central Bank tries again to boost the economy through quantitative easing and negative interest rate policies, but the actual effect is limited. The German and French-based EU economy is falling into a deep recession.

13. After the Taiwan election in 2020, the Democratic Progressive Party (DPP) holds onto its power. Under the influence of the U.S. and encouraged by the Hong Kong protests, Taiwan leaders publicly abandon the "One China Consensus" and move towards the road of Taiwan independence. The mainland China deploys military forces to block Taiwan's maritime passages, which leads to the confrontation of Sino-U.S. military forces in the East China Sea.

14. The over-expanded federal government debt of the United States ($23 trillion) has caused international markets to sell U.S. treasury bonds; the intervention of the Federal Reserve has not dispelled concerns about the financial status of the U.S. federal government in the international and domestic markets. As a result, the U.S. stocks and global financial markets enters a downward spiral.         

15. The wave of "anti-globalization" populism will sweep the world in the spring and summer of 2020; including France, Britain, Chile, Venezuela, Egypt, Spain, Lebanon, Iran and other countries, there will be large-scale anti-government and anti-globalization demonstrations. Chinese-funded enterprises and foreign agencies become are targeted in this wave of attacks.            

16. The result of the 2020 U.S. presidential election is a stalemate. Although Trump loses to the Democratic opponent by a small margin, Trump discredits the legitimacy of the election results and refuses to yield the presidential power. During the U.S. Supreme Court ruling process, large-scale riots and attacks swarms the country, and the United States falls into the most chaotic period since the Civil War.

17. Because of major constraints on issues of Hong Kong, Taiwan, North Korea and others, China and the United States have been unable to reach an understanding and reconciliation through diplomatic means. In the context of the trade war, the United States begin to weaponize the SWIFT system to cut China off the U.S. dollar transaction settling platform. The financial war between China and the United States has officially started. 

18. Before the 2020 Taiwan elections, the United States sells a large amount of weapons to Taiwan and sends high-level government officials to publicly stand with the Taiwan Democratic Progressive Party (DPP). When China's repeated warnings fall to deaf ears, China activates the Anti-Secession Law, effectively drawing a red line with the United States on the Taiwan issue. The Sino-U.S. bilateral relations deteriorate toward open hostility. 

19. Europe's immigration and refugee crisis intensifies once again in 2020, causing massive xenophobia outcries in several countries; at the same time, a wave of terrorist attacks exacerbates heightened hostility among ethnic and religious groups. Overseas Chinese groups and Chinese-funded institutions become easy targets as well.                

20. An epic natural disaster (i.e., California earthquake) or an assassination of a major world leader (U.S., Russia, etc.) has instantly dampened the prospect of a global economic recovery and unraveled the international relations, making 2020 a watershed period in human history.

Let us wait and see how many of the 20 seemingly fledgling ducklings can grow into flying black swans.

Let us revisit this list at the end of 2020.