Elections in the US, Taiwan and South Africa are among key contests that could have outsized impacts on the global economy and emerging market investments.
Geopolitical risks to the global economy are inherently difficult to anticipate and measure, but this year’s global elections represent a clear runway of risk events that could redraw the geopolitical map. Over half of the global population go to the polls throughout 2024 to decide the fate of countries that represent over 60% of the world’s economic output. But it’s not just the numbers, many of the elections represent hotly contested fights for very different ideological futures.
Instability in the Taiwanese strait
Taiwan has already seen such a contest in its January elections, when Lai Ching-te won an unprecedented third term for the Democratic Progressive Party (DPP). Lai has promised to continue to resist attempts by China to annex the region. Yet although the DPP retained the executive branch, it lost the legislature. Its mandate for independence seems to have lost some momentum, as it scored the lowest vote share in the last 20 years, after a 13 percentage point swing to the opposition, who favor a more friendly relationship with mainland China.
Heightened risk in the Taiwanese strait has been on everyone’s risk scenario board since China moved to tighten its hold on Hong Kong in the last five years. The Economist Intelligence Unit (EIU), for example, has a China-Taiwan conflict as a “low probability, high-impact" risk for this year, noting a number of knock-on effects if tensions rise[1]. War is relatively unlikely at this juncture, but it would come at severe cost to global stability, involving at least military forces from the U.S., Australia, South Korea, and Japan as well as China and Taiwan.
In the event of conflict, or indeed in the build-up, economic sanctions such as those employed against Russia could be used by the US and EU against China. This would be particularly disruptive to global supply chains, as China and Taiwan are crucial for the production of semiconductors. China might also retaliate by blocking important exports, such as the rare earth minerals that are critical for technology and clean energy manufacturing.
Which U.S. president will get a second term?
The U.S. has a careful line to walk in relations with China, but it will also be campaigning at home. Americans head to the polls in November in what’s increasingly looking like a rematch between sitting U.S. President Joe Biden and former president Donald Trump. Normally U.S. presidential candidates intensify the discussion about China in the six months leading up to the election, so there’s an expectation that noise will rise accordingly.
This could take the shape of upsetting U.S. global alliances or agitating the world’s economic institutions, playing out in further tariff wars. Miscalculation risks would certainly rise between Beijing and Washington, which makes it much harder to predict the behavior of geopolitical swing states, such as Saudi Arabia and India. A Trump presidency would also inject further uncertainty and thus increase global market volatility.
For global economics, and particularly emerging market investment, volatility between China and the U.S. coupled with instability at home in America are key risks as they could affect the trajectory of U.S. Treasuries. These are notoriously difficult to predict, but increased political uncertainty will certainly figure into forecasting.
Elections in the wider world
South Africa is facing what could be a pivotal moment in its history, as the long-ruling African National Congress (ANC) may lose its majority backing, forcing it to enter a coalition which could either step up or down reform momentum. The ANC has ruled since the end of apartheid in 1994 but has faced charges of corruption as promised change has failed to materialize in the country. In the last few years, this has become physically symbolized by rolling power-cuts known as ‘load-shedding’, driven by years of corruption and theft at the state-owned energy firm Eskom.
Finally, India and Indonesia will also vote in a general and presidential election respectively in mid-2024, though both are likely to result in policy continuity and have little impact beyond domestic affairs.
[1] https://www.eiu.com/n/wp-content/uploads/2023/10/EIU-Risk-outlook-2024.pdf
