DDN Business Insider | New challenges on global economy to rise in second half of 2024 as geopolitical risks intensify

Editor's note: Recently, the international situation has been turbulent, with Ukraine counterattacking Russia and tensions rising in the Middle East. Geopolitical factors continue to impact the global economy. Will this become the most significant uncertainty factor for global economic development in the second half of the year?

【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. Recently, the international situation has been turbulent, with Ukraine counterattacking Russia and tensions rising in the Middle East. Geopolitical factors continue to impact the global economy. So, will this become the most significant uncertainty factor for global economic development in the second half of the year? To discuss this topic, we have invited Professor Wang Yong, International Relations at Peking University and Director of the Peking University Center for American Studies, renowned economist Song Qinghui, and Professor Wang Yiwei, from the School of International Relations at the Renmin University of China to provide their insightful analysis. Hello everyone!

The Russia-Ukraine crisis and the Middle East crisis are arguably the two most closely watched geopolitical events in recent years, with far-reaching consequences for the global economy. So, first, I'd like to ask Professor Wang, what do you think are the reasons behind the renewed tensions in both the Russia-Ukraine and Middle East situations recently?

The Russia-Ukraine crisis and the Middle East crisis have been two major geopolitical crises in the past couple of years, and arguably they have had a significant impact on the global geopolitical landscape. The Russia-Ukraine crisis and the situation in the Middle East overlap and intertwine with each other. It has a profound impact on the geopolitical and economic landscape of the entire world.

There are several reasons for this. One is the upcoming US elections, which are undoubtedly linked to both crises. The Russia-Ukraine crisis, as well as the situation in the Middle East, particularly in Gaza, involves US foreign policy, specifically the foreign policy of the Biden administration. In this regard, the US is hoping to gain a certain advantage on the battlefield in Ukraine, which has led to the recent escalation in the Russia-Ukraine conflict.

These situations are very complex and intertwined. This is a major reason why the current crises are further escalating.

Yes. So, Mr. Song, what do you think are the main driving forces behind these recent geopolitical events?

The current geopolitical turmoil has numerous underlying causes. From an economic perspective, the underlying reason lies in the global economy's pervasive uncertainty. Simultaneously, several nations are grappling with internal and external challenges, such as rising unemployment and escalating social inequality. These issues are potentially contributing directly to political instability and social unrest in certain countries and regions.

What further developments or changes do you predict in the geopolitical landscape for the second half of the year, and how might these changes impact the global economy?

I anticipate three key changes in the geopolitical landscape in the second half of the year.

First, the frequency of "grey rhino" and "black swan" events is likely to increase further. Geopolitical confrontation, the trend of economic insecurity, and the trend toward the weaponization of international key industry chains will further intensify, leading to a further setback in the momentum of global economic recovery.

Second, conflicts in certain regions will spill over to the international level, increasing the security risks for the global economy.

Third, the challenges of fragility and uncertainty the global economy faces will continue to increase. In particular, the US's abuse of sanctions and long-arm jurisdiction, coupled with the reshaping of the international trade and investment landscape, could lead to adverse structural changes in the global economy.

Okay. So, Professor Wang, what new developments or trends do you anticipate in the Russia-Ukraine and Middle East situations in the second half of the year? How can we proactively predict and respond to it?

I believe both crises, the Russia-Ukraine conflict and the Middle East crisis centered around the Arab-Israeli conflict, especially the crisis led by the Iran and Israel relationship, show no signs of resolution. In fact, there is a greater possibility of a larger conflict erupting at some point due to assassinations of leaders.

The Russia-Ukraine conflict might also see a dramatic shift, as the normal situation is currently seeing a significant change. Previously, Russia held the upper hand on the battlefield. Ukraine now is making significant breakthroughs in speed, which put immense pressure on Russia.

It seems that these two crises will persist without resolution in the second half of the year, especially considering the US domestic political landscape. I think the US factor could potentially lead to more geopolitical crises. Additionally, there might be some volatility in the Asia-Pacific region, particularly in the area the US calls "the Indo-Pacific". For example, in the South China Sea issue, US' involvement could further escalate tensions surrounding the "island disputes". The Korean Peninsula might also see some changes.

Against the backdrop of the complex US domestic election, the conflicts in these three regions could all experience new developments.

Okay. You also mentioned the issue of the US. We've seen that amidst the changes in the Middle East situation, the US recently approved a $20 billion arms sale to Israel. How do you view the role of the US within this?

The US policy is essentially to protect Israel. While they verbally support the so-called two-state solution, allowing Palestine to establish an independent state, but in reality, they lean more towards a "Greater Israel solution" in the Middle East. So it is secretly supporting the expansion plan of Israel.

However, the US is currently in an election cycle. They are reluctant to see the situation in the Middle East escalate further, potentially dragging the US into the conflict and thus impacting the election.

In this context, the US is attempting to maintain a balanced policy, but it's ultimately ineffective in resolving the issue. Another factor is that the US cannot fully control Israel's policies.

Therefore, considering the US's desire to maintain relative stability and prevent their own involvement, the US's overly biased policy towards Israel will ultimately fail to solve the problem and may even lead to a larger crisis.

Yes. So, Mr. Song, how do you view the role the US is playing in this round of geopolitical risks? Specifically, with the recent release of US economic data, the expectation of a US interest rate cut has intensified. Will this change the US's stance going forward?

The US plays a complex and evolving role in the shifting dynamics of the Middle East. Firstly, the US aims to reduce its direct military involvement through strategic withdrawal. However, they also want to maintain a strong presence in terms of military intelligence and diplomacy to ensure effective control over the region.

Secondly, the US still intends to provide military aid and support, in order to safeguard its tangible interests in the region and therefore to maintain its influence in the Middle East.

Okay. Let's get back to China. Professor Wang Yiwei, how do you think this round of geopolitical changes relates to China?

The global economy has been impacted by regional conflicts in ways beyond traditional influences. It has also impacted the issues of oil prices, energy, and inflation. The key point, as mentioned earlier, according to the battle of capital, the entire Jewish capital of the United States is being pushed towards globalization.. There's a desire to find at least one localized, de-globalized, and de-regionalized approach to create a new set of globalization.

Even capital often associated with Jewish interests, which has pushed for globalization, is now pursuing a "de-China-ized" globalization.  The US dollar domain is a risk for China. Globalization has allowed China to grow and become stronger.

So, how do you think China should respond to this "de-China-ization" situation to ensure its own economic stability and development? Do you have any specific recommendations or strategies?

China's Third Plenum report clearly emphasizes the need for a rational and secure layout of industrial chains and supply chains. Domestically, we need to implement a new "Third Front" construction, ensuring industrial safety and stability, and dispersing the layout.

Therefore, in the financial system, the Windows operating system, and software in various aspects are all becoming independent, decentralized, and self-reliant in terms of technology. We used to grow crops on American land, but now we must rely on our own land.

Okay. Mr. Wang Yong, what are your thoughts on this? How should China prepare for and respond to potential economic risks arising from geopolitical factors?

I believe that China, especially after the Third Plenary Session, has been dedicated to building a Chinese-style modernization, committed to reform and opening up, and committed to the right direction of globalization, right?

Therefore, I think we are capable of controlling these potential geopolitical risks, including maintaining stability in the US-China relationship, maintaining stability on the basis of limited cooperation. I believe that a stable US-China relationship will also lead to relatively stable relations between China and many other countries, especially US allies and partner countries. This will create a relatively peaceful geopolitical environment for China's continued growth and development in the next stage.

Yes. So, Mr. Song, how do you think China should respond in a situation where geopolitical uncertainty is intensifying?

Given the current environment, facing the potential geopolitical risks, China should continue to play a leading role On the one hand, by using diplomacy, economic and cooperation measures, addressing the conflicts with major powers, and strengthening regional economic cooperation, China could effectively manage and mitigate the impact of geopolitical risks on national interests.

On the other hand, China should actively adjust its foreign policy to better play a constructive role in international affairs, promoting international cooperation and resolving international disputes.

Okay. Finally, I'd like to ask you, if geopolitical factors have long influenced the economy. For example, the Russia-Ukraine conflict has been ongoing for years. However, with the recent dramatic changes, could it become a new "black swan event" for the global economy in the second half of the year?

A black swan event is an unpredictable event. It's possible that such an event could occur on the Russian battlefield, as the situation there is very fluid and unpredictable. For example, it's difficult to predict whether, under the support of the US and NATO, the current military operations in the Kursk direction of western Russia will continue to advance, potentially even approaching Moscow. This is a very uncertain factor.

Another possibility is that Russia might use nuclear weapons in retaliation, not just as a threat but as a real action. If that happens, it could lead to a larger conflict in Europe.

There's also a similar possibility in the Middle East. If Iran retaliates against Israel, Israel could face a very difficult situation. It's unclear how long they could hold out under such circumstances.

Additionally, the US might impose further sanctions on Iran in the next stage. Iran is currently still a very important oil exporter to the global market, exporting roughly 1.5 million barrels per day. Therefore, any developments in this situation could lead to unpredictable factors that could significantly impact the international oil price, the global political situation, especially the economic situation.

If we're talking about unpredictable black swan events, I believe the scenarios I mentioned above could all potentially evolve into uncertain situations.

Yes. Mr. Song, what's your take on this?  Could geopolitical factors become a "black swan event" for the global economy in the second half of the year?

The impact of the Russia-Ukraine conflict on the global economy is complex, multifaceted, and far-reaching. I believe its specific impact will be subject to many factors, such as the duration, scope, and resolution of the conflict, as well as the responses of various countries. However, given the recent trend of rapid change, it is highly likely that the Russia-Ukraine conflict will become a "black swan event" for the global economy in the second half of the year.

【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.