There is also a moderate risk of increased protectionism. The U.S.-China trade war has been a market obsession long enough for the bad news to be largely priced in, and the “phase one” agreement suggests no further escalation this year. That still leaves several trade risks on the horizon, especially for Europe, which is vulnerable to a breakdown in the Brexit talks or to a diversion of Trump’s protectionist instincts from Chinese electronics to German cars. But Trump will probably be too busy this year with the Iran confrontation and the election in November to start a U.S.-EU trade war. Meanwhile, U.K.-EU trading relations will remain completely unchanged until December 31. As a result, greater global protectionism is a smaller risk this year than it was in 2018 and 2019.
There are two other moderate risks to growth this year. One is that debt ratios in U.S. corporations have risen to unprecedented levels, far exceeding the levels that preceded the financial crisis. But this is hardly surprising, given that interest rates have never been so low for so long. While a leverage bubble will probably be a risk sometime in the future, there is no reason why it should burst, or even deflate, until interest rates significantly rise. This is why corporate leverage seems only a modest threat in 2020.
The last moderate risk is of an auto industry collapse. Sales collapsed worldwide last year, devastating the German economy, which is by far the biggest exporter of cars and machinery for making them. Production in Germany is now below its trough in the 2009 recession, and the industry’s decline is not just a cyclical problem. A perfect storm of environmental concerns, social changes, and energy and technological transitions means that the auto and engineering industries—not only in Germany, but also in the U.S., Japan and Western Europe—are probably in a secular decline that could prove as profound as the deindustrialization of the 1980s. But the collapse in demand last year was so extreme that a temporary recovery is likely, which is why the auto and engineering industries should not cause as much trouble this year.
The risk to the technology sector, by contrast, is political—and high. Big Tech firms can no longer rely on policy makers’ deference. Once regarded as innovators and agents of progress, Facebook, Apple, Amazon and Google are now viewed as ruthless monopolists that manipulate politicians and exploit consumers. These companies have been the main driving force of the U.S. economy and stock market, and serious political challenges to their business models—in the form of regulation, special taxation or breakup—could cause a repeat of the 2000-02 dot-com bust. A reckoning could begin this year.
The greatest of the 10 risks stems from the U.S. presidential election. Global markets’ consensus that President Donald Trump will win exposes them to two potential shocks. A victorious Trump could become even more protectionist, belligerent and unpredictable in a second term. And if his opponent is Bernie Sanders or Elizabeth Warren, the U.S. economy’s four biggest sectors—health care, finance, technology and energy—will face unprecedented threats of disruption. Given that Trump is bound to make statements that alarm investors, and that some opinion polls will suggest a possible Democratic victory at some point in the campaign, U.S. politics is almost certain to trigger occasional bouts of panic before November 3.
Anatole Kaletsky is chief economist and co-chairman of Gavekal Dragonomics. A former columnist at the Times of London, the International New York Times and the Financial Times, he is the author of "Capitalism 4.0, The Birth of a New Economy," which anticipated many of the post-crisis transformations of the global economy.