We have reached the end of 2016. Given the developments that took place this year, it is possible to suggest that uncertainties and gray areas will prevail in 2017. At the same time, however, 2017 will be a year in which we will have plenty of solutions as well.
The constitutional amendment and the concomitant renewal of the economic and political system in Turkey will be a great advantage for the country in a world where chaos will continue.
I am currently reading a number of assessments that outline the political and economic risk map for the year 2017. As the Donald Trump risk comes to the fore in the U.S., the crisis that still remains unresolved for the EU, the U.K.'s Brexit process take the lead among global risks.
On the other hand, things are not very good in the Pacific region. The Chinese issue alone is a separate crisis dynamic for the West, but there is not a real sense of recovery even in Japan. Last week, Bank of Japan (BOJ) Governor Harihuko Kuroda said they were yet to be sure whether Japan would enter deflation and try to reach the 2 percent inflation target in the second round of expansion. Kuroda also underlined that low potential growth would deepen recession. Although Japan has an innovative economy, it nevertheless cannot overcome its own crisis. Traditional economics discovered innovative approach (innovation) too late, or more precisely, they tried to explain Joseph Schumpeter, who is considered to be the father of innovative economics, by mistaking him for ultra-liberal Friedrich Hayek in the neoclassical theory. As such, technology giants, which controlled technology rents and became a monopoly through innovation, were busy with overwhelming their potential competitors through the power of monopoly, instead of pursuing innovation. Well, this was a strategy that fit Hayek's social Darwinism.
However, they could not exactly achieve this either. Technology giants such as Apple and Microsoft in the U.S. did not allow their Japanese rivals, who operate at high cost and relatively lag behind in terms of monopoly power, to keep up with them. As Kuroda said, it was too late for Japan to switch to expansionist policies which were based on competitive exchange rates and which would lead to an economic recovery. It was easy for the U.S. to support Japan until Prime Minister Shinzo Abe's period. The monetary and fiscal policies that were imposed on Japan allowed the country to carry out exports as many as the U.S. monopolies wanted and enter the markets they desired.
Albeit rather slowly, things are changing now and this is considered to be one of the most important risks for the U.S. in 2017. Of course, while the U.S. was trying to supervise Japan, it ignored the main power of the Pacific. First, China became the world's factory with low labor costs and then came to the fore in global competition with labor productivity advantage. However, the real systemic risk was that China seized the advantage of technology efficiency from the U.S. and started using technology rent after having the advantage of labor productivity. China started doing so in an intensive way in 2013. It started using technology rent by exporting capital and purchasing brands instead of buying U.S. dollars and bills in return for its cheap products which it produced with low labor cost. Then, China's exports started falling, while capital exports started increasing. This can be defined as a systemic risk for the U.S. and the West, in other words for the West-centric system.
And this risk will come into effect as a new crisis dynamic as of 2017. Here, we can discuss whether the economic policies that the new U.S. President Trump will implement will be a risk for the global economy. Will Trump's policies bring down the Pacific danger for the U.S.? We think that protectionist and neo-Keynesian policies are not applicable for the Trump administration and will not eliminate the Pacific danger. Here, what the U.S. must do is not to implement neo-statist policies that will further increase the U.S.'s budget deficit, but to head toward the export of technology-intensive commodities and capital like China. And this will not be possible with an overvalued dollar.
Indeed, global risk analysts say that one of the biggest economic risks for 2017 will be Trump's inclination toward a protectionist and statist economic policy. If Japan insists on a competitive innovation path, Trump's protectionist policies will harm the U.S. most. This is because, as I said above, the U.S. will lose its competitive position against Japan and China. China's continuation of capital exports means that it will have less interest in U.S. currency and bills. Therefore, Trump cannot go toward a neo-Keynesian path which will boost the U.S.'s budget deficit. Therefore, the greatest risk for the U.S. is not Trump, but an innovative and competitive attack from its east – which is rapidly emerging.
Following the Pacific region, the Asian development will show itself in Eurasia in 2017. Such a Turkey-centric start means Europe's crisis will begin ending with an expansion paradigm starting with Eastern Europe. It also means the Turkey-oriented alteration of Russia's Eurasian union strategy. This is relevant to the EU recently coming to the table for updating the Customs Union agreement with Turkey.
As such, 2017 will be a year of risks arising from the U.S., EU and the U.K. However, opportunities are accumulating in Eastern Europe, Turkey and Eurasia. The economic and political stability of Turkey in this region is not only a new development opportunity for Eurasia, but also a chance to escape the ever-intensifying crisis of the EU and the West.