Ian Bremmer, President of the Eurasia Group and author of The J-Curve and his latest book, The Fat Tail: The Power of Political Knowledge for Strategic Investing, recently participated in an online discussion with the Washington Post to discuss how politics is increasingly driving the world economy and having direct implications for investors and multinational corporations. His most recent book’s aim is to help identify and manage potentially turbulent political developments and seemingly improbable events known as “fat tails.”

When asked on the likelihood of a trade war, fueled by the realities of large-scale unemployment and general economic recession in certain democracies, Bremmer downplayed the risk, and perhaps too much so. Not to sound off as fiercely as some of his critics tend to, one must be cautious of downplaying how far economies can fall and the implications further turbulence may have on globalization and against growth for developing nations no longer receiving as much leverage-driven foreign government aid. It is indeed true that the biggest silver lining to the economic and financial crisis in the united states has little to do with globalization. Currently there is no clear and present backlash against interconnectedness, trade, or global supply chains. It is important to reiterate however, that the US and EU can’t swat away ominous warnings of economic depression. The risk of a global trade war will unfortunately remain unless the recession bottoms out. It was important to note that Bremmer did mention that he certainly sees “more tit-for-tat protectionism internationally (especially out of Beijing, where economic nationalism is on the rise) as an unintended consequence of us policy”. 

The following is a transcript of some other key questions asked and his answers:

Alexandria, Va.: Oil. Everyone wants it, but not everyone has it. With supply and pricing down with reduced demand (at the moment), is this just a ticking time bomb once some instability occurs in the Middle East? And is this the time to load up (investment-wise) on energy?

Ian Bremmer: Um, yes. I can’t see oil long-term sticking in a low price environment. Oil at $50 only serves to delay investment in important new fields (off-shore Brazil, Venezuela, and Canada oil sands) and, more importantly, in alternative energy. Which puts the developed economies at greater long term risk.

To give one example, when oil was at $147, everyone saw an “Iran premium” in the price of a barrel. At $50, nobody pays attention to Iran anymore. But actually, the likelihood of conflict between Israel and Iran is much greater in 2009/2010 than over the last two years. It’s hardly a given (indeed, and thankfully, I wouldn’t bet on it), but it’s considerably more likely than the markets think. That’s the case with risks today around the Middle East. 

Manassas, Va.: I’m absolutely conflicted about China. On the one hand it is a country whose government subjugates, tortures and kills its own. On the other hand, there seems to be a greater emphasis on free economy, emerging personal freedoms and business growth. What is your take? Are they a country slowly emerging from totalitarianism or are they merely presenting a false front to the world while they maintain business as usual?

Ian Bremmer: They’re definitely emerging towards greater economic, and even social freedoms. Political freedom is another matter entirely. It’s a huge quandary. Which is why China is ultimately the biggest fat tail of all. It works very well…until it doesn’t.

I happen to think there’s a great deal of resilience in the Chinese model–a significant capacity of the Chinese people to tolerate economic difficulties (much more than widely assessed), huge political capital built up by Beijing over the past three decades, and major surpluses to stimulate growth in the economy. But they’re completely destroying their environment in the process. At some point, the math doesn’t work. It’s just not anytime soon…

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New York, N.Y.: Do you foresee possibilities where a nation holding great amounts of debt, such as China, could hold debt repayment issues over other countries such as the U.S. for political purposes, such as keeping criticism of their policies muted?

Ian Bremmer: Not really. In the same way that I don’t expect the United States uses it’s navy to keep China away from commodities in far flung regions like Africa and Latin America. The reality of the imbalances ensures both countries actually discuss these conflicts before they become directly confrontational. But there’s a lot of backroom gnashing of teeth…and the relationship will become more tense, no question.