By George Friedman

Some have said the economic problems we are currently seeing are similar to those experienced in 2008. However, there are fundamental differences. In 2008, there was a financial crisis. The financial system is the accounting system for the economy. As such, it occasionally develops internal irrationalities that can be exploited by traders. The manner in which home mortgages were handled by banks and the financial services industry created massive irrationalities, which were then exploited. Financial problems can create economic dislocations of course, but they have a different genesis than the problem the world faces today.

That problem is rooted in the economic consequences of 2008. The 2008 crisis created recessions in the United States and Europe, which reduced consumption and demand for imports. Countries exporting goods lost sales and their economies were hurt. China, the world’s second largest economy, was hit particularly hard. It not only lost revenue from exports critical to its economic model but it also lost markets at a time when its massive growth spurt was already slowing down for structural reasons. The loss of these two components combined to slow China’s economy, triggering serious social and political consequences. It became evident that China’s rapid growth was unsustainable as the country matured.

China was the engine of global industrial growth. Its slowdown had a massive impact on global industrial commodity markets, including oil, but also minerals such as copper and iron ore. China’s export crisis turned into a crisis for exporters of virtually all industrial commodities. High expected demand, particularly from China, caused massive expansion of commodity extraction and refining. Despite initial signs of a downturn, the prices of these commodities were maintained first by continued and excessive imports by China based on the expectation that its growth would resume. Then, when China decreased imports, prices were sustained by an expectation that the downturn was cyclical and consumption would be restored to its previous levels.

It ultimately became clear that these expectations were unfounded and the prices of commodities subsequently plunged globally due to a decline in demand and an excess supply. Since then, the main impact has been on exporters. These fall into two categories. There are exporters of manufactured products, such as China, who are still suffering due to the economic weakness of Europe and, to a lesser degree, the United States. This has not abated. Second, there are mineral exporters and oil producers, who have been hit particularly hard. The price of oil has plunged to less than $30 a barrel, which has a significant impact because oil revenue is critical to many exporting countries’ economies.

In the 1970s, rises in oil prices hurt industrial countries. In the 1980s, declines in oil prices hurt oil producing countries. Now, we are in a unique situation where everyone depending on exports is in trouble, regardless of whether they are exporting manufactured goods or commodities. The declining export market is affecting not just oil, which has seen supplies increase due to new technologies, but almost all industrial commodities. In the current economic environment, those countries that are least dependent on international trade are the least affected by the downturn. They are both cushioned from the international system and can, to varying degrees, control their own economies. For the moment, the theory that free trade is always beneficial is being sorely tested.

To illustrate the effects of this shift, we have developed two lists. The first list is the 10 countries we think have been most badly hurt by the export crisis, regardless of what they export. We look beyond the economics to the political and social consequences. The second list is the five countries most likely to be the next victims of the crisis. All lists are arbitrary and none can tell the full story. Reasonable people will disagree with our choices or the order in which we placed them. We are biased in elevating major countries toward the top and smaller countries towards the bottom, regardless of internal pain. Our view is that, in making lists, so long as the biases are known, the conversation may begin.

The Top 10 Victims of the Export Crisis

China: With an economy built on manufactured exports, China is reeling from the consequences of decreasing demand and increasing costs of production. The government is struggling to find a way to manage the financial consequences, but the economic reality is one of slowing and, in some sectors, declining growth. The Chinese government is cracking down on individuals suspected of being involved in corruption and imposing an intensifying dictatorship to try to control dissent and unrest. Russia: Russia’s economy is currently built on the export of raw materials, particularly energy. Its national budget was funded through exports. The Russians are being forced to cut back everywhere and the government is compensating for the decline by creating a sense of politico-military power abroad. Saudi Arabia: Saudi Arabia was the key to the 1973 Arab oil embargo, which made the country the key player not only in the oil industry but in the region. The Saudis nationalized the major oil company, Saudi Aramco, during this triumphant period. Recently, the Saudi deputy crown prince raised the possibility of selling a portion of Saudi Aramco. That gives us a sense of how badly the regime needs cash, since the company is the royal jewel of the kingdom. South Korea: South Korea is a major exporter of manufactured goods, from cars to electronics. About 50 percent of its GDP derives from exports. In December, the Finance Ministry revised down the estimates of growth from 3.3 to 3.1 percent. In 2015, the Bank of Korea forecast 4 percent growth but managed only 2.7 percent growth. China buys a quarter of South Korea’s exports, including significant amounts from South Korea’s sweet spot: electronics, vehicles and machinery. That sums up why South Korea is experiencing such trouble. The public is also feeling the pain. There were massive demonstrations in November and December against President Park Geun-hye’s proposed labor reforms that would make it easier for companies to fire employees. Australia: Australia is an advanced industrial country that also exports industrial minerals. It is likely to be hit by the decline of both manufactured goods and commodities, but particularly minerals. The country depends on exports for about 21 percent of its GDP. According to China’s customs agency, the drop in Chinese demand resulted in a decline of $15 billion in revenue for the first half of 2015, or about 1 percent of Australia’s GDP. Iron ore was about 25 percent of Australia’s total exports in 2014 and China imported 76.8 percent of that. The price of this commodity has also plunged. Five years ago, iron ore went for $173.63 a metric ton. It is now less than $50. Zambia: Zambia produces a significant amount of industrial metals. About 41 percent of its GDP is from exports and copper makes up 75 percent of that. China consumed almost a quarter of the copper Zambia exported in 2014. In the first quarter of 2015, total exports declined by about 27 percent. Zambian mines are closing and the country’s currency has been the worst performing globally so far this year. Where the bottom is for Zambia we can’t tell, but we haven’t seen it yet. Angola: Angola is an oil producer that used to get 95 percent of its foreign currency from oil sales. China purchased almost half of Angola’s exports in 2014. Even were that to remain the case in 2016, the price of oil is so low that effectively Angola will feel the pinch one way or another. The lack of foreign currency is limiting the amount of food, manufactured goods and construction material available. Angola had been a country wracked by civil war until the development of its oil industry created a stable platform. It is not clear what will happen as that platform weakens, but it is unlikely to be good. Nigeria: As an oil producing powerhouse, Nigeria is taking a disproportionate hit now. Exports as percent of GDP dropped from about 31 percent to 18 percent in 2013 and have remained close to the lower figure. Even more concerning, 90 percent of Nigeria’s exports are oil. The country has experienced foreign exchange shortages, currency controls and some political instability, with calls for the impeachment of the president. The budget has been slashed but still assumes that oil will settle at $38 a barrel, which doesn’t look realistic now. The government, which has about $20 billion in reserves, will be faced with the choice of either maintaining something of a manageable budget and depleting these reserves, or accepting intensifying unrest — in a country where instability is relative anyway. South Africa: Exports account for about 31 percent of GDP in South Africa and 40 percent of this comes from metals and fuels, particularly coal. In 2014, 9.6 percent of exports went to China, but the U.S. was second with 7.1 percent, which is something of a cushion. However, China, as a leading importer of some key commodities, imports almost half of South Africa’s iron ore output. Mongolia: Exports account for roughly 54 percent of Mongolia’s GDP, with 87.8 percent of exports going to China in 2014. The country is almost entirely dependent on Chinese appetite for its mineral exports. Mongolia has now entered what the government calls an emergency situation, as it plans an austerity package that will lead to job cuts in the bureaucracy and selling shares of state-owned companies.

The 5 Most Vulnerable Countries

Germany: Germany is the poster child for an accident waiting to happen. At the moment, it is prosperous, stable and in many ways the arbiter of Europe. But it has earned the spot of fourth largest economy in the world and largest in Europe by being a massive exporter of everything from bolts to Mercedes. About 46 percent of its economy derives from exports and if anything happens to those exports, its economy will immediately reverberate from the shock. We have described a world where major exporters everywhere are now reeling or beginning to swoon. It is difficult to imagine how Germany can pass through unscathed. Its European markets are stagnant, the United States hasn’t had a recession in six years and is statistically due for one, and Russia, China and the Middle East are in terrible shape — and German customers can’t double their consumption. As the most successful exporter, Germany strikes us as the most vulnerable of all — and if it were to move into the list above, it would create instability in many other places. Chile: In Chile, almost 34 percent of GDP is made through exports, and copper and iron ore are about half of this amount. China purchased 42 percent of Chile’s copper in 2014, and 32 percent of its copper iron ore. However, in 2015, revenue from Chile’s copper exports fell from $38.7 billion in 2014 to about $31 billion in 2015. Chile has weathered the crisis better than others because of other exports, but the declining demand for copper will leave a large hole. Taiwan: Exports account for between 60 and 70 percent of Taiwan’s GPD, about 40 percent of which go to China and Hong Kong. Taiwan’s main exports are plastics, machinery and consumer electronics. However, exports have fallen for 11 consecutive months, most recently plunging more than expected – 13.9 percent in December compared to the previous year. Taiwan already fell into a contraction in the third quarter of 2015 and, given its high dependence on exports to China, this decline will continue. Azerbaijan: According to the International Monetary Fund, the fiscal breakeven oil price per barrel for Azerbaijan is $93.60 — triple the current price. As a result of falling prices, Baku allowed the country’s currency, the manat, to float on Dec. 21. The currency then lost nearly half its value in one day. At the same time, oil exports fell by 1 percent from January to November 2015, compared to the prior year, Reuters reported. Azerbaijan has not felt the full brunt of the crisis yet, partly perhaps because the Russian-Turkish breach opened some space. However, the high oil price needed to sustain the economy is a threat. On the one hand, Azerbaijan’s sovereign wealth fund has significant reserves. On the other hand, there has already been unrest in the country, indicating it may be feeling the effects of a declining economy. Turkmenistan: Turkmenistan has started paying worker salaries with sheep. Around 70 percent of its GDP comes from exports, about 80 percent of which is from petroleum gases. In addition, China imports 73 percent of total exports. Therefore, Turkmenistan is facing a double problem. Close ties to Russia have impacted its economy along with export dependence on China. Given the declining value of its currency, paying civil servants with sheep may be taken as a sign of resilience. But being caught between weak Russian and Chinese economies is a serious problem in the longer run.

By choosing these 15 countries, we inevitably left some out. Singapore, Malaysia, Thailand, Iraq, Kazakhstan and Peru are just a few of the other countries which we seriously considered. But who we included or didn’t include, and who is ranked number seven as opposed to number three, is not the point. The world is in an export crisis, which has begun hammering many countries regardless of what they export, and we have only seen the first waves breaking. The variety of countries on the vulnerable list should generate concern. Beneath the export crisis is the import crisis. And that import crisis is ultimately due to the chaos in Europe and Asia that we at Geopolitical Futures have been discussing at length.

Get insights like this directly in your inbox! Sign up today for our popular, free email newsletter.

Each week, you will receive a free article on the underlying significance of major events around us. Plus, you’ll get a free 30-day trial of some of our exclusive paid content just for signing up!

Click here to sign up now, for free.