Geopolitical strategist Tina Fordham is frequently asked by business leaders, “When will the world go back to normal?” Unfortunately, the answer is that it won’t. We are currently in the midst of a “geopolitical supercycle,” according to Fordham in a recent interview on [Publication Name]’s Live. While geopolitical disruptions have always been present, they now have a greater impact on markets than ever before. This is primarily due to the weakening of certain buffers that used to keep politics separate from the boardroom, a trend exacerbated by the end of easy money from central banks.
Previously, geopolitical dislocations did not significantly affect financial markets. However, as liquidity becomes scarcer, the influence of these events becomes more pronounced. Therefore, it is only logical to expect that in times of reduced liquidity, these types of occurrences will hold greater significance.
However, let’s clarify that this does not mean that the sky is falling. Rather, it emphasizes the importance of being vigilant and looking up. A recent rebellion orchestrated by Yevgeny Prigozhin, the leader of the mercenary group Wagner, in Russia highlights the potential destabilization of a nuclear-armed commodity superpower. To assess the impact of such events on investors, it is crucial to understand the intricate transmission mechanism linking politics and markets.
In this era of the geopolitical supercycle, adapting to the new normal is key. Business leaders must recognize that the world has fundamentally changed and adjust their strategies accordingly. By staying informed and understanding how geopolitical disruptions can shape global markets, they can navigate this complex landscape with greater precision and resilience. Embracing a proactive approach will be crucial for success in this evolving paradigm.
The Changing Landscape of Geopolitics
Fordham Global Foresight, a leading analytical shop in the financial industry, is shedding light on the current state of geopolitics. Heather Fordham, the founder and former chief global political analyst on Wall Street, offers her unique insights into the evolving landscape.
A Shift in Multinational Operations
Multinational corporations have significantly decreased their presence in Russia, and the world, particularly the Western world, has adapted to relying less on Russian gas supplies. This shift in focus has caused little concern for the markets, which have largely shrugged off this change.
The Geopolitical Supercycle
Looking at the bigger picture, the emergence of the geopolitical supercycle has disrupted the stability that allowed multinational corporations to expand globally. This new era is marked by tit-for-tat sanctions between major player China and the United States. China’s recent announcement of new export controls on germanium and gallium, critical metals for chip-making, exemplifies this trend.
Understanding Geopolitics
Fordham emphasizes that geopolitics encompasses a wide range of actions countries take to project power beyond their borders. It is not limited to political means alone. Tariffs and cyberattacks are examples of power projection strategies used in modern geopolitics. Fordham acknowledges that these tactics are preferable to all-out war between the world’s two largest economies. However, they create a challenging and disruptive trading environment.
In summary, Fordham’s observations highlight the shifting dynamics in geopolitics and the consequential impact on global markets.
Navigating the Complexities of the U.S.-China Trade Relationship
Treasury Secretary Janet Yellen’s recent visit to China sheds light on the intricate dynamics that investors must navigate. Despite political tensions, the commercial relationship between the United States and China reached an all-time high of $690 billion last year. This substantial trade connection underscores the difficulty of fully decoupling the two economies. However, Yellen also emphasizes that the United States retains the right to decline cooperation on certain sensitive national-security matters, such as advanced semiconductor technology sharing.
Navigating these complexities proves to be a challenging task. As Helen Fordham, an industry expert, aptly puts it, “This is such a tricky row to hoe.” The intricacies of the U.S.-China trade relationship require careful consideration to effectively manage risks and seize opportunities.
While black swans, referring to severe and unexpected events, often dominate discussions, Fordham suggests that focusing on known systemic risks is crucial. These risks are not hidden surprises but existing factors that could significantly impact the global landscape.
One such risk, which might not capture immediate attention due to its familiarity, is the potential for a pandemic relapse in the coming years. Fordham deems this possibility as “boring” because it lacks novelty. However, overlooking this known threat proves to be a short-sighted approach. As trust in institutions reaches historically low levels and vaccine skepticism rises, a new global health crisis could unfold differently than anticipated. In these overwhelming times, people tend to seek simplistic narratives as a means of coping with complex challenges.
Adapting to this rapidly changing environment requires deep understanding and proactive strategies. Investors must acknowledge both the robust U.S.-China trade relationship and the limitations posed by national-security concerns. By addressing known risks and exploring unforeseen possibilities, investors can position themselves to thrive amidst uncertainty.
