Trading places
A week of decadal shifts, and a new weekly letter.
In this week’s Not in Dispatches, instead of our usual format, we are trialling a new weekly letter from our Chief Strategist, Michael Feller, on the week’s developments.
Our aim is to not just summarise what you’ve read in our daily dispatches but provide a forward-looking view of what it means for markets, economics, and geopolitics.
We hope it helps contextualise some of the trends we see through the daily events and issues we track. We also hope it helps you anticipate the events and issues likely to arise tomorrow.
Week of living dangerously
"There are decades where nothing happens, and there are weeks where decades happen."
The above is attributed to Vladimir Lenin, though it’s probably apocryphal. Either way, Lenin – a student of history and someone with more than a passing interest in economics – might have agreed that for trade policy at least, the past week has felt like a decadal shift, even by the standards of the present day.
The week began Monday with reports of US tariffs on $18 billion worth of Chinese goods. And as announced by Joe Biden Tuesday, those measures included the quadrupling of duties on electric vehicles to 100%, the doubling of those on semiconductors to 50%, and the increase on steel and batteries to 25% from 7.5%.
China is yet to respond, but amid fears the EU may follow – lest it otherwise become a dumping ground for Chinese excess production – it is likely any retaliation will be served cold, and designed to influence Western politics in a key election year, not just to proportionally rectify what the World Trade Organization will see as a excessively protectionist measure, unthinkable at any other time in the post-Cold War era (except, perhaps, during the term of Biden’s predecessor).
The week continued with a summit between Vladimir Putin and Xi Jinping.
In addition to the usual bromides – and a seemingly spontaneous cuddle, initiated by Xi – the two leaders agreed to pursue an alternative trade and financial architecture – immune from Western sanctions or controls – to bring together their national currencies, create independent insurance and debt markets, establish new payments systems, and co-produce the things Russia still largely needs from the West: machine tools, electronics, software, artificial intelligence, and speciality chemicals.
The week then ended with the defenestration of another senior leader in Vietnam, and brawling on the floor of Taiwan’s legislative chamber.
These Asian markets are seen by many in the West as alternatives to China. Vietnam for low-cost manufacturing; Taiwan for high-tech goods.
Yet independently of what is going on in Beijing and Washington, both have political dynamics of their own that sometimes belie a common sense of stability. Both will remain key markets and sources of supply in the years ahead. But like India or Mexico – two other major ‘China+’ destinations that Western firms tend to quickly fall in and out of love with – they aren’t always the ‘friendshoring’ solutions trade consultants would always have you believe.
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Damage control
In a week where we also saw key developments in Israel and Ukraine – the long-delayed invasion of Rafah, and the long-feared (re-)invasion of Kharkiv – the common theme is that the West, led by an unpopular figure in the White House fighting what he sees as an existential election, is losing control and seeking to remedy this by making demands that if anything only deepen the dilemma. And this pattern is replicated across other parts of the world, from Sudan and the Congo, to Haiti and Venezuela, to the Caucasus and the South China Sea.
Now, the West, of course, was never fully in control.
No shadowy council in Davos, or the Bilderberg Hotel, actually sets the rules. Febrile, insular, and self-defeating politics has been a Western speciality since Plato wrote the Republic. But seldom, in recent deades, have the ‘rules’ of the ‘global rules-based order’ been so blatantly ignored. And this includes by the powers – the US, the EU and Britain – that are typically relied on to defend them.
Whether London on human rights and migration, Brussels on farming and climate, or Washington on trade and just about everything else, the gulf between agreements and action – or rhetoric and reality – has seldom seemed so wide.
And this isn’t to impugn today’s decision-makers as being uniquely calous or hypocritical. Bad faith, compromise, broken promises and disappointment are essential to the political arts. But it shows how the constraints they’re under are uniquely tight.
The world of 2024 is objectively harder to govern and harder to please than it was in 2014, let alone 2004 or 1994.
Expectations are higher, trust is lower, power is more diffuse. And, most of all, the instruments of policy are more limited by the last few decades’ legacy of high debt, overconfident elites, atomised citizens, and disruptive technology.
Doing it right
So, to borrow another quote from Lenin (and this one is genuine): what is to be done?
Sadly, for policymakers, not much.
The cycle – as seen over the last few months – is now largely out of anyone’s control. Only an exogenous shock (hopefully other than war or natural disaster), will likely to jolt the world back to the days of expanding globalisation, ever-freer trade, and frictionless G20 summits. A return to such a world otherwise seems improbable. And for many of the populist forces that dominate today’s news cycle, it’s not desirable either.
For businesses and investors, however, there is much that can be done.
Obviously (and we would say this), there’s investing in situational awareness and political analysis. This can be done at the level of an industry association, as a common good, the level of the board, by management, or by each of us as individuals. And specifically, there’s a needed investment in understanding your own supply chain as a business, or market structure as an investor.
To firms, for years it’s no longer been sufficient to just buy from the lowest-cost supplier or sell to the highest-paying customer.
Regulations – whether in terms of scope 3 emissions accounting on climate, or know-your-customer rules on finance – compel us to understand the value chain in more detail than previously. And geopolitics – whether in terms of shipping routes to avoid piracy and war, or the risk of tariffs, sanctions, and bans when dealing with any number of global markets – compel us to understand the political context, not just the economic costs and benefits.
For investors, it’s much the same.
Whether it’s holding shares in the companies that must make the decisions outlined above, or trading the commodities that form the sinews of the rapidly bifurcating global economy, knowledge is power. And whether it’s investing in the debt that state and non-state entities are issuing – not just across different tenors and yields, but different currencies and jurisdictions – or just trying to anticipate the broader economic cycle, there’s also the need to understand the political context, not just interest rates, meme stocks, technical charts, job numbers, or corporate fundamentals like price, value, cashflow, and returns.
Emailed each weekday at 5am Eastern (9am GMT), Geopolitical Dispatch goes beyond the news to outline the implications. With the brevity of a media digest, but the depth of an intelligence assessment, Geopolitical Dispatch gives you the strategic framing and situational awareness to stay ahead in a changing world.
Risk and reward
Risk is no longer a function of adjusted returns, or a mere province of econometrics, but a province of the woollier profession of politics and geopolitical analysis. Events and factors in this domain are harder to quantify and graph (though not impossible and we may return to this topic in the future), but they still must be approached in a structured and analytical way.
They also need for geopolitical and non-market risks to be considered regularly, if not daily. Boards once got away with an annual geopolitical presentation or lunch; investors with the occasional glance at the world news section of a business newspaper. But now the understanding must be constant and ongoing.
In a world where decades happen within weeks, the need to frequently update your priors and reevaluate your positions becomes all the more urgent. And though that urgency can seem at times alarming, it needn’t be if developments can be viewed through an objective, contextualised, and dispassionate lens.
And that’s what I hope to start doing in this column.
There’s much more that could, and will, be said about the week just passed, but if there’s anything specific you’d like to discuss, please get in touch. Until then, we hope you enjoy what’s left of the weekend before the next chapter begins.
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