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New order: investing in resilience as geopolitical map is remade
Since 1990, trade globalisation has helped lift one billion people out of extreme poverty.1 A unipolar world, with the US as the leading power and the US dollar as the currency of most international trade, has seen unprecedented opportunities for poorer nations to raise living standards and improve healthcare systems.
Today, however, the global order is in flux. In developed nations, stagnating living standards have led to calls to bring back the manufacturing industries that have been offshored. At the same time, some increasingly affluent emerging market economies are becoming dissatisfied with their status as rule-takers.
From tariffs to trade wars, and subsidies to sanctions, the global order that propelled decades of global economic growth is re-shaping. Convention calls this a time of caution for investors. But as the world shifts, could there be new opportunities to achieve market outperformance and build wealth for the long term?
As the world shifts, could there be new opportunities to achieve market outperformance and build wealth for the long term?
From globalisation to fragmentation
In 2018, then-US President Donald Trump imposed tariffs of up to 25% on imports of hundreds of Chinese goods, in response to what he called “unfair trade practices” that “make it impossible for many United States firms to compete on a level playing field.”2 China responded with tariffs of its own – a tit-for-tat trade dispute quickly escalated.3
Subsidies have also proliferated in recent years, causing friction even between allies. When the US Inflation Reduction Act was passed in 2022, offering hundreds of billions of dollars of tax credits for US firms working in clean energy, French President Emmanuel Macron said, “We have to respond with strength – now.”4 Within months, the European Commission had proposed the Net-Zero Industry Act5, a clean energy subsidy package of its own. The EU bloc has also recently added extra tariffs onto imports of Chinese electric vehicles (EVs) to counter what it calls “unfair subsidisation” of automakers by the Chinese government.6
And then there are sanctions. According to research by the Global Sanctions Database, the world’s governments are turning to sanctions more than ever before7, perhaps as appetite for military action wanes. G7 leaders are now threatening China with further sanctions over its support for Russia’s war effort.8
Uncertainty in unprecedented election year
Competition between the US and China has left many emerging market economies feeling the need to forge wider alliances. In early 2024, Ethiopia, the UAE, Egypt and Iran all joined Brazil, Russia, India, China and South Africa in the ‘BRICS’ economic alliance – a bloc set up to challenge the political and financial dominance of the US and other Western powers. Saudi Arabia, a key US ally in the Middle East, is also considering an invitation to join.
Growing geopolitical rivalry comes at a time of unusual global uncertainty. In the world’s biggest ever election year, countries representing more than half of the global population are going to the polls. In many places, populism is on the rise, pushing governments towards a more inward-looking domestic agenda and less global integration.
Growing geopolitical rivalry comes at a time of unusual global uncertainty
For investors, Donald Trump’s win over current Vice-President Kamala Harris could see further escalation in US-China trade tensions, a potential double-whammy for China which is already struggling to kickstart growth amid deflationary risks9. Mr Trump’s ‘America First’ policy could even include blanket tariffs on all US imports, putting every trading partner – political allies and rivals alike – at a disadvantage, likely leading to further dollar strength and weakening exporter currencies10.
Against this uncertain and fragmenting backdrop many Western governments and businesses are seeking to build resilient domestic supply chains by ‘re-shoring’, restoring the manufacturing and services industries that have been offshored across decades of global integration. Almost three-quarters of US and European firms are planning production or supplier moves, a 2022 survey by digital technology experts ABB found. In the US, re-shoring hit a record high in 202211 – as the trend continued in 2023, an estimated 300,000 new jobs were created12. This shift will be facilitated by advances in technologies such as AI and robotics, which should keep down the cost of manufacture in newly re-established Western factories.
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New opportunity will also be found in so-called ‘friend-shoring’, in which Western nations move supply chains away from political rivals and towards those more politically aligned. Mexico, for instance, is already feeling the benefit – last year, the country exported 5% more goods by value to the US than in 2022, overtaking China to become the top exporter of goods to the US13.
Re-shoring and re-industrialisation will cut across multiple sectors, but it is in the battle for technological supremacy that the shape of the new global order can be seen most clearly. 65% of the world’s semi-conductors are made in Taiwan, including 90% of the most advanced chips.14 In the US-China tug-of-war, Taiwan has become the rope.
However, in 2022, the US CHIPS Act sent shockwaves through the industry with the announcement of USD 280 billion of investment to boost domestic semi-conductor production and reduce reliance on Taiwan.15 At the same time, President Joe Biden announced export controls designed to severely restrict China’s ability to buy or manufacture its own advanced chips.16 Meanwhile, the EU’s Chips Act aims to increase the bloc’s share of the semi-conductor industry – which is forecast to be worth USD 1 trillion by 203017 – from 9% to 30%.18
It is in the battle for technological supremacy that the shape of the new global order can be seen most clearly
These chips, and the AI they power, will be crucial in another growing tech industry – cybersecurity. On 7 May 2021, a cyber-attack closed down the Colonial Pipeline, the largest refined oil pipeline in the US – oil started flowing again only after the payment of a USD 4 million ransom.19 Matt Hartman, an official at America’s Cybersecurity and Infrastructure Security Agency, has warned that both “nation state actors” and “ransomware teams” are targeting infrastructure and healthcare, describing the threat as “a national emergency.”20
As the world fragments, this threat is likely to grow further still, driving greater investment in defensive measures from both governments and businesses. In turn, the total addressable market for the cybersecurity industry could reach a potential USD 2 trillion, according to estimates from consultancy McKinsey.21
This focus on national security has also become a key driver of efforts to achieve national energy independence – for many countries, this means renewable electricity generation.
In Europe, the REPowerEU Plan22 which followed Russia’s invasion of Ukraine, was designed explicitly to phase out reliance on Russian fossil fuels. The plan mobilises nearly USD 300 billion for measures including an accelerated rollout of wind and solar power, and efforts to turn the bloc into a green hydrogen powerhouse. Along with similar provisions in the US Inflation Reduction Act, enormous investment is now pouring into renewable energy projects around the world.
A similar story is being told around the ‘energy metals’ needed for the transition to renewable energy. Today, the mining and processing of many of these metals is heavily concentrated geographically: for example, 60% of rare earth metals – key components in batteries, magnets, and many electronics – are extracted in China.23
Now a number of developed nations are investing to secure their own supply. Exploratory mining in Wyoming in the US has discovered the largest known rare earth deposits in North America24, while Canada’s first rare earth mine has been operating since 2022 – according to the project’s vice-president of strategy, David Connelly, the mine is helping “Canada and its allies [gain] independence from the rare earth supply chain in China.”25
We believe today’s geopolitical reshaping is among the most important factors for investors, alongside technological innovation, demographic changes, and climate change
Investing in the new global order
We believe today’s geopolitical reshaping is among the most important factors for investors, alongside technological innovation, demographic changes, and climate change. Our ‘rethink investments’ framework leverages this emerging new order by seeking opportunities as governments and businesses take action to create reliable supply chains, guarantee energy supply, and ensure national security.
In a fractured world, we expect our six key rethink investments themes – demographics, longevity, technology, infrastructure, and the transition to a net-zero and nature-positive world – to unfold in a non-linear way. They will also act as catalysts for other themes. For example, as governments invest in the physical and digital infrastructure needed to ensure domestic energy security, they will pave the way for the renewables rollout and demand-side electrification that will benefit our net-zero theme.
Meanwhile, the re-shoring trend is set to feed into both our infrastructure and technology themes. And as technology advances, this could, in turn, have profound implications for longevity and demographics, with robotics and AI solutions enabling manufacturing to flourish even as society ages.
‘rethink investments’ is our response to the numerous fundamental, long-term changes the world is going through. Through more than 225 years, and over 40 financial crises, we have seen the geopolitical map redrawn many times. By calmly taking a step back to see the bigger picture, we seek to emerge stronger. As investors, experience has taught us that change is not to be feared but embraced. Today, the world is shifting. We see a time of opportunity.
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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