A scary new geopolitical reality
Bravery needed in the new world order
Geopolitical risks remain elevated and difficult to figure out and price for investors.
A few years back we might have feared from a clash of civilisations - Islam vs Judea Christianity. Post 9/11 Islamic extremism - terrorism seemed to be central to global security risk perceptions. Remarkably the above risk seems to have moderated as the global war on terrorism seems to have been quite successful (albeit it took over 20 years) with a new risk being rising Islamaphobia and antisemitism due to developments in Israel, Lebanon, Syria, Gaza and the West Bank.
Notably the focus on counterterrorism as the main focus after 911 saw a diversion of defence and security resources to intelligence, much domestic and more mobile, rapid reaction defence capability and away from traditional defence - tanks, artillery and planes, a reorientation which has been exposed as a huge strategic blunder given developments now in the war in Ukraine.
But if the risk from terrorism has moderated (hopefully) other, complicated intertwined risks perhaps have emerged and taken centre stage including:
Rising populism and political and social polarisation;
Technology accentuating these trends, as social media and algorithms mean we are in info bubbles, which seems to push people apart more than bringing people together and truth can so easily be distorted;
Consequences of failures of globalisation - particularly the lack of inclusive growth which feeds back thru polarisation, fuelling the fire of populism;
Tectonic shifts resulting from rising (China, Gulf states, Turkey) and declining (US, Russia) powers, these changes themselves the results of globalisation, again creating a sense of winners and losers, and injustice;
Technology, improved transport and communication, globalisation are fast tracking migration and creating rapid social change and pressures that come with it on jobs, housing, education and healthcare. Again building a sense of injustice particularly from indigenous populations - often their sense of being and status are challenged.
Results;
US vs China battle for global hegemony - arms race, risks of war, need to choose sides;
Global disrupters - those not happy with status quo - Russia, US, Israel - are increasingly prepared to throw all the cards on the floor. Trump is prepared to cut deals with N Korea, Iran, Houthis, even Russia. The new sense is that everything is up for grabs and the core institutions of global order (NATO, UN, WTO, EU) on the run, up for grabs, in the run in the new Trump world.? This is creating vacuums as the U.S. pulls out of some spheres (Europe, multilateral leadership role) and pushes boundaries on others.
Might is right? Israel (Gaza, West Bank, Syria, Lebanon and Iran?), Russia (Ukraine, Moldova, Georgia, the Arctic), US (the Arctic, Greenland, Canada, Panama, Gulf of America) , China (Taiwan, SE China seas);
Back to great power competition - seen in Ukraine, but also US push for Greenland, Canada, Panama Canal, renaming ..Gulf of Mexico..Gulf of America, with no due consultation/consensus but delivered thru a fair accomplis, causing more discord.
Overturning established norms like post WW2 settlement, territorial integrity seen with possibility US, de jure, accepts Ukrainian loss of Crimea, creating an open season for other powers.
Populists using battles over social/cultural (race, religion, sexual orientation) agenda to advance their cause - European and U.S. “values” perhaps no longer align. Democracy, human rights, rule of law - Trump has more in common with Putin, and Xi, but US - China hegemony limit cooperation there.
U.S. and European interests and values are no longer aligned - China is top of the U.S. list of threats but low for Europe, whereas Russia is top of the European list - where does Musk sit on the European list of national security risks?;
Trade autarky the way to go, need autonomous supply chains, and autonomous military complexes. You can no longer rely on anyone - Europe cannot rely on the U.S. for security, Thank you JD Vance at the MSC, it was a light bulb moment for Europe.
Traditional alliances are no longer assured - where do you sit on China vs US and war on woke? Perhaps Europe et al needs to edge bets, diversify alliances - like Turkey and the Gulf are doing.
Tariffs mean lower global growth, higher inflation as fewer opportunities for economies of scale/Comparative advantage, it means we are all going to be poorer - less global cake to go around, with more battles to make up for this with everyone wanting a bigger share of the smaller cake. It’s a zero sum economic game.
More defence spending is inevitable in a less secure, more competitive, more polarised and poorer world - but it means less spending on social welfare. Building a tank might make us subliminally feel more secure but we might not have a roof over our heads, food in our stomachs, or fuel for the fire or boiler. That risks more political risks and populism, and greater risks the tanks are actually used in wag the dog style scenarios. Our leaders might see military adventure as a route to economic advantage.
More interconnected markets - accentuate market and economic moves and disruption from all these trends, but creates greater systemic risks - end to U.S. reserve currency status, capital account nationalism?
Weaker multilateralism, a weakening of the IMF, WB, G20, G7, so when next GFC or Covid hits are we ready to work together to bring global solutions. Can already see global consensus weakening on climate change. Risk of bigger global systemic crises and being longer and deeper as mismanaged.
Reviewing the above, it really is a scary world under Trump II.