Bet on globalization

Posted By Darren Winters on Aug 27, 2019

Bet on globalization

Is the long term bet on globalization unwinding? The greatest ideological battle in decades is in play. Economic nationalism has locked swords with globalism.

The current world order, of multilateral free trade agreements, is looking unstable which is making the bet on globalism dicey

Protectionism is on the rise, the likelihood of de-escalation in US-China trade tensions now looks remote as I forecasted in a piece entitled China Trade War Timeout.

So the bet on globalism, with its free trade agreements, has run aground

Bet on globalization

A few had the foresight to see the short sightings of globalism. Indeed, James Goldsmith, the Anglo-French libertarian billionaire businessman was such a person. James Goldsmith campaigned in 1994 against the globalization of free trade and the signing of the GATT agreement.

He argued that equilibrium in a society will be disturbed when the value-added share between labor and capital is disconnected through a global market place for labor. 

Put simply, James Goldsmith forecasted the de-industrialization, the offshoring of jobs, the gutting of the middle class in developed economies and the rise in popularism with its brand of economic nationalism.

James Goldsmith’s bet on globalism unwinding 1994 interview was a mind’s eye into the future.

“GATT would release a series of problems for the industrialized world,” said James Goldsmith.

GATT is a multilateral trade agreement which spurred on globalism.

Moreover, monetary easing and fiscal spending is not a long term solution to the pressing issues of rising wealth inequality, political instability, the twin deficits in public spending and the balance of payments and an aging population in developed economies.

The bet on globalism could be unwinding if you believe that the emergence of economic nationalism is a game-changer, a mega macro geopolitical trend which will have a long term impact on supply chains

US foreign policy to curtail a rising power from threatening US hegemony suggests that the bet on globalism is off. So there is bipartisan accord in Washington to curtail China’s economic and military rise, which is a potential threat to US hegemony world order.

US foreign policy has not changed with the Trump administration, however, it is the perception of China as a strategic threat to US hegemony rather than a strategic alliance which has radically altered the game.

So, yes it is a war and we could be witnessing a long term structural event that has been building up over 20-30 years, the gutting of industries and the middle-class Brexit, Trumpism, economic nationalism.

With the bet on globalization unwinding and being possibly the greatest geopolitical event of the century how do investors play it

Understanding how the fracturing of globalism will impact the supply chain could give investors a heads up on the next profitable long investment opportunities.

As one supply chain manager, Larry Sloven, put it “you prepare for war. You’re ready if you’re attacked.”

Larry Sloven, resident of Capstone International, an HK-based subsidiary of Capstone Companies.

has been building supply chains in Asia for the better part of his 30-year career.

Sloven, who is 70, has spent half of his life connecting factories, sourcing raw materials, and dealing with logistics, mostly in Southern China. But now, with his Big Box store clients demanding supply chain reshuffles at the drop of a hat, Sloven explained how “i]t is the hardest thing I’ve ever had to do in all my 30 years in the business,” said Larry Sloven. 

One supply manager is a micro example of what we are seeing in a macro trend bet on globalization unwinding

So here is a surveying showing the number of firms planning to move at least some production outside of China, which has climbed to 40%.

In Asia, the biggest winner from trade flows redirected from China has been Vietnam, then South Korea followed by Thailand and Japan.

In terms of geographic regions, the biggest winner from trade flows redirected from China has been the Eurozone and Latin America.

A bet on globalization unwinding, spearheaded by the US Trump’s trade war with China means that the Eurozone, Latin America are the biggest regional winners with Vietnam and South Korea coming out the best in Asia

A bet on globalism unwinding could be a bet on stagflation too

President Trump’s trade war with China could generate a supply shock for the US economy similar to the stagflation that crippled the US economy after the 1973-1974 OPEC oil embargo, according to former Fed Vice Chairman Alan Blinder.

It’s a stagflationary shock. Hopefully a small one,” said Alan Blinder at Jackson Hole.

Alan Blinder said it was hard for the Fed to gauge the future given the president’s actions.

“The trend seems bad,” he said. “It looks like pretty smooth sailing for the economy,” he added. “But this [president] is capable of killing it, and shows no judgment or intelligence” said Alan Blinder.

The former Fed Vice Chairman said he was worried about Trump’s tweet asking American companies to leave China, suggesting he thinks he can order American companies to do what he wants.

“That has the potential… for really killing investment,” said Alan Blinder.

A bet on globalization unwinding also has its risks

The US economy could take a sharp downturn and if so that could shatter President Trump’s election chances in the 2020 presidential elections.

If that is the case then we could be looking at a temporary blip in the globalist plan which could also translate to a bet on globalization unwinding being off the table.

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