Uncertain times: the future of economic globalisation
The recent speeches by Chinese President Xi Jinping at the 47th World Economic Forum Annual Meeting in Davos and Donald Trump at his inauguration as the 45th president of the United States of America, provided seemingly opposing views on the future of the global economy.
Xi Jinping’s keynote address acknowledged the ‘double-edged sword’ of economic globalisation: on one hand powering global growth through facilitating the movement of capital, goods and people, and on the other increasing inequality between the ‘poor and the rich, the North and the South’. However, Xi suggested that many of today’s problems (citing current regional conflicts and the global financial crisis) were not caused by economic globalisation but by more systemic reasons such as poverty, inequality and poor regulation. As such there is a strong case to maintain open co-operation between nation states, guided by a focus on innovation-driven growth models and greater representation of emerging markets and developing countries in global governance bodies.
Donald Trump’s inauguration speech three days later struck a significantly more nationalist and protectionist tone, perhaps unsurprising given the nature of his campaign for the presidency, which focused on ‘America First’. This declaration of overt protectionism by the world’s largest economic power on areas such as manufacturing, jobs, defence and foreign policy is worrying to global markets already shaken by Brexit and rising European nationalism. The heightened economic uncertainty requires investors rethink their coping strategies in complex financial markets (see page 16 of Thinking Ahead Institute (2015), “State of the industry – part III” paper on the TAI website, for coping strategies in VUCA environments – (member login required)).
There is no definitive solution to this potential schism between the status quo (globalisation and free trade, with an established political class) and protectionist, post-truth politics (those who feel let down by the current system and want a restoration of protective nationalism). We only have educated guesses as to what President Trump’s policies will be and the consequences (both intended and unintended) are even less clear. Likewise, we don’t know how China will respond or in fact whether they will take a leadership position in defining economic globalisation. Polarised media and skewed messaging, depending on what one is reading, makes a unified world view even more elusive and so it is essential for investors to continue to observe the undercurrents that reformulate a new economic reality, and be ever vigilant for the potential for “extreme” outcomes. Resilience in portfolio construction is key. Reprising the eternal truth of Heraclitus, “the only constant is change”.
