How China-West tensions will shape global markets
Rising trade barriers, tech competition, and eavesdropping allegations are just a few of the factors contributing to tensions between the West and China. As Washington and Beijing work to reduce their dependence on one another, the effects on international markets are profound, shattering old supply lines. This might contribute to maintaining high inflation and interest rates. Even still, there are advantages for developing countries and IT behemoths on the winning side of the power struggle.
President of the United States Joe Biden is committed to relocating manufacturing in key industries including semiconductors and electric vehicles. To meet the demands of multinationals seeking to diversify their supply chains beyond China, TSMC, the largest chipmaker in the world, is shifting some operations to Germany. According to Goldman Sachs research, domestic production may result in inflation, particularly if Western manufacturing does not expand quickly enough to make up for falling imports. Wouter Sturkenboom, chief investment strategist for EMEA and APAC at Northern Trust, said, “We established a globalized world for a purpose; it was efficient and affordable.
By making European countries pay more for things priced in dollars, a stronger dollar can export inflation to those countries. Many central banks aim for 2% inflation, and market indicators reflecting traders’ long-term expectations for inflation in the United States and Europe are rising. The concept of “friendshoring”—replacing China’s position in supply chains with friendly nations—is being promoted by Washington. According to research done by Laura Alfaro of Harvard Business School, the two countries that have benefited the most from the U.S. supply chain change thus far are Vietnam and Mexico. In order to mine rare earths—materials used in high-tech goods like smartphones—Mongolia is looking for U.S. funding. The Philippines is seeking American infrastructure funding.
The bearish China investment case goes beyond politics because to the country’s weakening economy and the unrest on the real estate market. However, the likelihood of enduring tariffs and the inconvenience of working around American limitations on investing in Chinese technology are not helpful.
Investors disagree on how to approach the Chinese stock market as it underperforms other global markets. 40% of credit investors surveyed by JPMorgan were pessimistic about China, yet about the same number wanted to expand their exposures. Because everyone despises (this market) so much, Patrick Spencer, vice chair of equities at RW Baird, said, “I’m actually warming to China.” The reality is only somewhat better than what the market had predicted.
- Published By Team Nation Press News
