Michael Zezas: The Costs of a Multipolar World

Recent interactions between China and Europe signal a continuing reorganization of global commerce around multiple power bases, bringing new and familiar challenges for companies.----- Transcript -----Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income Research for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the U.S.-China relationship and the shift to a multipolar world. It's Wednesday, April 19th, at 9 p.m. in New York. As listeners here already know, one of the big secular themes we've been tracking in recent years is the shift to a multipolar world, one where instead of having one major power base, the United States, you now have multiple power bases to organize global commerce around, including China and Europe. And recent interactions between China and Europe underscore this trend. For example, President Macron of France recently noted following a trip to China that Europe need not precisely follow the U.S. in how it approaches its relationship with China. While those comments have received pushback in other European capitals, it's fair to say that Europe, with its relatively more interconnected and trade-based economy, may have a more nuanced approach to China than its traditional ally in the U.S.. In any case, multiple power bases mean multiple challenges for companies doing business on a global scale. This trend is most noticeable to U.S. investors in large cap stocks, where multinationals continue to announce shifts in the geographic mix of their supply chains. While incremental, some of these changes seemed unfathomable just a few years ago. Take a recent Bloomberg News report about a major tech company that continues to shift, again incrementally, new production of some products out of China and into places like India. While the news report doesn't draw an explicit link between those moves and U.S. policy choices, we think such a story speaks to the influence of the non-tariff barriers that the U.S. has raised in recent years as it seeks to protect new and emerging tech industries in its jurisdiction that it deems important for national and economic security. This includes existing export restrictions and the potential for outbound investment restrictions, which could hamper companies seeking to build production facilities in countries like China, where sensitive technologies would either be produced or be part of the production process. To keep it simple, the multipolar world comes with new costs for many types of companies, and it's becoming clearer and clearer who will bear those costs and who will benefit from that spend. We've previously highlighted potential geographical beneficiaries like Mexico and India and will continue to check in with new work on specific sector impacts to keep you informed. Thanks for listening. If you enjoy the show, please share Thoughts on the Market with a friend or colleague or leave us a review on Apple Podcasts. It helps more people find the show.