April 19, 2019

Geopolitics Trumps the Markets

“That crashing sound you heard in world markets last week wasn’t just a correction. It was the sound of the end of an age.

During the long era of relatively stable international relations that succeeded the Cold War, markets enjoyed an environment uniquely conducive to economic growth. The U.S. faced no peer competitors, and the most important great powers generally (if sometimes selectively) supported Washington’s emphasis on opening markets and reducing barriers to investment and trade. The positive-sum logic of economics trumped zero-sum international politics in the halls of power world-wide.

The results were extraordinary. Between 1990 and 2017, world-wide gross domestic product rose from $23.4 trillion to $80.1 trillion, the value of world trade grew even faster, more than a billion people escaped poverty, and infant-mortality rates decreased by more than 50%. The number of people with telephone service grew roughly 10-fold.

This hiatus from history was, by most measures of human flourishing, a glorious era. Now it has come to an end, or at least a pause, and the world is beginning to see what that means.

During the Obama administration, foreign-policy observers began to speak of “the return of geopolitics”—the idea that the international arena was increasingly defined by competition among strategic rivals. Russia, China and Iran were “revisionist” powers that aimed to upend the post-Cold War era of American dominance. These powers enjoyed growing success, particularly during President Obama’s second term. By the time Mr. Trump took office, there was little doubt a much more challenging geopolitical environment had taken shape.

For the most part, business leaders and investors paid little attention to such chatter; the basic elements of economic globalization appeared firmly in place. Russia, the most obvious challenger to the geopolitical order, was an insignificant and diminishing player economically. And China, notwithstanding its rapid economic growth and its anxiety about American military power, was unlikely to challenge the economic basis of its own success. Geopolitics might have been back, but that wasn’t an issue for markets.”

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