The Death of FDI
With tariffs back as a tool of national policy, and with the American Empire consolidating, FDI into potentially hostile countries is now an unacceptable risk.
Commercial Summary: If you are in a strategy team, or are in CEND or other political risk insurance, this piece is for you. Globalisation under the old unipolar rules is dead, and a far more fragmented picture is emerging.
We repeat ourselves: this is Samuel Huntington’s world. We just live in it.
The age we live in is one of competition between great empires. China, Russia, the Muslim world, the West, and India are competing with one another over control of their near abroad, access to resources, and security.
This is a departure from the corpse of the post World War order, which was characterised by a competition over universal ideas and norms. Now, the rules are different, and are set first and foremost with nationalist interests in mind - not abstract ideas.
In a game theory sense, there is a logic in keeping the rules predictable. If one assumes that the game is economic. If one accepts that the game is imperial, however, then that predictability vanishes.
In this world, America’s project of imperial consolidation may backfire. An increasingly nationalist and self-reliant government in Germany, which may result from a future AfD-CDU coalition or which may follow the failure of a CDU-SPD coalition, would move away from the American sphere, reach an accommodation with Russia over Ukraine, resume Russian energy imports, develop an industrial policy targeting both China and America, and rearm. This would be a two-decade project, at least, though parts of it - re-opening the undamaged parts of NordStream and abandoning Ukraine - can begin in the next year or two.
In any case, in this new, old, imperialist and nationalist world that has shed the delusions of liberalism, free trade, and FDI, will be informed first and foremost by national security, industrial policy, and autonomy, not purely financial or economic considerations.
Indeed, and this is an idea we will develop in a future piece, it may be necessary to puncture the various asset bubbles in the West, and thereby crush the oligarchic power of financiers, to reach this new system. China seems to have already done so, in a bid to focus its best minds on production, not financial gimmicks, and to reduce the influence of inherently untrustworthy financiers.
Commercial Implications
We expect a deepening of the separation between the US and China. This will lead to mass expropriations of Western, especially American, industrial assets in China, and the expropriations of Chinese assets in the West, especially America.
Some small countries, like Hungary and the Balkans (including Greece, Romania and Bulgaria), will eventually play a double game, trying to align with both, China and Russia on the one hand (even as the two turn into competitors), and the West on the other. These deserve specific deep dives that are beyond the scope of this piece.
In the imperial core, ownership of assets by rivals empires (e.g., Chinese assets in Russia, Indian assets in America or its technological partners), as well as control over sensitive intellectual property, will be intrinsically tied to political and security questions, not economic or legal questions. This places Microsoft’s expansion in India at severe risk of retaliation by the American federal government.