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geopolitical transition

The economic recovery is entrusted to the remission of disturbances of unequal scope and control: from the virus and its mutations, from the normalization of supply and logistics in supply chains, from inflation and from the abilities of central banks to control it without doing excessive damage to growth. But there is another dimension that continues to assert its growing influence over the economic decisions of companies and governments, which is generically protected under the heading of geopolitics. The alteration of behavior patterns in relations between nations, the emergence of tensions between some of the most powerful, the increasingly explicit perception, in short, of tensions associated with a redistribution of political, economic and military power in the community international. An alteration of the guidelines, of the rules and of the tradition, explicit after the arrival of Donald Trump to the US presidency that now takes on a greater role and brings its economic consequences closer.

All this conditions more than before any economic prospective exercise, forcing us to identify the ways of impact, of course, on trade, the distribution of investment flows, or on the path of public finances. It is necessary to take into consideration a broader number of relevant actors, but also to renew the necessary disposition of interdisciplinary visions in order, at least, to better understand the world through which the economy runs. It is not the friendliest territory for economists, but there is no choice but to face it. It is a broader scope than the one that Mark Carney tried to incorporate when he defined that “trinity of uncertainty” years ago: geopolitics, economics and politics. The relationship between geopolitics and economy is no longer so protected by classical determinism: now these mutations are altering conceptions assumed as parameters in the analyses. The most obvious cases are related to the scope and extension of the dynamics of globalization and the threats of confrontation with Russia.

The tensions between the US and China are the most explicit exponent and very probably the one that will attract the most attention during the current year. China is now the main obsession of US foreign policy. The arrival of Trump marked the end of that sweet time in relations between the two powers, four decades between 1979 and 2019 that define a time of constant economic integration between the two countries and China in the global economy. These are years of deepening globalization, expansion of trade and a certain understanding between the two great world powers. From the decisions adopted by the previous president of the United States, central aspects of the dynamics of globalization were questioned, such as respect for free trade or the free mobility of capital flows, while the predicament of multilateral organizations was weakened , disavowing essential aspects rooted in economic and political analysis since the signing of the Bretton Woods agreements in 1944. The main guarantor of the international economic system took a step back.

This perception of greater US introspection was accentuated by its controversial withdrawal from Afghanistan, which questioned the US's will and ability to continue managing the stability of international relations as it has in the last 70 years. A weakened predicament that has reinforced the role of hitherto secondary actors, such as China itself and Russia.

Tensions between the US and China have already overflowed the limits of a mere trade war. Its derivations in the so-called “technological cold war” have taken the form of a full-fledged cold war, with manifestations of the rivalry between the two nations in more diverse fields. The broad consensus between the two main US political parties on the neutralization of the Chinese rise is accompanied by those claims of President Xi to assert the economic and military scale gained in recent decades. A first source of concern, also about its economic consequences, is the verification of the rise in military budgets, including those of countries in the region, such as Japan. In many cases, protected by these new demonstrations by the Chinese authorities around conflictive areas for decades.

This situation is taking place at a time when there are reasonable doubts about the ability of the Chinese economy to maintain its dynamism. The emergence of some imbalances, notably financial ones, the most explicit interference of the Government in the actions of companies, or the wide inequality in the distribution of income and wealth, support doubts about the continuity of the growth model maintained up to now. Its consequences for the rest of the world economy, at least in the short term, make up, in any case, one more factor of uncertainty, of particular importance for those companies that had counted as one of their strategic premises the absolute complementarity between markets Chinese and American. One of the most illustrative exponents in this regard is the questioning of the role of that economy in cross-border production chains. In sectors such as the automobile or digital technologies, semiconductors in a prominent way, the return home, reshoring, it is an option that is all the more viable the more attractive the subsidies that the Biden Administration itself is offering to do so.

Know in depth all sides of the coin.


Having a deterioration of multilateralism, with difficulties for international coordination in the fulfillment of commitments on environmental control, have become a prominent part of the risk maps in use. Differentiated relevance charges the greatest technological insecurity, one of the most important catalysts of this geopolitical transition. The risks of digital fragmentation are no longer so remote, and of its true scope we can only make little more than a few guesses at the moment.

These tensions between China and the US already condition negotiating capacity in other areas such as Russia and Iran. The renewed closeness between China and Russia is also part of that geopolitical transition that is likely to complicate the economic outlook, directly or through the already evident scale of tension. The deployment of Russian troops on the border with Ukraine and the warnings about the role of NATO in the countries of the East lead to these tensions in a Europe divided about its military identity. The economic implications, once again beyond those derived from variations in military budgets, materialize in the energy security of a large part of Europe: 40% of gas imports and 25% of crude oil come from Russia.

As if that were not enough, among the actions being handled by the US Administration to contain this conflict with Russia, is the possible disconnection of the Swift system, the network used by more than 11,000 banks around the world to make cross-border payments.

Faced with these scenarios, Europe cannot remain on the sidelines. It is reasonable, therefore, that this geopolitical transition, to which additional elements could come, constitutes a central piece in shaping the relevant economic environment for many companies, beyond what happens in Ukraine.

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