How Presidential Visits to China are Changing the Present World Order
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April has been an important month for China’s position on the world stage. The country has been a rising power for many decades, especially since its introduction to the World Trade Organisation (WTO) in 2001. This has led to some trepidation from the prevailing world order led by the US which seems to be past its prime. This fear has ballooned to be one of the only positions shared by an ever more polarised Congress. This month has seen a series of macro events that show the accelerating progression to a world guided by Beijing and its policy decisions.
Baguettes and Circuses: Macron Visits China
Emmanuel Macron can only be described as the defender of the European project and a textbook Europhile. However, for such a prominent leader that has filled the Merkel-shaped leadership vacuum on the continent, he is certainly not your standard European diplomat.
At the start of April, Macron visited China on a trip that was carefully watched by pundits and strategists. Macron declared that “the great risk” Europe faces is that it “gets caught up in crises that are not ours, which prevents it from building its strategic autonomy.” This statement is something that certainly echoes the era of another titan of French politics, Charles de Gaulle. De Gaulle vehemently opposed the Vietnam War and convened cordial Franco-German relations which laid the foundations for Macron’s vision of a third ‘European Superpower.’ These parallels are unsurprising due to war returning to Europe and fears regarding an expansionist leader at the helm of the Russian state.
What lies at the heart of Macron’s statement is the desire for European self-determination of policies that serve the interests of the ecosystem without the coercion or convincing of Washington. Economic tension has also risen from the Inflation Reduction Act has caused fissures in the Western Order to deepen on all fronts. If these fissures boil over to a new period of American isolation caused by a deep nationalism enhanced by election season, we could see economic stimulus pour into the system on both sides of the Atlantic to protect nationalistic interests. While this period may supercharge growth through fierce competition, the potential for inefficiency it poses may hinder long-term gains for portfolios that back the wrong horse.
Meanwhile, China can extend further industrial links to Europe that all in all see the US side-lined by a world that no longer needs it.
System Update: Lula Against the Machine
Xi Jinping was also visited by the recently returned President Luiz Inácio Lula da Silva of Brazil on his first state visit to China. China has a deep involvement in Brazil’s economy primarily through its commodities sector. While speaking at the BRICS Bank, Lula called out the current global system underpinned by dollar-denominated trade. Instead, Lula had called for a system in which international trade could be carried out in domestic currencies safe from the influence of the United States.
In his book, ‘Principles for Dealing with the Changing World Order’, Ray Dalio outlines how a series of cycles underpin our world. One key cycle that piqued my interest is how currency rises and then unravels into worthlessness. This can be seen in recent lifetimes with the Bretton-Woods system agreed upon after World War 2 that then fell apart as the US left the gold standard and became a fiat currency. As a result, many poorer nations no longer needed to maintain links to gold but could instead align with the US dollar that has risen to underpin the international trade order today. This brief overview does not do Dalio’s book justice, and it will be one I will have to read a few times to appreciate fully. However, the lesson stays the same as during the Nixon era, we are seeing a fundamental shift in the international trade and money order we currently see today.
This is certainly a story to watch closer and this initial insight provided by Lula hints that there is unrest in the system that can only be resolved through system change.
Thanks for reading,
Daniel
Disclaimer
This communication is for informational and educational purposes only and should not be taken nor used as investment advice, as a personal recommendation, or solicitation to buy or sell any financial instrument. This material has been prepared without considering any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or structured product are not, and should not be taken as, a reliable indicator of future performance. I assume no liability as to the accuracy or completeness of the content of this publication.