China’s decision last week to repeal presidential term limits and allow Xi Jinping to extend his tenure for his lifetime follows Vladimir Putin’s successful sidestepping of term limits in Russia earlier this decade. These two countries have clearly stamped their “authoritarian models” on their world order. Business terrain in both these countries has shifted with greater regulatory scrutiny and tighter control over trade, all in an effort to enforce “follow the rules” mandate. As such, US companies are increasing finding themselves struggling to compete in these countries and free trade, unfettered capital and digital information flows have been stymied.
Trump, who has publicly admired Putin and Xi, followed on their footsteps by killing the Trans-Pacific Partnership and Paris agreement and now imposing steel tariffs earlier this week has set the stage to withdraw from NAFTA. All of this puts the global leadership of the US is at risk. Pew Research published that US image of global leadership has fallen from 64% at the end of Obama Presidency to 50% under the Trump Presidency with China rising to 48% during the same period.
The stock market, which rarely takes kindly to surprises, has yet to absorb the extent of this transformation. While US competitiveness and leadership continues to be dominant and the seismic shift in world order could take many, many years to manifest itself, investors would be wise to pay attention.
Future Wealth’s View
While Trump may take pride in giving the middle finger to the establishment and previous administration’s policies, free trade and the various accords that he has nixed are fundamental building blocks of globalism. Major US corporations thrive on the successful implementation and execution of these policies. By becoming a gut level protectionist, Trump is simply empowering Russia and China to take the lead on major global policy decisions – one that US has traditionally been the leader and steered policy discussions.
While Wall Street may focus on the near term impact of these decisions and may take awhile to recognize the long term impact of this shift, it is clear that China and Russia are not sitting idly and are making key moves to shift the world order in their favor. With the bull market in the US sputtering with no direction, we, at Future Wealth, are taking steps to increase our client exposure to international and emerging markets. Trump may be gone in 4 or 8 years but the damage to US dominance could take years to rectify.