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Hello and greetings from Brazil.I am writing to you from the beautiful city of Rio de Janeiro, where global leaders across the G20 are gathering for the 19th summit.Brazil is almost a second home to me. I am grateful to have completed my PhD studies in Brazil, and I continue to have abundant business, government and academic contacts throughout the country.This week, leaders here in Brazil have focused largely on the energy transition and sustainable development, as well as anti-poverty and ending hunger plans.While the media headlines center on the incoming White House and conflict in the Middle East and Ukraine, G20 leaders are also looking to the health of the global economy.While in Brazil, I’ve had the opportunity to speak with a host of very well-connected folks that are involved in policy, research and the private sector. These on the ground conversations surrounding the G20 have centered on three main areas covering geo-political and economic themes.Below, we’re breaking down the three key areas and detailing what you should know.
I. U.S-India Relations Will Be Key
As Trump gears up to impose tariffs and other trade counter-measures against China, the U.S. is seeking other outlets (and fortifying its own as we reported here). Expect India to play an even more significant role. While here, Indian leadership has made it clear that they will continue to trade with the world and fill potential voids in products or supply chains where a Chinese presence may have once prevailed. For some areas of the world, that could mean becoming less dependent on China and more interconnected with India.While in Brazil at the G20, Indian Prime Minister Narendra Modi met with President Joe Biden to signal the continued strength of the relationship. Last July, Biden also hosted Modi for an official state dinner at the White House – where they discussed deals on defense and commerce. Don’t expect that dynamic to change as the Trump administration prepares to take office. In 2020, Trump made an official visit to India and the President-elect recently called Modi “fantastic.”Already, the U.S. is India’s biggest trading partner to the tune of $119.7 billion in two-way trade over the past fiscal year – which is up more than 30% in the last five years.
BloombergThis shift can already be seen by Apple and other U.S. company operations. As an example, last year, Apple’s CEO, Tim Cook, traveled to India to launch the company’s first stores in Mumbai and New Delhi. This year, Apple reportedly exported nearly $6 billion of India-made iPhones, a more than 30% increase in value terms from a year earlier. Expect more U.S. companies to follow Apple’s lead.
II. Chinese Overcapacity Issues Will Grow
The issue of Chinese overcapacity keeps rising. This is because China continues to drive its export boom with excess production, all while crowding out and significantly hurting global industry competitors.From steel to medical equipment, China has produced far more than it could consume domestically and has targeted developed and developing markets to offload its products. This year, the U.S. and the European Commission have both announced efforts to reduce the negative impacts of Chinese overcapacity on their markets – in particular, for solar panels, metals and electric vehicles.
Reuters
While not in direct response, on November 8, China announced a $1.4 trillion stimulus package that, though positioned as a policy to help solve domestic economic and financial problems, will have global implications for exports. The move could also signal that Chinese overcapacity will continue to be a tool the country uses for the long term as it deploys stimulus to boost its economic and trade positions.
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Countries worldwide are now working to protect their domestic workforces, sectors that are key to national security and markets that are pivotal to their global economic position. As the pandemic, trade wars and international conflicts over the last four years have shown – overreliance on supply chains can hurt jobs, markets and consumers at every economic level. Now, as Trump threatens to unleash tariffs up to 60% on China, the issue of overcapacity will have a greater focus.More than half of Chinese export goods now land in developing economies. Expect this trend to continue as the West resists the Chinese overcapacity problem.
III. Volatility Will Continue in the Near Term
While world leaders of the largest global economies gathered in Brazil, more questions were raised than solutions found. One growing theme that has continued to be an elevated concern here at the G20 is over the incoming White House and its promises to increase tariffs – with a particular focus on China. That’s because nobody really wins when the world’s two economic giants fight. However, everyone on the international stage could have something to lose. The friction between the U.S. and China will continue contribute to global tensions.But tensions are not the only area of concern. As of right now, there remains no resolution for conflicts in the Middle East or Ukraine. There are also growing concerns over tensions in the South China Sea and with Taiwan. All of these geopolitical flashpoints could worsen before they reach any settlement.While the world remains on edge, markets will be more prone to sharp rallies, as we saw after Trump’s victory. On the inverse, markets will also be primed for more intense declines, as we experienced when higher U.S. inflation figures prompted the Federal Reserve to curb rate-cut hopes.That’s why it’s important to focus on long-term investments and remain vigilant on short-term uncertainty. One direct way investors could navigate this period of volatility would be to look for less volatile outlets. The iShares MSCI Global Min Vol Factor ETF (ACWV) offers an outlet that has a basket what are considered low volatility attributed stocks. This gives conservative investors the chance to participate in global markets across a variety of scenarios over the long term.More By This Author:This Is What Wall Street Banks Are Hiding In The Post-Election Euphoria
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