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Last week, when General Assembly of the UN met in New York, I moderated an event with a group of renowned economists and foreign affairs experts on the effects of the United States elections in the future of multilateralism.
They all agreed that donald trump It will be a disaster for global cooperation and that Kamala Harris It’s a mystery. However, the most interesting finding was that participants were less interested in how the United States would relate to the world than in where the world would go with or without the United States.
While it sometimes seems like policymakers and business leaders are waiting anxiously, with plans on hold, to see what happens in November, it is perhaps truer to say that they are making peace with a world in which The US is not an anchor for stability, but rather a risk that must be protected against.
It is as if, in recent years, the United States has become a giant emerging market, full of danger and promise, but above all, unpredictability. Leaders abroad know that policies can change every four years. CEOs understand that subsidies and tax breaks offered today may disappear tomorrow. Investors are considering the premium that must accompany rising debt and more volatile politics.
In fact, many governments and companies are, as Pi Capital highlighted in a recent briefing, “quietly trying to wean themselves from dependence on the US.” That includes everything from increased military spending by Japan and Europe to German corporations such as SAP, supermarket chain Lidl, soccer club Bayern Munich and the Port of Hamburg moving away from platforms. US technology companies because they do not want sensitive information to pass through US or Chinese servers. As a Bayern Munich spokesperson told the Financial Times in August, the switch to Schwarz Digits, a German cloud system, was a matter of “digital sovereignty.”
A lot of money continues to flow from Europe to the US, partly due to concerns about China, but there is also growing fear that the United States is a risk node. Last week I spoke to a person who works in government affairs at a large US technology company and he told me that many European clients tell them that “the US is becoming less reliable” as a partner.
Part of this is due to political uncertainty and its implications, which increasingly include tariffs, export controls and sanctions. Another part has to do with the fiscal stimulus that favors American actors. But the key problem was the lack of clear, stable guidelines and demand signals that companies can count on in the long term. Will Trump dismantle the Inflation Reduction Act of 2022? Will Harris take the same approach as the Biden administration toward big tech companies?
Mark Rosenberg, founder and co-director of the research firm GeoQuant, points out that this “EM-ification” of the US goes beyond uncertain presidential politics. It also has to do with “institutions (that have) become too weak to define or enforce political rules and norms, increasing social polarization, political violence and economic uncertainty around key political events, which do not They not only include elections but things like the endless disputes over the debt ceiling.
I would add to that list the way violence – not just the political kind, but also the mass public shootings that occur roughly every two days in the US – has become normalized. Now, in the United States, you can buy bulletproof backpacks for a generation of children who have grown up practicing confinement in their primary schools. I was amazed two years ago when my own son didn’t get hit by a shooting on the Brooklyn subway just because of one stop, and he called me not crying out of fear, but to calmly ask if he could order Uber Eats for lunch, since his school was closed. When children see violence in their daily lives as normal, something is desperately wrong.
The EM-ification of US politics has been a consistent finding in GeoQuant data since 2016. While the overall level of political risk in the US remains lower than most emerging markets, the rate of change of risk – especially underlying political violence, social polarization and institutional risks – has increased at a rate similar to that of historically volatile emerging markets such as Russia, Turkey, Bolivia, South Africa, Lebanon and Hungary. This was true during the Trump and Biden administrations.
And it’s not just about the United States. The average risk of developed countries is increasing faster than the average risk of emerging markets, thanks to irregular changes in leadership, greater policy changes and the economic and financial volatility that all this entails. It seems we are all emerging markets now.
The big question for investors, which many have been asking for years, is when all this will reduce the dollar’s safe haven status or weaken the US stock markets, which, against all odds, remain the most liquid refuge in the world for the dollar. capital, both foreign and national. The dollar may be falling a bit these days, but US stock markets are still roaring.
GeoQuant shows that political risk is a factor in 10- and 30-year bond yields. It has kept the VIX, a measure of expected stock market volatility, high and boosted daily Treasury yields. It’s also the reason gold is at record prices. Just as policymakers and businesses are hedging their bets, so are investors who see risk, not just reward, in the United States.
