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What’s going on?
The International Monetary Fund (IMF) warned on Sunday that the global economy could end up 7% worse off if countries don’t start cooperating.
What does this mean?
China was admitted to the World Trade Organization back in 2001, and ever since, the Red Dragon’s role as “the world’s factory” has been a boon to companies all over the world. China’s benefited too, of course: after all, that huge influx of foreign cash triggered a rapid growth spurt that’s only recently started to slow. But things have taken a turn for the worse lately, and that golden era of globalization seems to be behind us. With international tensions at a steady simmer, countries are now looking closer to home for everything from raw materials to technological know-how – something that the IMF is convinced will hurt us all.
Why should I care?
For markets: My fair “Made In”.
It’s no coincidence that China’s arrival on the global goods trading stage coincided with a long spell of disinflation, when the price of goods barely budged. The country’s seemingly endless supply of cheap labor meant that firms in richer nations could outsource manufacturing, juicing up their profit margins without needing to raise prices an inch. But now that global politics have got a lot less friendly, you might see fewer goods stamped “Made in China” on the shelf: instead, expect some more expensive products marked “Made in America, Britain, France, or Germany”. That’s not likely to go down well with the world’s inflation-pinched consumers…
The bigger picture: Profit over politics.
Businesses have some tough customers to please, day in, day out: their shareholders. And if firms want to keep them onside, they’ll need to deliver consistently swelling sales and impressive profit margins. That can involve ditching home-turf help for cheaper global supply networks – so while politicians might go crazy for hawkish foreign policy and self-contained strategies, multinational companies are more likely to want friends in faraway places.
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Originally Posted January 16, 2023 – Play Nicely
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