At a time when conflicting voices are raised as to when full recovery will arrive, we are pleased to present below a summary of four articles with unique insights that may have an impact on our lives and portfolios in the medium term.

A New Cold War: Trump, Xi and the Escalating US-China Confrontation

Gideon Rachman, Financial Times
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As the US has once again been plunged into an increasingly militarized rivalry with a Communist nuclear power, it is little wonder Henry Kissinger sees Beijing and Washington in the “foothills of a cold war.” While the undercurrents of less-than-friendly competition have been flowing for nearly a decade, they have come to the fore under the Trump administration. Moderate to severe hawkishness on China is one of the few bipartisan positions in a fracturing US society. Some fear that, even in a world of globalized supply chains, the world could be split between American and Chinese blocs, with nations forced to choose a side to keep up in the tech race. One need only look to the Huawei controversy or the Belt and Road Initiative to see the foundations for a new biaxial balance of global power. While China’s public stance towards this rivalry has been less overtly adversarial than its US counterpart, behind the scenes the Xi administration sees the US as an existential threat to CCP rule.

The US’s strong alliances with several east Asian powers – including South Korea, Japan, and Australia – give it a far more substantial presence in the western Pacific than geography would suggest. While Taiwan could prove a flashpoint for an overt conflict, nuclear concerns make proxy struggles the more likely option. Science, technology, and medicine are already theaters in a war of innovation.On the other hand, a deep economic connection between China and the US makes for a substantial grey area between the two nations, a symbiosis that has bled into education and society. Although these differences will certainly mold the flow of this present conflict, the motifs of history are not easily dispelled. Even as the USSR eventually collapsed under its own weight and the US emerged victorious on the strength of its economy and society, the winner of the present race will likely be determined by the resilience of its people.

The Age of Strategic Instability

Elizabeth Sherwood-Randall, Foreign Affairs
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Let us now turn our lens to the military aspects of modern competition. For decades, the prevailing thought on military development was one of “strategic stability” – a cool-headed, cautiously progressive approach to the challenges of defense in light of mutually assured destruction in a conflict of nuclear powers. However, new technologies and deteriorating relationships have raised the stakes and pace of escalation, indicating that the era of strategic stability may be at an end. Advanced nuclear capabilities, cyberwarfare, space operations, and biotechnology are interwoven in a multilateral tapestry of military capability that complicates any stable equilibrium by orders of magnitude. These factors make strategic planning an exercise in complex adaptive systems, a modeling framework designed to capture the nuances of unpredictable asymmetric relationships. Traditional arms control measures are no longer effective, but should the US lead a new era of rational negotiation between the major powers of today, new norms could emerge to secure a peaceful global future. In an age of uncertainty and miscommunication, there has never been a stronger incentive to seek the way of peaceful coexistence.

What’s Baked Into the Market? And What Does That Even Mean?

Peter Coy, Bloomberg
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Some have asked whether a Biden victory in November has already been “baked into” the market; others may wonder if the market has “priced in” the Reserve Bank of India’s monetary policy; still others want to know if the market has already “discounted” the earnings forecasts of United Internet AG. Whatever the topic or term, these three questions share a common theme: can you make money off this information? Essentially, all three of these events (and any other potentiality) have an expected outcome, and as such an efficient market already reflects the impact of these events on future cash flows. In other words, if you want to make money off a piece of information, that knowledge alone isn’t enough – you must also predict how other investors will react to that information. Since market professionals and the general public give different weightings to most news (e.g. President Trump’s hospitalization this past week), weighing the conventional wisdom can be tricky, especially when one considers the velocity of decision-making. The practice can be considered as much an art form as a science.

China’s Global Image Plummets After Coronavirus

Amy Mackinnon, Darcy Palder, Colum Lynch, Foreign Policy
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A report published by Pew Research Center reveals that public attitudes towards China have plummeted since the beginning of the Covid-19 pandemic. More than two thirds of people in 14 countries said they had no confidence in Chinese President Xi Jinping and three out of five said China did a poor job at dealing with the outbreak. Interestingly enough, the most negative views came from China’s neighbors: Japan, South Korea, and Australia. On the other hand, the United States fared worse in the study as 84 percent of respondents said America mishandled the pandemic and 83 percent said they had no confidence in Trump’s handling of global affairs. The survey also revealed that people across 13 wealthy countries trusted Trump less than President Xi or Russian President Vladmimir Putin. 

There is a growing public perception across many developed nations, such as Australia and in many European countries, that China is a destabilizing actor and a threat to democracy and sovereignty. Just a few days ago, Britain and Germany secured support from 37 other countries for a statement denouncing China’s treatment of Uighers, Tibetans, and Hong Kongers to be presented before the UN General Assembly human rights committee. Last year, a similar resolution only received 23 votes after China threatened countries that backed the statement with trade cutoffs. While China’s global image may be getting worse among wealthy countries, less-developed countries tend to have more positive views of China. According to Transparency Internationals’ Corruption Perceptions Index, the more perceived corruption in a given country (corruption levels are higher in less-developed nations), the more positive attitudes towards China. On the other hand, a Pew report last year found there was little correlation between Chinese investments in a country and the country’s overall views of China. President Xi is quickly learning that his massive overseas investments, trade might, and huge economy are not paying political dividends. 

Wildfires, Droughts, Pandemics. Is this Our Future? How to Build a Safer World. 

Fareed Zakaria, Time
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The rapid pace of human development over the last few decades has accelerated the pace of climate change. In a 2019 United Nations report, experts concluded that 75% of all land and 66% of marine environments have been “severely altered” by human actions. This year, wildfires have destroyed at least 5 million acres (so far) and the Covid-19 pandemic has plagued the world. Author Fareed Zakaria argues we are practically inviting animal viruses to infect humans because expansion has brought humans closer and closer to the habitats of wild animals and the people who live in these places are more mobile than ever before. Furthermore, human encroachment is making the world warmer, which is not only leading to more natural disasters such as the wildfires we’ve seen this year, but is also creating more hospitable conditions for disease. 

Climate change is happening and we may not be able to stop it completely, but we can definitely decrease the scale of change and avoid some of its most harmful effects with aggressive and smart policies. Though these policies will be expensive, they are necessary and will be much less costly than the economic losses caused by an ineffective response to a crisis. Moreover, building in resilience also creates emotional stability; humans will not embrace change if they constantly fear the next pandemic or natural disaster. The world has been able to overcome disasters and adapt to extraordinary change before but “we have to adjust to the reality of an ever increasing instability – now.”