At the Intersection of Geopolitics and Geoeconomics

May 21, 2024 | Volume 7, Issue 5 | The BlackSummit Team

Here is a summary of important events that unfolded over the last month, and which may affect economic, financial, and geopolitical issues in the months ahead. Furthermore, we share our thoughts on the market implications of the reported developments.

Top News This Month

• The Biden administration announced plans to increase tariff rates on $18 billion of Chinese imports.

• Thousands have clashed with police in Georgia’s capital city, Tbilisi, in response to a proposed “foreign agents” law.

• The Prime Minister of Slovakia, Robert Fico, was shot and critically injured in an assassination attempt.

• Chinese President Xi Jinping and Russian leader Vladimir Putin met in Beijing last week.

• Iranian President and close ally of Supreme Leader Ali Khamenei, Ebrahim Raisi, was killed in a helicopter crash

• The stand-in candidate for former President Ricardo Martinelli, Jose Raul Mulino, has won Panama’s presidential election.

North America

• The Biden administration announced plans to increase tariff rates on $18 billion of Chinese imports with the intent to protect US industries from unfair competition from China, particularly in the green energy industry. A number of Chinese goods including electric vehicles (EVs), advanced batteries, solar cells, steel, aluminum, and medical equipment will fall under the new tariffs, with EV tariffs specifically to rise to 102%. This announcement comes after a four-year US government review of trade with China to “make sure that we have healthy and active firms”, according to US Treasury Secretary Janet Yellen. Beijing has criticized the measures, with China’s foreign ministry spokesperson Wang Wenbin saying they go against a consensus reached in November bilateral talks in San Francisco just a few months ago and “will harm the world’s green economic transition and climate action.”

• TikTok is suing the US government to prevent the enforcement of a bill passed last month. The bill, known as the Protecting Americans from Foreign Adversary Controlled Applications Act, would force the app’s China-based owner, ByteDance, to either sell the app or face a ban. TikTok argues that this law, which has created a social media frenzy, violates constitutional protections of free speech. The lawsuit is expected to extend the timeline for any potential ban or forced sale of the app.

• US President Joe Biden and Mexican President Andres Manuel Lopez Obrador (AMLO) issued a joint statement on Monday stating that they had discussed how to manage illegal migration more effectively and efficiently at the border. Both leaders have ordered their national security teams to work together to reduce irregular border crossings while emphasizing the need to protect human rights. US border patrol detentions dropped from a monthly record of 250,000 migrants in December to 130,000 migrants in April, largely due to increased enforcement efforts by Mexico. This number is still high historically, but increased Mexican military patrols and highway checkpoints are resulting in the interception of roughly 8,000 US-bound migrants per day, assisting in lowering the overall total intercepted at the US border.

• Pro-Palestinian protests have spread across US college campuses in response to the Israel-Hamas war. Two high-profile institutions, Columbia University in New York and the University of California in L.A., have made headlines for their large demonstrations and police arrests. The demonstrations (which have taken place in over 80 campuses across the country) demand that academic institutions cut financial ties with Israel or companies connected to the Israeli military’s actions in Gaza.

• Market Implications: Earnings reports for the first quarter are coming out showing strength. While a temporary correction might take place, the US equity markets could gain another 3-4% between now and the beginning of the fourth quarter. However, caution should be exercised for the more conservative portfolios. Having said that, commodity markets should also be reviewed as they may hold promise.

Europe

• Thousands have clashed with police in Georgia’s capital city, Tbilisi, in response to a proposed “foreign agents” law that critics argue would limit press freedom and undermine Georgia’s efforts to become a candidate for European Union (EU) membership. The bill would require non-governmental and media organizations receiving over 20% of their funding from abroad to declare themselves as foreign agents or face fines and imprisonment. The opposition views this law as a shift toward authoritarianism, as it has similarities to a bill passed in Russia in 2012 that led to a drastic deterioration of civil society. International condemnation has been widespread, with both the US State Department and the EU expressing concern. 

• On May 14th, Secretary of State Anthony Blinken met with Ukrainian President Volodymyr Zelensky in Kyiv. Zelensky stated the need for increased air defenses to defend against Russian hypersonic missile attacks that have been devasting Ukrainian cities like Kharkiv in recent months. Blinken stated that parts of the $61 billion US military aid package, previously held up in the US Congress, have begun arriving in Ukraine. These talks come as Russian forces continue their push into northeastern Ukraine, making the most significant gains of its campaign since 2022. 

• Parliamentary elections resulted in a win for the center-right ‘Your Macedonia’ coalition of 22 parties led by Hristijan Mickoski and his VMRO-DPMNE party. The coalition won 43% of the votes, giving it 58 seats in the 120-seat parliament— forcing the coalition to look for additional partners to establish a government. Presidential elections resulted in an outright win for Gordana Siljanovska-Davkova, the nation’s first female leader and member of the VMRO-DPMNE party. In her inaugural address, she referred to North Macedonia as Macedonia prompting the Greek Ambassador to North Macedonia to leave the swearing-in ceremony in protest. The VMRO-DPMNE party rejects the 2018 ‘Prespa Agreement’ between North Macedonia and Greece, which resulted in the name change and allowed the Balkan country to begin its EU accession process.

• The Prime Minister of Slovakia, Robert Fico, was shot and critically injured in an assassination attempt in Handlová, Slovakia on May 15th. The shooting occurred after a government meeting, and Fico was taken to a hospital and stabilized to undergo emergency surgery. Slovakia’s Deputy Prime Minister has said that Fico is expected to survive the attack, and that he is no longer in a life-threatening situation. The gunman is in custody, and no one else was injured in the attack. As of now, the specific motives of the gunman have not been officially confirmed.

• Market Implications: European equity markets are projected to continue exhibiting strength. For those not having EU exposure, some exposure might be warranted.

Asia, Eurasia, & the Pacific

• Amidst escalating tensions in the South China Sea, the Philippines’ national security adviser, Eduardo Ano, has called for the immediate expulsion of Chinese diplomats allegedly behind a reported leak of a phone conversation. The leaked call involved a Filipino admiral agreeing to a new way of transporting supplies to a Philippine-occupied shoal in the disputed waters. Ano accused China’s embassy in Manila of engaging in disinformation and misinformation campaigns, which have strained diplomatic ties.

• India has signed a 10-year agreement with Iran to develop and operate the port of Chabahar in southeastern Iran, its first major overseas port venture. India plans to utilize the port to ship goods to Iran, Afghanistan, and Central Asian countries, bypassing ports in Pakistan. Indian Port Global Limited (IPGL) will invest $120 million in infrastructure development and extend $250 million in credit to Iran, per the terms of the agreement. While India first began developing the port in 2016, taking over operations in 2018, the development of the port has been held up by the US sanctions on Iran, which remain in place. Following the announcement of the deal, the US warned of potential sanctions for any country considering business deals with Iran.

• Chinese President Xi Jinping and Russian leader Vladimir Putin met in Beijing last week. The two leaders discussed bilateral cooperation, the war in Ukraine, and a peace plan proposed by Beijing. China is Russia’s top trade partner, and international sanctions related to Moscow’s actions in Ukraine have brought the two economies closer together. Their meeting aimed to address these critical issues and strengthen their strategic relationship on the international stage. However, the concrete pledges of Chinese support for the war effort that Putin was looking for during the visit did not take place.

• India’s massive multi-phase election cycle has entered its fourth round. The cycle began April 19th and will end June 1st, with 543 seats in the lower house of Parliament up for grabs. The country has nearly 970 million registered voters, equating to roughly 10% of the world’s population. Prime Minister Narendra Modi is eyeing his third successive term and a super-majority for his Hindu-nationalist Bharatiya Janata Party (BJP) in parliament. His main competition comes from a rival coalition of more than two dozen parties. Voting on May 13th took place in the southern and eastern Telangana, Andhra Pradesh, and Odisha, outside of the BJP’s strongholds of the north and western portions of India. Religious tension between Hindus (80% of population) and Muslims (14%) as well as inequality have been central themes of this election cycle. The weather could negatively impact voter turnouts as temperatures have soared above 104 degrees Fahrenheit across the country.

• Market Implications: We continue believing in the two markets where our clients have some exposure, that is Japan and China. India (where some clients have exposure) is a very interesting case, but we believe that the key for India’s future is the development of its employment market. Slow employment growth dynamics will hold India and its future back. Some questions about the strength of Modi’s re-election are surfacing that could also derail expected equity gains.

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