For this week’s look at the forces shaping the world in this new year, we explore the linkages between the multivariate systems of economics and politics. To begin, we explore the so-called “New Cold War” between the US and China, an increasingly intense competition which is barreling towards overt conflict. We then pivot to an examination of the factors shaping investors’ negative outlook on 2023. From there, we examine the likely effects of deglobalization on an integrated global order before concluding with a look at India’s increasingly prominent place on the world stage. In an era of shifting foundations, the importance of bedrock principles becomes ever more important; as the West’s commitment to human rights and individual liberty faces what may be its greatest challenge, we must maintain our own individual commitments to justice, charity, and truth.

Looking Past China’s Rise for the Trends Shaping Asia

The Editors, World Politics Review

5 Ways the U.S.-China Cold War Will Be Different From the Last One

Jo Inge Bekkevold, Foreign Policy

Competition is shaping up in the far East as China continues its rise in the international system. While this new Cold War shares some similarities with the prior Cold War, such as a bipolar world carried on the backs of dueling superpowers, there are differences as well. In particular, the system may be significantly less stable than the international order of the latter half of the 20^th century because of a combination of an unstable power transition, the naval theater of the conflict, Taiwan, Afghanistan, and the Indian-Chinese border as flashpoints, the potential for both cyber and space warfare, and deep economic interdependence. Additionally, threat reduction measures that were characteristic of the first Cold War, such as arms control, are likely unfeasible as China’s armaments are significantly behind those of the US. As China continues to militarize and grow its economy the threat of conflict will only increase.

This is particularly true given new trends both of Chinese policy and the policy of other actors in the region. Under the leadership of President Xi Jinping, China has begun more aggressively challenging America’s role as the key economic and political power in Asia. In fact, Beijing has increased its authority in the region as a power broker on everything from trade routes to territorial disputes. This push for regional dominance has led to increasingly illiberal tendencies among other Asian nations, such as in India, the Philippines, and Myanmar. South Korea and Japan, which remain democratic bastions in the region, are a counterpoint to China’s rise and the base of US power in the region. Ultimately, these trends point towards a rapidly accelerating conflict which may easily cross the burning red line from cold to hot war.

Investors Brace for More Market Tumult as Interest Rates Keep Rising

Gunjan Banerji, The Wall Street Journal

Wall Street’s Top Stars Got Blindsided by 2022 Market Collapse

Ye Xie, Michael Mackenzie, & Emily Graffeo, Bloomberg

After a difficult year for the stock market, analysts don’t predict 2023 will look much better. Some expect the market to sink back to 2022-level lows before any rebound, as the effects of rising interest rates are only just beginning to affect the markets. The Fed seems set on continuing its policy of raising rates, keeping them elevated through 2023 and causing some analysts to forecast a recession. Bond yields are rising as prices fall, creating an opportunity for investors to park cash as they flee higher-risk securities. The fall in equity prices have led some investors to begin bargain-hunting, putting their money into value funds. The tech industry was hit particularly hard last year, with analysts questioning the sector’s presumed future as the leader in the stock market. Energy stocks, on the other hand, performed their best ever last year.

Part of the difficulty experienced by the stock market is misaligned investor expectations. Some high-profile analysts believed that the Fed’s increase of rates would be so incremental that the effects on the markets would be nearly unseen, a hypothesis which was quickly disproven. Geopolitical events also disturbed forecasts, as China’s zero-COVID policy and Russia’s invasion of Ukraine created vast uncertainty. The Fed itself is also partly to blame for the confusion by calling inflation transitory. Last year’s tumult forced many fund managers to broadly reposition their portfolios. After 40 years of low rates and the expectation that the Fed would prop markets, Wall Street has been ill-prepared for the Fed’s contractionary policy.

The Gospel of Deglobalization

Raghuram G. Rajan, Foreign Affairs

Globalization seems to have come to an end. Protectionist policies, rising nationalism and anti-immigration sentiment, and the decoupling of the US and China have all served to pressure the interdependence of economies. Many have criticized globalization for exacerbating income inequality and tethering liberal democracies to authoritarian states, as well as forcing global regulations and rules on local communities. That said, deglobalization brings consequences of its own. Protectionism will reduce foreign competition for large firms, which allows these firms even more leeway to twist such policy to their favor. The less efficient and the more costly the production of goods, the higher the consumer will end up paying as well. Additionally, export-led growth has led to the betterment of developing economies around the world. Globalization that requires ‘shared values’ would hurt the prospects of poor nations and perhaps even discourage further democratization. Finally, and perhaps most in peril, is the effects that deglobalization will have on efforts to fight climate change.

Russia’s War Could Make It India’s World

Roger Cohen, The New York Times

India’s stance on the Russia-Ukraine conflict has afforded the country an opportunity to act as a power broker in an increasingly “multi-aligned” world. In rejecting United States and European pressure to join Western sanctions and other measures targeting Russia (India’s historic ally) and simultaneously increasing its import of Russian oil and diplomatic contact, India has inserted itself as a significant actor on the international stage with the diplomatic and economic muscle to carve out positions that serve its own interest. Ultimately, India desires to engender a global order predicated on economic interdependence, which serves India’s dual interests of increased manufacturing (as corporations move manufacturing away from China and into India) and greater global stability on the notion that economic interdependence breeds peaceful relations among states. Nonetheless, India has shown in recent years a tendency towards illiberalism, particularly under Prime Minster Narendra Modi’s governance. His “Hindu Renaissance” has threatened some core pillars of India’s democracy: equal treatment of all citizens (particularly Muslims), the right to dissent, and the independence of courts and the media. This, at a time when strongman rule is resurgent, portends a country that sits on a precipice; the direction of its swing may greatly impact the development of the globe in the 21^st century.