The new era of geo-economic volatility continues to upend global norms and trends across a spectrum of different arenas. This week we begin by discussing the newfound influence that middle powers have accrued in the process of regionalization. Continuing in the vein of global politics, we then examine how this unpredictability is pushing countries to diversify their supply chains, ultimately changing how we think of globalization. Moving towards economics and investing, we look at a select five factors that could engender unexpected risk in markets. We end with a discussion on the difficulties that have arisen around efforts to stop using coal.

6 Swing States Will Decide the Future of Geopolitics

Cliff Kupchan, Foreign Policy

Middle powers of the global south possess greater agency today than at any time since WWII. This group comprises Brazil, India, Indonesia, Saudi Arabia, South Africa, and Turkey, none of which are fully aligned with either of today’s superpowers, the US or China. As a result, they serve as a reliable indicator of broader geopolitical trends in the global south. Their growing influence can be attributed to the accelerated regionalization of geopolitical and geoeconomic relationships seen over the past two decades. These six states, which are regional leaders, have acquired greater significance as power shifts towards their respective regions. Additionally, these middle powers find themselves in a unique position to leverage the interests of both the US and China. In the context of the Ukraine-Russia war, these states have adopted a crucial role. By refusing to align themselves with Western sanctions on Russia or provide aid exclusively to Ukraine, they have maintained a neutral stance, positioning themselves as potential mediators in the conflict – though some Western nations consider the lack of Russian condemnation equivalent to choosing Russia’s side. The implications for Washington’s policy are significant, as the US must now enhance its engagement with these six states to prevent a weakening of American influence on the global stage.

Refocusing Globalization

Why the World Still Needs Trade

Ngozi Okonjo-Iweala, Foreign Affairs

The Backlash Against Globalized Trade Is Changing, Not Subsiding

The Editors, World Politics Review

The world is undergoing a backlash against globalization, which was once considered an unalloyed good. The trend is fueled by a confluence of factors, ranging from inequalities stemming from undistributed gains, Covid-19 disruptions, sanctions against Russia, and competition with China. Still, globalization, which was born from the ashes of World War II, has resulted in the uplifting of more than a billion people out of extreme poverty, in addition to broadly improving the quality of life for people the world over. As a result, it is in the interest of people across the globe to shift from a deglobalizing mindset to a “reglobalizing” mindset, which includes diversifying supply chains to account for potential supply disruptions, while bringing in more players to reap the benefits of free trade. The result will be a freer and more stable world as countries grow in tandem, while risks such as pandemic, war, and weaponized interdependence lessen due to greater supply chain security.

Five reasons investors should expect the unexpected

Gillian Tett, Financial Times

Uncertainty is on the rise as events from Covid-19 to the war in Ukraine induce risk in markets for which corporate institutions, central banks, and individual investors alike have not accounted in their risk assessments. To remedy the issue, there are five separate categories of risk that ought to be considered moving forwards. First, technological change has the potential to impact both consumer and corporate culture, as seen for instance in the SVB bank run, where social media networks accelerated a bank run from a few days to a few hours, dooming the bank faster than was thought possible. Second, climate change likewise has the potential to induce new risks, including not just the weather changes themselves but also policy responses, such as the US Inflation Reduction Act and the impact it has had on green industrial manufacturing and investment in the US, Europe, Asia, etc. War impacts are a third avenue of risk, which the Ukraine conflict has brought into clear view. With a possible Taiwan conflict looming on the horizon, questions need to be asked regarding markets for semiconductors, rare earth minerals, and so on, as to how the outbreak of conflict could shake markets similar to the earthquake caused by the war in Ukraine. The fourth category is political economy, which is society’s expectations around business and the operation of governance in the market. Governments have become more interventionist since the financial crisis and are increasingly prone to react when geopolitical turmoil hits. Finally, the impact of health risks, such as the pandemic, needs to be folded into risk models moving forwards, as Covid-19 displayed in full force. While these new vectors of market risk portend a pessimistic future, there still remain causes for optimism in tech, healthcare, and energy innovations.

The struggle to kill King Coal

The Economist

The struggle to wean the world’s energy consumers off of coal faces an uphill battle. While world leaders made grand proclamations about quitting coal, the Russian invasion of Ukraine kicked off an energy crisis that ended up pushing coal consumption to record levels. This creates difficulties for a world trying to limit global warming – if the world’s temperature increase is to be limited to 1.5°C, coal production must fall by over two-thirds over 10 years. Currently, it is only expected to fall by less than a fifth. Efforts to limit coal use are largely centered on strangling the industry’s finance by limiting or cutting off what banks could invest in coal producers. This approach proved limited, as private financiers and state-owned banks from India and China have had no qualms investing in coal. As long as demand for coal is high, people will want to make a profit from investing in it. A more effective way to kill coal would be to decrease demand by making alternative sources of low-carbon energy cheaper and implementing some sort of carbon tax. With the world’s temperature at risk, policymakers have a moral imperative to design smarter policies to kill King Coal.