There is a broad trend towards deglobalisation, and an increasing emphasis on regional groupings. This is especially true in international trade policy. Developed countries are becoming more protectionist, but developing countries are opening up to each other, creating regional trade agreements. The result is a patchwork of regional trade agreements, and a reversal of the three decade trend towards more global openness. The WTO’s multilateral dispute settlement mechanism has literally ceased functioning because new judges can’t get approved to the Appellate Court. WTO most favored nation rules are becoming less relevant than regional agreements, many of which are disconnected from the US. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership excludes China and the US but includes 6 larged developed and 5 developing countries as signatories. The China led Regional Comprehensive Economic Partnership includes 25% of the world’s GDP, but excludes the US. The largest free trade area by geographic size is now in Africa.
The collapse in multilateral cooperation around the world has some analysts justifiably concerned about the heightened risk of military conflict and/or severe sanctions upending an investment strategy. This risk will always be present when investing internationally, and can never be completely avoided. The best an investor can do is diversify, and avoid overexposure to any one country.
The trend toward deglobalization also creates opportunities. Trade policy changes will impact sourcing/supply chain decisions over the coming years. In general the policies encourage more regional supply chains. Additionally, they encourage companies to diversify suppliers across markets. Covid-19 will accelerate these changes.Companies and industries in EM/FM countries that generate revenue domestically or from nearby EM/FM countries will be better positioned in this new world (dis)order.