- 37 constituents
- 27.5% 1y performance
- 21.8% volatility
Two very different strands, inextricably twisted in the confrontation between China and the US, do not lend themselves to a straightforward interpretation
Commercial interest could easily bring the two parties together, somewhere halfway and the world would breathe a collective sigh of relief
But fundamental structural differences will rankle both countries greatly, with no end in sight
The fact that the great global conglomerates have the most to loose, as the dominant national empires wear down the underpinnings of globalisation, is an incontrovertible fault line
Whether a commercial 'deal' will paper over deep-seated structural disagreements between the two countries to protect their respective business empires is the central issue
Trade wars are a case of confused thinking
Almost embarrassingly, the stock markets worldwide have been dancing to the tune of better or lesser news about the China – US trade negotiations
But we have news for pundits the world over who have been analyzing to death the ‘war’, the potential trade deals and the probable conclusion for each country...
There is no war – a war implies either a ‘winner’ and a ‘loser’ or exhausted warriors returning to square one, a little poorer with not much to show for their efforts
- There is no war because it is hardly likely one camp will be the unqualified ‘winner’ in a struggle between the two largest global economies
- There is no war because the warriors are not in the least ‘exhausted’ and have shown no intention to find common ground in some sort of awkward face-saving transaction
The geopolitics of business
A contradiction in terms not so long ago when nation states and their governments, elected or not, ruled the roost
Not any more…
Empires cannot be thought of today as nation states imposing their domination, usually by act of violence, on unwilling neighboring peoples
Today’s empires are ‘business empires’, familiar to anyone paying attention and their leaders earn universal respect (if not admiration) as ‘empire builders’
Because the roots of business empires, somewhere deep down, nestle in national pride, be it in the prestige of American technological success or in the esteem for German industrial know-how, the pronouncements of business leaders are fundamentally ambiguous
Strategic business policies naturally reflect the perception these companies have of their interests, in the short term for their stock market valuation, in the medium and long term to maintain and grow market share, and (hopefully) to advance the well-being of their employees
All used to be fine for conglomerates drawing their economic strength from the home market, and competing internationally by exporting goods and services
But today's strategic business interests hardly identify with a 'home' market
The model has been running its course even if, outdated as it is, national champions still come top-of-mind for their respective governments
Reality is more troubling
Geopolitics of nations continues to carry vast power and backed up by military hardware, the national interest could hardly be ignored
But the geopolitics of business which in a not-so-distant past of colonial interests, could drive national policy, seem to have taken on a life of their own
In the automotive industry, the extent to which German Volkswagen is in fact arbitraging in favor of the growth potential of its Chinese stake casts some doubts on its commitment to German interest and the same holds for its German competitors, all of which record some 40% of their sales in China
- “The future of Volkswagen will be decided in the Chinese market"
In similar fashion, one may wonder where the loyalties of the semi-conductor industry reside,
- when Qualcomm notches more than 66% of its turn-over (full-year 2018) and Intel more than 25% in China
- when the Chinese research centers of the semi-conductor importers (from the US and elsewhere) appear more often realistic proof of close partnerships, rather than markers of ‘forced’ technology transfer
More starkly still, the semi-conductor manufacturing equipment industry, essentially under control of – or dependent on – a very small band of American firms, has been ignoring the warning signals with growth projections for 2019-2020 relying almost entirely on China
As for Apple , its supply chain, running like clockwork in the Pearl River Delta, is testimony to Apple’s CEO engineering genius but its lack of diversification may be harshly judged in the end
Taking away the punch bowl
De facto ambassadors of their host country, the firms have not started to face up to the conundrum when their vast geopolitical engagement clashes at the rough edges of national interests
Presumably, because the firms recognize how dire the consequences would be, undermining their entire playbook and putting their financial and economic future at considerable risk, they gamble everything will turn out all right
- The semi-conductor equipment firms will continue to sell their top-of-the range machinery to China, facilitating the creation of Chinese semi-conductor giants to reduce (and possibly eliminate) China’s trade deficit in components
- ...to say nothing of the yet-to-be discovered semiconductor applications in segments China comes to dominate in short order, with Hikvision in visual identification or DJI Innovations in drone manufacturing to name a few...
- Boeing will continue to sell satellites to China (WSJ Dec. '18 - paywall) with ambiguously clean ‘civilian’ goals, even though more and more information about possible abuse of minorities come to light, as well as possible (probable...) dual, aka military, use, as detailed in 'R&D, an elusive genie'
- General Motors , a frontrunner of technology transfer to China since the late ‘90s as we discussed in Hailing from the Middle Kingdom, might ultimately depend for its more advanced research on the Chinese firms it contributed to establish, certainly in the field of electrical vehicles where China is a leader
In short, everything will be fine...
Or will the relationship worsen ?
The fault lines between US business interests and American power, projected by its economy and its military, have of course been years in the making, as seen in 'the American Interest'