Summary of the Core Content
This article argues that the "golden age of globalization" led by the United States over the past 30 years since the end of the Cold War is coming to an end. The U.S. has shifted from being a guarantor of global security and finance to a demanding party. Four major factors—trade tensions, the pandemic, the Russia-Ukraine conflict, and changes in U.S. domestic policy—are causing globalization to shift from a logic focused on cost efficiency to one centered on security. This transformation is rewriting the rules for asset pricing: assets with stable cash flows (such as gold, defense industries, and critical minerals) are likely to rise in value, while those dependent on single supply chains or markets are at risk of decline.
I. The Nature of Globalization After the Cold War: "Security Outsourced to the U.S., Companies Focused on Cost Savings"
Thirty years after the end of the Cold War, the world became a unipolar entity under U.S. dominance, often referred to as Pax Americana (peace under American leadership). The U.S. took three main actions: using its military to protect maritime routes, providing funds through the dollar and U.S. debt, and reducing the risk of war through alliances. Other countries did not need to worry about security and could focus on their economies. Europe reaped the benefits of peace, East Asia earned profits from exports, and multinational corporations moved production to the lowest-cost locations (e.g., China for manufacturing and Southeast Asia for assembly), minimizing inventory and using the dollar in all financial transactions—these companies were thus valued higher by the market due to their efficiency.
In short, countries outsourced security to the U.S., allowing companies to simply pursue the cheapest production locations without worrying about risks such as war or supply disruptions.
II. The Four Cracks in the Globalization Order: Signs of the End of an Idyllic Era
The order dominated by the U.S. has now developed four major cracks:
1. Sino-U.S. Trade Tensions (2018): On the surface, these were about tariffs, but in reality, the U.S. sought to重新 allocate the benefits of globalization. The U.S. felt that China's economy had grown too rapidly after joining the WTO and did not follow its political expectations, so it turned trade issues into security concerns. Tools such as tariffs, entity lists (banning the purchase of certain goods), and investment reviews were used to exert pressure.
2. The COVID-19 Pandemic: It exposed the vulnerability of global supply chains (e.g., shortages of masks and chips). Companies previously focused on just-in-time production with zero inventory; now, they need to maintain higher levels of stockpiling as a precaution. Governments have also begun to implement industrial policies, requiring the domestic production of critical goods by allies.
3. The Russia-Ukraine Conflict: It shattered the illusion that trade could prevent wars. Russia's foreign currency was frozen, highlighting the risk of relying on others for energy and finance. Reserve assets (like the dollar) no longer offer only price stability but also the risk of being unavailable, leading to a resurgence in demand for gold, which is not tied to any one country.
4. Changes in U.S. Domestic Policy (Trump's Second Term): The U.S. shifted from providing benefits (markets, dollars, security) to demanding them from others. For example, it pressured allies to bear more military costs, encouraged companies to relocate production back to the U.S., and imposed tariffs on trade partners.
III. Three Core Transformations in the Rebuilding of the Global Order: Security Takes Precedence over Cost
These cracks have led to significant changes in globalization:
1. Shift from Efficiency to Security: Companies no longer choose production locations based on cost but on reliability and the absence of supply disruptions. For instance, Apple has moved some production to India and Vietnam, not because of lower costs, but to avoid dependence on China.
2. From Globalization to Regionalization in Manufacturing: Supply chains remain multinational, but they now primarily flow within alliances or friendly countries (e.g., "friendship-based outsourcing" by the U.S. and "nearshoring" in Europe).
3. Reindustrialization and Re-militarization: Manufacturing is no longer just about employment but has become a matter of national capability. Industries such as chips, energy, defense, and critical minerals (like lithium and rare earths) are now considered strategic assets, giving those who control them significant influence.
IV. The Revision of Asset Pricing Logic: Three Key Variables Are Affected by Geopolitics
Asset prices are determined by cash flow, the discount rate (how much future money is worth today), and risk appetite. These factors are now influenced by geopolitics:
1. Cash Flow: Stability is more valuable than growth. Companies with access to critical resources, production capacity, and key transportation routes (e.g., ports and shipping) have more stable cash flows and thus receive a "security premium" in their stock prices. Those dependent on single markets or technologies (e.g., foreign companies relying on China for manufacturing) face greater risk and lower stock prices.
2. Discount Rate: Rising costs and interest rates force companies to relocate supply chains, governments to subsidize domestic production, and increase military spending, all of which increase government expenditures and raise interest rates. Higher interest rates reduce the value of future cash flows, affecting growth and tech stocks.
3. Risk Appetite: Institutional risks (e.g., supply chain disruptions, asset freezes, financial sanctions) have become more significant. As a result:
- Gold has shifted from an inflation-hedging tool to a hedge against institutional risks due to its independence.
- U.S. debt, once the most liquid asset, is now viewed with skepticism due to the potential use of the dollar as a weapon, leading to higher interest rates and lower bond yields.
- Stocks have diverged into "strategic assets" (defense, energy infrastructure, domestic semiconductors) and "vulnerable assets" (companies dependent on single supply chains), with the former performing better.
V. Which Assets Will Benefit and Which Will Suffer?
- Benefiting Assets:
- Gold: Resistant to sanctions and de-dollarization, it serves as a safe haven.
- Strategic resources (oil, natural gas, lithium, rare earths).
- Defense companies: Increased military spending due to geopolitical tensions.
- Domestic supply chains (e.g., U.S. chip manufacturers, European energy infrastructure).
- Logistics/shipping companies with control over key routes (e.g., Japan's major shipping firms, invested in by Buffett).
- Suffering Assets:
- Companies dependent on single markets or locations (e.g., foreign firms producing in China or Chinese companies selling only to the U.S. market).
- High-valued growth stocks that rely on future cash flows, which are affected by rising interest rates.
- Some U.S. dollar assets (e.g., bonds), as their risk profile has increased, leading to lower prices.
In conclusion, globalization has not ended, but the era of naivety has passed. In business and investment, security must now take precedence over cost. Asset prices are influenced by more than just economic data; geopolitical factors also play a crucial role. (The full article can be found in the 28th issue of "Peking University Finance Review.")