WEBVTT - JPMorgan's Obituary for Globalization 0:00:13.840 --> 0:00:17.239 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.440 --> 0:00:20.120 My name is Mike Reagan. I'm a senior editor at Bloomberg, 0:00:20.280 --> 0:00:23.560 and I'm Danna High Across asset reporter with Bloomberg. This 0:00:23.640 --> 0:00:27.600 week on the show, Well, even before Russia invaded Ukraine 0:00:27.760 --> 0:00:32.080 early this year, the world had already hit peak globalization. 0:00:32.720 --> 0:00:34.880 That's according to this week's guest, who is the head 0:00:34.880 --> 0:00:38.720 of institutional portfolio strategy in the asset management unit of 0:00:38.720 --> 0:00:41.840 a major bank, and he says, well, we better get 0:00:41.920 --> 0:00:45.000 used to it that there's more d globalization ahead. So 0:00:45.000 --> 0:00:47.840 what does that mean for markets as we look ahead 0:00:47.840 --> 0:00:52.400 to and beyond. We'll get into it with our guests 0:00:52.400 --> 0:00:54.840 this week. But first of all, Donna, I've got to 0:00:55.640 --> 0:00:59.040 talk to you about one thing. It's your football should 0:00:59.560 --> 0:01:02.440 Why what's wrong with them? They're the best? No, well, 0:01:02.840 --> 0:01:06.320 your fans, the fans of the Buffalo what did they do? 0:01:06.360 --> 0:01:11.360 You know? Fifty some years ago, Philadelphia Eagles fans through 0:01:11.440 --> 0:01:15.640 like one or two snowballs at Santa Claus that not 0:01:15.680 --> 0:01:18.320 even the real Santa Claus, I will point out, and 0:01:18.360 --> 0:01:21.440 we've been hearing about it every day since. What awful 0:01:21.480 --> 0:01:25.679 fans we are here? Your fans. We're throwing the snowballs 0:01:25.720 --> 0:01:29.520 at the actual players that the other team at the Dolphins. Yeah. 0:01:29.600 --> 0:01:32.040 I loved it, Yeah you would. It was so funny 0:01:32.040 --> 0:01:35.240 you would. I think this ends the debate over who 0:01:35.240 --> 0:01:38.199 the worst fans are in this because these two teams 0:01:38.240 --> 0:01:40.679 could face off in the Super Bowl this year. Well, 0:01:40.680 --> 0:01:43.480 fingers crossed, okay, but the referees came out and they said, 0:01:43.720 --> 0:01:47.640 if you continue these shenanigans, Buffalo is gonna We're gonna 0:01:47.640 --> 0:01:51.080 give a penalty to Buffalo. But then don't you think 0:01:51.120 --> 0:01:54.920 if you're a Miami Dolphins fan they're in the stadium, 0:01:55.160 --> 0:01:58.560 that you would purposefully throw snowballs so that Buffalo can 0:01:58.600 --> 0:02:04.000 get the penalty. Seriously, there's like to Miami Dolphins fans, Yeah, 0:02:04.160 --> 0:02:05.960 they don't even know how to throw snowballs. They would 0:02:06.480 --> 0:02:08.359 someone from Miami doesn't even know how to make a snowball. 0:02:08.400 --> 0:02:12.839 You kid mean, yeah, we can learn fast snowballs. I'm 0:02:12.840 --> 0:02:15.239 just saying that the thinking was very flawed. You better 0:02:15.280 --> 0:02:17.560 not throwing the snowballs at this week's guest. Oh yeah, 0:02:17.560 --> 0:02:20.480 our guest. He's waiting for us. I want to bring 0:02:20.600 --> 0:02:23.240 him in. It's Jared gross Managing director and head of 0:02:23.240 --> 0:02:27.280 institutional portfolio Strategy at JP Morgan Asset Management. Jared, thank 0:02:27.320 --> 0:02:29.240 you so much for coming on the show. Thank you 0:02:29.240 --> 0:02:32.880 Old Donna, and thank you Michael. And as a longtime 0:02:32.880 --> 0:02:36.240 Philadelphia Eagles fan, I have to say that I am 0:02:36.280 --> 0:02:39.119 more than happy to see the mantle past to Buffalo 0:02:39.320 --> 0:02:42.680 for sort of trucking the fan behavior. And I'm a 0:02:42.760 --> 0:02:46.160 secret Eagles fan and Mike actually is an Eagles fan, 0:02:46.800 --> 0:02:48.880 trying to pass the blame to the one or two 0:02:48.919 --> 0:02:51.720 Miami fans who might have made the trip in Sextmber 0:02:51.800 --> 0:02:55.520 to see a game in Buffalo, a very thin reed 0:02:55.600 --> 0:02:59.200 to to rest on. So I think, thank you, thank you, 0:02:59.280 --> 0:03:03.440 Jared already my favorite new guests. Oh my god, come on, 0:03:04.000 --> 0:03:07.280 we all talk about this offline. But Jared, I'm so 0:03:07.320 --> 0:03:10.520 happy you're joining us on the podcast. I was actually 0:03:10.560 --> 0:03:12.520 hoping you can just start out telling us about your 0:03:12.600 --> 0:03:15.280 role at JP Morgan, because it sounds very interesting to 0:03:15.320 --> 0:03:17.919 meet sort of a little bit different from like, um 0:03:17.960 --> 0:03:22.560 the usual like institutional portfolio strategist. Yeah, I'm happy too. So, 0:03:22.720 --> 0:03:26.120 you know a lot of firms JP Morgan included have uh, 0:03:26.320 --> 0:03:29.040 you know, a very strong macroeconomic team who you know, 0:03:29.120 --> 0:03:32.079 grinds through a lot of the data in both you know, 0:03:32.160 --> 0:03:35.600 kind of real time as the economic statistics are released, 0:03:35.640 --> 0:03:38.920 but also formulates kind of longer term expectations around the 0:03:38.920 --> 0:03:42.560 economy and the markets. And so I I participate along 0:03:42.600 --> 0:03:46.040 with a lot of our other professionals in that process. UM. 0:03:46.040 --> 0:03:49.360 But where I tend to specialize is in providing advice 0:03:49.400 --> 0:03:53.400 around asset allocation to institutional investors. You know, so sort 0:03:53.440 --> 0:03:58.160 of starting from the strategic asset allocation where they you know, 0:03:58.440 --> 0:04:02.600 allocate their capital across stocks, bonds, and various alternative asset 0:04:02.600 --> 0:04:05.360 classes and trying to be you know, maybe a little 0:04:05.360 --> 0:04:07.560 bit more tactical than just sort of a ten year 0:04:07.600 --> 0:04:09.520 outlook and and think a little bit about what's going 0:04:09.520 --> 0:04:11.200 on in the world and how that can shape their 0:04:11.600 --> 0:04:14.240 investment outlooks. So that's that's what I spend most of 0:04:14.280 --> 0:04:17.080 my time doing. And uh, you know, most of my career, 0:04:17.240 --> 0:04:20.120 I've been around a lot of the the pension community, 0:04:20.160 --> 0:04:24.320 the endowment foundation community, and sort of other large institutional investors. UM. 0:04:24.360 --> 0:04:26.800 So that's that's more or less what I do. And 0:04:27.200 --> 0:04:30.679 Jared your team had this really fascinating report out on 0:04:31.000 --> 0:04:35.000 sort of that idea of globalization. Has it peaked. What's 0:04:35.000 --> 0:04:37.360 it mean for for the markets going forward? Well, you 0:04:37.440 --> 0:04:40.920 just walk us through some of the metrics that make 0:04:41.000 --> 0:04:45.200 it look to you guys like globalization at peak even 0:04:45.240 --> 0:04:48.360 before the Russia Ukraine War, and and maybe just bring 0:04:48.360 --> 0:04:50.240 it home with what what does it mean for asset 0:04:50.240 --> 0:04:54.279 allocation in the near future. First, you have to recognize that, 0:04:54.560 --> 0:04:56.880 you know, we have been in an era of increasing 0:04:56.920 --> 0:05:00.040 globalization for some period of time, and that has and 0:05:00.440 --> 0:05:04.880 enormously powerful in terms of driving market returns. You know, 0:05:04.920 --> 0:05:09.080 we saw declining inflation on a global level, and and 0:05:09.120 --> 0:05:12.000 a lot of that declining inflation was the result of 0:05:12.680 --> 0:05:15.440 the globalization of the economy and the trading system. So 0:05:15.520 --> 0:05:18.919 you had lower wages, you had greater access to you know, 0:05:18.960 --> 0:05:22.760 commodities and other inputs, free flow of technology and data 0:05:22.880 --> 0:05:26.839 and and all of those things made the inflationary impulse 0:05:27.080 --> 0:05:30.360 sort of diminished across time, and that then allowed central 0:05:30.400 --> 0:05:32.800 banks globally to reduce interest rates. You know, and we've 0:05:32.800 --> 0:05:35.880 been in a long term disinflationary cycle going all the 0:05:35.920 --> 0:05:38.760 way back to the era of Paul Vulker. And while 0:05:38.800 --> 0:05:42.640 that doesn't perfectly coincide with the sort of globalization era, um, 0:05:42.640 --> 0:05:45.160 they did overlap for a number of years, and so 0:05:45.240 --> 0:05:48.640 that created a very powerful tail winds to financial markets. 0:05:48.640 --> 0:05:51.200 You had, you know, companies that enjoyed lower cost of 0:05:51.240 --> 0:05:54.280 funding with lower interest rates, they you know, were able 0:05:54.320 --> 0:05:57.480 to reduce their operating costs, particularly on the on the 0:05:57.560 --> 0:06:01.520 labor side, and so that led to higher profits and 0:06:02.080 --> 0:06:04.240 higher financial asset values. And so you know, we've been 0:06:04.320 --> 0:06:07.159 enjoying this for a long time. And one of the 0:06:07.160 --> 0:06:10.240 things we note in our paper was that although you know, 0:06:10.440 --> 0:06:13.440 you really don't see much of a decline in globalization 0:06:13.520 --> 0:06:16.600 until more recently, a number of the underlying trends had 0:06:16.680 --> 0:06:20.000 kind of lost their steam a little bit. Um you can, 0:06:20.080 --> 0:06:23.440 you can actually break down globalization. It's kind of a 0:06:23.440 --> 0:06:27.240 fascinating subject into sort of different components. So in our 0:06:27.279 --> 0:06:31.440 paper we highlight three. There's economic globalization, which is i 0:06:31.480 --> 0:06:34.040 think what most people think about its trade flows and 0:06:34.360 --> 0:06:37.720 things like that. There's also political globalization, you know, the 0:06:38.200 --> 0:06:42.760 willingness of companies to sort of countries to join treaty organizations, 0:06:42.839 --> 0:06:46.640 the role of non governmental organizations. And then you have 0:06:46.720 --> 0:06:51.600 social globalization. Um, you know, migration, both for you know, 0:06:51.720 --> 0:06:54.919 kind of relocation or refugee reasons, but also for educational 0:06:54.960 --> 0:06:59.800 reasons and for economic reasons, data, traffic, travel, you know, 0:06:59.800 --> 0:07:02.560 all of these things coincide and sort of this very 0:07:02.560 --> 0:07:05.279 broad definition of globalization. And and what's interesting is that 0:07:05.320 --> 0:07:09.560 across all three of those major categories, economic, political, and social, 0:07:10.000 --> 0:07:12.640 you can see very clearly a plateau ng starting about 0:07:12.680 --> 0:07:16.679 five five seven years ago, and much more recently a decline. 0:07:16.680 --> 0:07:18.400 And so it's that decline that we really zeroed in 0:07:18.400 --> 0:07:20.960 on and to try and figure out what caused it. 0:07:21.840 --> 0:07:25.800 And you know, I think what is often the case 0:07:25.960 --> 0:07:28.240 in sort of very high level discussions of the global 0:07:28.280 --> 0:07:31.160 macroeconomy is that you have these equilibrium points where you know, 0:07:31.240 --> 0:07:34.320 various trends become self reinforcing. And the and the trend 0:07:34.400 --> 0:07:38.080 towards globalization for many years was self reinforcing. I mean 0:07:38.120 --> 0:07:42.640 put simply, the incentives for countries and firms to participate 0:07:42.680 --> 0:07:46.480 in that process, to become more open, to become more global, 0:07:46.560 --> 0:07:50.040 to have longer supply chains in order to take advantage 0:07:50.040 --> 0:07:53.800 of labor costs. That was a very self reinforcing process. 0:07:55.080 --> 0:07:57.360 What it appears to us is happening now is that 0:07:57.400 --> 0:07:59.240 we may have been sort of kicked out of that 0:07:59.360 --> 0:08:03.280 virtuous eical and into a different equilibrium point where the 0:08:03.360 --> 0:08:06.680 incentives have changed, and we're going to see a reversal 0:08:06.800 --> 0:08:11.760 to some extent of those trends. Shorter supply chains, um, 0:08:11.800 --> 0:08:14.560 you know, less willingness to participate in the global economy, 0:08:14.600 --> 0:08:17.400 more focus on sort of national or sort of spheres 0:08:17.440 --> 0:08:20.560 of influence across the global economy. You hear all these 0:08:20.640 --> 0:08:23.720 terms today about you know, on shoring and near shoring 0:08:23.800 --> 0:08:26.760 and friends shoring, etcetera, etcetera, UM, And they all kind 0:08:26.760 --> 0:08:29.480 of point in the same direction, which is that you know, 0:08:29.600 --> 0:08:34.360 this imperative to become as global as possible has to 0:08:34.480 --> 0:08:37.720 a very material degree faded. Now we don't know for 0:08:37.800 --> 0:08:40.080 sure how long this will last, and you know, will 0:08:40.120 --> 0:08:43.600 it be permanent or or more of a a period 0:08:43.600 --> 0:08:45.640 that we live through and then we resume that that 0:08:45.720 --> 0:08:48.240 sort of upward march towards a more globalized economy. But 0:08:48.280 --> 0:08:51.320 from where we stand right now, you can certainly see 0:08:51.400 --> 0:08:54.559 very visible signs that globalization has receded somewhat. And that, 0:08:54.800 --> 0:08:57.000 and to the question you asked, that has some very 0:08:57.000 --> 0:09:01.280 profound impacts on the markets. And we'll come back to 0:09:01.320 --> 0:09:02.959 this later, but I think one of the more profound 0:09:03.000 --> 0:09:05.280 ones is on inflation. You know, as the FED wrestles 0:09:05.360 --> 0:09:08.480 with inflation right now and the market tries to figure 0:09:08.520 --> 0:09:11.679 out how persistent inflation will be and how they should 0:09:11.720 --> 0:09:18.319 react to that, this deglobalizing impulse is inherently inflationary, and 0:09:18.400 --> 0:09:21.160 so you know, that may raise the baseline level of 0:09:21.200 --> 0:09:24.679 inflation across the global economy, and that has very profound 0:09:24.679 --> 0:09:29.680 implications for monetary policy, bond markets, and other markets more broadly. 0:09:29.840 --> 0:09:32.280 And and is the reason simply if you're no longer 0:09:32.800 --> 0:09:37.079 shopping for materials and labor in the cheapest possible country 0:09:37.120 --> 0:09:40.760 that you know, it's just naturally going to cause higher inflation, 0:09:41.320 --> 0:09:44.400 and I would guess sort of dent corporate profit margins 0:09:44.440 --> 0:09:47.280 at the same time, it should have an impact on 0:09:47.320 --> 0:09:52.079 profit margins. I think, you know, the more profound implication, 0:09:52.760 --> 0:09:54.680 and there may be several, but one that I certainly 0:09:54.679 --> 0:09:58.160 like to talk about is we've become very accustomed to 0:09:58.679 --> 0:10:02.800 looking past headline inflation, which is typically driven by you know, 0:10:03.000 --> 0:10:07.000 food and or energy prices, because historically it has been 0:10:07.120 --> 0:10:10.839 relatively mean reverting over a short horizon. Now why is that, 0:10:10.840 --> 0:10:14.679 Why is you know, headline inflation meeting reverting because the 0:10:15.000 --> 0:10:18.600 individual commodities or or sort of resources behind that tend 0:10:18.640 --> 0:10:21.640 to be both substitute herbal and they are part of 0:10:21.640 --> 0:10:26.520 a global market where supply and demand can equalize fairly quickly. Um. 0:10:26.600 --> 0:10:29.440 If we are moving to a world where resources are 0:10:29.440 --> 0:10:32.400 more constrained, people are more defensive around, you know, sort 0:10:32.400 --> 0:10:37.520 of husbanding their national resources. Um, and the ability to 0:10:37.559 --> 0:10:41.200 substitute across sort of the global supply is more limited. 0:10:41.800 --> 0:10:44.640 Then you know, the the ability to look past headline 0:10:44.679 --> 0:10:47.320 inflation may diminish as well. And so you know, central 0:10:47.320 --> 0:10:50.480 banks may be forced to reckon with a greater level 0:10:50.480 --> 0:10:54.800 of volatility in their monetary policy, not just a higher 0:10:54.880 --> 0:10:57.080 level of inflation overall. And that, of course, you know 0:10:57.120 --> 0:10:59.000 that that is essentially the risk free rate that we 0:10:59.040 --> 0:11:01.120 apply to most asset classes, and that you know that 0:11:01.160 --> 0:11:04.960 has some very profound implications. So first, um, the title 0:11:05.080 --> 0:11:08.400 of of the report we're talking about is the Lifeboat Economy. 0:11:08.440 --> 0:11:10.560 So I wanted to ask you to sort of describe 0:11:10.559 --> 0:11:12.439 to us what the what do you mean by lifeboat? 0:11:12.880 --> 0:11:15.200 And then the second part is just to ask you 0:11:15.240 --> 0:11:19.040 to add on a bit more on this idea that 0:11:19.280 --> 0:11:23.760 the globalizations trend started before we had COVID, or before 0:11:23.960 --> 0:11:28.080 Russia invaded Ukraine and what some of those uh factors 0:11:28.280 --> 0:11:32.079 were or how you were able to see that. So 0:11:32.160 --> 0:11:35.800 the title, you know, is a sort of a metaphor 0:11:36.040 --> 0:11:39.000 for security. You know, in that you are, you know, 0:11:39.080 --> 0:11:41.360 in a lifeboat. You are sort of first concerned about 0:11:41.360 --> 0:11:44.240 protecting yourself, you know, the and and I think the 0:11:44.280 --> 0:11:47.600 idea that you have sort of sailed off from this 0:11:47.760 --> 0:11:50.680 larger ship that was carrying everyone. You are now in 0:11:50.720 --> 0:11:54.520 a smaller space thinking more about self preservation. To the 0:11:54.559 --> 0:11:56.280 second part of your question, you know, what were some 0:11:56.320 --> 0:11:58.920 of these trends? So when we think about the nature 0:11:58.960 --> 0:12:04.280 of deglobalization, you know, trade had been to some extent 0:12:04.400 --> 0:12:07.400 in decline for a while, and and you know, a 0:12:07.440 --> 0:12:11.280 lot of this data is to some extent anecdotal, but 0:12:11.400 --> 0:12:13.560 when you look at the whole sort of tapestry that 0:12:13.600 --> 0:12:15.760 it creates, it's very clear that there's a trend here. 0:12:15.800 --> 0:12:18.600 And so you think about, you know, the United States 0:12:19.200 --> 0:12:23.440 tariffs with China, you know, which obviously were accelerated by 0:12:23.440 --> 0:12:26.760 the Trump administration but certainly have not been reversed by 0:12:26.800 --> 0:12:29.960 the Biden administration. If anything, the Biden administration is to 0:12:30.040 --> 0:12:33.800 some extent doubling down. And you know that suggests that 0:12:33.840 --> 0:12:36.000 this is going to be a more permanent part of 0:12:36.000 --> 0:12:41.120 our sort of trade politics around the world. Another element 0:12:41.120 --> 0:12:44.959 would be, um, the Committee on the Foreign Investment of 0:12:45.360 --> 0:12:49.000 Asset SIPHIUS, which you know kind of governs, uh, you know, 0:12:49.040 --> 0:12:51.800 sort of capital market flows around the world, UM, and 0:12:51.840 --> 0:12:56.920 sort of various elements of the trade and the competition 0:12:56.920 --> 0:12:58.520 in the Federal Trade Commission and how they look at 0:12:58.520 --> 0:13:00.640 mergers both you know, kind of within the United States, 0:13:00.640 --> 0:13:03.240 but also globally. You can look at the reaction to 0:13:03.559 --> 0:13:05.959 you know, Huawei and the technology and the chips and 0:13:05.960 --> 0:13:08.079 sort of how they've been effectively sort of banned from 0:13:08.080 --> 0:13:11.000 the global uh, you know, sort of telecommunication system, at 0:13:11.040 --> 0:13:13.520 least outside of China. So a lot of this stuff 0:13:13.600 --> 0:13:17.199 was happening well before COVID and well before the Ukraine War, 0:13:17.440 --> 0:13:20.320 and and certainly you could apply a similar description to 0:13:20.440 --> 0:13:22.920 some of the Chen's and immigration you know, which which 0:13:23.040 --> 0:13:27.000 we're trailing off, you know, well prior to UM some 0:13:27.080 --> 0:13:30.280 of the more recent events. What is interesting though, is 0:13:30.320 --> 0:13:33.280 how you know, both COVID, which you know, in theory 0:13:33.360 --> 0:13:36.880 should have been a more temporary response to a pandemic, 0:13:36.920 --> 0:13:40.160 but had much longer lived sort of echoes not just 0:13:40.240 --> 0:13:44.120 from a medical and a sort of social standpoint, but 0:13:44.160 --> 0:13:46.840 you think about the supply chain, the impact on trade, 0:13:47.240 --> 0:13:49.920 and how long that's lasted. It's really only now that 0:13:49.960 --> 0:13:52.480 we're getting out from under some of those supply chain 0:13:52.559 --> 0:13:55.840 disruptions UM, and we're starting to get back to something 0:13:55.880 --> 0:13:59.840 more like a normal balance of trade across major you know, 0:14:00.040 --> 0:14:04.520 or trading partner relationships UM. And then you know, with 0:14:04.520 --> 0:14:08.280 with the Ukraine War, what was interesting is most geopolitical 0:14:08.320 --> 0:14:11.760 events historically have really been more of a blip in 0:14:11.800 --> 0:14:14.280 the markets. You know, they tend to create a spike 0:14:14.320 --> 0:14:17.160 in volatility, and within a few months you're really back 0:14:17.160 --> 0:14:19.360 to where you were and you can look at, you know, 0:14:19.560 --> 0:14:24.160 most of the major you know, either sort of conflicts 0:14:24.480 --> 0:14:27.480 or or other sort of geopolitical fire storms that have 0:14:27.480 --> 0:14:30.200 occurred to the last several decades, and they tend to 0:14:30.240 --> 0:14:34.000 be fleeting in their impacts. What we went back to 0:14:34.120 --> 0:14:36.480 in the paper, which is interesting is the nineteen seventy 0:14:36.560 --> 0:14:41.040 three Arab Israeli War, which not so much the war itself, 0:14:41.120 --> 0:14:45.200 which was relatively contained to Israel, Egypt and a few 0:14:45.200 --> 0:14:49.720 of Israel's near neighbors, UM, but really impacted the oil 0:14:49.760 --> 0:14:52.680 supply chain, you know, through the Saudi embargo and and 0:14:52.760 --> 0:14:57.040 ultimately opex embargo on the United States and other European countries, 0:14:57.760 --> 0:15:00.640 and and that led to some more prof ound sort 0:15:00.680 --> 0:15:04.040 of reordering of the system. So um, you know, I 0:15:04.080 --> 0:15:06.600 think what we saw was again the sort of pattern 0:15:06.640 --> 0:15:10.400 of behavior leading into the sort of joint COVID and 0:15:10.600 --> 0:15:15.560 Ukraine crises, um, which was only sort of accelerated by 0:15:15.560 --> 0:15:18.840 what took place there. And so you know that may 0:15:18.920 --> 0:15:22.080 ultimately be the impetus for this move to kind of 0:15:22.080 --> 0:15:26.200 a new equilibrium where trade and globalization are you know, 0:15:26.280 --> 0:15:29.640 just less significant a driver of behavior, both at the 0:15:29.720 --> 0:15:38.240 national and not the corporate lane. You mentioned sort of 0:15:38.240 --> 0:15:42.840 the three categories of globalization economic, social, and political, and 0:15:42.880 --> 0:15:46.960 I can't help but think that that political spear is 0:15:47.040 --> 0:15:49.200 really what drives it all right. You know, if if 0:15:49.240 --> 0:15:52.040 I think of what, who are some of the main 0:15:52.280 --> 0:15:57.120 influential figures in driving a deglobalization over recent years. While 0:15:57.120 --> 0:16:01.480 we had President Trump with his America First policies and 0:16:01.520 --> 0:16:04.760 the tariffs, as you pointed out, then you have in 0:16:04.840 --> 0:16:08.560 Russia you have Vladimir Putin uh with the invasion of Ukraine, 0:16:08.920 --> 0:16:13.520 and Shijung Ping in China although maybe not as actively 0:16:13.720 --> 0:16:17.160 engaged in the globalization, certainly hit some of his choices 0:16:17.400 --> 0:16:21.400 COVID zero and everything, perhaps compounding uh the the issue 0:16:21.640 --> 0:16:23.960 or you know, you know, at least someone who has 0:16:24.000 --> 0:16:28.960 some control over the whole topic. So I in a way, 0:16:29.000 --> 0:16:31.800 I wonder and and you mentioned CIPHIUS, the Community for 0:16:31.800 --> 0:16:34.400 Foreign Investment in the US. I'm fascinated that they're actually 0:16:34.440 --> 0:16:38.120 looking at at TikTok. Did you realize that Aldana Siphius 0:16:38.200 --> 0:16:40.640 is looking at TikTok and there's a big sort of 0:16:40.640 --> 0:16:44.320 a ground swell to ban TikTok in the US. But 0:16:44.480 --> 0:16:47.520 my point chart is that in a way to do 0:16:47.600 --> 0:16:50.640 these could these influences be sort of self correcting in that, 0:16:50.760 --> 0:16:54.560 if you know, factories start closing in low wage countries 0:16:54.600 --> 0:16:59.840 like China, if inflation you know, becomes embedded in the 0:17:00.040 --> 0:17:06.359 West because of the globalization UM, Vladimir Putin's popularity in 0:17:06.400 --> 0:17:09.159 the country dwindles. You know, is there a way that 0:17:09.240 --> 0:17:12.840 politics could sort of make this be a self correcting 0:17:12.880 --> 0:17:18.080 phenomenon where the backlash against these global leaders who are 0:17:18.119 --> 0:17:22.080 sort of pushing the issue um actually causes them either 0:17:22.119 --> 0:17:25.919 to be voted out hous Did you know and that 0:17:26.200 --> 0:17:30.320 you know, that gravity of globalization reasserts itself, if you 0:17:30.359 --> 0:17:32.840 know what I mean. You know, look, there were many 0:17:32.880 --> 0:17:36.800 winners and losers in globalization, and there will be the 0:17:36.880 --> 0:17:41.840 same impact as it, you know, fades or or diminishes, 0:17:41.920 --> 0:17:43.920 you know, to whatever extent that it does. In the 0:17:44.000 --> 0:17:48.359 United States. You know, I think politically, deglobalization is a 0:17:48.400 --> 0:17:50.760 relatively popular concept. I mean, I don't think you have 0:17:50.840 --> 0:17:53.840 to be a particularly astute analyst of politics to know that, 0:17:54.280 --> 0:17:57.600 you know, supporting kind of domestic manufacturing um, you know, 0:17:57.680 --> 0:18:01.360 even if it's to some extent grandstanding, is a very 0:18:01.359 --> 0:18:03.760 popular stance to take, and it and it crosses party 0:18:03.800 --> 0:18:07.560 lines relatively easily. So I don't see that you know 0:18:07.600 --> 0:18:10.480 that there would be a significant move against that, you know. 0:18:10.520 --> 0:18:12.680 And one of the manifestations of that that that really 0:18:12.720 --> 0:18:15.879 brings the politics into the real world is one of 0:18:15.920 --> 0:18:17.440 the things we cite in the paper as well, is 0:18:17.760 --> 0:18:20.840 an increase in industrial policy, you know, and you think 0:18:20.840 --> 0:18:25.879 about the chip expansion, not just in Arizona, which is 0:18:25.920 --> 0:18:29.800 geared towards Taiwan semiconductor UM, but also in upstate New York. 0:18:30.040 --> 0:18:32.400 Micron is just building a huge plant with massive subsidies 0:18:32.400 --> 0:18:34.639 now they were obviously already a US company, or at 0:18:34.680 --> 0:18:38.240 least a US based company, But you know, that use 0:18:38.240 --> 0:18:41.480 of industrial policy, and and it's not just chips. It's 0:18:41.560 --> 0:18:45.600 on you know, solar technology, it's on energy, transportation and 0:18:45.640 --> 0:18:49.640 delivery systems. There's a whole range of these things, um, 0:18:49.680 --> 0:18:53.359 which are really designed to bring capital back and and 0:18:53.440 --> 0:18:56.600 invested here. Um. It may not be you know, the 0:18:56.640 --> 0:18:59.560 most economically productive place to invest capital if you you know, 0:18:59.600 --> 0:19:02.919 if you leave and sort of the agnostic view of 0:19:02.960 --> 0:19:06.680 free trade, UM, but I think it's politically popular. Now. 0:19:07.040 --> 0:19:09.359 Other countries I think will clearly wind up on the 0:19:09.400 --> 0:19:11.479 losing end of this. Now, I mean China, which has 0:19:11.560 --> 0:19:17.360 benefited enormously from trade and globalization, UM, you know, certainly 0:19:17.400 --> 0:19:19.760 stands to be at least, you know, be a little 0:19:19.800 --> 0:19:22.000 more a little bit more vulnerable as a result. I mean, 0:19:22.040 --> 0:19:25.320 I don't think it's a coincidence that in the same 0:19:25.359 --> 0:19:28.320 week that Apple announced that it was looking to move 0:19:28.400 --> 0:19:31.920 some of its manufacturing base out of China, they had 0:19:31.960 --> 0:19:35.199 a very rapid sort of one eighty on the COVID 0:19:35.240 --> 0:19:38.399 policies and started to loosen up. Now, you know, again, 0:19:38.480 --> 0:19:40.160 I don't know that you can draw a direct line 0:19:40.160 --> 0:19:42.639 of sight between the COVID policy and the you know, 0:19:43.040 --> 0:19:46.840 Apple factory floor. But um, you know, it doesn't seem 0:19:46.880 --> 0:19:50.240 to be totally coincidental. So you know, I think there 0:19:50.280 --> 0:19:52.000 will be some give and take, you know, to sort 0:19:52.040 --> 0:19:55.080 of the point of your question. And you know, countries 0:19:55.119 --> 0:19:58.000 that have benefited and stand now to lose perhaps or 0:19:58.040 --> 0:20:00.560 at least to become, you know, kind of more balanced 0:20:00.560 --> 0:20:03.600 in terms of the benefits and costs that they face, UM, 0:20:03.640 --> 0:20:05.040 are going to be in a tougher spot. You know. 0:20:05.080 --> 0:20:07.320 I think I think the countries like the United States, 0:20:07.840 --> 0:20:11.560 where you know, globalization has been great for corporate profitability, 0:20:11.640 --> 0:20:15.240 but you know, more or less terrible for workers. Um, 0:20:15.280 --> 0:20:16.880 you know, we're seeing a little bit of the reversal 0:20:16.920 --> 0:20:19.240 of that. You know, we're seeing higher wages, We're seeing 0:20:19.280 --> 0:20:21.879 companies bring jobs back on shore. Now that to the 0:20:21.920 --> 0:20:24.960 point you raised earlier about margins, it may not be 0:20:25.600 --> 0:20:27.960 a terrific thing for corporate profitability, at least in the 0:20:27.960 --> 0:20:31.879 near term. If we're thinking about this less globalized world, 0:20:31.920 --> 0:20:34.960 like what what happens in this less globalized world? Like 0:20:35.000 --> 0:20:36.840 what are some of the trends that you expect will 0:20:36.880 --> 0:20:41.000 be seeing. There's there's a couple phases to how this works. 0:20:41.320 --> 0:20:46.040 So in the very short term you're going to have 0:20:46.320 --> 0:20:50.840 a scramble to secure sort of national supplies of key resources. Now, 0:20:50.840 --> 0:20:54.320 the most obvious example of that is Europe and natural gas. 0:20:54.480 --> 0:20:58.159 You know, they have made an affirmative decision to you know, 0:20:58.200 --> 0:21:01.240 basically seal off the pipes from Russia UH and move 0:21:01.359 --> 0:21:04.960 to alternative natural gas supplies. And and that poses a 0:21:05.080 --> 0:21:07.320 very profound challenge in the near term. I don't think 0:21:07.359 --> 0:21:09.760 anyone doubts that over a longer horizon they will be 0:21:09.800 --> 0:21:14.639 able to find substitute supplies, UM, but most certainly at 0:21:14.640 --> 0:21:16.840 a higher price, and you know that's something that they'll 0:21:16.840 --> 0:21:19.920 have to pay for. The other very near term impact 0:21:19.960 --> 0:21:23.199 is defense spending and you know, maybe ancillary areas like 0:21:23.240 --> 0:21:28.040 cybersecurity and other sort of protective almost you know, sort 0:21:28.040 --> 0:21:30.960 of insurance like functions UM that the government's sort of 0:21:30.960 --> 0:21:33.680 step up for UM. So we certainly expect those two 0:21:33.680 --> 0:21:35.399 things to take place in the near term and they 0:21:35.440 --> 0:21:39.399 will drive a lot of capital flows and investment as 0:21:39.440 --> 0:21:41.359 we try to get around some of these issues today. 0:21:41.800 --> 0:21:44.760 Over the medium term, you're looking more at the supply chains. 0:21:45.160 --> 0:21:47.320 How do they get rewired, you know, One of the 0:21:47.359 --> 0:21:50.119 things we're thinking about here in the United States is 0:21:50.920 --> 0:21:53.480 a little bit of a transition from the coastal ports 0:21:53.520 --> 0:21:55.800 to what we would call inland ports, you know, basically 0:21:55.880 --> 0:22:00.439 logistic hubs, logistics hubs inside the United States, areas that 0:22:00.520 --> 0:22:04.159 are you know, terrific at facilitating trade and which then 0:22:04.880 --> 0:22:10.280 allow for sort of the congregation of manufacturing, distribution, logistics 0:22:10.280 --> 0:22:12.399 and a lot of the technology and resources that go 0:22:12.440 --> 0:22:17.280 along with that. You know, areas like Phoenix, like you know, Columbus, Ohio, Nashville. 0:22:17.320 --> 0:22:19.800 These are places that are not thought of as you know, 0:22:19.800 --> 0:22:23.320 sort of principal components in global trade flows. But within 0:22:23.359 --> 0:22:25.200 the United States or within a more of a North 0:22:25.240 --> 0:22:29.359 American sort of trade block, should that continue to develop, um, 0:22:29.400 --> 0:22:31.520 you know, their importance should grow, So there should be 0:22:31.520 --> 0:22:35.080 some very profound implications there. I bunge in industrial policy 0:22:35.119 --> 0:22:38.400 and how you know, government is affirmatively putting a thumb 0:22:38.440 --> 0:22:42.320 on the scale in favor of you know, certain areas 0:22:42.359 --> 0:22:44.720 for increased capital investment. And you know there's a lot 0:22:44.760 --> 0:22:47.600 of reason for that. This is this is not just 0:22:47.640 --> 0:22:51.280