by Patrick Fearon-Hernandez, CFA  | PDF

In our Bi-Weekly Geopolitical Report from January 26, we posited that the United States under the new administration has adopted a foreign policy quite distinct from that of the previous eight decades. We showed how the new US policy is a type of neo-imperialism with elements of neo-colonialism. We emphasized that our characterization of the new foreign policy is not meant to be pejorative. It is merely descriptive, to help us understand how it works and what its implications might be. After all, the new foreign policy could well be positive for US citizens, and especially the working class, which shouldered much of the costs of the old policy focused on maintaining the US role as global hegemon. In this report, we look closer at the differences between these policies and their implications for investors. We show that the politics and economics of the two policies suggest very different investment strategies.

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Don’t miss our accompanying podcasts, available on our website and most podcast platforms: Apple | Spotify 

by Patrick Fearon-Hernandez, CFA  | PDF

We at Confluence have long tracked how voters in the United States are increasingly recoiling at the costs of global hegemony, i.e., the US’s traditional role as the big, dominant country that provides international security, order, and the reserve currency. We’ve shown that as voters became angry at the social and economic costs of hegemony, US leaders adopted more populist, nationalist, and isolationist policies in realms ranging from foreign relations and trade to immigration and fiscal policy. In recent years, we’ve noted how the US’s pullback from global leadership has encouraged increasingly powerful adversary countries such as China, Russia, and Iran to assert themselves, raising tensions and prompting the countries of the world to fracture into relatively separate geopolitical and economic blocs.

Our analysis indicated that this global fracturing would have multiple economic impacts, such as higher and more volatile price inflation, which called for specific investment adjustments. Nevertheless, we showed that the evolving US bloc was generally attractive for investors, since it consisted mostly of today’s rich, highly industrialized, technologically advanced liberal democracies and a few closely related emerging markets.

In our view, US hegemony has always had elements of imperialism, but they were cloaked by a preference for “soft power” over “hard power” (for a comparison of the two concepts, see Table 1 on the next page).

In this report, we show how President Trump is shifting US foreign policy toward something that looks more like unveiled, unapologetic imperialism more heavily based on hard power. Further, we see the president as nudging the US bloc toward something more akin to the European colonial systems of the past, just as China and even Russia are arguably trying to do the same in their own regions. This is a big topic, so we can’t examine all the resulting issues in this one report. Nevertheless, this change, if fully implemented, will likely have major implications for global politics, economic relations, asset returns, and investment strategies, so it’s important to take a first cut at the analysis now.

Read the full report

Don’t miss our accompanying podcasts, available on our website and most podcast platforms: Apple | Spotify