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

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