Fink-ing About A New Globalization

By Michael Every of Rabobank

Fink-ing about a new globalisation

In a daily markets update there are many times when all that matters are the economic data. There are also days when the bigger picture matters more. The dichotomy between yesterday’s weak US factory orders (-3.7%) and the surprise increase in JOLTS (7.4m) is worth a cursory glance, as is weaker-than-expected Aussie Q1 GDP at 0.2% q-o-q vs. 0.4% expected (so, “rate cuts!”), but none of them mean much vs. what we just saw at the global strategy level.

Iran said it could accept a proposed US nuclear deal whereby a regional consortium (it, Qatar, Saudi Arabia, the UAE, and maybe Turkey) would see civilian uranium enrichment under IAEA supervision if it’s done on its soil – otherwise it will reject it, opening the door to a US or Israeli strike. Is this geopolitical out-of-the-box thinking and a Middle East Pax Americana with low (dollar-denominated) energy prices, high economic growth, and low US military presence, or a Pandora’s box? Only time will tell, but this could prove a high order geopolitical pivot point; as

The Israeli government may be close to collapse over the issue of drafting its ultra-orthodox citizens –news on that could come Wednesday– as thousands of ex-jihadis are being brought into a new Western-accepted Syrian army: what could go wrong there looking at history?

Ukraine hit Russia again, underwater-mining the foundations of the Kerch bridge leading to Crimea. So, no ceasefire or peace, and while Russia is making slow gains on the ground in Ukraine, the latter is hitting Russia harder, something that will happen more as more advanced weapons are shipped to it. That backdrop matters to a Europe now rolling up its sleeves on the military front. Separately, Ukraine stated its grain harvest could be down 10% this year: imagine if the war were to bring that figure down further, as Russia has tried to do before. 

In Europe, the Dutch government collapsed over migration issues just before the upcoming NATO summit it’s hosting: a new election looms there at some point a few months from now, until which we will get a caretaker administration. 

In the UK, media underline that NATO will at that meeting force London to spend 3.5% of GDP on defense (and another 1.5% on related infrastructure) just after its Strategic Defence Review said it wouldn’t, leaving London looking silly, and having no idea how to pay for it: indeed, NATO is now seeking a fivefold boost in its ground-based air defence systems. It’s not just the UK that’s true for of course. Vast sums need to flow to armed forces globally.

In Asia, regular military high-spender South Korea’s left-leaning Lee Jae-Myung won the presidential election after his predecessor Yoon Suk Yeol’s impeachment for his declaration of martial law. The full geopolitical ramifications of that are still unclear, although Lee is certainly seen as more pro-China than Yoon.

Japan said it might join the expensive US Golden Dome anti-missile plan, which underlines which way it was always going to lean geopolitically, and shows how little optionality it has on trade – the more so given a media report underlining the accelerating fall in Japanese automakers’ market share in Thailand, a former lock-in for them for decades due to fortified layers of integrated Japan-only supply chains which has been up-ended by the entry of cheaper Chinese EVs not needing them. This underlines how technology shifts can overturn established trading patterns and economic power structures, especially for those who fall behind the curve. Still no US-Japan trade deal yet though.

President Trump signed 50% steel & aluminium tariffs but exempted the UK due to their US trade deal; and he is set to waive some legal requirements to boost US critical minerals/rare earth output, where China has a current monopoly it’s using to throttle industrial supply chains. That doesn’t show up on Bloomberg data yet, but that doesn’t mean it isn’t a critical issue. 

Treasury Secretary Bessent said Beijing has a choice on whether it’s a dependable trade partner, reiterating it must shift to a more consumption-led economy – and, presumably, to allow others to get the rare earths they need for industry.

On consumption, Elon Musk called Trump’s Big Beautiful Bill a “disgusting abomination”, as Bessent underlined in an interview that while he wants to get the fiscal deficit down, the aim is to do so via higher growth rather than a hard fiscal stop.

Meanwhile, the FBI arrested a Chinese national for allegedly smuggling a dangerous biological pathogen, fusarium graminearum, an “agroterrorism agent,” into the US to research at the University of Michigan, where she works, increasing tensions over Chinese student visas and current ‘we don’t do geopolitics’ US university research models. That’s an emerging global bifurcation with major implications. Yet while there are stories of US academics now considering moving abroad –who else has US money, labs, and academic freedoms?– the loss of Chinese students to the US is more a geopolitical blow to Beijing (and the Ivy League) than it is an economic one to universities which reject 99% of equally-qualified applicants from other countries. 

As backdrop to all this, a Wall Street Journal op-ed argued ‘The War of Revision is Coming’, where Taiwan may be the next Ukraine, and warns: “All democratic societies will ultimately have to reckon with this unwelcome global transition from a postwar to a prewar era in world history.”

But potential rate cuts are more important though, right, Mr. Market? Yes, maybe… if they help pay for stepped-up military expenditures implied by the above. Yet how do we structure our political-economies to ensure they do that and not –for a random example that would obviously never be part of any sensible government’s game-plan in the current circumstances– push up house prices instead? *If* you believe what the Wall Street Journal op-ed says, this is an existential issue for democratic societies: but you wouldn’t think so from how many are acting. However, some key voices are talking new talk.

BlackRock CEO Larry Fink used a Financial Times op-ed to say “globalization is over” and we need a “new draft” without massive trade and financial imbalances causing inequality, and with local economies that help workers(!) The logical implications of such are staggering: no more massive trade surpluses and deficits, upending the global trading structure; no more free-wheeling global capital flows creating those trade surpluses and deficits and holdings of certain assets; more local consumption first, with what’s left exported, so less trade overall; and a reallocation of purchasing power from top income deciles to those at the bottom via more inclusive local capitalism(s) across all those taking part in the new system.

Of course, this BlackRock rhetoric could be the next ‘Build Back Better’, i.e., an empty incantation nobody actually expected to achieve anything but which sounded good to the disaffected. However, it would be hard to argue that things are currently static. Rather, they are moving fast and breaking things. 

Indeed, what Fink just said sounds a lot like some past neo-mercantilists and some interpretations of what the White House is trying to achieve. (Which doesn’t mean they will succeed but is naturally why BlackRock just said it.) 

You want to talk jolts? Look at that bigger picture, not the US (or other) data.