A TPDEARR Article
Trans-Pacific Dynamic Equity Allocation Research Report
Aren’t we all participants in a shared, global, “community of common destiny“? That depends on your point of view. No, wait. It…doesn’t…? The somewhat-opaque definition of the PRC/CCP’s quasi-new international policy slogan can certainly be seen as the modern counterpoint position to the “rules-based order” of the West. In and around Asia, it must not be taken lightly. Hu Jintao, former CCP general secretary, first used the phrase in 2007 in the 17th National Congress of the CCP in reference to the commonalities inherent between mainland Chinese and Taiwanese peoples and cultures, but Xi Jinping has since expanded the use and meaning of the phrase to encompass a more globe-spanning “community” of humanity in general, with emphasis on the PRC’s Asian backyard. Now, seemingly renewed, again, in review of the highly-interconnected global economy through decades of internationalizing supply chains and trade agreements, the slogan also points to the new challenges of the bi-polar world order and the two leading economies’ competing claims to geopolitical power.
Independence
How can an economy become more independent in an inter-dependent global community?
Great Power games play out on increasingly-global, increasingly-interconnected fields. Some advancement always inevitably turns up that upheaves the standard order and refigures things (funded by, of course, members of the investor/capitalist class.) Then, time passes; system-wide national renovations become normalized; economic supply chains are continually reorganized for efficiency and best price, setting standards of practice along the way; and domestic populations embed maturing customs into cultures of community in relation to mutually-shared domestication experiences. It’s almost as if, so long as your survival is not being besieged by hostile forces, “the rest of the world” doesn’t even really have to matter to your daily life, right? A nation’s “independence” can play out on its own terms, and it can find self-sufficiency on its own, through its own resources, and without provisions or interference from foreign parties, right?
*sigh*
If only it were so easy…
The isolationist’s bane in the preceding sentiment is loaded into the word “economic”. Why do people think that economics is a purely national issue? This is a ridiculous farce; don’t fall for it. There is no possible modern society that can exist without trading for resources provided for by other international parties. Rare Earth Oxides (REO), for example (which we looked closely into in the DEC.22 issue—Natural Elements), are critical to the “modern” component of civil infrastructure, and they are not evenly distributed around the Earth’s continental surfaces. Most places don’t have most of them, and no place has all of them. The vast majority of highly-developed national industry is globally-interconnected in this way, sourcing primary, intermediate, or final supplies and resources (including employment) from foreign parties all the way up and down the supply chain. This is the way things are. Hypothesizing about scenarios that don’t start with this reality is unhelpful. Independence? What could that single, subjective concept even mean in this context? Politicians across the ideological spectrum love to weaponize “independence” for their benefit, but the meaning of the term is not universally shared and far too nuanced to be applicable in all cross-cultural circumstances. It is the increasing ease of trading resources around the world that has accelerated economic development, and the countries and economies most successful in that process lead the way.
Another indicator can be seen when comparing the amount of electric power an economy utilizes. Guess which country has generated and used the most electricity since the end of World War II? Before you ask your preferred AI chatbot, a hint: it’s the same country with an arrogant class of citizen who loves to utter the phrase, “Win a war, then I’ll learn your language.” That same country’s total ongoing power generation was usurped by that of the PRC in 2011, right at the dawn of the Era of Xi. Already were the world’s two largest economies fully interconnected. There are some smaller, compartmentalized, subordinate ways in which a domestic economy could become partially self-sufficient, such as in energy for the lucky ones. Sure. I’ll give you that. But there is no such thing as resource “independence” if you plan to run a modern society, whose resources are unevenly distributed and globally extracted and derived. So maybe let’s all stop using the word without other qualifiers.
Because of the current US administration’s unwillingness to acknowledge a possible future undefined by the US-led, Western, “rules-based” hegemony, they draw a line in the sand, and pose in opposition to the community of common destiny, even though their own destiny is inextricably intertwined into the same common network.
Is it effective foreign policy for the future? This remains to be seen, obviously. The two major economies are in an intense dance of strategic posturing with ever-rising stakes, and historical prominence doesn’t really mean anything; every empire in history fell in due time.
But is this foreign policy from the US even reasonable? No matter what the future is going to be like, the only thing we know for sure is that it’s not going to be like however it is today, which is inevitably bound to change over time. So continuing to define the future (and future-held ideals and ambitions) as equivalent to today is intellectual malpractice. It is also a form of simpletism. The US needs a better (=more antifragile) strategy. But in the meantime, the investors will keep scouring for value and growth, obviously. See Additional Notes, below.
Rules
How do you follow the rules? If you think this is a stupid question, stay away from foreign affairs, for everyone’s benefit. In the US-led Old Guard, rules (and contracts, laws, rights, etc.) are paramount. They are how people are included or excluded from participation. Even in a “rules-based” order, though, perspective is both imperative and amorphous; it’s really important, culturally-shaped and ever-changing. People can only “follow the rules” according to their own individual understanding of them, which is first influenced by their surroundings and then “remixed” internally, in the individual psyche, with respect to each person’s unique history and language processing abilities. The study, theory and methodology of understanding itself is contained in the science of hermeneutics, which is certainly not to be reserved only for religious texts. Those of you who have lived extensively in other cultures and among other languages will surely agree that even subtle nuances in very commonplace and ordinary words, like “we”1, can have a substantial impact on broader situational understanding. When the perceived meaning of every single word is, essentially, up for debate, “rules-based” becomes a much more challenging proposition.
We are not saying that the PRC is doing a perfect job managing 1.4 Billion people with a single-party, authoritarian governance system, steeped in millennia of traditions and ancient history, but we are also not saying that a democratically-elected representative republic system would have them better off, either. Democracy (and following all the rules of democracy) becomes a less-forgiving project the larger a populous gets. Broad representation becomes more impossible as the diversity within the lives of citizens blossoms. Take China’s billion-plus-population partner India, for example: India seems to be “democratic” like other Western powers, but the multiplicity of their party system ensures that no matter what happens in elections, at least hundreds of millions of people will be dissatisfied by the results. India has 6 national political parties; 56 sub-national, state-level parties, and over 2,700 “unrecognized” parties that may or may not be able to achieve recognition in any given election cycle. Can “democracy” actually successfully represent enormous, billion-plus populations with such a limitless plethora of interests and opinions? Well, not yet, no. So what does that mean about following the rules, and how should investors who care about the geopolitical implications of the next 4-6 quarters care?
Investors would be wise to strongly consider how leadership turnover affects different national economies’ abilities to “follow the rules”, and how that might nudge their global commercial participation.
First up is Taiwan, which holds both presidential and legislative elections in January 2024. The incumbent, Tsai Ing-wen, has held the position for two terms and is ineligible; the new president will undoubtedly have an impact on cross-strait relations with China, which have grown increasingly dramatic in recent years. Lai Ching-te (aka William Lai), the current leader in the polls, is the CCP’s least desirable outcome, and will likely not improve the cross-strait communication situation. The centrality of Taiwan’s semiconductor industry to global commerce is no trifling matter. To foreign powers, Taiwan is a key jewel for the economic crown, and it will be no less fought over during the next election cycle. It’s unlikely the CCP on mainland China will be “happy” with any of the current possible political outcomes; they all result in continuation or expansion of Western-style “rule following”. Reunification remains the PRC’s ultimate goal.
In February, the world’s largest island nation, largest Muslim nation, and fourth most-populous country, Indonesia (~280 million ppl), will hold its presidential election. Incumbent Joko Widodo is finishing his second possible term and passing the torch to some other of the exclusively-male candidates who come from one of the 17 represented parties. Indonesia is technically a constitutional republic, but Westerners should not be fooled into thinking the system closely mirrors Western society. Indonesia is coming into its rapidly expanding economic present through a moderate interpretation of Islam, a position which is unlikely to change in the coming years or decades. One example of this would be the strict intolerance of any presidential candidate who doesn’t believe in “the one true God”. Though democratic ideals are strengthening, many believe they are more-or-less performative, and religious intolerance is also a growing concern in the very pluralistic society. On the other hand, Indonesia boasts a voting electorate of more than 205 million citizens, which is more than 73% of the population. This is far better than the US’s paltry <50% voter registry. Indonesia is paving its own way into the future; there are no good models for overall comparison with other nation-states. It’s democratic ideals help lean into US-led support at some times, while its Asian proximity and large Asian ethnic representation helps it lean into PRC-led agreements at other times. In a nutshell, though, Indonesia is making its own rules, some of which don’t correspond well with broadly accepted “global” rules, like those of the WTO.
Over in the West (along the Eastern Pacific seaboard), both Mexico and the U.S. are having presidential elections, in June and November, respectively. In America, the rules-based liberal order stands opposed by a populist, triumphant nationalism-first orientation. The world is still recovering from damage wrought by the previous administration’s ineptitude, so a repeat of 45-era “policy” is not very-well perceived. Market players, as we discussed in the DEC.22 Macroeconomics article, wreak havoc under duress, so upending markets and trade activity, burning bridges and backing out of agreements can only bring the kind of volatility that costs people more than what they were otherwise planning. We live in an integrated world, remember? Isolationism is costly, and ultimately impossible, while still continuingly costly all the while.
In Mexico, the next president will be a woman. Both of the leading candidates are female, and whether it’s the energy engineering physicist and secular Jew Claudia Sheinbaum, who’s done everything from contribute to the Nobel-winning fourth IPCC report to being the mayor of Mexico City, or the center-right businesswoman and Senator Xóchitl Gálvez, the next leadership of Mexico will have a progressive slant, and it will likely have a stronger emphasis on both rules and the rule of law than AMLO’s current administration. North American trade relations between the US and Mexico will improve if Biden is re-elected, regardless of who wins in Mexico, and vice-verse should things not transpire so.
Are we set to follow the rule-playing and precede the investment trends as leadership turnovers impact the trans-Pacific next year? Flavors of nationalism/populism are apparent in the Taiwan and US elections, but the trend has subdued compared to its pandemic-era highs. More economies are trying to “play nice” than are trying to “flex strength” on the current geopolitical playing field. Without getting lulled into a false sense of security, guide investments towards future-forward goals where international cooperation, particularly on environmentally-conscious projects, will yield mutually beneficial monetary gain. After all, don’t you hear the cowbell?
Additional Notes
Neither leadership turnover nor geopolitical alliance reshuffling will alter the foundational importance of electricity and increasing national power generation. Without a viable large-scale alternative for electricity transmission, the conventional model for newly-electrifying and expanding access to electricity will prevail and continue. Electrons are best explained through particle physics, the science of which underlies current electricity infrastructure. [DEC.23 Squad Asset #2] and [DEC.23 Squad Asset #4] sit as compelling options for the intermediate term due to their market position, potential future market expansion, and the ubiquity of their products’ uses. Whatever happens at the geopolitical level, the aggregate level of global development will continue to modernize, and electricity is the lifeblood of that infrastructure, the logic (and profitability) of which any prevailing political leadership is bound to embrace.
- In many East Asian cultures, “we” usually has many forms and is loaded with meaning that is dramatically more collectivist than in Western cultures, which much more strongly emphasize individualism. Using the right “we” manages layers of formality and hierarchy in cultures like Korea and Japan, which contrasts sharply with U.S. culture, where “we” is used virtually indiscriminately. ↩︎
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