With geopolitical tensions rising and a US election looming that could redefine America's role in the world, investors need to prepare for the extremely dangerous environment they find themselves in, says one said the veteran US diplomat.
Richard Haas, a former State Department official and now a senior adviser at Centerview Partners, was asked on Bloomberg TV on Friday what investors should keep in mind first.
“You need to wear your seat belt and keep it fastened,” Haas replied.
He said both Democrats and Republicans are competing to see how protectionist they can be when it comes to China, which could lead to inflation. They are also considering strengthening the U.S.-Mexico border, which could further accelerate inflation if the supply of workers is restricted.
Haas said he was also concerned about the time between the U.S. election and Inauguration Day, especially if there is another close race that sparks political violence.
“Many people around the world may be upset. Many enemies around the world may see this as an opportunity,” he warned.
And the key question after Inauguration Day is whether the U.S. government is functioning or dysfunctional, he said. And if former President Donald Trump is re-elected, another question will be whether he will seek to dismantle key parts of the world order that have served U.S. interests for more than 75 years, Haas said. added.
President Trump is particularly hostile to NATO allies that he views as not spending enough. In February, he said he would encourage Russia to do “whatever it wants” to “misbehaving” allies. After a few days, he pulled himself together and said, “If they don't pay, we're not going to protect them.”
“So if you're an investor, there's a certain amount of uncertainty because of the combination of global geopolitics against the backdrop of an America that's no longer convinced or united about its role,” Haas said. “I would argue that this is actually the most dangerous moment, in many ways, not just since the end of the Cold War, but since the end of World War II.”
To be sure, he pointed to some positive signs, such as the strengthening of the Japan-U.S. alliance, improved Japan-South Korea relations, the rise of the Indian economy, and Western support for Ukraine against Russia, but these have recently begun to waver. The U.S. House of Representatives passed a new aid package after months of delays.
But he cautioned that the world is not self-organizing and the United States has a big role to play, something American investors need to take into account.
“At home, the rule of law and a stable world provide the context for everything that American companies do,” Haas said, adding that CEOs support pro-democracy policies at home and “internationalist” policies abroad. He pointed out that it should be supported.
His warning, in an op-ed in Friday's Financial Times, said the wide divide between investors and security experts on how they view the risks from the Iran-Israel conflict could still have an impact. This echoes the warnings of top economist Mohamed El-Erian. It will have a huge impact on global growth and financial markets.
He said the conflict has “permanently raised the geopolitical temperature in the region,” but financial markets have ignored it because the recent retaliation has not yet caused significant physical casualties. He said there was.
“That may well be an overly complacent response, given the region's vulnerability to misjudgment, lack of understanding of adversaries, and execution mishaps,” El-Erian said.
