Nov 10, 2023 Thematics

Mr. Market Goes to Washington

Maria Milina

Maria Milina

Research Analyst
Robert Bush

Robert Bush

DWS Research Institute
Jason Chen

Jason Chen

Senior Portfolio Strategist
  • Market-driven globalization has probably passed its peak. Governments are now investing to diversify and onshore supply chains across manufacturing industries.
  • Relations between the two largest trading nations—the United States and China—have become more challenging, moving from trade and tariff issues to a much broader conflict centering on technological leadership and reduced economic interdependence.
  • Increased spending on industrial policy in the U.S. aims at sustaining the nation’s technology leadership, considered critical for national and economic security.
  • Ongoing entanglement of national security and economic policy creates new opportunities for investors across various industries.

Once considered separate domains, economic and national security have seen growing convergence in recent years. And the U.S. government is not alone in blurring this line. In fact, the European Union in its European Economic Security Strategy[1] published this year sets out a plan to de-risk its economic interdependencies. The term “de-risking” used in the strategy—instead of the arguably more hostile phrase “decoupling”—has been readily adopted by the Biden administration, when referring to the U.S. relationship with China. In this paper, we argue that no matter one’s view on globalization, its reversal will have extensive effects on global and regional economies, and investors should prepare to embrace this long-term economic transformation and play defense creatively.

Is the global economy deglobalizing?

For the past decade the future of globalization has been debated. Since the global financial crisis of 2008-09, world trade has been growing slower than GDP, in contrast to an earlier trend of the era of so-called hyper-globalization. Most recently, global supply chains have come under unprecedented stress as a result of U.S.-China trade tensions, the Covid-19 pandemic, and geopolitical shocks. For example, the shortage of supply of semiconductor chips during the pandemic took a drastic toll on all facets of the automotive industry, while Russia’s invasion of Ukraine exposed the vulnerability of European countries’ natural gas supply.

In response to fragile supply chains and growing threats to national security, many governments are looking to build up manufacturing capacities and expertise in strategic industries, such as computer chips, electric vehicles, biotechnology and AI. They are implementing substantial subsidies and requirements for domestic content to encourage production at home. In the U.S., the Bipartisan Infrastructure Law (BIL), the CHIPS & Science Act, and Inflation Reduction Act (IRA) together introduce $2tn in new spending over the next decade. Although America’s spending on industrial policy, relative to GDP, is likely to remain somewhat behind China’s, it is estimated to rival that of South Korea, France and Japan[2].

More topics

Discover more

1. An EU approach to enhance economic security. European Commission (June 2023).

2. Red Ink: Estimating Chinese Industrial Policy Spending in Comparative Perspective. Center for Strategic and Industrial Studies (May 2022)

CIO View