President Trump recently signed two executive orders aimed at banning Chinese-owned social media platforms TikTok and WeChat from the United States. His administration has also announced sanctions on Chinese officials in response to the suppression of pro-democracy protests in Hong Kong. Although 2019 feels like another age, investors will remember before COVID-19 that rising tensions between the US and China was often cited at the leading risk facing global equity markets.
Although the pandemic has (understandably) dominated headlines and pushed the US-China risk down the priority list, this issue never went away. In fact, the pandemic (which originated in China) has likely intensified an already fraught relationship between the world’s two superpowers. Talk in political circles in Beijing, Washington and the major European capitals is that the West is in a new cold war with China.
While the pandemic and its economic consequences could last years (a sobering thought) the last Cold War lasted for decades. COVID-19 will be defeated, or at the very least adapted to, and economic life will return to normal eventually. But the rising tensions between the US and China are likely here to stay. This is a strategic game between superpowers, similar to the geopolitics that dominated the 20th century. Absent a regime change in Beijing, this issue is here to stay for the long-term and investors must be prepared to understand and adapt to this risk.
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