• Shakir Othaman

Political Climates and Global Economy: The World is on Upheaval

If you think COVID-19 will cause political tension to stay put, think again.

2020 is a year to be remembered. In March, the emerging of the novel virus causes people across the world to be in lockdown. However, political tensions, including Sino-America Trade War and Brexit escalate with Trump administration targeting WeChat and Tiktok under securities threat concerns and Boris take a U-turn by proposing the Internal Market Bill and breaching the international law. (I for once believe that this is the end of the world and I might not be able to achieve my ambition owning a mansion in Beverly Hills). Putting humour aside, the tensions will have spillover effects on the economy, mainly on the capital market and business transactions. In this article, I will summarise the chronology of the events and provide an in-depth analysis of its impact on the market and businesses.


Source: Financial Times


First, as the USA and China were in talk of reaching the trade agreement, the United States becoming the new hotspot for the COVID-19 spread. In denial of poor enforcement to control the spread of the virus, Mr Trump blamed Xi Jinping administration for hiding the virus from the world, and when they alerted the WHO, it was too late. Now, Mr Trump directed his blamed on China, by condemning China on detaining millions of Uyghur Muslim in what known as “Re-education Camp”, and recently raising securities concerns over control and transmission of private information by Chinese social media apps including WeChat and Tiktok.


Source: The Conversation


Across the Atlantic, years of ongoing Brexit deals is on the tip of the iceberg as Boris Johnson, the prime minister of Great Britain, announcing that he will breach the international law in a somewhat ‘specific and limited way’ by redesigning the previously agreed deals with the EU. The prominent government officials, including Richard Keen, the advocate general for Scotland, started to lose faith and resigned. Mr Johnson faced critical tasks to reinstall trust with the EU and other countries as a global free-trading nation and most importantly retain London as the European Financial Hub, where its financial industry is the primary driver of economic growth.


The main question is how the tensions are affecting the market. First, given the tensions continue and deglobalisation materialises, the global economy will face a threat of stagflation. (Stagflation can be defined as a period of short deflation accompanied by overshooting rate of inflation). According to Professor Nouriel Roubini, the trade tension will cause deglobalisation, impacting the supply chain, companies in America and the UK must source its technology domestically, which is more expensive than China and EU, causing cost-push inflation. Now, let us not be too fast, making a deduction. Obviously, this is the worst-case scenario.


Next, a no-deal Brexit will cause London to lose its reign as the European financial hub and possibly multi-billion worth of transactions. Recently, JP Morgan announced that they will relocate 200 of its bankers to the European cities, including Frankfurt, Paris, and Milan. The action following their belief that the ‘No-Deal Brexit’ is the future. The Wall Street bank in early January bought a seven-floor office building in Paris’s historic 1st arrondissement in January with capacity for as many as 450 people. Should Boris fail to renegotiate with EU and make them recognised, the UK jurisdiction has strong enough rules to enable cross-border trade, a process known as equivalence.


To conclude, the potential of deglobalisation and ‘No-Deal Brexit’ will impact the global economy and capital market activities. Let us observe the development of Sino-America Tension and Brexit and continuously evaluating the prospect of stagflation and Canary Wharf as the European Financial Hub.

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