May 21, 2020 - On May 19th, the LSTA hosted a webinar, “The Pandemic and Geopolitics: What it Means for Business and the Loan Market”, presented by David Chmiel, Managing Director of Global Torchlight – Geopolitical Risk Advisors. Chmiel addressed three themes: the pandemic’s impact on the ongoing debate about the merits of free trade and globalisation, its effects on key economies like the US and UK, and its potential impact on the geopolitical environment and the balance of power between nations. 

Even before the pandemic hit, a series of tariffs and trade “wars” had been raging, along with a debate over whether globalisation had gone too far.  The current crisis has accentuated aspects of that debate – there has been renewed focus on issues such as global supply chains, off-shoring, and the location of manufacturing facilities. The global pandemic will likely lead to a greater emphasis on self-sufficiency, for example, in the resources needed to fight future pandemics and ensure adequate levels of medical personal protective equipment.  We are likely to see export bans continue in certain industries; indeed many countries have already blocked or introduced new stringent review mechanisms of inbound investments in certain sectors. Many governments will be forced to reevaluate policy and cope with ever-rising populism (a trend that was already apparent over the past decade in certain countries). And others have unique considerations to take into account, such as the UK which had already preparing to slash some tariffs before the pandemic hit, thus opening up part of its post-Brexit economy, while looking to protect certain other sectors. 

The current crisis is also amplifying discussion about corporate debt. If US bankruptcies or UK administrations of companies lead to large scale job losses, the political focus around corporate debt will intensify.  There is no clear path forward, and with many nations offering massive support to its businesses, governments will be forced to consider increasing personal income tax rates.  But if recent US polls are to be believed, any proposed law to raise those taxes will meet significant resistance.

The effects of the pandemic are colossal, and as we emerge and take the first tentative steps out of lockdown, there is a growing consensus that there is unlikely to be a rapid recovery. With each country determining its own path to recovery, each one will be highly dependent on how its government chooses to handle the virus and chart its future course.  Those who predict new spikes of the virus’s spread have also pointed out that this would impede any nascent recovery.   Aviation, hospitality, hotels, and retail are all under pressure, and, indeed, we simply do not know if people will be willing to visit restaurants and eat behind plexi-glass or fear the virus and not go out at all. In sum, the “new normal” has yet to take shape.  Click here for the replay and the slides.

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