January 27, 2021 - On January 26th, the LSTA hosted a webinar, “What’s in Store for 2021?: A Geo-political Analysis of the New Administration, the Pandemic, and the Loan Market”, presented by David Chmiel, Managing Director of Global Torchlight, geopolitical risk advisors. Chmiel analysed several major themes, including, globalisation, protectionism, populism, divided domestic politics, and strategic competition.

Even though we may be returning to a more steady state now, after the upheaval of the past year as the pandemic raged around the world, the question remains to what extent the forces that drive our geopolitical and economic environment will continue to shift around us.  As nations seek to return to normalcy in 2021, their leaders must prioritise the different challenges of national security, economics and related efficiencies, global trade, national healthcare, etc.  Although we would all likely agree that there is indeed a light at the end of the tunnel, questions persist about the damage sustained by our institutions over the past year and where those forces will likely take us in the future.

Fortunately, it seems that the negative impact on global trade was not as dire as had been predicted last spring when the pandemic began to take hold around the world.  For example, the WTO had projected a decline in merchandise trade of 13-32% in 2020 because of the pandemic, but fortunately, that was revised to 9%. However, to put that in comparison, a decade ago, it had declined only 5%.  We have no new polling results yet which would shed light on whether the trend in favor of free trade will continue after the experiences of the past year.  Although, at least from a symbolic perspective, it may seem to many that the trade wars of the Trump administration have ended, we should remain cautious.  It is difficult in the current geopolitical climate, to envisage an administration taking power which would favor unrestricted trade, and we have no details yet of exactly how President Biden plans to tackle this issue.  We can assume, however, that the trade debate will be framed in national security terms, with security trumping economics, if comments from other leaders are an indicator. Our traditional allies will be watching us closely.

On the topic of offshoring and moving manufacturing overseas and permitting direct foreign investment, sentiments may indicate a permanent shift in attitudes around the world.  It will be interesting to see the different mechanisms adopted by nations as they seek to encourage manufacturing to move back onshore.  Will they adopt the proverbial carrot or stick approach?  Governments are responding to this environment, and this is creating challenges for business.  We can expect that cross border M&A will be further politicised. Quasi-financial sanctions will also likely continue to grow.  For the US’s part, during his campaign, President Biden stated that we should be penalising offshoring not rewarding it so it should be interesting to see how that plays out here. 

With only a week under their belts, we do not know exactly how the new Administration will tackle these issues and whether President Biden will roll back the former President’s measures.  President Biden has a host of goals involving healthcare, middle class tax cuts, and education.  How will he pay for all this?

As Chmiel highlighted, during the past year, we have all focused on how Covid 19 impacts us at home, but we cannot lose sight of how other nations, including developing economies, have also handled the upheaval.  As nations emerge from their lockdowns, look around, and begin to pay for the spending of the past year, we must ask ourselves: Will governments nationalize? Will they default? Will they crack down on democracy? All remain open issues that we must watch.  Click here for the slides and here for the replay.

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