Mission Grey Daily Brief - November 13, 2024
Summary of the Global Situation for Businesses and Investors
The global situation is currently dominated by Donald Trump's return to the White House, which has significant implications for global trade and supply chains. Taiwan's tech industry is moving to fortify its supply chain strategy in anticipation of new global tariffs, while Chinese firms are showing increased interest in relocating to Malaysia and other Southeast Asian countries to avoid the impact of potential tariffs. Meanwhile, China's leader Xi Jinping is heading to South America for a meeting of Asia-Pacific Economic Cooperation (APEC) leaders, overshadowed by fears of renewed global trade tensions. In other news, the US has struck Iranian-backed targets in Syria, and thousands in Serbia are demanding the PM's resignation after a deadly roof collapse.
Trump's Return and Global Trade Tensions
The imminent return of Donald Trump to the White House has prompted Taiwan's tech industry to fortify its supply chain strategy in anticipation of new global tariffs. At a November 12 industry forum, experts outlined a new "two enhancements, two reductions" doctrine to navigate the approaching trade turbulence that could impact manufacturing bases from Mexico to Vietnam. This doctrine involves enhancing integration and control while reducing centralization and dependency.
Sharon Wu, division head at the Industry, Science, and Technology International Strategy Center under the Industrial Technology Research Institute (ITRI), warned that Trump's return signals just one aspect of evolving global dynamics. She emphasized that supply chains must become more flexible and resilient to shield against multiple threats, including supply chain disruption risks and the erosion of low-cost manufacturing advantages.
Chinese Firms Relocating to Southeast Asia
Chinese firms are showing increased interest in relocating to Malaysia and other Southeast Asian countries like Thailand and Vietnam to avoid the impact of potential tariffs. This is driven by Trump's campaign pledge to impose 60% tariffs on Chinese goods. During his first term, Trump's "America First" policy sparked a trade conflict with China, with tariffs imposed on US$550 billion of Chinese products.
Southeast Asian nations are preparing for more turbulence after Trump announced a blanket tariff regime of 10% on all imports. In Thailand, the WHA Group CEO Jareeporn Jarukornsakul has reported a surge in inquiries from Chinese customers, prompting the company to expand its Chinese-speaking sales force. Similarly, Malaysian real estate sellers are experiencing an uptick in interest in business relocation as Trump's return may bring a surge in Chinese companies looking to move supply chains to Southeast Asia.
US Strikes Iranian-Backed Targets in Syria
The US has struck Iranian-backed targets in Syria, including an Iran-backed military facility and militia targets. This comes amid ongoing tensions between Ukraine and Russia, with explosions in Kyiv as Putin's forces launch a missile attack. The US has also accused Hamas of complicity in Gaza 'genocide', while a UN official has stated that Gaza conditions are unfit for human survival.
Serbia's Deadly Roof Collapse and Political Fallout
Thousands in Serbia are demanding the PM's resignation after a deadly roof collapse at a shopping centre in the city of Kragujevac. The roof collapse killed at least 14 people and injured dozens more. The PM has been accused of negligence and corruption, with protesters calling for his resignation and an end to corruption. The PM has denied any wrongdoing and has vowed to continue his work.
This political turmoil in Serbia could have implications for businesses and investors, particularly those with operations or interests in the country. It is essential to monitor the situation closely and assess any potential risks or opportunities that may arise.
Further Reading:
Amid unease over Trump 2.0, Xi Jinping heads to South America; Peru first stop - Firstpost
Explosions in Kyiv after missile attack – Ukraine war latest - The Independent
Live: US strikes Iran-backed military facility in Syria - The National
Taiwan supply chains brace for Trump's upcoming wave of global tariff - DIGITIMES
Thousands in Serbia demand PM's resignation after deadly roof collapse - Lufkin Daily News
US military strikes Iranian-backed militia targets in Syria - Toronto Star
Ukraine-Russia war latest: 50,000 of Putin’s forces in Kursk, Kyiv says - The Independent
With Trump’s victory, Malaysia sees more interest from Chinese firms to relocate - This Week In Asia
Themes around the World:
End of Russian Gas Transit
Ukraine's cessation of Russian gas transit to Europe marks a pivotal shift in energy dynamics, impacting supply chains and energy security across the EU. This decision, driven by national security concerns, will result in significant financial losses for both Ukraine and Russia, while forcing EU countries to seek alternative energy sources, potentially increasing costs.
Defense Exports and Strategic Autonomy
France's defense exports reached $19 billion in 2024, driven by demand for Rafale jets and submarines. This sector is crucial for maintaining strategic autonomy and economic stability, but political challenges threaten funding and operational effectiveness, impacting future export potential.
Impact of Agricultural Policy Uncertainty
The upcoming 2024 election cycle introduces significant uncertainties for U.S. agricultural policies, which could affect trade agreements and labor availability. Rural industries may face challenges that impact their profitability and operational stability in the coming years.
Impact of US Tariffs on Exports
Potential tariffs proposed by the US could significantly affect Indian exports, particularly in textiles and jewelry. Companies like Welspun Living and Goldiam International, heavily reliant on US markets, may face revenue declines, prompting investors to reassess risk exposure in the Indian stock market amid geopolitical tensions.
Impact of Biden's Steel Blockade
President Biden's decision to block Nippon Steel's acquisition of U.S. Steel raises significant concerns for Japan-U.S. trade relations. This unprecedented move could deter future investments from Japan, impacting bilateral economic ties and creating uncertainty for Japanese firms planning expansions in the U.S. market, particularly in the steel and chemical sectors.
Economic Growth Projections
France's GDP growth is projected to be modest at 1.1% for 2024, trailing behind other G7 nations. Economic forecasts indicate potential stagnation in 2025, influenced by political instability and external economic pressures, which could affect investment strategies and market confidence.
Regulatory Changes in Drone Supply Chains
The U.S. Department of Commerce is proposing regulations to secure the drone supply chain from foreign adversaries, particularly China and Russia. This move reflects growing concerns over national security and could reshape the landscape for U.S. drone manufacturers and their international partnerships.
Regional Skills Chasm in the UK
A report highlights a widening skills gap between regions in the UK, with London attracting highly qualified workers while other areas lag. This disparity could hinder economic growth and exacerbate regional inequalities, prompting calls for targeted educational and industrial strategies to bridge the gap.
Chinese Tech Stocks Under Pressure
Chinese tech companies are facing stock market volatility due to US actions linking them to military applications. This geopolitical tension raises investor caution and could hinder the growth prospects of major firms like Tencent and CATL, impacting their international operations and partnerships.
Geopolitical Risks and Trade Dynamics
Thailand's economy faces challenges from global uncertainties, including potential US tariff increases and geopolitical tensions. Experts predict slow growth rates, impacting export prospects and investment strategies. Businesses must navigate these risks to maintain competitiveness in international markets.
Decline in Air Travel and Tourism
Germany's aviation sector is struggling with reduced flight capacity and rising fares, impacting tourism and business travel. This decline could exacerbate economic malaise, as reduced international connections hinder Germany's attractiveness as a business destination.
Inflation and Economic Uncertainty
Germany's inflation rate rose to 2.6% in December, driven by persistent price pressures from energy and food sectors. This inflationary environment complicates fiscal policy and consumer spending, potentially leading to reduced economic growth and increased operational costs for businesses.
Postponement of Green Initiatives
Carbios has delayed the construction of its PET depolymerization plant due to funding issues, reflecting broader challenges in green technology investments in France. This postponement could impact sustainability goals and the competitiveness of the French biotech sector.
National Security and Foreign Investment
The Biden administration's blocking of Nippon Steel's acquisition of US Steel highlights the increasing intertwining of national security with foreign investment policies. This decision may deter foreign investments in the U.S. and reshape the landscape of international trade, particularly in critical industries like steel, impacting supply chains and economic competitiveness.
UK-Taiwan Enhanced Trade Partnership
The UK and Taiwan have signed an Enhanced Trade Partnership, focusing on digital trade, investment, and renewable energy. This agreement aims to strengthen economic ties and supply chain resilience, presenting new opportunities for UK businesses in the Asia-Pacific region.
Geopolitical Tensions Affecting Trade
Ongoing geopolitical tensions, including the Russia-Ukraine conflict and US-China trade disputes, are influencing UK businesses' strategic decisions. Companies may adopt a cautious approach to investments and trade, necessitating adaptive strategies to mitigate risks associated with international relations.
Geopolitical Tensions with Egypt
Egypt's military modernization and arms buildup pose a potential threat to Israel, as it prepares for possible conflict. This escalation could lead to increased military expenditures for Israel and affect regional stability, impacting trade and investment strategies.
Inflationary Pressures Persist
Germany's inflation rate rose to 2.6% in December 2024, driven by rising food prices and persistent energy costs. This inflationary environment complicates economic recovery efforts and affects consumer spending, impacting overall business operations.
Defense Exports and Strategic Autonomy
France's defense exports reached €19 billion in 2024, driven by demand for Rafale jets and submarines. The government emphasizes the importance of maintaining a robust defense industry for strategic autonomy, which could influence international military partnerships and trade dynamics.
Healthcare Infrastructure Under Siege
The ongoing military operations in Gaza have severely impacted healthcare infrastructure, with hospitals being targeted and rendered non-operational. This raises humanitarian concerns and reflects the broader implications of military actions on civilian life, potentially leading to international scrutiny and condemnation.
Shift in Export Destinations
China's exports to Vietnam surpassed those to Japan for the first time, reflecting a significant shift in supply chains. This change is driven by U.S. tariffs prompting companies to seek alternative suppliers while still relying on Chinese components. This trend may increase costs for businesses and consumers while benefiting Vietnam's investment landscape.
Impact of US Military Designations
The US Department of Defense's designation of major Chinese tech firms as military entities raises geopolitical tensions and investor caution. This classification could hinder these companies' international operations and partnerships, particularly in sectors reliant on US technology and investment.
Negative Power Prices and Energy Supply
Germany's power prices have turned negative due to an oversupply of renewable energy, highlighting the challenges of balancing energy generation and consumption. This situation affects energy producers and could influence energy pricing strategies for businesses reliant on stable energy costs.
Stock Market Volatility
Indian equity markets are experiencing significant volatility, with expectations of further declines due to economic slowdown and geopolitical tensions. This uncertainty may lead to reduced foreign institutional investment, impacting overall market stability and corporate earnings.
Healthcare Infrastructure Attacks
Israeli military actions have severely impacted healthcare facilities in Gaza, raising humanitarian concerns. The destruction of medical infrastructure complicates international relations and could lead to increased scrutiny and potential sanctions against Israel.
Yuan Depreciation Amid Tariff Fears
The yuan's decline to a 16-month low amid fears of impending US tariffs signals investor anxiety regarding China's economic stability. This depreciation could affect foreign investment and trade, as businesses reassess their exposure to currency risks and potential tariff impacts.
Critical Minerals Supply Chain Vulnerability
A thinktank report emphasizes the UK's over-reliance on China for critical minerals, essential for technology and green transitions. The government is urged to diversify supply chains and engage with international partners to mitigate risks, which could reshape investment strategies and supply chain management in the UK.
US-China Trade Sanctions Escalation
China's recent sanctions against US defense companies highlight the intensifying trade tensions between the two nations. These measures, including export controls and the designation of companies as 'unreliable entities', signal a tit-for-tat approach that could disrupt supply chains and investment strategies, particularly in defense and technology sectors.
Emerging Risks in Climate Change
The UK faces increasing risks from climate change, impacting business operations and supply chains. Companies must adapt to evolving regulatory landscapes and consumer expectations regarding sustainability, necessitating strategic shifts to mitigate risks and capitalize on green opportunities.
Digital Economy and Cloud Investments
Thailand is positioning itself as a digital innovation hub, with significant investments from tech giants like AWS. This development is expected to enhance the country's technological capabilities and create jobs, driving growth in the digital economy and attracting further investments.
Cybersecurity Threats and Regulations
Thailand is experiencing a surge in cybercrime, with financial phishing attacks increasing by 582%. New laws aim to combat scams and enhance accountability for financial institutions. This evolving threat landscape necessitates robust cybersecurity measures for businesses, impacting operational costs and investment decisions in the digital economy.
Geopolitical Tensions with Turkey
A government committee warns of potential conflict with Turkey, driven by its ambitions to restore Ottoman influence. This situation could escalate regional tensions, necessitating increased defense spending and strategic military preparedness from Israel to safeguard its interests.
China's Rare Earth Supply Dominance
China's control over rare earth elements is a critical geopolitical issue, as these materials are essential for modern technology and clean energy. The global push to diversify supply chains poses challenges for businesses reliant on these resources, impacting strategic sourcing decisions.
Corporate Fraud Prevention Efforts
Thailand is intensifying measures against corporate fraud, requiring thorough checks against high-risk individuals for business registrations. This initiative aims to enhance governance and protect the economy from fraudulent activities, fostering a more secure business environment for investors and companies operating in the region.
Electricity Pricing and Business Impact
High electricity prices in Thailand, averaging THB 4.15 per kWh, continue to burden businesses. While slight reductions have been made, ongoing price hikes could deter foreign investment and lead to closures of SMEs, impacting the overall economic landscape.
Impact of Tariffs on Lumber Market
Proposed tariffs on Canadian lumber imports by the Trump administration could disrupt the U.S. lumber supply chain, leading to increased prices for consumers and potential volatility in the housing market. The historical context of tariffs indicates a complex relationship between domestic production incentives and consumer costs.