Also: Tesla targets, China and Taiwan, and COVID vaccines.
Hi, Peter Vanham here in rainy Geneva, filling in for Alan.
On Saturday, Xi Jinping will most likely be re-elected as head of China’s Communist Party, tacking another five years onto his hardline tenure. Whoever else comes and goes in the Politburo Standing Committee, back in Washington there’s growing sentiment that it’s time to move from economic integration to containment of China. But what does that mean for U.S. business?
One possible consequence is that the U.S. and its NAFTA and EU trading partners could move decisively to so-called “friend-shoring,” a doctrine in which any product—from electric vehicles to microchips to oil and gas—would need to come from countries that share the U.S.’s values and principles. It would mean an end to trading with Russia and China, and down the line, perhaps even some OPEC members.
Among Western leaders, “friend-shoring” certainly is gaining momentum. This week, Canada’s Vice Prime Minister Chrystia Freeland said that “friend-shoring is here,” and that Canada “should aim to have [economic] dependency with a fellow democracy.” In the U.S., Treasury Secretary Janet Yellen already said in July she favored increased trade with “trusted” allies. And last week, the Biden Administration showed what that meant in practice: it banned U.S.-based companies from selling advanced micro-chips to China.
Companies with a high exposure to China and other non-democratic countries might hope that the obsession with “friend-shoring” will blow over. But public sentiment could also shift more permanently to protectionism. As FT columnist Rana Foroohar noted this week, “the fact that both Republicans and Democrats are rethinking trade policy says something important: the idea that trade was primarily a pathway to global peace and unity […] is over.”
On the bright side, one place where U.S. manufacturers will find more goodwill than ever is Germany. The two countries are respectively each other’s 5th and 1st trading partner, and if current sentiment is a guide, the relationship can still grow. According to a recent Pew Research survey, a record 82% of Germans say relations with the U.S. are good, and both U.S. Republicans and Democrats see Germany as a partner on various matters, from energy to the environment and in dealing with Russia and China.
Has the era of “friend-shoring” truly begun then? As a lover of history, I would add one note of caution to the hurrah-sentiment, and it’s this: over the centuries, golden eras of global powers tended to coincide with times they were trading with each other. It was true for the Roman and Chinese empires in ancient times, for Britain and the U.S. in the 19th century, and indeed for China and the U.S. until now.
Conversely, empires tend to decline when they turn to autarky, or restrict themselves to protectionism or mercantilism. It may be one reason why some U.S. investors and entrepreneurs, such as Ray Dalio and Elon Musk, continue to favor trade and integration with China amid the changing tide. To find out why, you can still listen to Dalio’s Leadership Next interview with Alan Murray, recorded last month. You can listen on Apple or Spotify.
More news below.
Peter Vanham
@petervanham
peter.vanham@fortune.com
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Tesla targets
Tesla posted its highest-ever quarterly revenue yesterday—$21.5 billion, up 55% year-on-year—but it still fell short of analyst expectations. The car firm also cut its full-year growth expectations, saying it would just miss its target of increasing vehicle deliveries by 5% this year. Tesla CFO Zach Kirkhorn blamed production and distribution changes for that. Wall Street Journal
China and Taiwan
China could invade Taiwan this year or next, according to Admiral Mike Gilday, the head of the U.S. Navy. “I don’t mean at all to be alarmist,” he told the Atlantic Council yesterday. “It’s just that we can’t wish that away.” There have been previous warnings in the U.S. that such an event could happen by 2027, and China expert Bonnie Glaser said it was “irresponsible” of Gilday to predict an invasion before 2024. Financial Times
COVID vaccines
The European Medicines Agency has finally recommended the authorization of Moderna and Pfizer/BioNTech’s COVID vaccines for children as young as six months. The move comes months after similar authorization was granted in the U.S. The EMA also approved the rollout—for those aged 12 and over—of Moderna booster shots that target the BA.4 and BA.5 Omicron variants as well as the original COVID virus. Reuters
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