
Profound changes in the international arena are underway. Together the EU, China and the United States are the three largest economies in the world. Whereas, previously, economic and geopolitical issues were treated separately, it is increasingly clear that the United States and China are using their economic power for geopolitical purposes. Such geopolitical leadership has economic implications.
In fact, the United States and China are the world’s only two superpowers. Accordingly, the US-China relationship is the most important bilateral relationship in the world. Almost all world balance depends on its development. The growing US-China rivalry will be the central geopolitical issue of the decade and a fierce competition between the two nations (across technology, standards and military power) is on the horizon. From an economic standpoint, both countries are seeking to increase their competitiveness in the ongoing digital revolution. From a geopolitical standpoint, both nations have natural allies either for geographical proximity or for historical reasons.
Europe cannot stay on the side-lines. However, the EU position is ambiguous, given its close economic ties with the emerging superpower and its historical and ideological relationship with the United States. The EU may play a decisive role in the new world order provided it strengthens and reforms itself to ensure its strategic autonomy. Neither the Unites States nor China will help Europe position itself in the new international order. Nevertheless, China — and to a lesser extent the United States — may ultimately be interested in seeing the emergence of a powerful and autonomous economic area in Europe that could act as a bridge, on certain issues, between the two superpowers. In any case, competition between these nations will be tough. The major blocks must agree on the ‘rules of the game’ to ensure long-term stability and peace.
Relations between nations evolve over the course of their history. This note aims to present, in a succinct manner, the stakes involved in the ambitions of the three great blocks that form the United States, China, and Europe. Their relationships will — one way or another — shape the world of tomorrow. This multipolar world is increasingly unpredictable and geopolitical tensions make it even more uncertain. Looking ahead, this could translate in unpredictable bouts of market volatility. The adage “do not put all your eggs in one basket” remains as relevant as ever. Just as it is dangerous to focus on one single asset class, it is also dangerous to focus on one region. The only free lunch in this new world is geographical diversification. The same is true for currencies. History teaches us that the dominant currency (or currencies) in the international monetary system is (are) the result of political, economic and financial power relations. Investors should remain vigilant on all these dimensions.