Against the backdrop of increasing global economic and military competition that began under Trump, experts see this as only the tip of the iceberg of global shifts. The Brookings Institution predicts further movement towards national self-sufficiency, where advanced technologies play a key role.
The planet is engulfed in a deep divide, provoking an escalation of trade wars and inter-state tensions. Nevertheless, stock markets are surprisingly showing resilience, rapidly recovering from storms. This indicates that investors see these challenges not as threats, but rather as a springboard for a new wave of growth.
Just six weeks after the Iranian conflict and the subsequent rise in oil prices, key stock indices on Wall Street have returned to pre-war levels. This recovery was two weeks faster than after the tariffs were imposed by Trump in April last year, and incomparably quicker than the two-year revival following the crisis in Ukraine or the six-month one after the COVID-19 pandemic. All these episodes have left their mark on the global economy and the system of international alliances.
The intensification of economic and military competition has become the hallmark of Trump’s policies, and his administration has undoubtedly spurred these processes. However, many analysts are convinced that the transformation of the world order is not limited to his actions. The Brookings Institution emphasizes that Trump is more of a "symptom than a cause" of global tectonic shifts, and the course towards national and regional self-sufficiency will persist even after his departure from the political arena.
Such a world, full of frictions and cross-border barriers, often seems extremely unstable to markets, creating pressure on business and the economy. Yet, the remarkable economic recovery of recent years is largely due to rapid progress in technologies: artificial intelligence, biotechnology, clean energy, and active infrastructure development.
In the context of increasing global fragmentation, rising military budgets and a pressing need for cybersecurity are driving demand for digital innovations, active implementation of artificial intelligence, and increased chip production. This dynamic could yield significant dividends not only for the United States but also for other countries.
Change of Technological Leadership
In the era of globalization, the technological superiority of the United States seemed indisputable. Allies saw no point in developing their own tech giants, preferring to acquire advanced developments. But the picture changes dramatically when all key technologies are concentrated in American hands, and the U.S. ceases to be an unconditionally friendly power. The lack of domestic technological solutions could place a country in as precarious a position as critical dependence on energy resources.
The Battle for Technology: U.S. vs. China
In his publication for Foreign Affairs, former U.S. National Security Advisor Jake Sullivan emphasizes the intensifying U.S.-China confrontation. He is convinced that the main focus is now on technology. "Technological power is transforming into geopolitical strength on a scale unseen in recent years," Sullivan states. "For the first time in a long time, the United States is facing a real equal competitor." Sullivan points out that China, by maintaining control over critically important technologies and manufacturing chains, seeks to create a global dependency on itself while simultaneously increasing its own autonomy. He notes that China already produces 70% of the world’s lithium-ion batteries and three-quarters of all battery cells. China is actively seeking to replicate this success in biotechnology, demonstrating impressive achievements in artificial intelligence and digital solutions.
Regarding Washington's countermeasures, Sullivan insists on the necessity of integrating innovation and production directly within the country. He also warns that U.S. leadership in technology will remain strong only with global support for their digital infrastructure.
Geopolitical Risks and Technological Fragmentation
Beyond China's borders, the situation becomes even more convoluted. Beijing and Washington have long been in a state of irreconcilable rivalry. However, the disintegration of alliances between the U.S. and Europe, the Middle East, or East Asia could provoke a similar technological confrontation in these regions. Although this may seem inefficient and overly costly, the increasing geopolitical risks and national security priorities mean that the demand for technologies, chips, and specialized equipment will be significantly higher than in a more integrated global world.
Market Trends: Growth Amid Change
Over the past six weeks, markets have experienced a noticeable decline in the stock prices of tech giants amid military news. However, paradoxically, profit expectations began to rise, and investors actively bought up cheaper assets. Stocks in the energy and defense sectors made a significant contribution to the upward revision of annual profit forecasts. The most significant growth in expectations was recorded among American tech companies and leading chip manufacturers in Taiwan and South Korea.
BlackRock strategists have turned a new page in their recommendations, once again suggesting this week to increase the share of U.S. and emerging market stocks in investment portfolios. Analysts emphasized that the premium for expected value of U.S. tech sector stocks has reached its lowest levels since the pandemic peak in mid-2020. BlackRock also released an updated chart clearly demonstrating the positive revision of profit forecasts following the Iranian conflict. This fact cannot be ignored in light of the ongoing global technological breakthrough.
"We see how geopolitical fragmentation is driving growth in the defense and aerospace industries, prompting governments to actively seek energy independence and forcing companies to increase investments in the resilience of their supply chains," BlackRock stated. "In addition, progress in artificial intelligence will powerfully stimulate demand for infrastructure and energy resources."
Shares of leading global tech companies and key chip manufacturers have shown recovery after a significant drop in their value. If previously the market was concerned about a potential collapse of the high-tech bubble, the events of the last month have answered many of these concerns. Geopolitical fragmentation is likely to only strengthen this trend. Profit growth forecasts for the U.S. and Europe for the current year have essentially improved since the onset of the conflict with Iran.
