Investors have watched some key geopolitical events take place over the last few months and weeks, at a time when parts of the world face an array of challenges, such as surging energy prices, strong inflationary pressures and recession risks. What might be the next trends?

Source: © Vontobel, 15 November 2022, 3:00pm (CET)

What geopolitical trends to expect next? Lord Patten connects the dots

The last months and weeks have been full of their fair share of important events, including the US midterm elections, which have shown Democrats clinging on to power of the Senate, while Republicans have taken control of the House of Representatives. In China, Xi Jinping was reelected at the National Congress of the Chinese Communist Party, cementing the nation’s leadership path for the remainder of this decade. The war in Ukraine rages on, while economies around the world grapple with surging energy prices, inflationary pressures and recession risks.

Lord Patten of Barnes, former Governor of Hong Kong and a member of the Vontobel Advisory Council, joined Dr. Reto Cueni, Vontobel Chief Economist, to discuss the underlying geopolitical trends and potential scenarios that could unfold on a global and regional level over the coming years. Lord Patten’s unique insights stem from his involvement in overseeing the end of British administration in Hong Kong and from his previous role as EU Commissioner for External Relations.

Starting with the US, Patten pointed out that the midterm election results, in which the Democrats fared better than expected, were “extraordinary” and a sign that voters reject former President Donald Trump’s attempt to take over the Republican Party. While he doesn’t expect the results to lead to any changes in US foreign policy, he said there’s a chance to strengthen relationships with other countries.

President Joe Biden and Xi Jinping met in person earlier this week for the first time since the pandemic began, agreeing that both nations will restart cooperating on topics like climate change or food security. The relationship had been strained earlier this year when House Speaker Nancy Pelosi visited Taiwan. US Secretary of State Antony Blinken is also set to visit China early 2023.

“Perhaps one of the best things to come out of the meeting is that there are going to be more meetings,” Patten said. “I’m sure that they will get to know one another better, and maybe even where they don’t agree, find ways in which they can manage their disagreements.”

In the longer term, we may see economic blocs building around countries like the US, China and Russia, though they may not be enduring, Patten said.

And where does the European Union fit in the foreign-policy picture? 

First, Patten said Europe has an ambivalent relationship with the US, but that there’s no question that Europe needs American leadership in many respects and certainly needs the American security guarantee because the continent still doesn’t spend enough of its own defense. Secondly, Europe was also much more focused than it should’ve been on foreign policy way beyond its shores rather than close to home, such as in and around the Mediterranean and along the borders of the enlarged European Union. Lastly, Europe doesn’t make sufficient use in foreign policy of all the economic tools and positions it has on regulating investment and trade.

“We should actually make more use of the strength we have as an economic bloc when it comes to shaping foreign policy,” Patten said. “I don’t think we’ve done that nearly enough.”

Within Europe, Patten said he expects European policy over the next few years to be focused pragmatically trying to make the existing arrangement work – such as questions around the single-currency and fiscal policy or debt. And as for the EU’s relationship with Britain post-Brexit, he said big problems like immigration, trade and security can’t be dealt with without allies.

“If one’s interested, as a Brit, in one’s national interest, then a better relationship with Europe is vital. If you’re European, I’d have thought you recognize that Europe is stronger if it’s got Britain inside the tent rather than outside.”