Latest news with #geopoliticalrisk
Khaleej Times
11 hours ago
- Business
- Khaleej Times
Global markets on tenterhooks as 'new cold war' turns hot
As military spending ramps up around the world and countries rush to ringfence critical industries, political rhetoric appears to have darkened from one sketching geopolitical risks to outright preparation for war. Whether global markets should take more note is a moot point. Investors are already preoccupied with a full-blown trade war, which has aggravated international tensions and is much like the latest ratchet in U.S. steel and aluminium tariffs. But it is not hard to find the 'safety' trades thriving. Gold is less than 2% from a record close set a month ago, having climbed almost 30% so far this year. The Swiss franc , also up almost 10% this year, is pushing higher too. Most obvious of all is the nearly 50% rise in European defence stocks since January. Safety trades that have not barked are just as interesting. The dollar's haven status has been undermined by U.S. trade and tax worries and President Donald Trump's domestic institutional upheavals. And government bonds are pressured precisely because the additional defence spending associated with another generational arms race is exaggerating outsized post-pandemic debt loads even more. Global government debt indexes remain in the red for 2025. "Elevated geopolitical risk affects issuers through multiple transmission mechanisms," credit rating firm Fitch said on Friday, adding it "put upward pressure on defence spending, making fiscal consolidation more challenging for certain sovereigns." War drumbeat But at whatever part of the market risk dial you put world war worries, there is no doubt the temperature has risen. Even in the last few days, the language surrounding future major power conflicts has been alarming. Goading Asian allies to match European moves to boost military spending, U.S. Defence Secretary Pete Hegseth warned on Saturday that Chinese military moves to take Taiwan were "imminent". "There's no reason to sugar coat it. The threat China poses is real, and it could be imminent," Hegseth said, adding that any attempt by China to secure Taiwan militarily "would result in devastating consequences for the Indo-Pacific and the world". Beijing reacted angrily and said Hegseth "vilified China with defamatory allegations". But senior U.S. officials have repeatedly briefed that they believe Chinese President Xi Jinping has ordered his military to be ready to invade Taiwan by 2027, even if they say no direct decision appears to have been made. Back in Europe, the drum beat about the need to lift military spending is even louder, more fearful of a threat from Russia. Nearly a trillion euros ($1.14 trillion) of extra German and European-wide defence spending have been earmarked this year. Only last week, Chancellor Friedrich Merz said Germany and its NATO partners were prepared to defend every inch of the alliance's territory. "Anyone who threatens an ally must know that the entire alliance will jointly defend every inch of NATO territory," Merz said on Thursday at a military ceremony in Vilnius to mark the establishment of a German brigade in Lithuania. Britain's strategic defence review on Monday also addressed threats from Russia, nuclear risks and cyberattacks by outlining investment in drones and digital warfare. But the plan also expands the UK's fleet of attack submarines, which are nuclear-powered but carry conventional weapons, and will spend 15 billion pounds ($20.3 billion) by 2029 on replacement of nuclear warheads for its main nuclear fleet. And again, the rhetoric was alarming. "We are being directly threatened by states with advanced military forces, so we must be ready to fight and win," Prime Minister Keir Starmer. 'NEW COLD WAR' TURNS HOT If securing the funding needs political alarm, then maybe that explains some of the high-octane public relations. But there is no shortage of deeply entrenched conflicts raging across the globe and threatening to spill over to varying degrees. Multilateral solutions seem distant as the globe breaks in the blocs. Even with negotiators exploring a ceasefire in Istanbul, Ukraine's forces made an extraordinary move this weekend to attack strategic bomber aircraft at bases deep inside Russia. Israel's devastation of Gaza in reprisal for the 2023 massacres by Hamas shows no sign of ending. More than 30 more Palestinians were killed and nearly 170 injured on Sunday near a food distribution site. Reports continued to circulate last week that Israel is threatening to disrupt nuclear talks between Washington and Tehran by striking Iran's nuclear facilities. And nuclear-armed India and Pakistan have just stepped back from another tense border conflict that marked the fiercest fighting in decades. The expansion of 'hot' conflicts is a mounting concern in political circles, with extraordinary territorial claims thrown into the mix. Trump's public ambition to take over Panama and Greenland have jarred allies, with the latter being part of rivalry over access to rare minerals and also amid strategic plays for the Arctic. Even J.P. Morgan boss Jamie Dimon gets the drift, reportedly telling Barron's last week the United States should not be stockpiling Bitcoin, but instead be stockpiling "guns, bullets, tanks, planes, drones, you know, rare earths." That the world is a dangerous place is not in doubt. A world at war is a different proposition. A worse case scenario is that tariff wars are just the opening act.
Zawya
2 days ago
- Business
- Zawya
Markets anxious as 'new cold war' turns hot: Mike Dolan
LONDON - As military spending ramps up around the world and countries rush to ringfence critical industries, political rhetoric appears to have darkened from one sketching geopolitical risks to outright preparation for war. Whether global markets should take more note is a moot point. Investors are already preoccupied with a full-blown trade war, which has aggravated international tensions and is much like the latest ratchet in U.S. steel and aluminium tariffs. But it is not hard to find the 'safety' trades thriving. Gold is less than 2% from a record close set a month ago, having climbed almost 30% so far this year. The Swiss franc , also up almost 10% this year, is pushing higher too. Most obvious of all is the nearly 50% rise in European defence stocks since January. Safety trades that have not barked are just as interesting. The dollar's haven status has been undermined by U.S. trade and tax worries and President Donald Trump's domestic institutional upheavals. And government bonds are pressured precisely because the additional defence spending associated with another generational arms race is exaggerating outsized post-pandemic debt loads even more. Global government debt indexes remain in the red for 2025. "Elevated geopolitical risk affects issuers through multiple transmission mechanisms," credit rating firm Fitch said on Friday, adding it "put upward pressure on defence spending, making fiscal consolidation more challenging for certain sovereigns." WAR DRUMBEAT But at whatever part of the market risk dial you put world war worries, there is no doubt the temperature has risen. Even in the last few days, the language surrounding future major power conflicts has been alarming. Goading Asian allies to match European moves to boost military spending, U.S. Defense Secretary Pete Hegseth warned on Saturday that Chinese military moves to take Taiwan were "imminent". "There's no reason to sugar coat it. The threat China poses is real, and it could be imminent," Hegseth said, adding that any attempt by China to secure Taiwan militarily "would result in devastating consequences for the Indo-Pacific and the world". Beijing reacted angrily and said Hegseth "vilified China with defamatory allegations". But senior U.S. officials have repeatedly briefed that they believe Chinese President Xi Jinping has ordered his military to be ready to invade Taiwan by 2027, even if they say no direct decision appears to have been made. Back in Europe, the drum beat about the need to lift military spending is even louder, more fearful of a threat from Russia. Nearly a trillion euros ($1.14 trillion) of extra German and European-wide defence spending have been earmarked this year. Only last week, Chancellor Friedrich Merz said Germany and its NATO partners were prepared to defend every inch of the alliance's territory. "Anyone who threatens an ally must know that the entire alliance will jointly defend every inch of NATO territory," Merz said on Thursday at a military ceremony in Vilnius to mark the establishment of a German brigade in Lithuania. Britain's strategic defence review on Monday also addressed threats from Russia, nuclear risks and cyberattacks by outlining investment in drones and digital warfare. But the plan also expands the UK's fleet of attack submarines, which are nuclear-powered but carry conventional weapons, and will spend 15 billion pounds ($20.3 billion) by 2029 on replacement of nuclear warheads for its main nuclear fleet. And again, the rhetoric was alarming. "We are being directly threatened by states with advanced military forces, so we must be ready to fight and win," Prime Minister Keir Starmer. 'NEW COLD WAR' TURNS HOT If securing the funding needs political alarm, then maybe that explains some of the high-octane public relations. But there is no shortage of deeply entrenched conflicts raging across the globe and threatening to spill over to varying degrees. Multilateral solutions seem distant as the globe breaks in the blocs. Even with negotiators exploring a ceasefire in Istanbul, Ukraine's forces made an extraordinary move this weekend to attack strategic bomber aircraft at bases deep inside Russia. Israel's devastation of Gaza in reprisal for the 2023 massacres by Hamas shows no sign of ending. More than 30 more Palestinians were killed and nearly 170 injured on Sunday near a food distribution site. Reports continued to circulate last week that Israel is threatening to disrupt nuclear talks between Washington and Tehran by striking Iran's nuclear facilities. And nuclear-armed India and Pakistan have just stepped back from another tense border conflict that marked the fiercest fighting in decades. The expansion of 'hot' conflicts is a mounting concern in political circles, with extraordinary territorial claims thrown into the mix. Trump's public ambition to take over Panama and Greenland have jarred allies, with the latter being part of rivalry over access to rare minerals and also amid strategic plays for the Arctic. Even J.P. Morgan boss Jamie Dimon gets the drift, reportedly telling Barron's last week the United States should not be stockpiling Bitcoin, but instead be stockpiling "guns, bullets, tanks, planes, drones, you know, rare earths." That the world is a dangerous place is not in doubt. A world at war is a different proposition. A worse case scenario is that tariff wars are just the opening act. The opinions expressed here are those of the author, a columnist for Reuters ($1 = 0.8738 euros) (By Mike Dolan; Editing by Kirsten Donovan and Richard Chang)
Harvard Business Review
3 days ago
- Business
- Harvard Business Review
Tariffs, Technology, and the New Geography of Manufacturing
Geopolitical disruptions and technological advances are reshaping manufacturing footprints. Although leaders may think of them as separate forces, most companies are experiencing them both simultaneously. Together, they create a powerful imperative—and incentives—for leaders to rethink their strategy. Companies usually decide on their manufacturing footprint by assessing predictable factors—costs, logistics, trade regimes. That analysis has often resulted in production shifts to low-cost countries. This offshoring-driven model, optimized for global efficiency and scale, offered stability in a world of relatively open trade. Today, according to not-yet-published BCG research, that equation has changed. A recent BCG Henderson Institute survey of more than 1,000 manufacturing executives shows that geopolitical risk—once a peripheral concern—now ranks among the top five challenges they face. Rising trade barriers, political volatility, and national security pressures are injecting a high degree of uncertainty into footprint decisions. At the same time, an opportunity is emerging. The long-standing vision of 'lights-out' factories, running autonomously without human labor, is moving from aspiration to reality, thanks to falling robotics costs and rapid advances in AI. Already, 62% of manufacturers surveyed have deployed multiple AI applications, challenging the historical labor cost arbitrage that underpinned global offshoring decisions. Manufacturing leaders now need a more dynamic approach to determine when domestic manufacturing can outperform existing global competitive setups. To do so, they'll need to understand the impact of tariffs (actual and potential) and of implementing the factory of the future on costs of local production, as well as the external environment in their target country. Tariffs Make the 'Best Cost Country' a Moving Target Once a stable input, tariffs have reemerged as a volatile swing factor—capable of erasing cost advantages. For example, a traditional analysis shows that manufacturing in Mexico offers a 16% average production and delivery cost advantage over the U.S. across industries, but this edge quickly vanishes under tariff pressure. Roughly 20% of our respondents operating factories in Mexico report that a 10% tariff makes exporting economically unviable; this jumps to 90% of respondents with a 25% tariff. In this context, manufacturers must move beyond static cost comparisons and adopt a new lens—what we call the tariff tipping point. This point represents the tariff rate at which the present value of localizing production exceeds that of continuing to import goods and pay tariffs. In other words, once tariffs rise above this threshold, localizing becomes the more financially viable option. This threshold is specific to each case and shaped by three key factors: Cost structure The tariff tipping point rises when a larger share of production costs is tied to factors where the local market has a disadvantage—such as higher labor costs in the U.S. compared to China. For example, battery cell manufacturing, which is asset-intensive with relatively low labor cost, may justify localization at tariffs of just 10 to 15%. In contrast, for smartphone assembly—where labor makes up a larger cost share—localization is only reasonable at much higher tariffs (30 to 35%) to offset the U.S. labor cost gap. Country pair The tariff tipping point rises with increasing cost disadvantages of the target country relative to the current location. For instance, when producing battery cells for the European market, Hungary's competitive factor costs make shifting production from South Korea to Hungary feasible at tariffs below 5%. But relocating from South Korea to Germany requires tariffs of 20 to 25%, since Germany has substantially higher labor and energy costs. Ability to pass on tariff costs The tariff tipping point rises when companies can pass tariff costs on to customers—largely depending on pricing power and competitive intensity. For example, industries with strong product differentiation, like medical equipment or industrial machinery, can at least partially absorb tariffs through price increases with minimal volume loss. In contrast, sectors with highly substitutable products, such as furniture, see margins erode quickly, even at low tariff levels. BHI survey data shows that 10% tariffs make trade unviable for just 5% of medical equipment and industrial machinery companies, compared to 50% in the furniture industry. The magnitude of price increases depends on the cost structure and country pair—for example, shifting a labor-intensive product from a low-cost to a high-cost country leads to greater price hikes than relocating an asset-intensive one. The Need for Tailored Scenario Planning Understanding the tipping point for each product and location is essential—but it must be weighed against potential tariffs, which remain highly uncertain. This uncertainty spans both magnitude and duration: Some tariffs may rise overnight due to political shifts or trade disputes, while others may phase in gradually or apply unevenly across industries and trade lanes. In this environment, executives must move beyond static assumptions and adopt scenario-based planning as a core analytical tool. Leading manufacturers model tariff bands—such as 5%, 15%, and 25%—to evaluate whether a given localization move remains viable across a range of policy outcomes. They explore scenarios such as the rollback of tariffs under new administrations, a long-term shift toward protectionism, or the introduction of export controls. Cross-functional teams—spanning operations, strategy, legal, tax and government affairs—collaborate to anticipate these developments and test the resilience of their footprint decisions. This kind of structured sensitivity analysis reveals which product-location combinations can withstand external shocks—and which depend on fragile, short-term assumptions. Scenarios must also account for the fact that manufacturing footprint decisions and implementations are inherently slow-moving. While it can take years to build a new factory, tariffs can change overnight with a single policy stroke. As a result, leaders must make decisions today that may only take effect in a very different geopolitical environment. This adds to the complexity and makes scenario-based planning a strategic imperative for manufacturers facing global volatility. Automation Can Offset the Localization Penalty Regardless of whether companies choose to localize, tariffs will drive up costs: If a manufacturer maintains its current footprint, it (or its customers) will pay additional tariffs, and if it relocates to countries that are less-cost-competitive, it will incur the subsequent cost penalty. Just as they'll need to calculate the tariff tipping point, manufacturers considering localization must assess how significant the cost penalty of localization is for their products, considering factor cost differences, logistics cost savings, and loss of scale effects. For example, our analysis shows that relocating smartphone assembly from China to the U.S. increases landed costs by 31%, bicycle frame manufacturing by 22%, and battery cell production by 10%, assuming similar production setups and globally sourced input materials. While the results vary by country pair picked, the underlying methodology can be universally applied. Reduced shipping costs from localizing production can reduce the cost penalty in some cases, but increasingly, it's the 'factory of the future' that can really move the needle in offsetting it—and in some cases fully eliminating it. We define the factory of the future as the art-of-the-possible in manufacturing design, including most efficient layouts, AI-enabled digitalized processes, and cutting-edge automation technologies. These factories are largely self-controlled and autonomous. By automating labor-intensive tasks, the factory of the future enhances overall cost competitiveness, particularly by reducing labor costs. While its benefits apply globally, they are especially pronounced in high-cost countries. By lowering reliance on expensive labor, the factory of the future can help close the labor cost gap that has historically limited the viability of domestic production. However, the impact of the factory of the future varies by industry, depending on factors like labor and energy intensity, automation potential, and customer proximity. For example, in smartphone assembly, automation can support tasks like optical inspection and component placement, but the automation of final assembly remains challenging and costly. This means that localizing production from China back to the U.S. (assuming factory-of-the-future implementation in factories in both locations) can reduce the penalty from 31% to 25%, but not fully eliminate it. By contrast, bicycle frame manufacturing, which shifts to highly automated welding cells for aluminum frames or advanced injection molding techniques for carbon-composite frames, benefits more substantially from the factory of the future. Combined with high logistics savings, these innovations can reduce the cost penalty of reshoring from China to the U.S. from 22% to nearly zero. Don't Disregard the External Environment While quantitative modeling of tariffs and the impact of the factory of the future on localization costs provides a solid foundation, leaders can't overlook qualitative strategic factors such as access to skilled labor, political and regulatory stability, and proximity to key markets. Even when tariffs or the factory of the future suggest localization, real-world feasibility can tell a different story—and vice versa. In BCG's survey, 30% of manufacturing executives rated these and other qualitative factors as more important than cost alone. Across industries, the availability of highly qualified labor was rated as most important qualitative factor when designing footprints, while other factors are more dependent on the specific industry. For example, smartphone assembly requires substantial numbers of trained workers capable of handling precise, repetitive tasks. Foxconn operates factories with more than 100,000 employees. It's not clear whether sufficient labor pools exist—or would be willing—to support large-scale relocation to high-cost countries. Brand equity can also be an important consideration. Luxury brands might derive value from being 'made in' their original countries; localization to the U.S. might dilute this equity. A New Playbook for Global Manufacturing Ultimately, the combined impact of tariffs, ability of automation to offset the cost of localization, and external environment determines whether domestic manufacturing can outperform global setups in terms of overall competitiveness. To assess these factors in a comprehensive way, we built an integrated scoring model that blends both quantitative and qualitative factors—using weightings derived from our global survey of manufacturing executives, tailored by industry. When applied to different industries, it reveals just how customized leaders' decision making needs to be. Smartphone assembly We found that localization to the U.S. remains unlikely. Labor-intensive final assembly is difficult to automate, and the U.S. likely lacks the labor pools that make China dominant. While automation can help with certain tasks like inspection or placement, it doesn't close the cost penalty. Accordingly, the tariff tipping point—even with the factory of the future in place—would be above 25%. In this scenario, manufacturers will more likely favor alternative low-cost countries like India or Vietnam for diversification. Apple, for example, is moving iPhone production for the U.S. market from China to India—not to the U.S.—highlighting that the path away from China does not necessarily lead to localization. Battery cell manufacturing Our analysis showed that this industry sits in the middle. Its low labor intensity and strong public incentives in markets like the U.S. help narrow the cost gap. However, low logistics costs reduce the benefits of reshoring, and Chinese manufacturers retain a cost edge—backed by scale, experience, and ecosystem maturity. From a strategic perspective, China continues to dominate the upstream supply chain, controlling key inputs such as cathode active materials, where it accounts for nearly 90% of global production. Localization can be viable but will require moderate tariffs—around 10%—to close the competitiveness gap. Bicycle frame manufacturing Among the three industries, we found that bicycle frame manufacturing is the most likely to be considered for localization. Advances in automated welding and innovative injection molding processes, combined with high logistics costs, make domestic production increasingly competitive—even without tariff support. When factoring in strategic considerations, the case for local production becomes even stronger. Producing in the U.S. appeals to potential 'Made in America' preferences, and it enables closer collaboration between colocated bicycle brands and frame manufacturers, reducing development lead times. The factory of the future also offers a key opportunity to offset consumer price increases caused by tariffs, as can be observed in the U.S. bicycle market. . . . For CEOs, the message is clear: the traditional rules for designing global manufacturing footprints no longer apply. To determine how to adapt their operations, executives should start by applying an initial screen using four guiding questions to assess whether a localization move merits deeper analysis or can even be deprioritized: Tariffs: Will expected tariffs erode margins? Cost of localization: How material are cost penalties from localization? Factory of the future: Can automation and digitization (at least partly) offset these cost penalties? External environment: Are there any roadblocks or advantages to localization? Only by understanding these factors—and how they intersect—can leaders navigate an ever-evolving geopolitical landscape. Success will depend on dynamic decision-making that combines quantitative modeling with strategic judgment under uncertainty.
Wall Street Journal
3 days ago
- Business
- Wall Street Journal
Gold Futures Rise on Escalating Market Volatility, Safe-Haven Demand
0758 GMT – Gold futures rise on heightened geopolitical and macroeconomic risk that increases the precious metal's safe-haven appeal. Futures are up 1.9% at $3,378.0 a troy ounce. Gold is gaining as China pushes back on U.S. President Trump's accusation last week that it broke a temporary trade agreement, souring market hopes for a lasting resolution to the trade tensions. Trump has further threatened to double the current 25% tariffs on all steel and aluminum imports from Wednesday, further stoking market volatility. Meanwhile, geopolitical tensions were also ratcheted up over the weekend, as Ukraine launched drone attacks deep inside Russian territory. (
Bloomberg
3 days ago
- Business
- Bloomberg
Oil Advances as OPEC+ Supply Boost Vies With Geopolitical Risk
By Updated on Save Oil gained as a third straight production increase by OPEC+ vied with heightened geopolitical risk in Ukraine and Iran. Brent crude for August rose as much as 2.1% to $64.09 a barrel, after losing 2.2% last week, while West Texas Intermediate was below $62. The Organization of the Petroleum Exporting Countries and its allies agreed on Saturday to add 411,000 barrels a day of supply in July, according to a statement.
