Big business loves peacetime. They love prosperity; they love open borders. They love the free flow of goods around the world. The aftermath of the Cold War meant a boon for multinational business. A connected, globalized world enabled more and easier manufacturing and trade than ever before. But pandemic lockdowns and modern conflicts are perhaps ushering in a new era. Globalization isn't ending, but globalization is changing shape. We now see multinational companies rethinking their supply chains, rethinking where they put new factories, and geopolitics becoming a much bigger factor in how and when and where they do that. A geopolitical world that's fracturing along different rivalries and alliances is not what big companies like. That means more expense, more difficulties in doing business. In the midst of this, some countries and companies are finding it best to hedge their bets. There's a much bigger family of economies who have chosen not to take sides in this big geopolitical realignment.

the hedging group is growing at a very rapid rate. There's this great position that's presented by this block of non-aligned countries who are doing business with both sides who kind of represent a hedge that companies can make. Evidence of globalization's new evolution can be found in the halls of the UN. Economists have started to look at how countries vote in the United Nations and how they vote at significant moments, such as whether they condemn Russia during the war in Ukraine, and so we've been tracking a series of votes that have happened over the past couple of years. How can China be for peace while it enables Russia's war? We are interested in further understanding how geopolitics, particularly since the start of the war in Ukraine, has shaped various economic blocks and economic outcomes. We took a pretty wide view of what we consider a vote on the war in Ukraine. It's not just a vote like when the war first started,

which was kind of an up or down. What side are you on? To give you an example, there's one on a particular human rights question in Ukraine, another one on a particular nuclear plant situation in Ukraine, and these are, these are where we see kind of more fault lines appearing. We use this to kind of divide the world into three blocks. Since February of 2022, countries that voted yes to support Ukraine have fallen into a US-led pro-Western block, while countries that voted no, abstained, or didn't vote at all, fell into the pro-Russian block. At least 101 countries have always abstained or fell into neither block. These are the new neutrals - countries like India, Malaysia, Nigeria, and Brazil. Where Greenfield FDI goes, jobs typically follow. It's one of the best indicators to gauge sentiment among the world's biggest companies. Greenfield foreign direct investment measures money going

into new operations in foreign countries. Jockeying for foreign investment before 2020 remained fairly even-handed. Then look at what happens with covid and the invasion of Ukraine. pro-Western investment jumps, pro-Russia investment falls and new neutrals Soar Greenfield. FDI means we're going to build a factory or a plant. You don't build a factory or a plant for a year or two. It means you're there for the long haul. In terms of capturing FDI, South Africa's making clear now to the rest of the world that it's open for business under new government. Vietnam, that's another one. Poland is one. We can't say for sure that they're benefiting from the war directly. The data does seem to reflect that since the war, investment has been very strong in this block. These hedging economies aren't necessarily doing anything wrong, but they're certainly willing to straddle the middle.

of all of this, do business with both sides to their own advantage, and then of course to the advantage of others too. I don't think any of these governments woke up one morning said, oh, look, there's an opportunity here for us to become a hedging economy. We can do business with all sides of this geopolitical divide. I think it's a product of circumstance. They are almost all developing economies and big developing economies. One of the biggest rising economies right now is India, and it's a place that is drawing foreign investment. It's drawing a lot more interest again in its economy and the huge value of investing in what is now the world's largest country by population. So the fascinating thing that kind of blows your mind a little bit when you think about these geopolitical blocks is you do have places in connecting economies like Vietnam and Mexico, where American and Chinese factories are going up in close

proximity to each other. As operations in these hedging nations mature, some of the big players are vying for influence. For decades, there was a bipartisan consensus that favored free trade that favored the United States economy becoming more enmeshed with other economies overseas. This agreement will help make working Americans the world's most productive workers, winners in the world economy. We've really seen since 2016, rethinking in the United States about its place in the global economy. The political trade-off now is much more focused on bringing jobs home, whether that's Donald Trump or Kamala Harris, both of them are focused on drawing foreign investment in the US economy rather than sending US investment out into the world. To be clear, the United States is still the world's largest economy. It is still the world's largest single destination for foreign investment in the world, but what we are seeing is these neutral economies as a group catch up with the United States.

When it comes to the US trying to win influence, China is still a very formidable economic competitor. It's important to remember that China remains the world's biggest trading nation, the biggest center of manufacturing, and is also a big source of outbound investment for the rest of the world. Certainly, China is willing to dangle investment to try and build its alliances in the world. There is certainly a lot of enticements going on. Leaning on them to pick sides is a tricky, very sensitive move for any superpower to make. Given the current unpredictable state of geopolitics, businesses around the globe are looking for any port in a storm. We all benefited from the era of peak globalization. It essentially meant much cheaper production, which meant much cheaper merchandise goods from everything that we wear to the TVs that we buy. That was the reality of it. That era is now going to take on a different form.

CEOs hate uncertainty. No one likes having to realign or dismantle supply chains that you've taken years, sometimes decades, to put in place. They also don't like picking sides politically because that traditionally has been bad business. There's a lot of sense to be had in investing in these new neutral economies.

Why Some Nations Aren’t Picking Sides

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