How geopolitical forces can influence markets
When it comes to economics, nothing happens in a vacuum. Every event that happens in the world has the potential to affect the value of commodities, which is why those who study the markets have learned to watch for causes and effects. Perhaps nowhere is cause and effect clearer, though, than when there are shifts in geopolitical forces.
A good example of how geopolitical forces can affect markets can be seen in the populism that gave rise to president-elect Donald Trump. Because voters wanted to shake up the status quo, they voted for a figure whose policies are protectionist. Or, in other words, that they seek to draw back from the global markets to isolate the United States.
The aggressive tones of the campaign, which remain hard-edged after his victory, could be seen as a stone thrown into a body of water. The ripples are the changes it has on the market. Every change that happens, or doesn’t happen, because of the president’s policies is another stone.
For example, say:
• The Trump administration backs out of NAFTA.
• The massive change in North American markets impacts the entire hemisphere.
• The cost of doing business in America increases, domestically and globally.
• Foreign investors look for less expensive places to do business.
• America loses out on even more investment, compounding market changes.
Now, that isn’t to say that populism requires inherently negative changes. The effects on the market will be determined entirely by the proposals created. So, for example, say the new administration decided to:
• De-criminalise marijuana on the federal level.
• This leads to expansion of a major industry and increases in both tourism and investment.
• Which, in turn, could create major up-ticks in markets that are connected to the cannabis industry, from growers and buyers to tourists and restaurants.
Everything that happens in the world can have an effect on markets. When geopolitical forces mass, and demand change, those effects can be huge. Even if what starts them seems small, or even insignificant.