INTL-FCStone macro strategist Vincent Deluard put out a fun piece Wednesday night suggesting investment strategies for the
end of the “post-transatlantic” world, in which he argues America should pivot away from Europe towards “the continent that matters — Asia”.
He says the “transatlantic divorce” will dampen demand for the dollar and therefore weaken it, and will lead to “much, much higher” Treasury yields, as a leaderless and less predictable world will mean US sovereign debt will no longer be seen as risk-free:
In the charitable (European) view, Europe is to Uncle Sam what Athens was to imperial Rom [sic], a respected source of inspiration and culture. In the realistic (American) view, Europe is to the U.S. what Robin is to Batman, a mostly useless sidekick to the one true superhero.
The U.S. no longer sees the value of its alliance with this cluster of whining, declining mid-size powers.
But he also argues that Europe too should reorient itself away from America, as it “no longer needs an alliance that has repeatedly hurt [its] economic interests”. See for instance Donald Tusk, the president of the European Council who had harsh words for the US this week.
China has overtaken the US as Germany’s biggest non-European trade partner, and US trade with Europe now accounts for just 6 per cent of the total (down from 10 per cent in 1960). And Mr Deluard tells us that the shrinkage of Europe’s American dependency will speed up due to “historical changes in trade routes” (80 per cent of which — by volume — are maritime):
Control of the oil tanker route eventually allowed allied powers to recover from their early defeats in World War 2. The United States protected this route with a pearl necklace of military bases and navy fleets. This supremacy has not been challenged since the Royal Navy retreated from the Suez Canal in 1956. The U.S.-controlled Europe-Middle East-Asia sea route was the pillar of the 20th century world order and the ultimate justification of the Transatlantic alliance.This triple geopolitical constraint on European prosperity is progressively relaxing and may cease to exist by the middle of this century.
That’s because the traditional route — across the Taiwan straits, the South China Sea, the strait of Malacca, the Gulf of Aden, the Suez Canal, and then the strait of Gibraltar — is no longer the fastest way to send cargo ships from Northeast Asia to Europe. The Northern Sea Route, which is getting bigger, shaves about 30 per cent off the distance and avoids pirates. See the map below, from the report — the NSR is in red, while the Suez route is in turquoise.
The reason this route is opening up is because the ice caps are melting:
For now, trade volume on the Northern Sea Route is a statistical error: just 18 ships crossed the Northern Sea Route last year, down from a peak of 71 in 2013. However, time and global warming play in the NSR’s favor: a 984-foot liquefied natural gas tanker crossed the NSR without the aid of specialized ice-breaking vessels for the first time last year. The Copenhagen Business School estimates that the Arctic liner shipping will become economically feasible around 2040 if the ice cover continues to diminish at the present rate.
A warm Arctic isn’t his main argument. China’s “One Belt, One Road” policy, which aims to connect 75 per cent of the world’s population in 40 countries within a decade, and to reduce the land-travelling time from London to Beijing to two days — is another reason to encourage what Mr Deluard calls “le divorce”, as well as Europe’s shrinking depency on Middle Eastern oil.
Still, global warming, eh. It’s not all bad.
More in the usual place.