Sec. GEOPOLITICS Navigating a year of increased uncertainty ncertainty surrounding advances, military strength, and THE COMMODITY CONUNDRUM the course of the explicit remarks that Taiwan “must This year the global economy U Ukraine-Russia and will be” reunited with China. adjusted to a higher interest rate conflict has thwarted Because the U.S. has policy toward campaign initiated by most central diplomatic attempts Taiwan and has become increasingly banks in order to tackle inflationary to reach a negotiated settlement. vocal in support of Taiwanese pressures. As such, expectations are The intense military campaign independence, Xi declared that China rising that a recession or a significant involves a significant contribution will never renounce the “right to use economic slowdown will unfold. from NATO toward the Ukrainian force” over Taiwan. Unless there are severe shortages, war effort, specifically from the U.S. The Biden administration commodity prices typically tend to Depending on how long the fighting continues to ramp up its export ease until there are signs that central continues, it is expected that many policy banning sales of technology banks are nearing the end of the rate of the NATO countries, including the that can be applied to China’s hike cycle, and are perhaps poised to U.S., may debate the financial burden, military efforts, which has become begin lowering rates to help bolster especially if Europe and the U.S. enter a source of contention between the economic growth. a recession in 2023. two countries. Importantly, given that the Fed With Finland and Sweden seeking Despite having an economy has been especially aggressive with NATO membership, the relationship weakened by a strict zero-COVID-19 interest rate hikes compared with between Russia and the West is policy that includes massive testing most central banks, the U.S. dollar destined to deteriorate further and and lock-downs of entire regions has climbed dramatically higher could prolong Russia’s determination for weeks and months, there is an versus a basket of major currencies. to overrun all of Ukraine. A complex overreaching concern that Xi will With most commodities priced in geopolitical and military situation continue the policy. Foreign investors dollars, it has put pressure on the could evolve into an even more and businesses are hoping that commodity complex in general, complicated scenario. the uncompromising measures are particularly for countries that rely on The relationship between the lifted so that normal commerce can commodity exports for their income U.S. and China has become more be revived. Analysts are debating and overall budgets, specifically many challenging as China’s President whether Xi, who sees the policy as emerging markets. Xi Jinping began a third five-year the ultimate path toward eradicating Another significant factor for term, underpinned by an extensive COVID-19, will ultimately abandon, or commodity pricing is the role of China consolidation of power. At the even ease, the prohibitive regulations. and its outsized projected need for Communist Party’s 20th Although the global supply chain has Plenum in commodities. This includes a broad 2022, Xi outlined China’s objectives significantly improved, China remains spectrum of metals, agriculture, oil, and focused on technological an integral part of global trade. and building materials. LPL RESEARCH