(The views expressed here are those of the author, the Founder

of TPW Advisory.)

By Jay Pelosky

Jan 9 - In 2024, the watchword in financial markets was

"American exceptionalism", as the U.S. economy and markets left

the rest of the world in the dust. But as the calendar turns, it

may now be time to remove these geographic blinders to consider

the larger regional competition likely to reshape the global

economy in the coming years.

We may be in the midst of a long-term global growth cycle driven

by intensifying competition in the critical areas of artificial

intelligence, green technology, and security between the world's

three dominant regions: the Americas, Asia and Europe. (It's

what I refer to as the Tri Polar World.)

The global economy has arguably been moving toward greater

regional integration since the late 2010s, when globalization

stalled in the aftermath of the Global Financial Crisis and

nationalism was undermined by the United Kingdom's dismal

experience following the Brexit vote in 2016.

The COVID-19 pandemic provided a tailwind to this trend, as

supply lines seized up and governments realized that having

ready access to medicines and vital goods was a national

security imperative. This resulted in the move toward

"friend-shoring" and near-shoring. The portion of U.S. companies

planning to shorten their supply chains jumped from 63% in 2022

to 81% in 2024, according to a 2024 Bain Resiliency Survey of

166 CEOs and COOs.

RACE IS ON

This movement toward greater regional integration means that

instead of relying on one dominant market for green technology,

AI and security, all three regions may pursue industrial

policies supporting investment in these areas (e.g.,

semiconductor fabrication plants or 'fabs', battery and electric

vehicle plants, defense industrial readiness initiatives, etc.).

China has already led the way in its industrial policy related

to green technology, representing roughly one-third of clean

energy investments worldwide in 2023, according to the IEA. As a

result, it now dominates much of the clean energy sector from

solar cells to batteries and EVs. And Beijing appears to be

utilizing the same playbook to compete in AI, as it's seeking to

develop its own semiconductor industry and reduce its reliance

on the U.S.

Along the way, China has strengthened its ties with Southeast

Asian (ASEAN) countries, which collectively became its biggest

trading partner in 2020, eclipsing the EU and the U.S.

The U.S. has also been aggressively moving toward industrial

policy under the Biden administration, with massive legislative

efforts including the Chips and Science Act, which allocated

roughly $53 billion to support semiconductor chip manufacturing;

the Bipartisan Infrastructure Law, which has already announced

over $500 billion in project funding; and the Inflation

Reduction Act, which has stimulated massive private sector

investment in green technology.

Today it is Europe that needs to catch up and catch up quickly.

Germany has once again become the sick man of Europe, facing

stagnant growth with its vaunted auto industry stuck in neutral.

Germany's fiscal rectitude is a major cause of this problem -

namely the country's lack of investment in recent decades - but

this prudence could be part of the solution. With a debt-to-GDP

ratio around 63%, significantly below the EU average, Germany

has plenty of fiscal space to act.

OVERWEIGHTED

So what does this Tri Polar shift mean for investors?

First, it means there could be multiple drivers of global growth

in the coming years originating outside the U.S.

The U.S. equity market has been the undisputed global leader

since 2009. But U.S. exceptionalism is already reflected in the

price of the dollar, U.S. equities and the resultant

record-setting valuation spreads between the U.S. and other

developed markets. U.S. equities have already posted two

consecutive years of +20% returns. History suggests we shouldn't

expect a third.

With U.S. markets priced for perfection, even a modest shift in

investor expectations or economic fundamentals could cause

investors to rethink their high exposure to the U.S.

And that catalyst may be the incoming U.S. presidential

administration.

Once Donald Trump takes office, his economic agenda could be

stymied by the combination of incoherent policy, divergent views

among key members of his economic team and Republicans' slim

congressional majority.

In the meantime, the other two major regions won't be standing

still.

China has released a raft of monetary and fiscal stimulus

measures over the last year to fight off deflation and the risk

posed by Trump's threatened tariffs. Beijing is expected to add

to this cocktail at the upcoming National People's Congress in

March.

Europe, also facing a tariff threat from its top export market,

could see Germany - its biggest economy - finally soften its

'debt brake' and employ fiscal stimulus to fight domestic

stagnation.

Consequently, we anticipate a geographic broadening of both

global growth and the global equity bull market in the coming

year. While the U.S. will likely remain a powerhouse, investors

may find that it's not the only game in town.

(Jay Pelosky is the Founder and Global Strategist at TPW

Advisory, a NYC-based investment advisory firm. Jay is the

creator of the Tri Polar World (TPW) framework and the Global

Risk Nexus (GRN) system.)

(Writing by Jay Pelosky. Editing by Anna Szymanski and Mark

Potter)