Breaking Up is Hard to Do

Globalization is the process of businesses and governments operating on an international scale. The process of globalization greatly accelerated following WWII with the sprouting of new multi-national institutions such as NATO, the United Nations, and the World Bank. International trade also accelerated post WWII, shifting from an average annual growth rate of about 1.5% to 6.5%. Lately, we’ve seen a rise of nationalism, meaning putting our own national interests above all else. Think of this as de-globalization. Trying to reverse 75 years of rapid globalization was bound to come with its share of speed bumps.

The first major speed bump was the imposition of world-wide reciprocal tariffs just over a year ago. The stock market’s immediate response was about a 15% drop, although it quickly recovered. To date, there is little evidence tariffs reversed our trade deficits. The U.S. 2025 trade deficit was within 1% of the pre-tariff 2024 trade deficit. What we have seen is some trade partners “breaking up” with the U.S. The International Monetary Fund indicated nations are increasingly trading without the U.S. and more trade is being diverted to Southeast Asia. The longer-term impact of these shifts are still up for debate.

The war with Iran puts us in the middle of the second major globalized speed bump. Disrupted oil shipments mean there is currently less oil for sale than is being consumed. Lucky countries are filling the gap with limited backup reserves. The globalized oil market means countries are now effectively bidding against one another for the limited supply of oil. It also means prices for oil, including U.S produced oil, are set by global supply and demand. This is good for U.S oil companies, but bad for drivers. Some of our foreign allies are suffering much larger adversities, including potential oil rationing. This is forcing their leaders to revisit their domestic priorities, including their political and military relations with the U.S.

It’s hard to project what the next speed bump will be-perhaps rare earth minerals, computer chips, lithium, new military actions, or something totally unforeseen. Reversing 75 years of globalization was never going to be a smooth ride. To help handle the bumps, investors should hold portfolios broadly diversified across industries. Many of the most popular passive funds fall short in this regard, so careful scrutiny is in order.

Frank Rizzo,  CERTIFIED FINANCIAL PLANNER ^TM

The opinions in this material are for general information only and not intended to provide specific advice or recommendations for any individual. The economics and market forecasts set forth in this material may or may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing includes risk, including fluctuating prices and loss of principal. 

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.​