Forget the US: China now drives political risk in global markets

Geopolitics are moving back to a Cold War-like situation, when communists, “the West” and the non-aligned nations were competing with each other, and co-operation was within blocs and not deep. Indeed, today, we see the rise of multiple blocks again, with the US, China, Russia, the EU and India as main players.

In the Cold War, conflicts among blocs were typically proxy wars: two blocs using a third country to further their interests. Today, conflicts take the form of derived wars: a block against a country largely abandoned by other blocs.

An example is the current war in Iran, in which the US uses its military to attack a client state of Russia that is no longer of high interest, now that it has sold its drone-building technology to Russia. Typically, the duration of a derived or proxy war is determined by the blocs involved, so the political and economic risk is determined by the bloc.

A closer look reveals that the US has lost its allies and has become ineffectual abroad (Canada, Mexico, Ukraine, Gaza, Venezuela, Greenland, Chagos Islands and currently Iran and Cuba) and brutal at home (migrant abuse, ICE, muzzling the opposition, undermining the tools of democracy). The nation looks no longer able to fight a successful war.

US action in Venezuela just led to another dictator taking the place of the one that was abducted. Hamas has taken back control of the Gaza Strip. Vladimir Putin punctuates peace initiatives for Ukraine with record bombardments of civilians, a war crime according to the Geneva Convention.

Russia is close to exhaustion. The OECD reckons that the army cannot find recruits as quick as they are killed on the battlefield. The government budget is in disarray, investments are halting, economic growth is below population growth. Analysts treat Russia as a third-rate economic power.

The EU, by contrast, is grossly underestimated. It is true that new legal initiatives take op to a decade to gestate, and the far right, sometimes supported by the right, is trying to obstruct all progress. However, the bloc has more consumers than the US, it is awash in money and it is more turned towards the future than any of the others.

Examples include support for democracy and the fight against climate change. The EU supports what is morally right, like effective development aid, countries within the EU facing problems, international law and human rights and weaker parties, facing stronger parties such as children, the poor, the sick, employees and consumers.

India is growing from a cynical, opportunistic player to one that realises the value of hedging your bets and diversifying. It looks like the next step for India should be to develop and maintain its own moral values. Significantly, India volunteered the information that the Iranian frigate destroyed by the US was returning from joint exercises in India. Two sister ships are sheltered in Indian ports. India is not defying the US, it is carving out a place for itself.

That leaves China. The traditional Chinese take on geopolitics is that the emperor rules the whole earth. All other rulers are at best subservient, at worst tolerated. Today, this dogma translates into China, which was abused by colonial powers. It must conquer its way back to the top of the global hierarchy by any means.

The Nexperia affair is a good example. Nexperia is global market leader for relatively simple, but tailor-made chips, an essential product for car makers. The Dutch company was bought by a Chinese industrialist with a shadowy past whose principal company is legally obliged to abide by the wishes of the Chinese government. In October 2025, the Dutch government, later supported by a Dutch judge, took control of Nexperia after a series of unfulfilled promises in the security agreement with the Dutch government.

Three Dutchmen responsible for internal governance were to be fired fired and it looked like the owner wanted to transfer Nexperia’s intellectual property and knowledge to China. In the weeks that followed, production stagnated and the Chinese government stopped the export of Nexperia’s production from China. Soon after, Volkswagen announced it had to stop production of one model for lack of chips. The Chinese part of Nexperia has stopped communicating with the Dutch part.

The ingredients here are a company with a relatively simple product that is vital for a much larger industry, the willingness of the Chinese government to use the situation as leverage over the global car industry and the Chinese lack of attention for the interests of the company.

Today, the EU is fighting to obtain military independence from the US. It is looking at the US as a geopolitical competitor at best and with widespread disdain for its government. However, the US is a country that is being damaged by its own government and on the road to impotency, in spite of its military might. There are reasons to believe that US democratic institutions will survive the current challenges.

Things will continue to change and likely tend towards rationality. The US will continue to lose political weight, but that is because the rest of the world is catching up.

However, what will stop China from its drive to suppress or control geopolitical competitors, without regard for China’s broader interest? The real enemy is China. That is where the political risk of future investment lies.

Peter Kraneveld is an international pensions adviser at Prime BV