Good morning.
Today’s topic: geopolitics. (To revisit the week’s lesson plan, go here.) We know from Fortune’s regular CEO polls that this one has rocketed up the priority list since Russia’s invasion of Ukraine last year. But the main reason is not because of concerns about Russia, but rather concerns about China. Most companies managed to extricate themselves from Russia without doing great harm to their businesses. But all started asking: What if this had been China invading Taiwan, instead? How would companies that have staked their growth plans on a burgeoning Chinese market have reacted?
The result has been an epidemic of “decoupling,” “de-risking,” “friend shoring,” or whatever you choose to call it. And the results have been profound. The blogger Noah Smith had a nice post yesterday that laid out some of the dimensions, especially this: China’s share of U.S. imports has nosedived, from around 22% five years ago to close to 15% today. The editors of The Economist recently argued those numbers are misleading, because China is exporting more to its neighbors and Mexico, who in turn are using those exports as parts for reexport to the U.S. But Smith makes a good argument that such redirected exports can only account for some, not all, of the drop-off in China business.
