The Big Question: Is globalisation over?

Interview with Jennison, SGA and Vulcan

FILMED IN JUNE 2025

In our latest Big Question video, stock pickers Rebecca Irwin from Jennison, Alexandra Lee from SGA and C.T. Fitzpatrick from Vulcan explore whether trade and globalisation are being reshaped, what might be driving this shift, and how these changes are impacting businesses.

Transcript

Rebecca Irwin:
We're definitely seeing some sort of reshaping of global trade and globalisation, but I think that the jury is still out on how significant a reshaping it is and just a reminder on where we are in the tariff war. On Liberation Day, President Trump announced very steep tariffs on many of the country's trading partners, with significantly steep tariffs on the low-cost producing regions and countries. So while we await the twists and turns of the negotiations, the market is left with uncertainty and volatility responding to daily tweets, headlines, and speculation, and it's an unwelcome dynamic for the market.

C.T. Fitzpatrick:
We believe that we are seeing a reshaping of trade and globalisation. A lot of the trends that have been going on for really decades now are reversing. The new decades are going to look a lot different than the previous decades. So, the headlines that people are seeing in the paper, the rhetoric that's coming out politically, in many parts of the world is being turned into policy. While the ultimate outcome is uncertain, we think that it's safe to say that there is a sea change taking place, and that many of the trends that people become comfortable with over the last several decades are going to be different in the coming decades.

Alexandra Lee:
It does appear that we are seeing a reshaping of trade and globalisation. Trump shocked the world on Liberation Day. But, the forces behind de-globalisation have been building, so this is not about just one man. There have been points in history when a regime changed in terms of how the world trades, such as when America erected high tariffs during the Great Depression, after the Second World War and this could be one of them as the world's largest economy, about 25% of the global GDP changes its tune towards trade.

Rebecca Irwin:
I think that the answer is that both protectionism and nationalism have driven us to where we are in this moment in the tariff war, and it's been a long time coming, and there's probably at least a dozen other factors that have brought us to this moment. It really is multifactorial. I think answering that question is an important one, but answering it comprehensively is probably a little out of my wheelhouse. What is really important as a global investor is that we remain focused on constructing a portfolio of companies that can do well against any macroeconomic backdrop. We think about the geopolitical tension that we're seeing when we assess risks with our companies and stocks, but we remain focused on investing in companies with strong pricing power, unique global appeal, companies that are innovating and disrupting to solve for unmet needs and demands and can perform well against any backdrop.

C.T. Fitzpatrick:
In our opinion, protectionism and nationalism are on the rise around the world. However, the reasons for its rise have been building for quite some time. Over the last several decades globalisation has progressed and people have benefited in the aggregate from the trends in globalisation. However, there have been specific industries and specific geographies that have been hurt by these larger trends. So while the average person might be better off, there are large segments of the populations that are worse off and as these trends played out over time and certain areas, certain populations, have been left behind, if you will, people can see the tangible evidence of that and want those lives improved and so this has led to political support for more protectionism, it's led to more nationalism, and we think that it is going to reverse a lot of the trends in globalisation that we've seen until recently.

Alexandra Lee:
So globalisation, free markets, free trade really took off in the 1980s and 1990s, and this lifted about a billion people out of poverty. So on the whole, it has been good for mankind. But of course, as is with most things, there are winners and losers. For example, those with capital were able to invest globally seeking the best returns and got richer. China was a huge beneficiary of globalisation as it became the factory for the world. But it left some people behind. People in the US Rust Belt, US manufacturing in general all didn't fare so well. So you have a situation where US’s biggest rival got rich all the while having non-tariff barriers such as quotas by China policy, subsidies, and at the same time some Americans got left out. China is an extreme example, but other countries too. Nationalism, protectionism, they're a rather predictable consequence of what happened and it's one of the reasons why Trump got elected and politicians do have to react to this backlash.

Rebecca Irwin:
I think we’ll really need to wait to see what the impact of the tariff war will have on businesses. We would worry about the impact to companies’ margins if they're not able to pass on pricing to the end consumer. Here, it's important that we focus on investing in companies that have pricing power, like Ferrari and Hermes. We would also worry about the second order impact of tariffs and weakening demand environment, as tariffs could potentially be inflationary. And then lastly, we would worry about companies right now in this moment of uncertainty, as they think about investing in business planning, does that make it more difficult for them. So far, our companies are weathering the environment extremely well. They just reported robust revenue and earnings growth and maintained guidance. So, so far we're in good shape. But it's an evolving situation that we continue to monitor.

C.T. Fitzpatrick:
The main impact is increased cost. In addition, there's pressure on productivity. You're seeing this broadly based, however, there are winners and losers. Some businesses are being impacted directly and some businesses are having virtually no impact on their operations. So it really depends on what kind of business you have. Speaking generally, goods producing businesses, manufacturing is impacted more directly and services businesses are impacted less directly. In addition, all businesses are suffering from second order effects and that's really just due to uncertainty and a slowdown in decision making, which is holding back economic growth.

Alexandra Lee:
So it depends on what kind of business you're in and where you're located, how your supply chain is configured. If you're a company based in South Korea exporting half your business to the US, you're going to have to worry a lot about how to be competitive. Even if you're not directly impacted by tariffs. You have to think about your supply chain because you could be getting components from all over the world. There are a lot of intermediate goods that enter and then leave and re-enter US and also thinking about second order impact, there could be potential changes to demand, potential consumer backlash against American companies if this gets uglier, retaliation in the form of taxation, regulation changes, there is a heightened level of uncertainty. What we're hearing is that companies are at this point investigating on how to mitigate potential impact, rethinking their supply chain, lobbying a lot, but not making wholesale changes at this point. The tension has been building up for many years. So some companies had already been on a path of reconfiguring their supply chain. So the impact will not be the same across industries and across companies.

Rebecca Irwin:
We're really only looking for a small number of unique growth stocks to invest in for our portfolio. Since the inception of the global growth strategy at Jennison, we've been focused on looking for companies that can control their own fate. No matter what's happening in the economy. So we look to invest in companies with strong pricing power and unique global appeal, companies like Ferrari and Hermes, and companies that are innovating and disrupting to solve unmet needs and demands. Companies like MercadoLibre, a Latin American fintech and e-commerce company, just not impacted by what's happening with the trade war or a company like BYD, a Chinese electric vehicle car company that sells globally, or Nvidia, the dominant AI player. So in this context, we can think about the geopolitical risks as relevant to assessing risks within our portfolio, but not in terms of changing the kinds of companies that we look to invest in.

C.T. Fitzpatrick:
Recent proposals regarding tariffs and counter proposals have created a lot of volatility in the stock market. Particularly with individual companies. We believe that we are able to quantify, pretty darned accurately, what these negative impacts would be. In some cases, the negative impacts are not nearly as bad as the decline in companies prices, which creates opportunities for us. In other cases there is not very much impact or no virtually no impact at all and those company stock prices have declined as well. So when we have stable values and increased stock price volatility, it creates opportunities for us as long term investors and we have been able to take advantage of that volatility recently.

Alexandra Lee:
Certainly we're looking at the impact of tariffs company by company. For example, a company with a lot of its supply chain outside the US would be more impacted than a US software company. As one of the key criteria that we look for in our investments is pricing power, many of our companies have the ability to either absorb tariffs because they have high margins or the ability to surcharge in the case of mission critical products. We also do not invest in heavily cyclical industries, as recurring and highly visible revenues is a key criteria that we look for. So should the overall macro slow due to this changing landscape, our portfolio should be relatively well positioned with predictable, resilient earnings and cash flow.