Assenagon Study: Global Trade Imbalances Are Becoming a Geopolitical Power Factor

• Current account surpluses and deficits create mutual dependencies in trade, financing and capital flows
• Europe faces a strategic dilemma between Chinese overcapacity and US protectionism
• Implications for investors and asset allocation: Who benefits from the new mercantilism – and who loses?

Global imbalances have returned to the centre of the economic policy debate. China’s export strength and industrial overcapacity, new tariffs, export controls on strategic raw materials and the United States’ realignment of its trade policy are accelerating the fragmentation of the global economy. What was long regarded as an abstract issue of international economics is thus evolving into a decisive geopolitical factor with significant implications for capital markets.

In their latest Assenagon study, Thomas Romig, Managing Director and CIO Multi Asset, and Sebastian Schmider, Head of AI Solutions & Macro Analytics, examine how both surpluses and deficits in national current account balances create mutual dependencies – and why the resulting new mercantilism is changing the risks and opportunities in capital markets.
 

China and the United States shape the global trade and financial system

China and the United States possess the greatest economic leverage – albeit on different sides of the equation. With its industrial capacity, strategic raw materials and strong supply chains, China can influence global supply. The United States, by contrast, provides one of the world’s most important consumer markets, while the US dollar and its capital markets are central pillars of the global financial system. The two countries are therefore mutually dependent: China needs foreign demand to sustain its export surpluses, while the United States relies on capital inflows from surplus countries. “Surpluses and deficits are therefore two sides of the same economic policy coin – one that is increasingly shaped by state-driven protectionism,” says Romig.
 

Why Europe is coming under pressure between China and the United States

Germany and Europe are increasingly caught between the economic policy interests of China and the United States. Germany’s business model benefited for many years from open markets and strong demand from both countries. That foundation is now becoming less secure.

At the same time, competitive pressure from Chinese suppliers is growing – particularly in the automotive industry, mechanical engineering, chemicals and electrical engineering. Conventional reforms aimed at improving domestic competitiveness alone are unlikely to compensate for a potential decline in foreign demand.

Europe therefore faces a strategic dilemma: Open markets remain economically advantageous. However, if China and the United States support their domestic industries and shield strategic sectors from foreign competition, pressure on Europe to adopt protective measures and targeted industrial policies will also increase. Otherwise, Europe risks a further erosion of its industrial base. “Protectionism and targeted industrial policy are therefore becoming less a matter of choice and more a response to changing rules of the game,” Schmider observes.
 

What does the new mercantilism mean for investors?

“For investors, the new mercantilism means that geopolitical risks will play a greater role in valuations,” says Schmider. Alongside growth, margins and valuations, the positioning of a business model within the emerging economic blocs will become increasingly important.

Companies with regionally diversified revenues, resilient supply chains and the ability to produce locally could enjoy structural advantages. By contrast, business models that depend heavily on individual sales markets, cross-border supply chains or unrestricted access to global economies of scale are likely to be more vulnerable.

Higher government spending, more expensive production and reduced economic efficiency could also increase inflationary pressure and term premia in bond markets. In currency markets, risks are likely to rise particularly in countries where current account deficits are financed through volatile capital inflows and whose currencies do not enjoy established reserve currency status.

“Under these conditions, diversification needs to go further. In addition to asset classes, investors should also consider regions, currency areas, sales markets and supply chains. The new mercantilism will not affect capital markets uniformly – instead, it will widen the gap between winners and losers,” says Romig.

The full study is available in the latest edition of Assenagon Perspectives.

Munich/Frankfurt, 28 July 2026