Corporate Strategies for Global Realignment

Executive Summary The liberal trade order is giving way to a more fragmented global economy , shaped by China's manufacturing dominance, an AI-driven investment boom and unsustainable public debt.

US economic exceptionalism remains intact for now, however, fiscal pressures, persistent inflation and constraints on immigration and higher education could weaken these advantages over time.

The global shift towards nationalist industrial policy reflects deeper political and fiscal realities that are likely to endure across borders and administrations.

China's export-led strategy is intensifying competition worldwide while creating opportunities for India to capture manufacturing relocating from China.

India should respond with pragmatic trade policy, faster tariff action and globally competitive manufacturing while leveraging the rise of GCCs to move beyond traditional outsourcing into higher-value global roles.

. Businesses have absorbed multiple shocks in the past 5 years, with each shock altering the trajectory of the world economy. Layered beneath these disruptions are three megatrends that are reshaping the competitive landscape. Richard Martin, one of Asia's most experienced market strategists, assessed how the US, Europe, China and India are realigning their economies, drawing on the debates that have emerged across IMA Asia's Forums in Shanghai, Hong Kong and Singapore. He explained what these shifts mean at the corporate level, examined why global structures and strategies that served firms well through the era of integration are now under pressure, and spelled out what this demands of corporate strategy.

. Three Megatrends The first megatrend – the ‘ China shock ’ – is now entering its second phase. China's share of world manufactured exports has overtaken Germany, the US and Japan on every measure that matters. China boasts prices that undercut the field, quality that withstands even strict scrutiny, faster R&D cycles, deeper supply chains and government support that the OECD flags as larger (relative to industry) than anything in Europe or the US. The first phase of this shock hit low-end manufacturing years ago. The second phase is now landing in Europe directly, as Chinese firms offshore into the market rather than simply exporting into it. German industry, in particular, is starting to face Chinese competitors operating inside its own backyard rather than shipping in from outside.

The second megatrend is the AI and data centre capital expenditure boom, running into trillions of dollars, covering chips, data centres and the electricity capacity to run them. Its effects are not yet visible in India beyond the rising prices of semiconductors, chips and notebook computers. Elsewhere, however, the scale is extraordinary. The boom is already driving roughly half of current US GDP growth and pushing Taiwan's official growth forecast for the year from its original estimate of 2.5% to 10 %.

The third trend is public debt , where the picture diverges by country. According to the IMF, Japan's gross public debt now exceeds 200% of GDP, while the US and China have both climbed to around 100%. (China's decade of rapid growth was primarily financed by a run-up in public debt.) Japan and China admit that they can no longer sustain the previous build-up of public debt and are trying to pull back. The US has shown no comparable pullback yet, which is itself a source of risk rather than a sign of exceptionalism. The fiscal constraints already confronting Japan and China have simply not caught up with Washington yet.

. American Exceptionalism and its Limits US productivity growth has steadily outpaced that of other advanced economies since the 1990s. Measured by real GDP per capita, the US moved from the middle of the pack to a clear outlier by the 2010s. This predates the AI boom and proves that the country's advantages rest on deeper strengths. While productivity is notoriously hard to explain, it is generally attributed to sustained innovation, business dynamism and economic efficiency. There is little expectation of a near-term slowdown. The real risks sit 5-10 years out, given the damage done by weakening the two inputs that have fed it for decades: immigration and higher education, both now under pressure from the current administration.

The scale of US capital markets compounds its advantage. At 55% of global stock market capitalisation, the US remains the default destination for start-ups and new technology from almost every other country seeking growth capital. AI has added directly to output: last year's 2.2% GDP growth would have been closer to 1.1% without it. However, rising inflation is the flip side of the coin. The Federal Reserve's preferred gauge, personal consumption expenditure (PCE) inflation, seems to be under control. However, producer prices jumped in May and eased only slightly in June, indicating the likely trajectory over the next 10-12 months is upwards, pulling consumer prices with it. Higher chip, computer and electricity costs from the AI build-out are part of the spillover. So is a shift in corporate pricing behaviour, with companies planning to rebuild margins in 2026 pushing through two price increases in a single year.

. Entrenched Nationalism and Industrial Policy Contrary to popular narratives about economic growth, inequality is a stronger driver of the nationalist turn that is reshaping trade policy. Going by the headline Gini indices, inequality has improved over recent decades, but that broad measure conceals what is happening at the extremes. The ratio of top 1% incomes to the median has widened sharply in the US and UK, while the ratio of the median to the bottom 10% shows middle-income households losing relative status even where absolute incomes have held up. It is this loss of relative standing , not falling incomes , that has proved most politically potent, particularly among young, non-college-educated men.

This is not a passing cycle, and it will keep driving industrial policy under whichever party holds office. A Democratic White House would soften the rhetoric but keep the tariffs, because the voters it needs to win back are the same ones the tariffs are meant to protect. Moreover, Washington now has little fiscal room to give them up. The One Big Beautiful Bill, passed 3 months after the Liberation Day tariffs, adds an estimated $30 bn a month to US public debt, and without tariff revenues to offset it, the 10-year Treasury yield, currently near 4.2-4.3%, could move toward 5-6% quickly.

Europe is being pulled apart by the same forces from the outside. China's exports to Europe have surged while its imports from Europe have stayed flat. Brussels' policy options are limited. Its anti-coercion instrument will take 2 years to activate. However, President Macron is pushing for faster Section 301-style tools and firms are being told to diversify their import sources, a directive that works in India's favour. The deeper problem is that the EU's 28 members are split roughly down the middle, with one half economically comfortable with Chinese components, vehicles and telecoms equipment while the other half is alarmed by the dependency. As a result, a coherent European China strategy is becoming increasingly difficult to sustain.

. China's Pivot China's latest 5-year plan marks a decisive shift towards industrial expansion. While the IMF has urged Beijing to direct resources towards reviving consumer demand and stabilising the property market, the government's priority is accelerating exports, strengthening supply chain security and cementing global industrial leadership. Earlier forecasts that suggested that China's share of global manufacturing would gradually decline as production moved offshore now appears far less certain.

The property market is unlikely to receive a major bailout. Five years into the downturn, a rescue package would cost an estimated 6-7% of GDP. Instead, Beijing continues to channel its vast domestic savings into strategic industries. Weak demand and rising competition from local firms are the biggest drags on profitability for MNCs in China for 6 consecutive quarters, prompting some global investment committees to prioritise India over China despite the latter's much larger market.

For India, China's export-led strategy presents both risks and opportunities. Chinese exports to India have reached $120 bn, while weak domestic demand and restricted access to the US market are increasing Chinese dumping across Asia. At the same time, manufacturing displaced from China creates opportunities for India, alongside Vietnam and Thailand, to capture a larger share of global supply chains.

. Financing the Transition The sustainability of the current investment cycle ultimately depends on AI delivering the productivity gains needed to justify record valuations and rising infrastructure costs. Hyperscalers have accumulated around $1.5 tn of on-balance-sheet debt, with a similar amount held off-balance-sheet. If Chinese AI models undermine earnings expectations before that debt is worked down, the investment cycle could come under significant pressure.

Questions remain over who will finance rising US public debt as governments gradually diversify away from US Treasuries. The Federal Reserve remains the buyer of last resort, but its balance sheet is already stretched and policymakers intend to reduce, rather than expand, its holdings. No alternative capital market has sufficient depth to absorb a major shift away from US assets, leaving fiscally disciplined economies, including India, better placed to withstand any resulting volatility.

Markets are not yet pricing in how fragile this financing picture is. On an inflation-adjusted price-earnings measure tracked back to the start of the last century, current valuations sit alongside the run-ups that preceded the 1929 crash and the 2001 ‘tech wreck’. Avoiding a correction in the next 12 months depends on AI delivering the scale of productivity and income gains needed for households and firms to absorb higher hyperscaler charges and rising energy prices, since hyperscalers will need to pass on both. Hyperscaler debt already stands at $1.5 tn on balance sheet, with a further $1.5 trillion held off it, much of it funded by private equity. The risk case is that Chinese AI models may undercut hyperscaler earnings forecasts before that debt is worked down.

On the sovereign side, several governments are diversifying reserve holdings away from US Treasuries, and the succession question (Who buys if foreign demand keeps falling?) has no clear answer. The Fed would be the first backstop, but its balance sheet is already large and its new chair wants to shrink it. There is also no second pool of capital deep enough to absorb a serious pullback, with the EU as the closest candidate and any shift of that scale likely to push the Euro up sharply. Currencies backed by disciplined fiscal management, India's included if it holds that discipline, would be better placed to absorb that volatility than those that are not.

. India's Policy Response There is a strong practical case for India to follow a pragmatic, mercantilist trade policy. Essential Chinese inputs should continue to flow into the economy, while tariffs should be deployed selectively and far more quickly than current anti-dumping processes allow. However, faster protection must be accompanied by regular reviews against global competitiveness benchmarks to avoid creating permanently uncompetitive industries.

Global realignment is also reshaping multinational operating models. Traditional outsourcing is giving way to Global Capability Centres (GCCs), bringing strategic capabilities in-house and accelerating AI deployment. For India's 5.5 million BPO, IT and GCC workers, this creates two complementary opportunities: moving into globally integrated leadership roles within multinationals or following the path seen in China, where experienced executives have left multinationals to build high-growth domestic firms. Either outcome would strengthen India's long-term growth prospects.