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Ongoing global trade tensions require that investors continually consider how geopolitics affects their portfolios—a necessity that won’t end once trade deals are struck.

In a National Bank report, geopolitical analyst Angelo Katsoras outlined why tensions between the U.S. and China will likely manifest over the long term, requiring businesses to adapt.

Specifically, a trade deal wouldn’t solve the long-term fundamentals fuelling current tensions, including the battle for geopolitical influence and dominance of tomorrow’s technologies, Katsoras said. These tensions are further reinforced by “a healthy dose of mutual distrust,” he said.

For example, the U.S. suspects that China wants to steal U.S. technology; China suspects that the U.S. seeks to not only gain greater access to the Chinese market but also constrain China’s rise as a global power.

“Both views have some basis in truth,” the report said.

With the countries embracing duelling narratives, Katsoras expects they’ll aim to continue to be less economically dependent each other, resulting in the emergence of two economic models. So far, China’s is increasingly state-driven and intolerant of political dissent, while that of the U.S. continues to be tilted toward free markets and democratic governance, he said.

These models will require more work of investors and companies.

“Canadian investors must do more than simply analyze a company’s fundamentals,” Katsoras said. “They must focus on the country that the company considers its home base, and determine if that country’s relations with its main trading partners are strained in a way that might impact its bottom line.”

Likewise, Canadian companies must analyze whether their business models and supply chains are compatible with the geopolitical objectives for China, the U.S. and other major countries, he said. Otherwise, they risk losing market share, even to competitors with inferior products and services.

Companies might have to set up separate supply chains for China and the U.S., Katsoras added, despite higher logistics costs and no guarantee of maintaining market access.

Outlook for global growth

In a separate report, National Bank said U.S.-China trade tensions might put global economic growth in jeopardy this year.

Its forecast for 2019 global GDP growth is 3.3%, but that outlook would change if tariffs persist or worsen, since already-weak world trade volumes would struggle to gain traction, the bank said in a monthly economics report released Monday.

The report noted that the U.S. now has 25% tariffs on roughly half of its goods imports from China, with more threatened, and China has 25% tariffs on almost all goods imports from the U.S. The U.S. has also threatened tariffs on Mexican imports.

As a result of tariffs already in effect, “ripple effects will continue to be felt across global supply chains over the near to medium term, hurting global growth,” the report said.

Trade tensions have hurt global stocks, while safe-haven currencies experienced a lift, including the U.S. dollar—particularly against emerging-markets currencies. That’s not surprising, the National Bank report said, because foreign investment in emerging markets tends to be “most sensitive when doubts arise about the global growth outlook.”

The dollar’s appreciation presents a challenge for borrowers, raising the probability of default and subsequently a global economic slowdown, the report said.

U.S.-dollar appreciation can also hurt world growth by curtailing trade volumes, especially in emerging markets, which are more dependent on exports relative to countries in the Organization for Economic and Co-operation and Development, the report said.

Inflation is another concern for global growth. While not yet observed, inflation could “gather steam over the next few quarters courtesy of protectionist measures,” the report said.

National Bank said the already weakened manufacturing sector would be most affected by the potential global slowdown, followed by the services sector if a factory slump resulted in spillovers, such as job losses.

For full details, read the National Bank reports on geopolitics and the economic outlook.