Geopolitical Risks:Assessing International Trade and Energy Drivers and
Their Potential Impact on the New Vehicle Market
David P. Teolis, Ph.D.
Senior Manager, Economic and Industry Forecasting – International
General Motors Company
Overview
• Key geopolitical risks
• Measuring/monitoring geopolitical risk
• Sources of geopolitical risk in international trade and energy
• How geopolitical risks are transmitted to the vehicle market
• What can help limit the impact of geopolitical events
• Summary
2
Key Geopolitical Risks
United States▪ Trade Tensions• Tariffs on solar panels
and washing machines• NAFTA renegotiation• Steel/Aluminum tariffs• Tariffs targeted against
China ▪ Political tensions with N.
Korea, Russia, and Iran• Russia sanctions
Venezuela▪ Political and economic crisis;
Maduro sanctioned by US
Middle East▪Qatar economic boycott▪Military conflicts: Syria, Yemen, Iraq
Europe▪Brexit; Stability of
EU/Euro Zone▪Migrant crisis▪ Populist movement▪Russia• Tensions with US• Annexation of Crimea
▪ Turkey• Authoritarian rule
China▪ Tensions in South
China Sea▪ Trade conflict with US
South Korea▪ Tensions with North Korea▪ KORUS renegotiation▪ Currency manipulation watch-list 3
Elevated Geopolitical
Risks since 2014
Source: “Measuring Geopolitical Risk” by Dario Caldara and Matteo Iacoviello at https://www2.bc.edu/matteo-iacoviello/gpr.htm.
0
100
200
300
400
500
600
1985 1990 1995 2000 2005 2010 2015
Geopolitical Risk Index
9/11
Iraq War 2
Arab Spring
Iran/NuclearTensions
Iraq Disarmament Crisis
Iraq invades Kuwait
Iraq War 1
USbombs Libya
NorthKoreaTensionsParis
bombing
Russia annexes Crimea
ISIS escalation
Data through March 2018
4
Financial market data – highlighting geo-
economic and geo-financial risks – can
complement the identification of
geopolitical developments
0
5
10
15
20
25
30
35
40
45
1985 1990 1995 2000 2005 2010 2015
Gold/Oil Ratio
RUBCrisis
S&L Crisis
BlackMonday
MXNCrisis Asian
Financial Crisis
Brexit
EU DebtCrisis
BRLCrisis
China Stock Market Crash
ARS Crisis
GlobalFinancial
Crisis
Bank stocks collapse
Sources: The Wall Street Journal, Energy Information Administration, Haver Analytics; Calculations: General Motors
Pre-IraqWarTensions
NAFTAtalks
TradeWarRisk
Data through March 2018
5
Global exports surged following
China’s entry into the WTO
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
World Exports, Billions of USD
Sources: IMF, Haver Analytics
WTO Replaces GATT
China joins WTO
Maastricht Treaty: Start of EU
Start of NAFTA
Start of Euro Zone
March 2018:CPTPP signedAPEC EstablishedStart of ASEAN
Collapse of Bretton Woods system of fixed exchange rates
Data as of 2016
Y/Y% Growth of Nominal World GDP and Exports6
After its accession into the WTO,
China became a more important
export market for many countries
0%
10%
20%
30%
40%
50%
60%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Percentage of Exports to China: 2001 versus 20162016
2001
JapanNew Zealand
Ecuador
ChileAustralia
Kuwait
Korea
Oman
Angola Hong Kong
Colombia
Turkey
Canada
US ArgentinaRussia
Saudi ArabiaVenezuela
Uruguay
Peru
Brazil
Vietnam
Mexico EU
Sources: IMF, Haver Analytics; Calculations: GM Economics Team
Singapore
Countries above the red line reflect increased share of exports to China
7
Widening trade deficit has been the key
factor behind U.S. tariffs against China
0
100,000
200,000
300,000
400,000
500,000
600,000
1985 1990 1995 2000 2005 2010 2015
U.S. Goods Trade with China
Source: U.S. Census Bureau
USD, Millions
Imports
Exports
2017: USD375.2B Deficit
Dec 2001: China enters WTO
Data through 2017
8
Trade deficits with Mexico and Korea have
also been the basis for the U.S.
renegotiating NAFTA and KORUS• A renegotiated KORUS is in the process of completion
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1985 1990 1995 2000 2005 2010 2015
U.S. Goods Trade with Mexico
Source: U.S. Census Bureau
USD, Millions
Imports
Exports
2017: USD71.1 Bn Deficit
1994: Start of NAFTA
Data through 2017
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1985 1990 1995 2000 2005 2010 2015
U.S. Goods Trade with Korea
Source: U.S. Census Bureau
USD, Millions
Imports
Exports
2017: USD22.9 Bn Deficit
June 2007: KORUS Signed
Dec 2010: KORUS Renegotiated
Data through 2017
9
Risk of retaliation by China
2017
Transportation Equipment 29.5
Computer & Electronic Products 17.1
Agricultural Products 15.9
Chemicals 15.2
Machinery Except Electrical 9.3
Oil & Gas 6.9
Waste & Scrap 5.6
Food & Kindred Products 3.3
Elec Equip/Appliance/Component 3.3
Misc Manufactured Commodities 3.2
Source: U.S. Census Bureau, Haver Analytics
Top 10 U.S. Exports to China, Billions of USD
• U.S. has a favorable trade balance in transportation
equipment with China
0
2
4
6
8
10
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
U.S. Trade with ChinaBillion of USD
Exports
Imports
Sources: U.S. Census Bureau, Haver Analytics
Motor Vehicles
02468
1012141618
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
U.S. Trade with China
Billion of USD
Exports
Imports
Sources: U.S. Census Bureau, Haver Analytics
Aerospace Products & Parts
Data as of 2017
Data as of 2017
10
Key drivers of crude oil prices
0
20
40
60
80
100
120
1913 1919 1925 1931 1937 1943 1949 1955 1961 1967 1973 1979 1985 1991 1997 2003 2009 2015
West Texas Intermediate Crude Oil PriceUSD per Barrel
Sources: Energy Information Administration, Haver Analytics
Rapid adoption
of carsPostwarBoom
Arab oilembargo
Iranian Revolution
ChinaJoinsWTO
Commodity Super-cycle
Paris Agreement
Data as of 2017 11
China accounts for 30% of
global new vehicle sales
0
10
20
30
40
50
60
70
80
90
100
1980 1985 1990 1995 2000 2005 2010 2015
New Vehicle Sales
World
China
Decade Average
Millions
Sources: General Motors; Calculations: GM Economics Team
85.3*
62.6
49.7
38.8
* Denotes Average of the period 2010-17
12
Rapid adoption of EVs in China• Since 2015, sales of EVs in China have outpaced the U.S.
• China’s shift toward electric vehicles could be strategic – seeing that the U.S. domestic energy boom
has given the U.S. a cushion against energy shocks by decreasing its reliance on, and need to
address disturbances in, the Middle East
• Despite the U.S. abandonment of the Paris climate accord and focus on fossil fuels, China’s move
toward renewable energy will still encourage auto manufacturers to move in the same direction
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2011 2012 2013 2014 2015 2016 2017
China New Sales of BEVs and PHEVs
BEV PHEV
Source: General Motors
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2011 2012 2013 2014 2015 2016 2017
U.S. New Sales of BEVs and PHEVs
BEV PHEV
Source: Wards Intelligence 13
Broad-based movement
toward EVs
14
Diesel/EV engine share by region
EV share by regionDiesel engine share by region
Source: Sunde, Erin, “Powertrain Outlook, Electrification, Engines & Transmissions, 2017-2025,” Presentation to the Detroit Association of Business Economics/Wards Intelligence Conference, January 18, 2018.
• While diesel is a niche market in N.A. and China, it has a large, but declining, presence in Europe
• As a means of reducing carbon emissions – including vehicle restrictions in major cities – China,
Europe, and N.A. are each expected to see a rising share of electric vehicles
15
Movement toward EVs shifts resource
dependency to foreign countries, some with
tainted reputations
• Just as shale oil helped the U.S. gain energy independence and
energy security, rapid movement in the short term toward EVs – all
things constant – reduces energy independence and security
23,000
35,000
48,000
60,000
2,000,000
2,700,000
3,200,000
7,500,000
0 2,000,000 4,000,000 6,000,000 8,000,000
Zimbabwe
United States
Brazil
Portugal
Argentina
Australia
China
Chile
Lithium Reserves, Metric Tons
23,00029,00051,000
150,000250,000250,000270,000280,000
500,000560,000
1,200,0003,500,000
0 1,000,000 2,000,000 3,000,000 4,000,000
United StatesSouth Africa
Papua New GuineaMadagascar
RussiaCanadaZambia
PhilippinesCuba
Other CountriesAustralia
DR Congo
Cobalt Reserves, Metric Tons
Sources: U.S. Geological Survey, Statista 16
Price risk as shift is made
toward EVs
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
USD
(per
MT)
Cobalt
3/29 spot - $93,550
Source: Bloomberg
17
Cushion against
geopolitical risks
• While broad-based geopolitical risks are difficult to offset, such shocks can be mitigated by
– Synchronized global growth
– Strong institutions• The institutional structure of the EU has prevented Brexit from
becoming a major negative trade shock
– Well-integrated supply chains • NAFTA as a key example
18
Fundamental and External Drivers of the Vehicle Market
InNew Vehicle
Sales
Regulations
Confidence
New/UsedVehicle Prices
Income
Credit Availability
Employment
Interest rates
Technology
Foreign Exchange
Electrification
GeopoliticalRisks
International Trade
Commodities
Societal/Demographic
Fundamental drivers
External Influences
Aging Population
Wealth
• Geopolitical risks can have an indirect impact on new vehicle sales through
international trade, foreign exchange, and commodity channels, and an
immediate direct impact via consumer, business, and investor confidence
19
Risk of trade war first reflected in
financial markets• If realized, a trade war would have a broader economic impact
1,500
1,700
1,900
2,100
2,300
2,500
2,700
2,900
3,100
2014 2015 2016 2017 2018
S&P 500: Index and 200-Day Moving Average
Sources: The Wall Street Journal, Haver Analytics; Calculations: General Motors
200-Day Moving Average
Risk of trade war pushes stock prices lower
Data as of April 6, 2018 20
Overlapping Institutions and
Trade Relationships
Russia
Australia
US
Saudi Arabia
South Africa
India
Japan
France UKItaly Germany
European Union
TurkeyIndonesia
Canada
Mexico
ChinaKorea
NAFTAG8 G7
BrazilArgentina
Mercosur
Euro Zone
ASEAN
New Zealand
Malaysia
PeruChile
Brunei Singapore
Vietnam
CPTPP
G20WTO
APEC
• Strong institutions can help mitigate trade disruptions
21
Summary• Geopolitical risks can be monitored via published indices and financial market data, but the
realization of such events is largely uncertain – thus highlighting that their economic and financial
impact is unpredictable
• The evolution and structure of global institutions today could provide a buffer against international
trade shocks
– Overlapping institutions and trade arrangements could, in part, mitigate the impact of isolated trade shocks
• By contrast, new energy sources, policies, and institutions are still evolving, suggesting that the
geopolitics of energy remain uncertain and difficult to predict
• The uncertain nature of geopolitical events makes their influence difficult to forecast
– Generally, their immediate impact is felt in the financial markets which, in itself, could overreact to such risks
– Cumulative evolution of economic relationships and institutions makes past references of geopolitical events
difficult to extrapolate to today’s risks
– The global economy is dynamic and adaptive, thus adding to the challenges of estimating the impact of
random shocks 22
Key References
• The Economist, “The New Power Superpowers,” Special Report on the Geopolitics of Energy, March 17, 2018.
• Jaffe, Amy Myers, “Green Giant, Renewable Energy and Chinese Power,” Foreign Affairs, March/April 2018.
Sources for Headlines on slide 14:
• https://www.citymetric.com/transport/volvo-going-all-electric-it-s-not-revolutionary-it-seems-3171
• https://www.reuters.com/article/us-autoshow-detroit-ford-motor/ford-plans-11-billion-investment-40-electrified-vehicles-by-2022-
idUSKBN1F30YZ
• http://www.autonews.com/article/20171217/OEM/171219765/toyota-electric-vehicle-plans-future
• http://fortune.com/2017/10/02/gm-20-all-electric-vehicles-2023/
• https://cleantechnica.com/2018/01/29/2017-china-electric-car-sales-blow-world-water-baic-ec-series-superstar/
• https://www.bloomberg.com/news/articles/2018-02-27/china-s-drive-to-become-the-detroit-of-electric-cars-quicktake
• https://www.forbes.com/sites/salvatorebabones/2018/03/06/china-could-be-the-worlds-first-all-electric-vehicle-
ecosystem/#31b3d31130f5
• https://www.reuters.com/article/us-germany-emissions/diesel-cars-can-be-banned-from-german-cities-court-rules-
idUSKCN1GA2XD
• https://www.wsj.com/articles/electric-vehicle-bulls-shake-up-metals-markets-1512910800 23
Thank you for your attention