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ERROR: type should be string, got "https://www.barrons.com/articles/trade-war-us-china-end-globalization-trend-51560805924\nEconomy and Policy\nHow to Invest for the End of the New World Order\nReshma Kapadia\nJune 18, 2019 6:00 am ET\nPhotograph by NASA\nFor decades, multinational companies have built their businesses around the free flow of capital, goods, ideas, and people across borders—increasing firms’ global footprints and in turn investors’ global allocations.\nBut as the relationship between the U.S. and China grows increasingly tense and protectionism sweeps over many countries, the globalization trend appears to be on the verge of reversing. That means both executives and investors may need to rethink their strategies—and the second quarter could offer a window into those changes.\n“As there are more signs of de-globalization, protectionism and nationalism—not just in the U.S.—multinationals are seriously rethinking how to move down a new path and reconfigure their operations globally. We are in the first inning, but we are game on,” says Joseph Quinlan, head of market strategy for Merrill and Bank of America Private Bank in an interview.\nRead more: The Trade War Will Make Stocks Scary. 5 Reasons Not to Panic.\nRoughly four decades of falling tariffs and relatively open borders meant going global was just about every company’s strategy, and a lucrative one. Non-U.S. profits for American firms rose by more than 250%, or an average annualized 6.9%, since 2000, according to Bank of America.\nBut now, second-quarter earnings reports could offer the first glimpse at companies’ plans for the possible unwinding of globalization—and help investors reassess their portfolios.\n“This earnings season is the first where it has sunk in that trade tensions aren’t going away,” Quinlan says. “Every CEO has to explain to investors how they are repositioning for the next decade, how to contain costs and what it means for profit margins.”\nSo far, many strategists are just warning of the risks of an increasingly fractious relationship between the world’s two largest economies, with hope the two sides can de-escalate the situation at the G-20 meeting later this month.\nA truce at the G-20 “could be as good as a deal right now,” Quinlan says. But even then, he is in the growing camp of those expecting a long-term conflict. Here’s his playbook if the old version of globalization is, in fact, done:\nLook to the U.S.\nFor his part, Quinlan doesn’t see a global recession and expects volatile markets to grind higher, buffeted by more accommodative monetary policy globally. Within that volatility, he expects the U.S. to outperform other developed markets.\nEurope is more reliant on global growth than the U.S. It is also in the midst of a political leadership change on several fronts, including at the European Central Bank—just as deflationary forces begin to build and bonds there trade at negative interest rates. As a result, investors are leaving Europe and heading to the U.S. for higher yields, which offers a tailwind to U.S. stocks.\nWithin his U.S. holdings, Quinlan isn’t shunning multinational companies. Global companies will have to become more local, regionalizing their operations. Quinlan favors multinationals with strong management and solid businesses that have been nimble abroad—and have the wherewithal to make the right investments. Also likely to benefit as U. S-China tensions stay high are cybersecurity companies and those helping with infrastructure build-out of 5G networks. Both will become more important as U.S.-China tensions stay high.\nGrowing Automation Trends\nBut the biggest beneficiaries may be robotics and automation companies. Instead of shifting supply chains from China to Mexico or Vietnam, Quinlan expects some companies to use productivity-boosting technology to shorten and simplify their supply chains—using 3-D printing to make shoes domestically, for instance, rather than moving all production to Vietnam. He expects emerging markets broadly to feel much of the pain from this shift.\nThe de-globalization push coincides with companies facing full employment in the U.S., Japan, and Europe. Difficulty finding skilled workers has already pushed companies toward automation, advanced manufacturing, 3-D printing, and artificial intelligence. The brewing trade conflicts will just accelerate that shift in production and manufacturing. Quinlan doesn’t pick stocks, but offered this context in terms of valuations: “It is a powerful capital investment cycle driven by dynamics that are still their early years.”\nSo far this year, two small ETFs focused on this area—Robo Global Robotics Automation ETF (ROBO) and the Global X Robotics and Artificial Intelligence ETF (BOTZ)—are up 16% and 18% this year, respectively, slightly better than the S&P 500 ’s 15%.\nWrite to Reshma Kapadia at reshma.kapadia@barrons.com"