Elnora H. and William B. Quarton Professor of Business Administration and Economics, Coe College, Iowa
Americanization, 7/5/2023
Seven stocks have been driving the entirety of the incredible rally in 2023: Apple, Microsoft, Alphabet, Meta, Amazon, Nvidia, and Tesla. This is considered unprecedented. These are also seven of the most valuable stocks in the world. How can the big become bigger? Can this continue?
It appears that the force of globalization has now transitioned into a new phase, one that is highly beneficial to American tech giants.
Previously, when people referred to globalization, they often meant the movement of goods and personnel. Investment money flowed from developed countries to emerging industrial nations, such as China. Goods then flowed back to developed countries like the U.S. and Europe. Jobs were created in newly industrialized countries, consumers acquired low-priced products in developed countries, and the money returned to the financial markets of the developed countries to further finance new business development. It was a win-win-win situation.
However, we know how that story ended: Disgruntled and displaced workers in the U.S. elected Donald Trump, and China emerged as a menacing threat to the world.
China's rise gave hope to those around the world who wanted to see the U.S. dethroned. For a time, China's technology companies seemed on par with American superpowers. But not anymore. The rapid decline of Chinese tech companies like Tencent and Alibaba actually signifies a new phase of globalization. Shad Rowe referred to this phase as "Americanization."
Tencent and Alibaba can never become Apple or Amazon due to China's structural limitations. Private businesses in China inevitably encounter a foe they cannot defeat: the Communist Party. In contrast, in the U.S., entrepreneurs' free will is protected by the rule of law, they have a largely free market to sell their products, and they receive substantial financial rewards when successful. They also get to keep those rewards. China, under CCP rule, will never possess that mechanism to reward creation and production. Europe, under the rule of elites, will never foster the entrepreneurial drive. Both China and Europe will end up accepting American tech products, albeit reluctantly.
As a result, any consumer tech product that achieves success in the U.S. market will invariably become the global standard and gain the largest market share. This Americanization of the product market is the primary reason why the big become even bigger.
What many people overlook are the secondary effects of this Americanization. American tech companies like Apple and Tesla become globally recognized. People around the world use these products. They know iPhones are a necessity and that Tesla is gaining traction. Naturally, they want to invest in these companies. In the past, it was almost impossible for a South Korean to buy American stocks or for an Estonian to move money abroad. Now, it is not only possible but also convenient. The unprecedented influx of investor money into the U.S. stock market further accelerates this trend. These investors are not interested in value stocks. They want to purchase the best-known, and hence the most valuable, companies.
When people try ChatGPT, they become interested in investing in AI. What do they choose? They buy stocks in Nvidia and Microsoft. When they're enchanted by Elon Musk's charisma, they desire to invest in his ventures. As a result, they purchase Tesla shares. When they see Apple Vision Pro, they understand that VR headsets are the future. Consequently, they want to buy Apple. It's really this simple as to why the 'big seven' become even bigger.
Americanization is still in its early phase. This powerful force is the reason why we bounced back from recent slumps so quickly. It will become even more unstoppable in the future. Don't miss it. If you haven't already, hop on the bandwagon.
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