The End of Market Crashes? Why Market Crashes Are Less Likely in a Globalized, Competitive World

by Dr. Ling Xiao (with AI assistance)

Introduction
Stock market crashes have long been attributed to economic cycles, speculation, or policy missteps, and tools to prevent crashes usually come from economics and finance. But what if market crashes can be forestalled by national economic rivalries? That is, can current strategic rivalries  actually be a stabilizing force of the stock market? 

This article explores a key idea: when financial globalization and national rivalries coexist, prolonged stock market crashes become less likely. I especially consider the strategic rivalry between the US and China as a force on the globalized financial market on high-quality company equities. While this dynamic doesn’t eliminate risks, it creates structural resistance to deep, sustained downturns by ensuring that capital rapidly flows into undervalued assets. However, financial crises driven by systemic imbalances or policy failures remain possible.

A Historical Perspective on Market Crashes

Market history shows a pattern:

• Low Globalization, Low Rivalry → Prolonged Crashes
• The Great Depression (1929) and Black Monday (1987) occurred when markets were isolated, with few external investors to absorb losses. Limited global capital meant downturns deepened and recovery was slow.
• The Great Depression (1929) and Black Monday (1987) occurred when markets were isolated, with few external investors to absorb losses. Limited global capital meant downturns deepened and recovery was slow.
• High Globalization, Weak Rivalry → Slower Recoveries
• The Dot-Com Bust (2000) and 2008 Financial Crisis occurred when global capital flows were strong, but geopolitical rivalries were minimal. Without urgent competition, investors hoarded cash instead of stabilizing markets, leading to sluggish recoveries.
• The Dot-Com Bust (2000) and 2008 Financial Crisis occurred when global capital flows were strong, but geopolitical rivalries were minimal. Without urgent competition, investors hoarded cash instead of stabilizing markets, leading to sluggish recoveries.
• High Globalization, High Rivalry → Faster Rebounds
• The COVID-19 crash (2020) was sharp but short-lived. With the U.S. and China locked in economic competition, both acted swiftly to stabilize their financial systems. Global investors aggressively seized undervalued assets, accelerating recovery.
• The COVID-19 crash (2020) was sharp but short-lived. With the U.S. and China locked in economic competition, both acted swiftly to stabilize their financial systems. Global investors aggressively seized undervalued assets, accelerating recovery.

While this pattern suggests a stabilizing effect, systemic risks like financial mismanagement or political instability can still trigger long-term disruptions.

How Globalization and Rivalry Stabilize Markets

1. Global Capital Absorbs Shocks
   In today’s interconnected world, financial crises attract global investors eager to acquire high-quality assets at lower prices. This creates a stabilizing force that prevents prolonged downturns.
2. Economic Rivalries Fuel Stability
   When competition is intense, nations act decisively to prevent financial stagnation. China, for example, sees U.S. downturns as opportunities to invest, ensuring that capital flows continue even in crisis periods. The urgency of competition incentivizes rapid market corrections.

These forces reduce the likelihood of prolonged stock market crashes but don’t eliminate volatility or risks stemming from economic misalignment.

Key Takeaways for Executives

• Expect volatility, but shorter downturns. Global financial competition means markets may experience turbulence, but prolonged stagnation is less likely.
• Geopolitical rivalries influence financial resilience. Trade policies, capital restrictions, and investment competition shape market recoveries as much as economic fundamentals.
• Structural risks remain. While globalization and rivalry mitigate prolonged downturns, factors like banking crises or regulatory failures can still cause severe economic shocks.

Conclusion

Markets today are shaped by global capital movements and economic competition. While prolonged crashes are less likely, executives must remain prepared for volatility and external disruptions.

The next time markets dip, ask: Is this a crisis, or simply a moment of reallocation in an interconnected world?