2026 Wealth Outlook: Rise of Nationalism, State Capitalism, Globalization’s Retreat

The following article was submitted by KeyBank. It is posted here with permission. 

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As we settle into a new year and prepare for the commemoration of our nation’s 250th anniversary, we observe numerous areas of massive disruption, persistent change, and heightened uncertainty.

In 2026, several disruptive forces have emerged, each with important implications for society, the economy, and markets.

One such disruption shaping the economy is the rise of nationalism and state capitalism—and the related retreat from globalization.

Against this broader backdrop of disruption, the near-term economic outlook presents a more resilient picture.

We anticipate sustained economic momentum in 2026.

While low-income consumers continue to face challenges, steady wage growth and supportive fiscal policies should offer relief as higher-income consumers benefit from strong household balance sheets.

Policy, Markets Realign

Corporate spending, especially on AI-related initiatives, should also persist.

Although the pace of AI spending may moderate as investors focus more on monetization, other sectors should contribute to growth as tariff uncertainty diminishes, even though tariff rates will likely remain elevated.

Provided these trends persist, labor market conditions should remain stable, though emerging signs of deceleration require monitoring.

Labor market conditions should remain stable, though emerging signs of deceleration require monitoring.

Inflation is also likely to be relatively steady. However, new leadership at the Federal Reserve could stimulate the economy through lower interest rates and possibly reignite inflation.

Within this context, the prospects for financial assets are generally favorable, though widening disparities, elevated valuations, and fragile geopolitical dynamics present risks.

Periods of disruption can also generate opportunities.

Trade, Tax Policy

This time a year ago, in considering what the first year of a second Trump presidency might entail, we thought the new administration would focus on a package of policies comprised of the following:

• Levy tariffs to rebalance trade and raise revenue
• Impose stricter immigration policies to protect domestic jobs
• Use tariff-generated revenue to lower (or maintain) domestic tax rates
• Loosen regulations to boost economic growth

A few short months later, much of that strategy quickly unfolded: tariffs were raised, immigration was tightened, and more than 200 executive orders were issued last year.

Tariffs were announced, implemented, and, in some cases, modified, removed, or reinstated at a dizzying pace, punctuated by President Trump’s Liberation Day in early April.

One thing is clear: tax rates will not be going up.

The average tariff rate rose from slightly above 2% at the beginning of the year to 30%, a threshold many economists considered likely to trigger a recession.

Approximately six weeks later, the average tariff rate was lowered to roughly 17%, where it remained until the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act were unconstitutional.

Whether these increases have produced their intended effect is unclear, but uncertainty has endured.

Regarding other actions, one thing is clear: tax rates will not be going up. For many individuals, tax rates will be lower. New tax measures should create an incentive for businesses to increase capital spending, offering an added boost to the economy.

In short, these two areas—trade and tax policy—have largely played out as expected, though at a faster pace.

Immigration

Conversely, one of the bigger surprises stems from the administration’s immigration policies. While greater immigration curbs were anticipated, the magnitude has been larger than expected, and their economic impact may be measurably larger than imagined.

When measured over time, changes to immigration policy may have a larger impact than trade policy.

In 2024, the rate of immigrants entering the country grew at the fastest rate in more than a generation, far eclipsing the growth rate of the U.S. population.

Changes to immigration policy may have a larger impact than trade policy.

In 2025, the number of foreign-born citizens will contract for the first time outside of a recession, and so will the number of foreign-born workers.

This occurs as total population growth is set to slow.

Because labor growth is a key determinant of economic growth, the U.S. must find a new source of labor or realize significant productivity gains. Neither can be assumed.

Tariff Response

Another unanticipated outcome has been the international response to President Trump’s tariffs.

Instead of retaliating, several foreign leaders focused on fortifying domestic economic strength and reducing dependencies on the U.S.

These shifts reflect an ongoing movement away from globalization.

Examples include increased domestic defense spending, greater government investment—particularly in infrastructure—and efforts to confront longstanding barriers to productivity.

These shifts reflect an ongoing movement away from globalization and toward nationalism, where countries prioritize self-interest, often at the expense of global cooperation.

This trend is expected to persist, even after the U.S. Supreme Court ruling.

Rising Nationalism

The terms “state capitalism” and “industrial policy” are another manifestation of this pivot, especially visible in China.

Recently, nationalism has become a component of U.S. economic policy as well, shown by the government’s direct investment in Intel for a 10% stake and the Department of Defense taking a 15% stake in MP Materials.

Other such investments will assuredly follow, and we will also likely hear increasingly more about the term “national champions” in the years ahead.

Inflation and real interest rates are expected to remain structurally higher.

This transition carries meaningful implications for investors. Inflation and real interest rates are expected to remain structurally higher as companies emphasize resilience over efficiency.

Elevated costs are often accompanied by increased fiscal stimulus and monetary accommodation, sometimes at the expense of central bank independence.

Rising nationalism also introduces the possibility that U.S. dollar–denominated assets face headwinds, including reduced demand from international investors.

Geopolitical Risks

Geopolitical risks are likely to remain elevated, as less connected countries face greater potential for mistrust—a dynamic evident in U.S.-China relations.

The U.S. and China relationship began uncoupling during President Trump’s first term.

In 2017, the share of U.S. imports from China was 22%; it has since dropped to 12%. China’s share of U.S. debt has been declining for more than 10 years, and it holds fewer U.S. dollars.

China’s share of U.S. debt has been declining for more than 10 years.

Recent trade discussions between President Trump and President Xi produced little progress, though tensions did not escalate. Both leaders continue to prioritize semiconductors and critical natural resources, and these tensions will likely persist.

In conclusion, sustained higher tariffs, assertive actions by major trading partners, and the rise of state capitalism reflect a broad rise in nationalism.

The implications include higher inflation and interest rates, potential headwinds for U.S.-based assets, and increased geopolitical instability. As a result, building resilient portfolios is increasingly important in this environment.

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About the authors: Mark Commune is Key Private Bank‘s Connecticut & Massachusetts market leader. George Mateyo is KeyBank’s chief investment officer.