Geopolitical tension is running high. Perhaps you noticed.

The first three years of the 2020s were a perfect storm for de-globalization, which already had momentum thanks in no small part to the wave of populist sentiment that swept across Western democracies beginning around 2015.

From a utilitarian perspective, globalization was unequivocally a positive development, but suffice to say that after two and a half decades, it looked like a Faustian bargain to a lot of lower-middle class voters in the developed world. Their disaffection was exploited by political opportunists to dramatic effect. That manifested in quite a few ways, but from an economic perspective, the most obvious was Donald Trump’s trade war with China.

Then came the pandemic, which shattered supply chains, making atheists of countless devout just-in-time-ers and after that the war, which laid bare the perils of financial and economic interconnectedness both for Russia and the West, while simultaneously tipping off Xi Jinping as to what China can expect in the event the PLA tries to seize Taiwan. All the while, relations between the world’s two superpowers worsened steadily, reaching a nadir earlier this year when the US shot down a Chinese surveillance balloon.

It’s all quite ominous, and it’s thus no surprise that Goldman’s clients “keep inquiring about de-globalization.” The bank’s David Kostin didn’t say “cold war,” preferring instead phrases like “rising foreign trade friction,” but it’s the same general discussion.

“Global trade tensions have increased in 2023. Consider that, year to date, the US Department of Commerce has added various overseas organizations to the US Entity List, foreign nationals have been successfully prosecuted by the Department of Justice and sentenced for engaging in industrial espionage and others have been indicted for theft of corporate trade secrets,” Kostin wrote, in his latest note.

Given all of that, it’d be reasonable to suspect that domestically-facing firms might be outperforming. These kinds of discussions were commonplace in 2018 and 2019, during the US-China trade war. And yet, despite a sharp spike in a gauge of trade policy uncertainty, Goldman’s sector-neutral basket of US stocks with the highest proportion of foreign sales has outperformed, and “dramatically” so, as Kostin put it.

A basket of domestic-facing companies has underperformed by 12 percentage points in 2023, and as the figure shows, it’s not explainable by reference to currency effects.

I assume most readers can answer the implicit question on their own, but just in case, Kostin spelled it out. “A few idiosyncratic sector and company dynamics explain the divergent performance of our geographic sales baskets,” he wrote, noting that Info Tech and Comms Services help explain the lion’s share of the phenomenon.

Meta is perhaps the most glaring example. The company gets more than 60% of its revenue abroad, and the shares have more than doubled this year.

The split between financials included in the domestic basket versus those in the internationally-facing basket has some explanatory power too. Goldman’s domestic sales basket includes PNC, Truist and Charles Schwab, which have obviously suffered this year. By contrast, financials in the international basket include Visa and Mastercard, both of which are up double-digits.

This isn’t exactly news, but Info Tech has a lot of foreign sales exposure, and the sector is hugely important to overall US benchmark equity performance.

In 2022, tech was the only S&P sector to get more than half its sales from abroad. The share derived from China (16%) was meaningful and exponentially higher than the same figure for overall S&P 500 revenues (just 2%).

As Kostin went on to detail, “the two S&P 500 industry groups with the largest foreign revenue exposure are semiconductors (75% of sales from abroad) and tech hardware (60%).”

The takeaway (or my takeaway, at least), is that US equities as a whole are pretty exposed to an increasingly fraught geopolitical environment through the tech revenue channel.

Famously, there’s only one thing Washington can agree on right now, and that’s a hardline approach to China, and specifically to any kind of investment or corporate activity with the potential to advance Beijing’s technological capabilities.

It’s reasonable to ask whether this is yet another way in which the “broad” US equity market’s overdependence on tech might one day become a liability.