Risk experts say geopolitical turmoil’s impact on business will persist in 2023

Businesses could face another year of turmoil as the U.S. and international powers vie for position in a new era of geopolitical shifts, risk experts predict.

The previous year saw Europe’s largest armed conflict since World War II and created widespread complications for Russian business, and a public display of tension between the U.S. and China, two countries that remain deeply intertwined economically. Businesses that have grown accustomed to free global trade face increasing complexities such as ever-increasing sanctions and export controls.

Lindsay Newman is the Geopolitical Thought Leadership Leader for S&P Global Market Intelligence.


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Vanessa Berberian

Governments are increasingly using “financial leverage” to advance national security goals, said Lindsay Newman, head of geopolitical thought leadership at S&P Global Market Intelligence. This development has clear implications for business.

“Geopolitics is reserved for dinner-party conversations or cocktail-party conversations, but clients come to us and say, ‘We need a geopolitical risk management function,'” says Dr. Newman said. “The post-Cold War era is clearly over, and great powers are looking to shape the future.”

“We see more volatility going forward, not less,” she said.

Risk professionals have grown more cautious. According to the World Economic Forum, Marsh & McLennan & Co. and Zurich Insurance Group limited company

The only near-term risks considered greater were a cost of living crisis, natural disasters and extreme weather.

A separate survey of more than 1,300 executives from consulting firm Protiviti Inc. also showed a sharp increase in concerns among risk experts last year about geopolitical shifts, global trade and a potential reshaping of globalization. Geopolitical risks were not necessarily a top concern for respondents to the survey — talent challenges, economic conditions and labor costs were the top three concerns — but compared with what respondents said last year, these risks emerged made some of the biggest jumps.

Brendan Hanifin, Partner, Ropes & Gray LLP


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Ropes & Gray LLP

Brendan Hanifin, a partner at law firm Ropes & Gray LLP, said the U.S. measures in response to Russia’s 2022 invasion of Ukraine approached a “total embargo.”

McDonald’s corps

Exiting Russia after more than three decades — whose iconic arches were in some cases removed by crane — exemplifies some of the difficulties facing globalization projects. More than 1,000 companies, from consumer brands to law firms, left the country or scaled back operations following last year’s incursion, according to the Yale School of Management.

Companies lost more than $59 billion in Russian business through June. US, UK and other sanctions freeze tens of billions of dollars in assets.

Meanwhile, China and the United States have clashed, in some cases overtly. For example, China has repeatedly rejected U.S. claims that its treatment of the Uyghur minority in Xinjiang amounts to “genocide.” China launched a major military exercise in August in response to a visit to Taiwan by then-Speaker Nancy Pelosi.

Amid the tension, U.S. rules have proliferated, making it harder to do business with China. The U.S. restrictions target the development of China’s semiconductor industry while subsidizing domestic chip production. The Uyghur Forced Labor Prevention Act, which went into effect in June, banned most imports into the United States from the Xinjiang region of the country, a major source of goods such as cotton and solar panel components.

Businesses are increasingly asking questions about how to navigate the complex U.S.-China relationship, Mr. Hanifin said.

Covid-19 and the ensuing supply chain disruptions have alerted many companies to the risks of over-dependence on China. But even as pandemic-related disruptions subside, legal and compliance uncertainty and The risks have also prompted some companies to re-examine how they source from the country.

Companies don’t necessarily need to reconsider using Chinese suppliers, she said, but they should review whether they face compliance risks from the new regulations targeting China and possibly planning for broader geopolitical repercussions in the future.

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Some China watchers worry that another major U.S. “export” to China — investment in U.S. dollars — could be stymied if the government considers proposals to review outbound investment on national security grounds. The United States currently scrutinizes certain inbound investments by foreigners for red flags, but members of Congress from both parties have begun agitating for a similar scrutiny of U.S. investments abroad.

The agency likely to conduct those reviews, the Committee on Foreign Investment in the United States, has increased its staff and signaled its toughness. The Biden administration also recently directed Cfius to increase scrutiny of deals that could give China or other adversaries access to critical technology or jeopardize supply chains.

Sridhar Tayur is a professor of operations management at Carnegie Mellon University’s Tepper School of Business.


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Carnegie Mellon University Tepper School of Business

Commerce Secretary Gina Raimondo said in November that the US was not seeking to decouple from China. Sridhar Tayur, a supply chain management expert who teaches at Carnegie Mellon University’s business school, said that while some companies are shifting operations from China to places like Vietnam and India, U.S. companies remain deeply rooted in the country.

Professor Tayur said that in addition to manufactured goods, many raw materials and components can eventually be traced back to China, and any efforts by companies to shift supply chains out of China will take years.

S&P Dr Newman predicts that despite the current tensions, long-term international cooperation may prevail as countries grapple with collective challenges such as climate change and moving away from fossil fuels.

“There won’t be a situation where countries can pick up the ball and go home without addressing these issues together,” she said. “These challenges are shared and require shared solutions.”

Write to Richard Vanderford at Richard.Vanderford@wsj.com

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