Geopolitical concerns remain top of mind amid general global uncertainty and, in particular, a continued reordering of the U.S.-China relationship.
Multiple governments around the world saw turmoil in a single week, Goldman Sachs Chief Financial Officer Denis Coleman told attendees at a conference last month, citing France, Syria and South Korea. “To say that there is geopolitical instability in the world would be a gross understatement,” he said.
The costs of doing business globally have come to a 10-year peak as deglobalization and so-called friend-shoring gain momentum, according to an analysis released in November by Verisk Maplecroft, a consulting firm.
“In recent years, businesses have been blindsided by a cascade of disruptions—the pandemic, renewed conflicts in Europe and the Middle East, surging populism, intense competition for green minerals and escalating protectionism—which have forced a fundamental reset of longstanding strategies,” said Reema Bhattacharya, Verisk Maplecroft’s head of Asia research.
“The old playbook, focused on market size, costs and efficiency, has been upended. Now, geopolitics is the driving force,” Bhattacharya said.
The evolving U.S.-China relationship has seen a number of businesses caught in the crossfire, including TikTok, now facing an imminent ban stateside, and e-commerce giants such as Shein and Temu, which have been frequent targets for U.S. officials.
China for its part has ratcheted up pressure on U.S. diligence and audit firms, targeted chip giant Nvidia with an antimonopoly investigation and launched a probe into Calvin Klein owner PVH.
Big worries
Household-name companies aren’t the only ones feeling the geopolitical pressure. Nearly two-thirds of about 900 executives surveyed by consulting firm McKinsey & Co. for a report released last month flagged geopolitical instability as a top risk to global growth. Forty-nine percent said changes in trade policy were a major risk.
The U.S.-China relationship dominates corporate concerns, in part because toughness on China is a rare area of bipartisan consensus in Washington.
Following a pattern established in the first Trump administration, the departing Biden administration has steadily ratcheted up restrictions on trade, including on semiconductors used in AI and in other key sectors, out of concern over both national security and unfair competition with U.S. workers.
China has responded with its own countermeasures, many of which make it harder to do business in the country. The degree to which the U.S. and Chinese economies are intertwined can make it difficult for companies to grapple with trade controls and restrictions, said Eric Sandberg-Zakian, chair of the trade controls enforcement practice group at law firm Covington & Burling.
“China presents the greatest compliance risk for companies,” Sandberg-Zakian said. “We are seeing corporations invest an incredible amount of time and energy in undertaking due diligence regarding parties in China.”
The incoming Trump administration includes a number of China hawks, including his pick for secretary of state, U.S. Sen. Marco Rubio of Florida, who was behind a law banning most imports from the Xinjiang region over forced labor concerns.
GOP lawmakers also have proposed legislation that would revoke China’s normal trade status and dramatically raise tariffs on Chinese goods.
Tariffs are the biggest risk to the 2025 growth outlook, analysts at investment research firm Morningstar said last month, adding that they expect a meaningful tariff increase on China, though with the caveat that there is uncertainty around the prediction. Trump has also threatened tariffs on Canada and Mexico.
Some industries see the reset in the U.S. government as a chance to press for their favored policies. The domestic textile industry has concerns about tariffs on Canada and Mexico, but supports ending trade provisions that favor China, said Kim Glas, head of the National Council of Textile Organizations. Textiles and apparel have been a major focus for the Biden administration but also for Republicans in Congress.
“There is always a lot of hope when you not only have a new administration, but a changing Congress,” Glas said. “We look forward to working with everybody on both sides of the aisle.”
Wild cards
The past few weeks have seen the fall of longtime Syrian ruler Bashar al-Assad, the historic collapse of France’s government and the brief institution of martial law in normally stable South Korea.
The conflict in Ukraine also has taken on an increasingly international character, with the involvement of Iranian technology and North Korean soldiers.
“I don’t think anyone has a playbook at this point in time,” said David K. Young, president of the Committee for Economic Development, the public policy center of the Conference Board. “Nothing happens in isolation. Everything’s interconnected…We’re living in a heightened geopolitical environment.”
Despite those headwinds, company board members reported having more confidence in business conditions than they had at the outset of 2024, with a notable bump occurring after the election, according to a survey conducted in November and December by Diligent Institute, which provides corporate leadership training.
But 52% said they thought geopolitical conflict had the highest chance of being the next history-altering event.
In the wake of the pandemic, when a host of businesses belatedly realized the fragility of their supply chains, and Russia’s 2022 invasion of Ukraine, which drove many large multinationals into divestitures, many businesses have worked to bolster their geopolitical risk function.
Scenario analysis around possible geopolitical issues has become a must for many businesses. About three-quarters of chief executives say they have at least significant visibility into the geopolitical risks they face, according to a survey by accounting firm Ernst & Young, including 30% who say they have full visibility into the geopolitical risks they face.
Organizations also must increasingly grapple with complicated, global interconnectedness, said Lindsay Newman, a London-based political analyst formerly with think tank Chatham House and the Eurasia Group, a consulting firm. Attacks by Yemeni rebels spurred on by the Israel-Hamas conflict, for example, caused global supply-chain disruptions.
“We now know that there can be shocks in one part of the world that can travel the whole world,” said Newman. “[Businesses] need to also understand what’s happening at the regional level and at the global level, and how those different dynamics are interconnected.”
Write to Richard Vanderford at Richard.Vanderford@wsj.com