In a world driven by geopolitics, keeping the doors of trade open will be a challenge

The business world can no longer ignore geopolitical trends as supply chains are diverted, markets are marred by red tape and companies are forced to take sides over contentious issues
Businesses will need to be prepared to navigate this fraught new geopolitical landscape

Brian Y. S. Wong

Published: 6:45am, 16 Sep 2022

Why you can trust SCMP

For two-and-a-half decades after the fall of the Berlin Wall, the world was propelled by the dual forces of globalisation and multilateralism. Gone was the debate over political ideology – once dubbed “the end of history” by Francis Fukuyama, a characterisation that has increasingly been challenged – with trade, growth and economic integration across regions and under international institutions the norm.

Geopolitics took a back seat as democratic and authoritarian regimes alike resorted to deepening commercial, even sociocultural ties, in a radical departure from the world separated by the Iron Curtain in the latter half of the 20th century. It was intuited that business and money would speak louder than ideologically loaded rhetoric.

Yet recent events suggest that the era of seemingly post-political globalisation has now come to an unpleasant – albeit by no means abrupt – halt. Brexit and Donald Trump’s victory in the 2016 US presidential election were wake-up calls signifying a backlash from those who had been left behind by the train of unrestrained growth.

The Covid-19 pandemic has prised countries apart from one another – concurrent to the escalating US-China tensions that are undoing decades of progress in seeking common ground. From tensions over the Taiwan Strait to the Russia-Ukraine conflict, the prospect of war is no longer abstract to the affluent.

US President Joe Biden meets virtually with Chinese President Xi Jinping in the White House, Washington, on November 15, 2021. Photo: TNS

Geopolitics has returned to the world stage. In a recent survey of Hong Kong’s high-net-worth individuals by a Swiss private bank, the top concern for most were geopolitical tensions. These can no longer be stalled or smoothed over by the transactional, monetary arrangements that lined the pockets of the elite across all parties.

Businesses cannot afford to ignore geopolitical trends and risks, in at least three ways. The first is how geopolitical pressures affect supply chains and manufacturing decisions.

The combination of cascading sanctions and trade blockades in the aftermath of the war in Ukraine, and disruptions caused by the ongoing pandemic, has induced companies to begin to redirect their supply chains to favour long-standing allies (“friend-shoring”) and countries closer to home (“near-shoring”), even if doing so comes at the expense of short-term cost-cutting.

As economist Stephen Roach notes, China – once the powerhouse of global supply chains – has much to lose from deglobalisation. It faces the prospect of US and European Union firms diversifying away from it, in favour of states with both lower manufacturing costs and greater geopolitical affinity, such as Vietnam. In light of the extensive lockdowns and ongoing US-China tensions, companies such as Apple and Honda are contemplating such a pivot.

In theory, geopolitics and economics are separate domains; in practice, the two are intertwined. A more fraught political context raises the cost of production for multinational corporations, whether it be in cutting through red-tape, lobbying for continued presence and favourable laws, or addressing the price of policy uncertainty and volatility.

03:28

‘Relief for world’ as first Ukraine grain ship since start of war departs Odesa

The second reason geopolitics matters to companies is that they are compelled to take sides over political, security and ideological issues, even if these issues have no relation to their actual operations. The war in Ukraine has led to a large number of Western multinational corporations – such as McDonald’s and British American Tobacco – pulling out of Russia, a decision that comes at a hefty economic price.

Sanctions by governments – for alleged violation of human rights and labour laws – have ensnared many companies and individuals who have long straddled economies that have not always seen eye to eye on ideological and political matters, yet had previously been able to settle for a tenable modus vivendi.

An increased emphasis upon national security – across China, Europe and the United States – also means that for foreign firms which are deemed to conduct sensitive research and commercial activity, certain economies are now no-go zones.

The recently passed US Chips and Science Act, for example, prohibits American tech companies from building “leading-edge” chip factories in China, as a part of ongoing US efforts to compete against China in the strategically and economically vital microchips industry. The zeitgeist suggests that American firms can no longer have their cake and eat it.

Increasingly, business leaders find themselves forced to express opinions on contentious issues that – frankly – do not fall within their technical remit. Those who articulate a stance in favour of any particular party will find themselves under heavy attack from the other side; those who refuse to speak out at all will be criticised by all. Businesses are thus caught between a rock and a hard place.

01:36

AI chip maker ordered by US government to halt exports to China

Finally, businesses must brace themselves for the potential weaponisation of finance. As countries turn to shoring up their systemic resilience in the face of sanctions and counter-sanctions, it is likely that raising funds and initial public offerings will become extremely difficult in markets whose regulatory authorities do not deem said companies to be “acceptable” on grounds of security or political risks.

There is the heightened possibility that foreign companies could be de-listed for alleged non-compliance with regulatory and audit standards.

Businesses must come to navigate the quagmire of geopolitical tensions with shrewdness and acumen. There is thus both a need and space for a new set of fast-thinking, responsive people who can accurately process macro risks and shifts in international relations, and provide wise counsel to businesses that are in dire need of clarity on such matters.

Brian Wong is a DPhil in Politics candidate at Balliol College, Oxford, a Rhodes Scholar (Hong Kong 2020), and the founding editor-in-chief of the Oxford Political Review