Geopolitical turmoil will continue to impact business in 2023, according to risk experts

Lindsey Newman, head of geopolitical thought leadership at S&P Global Market Intelligence, said governments are increasingly using “financial instruments” to advance their national security goals. , has a clear impact on your business.

“Geopolitics used to be confined to dinner party conversations and cocktail party conversations, and 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 there are great powers out there trying to shape the future.”

“Future volatility will go up, not down,” she said.

Risk experts are on high alert. World Economic Forum, Marsh & McLennan and Zurich Insurance Group Ltd.

The only short-term risks perceived as greater were the cost of living crisis, natural disasters and extreme weather.

A separate survey of more than 1,300 executives by consulting firm Protiviti also found that risk professionals’ concerns about the potential reshaping of geopolitical change, global trade and globalization have increased dramatically over the past year. shown. Geopolitical risk was not necessarily the top priority for respondents to that survey. Talent challenges, economic conditions and labor costs were the top three concerns.

Brendan Hannifin, partner at law firm Ropes & Gray LLP, said the measures imposed by the United States in response to Russia’s 2022 aggression in Ukraine are closer to a “blanket embargo under another name.” said.

McDonald’s of the corporation

Its withdrawal from Russia after more than 30 years, including its trademark arch by crane, illustrates some of the challenges facing globalization projects. More than 1,000 companies, from consumer brands to law firms, have left the country or scaled back operations after last year’s invasion, according to Yale School of Business data.

By June, companies had lost more than $59 billion from their operations in Russia. Tens of billions of dollars in assets have been frozen due to US, UK and other sanctions.

Meanwhile, China and the United States have clashed conspicuously in some cases. For example, China has repeatedly rejected US claims that its treatment of the Uyghur minority group in the Xinjiang Uighur Autonomous Region amounted to “genocide.” China launched large-scale military exercises in August in response to then-Chairman Nancy Pelosi’s visit to Taiwan.

As tensions escalate, U.S. rules widen, making it more difficult to do business with China. U.S. regulations aim to develop China’s semiconductor industry while subsidizing domestic chip production. The Uyghur Forced Labor Prevention Act, which took effect in June, blocks most imports into the United States from the Xinjiang Uyghur Autonomous Region.

Hannifin said companies are increasingly questioning how to manage the complex relationship between the United States and China.

Covid-19 and the accompanying supply chain disruptions had already warned many companies of the risk of over-reliance on China. The and risks are causing some companies to consider ways to source from the state, said Stephanie Gosnell Handler, partner at law firm Gibson Dunn & Crutcher LLP.

Companies don’t necessarily have to reconsider using Chinese suppliers, she said, but consider whether they face compliance risks due to new regulations targeting China and look to more broadly in the future. geopolitical impacts need to be planned for.

Some China watchers say the US invested dollar, another major “export” from the US to China, could be hampered if the government adopts a proposal to reconsider foreign investment over national security concerns. While the United States currently scrutinizes certain inbound investments by foreigners as red flags, members of Congress from both parties have begun calling for a regime that applies similar scrutiny to U.S. foreign investments. I’m here.

The agency that may conduct these reviews, the Commission on Foreign Investment in the United States, has added personnel and suggested a more rigorous approach. The Biden administration recently directed Cfius to step up scrutiny of transactions that could give China or other adversaries access to critical technology or endanger supply chains.

U.S. Commerce Secretary Gina Raimond said in November that the U.S. would not separate from China. While some companies have shifted operations from China to places like Vietnam and India, U.S. companies are still heavily involved in China, said a supply chain management expert who teaches at Carnegie Mellon University’s business school. said Sridhar Tayur.

Professor Tayur said that in addition to finished goods, many raw materials and parts would end up in China, and it would take years for companies to move their supply chains out of the country.

S&P’s Dr Neumann predicts that despite current tensions, international cooperation may win in the long run as countries seek to address collective challenges such as climate change and the transition away from fossil fuels. Did.

“There will never be a situation where countries go home without solving their problems,” she said. “These challenges are shared and require shared solutions.”

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