How Geopolitics will Impact Businesses in 2023? | Mint Explains | Mint

Summary

The video discusses the increasing geopolitical risks businesses face as global powers like the U.S. and China compete for dominance. Events such as the Russia-Ukraine war, corporate exits from Russia, and rising U.S.-China tensions have created challenges for international trade and supply chains. Companies are rethinking their dependence on China due to new regulations and geopolitical uncertainties. While some corporations explore alternatives, supply chain shifts will take years. Despite conflicts, cooperation on issues like climate change remains possible, offering a path forward amid rising geo-economic challenges.

Takeaways

• 🌍 Businesses face increasing challenges due to geopolitical competition between world powers like the U.S. and China.
• ⚔️ 2022 marked a significant year with major geopolitical events, including the largest armed conflict in Europe since World War II.
• 🚫 Unrestricted international trade is becoming more difficult due to rising export limits and sanctions.
• 📊 Geopolitical risks, previously a side discussion, have become central in business risk management strategies.
• 💼 Survey data shows that geopolitical conflicts, labor costs, and economic conditions are the top concerns for business leaders over the next two years.
• 🍔 McDonald's and over 1,000 other businesses have either left Russia or scaled back operations due to sanctions, leading to billions in losses.
• 🇨🇳 U.S.-China tensions continue to rise, especially over China's treatment of the Uyghur minority and U.S. regulations targeting Chinese industries like semiconductors.
• 🛑 The U.S. has tightened export controls on China, impacting key industries and forcing businesses to reconsider their supply chain dependencies.
• 🏭 Many companies, despite rising tensions, are still deeply integrated into China’s supply chain and it could take years to shift away from this dependency.
• 🌱 Despite geopolitical conflicts, there is hope that global cooperation can still emerge around issues like climate change and renewable energy.

Q & A

What are some of the major geopolitical events mentioned in the transcript that define the current state of global affairs?

Major events include the armed conflict in Europe (specifically the Russia-Ukraine war), corporate challenges in Russia, and rising tensions between the United States and China.

How has international trade changed for businesses due to these geopolitical events?

Businesses that were used to unrestricted international trade now face challenges like export limits, sanctions, and penalties, making global commerce more complex.

What role are governments playing in influencing global business operations, according to Lindsay Newman?

Governments are increasingly using financial levers, such as sanctions and export restrictions, to achieve national security objectives, complicating business operations in affected regions.

What are the top risks perceived by risk experts, policymakers, and business leaders over the next two years?

The top risks include geo-economic conflict, the cost of living, natural disasters, and extreme weather.

How have corporate attitudes toward geopolitical risk changed, according to the transcript?

Geopolitical risk has moved from being a topic of casual discussion to becoming a serious concern for businesses, with clients actively seeking geopolitical risk management functions.

What was the impact of McDonald’s exit from Russia on the business landscape?

McDonald’s departure after three decades in Russia, along with over 1,000 businesses reducing or halting their operations, led to a collective loss exceeding $59 billion due to sanctions and corporate exits.

How have U.S. regulations affected business relations with China, particularly in terms of Xinjiang Province?

U.S. regulations, such as the Uighur Forced Labor Prevention Act, have prohibited most imports from Xinjiang, complicating trade in products like cotton and solar panel parts due to concerns over forced labor.

What are businesses' concerns about over-dependence on China?

The COVID-19 pandemic and supply chain disruptions raised awareness among companies about the risks of relying too heavily on Chinese suppliers, leading some to consider diversifying their supply chains.

What could be the impact of increased scrutiny of U.S. investments in China?

Increased scrutiny by the U.S. Committee on Foreign Investment, especially in sectors involving critical technologies, could hinder the export of American capital to China and slow cooperation in sensitive industries.

Is the United States seeking to sever ties with China according to the transcript?

No, according to Secretary of Commerce Gina Raimondo, the United States is not aiming to break ties with China, although some businesses are shifting their operations to countries like Vietnam and India.

Outlines

00:00

🌍 Geopolitical Tensions and Business Risks in 2022

The year 2022 marked a pivotal moment in global politics, significantly impacting businesses worldwide. The armed conflict in Europe, particularly Russia’s invasion of Ukraine, and tensions between the U.S. and China created a new era of geopolitical uncertainty. Businesses, once accustomed to free international trade, now face challenges such as export restrictions and penalties. Experts like Lindsay Newman from S&P Global Market Intelligence suggest that governments increasingly use financial tools to pursue national security goals. Geopolitics, once discussed casually, has become a central concern for businesses. A survey of over 1,200 risk experts highlighted geo-economic conflicts as a top risk, following the cost of living and natural disasters. Companies now grapple with the implications of international sanctions and changing global trade dynamics.

05:01

🏭 Impact of U.S.-China Relations on Global Supply Chains

The ongoing U.S.-China tensions continue to disrupt global commerce, particularly in sectors like technology and manufacturing. U.S. sanctions targeting China’s semiconductor industry and goods from Xinjiang province have made it difficult for businesses to navigate compliance issues. While many companies are evaluating their dependency on Chinese suppliers due to the supply chain disruptions caused by COVID-19, experts caution that any major shift in supply chains could take years. Despite the geopolitical friction, some observers believe that international cooperation is possible, especially in addressing common challenges like climate change and the transition away from fossil fuels.

Keywords

💡Geopolitical upheaval

Geopolitical upheaval refers to significant disruptions in global political relations, often involving power struggles between nations. In the script, it highlights the competitive dynamics between world powers, such as the United States, China, and Russia. This competition creates challenges for businesses that are accustomed to more stable international trade conditions, and has been exacerbated by events like the war in Ukraine and tensions between the U.S. and China.

💡Export limits

Export limits are restrictions placed on the trade of goods and services between countries, often for political or economic reasons. In the context of the script, businesses are now facing growing challenges like export limits due to the shifting geopolitical landscape. These restrictions are part of the broader trend of countries using economic policies as tools for national security and political leverage.

💡Financial levers

Financial levers refer to the tools that governments and organizations use to influence economic outcomes, such as sanctions, tariffs, or subsidies. According to the script, governments are increasingly using these levers to achieve national security objectives, especially in a world of growing geopolitical tensions. This has become a significant concern for businesses operating internationally, as they must navigate these complex financial policies.

💡Geoeconomic conflict

Geoeconomic conflict is the use of economic tools to achieve geopolitical goals, often leading to tensions between nations. The script identifies this as one of the top three risks over the next two years, as countries like the U.S. and China engage in trade wars and impose sanctions to protect their strategic interests. This conflict directly impacts global businesses and reshapes international trade relationships.

💡Globalization

Globalization refers to the process by which businesses and economies become interconnected on a global scale, facilitated by trade, investment, and technology. However, the script notes that geopolitical tensions are forcing a reevaluation of globalization, as businesses face risks related to international commerce and supply chain dependencies, especially with countries like China and Russia.

💡Supply chain disruptions

Supply chain disruptions occur when the flow of goods and services is interrupted, often due to political, economic, or environmental factors. The script emphasizes how COVID-19 and geopolitical tensions have highlighted the vulnerabilities of over-reliance on Chinese suppliers, prompting businesses to rethink their supply chain strategies in light of future risks.

💡Sanctions

Sanctions are economic penalties imposed by one country or group of countries on another, typically to influence political behavior or punish actions like human rights violations. The script refers to U.S. and UK sanctions against Russia in response to its invasion of Ukraine, which have led to major corporate exits and frozen assets, illustrating the financial impact on global businesses operating in sanctioned regions.

💡Semiconductor industry

The semiconductor industry is a critical sector that produces essential components for electronics, such as microchips. In the script, the U.S. has imposed restrictions on China’s semiconductor industry to curb its technological growth and protect American industries. This has created additional challenges for businesses dependent on Chinese semiconductor products, as they must comply with new regulations.

💡Uighur Forced Labor Prevention Act

The Uighur Forced Labor Prevention Act is a U.S. law that prohibits the importation of goods made in China’s Xinjiang region, where the Uighur minority is alleged to be subjected to forced labor. The script mentions that this law has significantly impacted industries like cotton and solar panel manufacturing, complicating trade relations and compliance for businesses sourcing materials from China.

💡International cooperation

International cooperation refers to the collaboration between countries to address shared global challenges. Despite the current geopolitical conflicts mentioned in the script, there is optimism that cooperation on issues like climate change and the transition to renewable energy could bring nations together, suggesting that businesses may find opportunities in these areas even amidst tensions.

Highlights

Businesses face growing challenges like export limits and financial penalties due to geopolitical tensions.

2022 was marked by major global events, including the greatest armed conflict in Europe since World War II and corporate challenges in Russia.

Frictions between the U.S. and China are causing increasing geopolitical instability.

Governments are leveraging financial levers to meet national security objectives, marking a shift in global economic strategies.

Geopolitical risk management is now becoming a formalized function for many businesses due to increasing global uncertainties.

A survey of over 1,200 risk experts identified geo-economic conflict as one of the top three risks for the next two years.

McDonald's and over 1,000 companies have left or reduced operations in Russia, resulting in over $59 billion in losses by June 2022.

U.S. sanctions and restrictions on Chinese imports, especially from Xinjiang, are complicating business with China.

Tensions between the U.S. and China have escalated, especially around issues like human rights violations and semiconductor industry restrictions.

The Uyghur Forced Labor Prevention Act prohibits many products from Xinjiang from entering the U.S., adding to compliance concerns for businesses.

Companies are rethinking their dependence on China after the supply chain disruptions caused by COVID-19.

The Biden administration has instructed regulators to closely scrutinize foreign investments, particularly those involving China.

Despite some corporations moving their operations out of China, the U.S. is not looking to sever ties with China.

China remains deeply ingrained in U.S. supply chains, and transitioning away from Chinese suppliers will take years.

There is still potential for international cooperation, particularly in addressing common global challenges like climate change.

Transcripts

according to risk analysts businesses

could be in for another turbulent year

as the United States and other world

powers compete for dominance in a new

era of geopolitical upheaval the year

2022 was very significant in terms of

some major events defining the cost of

the future events like the greatest

armed conflict in Europe since World War

II corporate challenges in Russia the

public demonstrations of friction

between United States and China have led

to a disturbing geopolitical situation

businesses that have become familiar

with unrestricted International Trade

now face growing challenges like export

limits and the growth of penalties

according to Lindsay Newman head of

geopolitical thought leadership at s p

Global Market intelligence governments

are increasingly leveraging Financial

leavers to achieve their objectives in

terms of National Security

formerly geopolitics was only discussed

at dinner or cocktail parties but the

clients are now approaching agencies and

requesting a geopolitical risk

management function it is obvious that

the Cold War era has ended and major

powers are now vying for control of the

future however risk experts have now

become more cautious according to a

survey of more than 1 200 risk experts

policy makers and Business Leaders

geo-economic conflict is one of the top

three risks that people perceive over

the next two years the cost of living

natural disasters and extreme weather

were the only near-term dangers assessed

as being greater

another poll conducted by consulting

firm productivity Inc of more than 1 300

Executives revealed a sharp increase in

the previous year in Risk specialist

worries about geopolitical developments

International Commerce and a potential

reshaping of globalization

the top three worries for survey

respondents were labor prices economic

conditions and talent issues however the

geopolitical threat showed some of the

biggest increases from what respondents

reported the year before

one example of the challenges facing the

globalization initiative is McDonald's

departure from Russia after more than

three decades with its signature arches

being Carried Away by cranes

according to data from Yale School of

Management more than 1 000 businesses

from consumer Brands to law firms left

the country or reduced their operations

as a result of the invasion last year by

June companies losses from their

activities in Russia totaled more than

59 billion dollars as it's worth tens of

billions of dollars have been Frozen as

a result of U.S UK and foreign sanctions

meanwhile tensions between China and the

United States have fled up noticeably

for instance China has consistently

denied American accusations that its

treatment of the yugar minority

community in xinjiang constitutes

genocide as a result U.S regulations

have multiplied in response to the

tensions making business with China more

challenging the growth of China's

semiconductor industry has been the

subject of U.S restrictions which also

support domestic chip manufacture the

majority of imports from China's

xinjiang Province a significant supplier

of cotton and other products like solar

panel parts are prohibited from entering

the United States under the ugar forced

labor prevention Act

as a consequence many businesses are

concerned about how to handle the

difficult U.S China relationship many

businesses were already aware of the

dangers of over dependence on China

thanks to covid-19 and the supply chain

disruptions it caused while many

companies don't necessarily need to

re-evaluate their usage of Chinese

suppliers they should consider whether

they suffer compliance concerns as a

result of new laws aimed at China and

perhaps make plans for broader

geopolitical effects in the future

some observers of China worry that if

the government adopts recommendations to

examine overseas Investments for

National Security issues and other

significant export of American Capital

to China could be hampered the committee

on foreign investment in the U.S has

increased staff and indicated a tougher

stance Additionally the Biden

Administration recently gave CVS

instructions to scrutinize deals even

more closely if they could provide China

or other Rivals access to vital

Technologies or jeopardize supply lines

in November Gina raimondo the Secretary

of Commerce stated that the United

States is not looking to break ties with

China despite some corporations moving

their operations out of China to Nations

like Vietnam and India sridharthayur a

Supply Chain management specialist and

professor at Carnegie Mellon

University's business school stated that

American companies are still deeply

ingrained in the country

It is believed that a lot of raw

materials and components along with

finished items ultimately come from

China and any attempt by corporations to

move their supply chains outside of the

nation will take years

despite current conflicts International

cooperation May ultimately succeed if

Nations work to address common problems

like climate change and the transition

away from fossil fuels