RiskUS-China trade tensions lead list of threats to business in 2019

US-China trade tensions lead list of threats to business in 2019

The latest RiskMap report points to a world that is in the midst of transition towards a new world order, in which businesses will need to develop a new type of resilience to survive.

The latest annual political and security risk forecast from global consultancy Control Risks highlights growing trade tension between the US and China as the key driver of risk to business in 2019.

The RiskMap report presents the increasingly fraught trade relationship between the two countries as a threat not only to US and Chinese businesses, but to companies across the globe. It also highlights the potential for a US “contain China” policy to become one of the pillars of a new global order.

The confrontation on trade between the United States and China will become the defining geopolitical dynamic

Richard Fenning, CEO of Control Risks, said: “In 2019, what started as a trade war will ultimately harden into a more permanent stance. The confrontation on trade between the United States and China will become the defining geopolitical dynamic.

“This antagonistic relationship will complicate life not only for businesses in China and the US. Companies in a wide orbit around this stand-off will feel the political and economic impact.”

Top risks

While US-China tensions top the list of business risks, the report also predicts that global inconsistencies in data governance and political gridlock in the US will emerge as key threats. Climate change makes an appearance in the top five risks for the first time in the report’s history, while the rise of nationalist politics around the globe presents the risk of globalized companies finding themselves increasingly nationless.

The stand-off between different domains of data regulation will present new challenges for business. The report posits that for China, data is something to be controlled; for the EU, data is something to be protected; the US sees data as something to be commercialised. Businesses are advised to brace for the challenge of collecting, storing and transferring data within and between these three domains against a backdrop of inconsistent enforcement and escalating cyber security threats.

The vice of legislative gridlock will close on policy making in Washington and throw the US into a period of pitched political uncertainty. Resurgent Democrats in the House of Representatives will seek to pin the President under an investigative lens. Pushback from a Republican Senate and White House will erase any hopes of consistency for business. Trade policy will remain unchanged; the pace of deregulation will slow. Foreign policy will remain unsettled and ambivalent in a global environment that requires clarity and resolve.

Some of 2019’s worst business disruptions will not come from terrorist attacks but from extreme weather and its consequences. From storms to floods to droughts and forest fires, the costs of interrupted production, distribution, sales and travel will skyrocket in 2019. Last year’s record for weather-related insurance claims will likely be surpassed.

And as globalized companies enter 2019, they risk – ironically – becoming nationless as nationalist politics continue to advance across the world. Formal and informal barriers are rising. Frictionless trade is beginning to rub, and supply chains are starting to drag. Business leaders must re-calibrate and adapt to this new reality or global players will end up being played by a world in uncertain transition.

Increasing pressures

“International businesses in 2019 will mourn the post-war liberal consensus because it was demonstrably good – for them,” said Steve Wilford, senior partner at Control Risks.

“Since the end of the Cold War multinationals massively increased their share of the global economy and now dominate global trade. They often maintain traditional national associations but are predominantly foreign when it comes to assets and employees. Nationalist policies will see this model come under intense pressure in 2019,” he added.

The need to play coordinated defence against macro political opponents has never felt so real

“From the broad swath of the global industrial sector impacted by the Made in China 2025 strategy, to the numerous internationals whose relationship with the US Trade Representative has changed from promotion to protection, the need to play coordinated defence against macro political opponents has never felt so real,” said Dan Tawfik, principal at Control Risks.

“As with any dramatic change, outsized opportunities will inevitably emerge in 2019, and risk taking will be extraordinarily worthwhile for the brave.”

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