US-China trade war and changing world order top business risks in 2019: Control Risks

There will be little time for multinationals to mourn the end of the post-war liberal consensus that brought about globalisation, as the developing US-China trade war, and the story it foretells about a new world order, becomes the defining geopolitical risk in 2019, according to Control Risks. In its RiskMap 2019, the company urges multinationals to keep a close eye on the huge, high-level global changes, but they must not ignore the more mundane local risks that could equally trip them up, it adds. In the annual forecast of political and security risk facing companies around the world, Control Risks also warns that as multinationals become nationless, business leaders must adapt or risk being played by a world in transition. The confrontation over trade between the US and China will become the defining geopolitical dynamic next year, according to Control Risks’ RiskMap 2019. “This antagonistic relationship will complicate life not only for businesses in China and the US. Companies in a wide orbit around this standoff will feel the political and economic impact. In 2019, what started as a trade war will ultimately harden into a more permanent stance. A US ‘contain China’ policy could become one of the pillars of a new global order,” the company explains. Charles Hecker, senior partner at Control Risks, says the transformation in modern geopolitics and revolution in global affairs is impacting the way business and politics interacts. This will continue uninterrupted and may even accelerate next year, he adds. But there is very little time to mourn the system that gave us globalisation and the enticing promise of seamless markets and friction-free commerce, Mr Hecker continues. “We still don’t know the end game, where this transformation will come to rest and what the new global geopolitical configuration will look like. Take your eye of the pace and direction of change at your peril. Be aware that the system that brought us unprecedented and almost uninterrupted peace and prosperity may not be here forever. Maintaining that peace and prosperity is going to be increasingly difficult in the years to come,” he adds. Control Risks has named the top five risks that, alongside the US-China trade war and changing global order, will shape 2019. The second-ranked risk is a standoff between the three domains of data regulation in the EU, US and China. Control Risks says this will present a new level of risk for international business in 2019. “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. Brace for the challenge of collecting, storing and transferring data within, and between, these three domains against a backdrop of inconsistent enforcement and escalating cybersecurity threats,” it says. American political gridlock is the third risk. Control Risks warns that “the vice of legislative gridlock will close on policymaking 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 investigations. Pushback from the 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,” it says. Extreme weather is ranked number four. From storms to floods, and droughts to forest fires, the cost of interrupted production, distribution, sales and travel will skyrocket in 2019, predicts Control Risks. It believes that last year’s record for weather-related insurance claims will likely be surpassed in 2019. Extreme weather and all it brings has “never been more significant as a business risk”, it adds. The threat of multinational companies becoming nationless is the RiskMap’s fifth-ranked political and security risk. “As globalised 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. Supply chains are starting to drag. Business leaders must recalibrate and adapt to this new reality, or global players will end up being played by a world in uncertain transition,” it says. Mr Hecker notes that many businesses, whether by design or accident, will become political and diplomatic in 2019, exceeding the level of nation state. Business will not always wear this mantle comfortably, he warns. But Control Risks is keen to stress that companies cannot take their eyes off local, more standard risks as the global landscape quite rightly grabs their attention. “While we watch the world of geopolitics evolve, let’s not lose sight of a factor no less critical for business in the coming year. What happens on the ground, every day, in our most far-flung markets and on our home turf, will be just as important as the loftier world of international relations…Geopolitics is critical but it is only half the story,” says Mr Hecker. “In 2019, do what you can to monitor and even steer the emergence of a new world order, but don’t expect it to emerge suddenly or in sharp focus in the coming year. Stay tuned on that, while staying tuned to what is happening on the ground beneath your feet,” he advises. Steve Wilford, senior partner, and Jonathan Wood, director, at Control Risks agree that business cannot drop one ball to pick up another, losing track of prosaic local risks to focus on global issues. “Counterintuitively, a key challenge for business in 2019 will be to avoid being overly distracted by geopolitical drama. Foreign companies ensnared by corruption scandals, capricious regulatory implementation or attacks on local partners, often find they were not focusing on local, material threats to their business,” they write. But companies might not have local risks to manage if they fall foul of fundamental changes in geopolitics, they add. Doing business across borders is getting harder, and doing business within them is getting more bespoke, the pair note. “It’s not clear what future lens will be applied to this era. A US-China cold war? A revived liberal consensus led by likeminded middle powers such as Japan, Canada and Germany, with avuncular approval from China? Or, more darkly, the inexorable slide into conflict as one power rises to challenge the established one,” they continue. Adding: “Regardless, the lenses that companies use to understand their world will need to be multiple and more complex than ever before. As such, companies need to rigorously prioritise what really matters to them – commercial, political, global, local – and be constantly mindful of where those strands intersect. The onus on corporations is unprecedented.”

US-China trade war and changing world order top business risks in 2019: Control Risks

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