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Digital EditionGlobal Trade Disruption Reshapes Business Risk Landscape
Unprecedented geopolitical volatility is forcing businesses to overhaul traditional risk management approaches as protectionist policies surge and global trade patterns fundamentally shift between major partners like the U.S. and China, according to a report from Marsh.
This heightened uncertainty is compelling business leaders to develop new frameworks for understanding and managing global supply chains, as they navigate what will likely remain a challenging geopolitical landscape for years to come, according to the report.
“Heightened risks around the economy, geopolitics, and the changing climate are creating an incredibly complex operating environment unlike any other organizations have experienced in decades,” said Robert Perry, Global Political Risks & Structured Credit Leader at Marsh Specialty. “Those that build on their ability to comprehend, assess, and mitigate the risks facing their operations will likely be better positioned to identify opportunities where others may only see ambiguity and gain a competitive edge in these uncertain times.”
Rising Protectionism and Trade Interventions
The global trade landscape is undergoing a profound shift as protectionist policies gain momentum worldwide, according to the report. Government interventions in trade have increased fourfold since 2018, creating significant uncertainty for businesses with international operations. This uncertainty isn’t merely theoretical—a recent U.S. Federal Reserve study confirms that companies expressing greater concern about trade policy direction report worse financial performance than their more confident counterparts, Marsh noted.
Amid these disruptions, the International Monetary Fund (IMF) has identified the emergence of what it calls “connector” countries—nations or blocs that serve as intermediaries between previously direct bilateral trading partners such as the U.S. and China. These connectors have become crucial components of the evolving global trade architecture, helping to maintain trade flows despite increasing tensions between major economies, according to the report.
However, businesses that rely on these connector countries to circumvent existing or anticipated trade controls face their own vulnerabilities. In scenarios where decoupling between major trading partners intensifies, governments may impose trade barriers on goods from connectors, especially those incorporating components from originally targeted countries. India’s recent imposition of tariffs on certain steel imports from Vietnam—intended partly to disrupt transshipments from China—illustrates this risk, the report noted.
China’s Evolving Trade Strategy
China’s soaring export volumes have made it the primary target of new or expanded trade barriers in 2024. Countries across the globe have responded with defensive measures: Thailand, Mexico, Brazil, Canada, India, Vietnam, and Japan have all imposed or announced restrictions on Chinese steel imports, while the EU, U.S., Turkey, and South Africa have restricted imports of electric vehicles and/or solar cells, according to the report.
This growing resistance to China’s export-driven approach raises questions about the sustainability of its current trade strategy, Marsh noted. In an era where protectionism has regained legitimacy as an economic policy tool, China’s determination to continue growing exports may clash with other governments’ resolve to defend domestic industries they deem worth protecting. If China maintains or increases its manufacturing dominance in politically sensitive sectors like green technology, electronics, and steel, further protectionist trade barriers appear likely in the years ahead, according to the report.
US Trade Policy Implications
Understanding U.S. trade policy requires analyzing the underlying objectives rather than assessing each policy in isolation, Marsh said. Two primary objectives appear to be driving current approaches: using tariffs to re-shore manufacturing jobs or investment, and leveraging tariffs to gain concessions on various trade and non-trade issues.
These objectives are largely mutually exclusive. To effectively re-shore investment and employment, trade barriers against targeted sectors would need to be permanent, limiting their usefulness as negotiating tools. Conversely, using tariffs as leverage for concessions would require maintaining substantial, long-term tariffs on major trade partners and connector countries where trade deficits have increased since 2018, according to the report.
The choice between these approaches has significant implications for global trade architecture. If the U.S. prioritizes using tariffs as negotiation tools, the current connector model may prove more sustainable. However, businesses should consider foreign governments’ willingness to negotiate on issues raised by the U.S., as this will influence how quickly agreements might be reached and how long-lasting any trade barriers may be, the report noted.
Companies with investments or supplier dependencies in countries with large or rapidly growing trade deficits with the U.S., or in nations unwilling or unable to make requested concessions, face heightened risk exposure. These businesses may need to reassess their supply chains and investment strategies to navigate an increasingly fragmented trade environment, the report said..
Escalating Political and Economic Risks
The global business landscape is increasingly defined by geopolitical volatility, with conflicts now occurring nearly twice as frequently as they did in 2005, according to the report. This dramatic rise in global tensions has been accompanied by a staggering 370% increase in international sanctions since 2017, creating a complex web of restrictions that businesses must navigate.
This surge in conflicts and sanctions stems largely from declining adherence to international norms and the fracturing of cooperative mechanisms that previously helped resolve disputes, the report noted.
Financial stability faces mounting pressure as global public debt surpassed $100 trillion at the end of 2024, setting a troubling record. According to the IMF, this unprecedented debt level is creating significant economic vulnerabilities across markets.
The consequences are becoming increasingly apparent. S&P predicts a rise in sovereign defaults over the next decade, while business insolvencies are expected to continue climbing this year before stabilizing at elevated levels, driven by persistent low demand and tight financial conditions, the report noted.
Obtain the full report here. &
