What the COVID-19 crisis means for the geostrategic outlook

While COVID-19 dominates the headlines, the framework for managing geopolitical risk effectively has not fundamentally changed.

In our 2020 Geostrategic Outlook, the Geostrategic Business Group outlined four primary forces that are transforming the global business landscape — globalization, technology, demographics and environment — and assessed how these forces are shaping global and regional developments. The global outbreak of COVID-19 will in many ways accelerate the trajectory of each of these trends.

Globalization: a new regionalism gains momentum

In a matter of just a few weeks, COVID-19 has led countries around the world to close their borders. At the same time, multilateral governance institutions have thus far failed to coordinate the response to the pandemic at the global level. While these are not signs of globalization’s death knell, it’s clear the pandemic, which could aggravate rising nationalist and populist sentiments, will change the trend’s narrative and line of travel. Companies will have to adjust their geostrategies in areas such as supply chain diversification, where many multinationals already have been pursuing a “China plus one” strategy. Biosecurity concerns will intensify regionalism and localization.

Technology: global competition accelerates

Technology and innovation have proven critical to business survival and success, and the crisis is forcing late adopters of digitalization, remote working and e-commerce to catch up overnight. Both short- and long-term solutions to COVID-19 will depend on technology, even as the rapid escalation of social and business activity online has created an environment more vulnerable to disinformation campaigns and cyberattacks. The national security and economic implications of these changes and challenges will accelerate and sharpen the geopolitical nature of technology competition.

Demographics: aging catalyzes global rebalancing

The pandemic is accentuating the societal, economic and policy implications of aging. A country’s demographic profile will shape the operational and cost burdens the outbreak imposes: older societies face a higher human and economic toll from the disease and, perhaps, a slower economic recovery. Nations with large youth populations that encounter high unemployment and economic dislocations as a result of the pandemic may be at greater risk for social upheaval.

Environment: the race against the clock continues

Even as it has helped sharply reduce emissions, COVID-19 has wiped climate policy off the table as an immediate concern. It is unclear when and how the policy issue will reemerge, but it will. Common wisdom holds that economic uncertainty and hardship diminish the stature of environmental concerns, but policymakers in Europe, and perhaps in the US, may use the crisis to prioritize more “green” energy and investment.

The pandemic is accelerating fundamental shifts in economic and social activity — such as curtailing commutes and air travel —that may persist after the crisis recedes; businesses and individuals are learning how to work, build and sustain teamwork, serve clients and live without getting on a plane. And many large institutional investors remain focused on sustainability, even amid the COVID-19 crisis.

How will COVID-19 affect political risks around the world?

The pandemic is unfolding in different time frames and ways in regions around the world, leading to divergent economic, political and societal implications. COVID-19 has intensified China’s growth slowdown, but Beijing has used past crises to make geostrategic shifts for long-term advantage and may do so again.

In the EU, fragmentation pressures have been highlighted by a pandemic response that has — at least so far — been uncoordinated and halting. And COVID-19 is delaying US presidential primary elections and party conventions; the pandemic is even overshadowing a potentially big swing in US policy after November.

More broadly, emerging markets are being hit hard by falling commodity exports, remittances and tourism receipts. Amid the rising costs of managing the pandemic, such current account shocks could catalyze political unrest.