The first theme is multipolarity. The geopolitical environment is increasingly likely to be upended in a variety of geographies and issue areas. The future of the relationships between the great powers (the US, EU and China) remains uncertain. Geopolitical swing states will expand their influence regarding the topics on the global agenda and how issues are addressed. Emerging and frontier markets will be increasingly vocal about what they perceive to be double standards of Western governments. And smaller actors — including both governments and non-state actors — are likely to assert themselves both locally and regionally.
The second theme is de-risking. Building on trends in recent years,
governments will continue to reengage in or expand their reliance
on industrial policy to promote greater domestic manufacturing
of critical products. This coupling of economic policy with foreign
or national security policies will become more prevalent and overt
in 2024. Governments will seek to reduce global dependencies,
prioritizing national security (broadly defined) over purely economic
considerations when designing and implementing policies.
Build geopolitical considerations into business models and strategies
In this era of profound change in the international system, the importance of geopolitics to corporate strategy is at its highest level in a generation. Successfully weaving geopolitical dynamics into corporate strategy will increasingly be a competitive advantage
Increase the resilience of global supply chains
Many companies’ supply chains are exposed to geopolitical developments. Executives need to determine how they can better position their company’s operating model and supply chain strategy to proactively adjust to increase their resilience to geopolitical disruptions.
Adapt sustainability strategies to geopolitical realities
Multipolarity and de-risking are influencing government
approaches to policies regarding climate change and natural
resources, which will affect companies’ sustainability
requirements, costs, competitive opportunities and strategy.
Executives should incorporate new policies and regulations, as
well as signals for how such policies may evolve in the future, into
their sustainability strategies
Domestic challenges
in the US and China
In the US, political polarization is
challenging basic governance functions, including debt management
and passing a budget, which led to a downgrade in its sovereign debt
rating in 2023. In China, the challenges stem from macroeconomics
and associated policymaking. These challenges in China and the
US will continue to heighten political risks within each market
and could have knock-on effects for geopolitics and global
growth in 2024.
Global elections supercycle
A wave of elections in geopolitically significant markets representing
about 54% of the global population and nearly 60% of global GDP
will occur in 2024. These elections will be held amid
already heightened mistrust in governments, as documented by the
Edelman Trust Barometer. Such dynamics, combined with nationalist
and populist trends and polarizing issues, increase the risk of social
unrest surrounding elections. This global elections supercycle
will generate regulatory and policy uncertainty, with long-term
implications for industrial strategies, climate policies and
ongoing military conflicts.
Prioritizing economic security
Global developments in recent years have highlighted
interdependencies among geopolitical rivals, leading to a rise in
neo-statism, increasing intervention in supply chains and a focus on
economic self-sufficiency. In 2023, these trends gained momentum
with the US Executive Order proposing outbound investment
restrictions, China’s Foreign Relations Law and the EU’s economic
security strategy. According to Global Trade Alert, the number of trade
interventions has increased by nearly 180% in the past five years,
with almost four times more harmful interventions than liberalizing
ones. In 2024, economic security measures to “de-risk” global
interdependencies will be a prime tool in geostrategic competition.
The diversification agenda
In the July 2023 EY CEO Outlook Pulse survey, 99% of CEOs said
they plan to reconfigure supply chains, relocate operational assets
and make other strategic changes in response to geopolitical
challenges. These challenges include tensions between governments
in key markets and government policies that mandate or incentivize
diversifying value chain locations, including through onshoring,
nearshoring and friendshoring. This value chain diversification
will pose both upside and downside political risks in 2024 for
companies entering or expanding in alternative markets.
Geopolitics of the oceans
About half of the world’s population lives within 100 miles of the
sea, at least 95% of global data flows through undersea cables,
and one-third of energy production is offshore. Recent events —
including the destruction of the Nord Stream 2 pipeline and more
frequent freedom of navigation exercises — have highlighted growing
geopolitical tensions. Competition over control of and access to
the world’s oceans will intensify in 2024, with implications for
supply chains, data flows, food supplies and energy security.
Competition for commodities
Climate change, the war in Ukraine and the energy transition are shifting global supply and demand dynamics for a variety of essential commodities. The number of countries with extreme water stress has risen from 17 in 2019 to 25 in 2023, according to the World Resources Institute. Since 2021, the Food and Agricultural Organization’s world food price index has hovered at its highest levels since the 1970s. And the US Geological Survey estimates the global production of rare earths has increased 131% in the five years to 2022, including significant production coming online in the US (see figure 9). Geopolitical competition will intensify in 2024 to secure supplies of three key commodities: critical minerals, food and water.
Dual track green policies
Amid slow economic growth and high inflation, several governments
in 2023 started to backtrack on previously agreed emissions
reductions regulations that raise costs in the short term. At the
same time, government support for the domestic green economy is
increasing. In 2024, the national goals of economic growth and
energy security will drive countries’ climate policies, magnifying
the multispeed nature of sustainability regulations.
Climate adaptation imperative
Since the United Nations Framework Convention on Climate Change
(UNFCCC) in 1992, climate policy has focused on mitigation — that
is, reducing greenhouse gas emissions to halt climate change. In the
past 30 years, though, the climate has already changed. The last
nine years (2014–2022) rank as the nine warmest on record, and the
World Meteorological Organization forecasts that global temperatures
will reach new heights in the next five years. Even as policymakers
strive to mitigate climate change through emissions reductions,
the urgency of adapting to the current physical risks of climate
change will come into sharper focus in 2024.
