Risk Quarterly podcast: A new world order

How should businesses respond to "shock and awe" tactics on the global stage?

In the space of a month since the inauguration of the new US President, geopolitical risk—which was already firmly on most business leaders’ radars—has shot right to the top of the list of concerns. Coming on top of escalating tensions in many parts of the globe, the approach being taken by the Trump administration appears to be upending the established world order. 

Adjusting to the new Trump era 

According to Gordon, a key question on many business leaders’ lips is: to what extent should they react to the pronouncements made by Trump and his team? Fordham acknowledged that it is challenging to distinguish between rhetoric and reality but said, “This is an administration that is determined to remove obstacles in order to implement its mandate. So I don't think we should be surprised to see extraordinary actions. That's what they campaigned on.” 

The kinds of “shock and awe” tactics being used are unprecedented from a US administration, and businesses are finding themselves in unchartered waters. Whereas once they could rely on an established architecture of unchanging institutions, transparency and the rule of law, now those old certainties have been thrown into doubt. While not everything being mooted by the White House will transpire, Fordham urged listeners to prepare for a wider range of “plausible scenarios” to take place, saying, “We can take nothing for granted.”

Businesses therefore need to challenge the conventional wisdom that “you can’t manage what you can’t measure”: they must develop strategies for anticipating and dealing with unexpected risks, as well as seizing the opportunities that will emerge from this paradigm shift. 

Identifying trade opportunities

Trade could be one major area of opportunity. While tariffs are likely to be levied on more and more countries, Gordon made the point that now would be a good time for governments to negotiate bilateral trade agreements and look at other ways to circumvent tariffs to create new markets for their industries in a proactive way. 

Fordham suggested that legacy barriers such as excessive bureaucracy and stringent regulation could start to be dismantled to make countries or regions more business-friendly if access to the US market becomes more difficult. Businesses could also seize the advantage if consumers decide to boycott certain brands.

She believes that several mid-sized and large economies such as the Gulf states, Turkey and India, which may be less affected by US tariffs, will take a more pivotal role in terms of business opportunities. “Getting a grasp of how they are interpreting the risk and the opportunity will be very valuable,” she said.

Co-operation and conflict 

Whether Russia will one day be welcomed back into the international fold, given Trump’s push to resolve the Ukraine conflict, and what China will make of the rifts now dividing the West, remain to be seen. Traditional alliances may be redrawn and nuances of meetings such as the G7 and G20, which used to be predictable, will be closely watched. 

“One of the things that was unthinkable even a few months ago which is now thinkable is the idea of a tripartite world order of Russia, China and America. What does that mean for the rest of us?” Fordham asked.

Companies will also want to be on their guard in terms of where conflicts could escalate or erupt next. Conflicts in Gaza and Ukraine currently remain localised, but could cause greater global turmoil if they were to spread. And while it’s hard to predict where the next conflict will occur, Fordham warns that conflict relapse is common. Fordham cited the Democratic Republic of Congo as a possible example to be aware of, and questioned what impact the power vacuum in Syria will have on neighbouring states. 

Implications for energy security and climate change

With attitudes towards energy policy and climate change now diverging markedly around the world, multinationals face significant challenges managing their priorities and budgets when it comes to Net Zero targets and ESG (environmental, social and governance) issues. 

Fordham’s view was that, while some companies may be less vocal about their commitments to tackling climate change and other issues, that does not necessarily mean that they are stepping back from these objectives. However, she made the point that although many countries, for example in Europe, are still pushing the Net Zero agenda hard, commitment to climate change is often the first casualty when any adverse macroeconomic events hits, such as a slowdown or recession.

Preparing for the unexpected

Other unexpected events such as natural disasters or pandemics also serve to radically shift the trajectory of events. “It’s impossible to predict those kinds of catalysts, but they happen with great regularity,” argued Fordham.

She added, “Look at the signposts – the things we know are happening. We’ve got the German elections…We might see elections again in France…And from November we’ll be on the countdown to the US mid-terms. So it’s not going to be a quiet year politically.”

For Fordham, it’s all about changing the mindset of business leaders to consider a broader range of potential risks. Taking the past as a guide to the future, expecting binary outcomes, misunderstanding the motives behind political actions or focussing solely on operational risks could also be short-sighted – the C-Suite must take a bigger picture, forward-thinking, open-minded approach to risk management.

Learn more by listening to our podcast or stay up to date with our global risk insights by visiting our geopolitical risk webpage.