2023 looks set to be a transition year for geopolitics. Developments this year will shape the political debate ahead of major electoral events in 2024: the US, Russia, Ukraine and Taiwan will face presidential elections, the UK will in all likelihood hold a General Election, and the EU will hold the European parliament elections. 2023 will also see many European countries such as Spain and Poland face electoral events.  The war in Ukraine and the US-China stand-off will dominate geopolitical dynamics this year and will further modify the post-Cold War world order, with no clear alternative structure emerging. For businesses, this means increased uncertainty and additional challenges to navigate this fragmented geopolitical environment.  

Ukraine: no end in sight 

An end to the war in Ukraine does not appear in sight. Putin looks unlikely to win decisively and Ukraine will not give up. The West still lacks a common strategy on how to end the war. The key question for the West will be whether to provide Ukraine the military support it needs to retake territories lost in 2022, with some countries such as the US and Germany being hesitant to do so. 

The war will continue to modify the post-Cold War world order but no clear alternative structure is emerging. While Western unity has been strengthened, particularly through NATO and the G7, the partnership between Beijing and Moscow remains strong – despite some Chinese reservations about Russia’s approach. Many countries in Africa, Asia and South America have remained on the fence, refusing to take side. 

As a result, the global environment remains deeply fragmented, with global governance becoming largely ineffective as a result of the lack of cooperation between major powers. There is no sign of a move back towards multilateral, consensus-based rule-making or re-invigoration of global governance institutions such as the UN, the WTO or the G20.  

US-China: the key fault line 

Amongst this fragmentation and uncertainty, one thing is clear: the China-US relationship will remain the single most important fault line in geopolitics. The Biden-Xi meeting at the G20 in 2022 created the conditions for a resumption of dialogue, but both countries remain locked into long-term competition on an array of issues – Taiwan, trade, technology and security in the Asia-Pacific region. 

Both the US and China are focused on their domestic difficulties – e.g., over Taiwan – which make a confrontation unlikely this year. The exit of China’s zero-Covid strategy will provide positive economic benefits but might also come at a political cost for Xi Jinping. In the US, the Biden administration will turn inward. Despite staving off a big Republican wave in last year’s midterm elections, Biden’s future is uncertain and a Democratic victory in 2024 will be difficult.  

Western unity will be tested 

Despite remaining strong in 2022, Western unity will be tested. The EU and the US do not share the same approach towards China. The EU itself is divided, with Germany advocating for a more balanced approach. Tensions between the EU and the US are also growing on trade and subsidies following the US Inflation Reduction Act which provides massive subsidies for US green industries, threatening European industry at a time when it is already facing high energy prices. The EU has announced that it will develop its own subsidy package in response. 

Many countries in the ‘Global South’ will seek to insulate their interests from big power competition. This new form of non-alignment is motivated by practical concerns, including leveraging market access to and support from the West and China for investment, technology and debt. They may still align with either side on different issues on a case-by-case basis. Three major developing countries will chair the G20 in 2023, 2024 and 2025: India, Brazil and South Africa allowing them to influence the geopolitical agenda. 

Turmoil in the global economy 

Against this backdrop, the global economic situation will remain uncertain and challenging throughout the year. Recessions in Western democracies might be short or narrowly avoided, but pressure will remain high on households and businesses with inflation and high energy prices, particularly in Europe.  

The structural long-term effects of sanctions against Russia will continue to be felt with changes in the economic structure of most countries and in trade relations and supply chains. The scale of the rebound in China following the exit from the zero-Covid policy will be an important factor for global growth in 2023. 

What are the lessons for business?  

Geopolitical instability will continue in 2023 and has become a key driver of policy developments. Geopolitical developments are directly leading to, at times rapid, policy changes in energy, digital, tech, trade, and defence areas as well as to investment screening rules. Corporates and investors need to anticipate and analyse these trends and understand how they will impact governments’ priorities. 

Businesses are facing governments that are becoming less rational economically. The political dimension is now taking a leading role in policy decisions. Understanding the political context of these decisions is key to explain and anticipating future policy changes and engaging with governments effectively. 

There are also opportunities ahead. Governments have limited resources and will need businesses’ support to achieve their objectives. Funding of infrastructure projects, delivering the green transition, rolling out new technologies, and Ukraine’s reconstruction will all require the private sector’s involvement. Through effective engagement, businesses and investors can help governments stay focused on viable long-term policies and create the right incentives for partnership and investment. 

We can help 

Flint’s Geopolitics team has exceptional people in London, Brussels and across Europe and the Asia-Pacific, able to help clients navigate this increasingly complex global environment.  We do applied geopolitics, identifying risks and opportunities, helping our clients to make sense of key international developments and understand how they affect the environment in which they operate. Our team has direct experience in diplomacy and foreign affairs at the highest levels of government. Get in touch.