Opportunities and risks in an internationally ‘UNTIDI’ decade

It's hard to overstate the increased impact of geopolitics – that is the global relationships between countries - both at home and abroad. 

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The world is adjusting to a land war in Europe and a reordering of global energy markets. Ukraine's much discussed counteroffensive seems imminent; the US and China are now in direct competition and vie for influence around the globe.

"Understanding the interplay between the geopolitics of fossil fuels and renewables will be critical in order to thrive in the next decade.”

With geopolitics in flux the implications for business are often difficult to divine. How should we be thinking about these big geopolitical trends that will shape the next decade?

One thing’s for sure, it’s not going to be linear – and I’ve coined the acronym ‘UNTIDI’ to help contextualise the opportunities and risks for business within this future.

First, there is the Uneven energy transition. The risk of failing to reach carbon-reduction targets is now juxtaposed against a struggle to achieve energy security in the wake of the Russia-Ukraine war.

Old fossil-fuel superpowers and new-renewable energy ones are leveraging their market dominance, as we’ve seen through OPEC+ production cuts. Similarly, competition over commodities critical to the energy transition will tend to enhance geopolitical rivalries as demand continues to outstrip supply.

Australia is likely to be a key player with large untapped deposits of copper, cobalt, lithium, nickel and rare earth minerals. Understanding the interplay between the geopolitics of fossil fuels and renewables will be critical to thriving in the next decade.

New trading patterns favouring resiliency over efficiency have been shaped by Covid and diminishing levels of trust. Less trust has begun reshaping global supply chains, particularly those considered to be of national security importance. Many Australian businesses are not immune and are reassessing the location of both their suppliers and their customers within the new trading patterns.

The US and its allies are using a raft of new initiatives to ‘onshore’ and ‘friendshore’ strategic industries such as semiconductors, electric vehicle batteries and critical minerals, while markets that feel more susceptible to US sanctions and export control pressure are also forging closer trade relationships and increasingly trading outside the US dollar system.

This leads on to Trusted technologies. Future economies will be driven by advanced telecommunications networks, an abundance of semiconductors and emerging technologies such as artificial intelligence, quantum computing, and – of increasing relevance in light of a series of recent data breaches in Australia - quantum encryption.

It is no coincidence the less-heralded Pillar 2 of AUKUS seeks cooperative development of advanced technologies and increased information sharing around AI, quantum computing and cyberdefence. AUKUS is likely to have a significant impact on Australia’s industrial base, focusing on trusted technologies and evolving trade corridors.

Industrial policy follows. Efforts to secure supply chains and rectify shortcomings in sovereign production capacity across US, European and Asian developed markets is resulting in increasing levels of industrial policy.

The US CHIPS and Science Act and Inflation Reduction Act are both heavy with industrial policy while Japan and South Korea have passed legislation outlining economic security initiatives. The European Union continues to pursue industrial policy-driven strategic autonomy.

We should expect far more government-shaped development of certain sectors – technology, energy, even food – in an era where national security will dominate policy formulation. Much of this is also likely to come with funding too, either direct or through guaranteed loans. This may result in diplomatic friction as respective industrial policies begin to overlap and a global hunt for the skilled labour required to achieve industrial goals intensifies.

Unsurprisingly, Defence will also be a feature over the next decade. The US and China lead the way in defence spending and this is likely to feed through to the rest of the world.

Europe’s about-face on defence was highlighted by Germany’s 2022 commitment to re-fund its military while the Japanese government is now aiming to double its defence budget. Between AUKUS Pillar 1 and 2 and the release of the Defence Strategic Review, Australia will also see an increase in defence spending.

While budgets have increased and spending commitments are high, capability outcomes will be delayed by a lack of defence manufacturing capacity. Like the energy transition, demand will continue to outstrip supply.

Looming over all of this is the impact of competing Ideologies. The autocracies versus democracies narrative is on the rise and, slogans aside, the US and China are clearly championing their respective forms of government and political economy within a global order in flux.

They will both find eager exponents - the US within the liberal democracies and plurilateral groupings like the G‑7 and the Quad; China in the global south, though demarcations are likely to be messier than during the Cold War. It's instructive the recent G7 meeting in Hiroshima occurred on the same day as the China-Central Asia Summit in Xian.

Domestic ideological divisions are also likely to complicate policy formulation, particularly in the US and EU. While the ESG agenda remains ascendant, at state level in the US bifurcation continues along partisan lines – since 2021, 16 conservative states have now proposed or enacted anti-ESG legislation.

Opportunities for businesses operating across these more geopolitically‑influenced markets should be greatest for those proactively engaging with this new reality.

Cameron Mitchell is Head of Geopolitical Risk at ANZ Bank

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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