A historic year of national elections worldwide and the expansion of armed conflicts in Eastern Europe and the Middle East have propelled geopolitical risk further into the industry spotlight as the calendar turns to the new year.
Respondents to our Emerging Risks Survey in November 2024 indicated that global geopolitics were now seen as the top three source of emerging risk – both currently, and in the next two years – trailing only the rising influence of artificial intelligence and cyber threats in the present risk spectrum.
The findings followed our Political Risk Survey in May 2024, in which 96% of respondents said they had added new political risk management capabilities, while more than 70% reported that their companies had recently experienced a loss associated with political risk – and the most commonly-reported type of loss was disruption of supply chains with geopolitical causes.
Perhaps most worrisome for organizations that rely on global commerce to continue to drive their business opportunities, such as international transportation firms, is that the impact of geopolitics on the global supply chain has become notoriously difficult to predict. Geopolitics last year became more volatile and less aligned with the aspirations of globalized operations, and 2025 has the potential to make that a trend.
For participants in the maritime supply chain, the rise and fall of conflict zones tends to be the most visible faces of geopolitical risk. War-risk insurances rise and trade lanes can be disrupted; when Houthi forces attacked the merchant fleet in the Bab el-Mandeb Strait at the southern end of the Red Sea last year, trade diversions around Africa tacked 10-14 days onto transits from Shanghai to Rotterdam and cost the owners of some ships an extra US$1 million per voyage in fuel costs.
From a risk perspective, the impact of global geopolitics is increasingly recognized for how it interconnects with and magnifies other categories of risk, making the former harder to measure and mitigate. Conflicts, whether militaristic or political, increase the potential for cyber-attacks; food security and distribution is at greater risk during time of conflict; and the ‘soft’ tools of geopolitics – such as tariffs – have the potential to shrink economies and shift trade patterns, as do elections; and geopolitics have the potential to impact national and regional climate strategies.
Exogenous risks such as these are largely outside the control of most maritime transportation companies and as such can be candidates for the wide range of risk transfer products offered by insurers.
Few geopolitical events have the potential to cause more uncertainty than national elections. Countries that house 49% of the world’s population went to the polls last year. This year, supply chain practitioners are likely to find out more about what that means for their businesses.
In general, populist parties – on both sides of the political spectrum, but mainly the nationalist right – had a good year, led by the election of Donald Trump in the U.S. Outside of North America, populism also gained a stronger foothold in Europe. In November, it was estimated that populists held almost 36% of the seats in the European Parliament; in June, 60 populist parties had at least one member in the parliament, compared to 40 parties in 2019.
The trend has raised expectations for more protectionist policies, including industrial re-shoring and tariffs. Earlier this year, the World Bank found the global rise in populist governments and policy has already taken a toll on international trade growth.
As maritime shipping carries about 70% of the value of all goods traded – with container ships carrying two-thirds of that – these businesses will be among the first to feel shifts in international trade volumes.
The conventional wisdom is that the intent of nationalist policy, which is usually designed to strengthen local rather than global fortunes, is detrimental to international trade. Parties on both sides of the political spectrum practice their brands of economic nationalism by imposing tariffs to discourage the purchase of imports and pursue fewer, or renege on existing international trade deals, slowing the global flow of goods.
Nowhere will that be more closely watched than in the U.S., where President-elect Trump takes the helm of the world’s biggest economy on 20 January 2025. In his first term (2016-2020), Trump proved his fondness for tariffs, with effects equivalent to an estimated $80 billion in new taxes (during 2018-19) on Americans – at least, according to policy analysts at the U.S.-based Tax Foundation. These tariffs also provoked retaliation, particularly from the European Union and Canada.
While ending the trade wars with U.S. allies, President Biden kept most of those tariffs against China and in May, through the Inflation Reduction Act (IRA), added more; collectively (Trump and Biden 2016-2024) those tariffs targeting China are expected by some analysts to reduce U.S. GDP by as much as 0.2%.
Last month, Trump signaled his intention to return to his tariff strategy, announcing a 25% tariff on all goods from Canada and Mexico and an additional 10% on all goods from China. The Tax Foundation estimates this new tranche will ultimately shrink U.S. GDP by another 0.4%, before factoring in the economic effects of any retaliation from the countries the tariffs are imposed against.
For port communities such as L.A.-Long Beach - the U.S.’s biggest by volume and where imports accounted for 88% of its volume in the first 10 months this year - economic contractions on this scale have direct consequences.
From a geo-strategic perspective, one of the challenges with tariffs is that their imposition tends to evoke an in-kind response of retaliatory tariffs, or restrictions on the trade of ‘strategic’ goods.
When Biden announced implementation of the IRA in May, the intent was to accelerate local development on the ‘green’ sector by taxing related imports from China. China’s response to this and other measures was to control exports of gallium and germanium, two rare-earth minerals used in the manufacture of electric vehicles and microchips.
China is reportedly the source of 90% of the world’s production of rare-earth minerals and 60% of wind turbines and batteries for electric vehicles. In applying the controls, it signaled its willingness to leverage its ‘green’ market dominance.
This will worry a maritime community facing a multi-billion-dollar energy transition at a time when industry respondents to our Emerging Risks Survey rated ‘climate transition’ as the number four risk their companies face. Given its dominance, when western companies transition to renewable energy, their reliance on the Chinese supply chain grows. Trade wars could amplify the uncertainty around those strategic yet mandatory investments.
In an increasingly complex and interconnected risk landscape, the influence of geopolitics on business fortunes is growing; managing those risks demands a more integrated approach. Organizations today need to mitigate, transfer, avoid or accept geopolitical risks. Their risk leaders are factoring geopolitical trends into their intelligence monitoring to identify opportunities for growth, while preparing to act quickly and decisively when events occur.
For smarter ways to help you identify and understand the geopolitical risks your supply chain could face, please get in touch.
WTW hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).