Geopolitical threats to the global economy an expert’s perspective

While the world's global security environment is dire at present, it is worth pointing out that this is not the worst it has been. In the aftermath of the Second World War, Europe was weak, the US was facing a situation where the Soviet Union had nuclear weapons and China was developing its own atomic bomb. At the same time, the US was facing a recession and the spread of communism – at home as well as overseas.

While the picture today is not quite as bleak, current circumstances are unique: a number of our adversaries – Russia, China, North Korea and, probably very soon, Iran – have nuclear weapons. Alongside this security threat is an economic one, most notably in terms of energy, with Iran, Venezuela and Russia looking to corner that market. Equally, we are facing challenges that are spread all over the world – not just Eastern Europe and the Middle East, but also South Asia and Asia-Pacific, not to mention internal threats like political polarisation. There is also the impact of climate change, with crop failures and extreme weather likely to lead to higher levels of migration, for example.

More positively, it should be noted that national alliances in the West have perhaps not been this strong since the end of the Cold War more than three decades ago. As well as NATO, there is the Quadrilateral Security Dialogue (better known as the Quad) between Australia, India, Japan and the US, with its focus on the Asia-Pacific region. Meanwhile, the trilateral AUKUS partnership between Australia, the UK and the US shares a range of technologies, not just in the nuclear arena but also in more commercial areas.

November’s presidential election adds another layer of uncertainty. In the event of a Donald Trump victory, many of his early decisions will depend on what Vladimir Putin of Russia and China’s Xi Jinping do over the next few months. A second Trump administration will also examine the US’s current security alliances and commitments in terms of value for money.

It remains to be seen whether Trump will continue to support Ukraine’s fight against the Russian invasion. But it should be noted that after his victory in 2016, Trump was keen to hear from the CEOs of America’s biggest businesses – and, if he wins again, leaders in the defense industry will be quick to point out how much the US economy benefits from supplying Ukraine and participating in the AUKUS agreement.

Trump has also talked in the past about leaving NATO if other member states fail to make adequate financial contributions. But such comments are, perhaps, best viewed as political rhetoric: the NATO treaty was ratified by Congress and overturning it with the support of both the House of Representatives and the Senate would be a significant challenge for any president.

Whatever the outcome of the election, the US is likely to continue its attempts to deter Xi Jinping from taking military action to annex Taiwan. But the fact is, America does not have sufficient forces in the region to prevent this. Our strategy, at the moment, is to make clear to China the consequences of such action in geopolitical as well as economic terms. The US’s agreement with Taiwan is to provide assistance and to be a good ally based on the country’s needs – and having seen what has happened in Ukraine, Taiwan may simply not want to get involved in a military confrontation.

One of Trump’s most eye-catching policy proposals is his plan to impose a 10% tariff on imports, rising to 60% for goods bought from China. While there is a strong possibility that he will follow through on this idea if he is elected, there would certainly be a long conversation during the transition process to ensure Trump was aware of the damage it would be likely to inflict on whatever advantage he had in Congress.

Look at the challenges that already exist concerning global trade and the transportation of goods and resources. We are already witnessing significant problems in the Red Sea, where traffic is down by 50%, and the shipping situation through the Middle East could get even worse if Iran decides to get involved. We saw the impact on energy supplies of Russia’s invasion of Ukraine in 2022, and any further disruption could be very damaging.

Introducing an additional layer of complexity and cost by imposing a general tariff like this would make little sense for American businesses. China would no doubt respond in kind, and the relationship between the two countries would become even more confrontational. Hopefully, a better understanding of the political and economic implications of this kind of protectionism would cause Trump to rethink his approach.