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The New Normal: The Impact of The Emerging World Order on Business

Many corporate leaders will have begun their careers in a world order drastically different to the one emerging now. In this previous Post-Cold War world order, which ran approximately from the collapse of the USSR in 1991 to the election of Donald Trump in 2016, the United States lacked a competitor capable of challenging its hegemony. Liberal democratic government had expanded into some parts of Eastern Europe, Africa, and Asia, and was widely seen as the wave of the future. The global economic order favoured open trade across frontiers and minimal state intervention in markets. This order was not devoid of conflict, but geopolitical threats to it came from terrorist groups and relatively weak “rogue” states such as Iraq, Iran, and North Korea.

None of these conditions still hold. The new world order now emerging is marked by an increasing challenge to US global hegemony by rival Great Powers such as Russia and China, and an increasingly assertive Global South. Liberal democracy is in recession globally, as demonstrated by this year’s wave of coups in Africa and the rise of populist strongmen – including in countries that experienced democratic transitions during the Post-Cold War Order, such as Hungary.

The global economic order is also shifting as states increasingly intervene in strategic economic sectors, and the transition toward green technology is set to change the geography of resource extraction and re-order global supply chains. ?

The moment of relative geopolitical and geo-economic peace between 1991 and 2016 is over. There will be no “return to normalcy”. Instead, the factors mentioned above are shaping a “new normal” that will have important impacts on business opportunities and geopolitical risk in the 21st century.

Here are four trends linked to this new world order which will impact on business.

1.????? Sanctions and Export controls

The rise of China as a perceived threat to US hegemony has led to curbs on trade and investment between these two economies which have impacted tech firms and investment funds – and will continue to do so. ?

The fact that China is so central to the global economy gives it power to compete with the US and reshape the rules of the world order to its liking. To contain China’s rise, the Biden Administration has instituted export bans on key technology such as semi-conductor computer chips, AI, and quantum computing, which it believes will contribute to China’s military power. US export controls introduced in October 2022 banned the export of advanced semiconductors, which have military applications, to China. These controls also banned the export of equipment for making make these semiconductors, and US citizens or residents from working in China’s tech sector.

The US has also attempted to coordinate bans on advanced semiconductor chips and equipment with Japan, Taiwan, and South Korea, and with the Netherlands although this has proven challenging in practice.

In response, China has instituted its own export bans and targeted some US companies active in its market. In May 2023, the CCP banned organisations which oversee key critical infrastructure from buying semiconductor chips from the US tech firm Micron on national security grounds.

China has also begun to use its position as a key supplier of a range of critical minerals to retaliate. In August it restricted exports of gallium and germanium - two materials which are key to produce semiconductors and for which it dominates production. Only two weeks ago, the PRC brought in export restrictions on graphite – a key mineral used to produce Electric Vehicle batteries.

The US is also implementing a system for screening investments in China by American companies to make sure that they do not contribute to the growth of the PRC’s technological and military-industrial power. In 2022, the prospect that this system would be implemented had already impacted on private US investment in China, with purchases of stocks in Chinese companies declining by 25% from the previous year. According to those knowledgeable about administration thinking, these investment screening procedures may be expanded to cover other sectors, such as biotechnology and the battery sector.

The Bottom Line:

Any company with substantial supply chain connections to or investments in China will have to contend with the impacts of the competition between the two powers. This will include further export and investment controls imposed by the US on key sectors, and Chinese retaliation targeting companies active in China and supplies of key minerals. Even if substitutes or other sources of supply can be found for these minerals, Chinese export bans or controls will lead to short-term disruption in supply chains. ?

Increased state intervention in markets

State intervention in the economy is increasing to develop strategic sectors that allow states to compete effectively with their geopolitical rivals and to reduce imports of key technology from hostile states. This could provide companies in strategic sectors with subsidies and greater levels of support.

The CHIPS and Science Act passed by the Biden Administration in 2022 allocated $40 billion in US government subsidies available to corporations to develop hi-tech sectors such as semiconductor manufacturing, AI, and quantum computing in the United States. These subsidies are available to foreign firms as well as US companies: the Taiwanese Semiconductor Manufacturing Company (TSMC) ?aims to open six new semiconductor fabs in Arizona, partially funded by CHIPS and Science Act subsidies.

This use of subsidies to onshore production and develop strategic sectors is not limited to the United States. Fears that US subsidies will attract semi-conductor manufacturers to leave their current locations and set up shop in the USA are contributing to the adoption of semiconductor legislation by actors such as the EU, whose own Chips Act aims to coordinate and subsidise semiconductor production in Europe.

The Bottom Line

Use of subsidies will continue, to the benefit of firms that are involved in strategic sectors. If this use of subsidies by multiple national and supranational actors drives a “subsidy competition” to attract key companies to relocate production to their territory, such companies may be in a strong position to negotiate their terms.

Increased worker power

Businesses are likely to face increased trade union militancy and strikes, resulting in disruptions to production, changes in working conditions, and wage increases.

In the United States, the position of trade unions has begun to improve, for two reasons. Firstly, the Biden Administration aims to fend off a return to Trump-style populism by providing discontented US workers, especially those in manufacturing, with the tools to resolve grievances over conditions and wages within the existing system. The Administration has provided more backing for the National Labor Relations Board (NLRB), which protects the right of workers to unionise, and Biden has stressed the importance of creating well-paying union jobs in the USA in his rhetoric.

Secondly, just as offshoring manufacturing to countries such as China and Mexico reduced the leverage of workers versus employers during the era of US hegemony and globalization, onshoring manufacturing to increase the US’ self-reliance in key industrial and defence technology so that it can compete with China will provide workers with increased leverage. ?

This has begun to have an impact in the United States, with union activity increasing. The United Autoworkers have recently won a strike settlement from three large US automakers that increased their wages.

This increased support for worker rights will not be limited to the United States. The Biden Administration has also promised $122 million over two years to M-POWER, a global drive to improve the capacity of trade unions to organise and support workers’ demands.

This is motivated by the idea that this will help to stem the tide of populism and authoritarianism overseas and that better working conditions in US or Western-backed infrastructure projects versus those funded and run by China will improve the image of the US system around the world. Biden and Brazilian President Luis Inacio da Silva also launched a US-Brazilian Partnership for Workers’ Rights on 20 September 2023.

The Bottom Line

It is unclear how far these programs will succeed. However, they do point to an impetus to strengthen worker organisations on a global scale that may impact the balance of power between workers and firms. Increased leverage and political support will provide unions with greater room to press demands on wages and working conditions.

Union programs impacting the Global South may also, by highlighting these issues, lead to increased reputational risks that companies active in these areas may incur through their own operations, or those of their suppliers.

Tougher deal-making in the Global South

The intersection of the US-China competition and the Green Transition will provide governments in the Global South with opportunities to negotiate more favourable contracts with companies involved in resource extraction.

The transition toward green technology will raise the economic and geopolitical importance of specific actors in the Global South in coming decades, just as the transition to petroleum as the major energy source did for the Middle East in the 20th century. For example, countries which produce minerals that are critical to the production of Electric Vehicle batteries, such as lithium, cobalt, copper, and nickel, will gain far more leverage. ?

These include the DRC, which holds 70% of the world’s cobalt; ?Zambia, which is responsible for 70% of Africa’s copper output, and Bolivia, Argentina and Chile which, combined, are home to around 50 million tons of the world’s 90 million tons of identified lithium reserves.?

This will intersect with US-China competition for dominance over green technology, which will be fundamental to global markets in the future. Such competition has already begun, with China currently having strong investments in the critical mineral sector in Africa and control of 74% of global refining capacity, while the US has recently signed agreements to boost EV battery production in the DRC and Zambia and nickel production in the Philippines.

Neither the US nor China will be able to completely dominate these regions and incorporate them into an exclusive zone of influence, however, and these powers will be willing to work with both democratic and authoritarian regimes to achieve their objectives.

This means that Global South governments need not commit to either power in terms of geopolitics, economics, or ideology. Instead, local governments may be able to renegotiate deals on infrastructure, contracts, and royalties on mineral or resource extraction with Chinese or Western companies by using the threat of seeking a better deal with companies belonging to the geopolitical opposition to improve their leverage – or actually defect.

The Bottom Line

Companies working in developing countries will find their contracts much more open to renegotiation from local governments, who will have greater levels of leverage than before due to the US-China competition and the Green Transition.

Conclusion

Each of these key trends is a structural feature of the new world order now taking shape, rather than a short-term policy initiative by individual politicians and governments. The Trump Administration also imposed trade restrictions on China, and US export and investment controls will continue if the Republicans return to power in 2024, because it is in the USA’s strategic interest to attempt to limit the power of its most dangerous competitor for hegemony.

Competition with China will also drive continuing state intervention in strategic economic sectors in the USA, the EU, and other actors. Increases in worker leverage will be driven a combination of the greater political salience of working-class voters and the need to reduce supply chain vulnerabilities by onshoring manufacturing in developed states, and the attempt to combat populism and favourable images of China in the Global South. The ongoing US-China competition over minerals in the Global South will provide leaders of key mineral-producing states with space to negotiate improved contracts for resource extraction.

?These trends are not “bugs” of the emerging world order: they are key features of it. The future will lie with the actors who can adapt to these new conditions.