Today's Deep Dive is 1,396 words and an 11-minute read.
The great differentiator between successful businesses and those falling behind in 2025 will be strong and agile leadership attuned to changing operational environments and associated risks. 2025 promises to continue a trend of rapid change, with the sheer scale of such shifts being the top risk. Geopolitical upheaval, trade wars, climate change, and technological disruptions will impact more individuals, businesses and governments, imposing greater costs for longer duration. Business leaders will need to invest in both resiliency and flexibility for business continuity and growth.
Geopolitical Upheaval
2025 is starting off with widespread zones of instability and conflict, with hot wars in Europe, the Middle East and Africa. The conflicts are increasingly interconnected, with governments projecting power outside their geographical spheres of influence to gain leverage against adversaries and their supporters (see Iranian and North Korean involvement in the Ukraine war, Russian intervention in African conflicts, US interventions in the Middle East conflicts, Russian and Chinese hostile cyber operations in the US, etc.).
The ongoing conflicts risk shifting borders and political alliances, creating long-term changes in global trade, and spurring conflict-driven refugee flows. 2024 was a super election year, with 50 countries holding elections, many resulting in changes in government, reflecting voter dissatisfaction with the status quo. Polarization delivered slim or no majorities in multiple European elections, with fragile coalition governments now in power. Disagreements over priorities could lead to paralysis in policymaking. Populist leaders advocating insular policies will have a significant impact on foreign policy consensus building and cooperation, risking fragmentation of the current Western alliance.
The Ukraine war remains a major hotspot. US president-elect Donald Trump has signaled a change in US policy from open-ended support to Ukraine to conflict resolution. The conflict is likely to escalate, as the combatant parties seek to maximize territorial control in advance of peace negotiations. The US may also surge support to Ukraine to force Moscow into negotiations, should Russian President Putin prove resistant. Spillover of the conflict remains an elevated risk, impacting European security, tensions on the Korean peninsula, global trade flows and migration. Russia will have strong incentives to raise stakes by stirring up tensions in periphery states to keep them within Moscow's sphere of influence, such as Moldova, Georgia, Azerbaijan and Kazakhstan. The transatlantic consensus on Ukraine will likely fracture, as the US and European leaders have different threat perceptions and preferences for terms to end the conflict. Given the complexity of the conflict, it is unlikely that 2025 will see implementation of a peace agreement.
In 2024, the Middle East was reshaped by aftershocks from the October 2023 Hamas attack on Israel and the resulting war. Hamas has been decimated and Hizballah bloodied by Israel, and Syrian rebels took advantage of regional chaos to decisively topple the autocratic Assad regime, leaving Iran's proxy network – long judged by regional powers to be the largest threat to regional stability – in tatters. Increased attention on the Yemeni Houthis suggests that the Iran-backed group may be Israel's next focus. Despite Israel's effective military campaigns, though, the region – and the global economy – will continue to see upheaval in 2025. The Houthis, which have survived years-long air offensives launched by Saudi Arabia and the US, may be more able to withstand Israeli attacks than previously thought. A weakened Iran, though it maintains important relationships with China and Russia that assuage some of its feelings of insecurity, may double down on its nuclear program to recoup some regional power, putting it on a collision course with Israel and the West. Israel, though currently with the upper hand, is seeing increased domestic political issues, from a fracturing ruling coalition to rising popular exhaustion with extended military campaigns. Paired with new American leadership likely to return to a maximum pressure campaign on Iran (such as ramping up sanctions on the Iranian regime and renewing efforts to remove Iranian oil from the market to reduce government profits and proxy budgets), align with Israeli efforts to seek total victory over Iranian proxies, reinvigorate Arab-Israeli normalization efforts, and embrace Arab Gulf partners (especially with ramped up arms sales), the reorganization of power structures in the Middle East is very much ongoing, with potential impacts to crucial shipping lines, the global energy market, and geopolitical ripples as far-flung as Ukraine.
While the US-Chinese rivalry will largely play out in trade policy (see below), strategic competition will continue in 2025 for access to and influence in the Indo-Pacific region. The status of Taiwan will remain a flashpoint, particularly if President-elect Trump continues sending mixed messages on the future of the US security guarantee for Taiwan. The Trump Administration is likely to continue support for the Quad and AUKUS minilaterals due to the leverage they provide in the region; however, Trump's trade policies may have a negative impact on the bilateral relationships of the partner countries, which could undermine cooperation in the minilaterals. European policy on China, in flux in 2024, is likely to remain disjointed. An EU consensus will be difficult to forge, as member states have differing risk perceptions on Chinese trade practices and security.
For businesses, geopolitical upheaval can have major impacts on the global economy, creating headwinds for growth, disrupting trade and supply chains, fueling inflation and market volatility. Increase costs of doing business, such as added risk premiums, labor disruptions, complex trade compliance requirements, and restrictions or loss of access to markets, can erode profits, undercut competitiveness and undermine business models if leadership is caught flat-footed.
Global Trade
Global trade in 2025 will be increasingly shaped by fragmentation, protectionism, and strategic uses of economic sanctions. The US-China relationship remains a focal point, with American businesses growing more pessimistic about opportunities in China as its economic growth slows and local competitors, bolstered by state support, dominate key industries. Major US companies are diversifying supply chains to countries such as Vietnam and India, reflecting diminished optimism about the Chinese market. Meanwhile, BRICS nations are accelerating efforts to de-dollarize trade, which could pose potential disruptions to global financial systems. At the same time, regional trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the recently concluded China-ASEAN Free Trade Area (CAFTA) 3.0 are gaining traction, reflecting a shift toward strengthening regional economic ties amid a fractured global landscape.
Economic nationalism continues to rise in many major economies. US President-elect Donald Trump has proposed a universal tariff of 10% to 20% on all imports, with rates as high as 60% to 100% on Chinese-origin goods, and 100% tariffs on BRICS countries pursuing de-dollarization. These measures would affect not only rivals but also key trade partners such as the EU, UK, Japan, and South Korea, none of which currently benefit from free trade agreements with the US. Retaliatory tariffs or protectionist policies from other countries could emerge in response, potentially leading to full-blown trade wars and raising costs for businesses reliant on global supply chains while increasing prices for consumers on goods like electronics, cars, and clothing, further straining the global trade environment. This fragmented landscape demands adaptability as companies navigate competing trade policies and rising barriers in key markets, particularly as deglobalization gathers pace.
Climate Change
Continuing trends from 2023, 2024 is set to have been the hottest year on record, eclipsing the record set just in 2023. In addition to rising temperatures, extreme weather continued to impact the global economy; according to an International Chamber of Commerce report released late last year, 2023 and 2024 alone accounted for a quarter of the financial costs associated with extreme weather in the last decade ($2 trillion total). The US experienced an average of two climate events that caused over one billion in damages every month last year, a new record. Hurricane Helene, for example, which caused storm surges, high winds, and significant flooding across Florida, the Carolinas, and Georgia in particular, caused an estimated $225 billion in damages and disrupted key supply chains, including affecting national IV fluid supply and one of the US' only suppliers of ultra-high purity quartz, a key component in microchips. Major climate events in Europe in 2024 included widespread heatwaves, devastating floods in Germany and Spain, and a powerful storm named "Boris" in Central Europe, collectively causing billions of dollars in damages and claiming hundreds of lives. The floods in Spain and Germany were among the top 10 most costly climate disasters globally, causing an estimated $13.87 billion in damage alone.
For much of the world, business continuity and supply chain impacts from climate-related incidents and extreme weather events are no longer an if, but a when.
At the same time, the global consensus around climate change has deteriorated: in the US, incoming President Trump has promised to withdraw from the Paris Agreement, which structures governmental net-zero pledges and the annual COP environmental summits, and walk back many of his predecessor's climate-related policies, potentially reducing funding for the response to climate-related events domestically and abroad. Backlash against the EU's Green New Deal has grown in Europe as the bloc's governments have drifted to the right, with several policies being paused or watered down. Across the global business world, the backlash to ESG has driven major companies to walk back climate-related pledges and withdraw from climate-related industry associations. Besides potentially exacerbating climate change, the breakdown in the global dialogue on climate solutions will leave governments and businesses to craft climate policies and responses in a more fractious, atomized fashion, reducing coordination and sources of guidance.
Disruptive Technology
The rapid advancement of artificial intelligence (AI) will be a defining risk for 2025, accompanied by growing public skepticism. Concerns over bias, misinformation, and misuse of generative AI technologies persist, especially as regulatory efforts struggle to keep pace. According to a Gallup poll from August 2024, 56% of Americans see AI as having a neutral impact, balancing harm and good. However, trust remains a significant issue; for instance, a majority of Americans hold little to no confidence in businesses to use AI responsibly, especially in critical areas such as hiring and medical advice. Moreover, the slow establishment of global standards and oversight has left gaps that could lead to unethical applications, ranging from manipulative digital content to large-scale disinformation campaigns that disrupt democratic processes.
Cybersecurity risks are also escalating, with critical infrastructure increasingly targeted by state-backed actors and sophisticated ransomware groups. The November 2024 Salt Typhoon cyber-espionage campaign, which compromised telecommunications networks across the US and over 20 other countries, exemplifies the growing scale of such threats. AI is enabling more advancing cyberattacks, compounding the challenges faced by defenders. Incidents such as the July 2024 CrowdStrike-related IT outages reveal how deeply interconnected global systems are, and the cascading economic and operational disruptions that result from operational glitches or breaches in key networks.
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