Risk Management - Blog 2/5: Geopolitical Risk

Let's start by reminding ourselves of the five key risk categories that companies must consider when designing a framework to manage risk for business across borders.

Geopolitical risk—macro-level threats from political decisions or instability—can upend even the best-laid plans. Political changes, trade policies, tariffs, sanctions, unrest, and diplomatic shifts all fall under this umbrella, often referred to as “country risk”.

Why Geopolitical Risk Matters Now

Companies must build agility into their strategies in an era of unpredictable policy swings. The 2018–2020 U.S.–China trade war saw sudden 10–25% tariffs on hundreds of billions of dollars of goods, forcing firms like GoPro to shift U.S.-bound production from China to Mexico to avoid duties. Sanctions following Russia’s 2022 invasion of Ukraine compelled over a thousand multinationals to suspend or exit operations, driving $107 billion in writedowns. Today, export controls on advanced chips—such as U.S. revocations of Intel and Qualcomm licenses for Chinese customers—underscore how swiftly governments can weaponize technology policies.

Regional Nuances in Geopolitical Risk

United States

Policy volatility reigns supreme. While the U.S. remains relatively stable politically, shifts in trade agreements, tariffs, and sanctions can ripple through global supply chains. The Trump administration’s swift imposition of 25% duties on Mexico, Canada, and China highlights how tariffs can be used as geopolitical tools. Heightened polarization also adds uncertainty to regulations on immigration, environment, and healthcare.

China

Beijing’s regulatory swings and export controls demand constant vigilance. Tech firms must navigate crackdowns—such as the revocation of chip export licenses—and the risk of popular boycotts during diplomatic flare-ups. Companies that invest in deep local partnerships and robust government-relations programs can often soften the blow.

Latin America

Frequent changes in administration often bring wholesale shifts in policy—pro-business agendas can be replaced overnight by resource-nationalist platforms. For example, recent Mexican governments have alternated between aggressive extractive-industry reforms and retaliatory tariffs. Security challenges and social unrest further complicate the picture, making stakeholder engagement and political risk insurance critical.

Comparative Snapshot

Region	Primary Risk Drivers	Recent Example	Mitigation Strategy
United States	Policy volatility, tariffs, sanctions, regulatory uncertainty	25% tariffs on Mexico, Canada, and China under Trump	Scenario planning; supply-chain diversification; government relations
China	Export controls, regulatory crackdowns, diplomatic tensions	Revoked Intel/Qualcomm export licenses for China	Deep localization; regulatory monitoring; local partnerships
Latin America	Administration swings, resource nationalism, security concerns	Retaliatory tariffs ordered in Mexico following U.S. duties	Community outreach; political risk insurance; CSR initiatives

Key Takeaways for a Geopolitical Risk Framework

1. Early Warning Systems: Combine quantitative country-risk ratings with real-time political monitoring to flag sudden shifts.

2. Agile Supply Chains: Build optionality—multiple sourcing, nearshoring, or dual-site production—to react quickly to tariff or sanctions threats.

3. Stakeholder Engagement: Maintain active dialogue with government bodies and local communities, leveraging corporate social responsibility to build goodwill.

4. Continuous Scenario Planning: Regularly update geopolitical scenarios—best, base, worst case—and align strategic responses accordingly.

   
   

Are you interested in developing a risk management framework suitable for your company? Look at our scalable approach. For a small company, we suggest starting with a basic framework that can be further developed as needed.

Tomorrow’s installment will dissect Operational Risk—exploring how process breakdowns, cybersecurity threats, and logistical disruptions test the resilience of global operations.

Watch our latest video about Geopolitical Risks

References

• Investopedia: Political Risk

• Reuters: Trump launches trade war with tariffs on Mexico, Canada and China

• The Verge: GoPro CEO Says Moving Production to Mexico 'Makes Sense'

• Reuters: Foreign firms' losses from exiting Russia top $107 billion

• Reuters: Intel warns of revenue hit as U.S. revokes export licenses for Chinese customer

• Reuters: Mexican president orders retaliatory tariffs against U.S.