Events to Watch for 2017: R.I.P. Pax Americana? (Part 1)

This is the first blog of a three-part series. For part 2, please click here. For part 3, please click here.

In the recently released report FSG’s Events to Watch for 2017, we profiled what our analysts believe are the downside and upside scenarios that multinational companies should evaluate to ensure that strategic plans are resilient when the unexpected occurs. This year, we have downside scenarios that are more extreme in 2017 than in 2016, adding urgency to developing corporate capabilities for contingency planning and market monitoring.

One of the disruptive events we focused on is our RIP Pax Americana event, which implies that President Trump removes US’s global security umbrella in favor of a transactional, interest-based foreign policy that will heighten economic vulnerability for current allies in East Asia and Europe, while increasing the likelihood of an aggressive response by President Trump from state rivals and non-state actors.

US Security Alliances

The impact on the global business environment would be dire

  • Aversion to long-term investment – In CEE and East Asian markets, multinationals become more hesitant to make significant capital expenditures, given heightened security concerns
  • Uneven playing field – Chinese and Russian companies gain preference over Western multinationals in their respective spheres of influence, as emerging-market governments cater to assertive regional powers
  • Flashpoints of insecurity – Costs are driven up when persistent tensions flare up in the Baltics, Caucasus, and Middle East. Loss of freedom of navigation in the South China Sea would have a much more severe effect
  • Military spending boom – Former US allies divert government spending to defense and, in Asia and MENA, invest in independent nuclear deterrents

Multinationals should prepare contingency plans ahead of time

While FSG believes this downside scenario only has a 10% likelihood in 2017, multinationals should assess their exposure to markets and trade routes that would be most vulnerable to a reduction of US security guarantees, and evaluate how local governments would react to tensions in ways that may disrupt their company’s normal operations in each market. Furthermore, a strong focus on diversifying your geographic portfolio should be on the strategic planning agenda in 2017.

In the report we provide in-depth scenarios, expected impact on business performance and operations, as well as recommended frameworks for contingency planning and effective market monitoring.

For current Frontier Strategy Group clients, you can download a copy of the full report here. Not a current client? You can purchase a copy on FSG’s online store here.

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