Talking geopolitics with Dr. Alexandra de Hoop Scheffer

Dr. Alexandra de Hoop Scheffer is the President of the German Marshall Fund thinktank and a renowned expert in European affairs, transatlantic and international relations. She advises governments, companies and financial institutions on the political, economic and geopolitical risks and trends impacting their strategies, and helps them develop both early-warning and forward-looking decision-making. Here she answers some of our questions about the current state of global geopolitics, the impact of US-China competition, and the rise of the ‘global south’. She concludes with her top five tips for companies navigating the geopolitical landscape.

Can we start off with a broad definition... what is the current state of global geopolitics?

Despite having worked in this field for 20 years now, I am still struck when I hear high-ranking political or industrial decision-makers say that ‘geopolitics is back’ when the fact is that geopolitics has always been here; it has always been relevant. What we are seeing today is not the return of geopolitics, but rather 1) accelerated pace of change: geopolitical shifts are occurring more rapidly, making their impacts more noticeable; 2) direct business impact: companies are experiencing more immediate and tangible effects of geopolitical events on their operations; 3) complexity of crises: the intertwining of various geopolitical issues (e.g., trade wars, technological competition, and regional conflicts) is creating more complex challenges; 4) erosion of post-Cold War stability: the relative stability of the immediate post-Cold War era is giving way to more volatile international relations. These trends are making companies realise that geopolitics actually impacts their daily business.

Of the many current geopolitical crises, what main issues stand out from the rest?

The number one factor driving geopolitical trends today is the escalating competition between the US and China. This is first and foremost a technological competition, a rivalry that is fuelling many other issues. This is affecting global governance; we saw this during Covid when the World Health Organization was unable to act; we see it with the United Nations Security Council which is completely paralyzed by power politics. So these post-World War Two organisations that are supposed to foster a collective response to global issues are not working anymore – again, fuelled by the US-China competition. And finally, going back to why things are so dramatic today, the US-China competition is fuelling the assertiveness of new powers on the global scene.

What are the implications of the US-China relationship being ‘first and foremost a technological competition’?

From the Washington angle, if China becomes the technological superpower, it will become the de facto 21st century military superpower. The pace of innovation is so fast, and that’s what scares the United States because technology – in the American vision – spills over into the military domain. With the US trying to innovate faster than Beijing, Europe has become the collateral damage of new American legislation such as CHIPS [the Chips and Science Act of 2022] and IRA [the Inflation Reduction Act of 2022] that have been implemented these past few years. This means that a European company operating in the US market needs to take into account these deep trends in US politics.

So how can European companies not become collateral damage of the US-China rivalry? How can they contribute to boost Europe’s capacity?

I see the European private sector playing a real role in strengthening Europe in the three critical domains of defence, digital, and energy. This can be achieved by reviewing market investments while de-risking from China and applying insights gained from the war in Ukraine to potential scenarios involving China: the challenges faced with Russia could potentially arise with China, necessitating proactive measures to safeguard European interests and values. This requires creativity, rethinking alliances, strategic partnerships and reassessing investment strategies. In this process, it is important to note that companies are not limited by short-term political cycles. A company thinks in terms of a long term plan. This long-term perspective allows companies to address complex challenges like climate change, technological disruption, or geopolitical shifts more comprehensively. It enables businesses to play a crucial role in areas where political action may be constrained or inconsistent.

So who is responsible for solving geopolitical issues…. governments or companies?

When addressing complex issues such as technology, energy, or healthcare, the private sector possesses invaluable field experience and specialized knowledge that often surpasses that of government entities. This expertise gap underscores the critical importance of robust exchanges between the private sector and political decision-makers. Geopolitical conversations should never be carried out with just political people or just corporate people. You need to incentivise private and public decision-makers to speak and to exchange views, perspectives and experiences. Along with my team of experts, I have developed forums, small-committee workshops and networking opportunities that facilitate open exchange of views, perspectives, and experiences. This is a time where we really need to work together, this is the way to move forward together and not separately.

You mentioned the assertiveness of ‘new powers on the global scene’. Are you referring to the global south?

Yes, countries like India, Turkey and Brazil which we call the global south or pivotal powers. These countries have never been as strong or influential as they are today. As such, we cannot solve any global issues – health, climate change, energy or tech – without bringing these countries into the conversation. We need to totally rethink the way we have been operating and investing in these regions.

How important are these countries in the way that companies de-risk from China?

I see this everywhere: companies are reviewing their investments and strategies in and with China. This is a de-risking policy. There is a huge rush to the Indian market as an alternative to Southeast Asian countries. Mexico is another one of the big winners as US companies move away from the Chinese market to reinvest in Mexico. Another trend that I’ve seen accelerating is that companies are increasingly looking at Africa because of its natural resources. But there is huge competition in Africa – the African continent has itself become a chessboard for US, Chinese and Russian competition. At the recent Forum on China-Africa Cooperation Summit, for example, China recently announced plans for a $51 billion investment over three years, aimed at increasing cooperation in industry, agriculture, infrastructure and trade.

Of course, the consequence of companies de-risking from China is that China will find business elsewhere.

Exactly. The China-Turkey relationship is a really interesting example of this. China’s car giant BYD announced in July that it was going to build a billion dollar factory in Turkey to build electric cars at a time where the EU Commission has been limiting the imports of Chinese electric vehicles. Turkey is 100 per cent playing the role of pivot power and actually helping China to continue to do its business in and with the EU, but without being sanctioned by high tariffs. So it’s really a geopolitical and geoeconomic game. And by playing that game with Turkey, China will be able to still export to Europe.

Geopolitics is often closely associated with risks. Is there any way that companies can turn the risks into opportunities?

In my approach to geopolitics, I always balance the risks and opportunities. For a company, it’s vital to have a horizon of opportunities and the opportunities are quite clear to me. The world order – or rather the geopolitics of alliances – is being redefined. While we are in this transitional phase, we actually have the capacity to influence what the world will look like tomorrow.

Do you have any ‘geopolitical advice’ for companies operating internationally? What should their list of best practices include?

There are a few best practices that should be fully integrated in any European company’s strategic thinking today. The first is to think global and hybrid, meaning that a risk that doesn’t seem very impactful at the beginning might be impactful in the months or years to come. The second is to think disruptions and continuities. Of course, you must think about the black swans, the crises and disruptions, but you also need to integrate what will not change. Taking the upcoming US elections as an example, of course you need to look at potential ‘Trump disruptions’. But you also need to look at what will remain the same from a company’s perspective. American protectionism, extraterritorial and political pressure on European companies, for example. The third thing is building flexibility and diversification. A company really needs to be able to resist shocks. To do this, you need to continuously revise and review the ‘risk mapping’ of a company. This builds resilience and a better capacity to react. The fourth is to rethink partnership strategies. This involves a more diversified way of investing and doing business, which is linked to de-risking from Russia and China. And the last thing is how do you think as a European company, as being part of European success in the three transitions of energy, digital and geopolitical. How do you become a leverage, an asset for the future of Europe at a time where it needs to boost these three important issues?

What is the German Marshall Fund?

GMF is a transatlantic Think-and-Do Tank committed to strengthening cooperation between the United States and Europe in a shifting global order. Our mission is to foster a resilient and dynamic partnership and develop innovative solutions to address shared challenges. GMF's unique strength lies in our extensive network of offices strategically positioned across the Atlantic: our headquarters is in Washington, DC, and we have offices in Paris, Brussels, Berlin, Warsaw, Belgrade, Bucharest, Madrid, and Ankara, as well as a large, global network of fellows, particularly in Asia. Our work is characterized by a distinctive multi-layered approach: from convening to policy recommendations, we bring national, pan-European, transatlantic and global policy insights into the most pressing domestic and international issues. We work very closely with governments, corporates and civil society on both sides of the Atlantic.

What is your role at the German Marshall Fund?

I am the President of the German Marshall Fund. In my previous capacity as Senior Vice President for Geostrategy, I developed and led GMF’s geopolitical policy work and risk advisory. We help governments, companies and financial institutions to navigate the fast changing geopolitical environment.

Can you briefly explain how you do this?

First: early warning. We help organisations identify emerging issues that might not have been yet recognized. Second: forward looking. Despite the short-term crisis management happening within both governments and companies at the moment, we help organisations gain a sense of how to better anticipate future trends. And third: country deep dives. This is to zoom in on a specific country or market. Thanks to our geographical footprint or experts on the ground, we provide organisations with first-hand information on a specific country.