What Geopolitical Fragmentation Means for International Business

It has been almost a year since we spoke to Michael Every, Global Strategist in Rabobank’s Global Economics and Markets Division, about the impact of geopolitics on international trade. At the time, his core message was stark: “These are just warning shots of the kind of tectonic shift that is happening.”

With the world again struggling to process events in Venezuela, Greenland, Iran and Syria, we returned to Michael to ask what has changed – and what internationally operating businesses should be doing differently.

We start the conversation with the topic of geopolitical fragmentation and how businesses should react. Michael is clear in his answer: “I think the first thing that businesses must do is to take 15 minutes out of their busy day to absorb the fact that they are operating within an overarching environment. The foundational pillars of that environment are not the ECB, not EU regulation, not Wall Street; they are the global geostrategic, geopolitical and geoeconomic architecture. If you don’t understand that fundamental architecture, then you don’t fully understand what’s likely to happen to your business.”

Fragmentation as the new normal

“Businesses have got used to operating within a technocratic, largely transparent and understandable world map,” he explains. This is the predictable and controlled (even well-behaved) rules-based world order – the end of which we have read so much about in the media over the previous year.

That this world is likely to disappear is not a new phenomenon, notes Michael. “World orders do collapse. And when they do, in the overwhelming majority of world history, it is when countries put national security ahead of markets.”

Historically, territory was the asset deemed worthy of fighting for. “Now it’s commodities: how much oil do you have? How much gas do you have? How much lithium do you have? Power will determine which country or which constellation of countries have access to these critical supply chains.”

Europe’s strategic dilemma

We are now in a world in which Europe has repeatedly said, ‘we understand – it’s a world of hard power’. However, few of Europe’s actions demonstrate that they actually do understand,” Michael argues. Even with plans to slowly increase military spending to 5% of GDP, “Europe will still be a military minnow compared to America for years.”

From his perspective, this has a hard implication for businesses: “If America is now an opponent… America will win every time. Therefore, Europe needs to be pragmatic in terms of what it can do.”

Pragmatic action or misplaced expectations?

Readers may point to the recent Mercosur and Indian trade deals as examples of such pragmatic action. On Mercosur, it’s fair to say that Michael is not filled with hope: “Especially if you take the Donroe Doctrine into account; I think it's a joke to presume that a piece of paper signed between Mercosur and Europe will be more important than an American aircraft carrier off the coast of Latin America controlling what goes in and what comes out.”

And while he finds the EU/India deal genuinely interesting in that it “shows for the first time that Europe is able to do something that America hasn’t”, he has steadfast reservations. “The broader thrust of it is that Europe is going to be importing a whole lot more from India. As such, lots of European industries will suffer from more competition from India.”

“This is not just about Trump,” Michael stresses. On the contrary, he adds, there are multiple actors around the world. “And not all of them involve America; other countries are doing things that we tend to overlook. China, for example, which Europe refuses to decouple with and continues to invest in.”

The power to change

There is light at the end of the tunnel: there is potential for positive action. “The power to change the world lies within European hands. However, I think that Europe has far too much belief in itself, but not enough action. Too much ego and not enough ergo,” states Michael.

“From a geostrategic perspective, if Europe implemented the Draghi reforms [referring to the 2024 Draghi report on European economic competitiveness and the future of the European Union], all of which are domestic, Europe would strengthen its hand internationally vastly more than with any deal it can strike with India or anyone else. However, as things are currently structured in terms of strategic autonomy, reducing dependencies, investment and governance reform, nothing in the Draghi report has been addressed.”

Strategic advice for businesses

We ask Michael the billion-dollar question that geopolitical strategists dread: do you have any advice for internationally operating businesses? He is happy to answer: “Europe’s greatest ability to strengthen itself and to plan long term on an international basis can be achieved by planning better within Europe. If you’re a Dutch business, why are you constantly looking further abroad rather than investing in your own bloc? What can you do with this collection of countries that you have far more in common with than others?”

His final point brings the conversation full circle: back to fragmentation, and the balance between risks and opportunities. “The fragmentation process has a great deal further to run,” Michael concludes. “Venezuela was just one example. If Cuba falls this year, it’ll be another. What if the Iranian regime were to fall – and suddenly a new market of 90 million people opens up?”

For businesses, the message is not to freeze, but to adapt. “The world is changing – bringing great risks, but also great opportunities. And with that, businesses need to be the change they want to see in the world.”