Great power competition between the United States and China is almost certain to dominate and shape wider geopolitical risks across all regions in 2022. This makes questions about the grand strategy of both sides central to any assessment of what the coming year and beyond will probably hold. This is not just because of what each side does, but also how other states act within the context of such rivalry between the two leading powers, each with opposing goals and political systems.

The Chinese Communist Party’s grand strategy is to achieve ‘the great rejuvenation of the Chinese nation’ by 2049 and realise long-held nationalist aspirations to ‘return’ China to a position of strength, prosperity and leadership on the world stage. Key milestones of relevance to strategic business risks in 2022 are its Made in China 2025 policy and the completion of its military modernisation plans by 2035. President Xi Jingping is driving forward these plans with vigour and purpose. 

In prosecuting this strategy, China’s approach has been to build a web of political and economic control and influence over countries and supply chains to secure the resources and markets it requires to realise its ambitions. Mr Xi’s Belt and Road Initiative (BRI), use of vaccine diplomacy and coercive diplomacy, and China’s export of mass surveillance technologies to authoritarian governments all point to this. We fully anticipate China maintaining this approach in 2022. This includes acquiring intellectual capital in strategic sectors through espionage, cyber activity and investment, and ongoing efforts to create dependent states through investments and loans.  

China will also almost certainly continue to rapidly build and reorganise its operational and strategic military capability to safeguard and advance its interests in Asia, and progress to its goal to be a ‘world class’ military power by 2035. Its pace of military modernisation and development is such that China now has the largest navy in the world. And its military is transforming rapidly in both strategic and operational capabilities in ways that will enable it to fundamentally alter the global military balance in Asia, particularly in the South and East China seas.

Beijing’s coercive and defensive approach to international relations, overconfidence in its strengths, and zealous belief in its own propaganda about the weakness of the West suggest the risk of it miscalculating how the US and others will act is high. This is particularly a concern given its growing intent to ‘reunify’ Taiwan, possibly even by force. We assess in Strategic Outlook 2022 that such a destabilising scenario as an attack on Taiwan in 2022 is unlikely. But Beijing’s use of grey zone tactics – such as cyber attacks, agitation and military intimidation – to build political conditions in Tapai conducive to Taiwanese capitulation are very likely to continue, in turn unsettling markets and confidence in global supply chain security.

It is plain that countering China’s rise is the primary focus of President Joe Biden, albeit in more measured tones than his predecessor. US strategy is focused on maintaining America's technological, military and economic supremacy, while managing the risks of China dominating the economically-critical Asia Pacific region. Mr Biden has stressed that relations with Beijing should remain competitive, not adversarial. But he faces major challenges in achieving this. And relations with Beijing are likely to become more tense in 2022. 

The reason we assess this as the more likely outcome is that the Biden administration, much like its predecessor, appears to lack a coherent strategy to counter China and requires solid support from allies that have wavering confidence in him. Mr Biden’s pledges to promote a renewal of democracy around the world and bring a ‘new dawn’ in US foreign policy are well-intentioned and sound in principle. But they are unconvincing in his execution so far. 

Mr Biden has already shown a continuation of the Trump administration's unilateralist approach in matters of consequence to international security. Poorly-handled foreign policy moves by Mr Biden in 2021, not least the chaotic withdrawal from Afghanistan and the furore over the AUKUS deal, have dented the US government’s standing abroad and with key allies. Both debacles raise questions as to the extent to which Mr Biden is committed to improving how the US engages with allies and the coherence of decision making within his administration. And both will probably act as a drag on relations with European states in 2022 amid perceptions that the US is an unreliable long-term partner regardless of who is the president.

This is problematic because a key focus for Mr Biden in 2022 is likely to be working to persuade other countries, mainly in the West, to apply pressure on China. This is particularly likely to focus on restricting trade and investment in key strategic sectors, such as technology and finance. Yet it is unclear the extent to which many key allies are willing to risk reprisals from China that would harm their economic recoveries and growth amid the ongoing pandemic. This is even more so when many have questions about the extent to which they can rely on the US as a committed strategic partner.

Mr Biden’s foreign policy so far also points to a desire to retrench the US from troublesome regions and avoid costly overseas military entanglements. His preference appears to be to encourage lesser powers to take the lead in managing stability in their own neighbourhoods. This seems in step with the popular mood at home. But it is at odds with his policy goals and the emerging strategic realities of 2022, where the underlying credible threat of military action is a far greater deterrent than sanctions that could blowback and impact the economic recovery of allies. 

This is particularly the case with Russia. The build up of Russian military forces near Ukraine and the threat of an invasion there is a critical risk in 2022. The US has shown leadership in alerting allies to the urgency and seriousness of the threat. But Mr Biden's threat of severe sanctions is unlikely to deter the Russian president, Vladimir Putin, on matters so central to his own geopolitical imperatives as Ukraine. Without a clear resolve to make military commitments, his approach risks throwing NATO, the EU and the US into a crisis of credibility at a time when their very relevance is coming into question within the EU.

As the Western alliance and NATO face external challenges to their unity from rivals such as China and Russia, we forecast that without a significant change in approach from the US, it will see its international influence wane over the coming years. This may cost the US ground not only in Europe, but Asia and other regions such as Sub-Saharan Africa where China has a focussed strategy to build influence and economic dependence. Mr Biden’s policy towards Ethiopia, one of the major economies in Africa, is a recent example of how he risks losing influence to China, and indeed other countries, by failing to have a clear long-term vision of what is required to compete in this changing global order. 

US-China competition does not mean a Cold War style bipolar order is taking shape, at least not yet. Instead what we are seeing is an emerging multipolar order that is liable to be unstable and prone to conflict and change. This is because, in the absence of powerful leading states that act as guarantors of the rules, such orders are more prone to zero-sum politics, bilateralism and economic disparity. Multipolar orders advantage states that wield more power than others to pursue their competitive interests, because the absence of enforced rules and mechanisms to cooperate allows and incentivises them to do so. 

The rules-based multilateral system under historical US superpower leadership has not been a panacea, but it has reduced the risk of major wars and afforded smaller states a degree of assurance in security. As that order erodes, competition between the US and China, particularly if characterised by decoupling trade and investment policies in 2022, risks forcing smaller states out of a more stable position of neutrality. It also presents opportunities for governments to pursue their own interests in ways that don’t concord with international rules and norms, provided they can keep one of the bigger powers onside by playing to their strategic interests. 

This likely trajectory in international relations is even more problematic in the sense that none of the great powers provide much semblance of global leadership either. In preferring to let hamstrung multilateral institutions and less capable states resolve regional issues, albeit with degrees of support to shape outcomes that suit their own strategic interests, the risk of conflicts breaking out and becoming protracted is likely to rise. Such conflicts are evident today, where external authoritarian regional powers are more likely to meddle than mediate.

The presence of foreign powers exacerbating protracted conflicts is evident in Africa and the Middle East particularly, with Russia, Turkey, Saudi Arabia and Iran as notable players backing sides to make economic and political gains that serve their narrow self-interests. Their hands are evident in Ethiopia, Libya, Mali, the CAR, Syria, Yemen and Nagorno-Karabakh as current flashpoints to name but a few. And while some have taken an overt stance, the use of mercenaries and proxy militias operating outside of any legal framework is increasingly commonplace, affording sponsor governments a degree of deniability and unaccountability.

This picture of a fragmenting and unstable global order in the context of a global pandemic and all its repercussions is very likely to drive tangible business risks and make the global economic recovery all the more precarious. The emergence of the Omicron variant in late 2021 points to the likelihood that 2022 will not be the year that the Covid-19 pandemic comes to an end. Indeed, its very emergence and the reaction to it exposes the inadequacies of the global response and why the geopolitical situation as it is will hinder decisive efforts to curtail the coronavirus pandemic and reduce the risk of further variants emerging and spreading in 2022. 

The uneven distribution of vaccines and use of vaccine diplomacy – the targeted export of vaccines for political advantage – has left many poorer nations behind, while richer countries now see positive growth forecasts in 2022. This has acutely worsened global inequality as well as rendered weak states vulnerable to further outbreaks. It also sustains the global risk of new variants emerging among largely unvaccinated populations. Beyond the obvious human and economic cost, this failure by wealthier nations to lead a global effort and attain a positive-sum outcome carries significant political risk implications. 

One of those has been to accelerate a worldwide decline of democratic governance. Authoritarian governments and those leaning towards illiberalism have seized upon the pandemic to impose new restrictions on civil liberties, persecute opponents, limit protests, delay elections and introduce new mass surveillance technologies. Freedom House, a democracy advocacy group, assessed 2021 as the 15th consecutive year of declining global freedom based on an array of democratic governance indicators. 

The consequences of this authoritarian shift are greater censorship, poorer governance standards, corruption and nepotism, weakening rights, and greater social and economic equality. This is likely to yield more brittle and hollowed out systems of government around the world that are more prone to collapse or violent transfers of power when put under pressure, particularly if popular grievances erupt. And it means there become fewer states with a vested stake in maintaining a rules-based international order that promotes good governance and transparency. It also means doing secure and compliant business will probably become more challenging in more places. 

This kind of strategic outlook obscures the more positive developments that we also forecast this year. We anticipate improvements in the Middle East, after years of worsening instability and insecurity, which includes a probable US-led deal with Iran on its nuclear programme. The strength of the economic rebound and level of pandemic resilience now in many countries also suggests that they will probably emerge in bruised but reasonable shape in 2022, albeit vulnerable to wider instability and new coronavirus variants that may emerge. This is a positive change from last year, but it is still not a climate where a sense of normalcy is likely to prevail.◼