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State-led economic policies and geopolitical insecurity are giving rise to more frequent disruptions to global trade, making operational planning “unusually volatile”, according to broker Marsh’s 2024 Political Risk Report.

Trade barriers introduced over the past five years by governments to protect domestic industries are ramping up “the frequency and severity of trade disruption and distortion”, Marsh says, meaning businesses should focus more on regulatory decision-making and interstate relations.

Firms that have relocated to different geographies in response to geopolitical changes can “distort supply chains, creating supplier uncertainty and bringing businesses into closer contact with comparatively unfamiliar governments and regulatory systems”, the broker says.

To combat this, Marsh says companies should instead assess whether governments will be able to successfully “steer through a shifting landscape of competing international incentives” before making a decision to relocate.

“While the world feels like a riskier place in a time of such macroeconomic and geopolitical uncertainty, businesses that effectively manage and transfer risks in this rapidly changing environment will be well-positioned to seize on future growth opportunities and continue to thrive,” says Robert Perry, global political risks and structured credit leader at Marsh Specialty.

Another risk to global supply chains is the increase in sustainability regulation introduced this year, the report notes, including the EU’s Deforestation-free Regulation, which comes into force this December.

“Wary of contravening these rules, businesses are already altering their purchasing strategies for products, including Ethiopian coffee, Brazilian beef, and Indonesian palm oil, distorting well-established supply chains and destabilising economically significant sectors across several emerging market countries,” the report says.

It calls for greater support from advanced nations for emerging economies that may bear the brunt of the regulation’s indirect costs, such as exports being diverted to non-EU countries and financing being more difficult to obtain for high-risk commodities.

The report also flags the record number of elections taking place this year as being likely to bring a risk of electoral violence and points to the growing use of artificial information in sowing misinformation and disinformation, a threat similarly highlighted by the World Economic Forum’s annual risk report.

It also draws attention to the risk of policy paralysis surrounding the US elections, which could reach beyond its borders and affect broader global events.

For example, Marsh notes that Ukraine is waiting for a number of US military aid packages to be agreed in 2024, which could pass the onus onto European countries if they fail to be pushed through.