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Goldman Sachs CEO: Geopolitical competition is sending more shockwaves through the global economy

Published on10 JAN 2024

Goldman Sachs’ Jared Cohen and David Solomon

Geopolitical competition is sending more frequent shockwaves through the global economy, and investors are paying increased attention to great-power politics, says Goldman Sachs CEO David Solomon.

“Everywhere I go, people want to talk geopolitics. That’s not been the case for most of my professional career,” Solomon said during the inaugural Goldman Sachs Global Affairs Summit, hosted in partnership with Eurasia Group. Solomon was interviewed by Jared Cohen, Goldman Sachs President of Global Affairs and Co-head of the Office of Applied Innovation.

“We're now going through a period of time where the impact of geopolitical events is going to have a broader impact on economic growth and capital flows around the world,” he said.

The relative calm of the post-Cold War period led to two decades of accelerating globalization, but that trend has faded, Solomon observed. In recent years, investors have navigated a range of geopolitical events, such as Covid-19, Russia’s invasion of Ukraine, the Israel-Hamas war, and the ongoing competition between China and the US — and they’re preparing for more to come.

Businesses need to prepare for and respond to geopolitical crises

Late last year, the firm launched the Goldman Sachs Global Institute, a new platform that offers clients insights and perspectives at the intersection of geopolitics, technology, and global markets. “Our job is not to have the answer to everything that's going on,” Solomon said. “Our job is to have an understanding of those impacts in a way that's going to be helpful to our clients. That's our job and our business.”

When he looks at geopolitical shocks, Solomon said he first focuses on impact to the people working at Goldman Sachs. For the firm, he said, “That's number one.” But geopolitical competition also affects Goldman Sachs’ businesses and clients, and he described how the firm is positioned to provide differentiated partnerships on these issues.

Goldman Sachs has a global reach — almost half of its 45,000 employees are outside the US, as well as 42% of its revenues. But the company is American at its core: “We certainly are US, first and foremost.” Solomon noted that being home to six of the top financial institutions in the world is a “great asset for the US.”

Supply chains are no longer just about profit margins

The firms and its clients are facing new geopolitical challenges. Solomon pointed out that, after Russia’s full-scale invasion of Ukraine, financial sanctions were a major part of how Western governments responded to Moscow’s aggression.

Today, the US and China, the world’s largest economies, are far more interconnected than the US and Russia were, even before the Ukraine invasion. Despite those ties, geopolitical competition is raising tensions between Washington and Beijing.

“In 2019, if you asked me . . . I would have told you that I thought the biggest headwind to global growth for the next decade was the US-China relationship,” Solomon said. “That was before the pandemic. That was before Russia-Ukraine.” In the coming months and years, Solomon said he’s watching US-China relations to see how the two nations navigate the challenges of restrictions on trade and investment.

Geopolitical competition is also making world leaders think about supply chains differently — and not just those in China and the US. For 30 years, countries and companies have prioritized efficiency. Now, they’re focused on resilience. “You need to think strategically, not just a profit motive. It’s about strategic positioning,” he said.

Solomon said energy investments are critical to the US’s position in the world. “I’m a huge believer in energy transition,” he said. “But it’s a transition over a long period of time.” He notes that more than 80% of the world’s energy came from fossil fuels last year and emissions increased 6%.

Solomon also argued that geopolitical shifts are creating new opportunities. He highlighted India, and said Goldman Sachs’ offices in Bengaluru are “getting awfully close to being bigger than New York.”

“The big reason we're [in India] is because of the talent,” he said. “It's a really, really interesting talent ecosystem, especially for engineering talent. We've built our presence there over 20 years, but there's still more room to grow.”

How will AI impact geopolitics?

With the world’s attention on artificial intelligence, the Goldman Sachs Global Institute is closely following the technology’s rapid development, and Cohen noted that AI has become as much a geopolitical issue as a technology issue.

Solomon said he and others of Goldman Sachs have, for the better part of a decade, expected AI to “be extremely disruptive.” When Goldman Sachs’ Office of Applied Innovation, co-headed by Cohen and George Lee, started analyzing the promise of large language models (LLMs), Solomon said it was “evidence what we'd been talking about for a decade was coming to fruition.”

With AI technology developing rapidly, Solomon cautioned about the need for prudence. “This is not a place where you necessarily have to be first, which is generally true with all these big technologies,” he said. “You have to understand them. You have to understand the impacts. But you don't have to be first because people can get a lot of things wrong.”


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