The rise of geopolitical swing states
Jared Cohen is president of Global Affairs and co-head of the Office of Applied Innovation at Goldman Sachs.
Executive summary
As the U.S. and China coexist, compete, and confront each other to determine who will set the geopolitical rules, they will either court or thwart an emerging group of countries to gain an edge. This new class of influential nations are the geopolitical swing states of the 21st century. These countries fall into four overlapping categories:
1. Countries with a competitive advantage in a critical aspect of global supply chains
2. Countries uniquely suited for nearshoring, offshoring, or friendshoring
3. Countries with a disproportionate amount of capital and willingness to deploy it around the world
4. Countries with developed economies and leaders with global visions that they pursue within certain constraints
In American domestic politics, swing states can be won by either party, and they decide presidential elections. In geopolitics, swing states have agency to chart their own course on an issue-by-issue basis, and they may decide the future of the international balance of power. They are relatively stable countries that have their own global agendas independent of Washington and Beijing, and the will and capabilities to turn those agendas into realities. They are growing more assertive in using their economic advantages to bolster their standing and influence. They are more demanding, flexible, dynamic, and strategic than they could have been in the 20th century, whatever their shared interests with one great power or another. And they will often choose multi-alignment, a strategy that will make them critical—and sometimes unpredictable—forces in the world’s next stage of globalization, and the next phase of great power competition.
Introduction
In the 2020s, everything is geopolitical. It took a global pandemic, Russia’s war on Ukraine, and heightened U.S.-China competition for the fact that the old era of globalization is over to become undeniable. Each great power has a privileged position in the global economy, and they all face new risks and uncertain futures. The United States is leaning more into its status as the holder of the world’s reserve currency, using the dollar and related payment systems to sanction adversaries and competitors. China is leveraging dependency on its position in supply chains. And Russia—with nowhere near the power of China or the U.S., but with more appetite for risk—has wielded energy to intimidate and coerce its neighbors and limit global support for Ukraine. There is no country or multilateral organization that has the capacity to arbitrate these tensions.
But this unstable geopolitical reality doesn’t mean that other countries or organizations are helpless, waiting for the dust to settle around the geopolitical victor—the old Cold War this is not, even if some of the patterns seem eerily reminiscent. When the U.S. and USSR were locked for four decades in what George Orwell described as “a peace that is no peace,” the rest of the world had three options. Countries could join the U.S.’s alliance system or sphere of influence, they could join the Communist bloc, or they could attempt to remain non-aligned.
The world is more connected today than it was during the Cold War, and the pace of events is accelerating. Non-alignment is more challenging both in theory and in practice. As the U.S. and China coexist, compete, and confront each other to determine who will set the geopolitical rules, they will either court or thwart an emerging group of countries to gain an edge. This new class of influential nations are the geopolitical swing states of the 21st century.
In American domestic politics, swing states can be won by either party, and they decide presidential elections. In geopolitics, swing states have agency to chart their own course on an issue-by-issue basis, and they may decide the future of the international balance of power. They are relatively stable countries that have their own global agendas independent of Washington and Beijing, and the will and capabilities to turn those agendas into realities. They are growing more assertive in using their economic advantages to bolster their standing and influence. They are more demanding, flexible, dynamic, and strategic than they could have been in the 20th century, whatever their shared interests with one great power or another. And they will often choose multi-alignment, a strategy that will make them critical—and sometimes unpredictable—forces in the world’s next stage of globalization, and the next phase of great power competition.
The era of multi-alignment
Russia’s unprovoked and brutal war in Ukraine is a turning point that demonstrates the importance of democratic alliance systems and supporting sovereignty and territorial integrity. As the Center for a New American Security’s Richard Fontaine argued, “[Putin’s] war could ultimately leave NATO larger, more unified, better armed and with military deployments placed closer to Russia … A land war on the continent may well have helped to birth a new Europe.” Coupled with the announcement of Russia’s “no-limits partnership” with China, the war may have also given renewed purpose to the transatlantic alliance. But the majority of the world’s population still lives in countries that remain officially neutral, even if they condemned Russia’s invasion. The battle lines in Ukraine. and what’s happened since February 24, 2022, have cast the era of multi-alignment into stark relief.
India, which currently holds the G20 presidency, stands out as the paradigmatic example of a country with a newly influential and complex geopolitical role. New Delhi’s Minister of External Affairs, Subrahmanyam Jaishankar, has said that we are witnessing the end of a “world order which is still very, very deeply Western,” and the rise of an era in which countries like his will pursue their own “particular policies and preferences and interests.” Jaishankar’s contention that Russia’s war on Ukraine is ushering in the end of a Western-led international system is up for debate. But his point that swing states like India have a great degree of autonomy—even more so than they did as non-aligned countries during the Cold War—is correct. India has many structural advantages and many vulnerabilities, including its low literacy and labor-force participation rates, particularly for women. But it is now the most populous country in the world, and it has a relatively young population. Its GDP is still one-sixth that of China’s, but with the right industrialization policies and infrastructure, its economy could double in size by 2030, making it the third-largest on the planet. As India continues its economic rise, its exclusion from the G7 will only become more anachronistic.
While New Delhi is moving closer to the West through partnerships like the Quad and new technology and defense agreements with the United States, it is not in one bloc or another. Jaishankar responded to Russia’s invasion by stating that “Europe has to grow out of the mindset that Europe’s problems are the world’s problems but the world’s problems are not Europe’s.” And despite Western sanctions against Russia, India has increased its imports from Russia by almost 400 percent, much of that in the form of crude oil purchased at a discount.
India has the capacity for multi-alignment not only because of its own actions, but also because of the broader geopolitical environment. For geopolitical swing states to pursue their preferences requires that the world’s two preeminent geopolitical powers—the U.S. and China—don’t let their bilateral relationship devolve into all-out war, shifting geopolitical decisions from ones of preferences to ones of survival.
Dualistic frameworks like “democracies versus autocracies” do not have sufficient explanatory power for today’s more complicated, multi-aligned world. President of the European Commission Ursula von der Leyen recently spoke about the importance of “de-risking,” if not “decoupling” Europe’s economy from China’s—language that U.S. National Security Advisor Jake Sullivan has since echoed. However, a few days after Von Der Leyen’s remarks, French President Emmanuel Macron, accompanied by a significant business delegation in Beijing, struck a different tone, arguing that Europe must “reduce its dependency on the U.S. and avoid getting dragged into a confrontation between China and the U.S. over Taiwan.” Going further, Brazil’s Luiz Ignacio Lula da Silva headed to China in recent weeks, accompanied by 240 business leaders, and said he wonders “every night … why all countries have to base their trade on the dollar.”
While appeals to democratic values resonate in many Western capitals and liberal societies, they do not always in countries that are critical partners for the U.S. and its allies in today’s global competition. For example, though India is the world’s most populous democracy, it trades and engages with autocracies like Russia, which provides a significant portion of New Delhi’s arms imports. Singapore was excluded from the U.S. State Department’s Summit for Democracy and remains deeply connected to China, yet joined the countries leveling financial sanctions against Russia for invading Ukraine. Vietnam is a critical U.S. partner in ASEAN, but China is its top trading destination. The energy giants of the GCC are navigating a delicate balancing act as key partners of China, Russia, and the United States. The list goes on.
The rise of the geopolitical swing state
Geopolitical swing states are critical to the world economy and balance of power, but they don’t have the capacity by themselves to drive the global agenda, at least for now. However, as long as the tensions between the U.S. and China continue to get worse, they will have outsized abilities to navigate geopolitical competition and take advantage of and influence it. They know this and are consciously using that newfound power to shape the world order to more effectively serve their national objectives.
These countries fall into four often overlapping categories.
1. Countries with a competitive advantage in a critical aspect of global supply chains.
Countries that can command control of critical components of the world’s supply chains have significant economic advantages. For example, India’s large labor and consumer markets, edge in pharmaceuticals, digital connectivity, and production-linked incentives like “Make in India” position it to be the next global manufacturing hub. New Delhi is also working with partners like Australia to increase supply chain resilience, with an eye toward economic threats from China. Small countries with advanced semiconductor industries, such as Taiwan, manufacturer of the world’s most advanced semiconductors, and The Netherlands, with companies like ASML, also hold outsized influence.
Supply chain advantages aren’t just about manufacturing. Brazil, Latin America’s largest economy, leads in commodities and agriculture and is growing its service sector. Bangladesh’s textile industry fuels large portions of the world’s fast fashion industry. Morocco has 70% of the world’s phosphate reserves and is a critical bridge between the Arab and African worlds. As the U.S. and its allies and partners aim to disrupt China’s dominance of critical supply chains, including rare earths, countries like Australia, Canada, Sweden, and Japan will become more important. Indonesia, as a member of the G-20, will benefit from being home to 22 percent of the world’s nickel reserves, making it a hub for critical minerals necessary for the production of electric vehicles. So too will Chile, which has 26 percent of the world’s lithium reserves.
The presence of critical natural resources is often necessary, but can be insufficient to make a country a geopolitical swing state. The Democratic Republic of the Congo (DRC) has the world’s largest deposits of cobalt, a vital component of everything from electric vehicles to batteries. However, due to conflicts, humanitarian crises and abuses, and a long-standing track record of corruption, the DRC has little hope of achieving its full potential on the geopolitical stage in the medium term. Meanwhile, Chinese firms have positioned themselves to benefit as they extract the country’s productive cobalt reserves.
However, when countries are well-positioned to take advantage of their natural resources, they can achieve newfound geopolitical importance. No American president has ever been to Guyana. But the small South American nation recently found commercially recoverable petroleum reserves of up to 11 billion barrels, positioning it as a global player in energy markets, raising the standard of living of the Guyanese people, and offering it future potential to one day become the next geopolitical swing state at a critical time. Last fall, the Biden administration reluctantly turned to Venezuela for new sources of energy but with the right long-term policies, it could be Guyana that shifts the politics of energy in Latin America and offers the U.S. a new, and preferred, alternative. Guyana could attract the investment required to make it a player in global energy markets, if it can transparently implement a sound policy framework for how the revenues will be spent.
2. Countries with a unique ability to make themselves attractive for nearshoring, offshoring, or friendshoring.
The second category of geopolitical swing states benefit from relationships and locations that position them to capitalize on current trends toward nearshoring, offshoring and friendshoring, as global supply chains move to a more geopolitically stable footing. In the Indo-Pacific, Vietnam—which last year replaced the United Kingdom as the United States’ seventh-largest trading partner—will benefit, especially if it can train a new generation of skilled engineers and business leaders who can optimize its strong labor supply and make it a more attractive alternative for shipping and manufacturing. In the Western Hemisphere, an emphasis on friendshoring and nearshoring will benefit Mexico, Canada, and several Latin American countries, which can offer alternative manufacturing hubs with lower labor costs and lower transportation expenses to markets in the United States. Nearshoring could turn Made in America policies into Made in the Americas policies, and industrial initiatives like the Inflation Reduction Act could shift the rare earths supply chain from offshoring to friendshoring by offering miners in countries with US free trade agreements, like USMCA, credits of 10 percent of production costs.
3. Countries with a disproportionate amount of capital and willingness to deploy it around the world in pursuit of strategic objectives.
High energy prices in recent years have given the Gulf Cooperation Council (GCC) countries significant opportunities, and the GCC’s total wealth is expected to rise from $2.7 trillion to $3.5 trillion by 2026. These countries have emerged from an era in the Middle East dominated by the Global War on Terror with their long-standing power through OPEC+ intact. For decades, they have struggled with the fact that geopolitics drove their economic interests; now many are putting economics at the center of their geopolitical considerations. While the Middle East remains a challenging neighborhood, the GCC countries have the opportunity to reintroduce themselves to the world as productive partners, not just as places for resource extraction or sources of capital.
Part of their strategy is to go big at home—giga projects like Neom in Saudi Arabia, the World Cup in Qatar, and creating a business nerve center in UAE are allowing them to differentiate themselves and attracting investments and talent. A second part of their strategy is to deploy capital abroad in ways that diversify their geographic touch points and calibrate with their expertise. The UAE, Qatar, Saudi Arabia and Kuwait are all actively investing in myriad locales from Latin America to Southeast Asia, India and Africa.
Another country that has benefited from high energy prices is Norway, a nation of 5.4 million people with a sovereign wealth fund that holds over $1.4 trillion in assets. Historically a neutral country, a member of NATO, but not the European Union, Norway has the opportunity to advance an economic agenda with relatively few worries about geopolitical entanglements. Prioritizing the fight against climate change, it has announced the goal to have every company in its portfolio reach net-zero emissions by 2050. Meanwhile, it will have even greater sway as the North Sea realizes its potential as a wind-power-production hub. Likewise Singapore, a global financial hub and tremendous beneficiary of the age of hyper-globalization, is positioning by combining social planning and highly effective investments in human capital with the enormous wealth created in Asia over recent decades.
4. Countries with developed economies and leaders who have global visions that they pursue within certain constraints.
The fourth category of geopolitical swing states includes developed economies whose leaders have global visions and are establishing their own positions on contentious geopolitical issues. Germany, a NATO ally and pillar of the rules-based international order, has phased out its reliance on Russian energy imports and is providing lethal aid to Ukraine—a historic turning point in its post-Cold War foreign policy. But it, too, is pursuing a form of multi-alignment, making engagement with China a top priority in a way that serves as a model for other members of the European Union. German Chancellor Olaf Scholz’s brief October visit to Beijing was the first by a G7 leader since the onset of the Covid-19 pandemic. President Macron advocates “strategic autonomy,” and Paris has its eyes on Chinese consumers and manufacturing markets. France has made no secret of its desire to chart a middle path on technology and much else.
The pattern is different in East Asia. South Korean President Yoon Suk Yeol has declared his country a global “pivotal state,” recalling the work of Paul Kennedy and his co-authors, who in 1996 drew on British geographer Halford Mackinder to describe “pivotal states” as “hot spot[s] that could determine not only the fate of [their] region[s] but also affect international stability.” President Yoon’s strengthening ties with Prime Minister Fumio Kishida’s Japan—which is doubling defense spending as a percent of GDP—is a historic realignment that may cause discontent for Yoon at home, but also tempers what has been a burdensome political and economic distraction for both Seoul and Tokyo.
There is significant overlap among the categories of geopolitical swing states. Saudi Arabia, for example, has a strategic geographic position, oil reserves, and significant capital to deploy globally. There’s a reason China went to such lengths to broker the recent restart of Saudi-Iran diplomatic relations, beyond its own immediate interest; Beijing recognized that a swing state like Saudi Arabia will have even more geopolitical relevance to China’s own ambitions going forward. Saudi Arabia demonstrates how each geopolitical swing state has its own comparative advantages, and our current geopolitical moment is prompting them to use these advantages like never before. That has ramifications not just for the ways countries act individually, but how they act in concert as well.
New models of cooperation
The great powers are not the only players that matter in today’s great power competition. Geopolitical swing states are taking on new prominence, and their importance will lead to new forms of international cooperation. The additions of Finland and Sweden to NATO this year are pushing its geographic focus north and east, at the same time that Russia’s invasion of Ukraine has given the Cold War-era alliance a renewed sense of purpose. But some of the most interesting international cooperation may not take place at legacy multilateral bodies, but through new, more flexible coalitions adapted for changed realities.
The Quad and AUKUS are new models of security cooperation in the Indo-Pacific, although the latter rattled the transatlantic relationship between the U.S. and France. Mutual security concerns will drive additional cooperation, as we’ve seen recently with NATO’s new liaison office in Tokyo. The U.S.-Mexico-Canada Agreement, the Regional Comprehensive Economic Partnership, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and the Indo-Pacific Economic Framework all show that even in an age of populism and protectionism, there’s great appetite for trade agreements. Even policies like the U.S. Inflation Reduction Act, which created consternation in European capitals, could galvanize the creation of new trade and investment architectures on green technologies.
But the most interesting new frontier of international cooperation is technology, where capability alliances will become more important. There’s a critical gap in democratic cooperation on technology issues, on everything from standards-setting to investment, in part because of protectionism, and also because the U.S. has a difficult time determining which countries to include and exclude. Many, sometimes ad hoc organizations have formed in recent years to fill this gap. The Quad has launched a Critical and Emerging Technologies working group, and the U.S.-EU Trade and Technology Council focuses democratic cooperation on issues like standards and investment. The so-called Chip 4 group—the United States, South Korea, Japan, and Taiwan—has not yet become a true partnership, but together with the Netherlands these countries control a significant portion of the world’s supply of semiconductor design and production. Further up the supply chain, the United States has launched a Mineral Security Partnership focused on the clean-tech revolution. But on issues like artificial intelligence, quantum computing, and biotechnology, an overarching forum of like-minded countries is still needed to consolidate leadership and align priorities. Such a forum could also focus on data’s central role in global trade, perhaps building on the late Prime Minister Shinzo Abe of Japan’s model of Data Free Flow with Trust, the principles of which were endorsed in arrangements like the Japan-U.S. Digital Trade Agreement and the Japan-UK Economic Partnership Agreement.
The most effective alliances will be those that are able to best harness technology to integrate military capabilities first, followed by economic levers.
No return to business as usual
The rise of geopolitical swing states may balance the great powers and help stabilize the global order. Their interest-based decision-making could be a source of consistency in uncertain times. Or their newfound prominence may increase global instability by putting more actors and variables in play. But even if today’s world is not yet multipolar, a rising group of countries recognize that they can determine the course of world events. Those geopolitical swing states are aware that their power may be unsustainable, or even fleeting, and they are determined to take advantage of the current window of opportunity.
The great powers should take note. So should multinational businesses, which increasingly find themselves in the geopolitical crosshairs. These companies are struggling to parse macro trends, searching for investment sources and destinations to deliver the most effective returns on their capital, and. looking for ways to build more resilience into their supply chains. There are significant opportunities for U.S.-based companies to invest at home, and for international businesses to invest in America. The American economy remains the largest and one of the most dynamic and productive in the world, and these companies owe much of their success to the security, rule of law, and educated workforce that the United States and its form of government make possible. Many of these businesses—especially technology companies and those critical to global supply chains—are now recognizing their importance as national-security stakeholders in their own right.
But to rise to this occasion, companies also need to recognize the importance of geopolitical swing states, both now and in the future. Tracking the way swing states navigate our current global order will give businesses a good reference point to calibrate their own actions in response to Washington and Beijing (and to a lesser extent, Moscow). It will also reveal new and interesting investment theses, like the rise of GCC countries as a major source of investment capital across the world, and give them insight into how other businesses are reorienting their supply chains toward countries that can play multiple sides in international conflicts.
Identifying and embracing the opportunities in global geopolitics is a necessity in today’s economic environment. It will be a sustainable competitive advantage for businesses going forward; the most effective business leaders will be those who work relentlessly to understand how changes in the geopolitical landscape create new risks and present new business opportunities.
For years, geopolitics mattered more to certain industries than others. Now they matter to everyone. The best bet for businesses just now waking up to this reality is to learn from the experiences and strategies of these newly powerful swing states.
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