Overview
Overview
In 2026, with global trade and geopolitical norms no longer the organizing force they once were, complexity will be the watchword for businesses operating in an unprecedentedly fragmented global business environment.
Western businesses should expect significant change in the coming year: the unipolar moment now decisively dead and gone. The coming year will present continued great power tensions as the US, China and Europe seek rebalancing of power and influence, opening access in some regions while creating barriers in others. The US will work even harder to leverage its political, economic and military power to re-make the global system to its advantage. Other countries will move from reaction to taking more proactive measures to protect their national interests and economic competitiveness. As the US retreats from longstanding trade relations and adopts more protectionist policies, global trade will fragment into new blocs to mitigate the adverse impacts of US-led tariffs, sanctions and other trade barriers, a shift that could displace the US from its traditional position of global trade leadership.
Disruptive technology will bring new opportunities with AI applications in defense, manufacturing, healthcare and education, as well as intensify geopolitical competition for leadership in the technology of the future. AI is expected to reshape the labor market by automating certain roles to the point of redundancy, while simultaneously creating demand for new skill sets that many workers currently lack, leading to both job displacement and talent shortages.
While the adverse impacts of climate change will be felt worldwide, developing countries are likely to be less resilient, facing escalating humanitarian costs and supply chain disruptions, even as global consensus on climate action continues to erode.
Below are Steptoe’s Risk Outlook top risks for 2026, which forecast another year of a high rate of change and uncertainty impacting global politics, trade, human security and resiliency.
Geopolitical Risks
- US-China relations will remain adversarial but stable, while multi-aligned countries grow in power. Washington and Beijing’s intense competition is embedded in both countries’ political, economic, and security systems, making sustained rivalry the baseline. Yet, both sides are set to pursue greater stability into 2026 despite these deep-seated differences, with tariff truces, dialogues, and limited cooperation continuing, reflecting domestic pressures and recognition of economic entanglement rather than a structural shift in the relationship. While flashpoints such as Taiwan will be carefully managed to avoid escalation, the possibility of sudden disruptions remains. Like-minded middle powers, like India or Brazil, are set to strengthen regional and issue-based partnerships to preserve strategic autonomy, resulting in a looser, more fragmented international order that buffers against great power competition. On the upside, this could push blocs—such as ASEAN—to resolve longstanding internal divisions and address shared challenges collectively, including climate change and security threats.*
- The Ukraine War will stress-test the transatlantic alliance. Despite peace negotiations beginning in earnest in early 2025, Russia’s maximalist objectives remain unchanged. Observers around the world—including China—are learning the new mode of conventional warfare, from Russia’s Shahed-style drones piercing NATO’s integrated air defenses in Poland, Ukraine’s Operation Spiderweb disabling much of Russia’s strategic bomber fleet, and Ukrainian sea drones nullifying Russia’s naval advantage. NATO allies fear that Russia’s wartime economy has achieved a scale of production capable of sustaining operations against the alliance within a few years. If peace is achieved in 2026, it will be struck not due to a substantive political settlement but rather a security arrangement that restores deterrence. Transatlantic divisions were managed in 2025—such as through a new 5% defense spending commitment—but threaten to cascade and undermine “allied scale” on other strategic issues, such as competition with China.
- US efforts to counter rivals and aid allies in Latin America will escalate risks of open conflict in the region. President Trump’s so-called “Donroe Doctrine” is seeing the US’ reassertion in historical spheres of influence and a more muscular projection of military power to achieve its goals—namely, curbing the flow of drugs and illegal migration into the US, neutralizing rivals like Nicolas Maduro, and bolstering allies like Javier Milei via political and financial lifelines. Open conflict recently erupted in Venezuela following months of military buildup with the ouster of Maduro; the episode was followed by explicit threats to Cuba, Colombia and Mexico. Meanwhile, the blockade of Caracas’ sanctioned oil shipments will have knock-on effects for Russia and Iran’s oil trade (given overlap in global “shadow fleets”), the stability of Cuba, and logistics for global supply chains in Latin America. On the upside, a rightward swing in regional capitals could improve cooperation with the US, most prominently on anti-cartel efforts and critical minerals.
- Global instability will compound as protracted regional conflicts continue to resist durable resolution. The past year has seen the continuation or reopening of longstanding “zombie” conflicts—in Gaza, Lebanon, the Thai-Cambodian border, the Democratic Republic of the Congo (DRC), Yemen and elsewhere, broken or imperfect ceasefires and peace agreements and longstanding, unsolved grievances have resulted in recurrent bouts of violence that threaten regional stability, supply chains, and the reach of Western geopolitical sway. The Western diplomatic attention span—preoccupied largely with the Russia-Ukraine war, the trade environment, and great power competition—is simply not there to durably address these flashpoints. In 2026, these conflicts will persist, limping on with significant humanitarian costs—as well as risks of operational disruptions and conflict spillover. Some flare-ups could provide opportunities for the US to act as peacemaker, while others—like the resurgent Yemeni civil war—will simply create new fractures between partners.
- The internationalization of African conflicts reflects risk in a multipolar system. In 2025, conflicts in Sudan and the DRC’s eastern Great Lakes regions posed the largest humanitarian crises in the world and exposed multilateral institutions’ inefficacy. No international or regional hegemon has effectively intervened. Contrarily, middle powers back opposing factions and have introduced modern drone warfare into the operations of nonstate actors. In the case of Sudan, arable land and gold (which has skyrocketed in value due to trade uncertainty) have fueled external intervention by Middle Eastern powers. In the DRC, the race for critical minerals that enable emerging technologies—like batteries, AI hardware, or drones—allows local militias to fund their political struggles and regional powers to carve out spheres of influence. Beyond civil conflicts, West African states continue to battle jihadist groups like Jama’at Nusrat al-Islam wal-Muslimin (JNIM), which is currently blockading fuel transport to Mali’s capital. A degrading security situation has emboldened military juntas, undermined longstanding relationships with the West, and opened opportunities for Russia and China to increase their influence. In a multipolar world order, a modern scramble for Africa will continue.
- Borders are closing to migrants and asylum seekers. As de-globalization advances, countries are adopting stricter immigration policies aimed at protecting jobs for citizens and addressing perceived security risks. Highly skilled foreign professionals and STEM students will find visas to the US difficult to obtain and will either remain at home, contributing to a local brain gain, or be channeled to European and Asian countries seeking to enhance their position in the global human capital value chain. Deportation of undocumented immigrants to third countries is being normalized through the creation of offshore return hubs. Those displaced by conflict or climate-related disasters risk becoming stranded in border zones, where they are more vulnerable to criminal exploitation and cross-border instability. Businesses face growing challenges, including labor shortages, reduced consumer spending, and operational disruptions, with impacts felt across multiple sectors such as agriculture, construction, hospitality, and technology. Meanwhile, anti-immigrant sentiment has driven a rightward shift in Europe and elsewhere, creating new domestic political realities.
Economic Competition
- Global economic fragmentation will persist as geopolitical considerations increasingly outweigh conventional economic logic. The Trump administration’s sweeping reciprocal and sectoral tariffs—combined with accelerated US efforts to revitalize domestic industries and shield critical economic vulnerabilities—triggered major shocks to the global trade landscape, with trade negotiations and agreements dominating headlines. While many economies and businesses demonstrated resilience to these shocks, predictability in the trade environment remains low as legal rulings and implementation uncertainty persist. Governments are likely to prioritize strategic autonomy in response to heightened geopolitical risk and the accelerated economic decoupling between the US and China. This will mean deeper protectionist measures, a willingness to incur higher short-term costs to insulate strategic sectors from weaponized trade dependencies, and expanded trade agreements with alternative partners. These choices could reinforce regionalization and interest-based coalitions—bolstering resilience demonstrated, fostering new innovation hubs, and driving renewed efforts to conduct transactions in regional or alternative currencies. Together, these trends would cement more structurally fragmented, geopolitically driven economic patterns into long-term planning.
- A global economic slowdown underpins new competitiveness strategies. Consumer spending remains low in Western economies and China post-COVID, undermining traditional export-oriented economies. Businesses should expect more Western governments to pursue alternative growth models and boost national competitiveness, implementing industrial policies that protect domestic industries through tariffs and security-driven trade restrictions. For example, the EU has reduced its green policies, delayed some AI regulations, and unlocked defense industrial spending; the US has cut taxes and adopted a light-touch approach in tech. Deregulation will reduce compliance costs and enhance operational flexibility and speed. However, special interests, such as consumer, labor, and climate change protections, along with global efforts to support the poorest nations, risk being deprioritized, weakened, or stripped of subsidies.
- The race to cut dependency on China’s grip on rare earth minerals will heat up. Beijing jolted the global trading system in 2025 by leveraging its dominance in rare earth supply chains as a bargaining tool. By delaying—rather than fully rescinding—export restrictions, China signaled its intent to preserve strategic leverage over advanced technology and defense production, raising the risk of future disruptions. Competition to develop alternative supply chains and price-setting commodity exchanges will increasingly be framed as a national security priority, with major economies accelerating and implementing agreements reached in 2025 with allied states. . Such friend-shoring strategies will foster more fragmented yet resilient economic blocs and create new growth opportunities for developing nations. Rising conservative, pro‑US momentum in Latin America may encourage Washington to expedite cooperation with these resource‑rich states, positioning the region as a pivotal player in rare earth rivalry and boosting its global competitiveness. Similar dynamics may emerge for other high-risk mineral inputs, extending resilience and diversification across the value chain.
- Sanctions remain the tool of choice steering modern strategic competition. Businesses must anticipate sanctions risks to compete in the current geopolitical landscape. In 2025, the US has bullishly wielded sanctions authority, targeting Russian oil majors Rosneft and Lukoil, utilizing new tools like “secondary tariffs,” and threatening sanctions against allies to achieve policy outcomes, such as preventing a global shipping carbon tax. Sanctions enforcement blurred with kinetic operations as the US seeks to enforce a blockade on sanctioned oil out of Venezuela. Barring a resolution to the Russia-Ukraine war, increased sanctions could continue to rock global energy markets. Moreover, the US-China trade truce remains fragile, meaning the export control ceasefire across strategic sectors could break.
Disruptive Tech
- The scramble for AI could shape geopolitical advantages for decades, but the US lacks a strategy. In 2025, the US prioritized technological dominance, loosening export controls on some advanced AI hardware, like Nvidia’s H200 chip, and declaring war on state-level AI regulations. On the other hand, the US also prioritized economic security to guard its current technological edge, cementing the “Pax Silica” initiative to insulate the AI value chain among allies and away from China. These two goals are not complementary, sending confusing policy signals. Meanwhile, the EU and China are supporting their tech sectors to close the gap with the US.
- Crypto is taking off, but global approaches diverge. Crypto had a good 2025: traditional financial institutions are increasingly experimenting with crypto-backed financial products, and the US embraced a bullish regulatory approach in 2025, relaxing FTC oversight and codifying a legal framework for stablecoins (cryptocurrencies pegged to the US dollar and backed by liquid reserves like US Treasurys). However, there are downside risks too. First, crypto-based transactions remain a key sanctions evasion tool for Russia and Venezuela, which could prompt the US to expand its enforcement and oversight. Second, regulatory approaches to crypto across the OECD are converging but still are not uniform, increasing contagion risk in the event of a volatile crypto crash. Third, stablecoin issuers may be entering a volatile takeoff period, but simultaneously are the fastest-growing consumers of US Treasurys, increasing systemic risk. Fourth, the EU could sprint toward the digital euro, a crypto version of its fiat currency, which the US views as a competitor to stablecoins.
- Quantum and biotech will emerge as the next battleground in US-China competition. In the coming years, rivalry in these sectors is poised to intensify given their potential to deliver asymmetric strategic advantages across economic, military, and governance spheres. While quantum technologies remain in relatively early stages of development, a stronger push from research to deployment across both sectors may become the next phase in efforts to strengthen domestic technological capabilities. China’s emphasis on technological self-reliance and system-wide innovation through 2026–2030, alongside Washington’s growing use of federal–industry partnerships to secure advanced technologies, is likely to drive a new phase of competition in these fields. As both economies build increasingly parallel technological systems, efforts to insulate sensitive development from external influence could accelerate technology-bloc formation and deepen fragmentation within the global landscape.
- Driven by AI, cyber risks will increase significantly in both frequency and complexity. The steady year-over-year increase in the number and impact of cyber breaches continued in 2025, costing businesses over $10 trillion and blurring the lines between criminal and national security threats. The trend will only get worse before it ever gets better. In 2026, expect state and non-state cyber threat actors to leverage AI across all aspects of their operations, especially to achieve stealthier, more effective socially engineered “log in” vice “break in” attacks and to more easily generate attack tools. The arrival of “autonomous,” agentic-AI-enabled cyber operations, recently reported by Anthropic, will further intensify the sophistication and frequency of attacks. At the same time, the current administration’s approach to cybersecurity remains uncertain and resource-challenged, with indications that it will look to shift greater responsibility to state and local governments and the private sector. The net result is that businesses should increase preparedness, focusing on resiliency, leveraging AI, and implementing well-informed, risk-based security measures.
- AI rivalry will supercharge competition to modernize energy grids. AI’s energy needs are immense: its growth is estimated to drive over 20% of global new energy demand growth between now and 2030, and the ability to supply the needed energy—cheaply and reliably—will be decisive in determining the winner of the AI race. China has excelled, increasing its power production between 2010 and 2024 by more than the rest of the world combined. The US, on the other hand, is lagging: in the next three years, US data centers are forecast to face an electricity shortfall of 44 gigawatts (about the summer capacity of NYC). On the other hand, aggressive investment is not risk-free. Aggressive spending in China has raised fears of overcapacity and a market bubble, as in the US. While the Trump administration has pledged to match China’s energy build-out, the so-called “electron gap” will increasingly stymie US AI leadership and require significant private and public investment to overcome (a significant growth opportunity for the global energy sector).
Extreme Weather
- Rising climate costs will hit lower-income countries the hardest. The past year saw historic weather disasters around the globe: European heatwaves over the summer caused up to 16,500 heat-related deaths. Record flooding in Pakistan killed some 1,000 and displaced at least two million, causing at least $15 billion in damages (and the same in economic losses). The US saw 14 billion-dollar disasters in the first half of the year alone. Accelerating climate change will intensify the pace and scale of these disasters, with lower-income countries struggling the most to prepare and recover. Meanwhile, the global community will struggle to respond—last year, the consensus around climate change was deteriorating. This year, it is functionally gone. With declining global political willpower to respond to disasters in lower-income countries, weather disasters in 2026 will cause significant and compounding damage, raising humanitarian costs and economic disruptions, with cascading effects.
