Given the stakes for the global economy and for investors, the US-China relationship will arguably remain the most important geopolitical dynamic in 2022.
While both governments will likely prioritize domestic matters—COVID-19 management, the Winter Olympics in Beijing, the Chinese Communist Party’s 20th National Party Congress, US mid-term elections—we can expect intensifying great-power competition to dominate the geopolitical landscape in 2022 and for years to come.
I anticipate that the US will look to deepen multilateral-security approaches in the Indo-Pacific, such as the Quad security alliance with Japan, Australia, and India. This new foreign-policy direction also includes Australia’s plans to acquire advanced US nuclear-submarine technology under the emerging AUKUS security alliance, as Canberra effectively joins the US special relationship with the UK.
These significant security developments in the Indo-Pacific come amid US intelligence reports that China is rapidly upgrading its nuclear-weapons arsenal and hypersonic-missile capabilities.
I also think that the great-power competition will trigger new legislative initiatives on Capitol Hill in 2022, as US lawmakers seek new tools to counter China’s military and economic rise.
Here, we should look for more US government support and attention for strategic industries, including semiconductors, space technologies, next-generation communications, robotics, biotech, rare-earth minerals, artificial intelligence, and quantum computing.
Beijing, meanwhile, is likely to continue to advance its own expanding military, economic, and diplomatic capacities in 2022, as China seeks greater regional and global influence.
With geopolitical rivalry forecasted to grow in importance in 2022, both countries will remain keen to decouple strategic sectors in a managed fashion, while also seeking opportunities for limited bilateral cooperation in areas of mutual interest, including trade, climate, and the global pandemic.
Key Geopolitical Risks: What Could Go Wrong?
Several geopolitical risks could derail my base case of a structurally challenged but more manageable US-China relationship in 2022. In a worst-case scenario, any one of these could lead to a sudden rupture in bilateral relations.
Taiwan tops this list, given its strategic and domestic political importance to Beijing, and the emphasis on human rights and democracy in the Biden administration’s foreign policy.
It is probable, therefore, that tensions will stay elevated in and around the Taiwan Strait, with a higher tempo of military activity on all sides presenting a low but real risk of accidental military conflict.