At the same time, a greater economic fragility is evident globally. The return of high and widespread inflation, spurred by the Ukraine war (food and energy supply and price spikes) and the pandemic (supply chain disruptions), has ended the era of easy credit and low interest rates. It’s especially damaging for developing countries (not least with US dollar strength increasing their debt burdens) but the likely global economic slowdown will also negatively affect the United States, Europe and China in 2023.
Driven by both geopolitical and pandemic-related concerns, there’s a move towards global decoupling – seeking to roll back economic interdependence. Near- or friend-shoring is the new buzzword: resilience, not efficiency, is the new mantra. Yet such fracturing risks causing further economic disruptions, and associated political tensions.
Climate change has moved centre-stage. Its growing economic, social and geopolitical impacts interact with food security and economic pressures, magnifying the disruption caused by the pandemic and then the Ukraine war.
Worryingly, global governance institutions and processes have been weakened. The consensus required to enable the multilateral system to function credibly is lacking in an increasingly contested global environment – especially when Russia is inclined to play the spoiler.
Meanwhile, the rapid pace of technological innovation and diffusion is empowering not only individuals but also states. Perversely, this facilitates both liberal and illiberal trends in global affairs. These global trends have significant implications for small and medium-sized states. The challenge they face of protecting their interests in this more unsettled and contested global environment has become even more daunting.
Increased US-China competition means heightened tensions and uncertainty in the Indo-Pacific. Coupled with the likelihood of a global economic slowdown, and continuing disruptions arising from the Ukraine war, this affects the security and prosperity of small states.
Moreover, confrontation between major states will diminish further the prospects for effective multilateral cooperation on pressing global issues such as climate change, negatively affecting Pacific countries.
Finally, in a more confrontational geopolitical environment, it’s going to be even harder for small countries to manage their relations with the great powers. Juggling sometimes competing security and economic interests will prove more difficult. There will be pressure to take sides: choices, and some awkward compromises, may be required.
This is not a new dilemma for small countries. Navigating a course through this more complex and polarised international environment will require adept diplomacy. As always, protecting their vital interests will require careful balance: staying true to strongly held principles and values, while adapting pragmatically to changing strategic realities.