With this week’s edition of Geopolitics & the Day After, we are assessing today’s trends to inform our understanding of what may come in 2023. While there are certainly risks, there are emerging opportunities that will forever shape the Day After. At the top of our watch list is the fragile condition of the US dollar and the risk it poses to America’s financial empire; the widening cracks in Imperial Russia that could lead to its demise; anti-government protests in Iran that could gain enough momentum to topple the current regime; China’s reopening and the economic and political consequences of it; and finally, the emergence of a new industrial era ushered in by US-China competition.

The top 23 risks and opportunities for 2023

Atlantic Council

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The world has come into 2023 in a fragile condition, from the war in Ukraine to rising uncertainty in the global financial system. The use of the American dollar, a pillar of global finance, looks to be imperiled. Dollar-denominated foreign-exchange reserves are declining, and countries are investing in technologies to decrease their reliance on the dollar. In addition, a global recession seems to be on the horizon, endangering already struggling emerging economies that may end up defaulting on their debt. Perhaps the most insidious issue would be the political polarization in the world’s most influential liberal democracies, a trend that could seriously wound the global order.



Despite the risks of the new year, other trends may be more positive. For example, Western support, while showing a few cracks, has largely held strong for Ukraine in its struggle against Russia. Additionally, 2023 may be the year that the US seriously begins transitioning away from fossil fuels and becomes less reliant on its geopolitical opponents. Finally, pressure on global energy markets may be relieved as the US lifts sanctions on Venezuelan oil. 

The Russian and American Empires

Misfiring war in Ukraine creates potential for Russia’s disintegration

Casey Michel, Financial Times

Visualizing $65 Trillion in Hidden Dollar Debt

Dorothy Neufeld, Visual Capitalist

Empire has never been a sustainable enterprise historically, and both the US and Russia face different risks to maintain theirs. Imperial Russia conquered large swaths of territory, which could be considered colonial and imperial in nature, given the non-Russian nationalities conquered in the process, such as Buryats and Chechens. Given the position the Russian Federation finds itself in today, bleeding troops and resources in Ukraine, the Russian imperial enterprise may come crashing down, leading to the disintegration of Russia into its component ethnic parts, which includes large parts of the country that are indeed Russian.

The US empire is financial, rather than territorial, and hidden US dollar debt risk threatens the stability of the currency and indeed the global economy. In fact, no less than $65 trillion in unrecorded dollar debt is circulating in the global financial system in non-US banks and shadow banks in the form of foreign exchange swaps. Foreign exchange swaps became common due to a decade of monetary easing and ultra-low interest rates as investors searched for higher yields. As a result, unrecorded debt from these foreign-exchange swaps is worth more than double the dollar debt officially recorded on balance sheets across these institutions, as accounting rules do not require journal entries for foreign exchange. As the dollar strengthens and interest rates rise, foreign exchange has become a means to hedge against risk. However, there exists significant financial exposure should a non-US bank, with a depreciating currency, fail to uphold its end of the bargain, especially in a liquidity crunch. As much as $2.2 trillion is exposed to forex risk on a daily basis and if participants fail to pay, significant spillover could occur throughout the global financial system.

Eyes are on Iran and China heading into 2023

What in the World Will Happen in 2023?

Richard Haass, Council on Foreign Relations

PS Commentators’ Predictions for 2023

PS Editors, Project Syndicate

2023 will see a renewed spotlight on longstanding issues around the world. Despite the world wanting to move past the pandemic, China’s COVID-19 problem will affect the globe by disrupting supply lines and may cause Chinese citizens to question the effectiveness of the Chinese Communist Party. Additionally, the global economy may be in poor health, and may not meet current growth expectations. The era of low-interest rates and quantitative easing has driven the need for contractionary policy in major developed economies. The country that may draw the most attention this year is Iran, where anti-regime protests have been violently repressed. The US won’t want to give an economic lifeline to the regime, so the 2015 nuclear deal will likely not be renewed. In the face of worsening economic conditions and the costs of sustained protests, the Iranian regime may be in serious trouble.

The New Industrial Age

Ro Khanna, Foreign Affairs

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Social mobility into the middle class has been hampered due to deindustrializing policies which have seen the reduction of 5 million well-paying jobs since 1998 and the closure of 70,000 factories. Small towns in the South and Midwest have been particularly affected, hollowing out as the factories that supported their region close. Additionally, social and wealth inequality has increased, not decreased. The net impact has been damaging not only to the economy but to democracy itself, and much of it rests on the back of US-China policy. Normalizing trade policy and allowing China to enter the World Trade Organization (WTO) has produced much of the job loss and, likewise, has resulted in the massive trade imbalance that we see today of $309 billion. In order to bring this trend under control the US needs to: (1) incentivize US domestic manufacturing, in particular in the green energy and steel-producing sectors, (2) confront China on currency manipulation through a process similar to the 1985 Plaza Accords with Japan and Germany and thereby strengthen US export competitiveness, (3) reinvest in the Export-Import Bank to help subsidize US exports, (4) increase exploitation of domestic US extraction of rare-earth metals necessary for certain industries like the clean energy sector so as to undercut Chinese dominance in this market and protect US national security interests, and (5) for the US and G7 to offer investment opportunities to compete with the Chinese Belt and Road Initiative. In so doing, the US can strengthen its position domestically through a stronger economy, and globally by reasserting its role as a manufacturing giant and competing with China directly in that way.