Geopolitical Fragmentation: Swing States and the Risk of Western Sanctions

In an increasingly fragmented world, amidst heightened hostilities in multiple regions and increasingly complex U.S.-China relations, countries find themselves having to actively assess where and how best to position themselves relative to each of the two primary forces affecting global affairs. Tasked by Goldman Sachs’ Sovereign and Economic Risk Group (SERG), this project aimed to develop a model to identify the most significant pivotal states and assess how their alignment vis-a-vis the U.S. and China has changed as the relationship between these two states has continued to evolve. 

To do this, the Capstone team analyzed country dependencies on three dimensions or clusters: economic, security and ideology/political orientation. Across these clusters, the team identified 15 measurable variables. Each cluster and variable were then assigned a weight reflecting the relative importance of each to derive alignment and agency scores for each country for the past ~20 years. This updatable model will allow GS to track the changes in a country’s alignment and its capacity to influence global affairs, over time, and to track the  positioning of the most pivotal states in the evolving geopolitical landscape.  

Additionally, the team assessed the risk of sanctions faced by these states from the U.S. and China and their respective allies, based on the states’ alignment and agency levels. The scenario analysis examined two possible high-impact events — Donald Trump’s reelection in 2024 and a Chinese invasion of Taiwan — to demonstrate the model’s potential predictive power. By illuminating the interplay between alignment, agency, and associated risks, particularly sanctions, this model serves as a tool to assess the potential risks that could attend further changes in the U.S.-China relations.