Published 18 December 2024 in Geopolitics • 4 min read • 
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Geopolitics is now a constant presence on the CFO’s radar. With Donald Trump poised to return to the White House, the spotlight is on the global trade environment. European business is bracing itself. Even before the presidential race was called, “tariff” became a surging term on European earnings calls, outpacing mentions on US calls by a ratio of 5 to 2 in October.
Over the past two decades, the US approach to global economic leadership has undergone a transformation. Once a champion of multilateral trade agreements, domestic political pressures and changing geopolitical realities have driven a shift toward economic nationalism.
The Obama administration marked a departure from the aggressive pursuit of free-trade deals that characterized preceding presidencies. Many US citizens had begun to perceive international trade as a threat to domestic prosperity and stability, so its government responded by dialing down free trade.
Trump’s first tenure escalated this trend. His administration imposed tariffs on China, both as a trade tactic but also to make a political statement. While commentators questioned the economic rationale, the first Trump presidency reshaped the narrative around US-China trade. Trump emphasized the need to restore balance to bilateral trade.
Subsequently, Joe Biden underlined the national security dimension of the US-China relationship, focusing on strategic technologies such as AI and semiconductors. Trump’s second presidential stint is likely to continue both trends. What is unknown is how far the president is willing to take them.
We expect Trump to eventually use the “shock and awe” of his initial tariff threats as leverage – likely after a few rounds of retaliatory strikes – to negotiate a more pragmatic long-term trade agreement.
Both Trump’s “historic turnaround” presidential election victory and the Republicans gaining control of Congress will reverberate across the US and the world. So, what will these do to international trade?
Trump wants to impose swinging tariffs on all US trade partners – but especially China. The proposed 60% tax on all Chinese imports would significantly surpass the levels seen during Trump’s first tenure, potentially disrupting global supply chains and raising consumer prices, including for the US.
During his first mandate, Trump exempted some key Chinese consumer goods imports from tariffs to avoid a domestic price shock. (The price rises from his last tariff program have been thoroughly documented.) Therefore, we expect Trump to eventually use the “shock and awe” of his initial tariff threats as leverage – likely after a few rounds of retaliatory strikes – to negotiate a more pragmatic long-term trade agreement.
“Moreover, Chinese manufacturing is a much more serious challenge to European industry than it was during Trump’s first administration.”
Trump also has the EU in his crosshairs, threatening tariffs of 10-20% on all EU imports. (In his first administration, he targeted politically sensitive sectors, from French wines to German cars.)
The EU has taken steps to protect itself. Its anti-coercion mechanism allows the bloc to retaliate with commensurate punitive trade restrictions if one of its members is threatened with import bans. Nonetheless, amid rising geopolitical tensions focused on the war in Ukraine, its reliance on US security leaves the EU in a vulnerable position. If tensions with China escalate, President Trump could take steps to ensure European businesses fall in line with US policy.
Moreover, Chinese manufacturing is a much more serious challenge to European industry than it was during Trump’s first administration. Take automotive, for example. If the US closes its borders to Chinese goods, those goods will start to show up in Europe at cheaper prices, undermining domestic manufacturing. This could force the EU to put up barriers that will, in turn, lead to Chinese retaliation.
Europe has less experience than the US in navigating these trade cycles and its largest economy, Germany, is currently struggling, with its much-heralded automotive industry in a slump. This downturn is exacerbated by political volatility, with a snap election slated for 23 February following the collapse of the ruling coalition. At a time when cohesive leadership is critical to addressing EU-wide challenges, the vulnerability of its most economically powerful state creates uncertainty and instability.
CFOs are right to be concerned. Tariffs could raise the costs of doing business, while trade tensions could provoke market volatility, affecting investor confidence. Under these circumstances, long-term investment and capital allocation decisions become riskier, challenging the CFO in their primary role to protect and drive long-term value.
Integrating geopolitical factors into strategy and decision-making is critical. When it comes to trade tensions, building a long-term projection of the likely effect on your supply chain and principal markets will be the key to a proactive response.
Businesses will need to collate the most accurate data and insights to execute this. Engaging with subject-matter experts, including academic institutions and think tanks, can help build the nuanced overview that businesses need for precise scenario analysis and forecasting.
CFOs also need to develop their geopolitical understanding by committing to ongoing learning and development, including attending workshops and briefings. Travel to on-the-ground operations can nurture an understanding of critical issues in vulnerable geographies.
As Trump’s second term gets underway and evolving geopolitical complexities reshape global trade, CFOs must adapt by anticipating and integrating these emerging dynamics into their strategic planning. This will leave them more resilient to external shocks and with a clear idea of where they are taking the business.
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