Trump, trade, and geopolitics: What it means for business
The sequel to Trump’s first presidency could see more of the same on protectionism and geopolitical shocks, with the United States turning increasingly inwards. ...
Geopolitics
Leadership
Navigating a fragmented future: Implications of the 2024 US election on global businessÂ
How can companies adapt to the shifting dynamics of US policy and an increasingly fragmented world? ...
As the dust settles on the 2024 US election, the global business landscape faces a new era of economic nationalism, trade disruption, and political uncertainty. How can companies adapt to the shifting dynamics of US policy and an increasingly fragmented world?
We are stepping into an era defined by heightened economic nationalism, naked transactionalism, trade deflection, and exchange rate volatility. This fragmented and turbulent landscape will demand agility and foresight from business leaders. And while the coming year may offer opportunities for growth, it will also bring significant challenges, particularly as President Trump’s protectionist policies begin to reshape the global economic order.
The 2024 US presidential election, though concluded, continues to reveal new insights. As new data emerges, the narrative of American politics will continue to evolve, with significant implications for both domestic policy and global business. For now, while Trump’s victory seemed like a decisive result, it was underpinned by fragile margins and a deeply divided electorate.
Key to Trump’s win were six pivotal states – Pennsylvania, Michigan, Wisconsin, Arizona, Georgia, and Nevada – all of which flipped from Biden’s column in 2020 to Trump’s in 2024. Yet, the margins were razor thin. In Pennsylvania, Michigan, and Wisconsin alone, Trump’s combined advantage was just 263,000 votes – equivalent to 0.1% of the 262 million eligible voters. This narrowness highlights the ongoing volatility and division within US politics, underscoring just how fluid and unpredictable the political landscape remains.
We're heading into a world where nobody is going to create order, where nobody is going to take the lead in addressing the bigger issues that we're all facing – be it climate change, AI regulation, global health, or even conflict resolution – and that has some serious implications for all of us.- David Bach, President of IMD
A change election
Perhaps the most notable development was the nationwide shift toward the Republican Party. This was a change election, with President-elect Donald Trump representing a change from the incumbent party. Across nearly all demographics – age, gender, and racial groups – Republicans made significant gains compared to 2020. This trend highlights a broader conservative movement, particularly evident among younger voters, Black men, and Hispanic voters. Even historically strong Democratic strongholds showed signs of erosion.
The battle of the contrasting priorities
Defined by two starkly contrasting narratives, the 2024 US presidential election reflected the deeply divided concerns of the American electorate. For Republicans, the campaign centered on inflation and immigration – issues that resonated strongly with voters grappling with economic pressures and concerns over border security. Democrats, in contrast, focused on defending democracy and protecting reproductive rights, particularly in the wake of the Supreme Court’s Dobbs decision, which overturned Roe v. Wade.
Exit polls highlighted the pivotal role of these issues in driving voter behavior. Among those who identified inflation or immigration as their top concern, an overwhelming majority cast their votes for Trump. Meanwhile, voters prioritizing democracy or abortion rights overwhelmingly backed Harris.
It is also important to note that this year was a bumper election year globally, with elections happening in the European Union, India, France, and the UK. What we saw was that incumbent parties lost votes everywhere. In this context, the US result stands out as comparatively favorable for the incumbent Democratic Party, as their losses were modest compared to their global counterparts.
“What happened in the US is more than just inflation-fueled anti-incumbent sentiment. The country is in the middle of a once-in-a-generation political realignment. ”
Once-in-a-generation political realignment
However, what happened in the US is more than just inflation-fueled anti-incumbent sentiment. The country is in the middle of a once-in-a-generation political realignment. What we see is voting behavior is no longer driven by class. Instead, it is driven by education. For the first time ever, Democrats are no longer seen as representing the working class.
For the longest time, voting behavior in the US was based on socioeconomic status. You could make inferences about who somebody was going to vote for based on where they sat in the socioeconomic strata of the country. And that is no longer the case.
The single most important predictor of how somebody is going to vote in America today is education. Simply put: do you have a college degree, or not? These days, it does not matter what your income is – a college degree (or no college degree) is far more likely to determine your preference.
Democrats now represent more educated voters and Republicans now represent less educated voters. The two parties have essentially switched over the past three decades, and what Donald Trump has done from an electoral point of view, his real achievement, has been to clarify where Republicans stand. When you see some of the things he does and his unusual behavior, it’s all about signaling that he is focused on this particular set of voters, and Democrats have been taking the other side.
Biden and Trump
It’s tempting to view the political divide between the departing President Biden and newly elected President Trump as absolute, with little common ground between the two. However, a closer examination reveals key areas where their policies align, particularly in how they approach economic and national security issues. Take China, for example. Trump initiated the trade war with China, and Biden carried it forward. In fact, Trump’s stance on China is likely to become even more aggressive in the future.
Both leaders view tariffs and protectionism as legitimate statecraft tools to bolster American industries. They also support industrial policy, giving special treatment to certain sectors, albeit with different priorities. On energy, both presidents have championed energy independence, with Biden focusing on green energy while Trump has prioritized the development of fossil fuels. Remarkably, the US is now the largest oil producer in the world – a striking achievement, considering the country’s position just a few years ago. When it comes to border security, they are in agreement: they view fortifying the US border as critical, in part due to public opinion on the issue.
However, their differences are stark when it comes to respect for institutions, both domestic and international. Biden’s most significant diplomatic achievement is his steadfast support for NATO, an alliance that Trump has criticized and sought to undermine. Biden’s reentry into the Paris Agreement after Trump withdrew is another clear example of their divergent approaches to global institutions. These policy differences highlight a fundamental divergence in worldview: Biden believes in engaging with and strengthening international institutions, while Trump sees them as constraints on American sovereignty.
Moreover, Biden’s deep loyalty to longstanding allies in Europe, Asia, and the Middle East contrasts sharply with Trump’s preference for isolationism. For Biden, the US must maintain strong relationships with its allies, as people around the world are counting on America. Trump, however, is driven by an “America First” mentality and questions why the US should care about global affairs.
Finally, when it comes to climate change, Biden sees it as an existential crisis, and his administration has made it a top priority. Conversely, Trump continues to lead the Republican Party’s skepticism toward climate science, signaling that this divide will remain a central point of contention. And then there is the unusual affinity Trump has shown toward Russia, a sentiment that starkly contrasts Biden’s more traditional and in fact adversarial approach to dealing with Moscow.
Trump in a second term
The narrative around Trump’s second term is that he is going to be far more effective than the first. Why? Because he has learned from his mistakes. He has learned that he should not surround himself with people who are experts in their respective fields and instead should surround himself with loyalists, and that’s exactly what he’s doing.
He’s also effectively immune from prosecution. The US Supreme Court has granted presidents immunity from prosecution for official acts carried out during their time in office. This immunity gives Trump some legal protection. In addition, with no possibility of re-election, Trump can act without regard for his future electoral prospects. But that doesn’t mean there aren’t major challenges ahead.
The Republican Party, still under Trump’s influence, is heading into a period of internal division and jockeying for power. The slim majority in the House and ongoing infighting will only intensify as Trump becomes a “lame duck” president. He won’t have to worry about re-election, but the MAGA movement will soon be looking for a new leader, and the power struggles within the party will become fierce. At 78 years old, Trump also faces the physical and mental toll of the presidency.
Trump’s effectiveness in his second term will depend on how he navigates these challenges and whether he can focus on the bigger picture amidst the party’s shifting power dynamics.
Sources of global power
In our new reality, I see three material sources of global power: military expenditure, manufacturing, and finance. Despite representing a somewhat smaller share of total global defense spending, the US remains the dominant force in military power, with a defense budget three times the size of China’s. While China has significantly ramped up its defense spending, it’s still far from challenging the military dominance of the US. Europe, for all its recent investments in defense, spurred by the war in Ukraine, still trails the US by a large margin.
However, in manufacturing, China has risen to an extraordinary level of dominance, now responsible for nearly 40% of global output. Meanwhile, the US and Europe have gradually lost their grip on industrial power. China’s position in manufacturing makes it a formidable player on the global stage, one that cannot be ignored.
On the financial front, the US dollar remains the undisputed global currency. The dollar’s continued dominance allows the US to exert immense financial influence, as we have seen in the sanctions and military support provided to Ukraine. In contrast, neither China nor Europe can even come close to rivaling the financial sway the US holds in the world today.
G-Zero world
Where we find ourselves today is this: the US still holds the reins in military and financial power, but Trump seems uninterested in taking on a global leadership role. China, for its part, has cemented its dominance in manufacturing, but President Xi doesn’t seem all that concerned with stepping up to address global issues either. And Europe? It wants to lead, but without dominance in key areas, it’s an uphill battle. Europe is great at drafting strong regulations and hoping that the rest of the world will adopt them. The desire to lead is there, but the influence? Not as strong.
This brings us to what political analyst Ian Bremmer calls a “G-Zero world,” where no single country – or group of countries – can effectively tackle the global challenges we face. We’re heading into an era where no one seems ready to step up and establish order. Nor is anyone taking the lead on critical issues like climate change, AI regulation, global health, or conflict resolution. And that, frankly, has some serious implications for all of us.
So, what can we expect in a G-Zero world? With everything we know about Trump, we can expect to see a lot of deal-making. Copies of his 1987 book The Art of The Deal are no doubt being dusted off and re-read. Not only are leaders reading up on how to make deals with Trump, but some, like South Korea’s Yoon Suk Yeol, are even brushing up on their golf skills in preparation for future meetings with him.
One area that Trump will focus on heavily is tariffs, putting China, the EU, and Mexico at the highest risk. These are all the countries that the US is running trade deficits with, and he very much believes that if there is a trade deficit, it means the other countries are taking advantage of the US. Obviously, this is not how most economists would describe this situation, but this is how Trump thinks about this. And despite economist estimates that these tariffs would cost the average American family $2,600 in increased costs even when goods are assembled in the US, Trump will raise them.
But it is also important to bear in mind that the one thing Trump cares more about than anything else is his popularity. And if prices go up and this impacts his popularity or approval rating, this may just as easily go in another direction.
As my IMD colleague Simon Evenett has argued, certain sectors are more exposed than others, like toy or furniture manufacturing. Electrical machines, appliances, oil, and plastics are also vulnerable. In these sectors, the US imports more than $50bn annually and represents a large share of total global imports.
As you think about the future, I would encourage you to assess the importance of the US market to your organization and industry. How reliant are you on the US? And equally important, how many alternative markets are available to you? The global landscape is going to be dynamic. As some companies are effectively shut out of the US market, they’ll be forced to find new opportunities elsewhere. This will lead to increased competition in those markets.
The key takeaway here is that the US market may not be the only game in town anymore, and the ripple effects of these changes will likely be felt far beyond our borders. It’s important to think about how this will impact your business strategies, market positioning, and long-term planning.
Hot-to-go economy
Trump will continue to stoke the US economy in 2025 with aggressive policies aimed at sparking growth. Expect him to push for making corporate tax cuts permanent, implement additional income tax cuts, and reduce regulations across the board. He will also put pressure on the Federal Reserve to lower interest rates even further, possibly even taking drastic steps, like trying to fire the Fed’s chair. The result will be a “red-hot” economy – one that’s growing at a rapid pace.
However, with this kind of economic heat, inflation is a risk. Historically, inflation has been a major factor in eroding government popularity and destabilizing economies. Trump will likely push the economy until inflation starts creeping back, at which point he may need to dial things back. In the short term, though, we can expect a very strong US economy, fueled by tax cuts, deregulation, and low interest rates – at least until inflation forces a change.
Energy transition
Similarly, Trump may pull the US out of the Paris Agreement, but the energy transition will keep moving forward, even within the US. Don’t be mistaken – this is far from the end of the energy transition. Too many other countries and businesses are fully committed to it.
Why? Well, for one, it simply makes sense. A recent article in The Economist shows how our projections about renewable energy have often been too pessimistic. In many countries, renewables are now cost-competitive with fossil fuels. So, even if the US pulls back on its climate change commitments, many businesses and countries will keep pushing forward because the economics of renewables are just too attractive.
Take Biden’s Inflation Reduction Act, for example. It’s his signature piece of climate legislation, and Trump wants to repeal it – but doing so will be a huge challenge. Why? Because businesses love it, and a significant portion of the benefits flow to red states, which are led by Republicans. So, despite what Trump may want, much of it will stick around. There won’t be a huge influx of new investment in renewables, but a lot of the existing momentum will remain. You can even see that reflected in Tesla’s stock price, which was up 40% one week after the election.
Conclusion
While President Trump’s protectionist and transactional policies are set to dominate the domestic agenda, their ripple effects will reverberate across global trade, economics, and geopolitics.
Multinational companies will need to be agile, adapting to the evolving trade landscape and identifying new market opportunities, while also navigating increased competition from countries and regions adjusting to the shifting global order. For businesses, the challenge is clear: how to remain resilient in a world where geopolitical tensions, trade deflection, and regulatory shifts are the new normal.
As Trump continues to stoke a red-hot US economy, inflation and rising costs will pose risks, but the long-term effects on global business will ultimately depend on how companies navigate these complex challenges, embrace new opportunities, and adjust their strategies to thrive in an increasingly unpredictable global environment.
This article is inspired by a keynote session at IMD’s signature Orchestrating Winning Performance program, Singapore (2024), which brings together executives from diverse sectors and geographies for a week of intense learning and sharing with IMD faculty and business experts.
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