Joe Coletti
Hello, and welcome to Strategic Alternatives, the RBC Capital Markets’ podcast where we uncover new ways to raise capital, drive growth and create value in an ever changing world. Today, we revisit our panel discussion that took place at RBC’s Global Institutions Conference here in New York. It was hosted by Frances Donald, RBC Chief Economist and she was joined by Fred Kempe, President and CEO of the Atlantic Council, and our own Helima Croft, lead Geopolitical Expert and Head of Global Commodity Strategy and MENA Research here at RBC. Together, they explored the top geopolitical risks shaping today’s landscape and the road ahead—breaking down how evolving power dynamics are influencing the macro environment, impacting global markets, and driving key business decisions in 2025. Now, let’s dive into the conversation.
Frances Donald
Thank you all for joining us here in the room for RBCs, Global Financial Institutions Conference here in New York City. I'm Frances Donald, chief economist with RBC Capital Markets. And I'm delighted to be joined by Fred president and CEO of Atlantic Council and RBCs very own, Helima Croft. So I was really trying to put together what questions we would start with, and I realized there's an overwhelming amount of information coming through and in our experience, sitting in the boardrooms and C-suites, talking with our clients across North America in the past few weeks, what struck me is the overwhelming amount of uncertainty that so many decision makers feel. There is Helima as you put it, ‘analysis paralysis’ and an inability to make large scale investment or hiring decisions as companies, try to get a sense of what matters and what doesn't. So I thought I'd start at the beginning and ask both of you, what are the top three things that should make the list in terms of the mind space that folks should be putting towards geopolitical events? And Fred, I'm going to start with you.
Fred Kempe
We're facing a tectonic shift geopolitically, the context would have been the same, whether it was President Trump or President Harris. That doesn't change. War in Europe, war in the Middle East - now a cease fire, tensions with China, a battle for the commanding heights of artificial intelligence, of technology is probably the most fraught, most volatile geopolitical year of any of our lifetimes. And so number one, I would just say the context, in any case, was fraught and uncertain. Then the second part of this is, Donald Trump has thrown the chess board on the floor, and he's rearranging the pieces. He’s a bit ahistorical, and so he may not pay attention to secondary consequences. And so in the Middle East, the worry there is refugees in Egypt and Jordan and so. So the first thing is, the context is dangerous and fraught. The second thing is, Donald Trump comes into this and can make it better or can make it worse, but he's not going to leave it the same. There's no way that this president the United States is going to leave things the same. And then, the third element is everyone's looking so much at all of this and not enough at technology. And I think artificial intelligence will disrupt the world more in the next four years than Donald Trump or Vladimir Putin or Xi Jinping. And so I think perhaps in this conversation, we ought to talk a little bit about that as well.
Helima Croft
You know, I don't know if I have three things either, but first of all, I want to say it’s just a radically different administration in terms of who's in office. I remember being at one of your events in December, and it's really stuck with me being on this great panel where we're talking about tariffs, and one of the former Trump administration officials said, ‘Look President Trump thinks about tariffs as a de facto sanction, so he will impose them for non-economic reasons, not having anything to do with trade policy, but to achieve security goals like migration, as we've seen, issues around, you know, fentanyl.’ And I think that was something that took time for people in the markets to wake up to, that he was thinking about sanctions just in a very, very different way. And he does have this ability. I was actually in Saudi Arabia right when they announced the cease fire, and at first everyone was like, ‘This is amazing. He can use blunt force to get things done in a way that sort of the more deliberative administrations they get tripped up in their own heads, may not be able to move things forward. But as Fred mentioned, like then, the kind of questions about, like, how does this all end? Watching how this evolves is going to be very important. But when I think about my markets in terms of oil markets, I'm paying very close attention to Iran. I think Iran either does a deal with President Trump, but you look at the progress they're making on their nuclear program, they’re using high speed centrifuges or stockpile of highly enriched uranium, lack of inspector access, like it raises the prospect of them moving forward really rapidly with bomb construction. And when I was in the Middle East, you heard people saying, ‘We're starting to become increasingly concerned that the Israelis might take military action to shut this down.’ And so I think we're not done with the potential wild card of some type of military confrontation involving Iran. So that's something I'm watching very, very closely. Obviously, on the Russia-Ukraine story, the question is sanctions relief. Is there some deal that gets done almost a separate piece between the United States and Russia where the US moves forward with sanctions relief, or as Europe being very committed to Ukraine, essentially says, ‘No, we're going to keep the sanctions architecture in place, we see Russia as a malign actor, and we're going to codify the move away from Russian energy. We've sanctioned oil. We're looking at gas as well.’ So are we going to end up in a situation where Europe is in one place? In the near term, the United States is another place, and that could have really big implications for energy markets.
Frances Donald
There's so much to dive in here. We’ve got tariffs, and I have to tell you, as an economist, lately, it's been feeling like our profession is somewhat ill equipped to deal with tariffs. It sounds like an economic concept, but this is not 2018 at all. We did have tariffs in 2018, and it raised the average import duty from one and a half to 3% which, at the time, was meaningful, but the tariffs that came in raised it to almost 12% that's a quadrupling of what we experienced in 2018 and even in the basic back of the envelope calculations, we know that has a nonlinear impact on the economy. We know that Americans are in a different space than they were in 2018, prices are up 30% since Trump's first day in office. And then Frank, you mentioned this. Helima, you mentioned this, it seems like economists can't help us with tariffs as much as they could have in the past, because the motivations don't appear to be economic. What is the market missing in terms of the motivation behind this new transformative trade policy?
Fred Kempe
Our analysis is there are three ways that the Trump administration is going to use tariffs, and the market has come to the conclusion that the tariffs are not just for negotiation. If the markets are Trump scorecard, he's going to have to start thinking about whether his tariffs are the right way to go at the moment. Here's the three ways. Tariffs for negotiating. I think he's still going to use them that way, and I think that's primarily the way they'll be used with China. Tariffs as tariffs. Well, what are tariffs supposed to do? They can be revenue bringers that you actually get money from people paying tariffs. They can also be a realignment where people decide to produce something that they weren't going to produce any before domestically, because the cost now makes it worthwhile. One kind of can counteract the other, but it takes a while for tariffs as tariffs to pay off. And then the last part is what Helena was talking about, which is tariffs as punishment, tariffs as sanctions. This is totally new terrain. And so this is, this is a stick where we don't really know the ultimate economic impact. You know, markets don't like to hear this. We feel like we're in month 20 of this administration. We're not. And so what I'm saying to everybody is, this is all really exciting. We get stirred up. There's never been a present control the news cycle the way this one does. Let's calm down. Let's actually watch facts on the ground. Let's see where it goes. This may be, a great trading opportunity for US stocks, who knows? But that's the way we're looking at tariffs. And anyone who thinks they're not going to be used and they're just a negotiating tactic. I think we've seen that markets in the last two days have decided that's not true, and markets happen to be right.
Frances Donald
Very challenging for businesses to have a playbook for their business when they don't even know what game they're playing. I think some clarity there would be useful. Helima, tariffs are in play, what are we missing? And I was hoping you could comment a little bit on energy tariffs.
Helima Croft
It's been very confusing when you think about what does Trump actually want on energy? I always say he wants everything everywhere, all at once. If he comes on as, like, American energy dominance, like, ‘I want to massively unlock US potential,’ pulls off regulations, which is great for the industry. But at the same time, he's like, ‘I want substantially lower prices.’ We did this great series with the Atlantic Council in the run up to the elections, and a number of officials were throwing out like, we want WTI at $50 I was like, ‘Have you called any American CEOs of shell companies and ask them if they want $50 oil,’ That is not the price point for massive US production growth. And then you have him making comments in terms of, like Canada, saying, like, ‘We don't need Canadian oil. And excuse me, actually, 60% of our imports come from Canada, 4 million barrels. You look at the refinery slate like, you can't swap out Canadian heavies for, like us light producing barrels. So there's been a kind of an interesting question about, like, when is Chris Reich going to show up as energy secretary and provide a little bit of energy literacy for the White House? So you could say, well, we got the reprieve of, you know, 10% maybe that's a little bit of literacy, like coming into the White House. But still, it is not great if you are a driver in a Midwestern State and you're potentially paying 15 cents more a gallon for your gasoline because of these tariffs. So it doesn't seem to be sort of, you know, necessarily aligned with the anti-inflationary goals. And then you look at how he's sort of, again, pursuing other countries. There was a really interesting question mark when he came into office. Was he going to prioritize migration issues and essentially say, ‘Venezuela, let's cut a deal with you. If you take back the Venezuelan migrants, we will allow your sanctions relief that was given by the Biden administration, particularly allowing companies like Chevron to operate there. Will we allow that to continue. More oil on the market. You take the migrants. Everything wins.’ But then there's a politics of Florida for the Republicans. And we saw him come out and say, ‘Chevron, you have to basically unwind your Venezuelan operations in the next 30 days.’ Well, that's potentially 200,000 barrels not going to find a home. So it's always a question of like, what is a priority? So I think we're headed to a really interesting conversation in terms of what is going to work for your goals of US production, what's going to work for your inflationary goals. And again, like you are going to have to understand that Canada is an very important energy partner of the United States.
Frances Donald
This concept of priorities is also flowing in a lot to the economic work, as we're trying to get a sense of what is going to be the sequencing of policy, this is really important. So Michael Reid on the team, has done a lot of work on the shortage of workers in the United States, not a shortage of jobs. How does immigration flow through? When do the corporate tax cuts come? And part of this market reaction, in our perspective, is also this market realizing we're probably going to get the more difficult things before we get some of the benefits of things like corporate tax cuts and deregulation. So still, a lot of noise in a market, in a business community that's trying to prioritize.
Helima Croft
We're really seeing market participants jumping to the conclusion that Trump can bend everything to his will and dictate terms. And that's what I think is going to be really important, is like, what are the terms of any of these peace agreements? And is everybody on board? And we've had people, you know, jump right into saying, ‘Europe is going to go back to taking Russian gas. They're going to pull off all the sanctions. Trump is going to, get this done.’ And I have to keep saying, ‘Let's slow down a bit. Who has put these sanctions in place?’ And if Europe is, committed to moving away from Russian molecules, and wants to see, you know, much more security guarantees in terms of, like, Russia not taking any more territory or moving on any neighboring states, like they're going to keep those sanctions in place. So that has been one of the things that we've been really working on, is look, just because President Trump has announced his will to get this done does not mean he can get everybody to fall in line on his schedule, and that is the same thing, I would say, as we think about the Middle East as well, President Trump has been really clear, he wants to be a peacemaker in the Middle East. But I look at the situation with Iran, and what we're seeing in terms of reporting from Western intelligence agencies, and what I was hearing in the region, is there is a real view that Iran is seeking to, compress that timeline to having, crude nuclear device from, a year to two to three months. That's a worrying timeline. And if you're the Israelis, you know, is this your moment of opportunity? Or do you want to be in a situation where two to three months they come out and say, ‘Hey, we have this deterrence capability.’ The Iranians just got rid of their reformist finance minister. Is that a question about our hard liners potentially becoming more ascendant there.’ So I think it's going to be really important to see what the actual terms are of Trump's plan for, like, peace in the Middle East and peace in Europe.
Fred Kempe
There's so much in play. And you have a president where he knows he's got leverage. He's got 28% of the world economy. He's got 70% of global equity. He's got energy dominance. He knows he's got cards to play. He wants to be a player. He wants to be a person in history. So if you look at Iran, Iran is in its weakest position 30 years thanks. Thanks to Netanyahu. I mean, you've taken out Hezbollah, and the leader of Hezbollah, Hamas, is the weakest so the proxies. Your first line of defense is Iran. The proxies are, by and large gone. The second assumption was that Israel was incredibly vulnerable to any Iranian attack, and Iran wasn't vulnerable to an Israeli attack. The Iranian missiles did not get through, not just Israeli defenses, but also US defenses. But the Israelis got through, and others got through, mainly the Israelis got through, the Iranian defenses. They're naked right now in terms of air defense. So the reason they're rushing toward a bomb is that's their third level. That's their…
Helima Croft
That's their last line.
Fred Kempe
But what does Trump do when he comes in? He says, I want to negotiate, and so, but he knows they're in a position. I mean, whether they'll come and negotiate or not.
Helima Croft
That is a wild card. And I would say that there is some regional anxiety, because Israel has Iron Dome, and there are countries that do not remain vulnerable in the region. No one thinks Iran to come out with 80 to 120 warheads. But if you look at the IAEA report, like there's a potential that they could have 12 devices in two months. And so that is a significant scary deterrence situation. And so I do think we're going to be in this window of either they take a deal, they get subject to a military strike, or they come out with this crude nuclear device. But I would just say that, like even Ukraine, countries that gave over nuclear weapons, it's not always a fantastic track record of being able to protect your own security.
Thank you. Can I do the quick thing on Ukraine? I probably spend more time on this issue than any other issue, and the Atlantic Council is known for being a real advocate for Ukrainian independence, freedom, sovereignty,
Fred Kempe
The there's an assumption, that somehow Trump wants to blow up the transatlantic relation wants to destroy it. It wants to destroy NATO, and we'll sell out Ukraine to Russia. I spoke to someone very close to the Trump camp. I said, ‘This is really a bad signal. I mean, did you have any idea of what message this shows the world.’ The answer was, ‘Do you have any idea what it's going to take to get Putin to really come to the table?’ ‘Okay.’ ‘But then he's going to come to the table and he's going to think, from everything you've said before, he's going to be able to take advantage.’ He said, ‘Do you remember Donald Trump in the first administration? We were only challenged by Putin once. This is not a president is going to bend to Putin's will.’ The Europeans know that in the end a peace deal is going to have to be done together. If in the end Trump through his I guess you could call them antics, or you could call them tactics, gets Europe to spend more on defense, gets Europe to deregulate, gets Europe to grow faster. It's going to be a better transatlantic relationship in the end. And I do worry about secondary consequences. I do worry about the signaling, because it bothers me too, but I think we all have to calm down a little bit and see where these negotiations go. It's going to take a long time to get to a negotiated anything. And in the meantime, pushing Europe to do more is not a bad thing. And if you look in the Middle East, the territory, so much we were talking about that coming in here, all the Middle Eastern leaders were not moving to a very reasonable Gaza answer, but they are now,
Helima Croft
Well, I think that's right. I do think, you know, we're seeing this now with Gaza, with the Arab League proposal; it's going to be a, you know, $50 billion plus proposal to rebuild Gaza, having the Palestinians stay there, because I think for the Egyptians in particular, the idea of millions of Gazan refugees in Egypt raises issues about the political survival of the Sisi government. So I do think that this was something where it forced the Arab League to come up with a counter proposal, like our friend Hadley Gamble. She's we've had her a number of times at the Atlantic Council, former CNBC semaphore Al Arabiya. She wrote this great thing in Semafor for saying like this was a way to sort of compel the Arab League to come forward with something credible as a counter proposal. I mean, it was a brutal tactic with the AI video of a Trump statue in Gaza, but seemingly we are least getting to a counter proposal stage.
Frances Donald
I have one question left for you, Fred. While the bulk of us were focused at the end of February on tariffs and President Trump, you wrote a piece about how China and the year of this quietly having a fantastic year, and it occurred to me as I was putting together a couple of questions for our conversation today that historically, any geopolitical panel I attended, moderated, or spoke at, the first question for you know, the last decade was on China first, and yet China is now the last thing conversation. Is this right? Or are there stories happening quietly in the background that we should be paying attention to.
Fred Kempe
So Trump started with a 60% tariff threat for China. He reduced it to 10%. He invited Xi Jinping to the inaugural, which I've got to tell you something, no president's ever done anything like that before, inviting your major adversary to have a front seat at your inaugural. He didn't come, but one of his chief officials did. And he stopped the Tiktok ban and put it on a 75 day pause. Huge signals to China that we're going to take some pressure off you if you come to the table with us. This coincides with the announcement of Deep Seek. I think the Shanghai index is up 15% on the year, and the tech index maybe even up more. So Xi Jinping had a meeting with Jack Ma of Alibaba and all these other people and she said, ‘Oh, that's just performative. The party's not going to let go of control of tech and let go of the companies.’ And, and I said, ‘Yeah, I guess so. But he hadn't done anything performative where he was celebrating them since he took over.’ And so to ignore this moment, I think it really signaled to them that ‘We want your animal instincts to come out again and please help us grow, because we really need your growth.’ It was also a sign to foreign investors that, you know, these stocks are really down, and this may be worth taking a risk right now. Instead of paying, you know, overpriced multiples or The Magnificent Seven, why don't you do some bottom feeding in Chinese tech markets? So I just put all these pieces together because I thought it was really interesting that the thus far in the Trump administration, probably China looks to be the biggest beneficiary.
Frances Donald
Folks, if you ever wondered what it's like to be a fly on the wall inside the rooms that influence and guide our world, we've just had the opportunity of hearing what that sounds like. So thank you to both of you.
Joe Coletti
You have been listening to Strategic Alternatives, the RBC podcast. This episode was recorded on March 4th 2025 at RBC’s Global Financial Institutions Conference in New York. Listen and subscribe to Strategic Alternatives on Apple Podcasts, Spotify, or wherever you listen to your podcast. If you enjoyed the podcast, please leave us a review and share the podcast with others. See you next time.