How are evolving power dynamics influencing global markets and driving key business decisions?
Frances Donald: 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 ‘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.
Fred Kempe: This is probably the most fraught, most volatile geopolitical year of any of our lifetimes. President Trump can make it better or can make it worse, but he's not going to leave it the same. That said, I think artificial intelligence will disrupt the world more in the next four years than Donald Trump or Vladimir Putin or Xi Jinping.
Donald: The sequencing of policy is going to be important. The market is realizing we're probably going to get the more difficult things before we get some of the benefits of corporate tax cuts and deregulation.
“There is ‘analysis paralysis’ and an inability to make large-scale investment or hiring decisions, as companies try to get a sense of what matters.”
Frances Donald, Chief Economist, RBC
What picture is emerging about the potential impacts of tariffs?
Kempe: There are three ways the Trump administration is going to use tariffs. Firstly for negotiation – that’s primarily the way they’ll be used with China. But the markets have concluded that the tariffs are not just for negotiation, and the markets are right.
The second use will be tariffs as revenue bringers, and to realign what people produce domestically as costs make it worthwhile – that takes a while to pay off.
The third way is tariffs as punishment. This is totally new terrain. We don’t know the ultimate economic impact.
Helima Croft: It’s taken time for people in the markets to wake up to the fact that President Trump was thinking about sanctions in a very different way – to achieve non-economic goals like migration or fentanyl.
Donald: The tariffs that have just come in raised the average import duty to almost 12% – a quadrupling of what we experienced in 2018. Prices are up 30% since Trump's first day in office.
What are the implications of the new U.S. administration for the energy market?
Croft: If Trump pulls off regulations to unlock U.S. potential, that’s great for the industry. But at the same time, he wants substantially lower prices, which are not conducive to massive U.S. production growth.
I think we're headed to a really interesting conversation in terms of what is going to work for goals of US production, and what's going to work for inflationary goals. 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 tariffs. We also have to understand that Canada is a very important energy partner of the United States, supplying 60% of our imports.
How are negotiations with Russia and Ukraine likely to play out?
Kempe: There's an assumption that Trump wants to destroy NATO and sell out Ukraine to Russia. But if Trump gets Europe to spend more on defense, to deregulate, it’s going to be a better transatlantic relationship in the end. I do worry about the signaling on Russia, but I think we need to see where these negotiations go. It's going to take a long time. And in the meantime, pushing Europe to do more is not a bad thing.
“This is probably the most fraught, most volatile geopolitical year of any of our lifetimes.”
Fred Kempe, President and CEO, The Atlantic Council
Croft: If Europe wants to see more security guarantees in terms of Russia not taking any more territory or moving on any neighboring states, they're going to keep their sanctions in place. Are we going to end up in a situation where Europe is in one place on this, and the United States is another place? That could have really big implications for energy markets.
What about the impact of U.S. interventions in the Middle East?
Croft: Trump’s plan for Gaza was a brutal tactic, but it forced the Arab League to come up with a credible counter-proposal – the $50 billion-plus plan to rebuild Gaza, having the Palestinians stay there.
Kempe: Iran is in its weakest position in 30 years. The proxies, Hezbollah and Hamas, are by and large gone. They’re naked right now in terms of air defense. That’s the reason they’re rushing towards a bomb.
Croft: The IAEA reports there's a potential that Iran could have 12 nuclear devices in two months. That is a significant, scary deterrence situation.
When I was in the Middle East, people were 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.
“We're not done with the potential wild card of some type of military confrontation involving Iran.”
Helima Croft, Head of Global Commodity Strategy and MENA Research
China has almost been forgotten in recent headlines – where does it sit in this picture?
Kempe: Thus far in the Trump administration, China looks to be the biggest beneficiary. Trump started with a 60% tariff threat for China; he reduced it to 10%.
He invited Xi Jinping to his inauguration; Xi didn't come, but one of his chief officials did. And Trump stopped the TikTok ban and put it on a 75-day pause. These are huge signals to China that we're going to take some pressure off you if you come to the table with us.
