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This edition of Geostrategic Analysis examines the implications of the US elections and the anticipated policy shifts under a second Trump administration. Additionally, it explores how election outcomes, driven by concerns over inflation and economic uncertainty, are likely to impact retailers.
This edition also analyzes Germany's snap elections, China's Central Economic Work Conference (CEWC) and Japan's new minority coalition government.
In the monthly Geostrategic Analysis, the EY-Parthenon Geostrategic Business Group (GBG) provides its insights on key geopolitical developments. Each issue includes our take on recent or upcoming political risk events and what they mean for global business. Subscribe Now
Topic 1
The policy shifts of the incoming Trump administration will have global business implications.
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The Geostrategic Business Group can help translate geopolitical insights into business strategy to help manage political risk. Find out how.
Read moreThe November 2024 US elections resulted in a Republican trifecta, in which one party will control the presidency and both houses of Congress. This result gives Republicans the ability to reorient policy and will likely lead to a range of policy changes both domestically and internationally.
Governments in countries around the world – particularly those that have large trade relationships with the US – have stepped up preparations to respond to the policies a second Trump administration is likely to implement.
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Read morePresident-elect Donald Trump will continue to announce appointments to his administration between now and the inauguration on 20 January 2025. His transition team will also make plans for executive actions, regulations and policy proposals that he will announce once in office – with trade, tax, immigration and energy policies likely to be priorities.
Once in office, the Trump administration will focus on “remedying” trade deficits, potentially via a proposed 10% baseline tariff on all imports and a 60% tariff on Chinese imports, although in practice tariffs are likely to be applied either more selectively or at a lower level. In this scenario, US trade partners would retaliate with tariffs on US imports. Chinese exports to the US would likely decrease, instead flowing to other markets such as the EU, Latin America and Asia.
The Trump administration will likely also seek to deduce US dependence on Chinese companies via trade and investment restrictions on software, cloud and data firms, and bans on US investment in state-owned enterprises and companies with links to the military. The US may also put pressure on European and Japanese firms serving the US market to diversify supply chains and production away from China.
The Republican-controlled Congress will prioritize a tax bill that is likely to extend some or all of the expiring 2017 Tax Cuts and Jobs Act provisions and may lower the corporate tax rate. This could lead to a further erosion of EU firms’ competitiveness relative to US firms.
The Trump administration will likely seek to fulfill its campaign promise to close the country’s southern border and increase deportations of illegal or undocumented migrants. This could create labor shortages in the US, while also elevating economic strains in Latin American countries that would have to absorb deported migrants and would experience reduced remittances from workers in the US.
Under Trump, the US will seek to expand domestic oil and gas production and de-emphasize investments in the energy transition – both at home and abroad. This could translate into a stronger push for fossil fuel partnerships in the Middle East and less focus on renewable energy collaboration and joint investments in green technologies.
Major sectors affected include technology, industrial products, consumer products and energy.
Companies that export to the US will face elevated uncertainty in the months and years ahead. Global trade patterns may shift further, with some markets experiencing a significant influx of products from China and other countries targeted by US tariffs. Executives should assess how shifting trade policies may affect their supply chain strategy, while also fostering an open dialogue with industry bodies, government officials, business partners and other stakeholders about customs and international trade issues.
Any modifications to tax policy possess the potential to generate both beneficiaries and those who may be adversely affected. Working together with trade and industry bodies, investors and other stakeholders, companies should highlight the likely impact of taxation policies, especially where they may lead to a relocation of assets or capital. And executives should engage in tax planning to manage business and market risks effectively.
The hardening of technology blocs will likely continue amid Washington’s de-risking efforts. This will affect companies across all sectors that rely on products such as semiconductors, data centers and artificial intelligence (AI). Executives need a detailed understanding of their data and technology value chain and where de-risking policies could cause disruptions or cost increases, and adapt their supply chain strategy accordingly.
As the US federal government softens or eliminates some climate regulations and sustainability reporting requirements, some US states and other countries are likely to move in the other direction, meaning opportunities will continue to exist. Inconsistent sustainability regulations will create uncertainty, hinder cross-border interoperability and raise compliance and reputational risks. Executives should closely monitor climate policy changes to manage these risks.
For more information, contact Courtney Rickert McCaffrey.
Topic 2
Global elections will shift the operating landscape for retailers.
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Read moreThroughout the 2024 global election supercycle, issues such as inflation and economic uncertainty prompted many voters to support populist parties or advocate for changes in government. Retailers have also directly experienced the consequences of “price fatigue”.
Political rhetoric emphasizing a tough stance on immigration played a significant role in many elections this year.
The incoming Trump administration in the US is considering tariffs ranging from 10% to 20% on all imports, in addition to imposing higher tariffs on goods from China. These actions would likely lead to retaliatory tariffs from US trading partners.
Several new governments, including those in the UK and France, are increasing certain tax rates, while others, such as those in the US and South Korea, are proposing tax reductions.
Should governments proceed with proposals to cut or reverse migration, it could lead to increased cost pressures as a reduced labor pool pushes up wages and reduces workforce capacity.
Tax planning will be crucial for retailers. Lower taxes on households could enhance consumer spending power, while higher corporate taxes may result in reduced consumer spending over time.
Rising wages and lower unemployment could boost spending with retailers. However, those catering to the consumption habits of immigrant communities might face challenges. Executives should explore which commercial strategies are most likely to succeed in this environment.
Many proposed policies could have an inflationary impact. Retailers can respond by balancing sourcing strategies – such as increasing inventory in the short term before new tariffs are imposed and diversifying supply chains in the long term – while exploring how to pass costs on to consumers.
For more information, contact Jon Copestake and Malin Andrée.
Topic 3
German government collapse, China’s policy meeting and Japan’s fractured parliament
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EY-Parthenon Advanced Manufacturing Consulting teams create strategies so that companies can achieve sustainable growth. Learn more
Read moreAfter the collapse of Germany’s ruling coalition on 6 November, Chancellor Olaf Scholz is now heading a minority government until snap elections are held on 23 February 2025. Polls1 suggest the election may result in a potential coalition between the center-right CDU/CSU and center-left SPD or the Greens, led by CDU leader Friedrich Merz. Policy plans will prioritize tax and labor market reforms to address years of economic stagnation and could include a reform of the constitutional debt brake which has been limiting Germany’s ability to invest.
This level of heightened political instability in Germany creates uncertainty for businesses. This uncertainty is amplified by the incoming Trump administration, with proposals for trade policies that could seek to reduce Germany’s record bilateral trade surplus. The automotive sector is likely to be particularly exposed. Business leaders should monitor the evolving domestic political and policy landscape, assess potential tariff impacts, and adopt scenario planning and market diversification strategies to mitigate escalating economic challenges.
How EY-Parthenon can help
EY-Parthenon sector strategy consulting teams have deep sector strategy experience and can help your business challenge the status quo. Learn more.
Read moreThe Political Bureau (Politburo) of the 20th Central Committee of the Communist Party of China convened the Central Economic Work Conference (CEWC) on 11-12 December. This two-day meeting determines China’s economic priorities for the upcoming year, and is therefore closely watched by business leaders, economists and other policymakers around the world. Policy decisions will likely be released over the next several weeks, with final confirmation of these policies occurring at the March 2025 “Two Sessions” and in Premier Li Qiang’s annual Government Work Report.2
The government decided on stronger stimulus measures related to boosting domestic consumption demand and weak business sentiment. In 2025, sectors that account for a large share of the Chinese economy, such as real estate, manufacturing and exports, or industries with strategic importance such as telecommunications, climate technologies and AI, will likely benefit from more favorable policies. Companies with operations in China should monitor these policy plans and developments to gain insight into where future growth opportunities are most likely.
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Discover how EY's Supply Chain Transformation solution can help your business move towards fully autonomous, connected supply chains that drive business growth.
Read moreThe Liberal Democratic Party (LDP), having lost its majority in the lower house of Japan's National Diet for the first time in 15 years, will now govern in a fragile minority coalition with its partner Komeito. Policy continuity, including pro-growth economic policies, is expected through at least the upper house elections, expected by July 2025. The coalition government will yield to opposition parties on certain issues, though, as evidenced by the opposition Constitutional Democratic Party’s role in chairing the lower house budget committee.
The uncertain political environment creates for a more uncertain economic environment, which may reduce pressure on the Bank of Japan’s rate normalization, but if the US dollar continues to strengthen, that may be an impetus for further increases or foreign exchange intervention. With relative domestic policy continuity, Japanese companies should focus on analyzing the potential impacts of the incoming administration in the US, modeling the impact of shifts in trade and tax policy on their supply chains and business models and considering potential responses.
For more information, contact Nobuko Kobayashi and Kyle Lawless.
Topic 4
Climate Disruption Index
The EY Climate Disruption Index captures the escalating complexity and risk from converging climate trends. This measure highlights the decade-long increase in key indicators such as global CO2 emissions from fossil fuels, combined land and sea temperatures, average sea level rise, and the frequency of costly natural disasters. By this measure, the trend that is emerging is one of intensifying climate disruption due to rising temperatures, sea levels, and the impact of natural disasters.
How EY-Parthenon can help
EY sustainability and ESG strategy consulting teams can help you with strategy, M&A, capital allocation, ESG due diligence and portfolio optimization.
Read moreThe nexus between climate change and political risk will persist. Extreme weather events and shifts in climate patterns will affect governments’ policy priorities. And energy transition policies will continue to create new political risks and geopolitical tensions around climate financing. Climate disruption also has a direct impact on business operations. Take supply chains. The 2021 Texas freeze disrupted petrochemical networks, and the 2021 floods in China disrupted manufacturing industries. Executives must now anticipate and plan for such events in their logistics strategies. Yet, despite climate disruption continuing to grow, the 2024 EY Global Climate Action Barometer shows that only 41% of major firms have disclosed a climate transition strategy
Additional reading: 2024 EY Climate Action Barometer
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The EY-Parthenon Geostrategic Business Group (GBG) provides its take on key geopolitical developments and the impact of these political risks on international business. Each monthly EY-Parthenon Geostrategic Analysis issue includes assessments of recent or upcoming geopolitical risk events and what they mean for companies across sectors and geographies.
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