India’s 'multialignment strategy,' AI developments, Germany's political shift, long-term impact of tariffs and more

Germany's political shift signals business environment changes

In Germany’s federal election, the center-right Christian Democratic Union (CDU/CSU) emerged as the strongest party, but fell short of a majority. CDU leader and likely Chancellor Friedrich Merz has ruled out a coalition with the second-placed, far-right Alternative for Germany (AfD) and will begin coalition talks with the center-left Social Democratic Party (SPD), the only other party with which he can form a parliamentary majority. Merz has signaled his ambition to conclude coalition talks by mid-April given the urgency of both the international and domestic environment.

The new government is forming amid a persistent recession, worsening transatlantic relations, an unresolved migration crisis and ongoing security challenges. A CDU/CSU-SPD coalition would likely prioritize economic competitiveness and growth by reducing bureaucratic hurdles and regulation – including potentially abolishing The Supply Chain Act and the Corporate Sustainability Reporting Directive (CSRD) sustainability guideline. The new government may also implement tax reforms; and there is already an agreement to enable the German administration to take on more sovereign debt to invest in digitalization, infrastructure and defense. A greater emphasis on de-risking from China in terms of trade and investment, with a key focus on national security, is also likely. Companies in sectors that have a strong presence in the German economy – manufacturing, finance and energy – should monitor coalition talks and assess implications for trade, taxation, investment and regulatory changes.

Canadian elections to impact North American trade relations

The ruling Liberal Party selected former governor of the Bank of Canada and Bank of England Mark Carney as party leader and Prime Minister following Justin Trudeau’s announced resignation. Carney is expected to call Canada’s federal election as early as April or May but the election may occur at any date up to 20 October 2025. Polling initially favored the opposition Conservative Party but is now a competitive race. Either a liberal or conservative government is a possibility. Voter decisions are likely to be driven by concerns over the cost of living, regulatory burdens and perceptions on how the candidates will address potential US tariffs and broader economic challenges.

A Conservative Party-led government – potentially through a minority coalition – would usher in a new era following nine years of Liberal governments. Domestically, such a government would likely prioritize a pro-business agenda including lowering taxes and reducing regulation, including support for Canada’s oil and gas sector. A new Carney-led Liberal government could also result in a policy shift from the Trudeau government in areas of interest to the business community, such as moving away from a cost-focused carbon reduction strategy to a more incentives-based strategy. On foreign policy, the new government will need to manage the uncertainty associated with US trade policy, both with respect to tariffs and the imminent review of the USMCA. The latter is due by 2026 but may begin sooner. Executives should engage in scenario planning to strategically position for alternative North American trade policy outcomes.

For more information, contact Adam Barbina.

China’s policymakers seek to boost innovation and consumption

China’s "Two Sessions" annual political meetings of the National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC) were convened on 5 March. During the NPC opening session, Premier Li Qiang delivered the government work report, which set a GDP growth target of “around 5%” for 2025. Key policy priorities in the coming year include stimulating domestic consumption and focusing on “new quality productive forces” to modernize industrial capacity. It is likely that the central and local government will increase fiscal stimulus such as through special-purpose bonds, likely favoring strategic industries and infrastructure investment. As indicated in previous policy meetings, the government will further expand household consumer goods trade-in programs and additional funding for the social safety net to further encourage consumption.

The 2025 NPC session highlighted boosting domestic consumption as a key policy priority in the coming year, which will likely support growth and revenue opportunities in consumer-facing sectors such as retail and consumer goods companies. The government continued to signal a pro-business environment, including acceleration of market access and favourable policies for inbound foreign investment. The Chinese leadership has continued to emphasize innovation as a key area of industrial policy focus in terms of supporting domestic firms, which signals there will likely be policies that benefit companies in the technology, advanced manufacturing, aerospace, and energy transition sectors. Executives should explore related investment opportunities in these areas.