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In this timely thought leadership piece, Jim Power, Economist and Media Commentator, explores the current key geopolitical issues that demand our attention.
(Pictured: Jim Power, Economist and Media Commentator and IoD member)
The global geopolitical environment has become increasingly fragmented and dangerous. The US administration is undermining previously strong relationships with Canada and the EU; Russia since 2014 has become much more combative and aggressive; China is becoming more authoritarian and inward focussed, and there are now justifiable concerns about its aspirations in relation to Taiwan; and the Middle East is dangerously fractured. We also have the ongoing growth of authoritarian regimes in countries such as India, China, Turkey, Hungary, the US, and Argentina.
The election of President Trump for a second term is not surprisingly dominating the headlines. Since he assumed power in January his actions and statements have thrown the world into a state of turmoil, volatility, and intense uncertainty.
The ‘America First’ creed is central to his actions. He is anti-free trade and is a strong advocate of trade tariffs; he dislikes trade deals, as demonstrated by his disdain for USMCA (United States-Mexico-Canada Agreement), which was created in 2018 after he renegotiated NAFTA (North American Free Trade Agreement) and described it as the best trade deal ever; he likes to create chaos and uncertainty; he wants to deport undocumented immigrants; he wants to secure energy independence for the US; he has little interest in the overall climate agenda; he has indicated that he would like to cut the corporation tax rate from 21% to 15%; and he has little respect for previous geo-political relationships that the US had. Fundamentally, he does not like being in organisations such as the Paris Climate Accord, the WTO, or NATO.
Tariffs are the immediate focus of attention and President Trump is sending a clear message that he wants to change the global trading order. This is consistent with the anti-free trade views that he has espoused for four decades.
Given his stated aims, the logic behind his actions on tariffs makes little sense. Tariffs will damage global growth, drive consumer prices higher, will not bring many manufacturing jobs back to the US, and will just fuel global geo-political tensions.
Globalisation and free trade have driven the global economic model since the second world war, with the formation of the GATT (General Agreement on Tariffs and Trade) in 1947; its replacement by the WTO in 1995; and the formation of what we now call the EU in 1958. These initiatives were intended to promote the freedom of movement of goods and services and create greater economic and political cohesion. All of this is now under significant threat.
On the upside, one of the direct consequences of the actions of President Trump, is that those that he is targeting are becoming more united. The previously very divided EU is starting to act in a somewhat more united way, particularly in relation to defence; Canada has become much more nationalistic in face of the threat from President Trump; and the UK’s relationship with the EU is becoming somewhat more constructive under Prime Minister Starmer. Rejoining the EU is not on the agenda, but repairing an overall relationship that was badly damaged after Brexit would be positive for Ireland, the EU and the UK.
In relation to Ireland’s economy, tariffs do pose an existential threat, particularly given the repeated reference to Ireland and the Pharmaceutical sector. The facts are quite stark:
The table shows the category breakdown on Ireland’s merchandise trade with the US in 2024. While the focus of attention has been on the Chemical & Pharmaceutical sector, the US is a very important market for the food and beverage sector.
Source: CSO
The Irish election in December delivered little change, but the early months of the new government do not inspire confidence. The legislative agenda has been undermined by the ‘speaking time’ issue, and too little attention is being paid to the greatest threat to the Irish economy since the global financial crisis. Strategic planning is vital for a business, but it is even more vital for a country. Future tax revenues and employment are under threat, but Government needs to place a very aggressive focus on addressing the housing issue; water infrastructure; energy supply, and particularly renewable energy; public services such as health and education; the fostering of a vibrant indigenous economy; and the cost environment for business.
Uncertainty is the word of the moment. There is no certainty about what is going to happen and what the impact will be, but the risks for the Irish economy and Irish business is very real. From a business perspective, and particularly from the perspective of company directors, global geo-political risk is now very high. These risks will have to drive strategy and risk management everywhere. Business leaders will have to seriously consider geo-political issues such as political stability in countries with whom trade is conducted; the supply chain vulnerabilities of the business, or in other words where raw materials and other inputs are sourced; overseas investment exposures; overseas trading relationships; the vulnerability to trade barriers such as tariffs or quotas; the availability of labour, as many countries to varying degrees are adopting a more stringent approach to inward migration; and the general ease of doing business.
The global trading order is undergoing fundamental change, and this will have significant business implications. Company risk registers and strategy will have to reflect this new reality.