Innovation Drive and Industrial Upgrading

Despite headwinds, China continues to invest in AI, green energy, and advanced manufacturing. The government’s focus on innovation and technological self-reliance aims to move up the value chain and sustain competitiveness, but faces challenges from external restrictions and internal imbalances.

Cross-border data and security controls

Data security enforcement and national-security framing continue to complicate cross-border transfers, cloud architecture, and vendor selection. Multinationals must design China-specific data stacks, strengthen incident reporting, and anticipate inspections affecting operations, R&D collaboration, and HR systems.

Energy Sector Under Strain

Iran’s oil exports, once above 2 million barrels per day, remain below pre-2018 levels due to sanctions and trade restrictions. The Strait of Hormuz, a critical chokepoint for global oil, faces heightened risk of disruption, threatening energy markets and shipping security.

Export Controls and Technology Sanctions

US-led export controls on advanced chips and technology, especially targeting China, place Taiwan at the heart of global supply chain tensions. Compliance risks, supply bottlenecks, and retaliatory measures from China complicate operations for multinationals relying on Taiwanese tech.

Transshipment and origin enforcement risk

Growing US scrutiny of origin fraud and transshipment is pushing Vietnam to tighten customs controls, creating higher audit, documentation, and supplier-traceability burdens for manufacturers. Sectors vulnerable to tariffs (e.g., solar components) face elevated trade-remedy exposure.

Secondary Sanctions via Tariffs

Washington is expanding coercive tools beyond classic sanctions, including threats of blanket tariffs on countries trading with Iran. For multinationals, this elevates third-country exposure, drives deeper counterparty screening, and can force rapid rerouting of trade, logistics, and energy procurement.

Surge in Foreign Direct Investment

India attracted $51 billion in FDI over six months, driven by manufacturing incentives, start-up growth, and pro-investment reforms. FDI is critical for infrastructure and industrial expansion, reinforcing India’s status as a preferred global investment destination despite some repatriation and external volatility.

Labor Market Aging and Reform Debates

The employment rate for Koreans aged 55-64 exceeded 70%, intensifying debates over raising the retirement age and reforming labor policies. These demographic shifts affect workforce availability, productivity, and long-term business planning, especially in manufacturing and services.

Tech Sector Expansion Amid Global Demand

Israel’s technology sector, including AI and semiconductor equipment, is experiencing robust growth, attracting major investments like Nvidia’s new campus. This expansion strengthens Israel’s global tech leadership but also strains local infrastructure and raises competition for talent.

US-South Korea Trade Tensions Escalate

The US has raised tariffs on South Korean goods from 15% to 25% due to legislative delays in Seoul, impacting autos, lumber, and pharmaceuticals. This escalation threatens South Korea’s export competitiveness, disrupts supply chains, and injects volatility into bilateral and global trade relations.

Escalating US-UK Trade Tensions

President Trump’s imposition of 10–25% tariffs on UK exports in response to the Greenland dispute has triggered a transatlantic trade crisis. The UK faces heightened supply chain costs, investment uncertainty, and potential recession risks, with the EU preparing significant retaliatory measures.

Political Polarization and Nationalist Sentiment

Rising nationalist sentiment linked to border tensions with Cambodia is shaping electoral outcomes and policy direction. Persistent influence of military and conservative elites creates uncertainty for reform, regulatory stability, and the investment climate, especially during election cycles.

Resilient Foreign Investment Attractiveness

France recorded an 11% rise in foreign investment decisions in 2025, supporting 48,000 jobs, with the EU and US as key sources. Despite high public debt and political tensions, France’s diversified sectors—especially AI, automotive, and renewables—remain attractive for international investors.

Major Infrastructure and Logistics Expansion

Record infrastructure investment, especially in transport and logistics, is transforming states like Uttar Pradesh and Madhya Pradesh into key hubs. Platforms like PRAGATI enable efficient project execution, reducing bottlenecks and enhancing India’s competitiveness as a manufacturing and export base.

Western Sanctions Erode Oil Revenues

Western sanctions and price caps have driven Russia's oil and gas revenues to a five-year low, with a 24% annual decline in 2025. This has severely impacted Russia’s fiscal stability, increasing budget deficits and forcing tax hikes, with direct implications for global energy markets and business operations.

Global Trade Diversification Strategies

Amid US-EU tensions, the UK and EU are accelerating trade talks with partners like China, India, and Mercosur. Diversifying trade relationships is seen as essential to mitigating risks from US protectionism and ensuring long-term resilience in UK supply chains and export markets.

Shifting Patterns in Foreign Investment

Foreign direct investment in China fell 9.5% in 2025, reflecting investor caution amid regulatory tightening and geopolitical friction. However, select countries like Switzerland and the UAE increased their stakes, highlighting nuanced opportunities and the need for market-specific strategies.

Import quotas for fuels tighten

Indonesia’s import caps are affecting private retailers, with Shell reporting work with government on 2026 fuel import quotas amid station shortages. Coupled with policy to stop diesel import permits for private stations, firms face supply disruptions, higher working capital needs, and reliance on Pertamina.

Currency Watchlist and Baht Volatility

The US Treasury has placed Thailand on its currency monitoring list due to trade and current account surpluses. The Bank of Thailand is tightening gold trading rules to curb speculative capital flows, which may impact exchange rates, compliance costs, and cross-border financial operations.

Macroeconomic Stabilization and Growth Momentum

Pakistan has shifted from crisis management to strategic repositioning, achieving GDP growth above 3.7%, a fiscal surplus, and declining inflation. These improvements have boosted investor confidence, but sustained policy continuity and private sector participation are critical for long-term business stability and growth.

Geopolitical Tensions with China

Rising military pressure and large-scale drills by China around Taiwan heighten the risk of conflict, threatening global supply chains and investment stability. Any escalation could disrupt semiconductor flows, impacting industries worldwide and potentially causing a severe global economic downturn.

Escalating Australia-China Trade Tensions

Australia is considering tariffs and quotas on Chinese steel imports to protect domestic industry, risking renewed trade hostilities with China. Such measures could trigger retaliatory actions, impacting sectors reliant on Chinese markets and complicating bilateral investment flows.

Renewable Energy Transition Partnerships

Indonesia is accelerating its energy transition through partnerships with global firms, notably China’s GCL, to develop renewable and waste-to-energy projects. These initiatives support emissions reduction targets and open new opportunities for clean energy investment.

Labor Reform: Forty-Hour Workweek

Mexico is phasing in a 40-hour workweek by 2030, with gradual reductions starting in 2026. The reform aims to improve productivity and worker welfare, but may increase costs for businesses, especially SMEs, and require enhanced labor inspection and compliance.

Green Transition and ESG Imperatives

Vietnam is investing heavily in green infrastructure, renewable energy, and sustainable finance, with Ho Chi Minh City alone planning nearly $40 billion for green transition. Compliance with global ESG standards and carbon border adjustment mechanisms is becoming critical for export competitiveness and investment attraction.

Infrastructure and Construction Safety Risks

Major infrastructure projects face delays due to safety incidents and regulatory scrutiny, as seen in the recent halting of 14 construction projects after crane accidents. Such disruptions affect supply chains, logistics, and investor confidence in Thailand’s project delivery capacity.

Geopolitical Shifts and Regional Integration

Turkey's strategic location is increasingly pivotal amid shifting global alliances, conflicts in Ukraine and the Middle East, and EU enlargement debates. Ankara's foreign policy emphasizes regional cooperation, energy corridors, and mediation roles, affecting supply chains and cross-border investments.

Logistics Modernization and 3PL Expansion

Mexico’s third-party logistics (3PL) market is forecast to nearly double to $26.8 billion by 2033, driven by nearshoring, e-commerce, and infrastructure investment. Enhanced customs coordination, digitalization, and cross-border logistics partnerships are improving supply chain efficiency and supporting regional integration.

Geopolitical Fragmentation and Business Uncertainty

US interventions abroad and retreat from multilateralism have contributed to a fragmented geoeconomic landscape. National security concerns, sanctions, and unpredictable policy shifts increase operational risks for international businesses, requiring adaptive strategies and robust risk management frameworks.

Dollar and rates drive financing costs

Federal Reserve policy expectations and questions around inflation trajectory are driving dollar swings, hedging costs, and trade finance pricing. Importers may see margin pressure from a strong dollar reversal, while exporters face demand sensitivity as global credit conditions tighten or ease.

Shareholder activism and governance shifts

Japan’s record M&A cycle and activist pressure are reshaping capital allocation and control structures. Elliott opposed Toyota Industries’ take-private price, while Fuji Media launched a ¥235bn buyback to exit an activist stake. Deal risk, valuation scrutiny, and governance expectations are rising for investors.

Sovereign Wealth Fund and State Enterprise Reform

The Danantara sovereign wealth fund, managing $1 trillion in assets, is positioned to finance future industries and co-invest with global partners. Plans to rationalize state-owned enterprises from 1,044 to 300 aim to enhance efficiency and governance, signaling a more modern and open investment environment.

Intensified Korea-China Trade Negotiations

Ongoing negotiations to expand the Korea-China FTA to services and investment signal deepening economic ties. Progress in these talks could reshape market access, regulatory alignment, and investment flows, influencing regional supply chains and competitive positioning.

Fuel Regulation, Security, and Energy Transition

Brazil is intensifying fuel regulation, updating tariffs, and promoting biogas and sustainable aviation fuel. However, fuel theft in pipelines is rising, especially in São Paulo, posing operational and security risks. The energy transition agenda is advancing, but regulatory and enforcement challenges remain.

Energy transition meets grid constraints

Renewables are growing rapidly, yet Brazil curtailed roughly 20% of wind/solar output in 2025 with estimated losses around BRL 6.5bn, reflecting grid bottlenecks. Investors must factor transmission availability, curtailment clauses and regulatory responses into projects and PPAs.

Strategic Expansion of Gas Infrastructure

Brazil is investing hundreds of millions of dollars in new pipelines, LNG terminals, and storage to secure domestic gas supply, reduce reliance on imports, and support industrial growth. Projects like TAG, SEAP, and GASOG are critical for energy security, especially amid declining Bolivian imports and rising pre-salt production.