USMCA Review and Trade Uncertainty

Mexico’s July 1 USMCA review is the dominant external risk for exporters and investors. With annual U.S.-Mexico trade above $834 billion and 80-82% of Mexican exports going north, possible changes to rules of origin, tariffs, energy and Chinese-content restrictions could reshape market access and capital allocation.

AI Chip Export Surge

Semiconductors are driving South Korea’s trade performance, with March exports jumping 48.3% to a record $86.13 billion and chip exports soaring 151.4% to $32.83 billion, deepening global dependence on Korean memory supply and concentrating earnings, investment and supply-chain exposure in AI demand cycles.

Trade Irritants Reshape Market Access

Washington has escalated pressure over Canada’s liquor restrictions, dairy protection, procurement rules and regulatory policies, while U.S. goods exports to Canada reached US$336.5 billion in 2025. These disputes could broaden into compliance, procurement and cross-border market-access risks for foreign businesses operating in Canada.

Inflation and Input Costs Persist

Tariff pass-through is falling mainly on US firms and consumers, with foreign exporters absorbing only about 5% of costs. Elevated import prices, energy disruptions, and policy uncertainty are pressuring margins, pricing, and demand planning across consumer goods and industrial sectors.

Data Centre Regulatory Tightening

Authorities are moving to reclassify data-centre licences under stricter oversight, with higher fees, tighter monitoring, and possible zoning rules. The framework should improve governance and resource management, but may increase compliance costs and extend project timelines for foreign investors.

Labor Costs and Workforce Reform

The coalition is pursuing changes to spousal taxation, early retirement, welfare incentives and health insurance to raise labor participation and contain social charges. For business, this could ease skill shortages over time but creates near-term uncertainty on payroll costs.

Agricultural Cost Pressures Intensify

Agriculture, which generated more than $22 billion of exports last year, faces sharply higher diesel and fertiliser costs, labor shortages, and fragile logistics. Farmers report cost increases of 10-30%, with some warning output and export potential could decline materially this season.

Downstreaming and EV Push

Indonesia is deepening downstream industrial policy to move from raw materials into batteries, refining, and EV manufacturing. New recycling partnerships, local-content rules, and incentives support long-term investment, but firms must navigate evolving compliance requirements, partner selection, and domestic processing obligations.

Energy Shock Hits Costs

Middle East conflict has raised fuel shortages, freight costs and inflation risks for Thailand, pressuring exports, tourism and industrial margins. Policymakers are reconsidering subsidies and energy pricing, while businesses face higher logistics expenses, input volatility and tougher budgeting across import-dependent sectors.

Trade Exposure to US Tariffs

German exporters remain highly exposed to US trade policy risk, with 49% expecting further negative effects from tariffs. This threatens autos, machinery, and chemicals, while increasing compliance costs, redirecting trade flows, and complicating pricing and market-entry strategies for global firms.

US Tariffs Hit Tech Exports

US reciprocal tariffs capped at 15% for EU goods, with extra duties up to 50% on copper, steel and aluminum, cut Belgian tech exports to the United States by 7%. Firms are delaying investment and reorienting toward EU markets.

Critical Infrastructure Bottlenecks Persist

Rising LNG exports, AI-driven power demand and geopolitical energy shocks are intensifying pressure for US pipeline and permitting reform. Infrastructure constraints limit the country’s ability to scale output quickly, affecting industrial power costs, export capacity, project timelines and location decisions for investors.

Competitiveness and Investment Leakage

Germany is struggling to retain private capital as firms increasingly invest abroad; reports cite net direct investment outflows above €60 billion in 2024. High regulation, labor costs, and weak returns are undermining domestic expansion, supplier footprints, and international investment confidence.

Electricity Reform Unlocks Investment

Power-sector reform is improving the operating environment through Eskom restructuring, a new transmission company and wider private participation. More than 220GW of renewable projects are in development, with 36GW in grid processes, supporting energy security, industrial expansion and foreign direct investment.

Banking And Payment Isolation

Iran’s exclusion from mainstream banking channels, including SWIFT restrictions, continues to complicate trade settlement. Businesses increasingly face reliance on yuan, informal intermediaries, barter-like structures or shadow finance, creating major AML, sanctions-screening and receivables risks for cross-border transactions.

LNG volatility affects regional operations

Cyclone-related outages at Western Australian facilities and Middle East disruptions have tightened LNG markets, with affected assets representing up to 8% of global supply. Higher prices improve exporter margins but raise procurement, energy, and continuity risks for Asia-Pacific manufacturers and utilities.

Automotive Base Faces Strategic Shift

The auto sector remains a major industrial pillar but is under pressure from logistics failures, utility unreliability and EV-policy uncertainty. It contributes 5.2% of GDP, yet 2024 exports fell 22.8%, while output missed masterplan targets by a wide margin.

Fiscal Stress And Austerity

Higher global energy prices and domestic spending pressures are prompting budget refocusing, including potential savings of Rp121.2-130.2 trillion and cuts to the free meals program. Fiscal strain raises risks around subsidies, payment cycles, public procurement, and macro policy unpredictability for investors.

Demographic Decline Deepens Shortages

Taiwan’s labor outlook is worsening as fertility fell to 0.695 last year, with February births at a record-low 6,523 and population declining for 26 straight months. Businesses should expect tighter labor supply, older workforces, and rising wage and productivity pressures.

High rates, inflation persistence

The Central Bank lifted its 2026 inflation forecast to 3.9%, while market expectations rose to 4.31%, near the 4.5% ceiling. With Selic still at 14.75%, financing remains expensive, pressuring consumption, capex, working capital and credit-sensitive sectors.

Automotive Restructuring and Tariffs

Germany’s auto sector faces simultaneous pressure from U.S. tariffs, Chinese competition and costly EV transition. Combined earnings at BMW, Mercedes and Volkswagen fell 44% to €24.9 billion in 2025, prompting restructurings, supplier stress and production-footprint adjustments.

Energy Export Surge Reshaping Markets

US LNG exports reached a record 11.7 million metric tons in March as Middle East disruptions tightened global supply. Rising US export capacity strengthens America’s role as a swing supplier, but creates wider exposure to geopolitical price shocks for manufacturers and energy buyers.

US Tariff Negotiations Uncertainty

India’s unsettled interim trade framework with the United States leaves tariff exposure fluid after Section 301 probes and legal reversals. Exporters in textiles, chemicals and engineering face planning uncertainty, while investors must price in shifting market-access terms and compliance risk.

China Exposure and Trade Realignment

Mexico is tightening tariffs on roughly 1,400 non-FTA products while facing U.S. pressure to curb Chinese content in North American supply chains. This elevates compliance scrutiny for manufacturers, especially in autos, steel, electronics and strategic sectors vulnerable to transshipment allegations.

Gaza Ceasefire Fragility Persists

The Gaza ceasefire remains unstable, with more than 700 Palestinians reportedly killed since October and repeated implementation disputes over withdrawals, crossings, and disarmament. Businesses face elevated operational uncertainty from renewed escalation risks, humanitarian restrictions, and shifting border-access conditions.

Logistics Shock from Middle East

Middle East tensions are disrupting Vietnam’s trade routes, pushing freight costs sharply higher and extending shipments by 10–14 days or more. Some exporters report logistics costs up 15–25%, undermining delivery reliability, margins, and inventory planning across key export sectors.

Tax and Price Buffering Measures

The government is using tools such as the sliding fuel-tax mechanism to cap pass-through from higher oil prices. These interventions can temporarily protect consumers and logistics costs, but they also shift pressure onto public finances and create policy uncertainty for cost forecasting.

Energy Transition Industrial Upside

Renewables expansion is creating downstream opportunities in batteries, green hydrogen, electric vehicles and grid equipment. Officials cite 80GW of new generation planned over five years and R440 billion for transmission, improving prospects for manufacturers aligned with decarbonisation supply chains.

Rupiah Weakness and Fiscal Strain

The rupiah touched roughly 17,090 per dollar, prompting central bank intervention, while budget pressures from subsidies, debt service, and flagship programs threaten wider deficits. Currency volatility and potential fiscal tightening could raise financing, import, and operating costs for foreign firms.

Higher Rates Inflation Pressure

The Reserve Bank remains split after lifting rates to 4.1%, with markets and major banks expecting further tightening as fuel shocks push headline inflation potentially toward 5%. Higher borrowing costs and weaker consumption would weigh on investment, construction, and domestic demand.

Critical Minerals Geopolitics Intensifies

Ukraine’s minerals are gaining strategic weight in reconstruction and foreign investment, but occupation risks are rising. Russia is exploiting deposits in seized territories, while Kyiv is channeling investor interest into minerals, gas, and oil projects, increasing competition, political risk, and due-diligence complexity.

US-China Decoupling Deepens Further

Bilateral goods trade with China continues to contract, with the 2025 US goods deficit down 32% to $202.1 billion and February’s deficit at $13.1 billion. Companies are accelerating China-plus-one strategies, rerouting manufacturing, compliance, and logistics through alternative jurisdictions.

Sector Tariffs Hit Critical Inputs

Washington has imposed new pharmaceutical tariffs reaching 20% to 100% for some producers, while retaining 50% duties on many steel, aluminum, and copper imports. These measures raise input uncertainty for healthcare, manufacturing, construction, energy, and industrial equipment supply chains.

Sticky Inflation, Higher Financing

March CPI rose 0.9% month on month and 3.3% year on year, the sharpest monthly increase in nearly four years. Elevated fuel and tariff pass-through are reducing prospects for rate cuts, raising borrowing costs, consumer pressure, and margin risks.

Macroeconomic Pressure from Oil

Higher oil prices are pressuring India’s rupee, inflation outlook, and growth forecasts. Recent estimates suggest every $10 per barrel increase can significantly widen the current account deficit and add inflationary pressure, affecting demand conditions, financing costs, and corporate margins.

Energy Shock Raises Operating Costs

Conflict-linked oil disruptions and higher fuel prices are adding cost pressure across US transport, manufacturing, logistics, and chemicals. The resulting inflation risk also complicates monetary policy, forcing firms to reassess freight budgets, inventory strategies, and margin protection in North American operations.