US-China Trade Tensions Escalate

Ongoing tariff increases and retaliatory measures have sharply reduced US-China trade, with US imports from China down 28% and exports down 38% in 2025. This realignment is driving supply chain diversification and impacting global trade flows.

Sectoral Impact: Whisky, Manufacturing, and Finance

Key UK sectors such as Scotch whisky, manufacturing, and financial services face direct exposure to US tariffs. The whisky industry alone risks losses exceeding £600 million, while broader manufacturing and financial services could see reduced US market access and investment.

Labor Market Weakens Amid Stagnation

Unemployment rose to 6.2% in December 2025, the highest since 2010, with nearly 2.91 million unemployed. The labor market faces demographic pressures, a persistent skills gap, and weak demand, impacting both domestic consumption and the attractiveness of Germany for international investors.

Energy Sector Diversification and Deals

Egypt signed landmark gas import deals with Israel ($35 billion) and Qatar (24 LNG cargoes for 2026), responding to declining domestic output. These agreements secure energy supplies, support regional hub ambitions, and affect industrial competitiveness and investor confidence.

Regulatory Uncertainty and Investment Delays

Ongoing legal challenges to US tariffs and Korea’s legislative process for outbound investment funds delay the execution of major bilateral trade and investment agreements. This regulatory uncertainty complicates strategic planning for multinational firms operating in or with South Korea.

Regulatory Change and Investment Climate

Major reforms, such as the shift from non-dom to residence-based taxation, are reshaping the UK’s attractiveness for high-net-worth individuals and foreign investors. Policy uncertainty and ongoing reviews could influence capital flows, entrepreneurship, and business location decisions.

Reshoring and Supply Chain Realignment

Driven by national security and tariff policy, the US is incentivizing reshoring and ‘friend-shoring’ of manufacturing. This has triggered global supply chain restructuring, with Southeast Asia and Mexico gaining, but also increased operational complexity and costs for multinational firms.

Energy Infrastructure Under Persistent Attack

Russian missile strikes continue to target Ukraine’s energy grid, causing widespread power outages and threatening industrial operations. The instability in energy supply poses significant risks for manufacturing, logistics, and foreign investment in affected regions.

Political Fragmentation and Stability Risks

Germany’s political landscape is increasingly polarized, with rising influence of the far-right AfD and collapsing regional coalitions. Policy uncertainty and social tensions threaten stability, complicating long-term investment strategies and risk assessments for international businesses.

Japanese Yen Volatility and Monetary Policy

The yen’s volatility, driven by cautious Bank of Japan tightening and external shocks, impacts trade competitiveness and investment returns. Currency fluctuations and rising bond yields require international firms to hedge exposures and monitor policy signals closely.

Central Bank Independence Under Scrutiny

Concerns over Bank Indonesia’s independence have intensified following the nomination of President Prabowo’s nephew as deputy governor. Market perceptions of political influence are impacting the rupiah and investor confidence, making institutional integrity a critical factor for macroeconomic stability.

Business Rates And Duty Hikes

Rising business rates and new duties on fuel, alcohol, air travel, and vaping in 2026 will increase operational costs, especially for retail and hospitality. These changes threaten high street viability and may trigger closures, job losses, and supply chain adjustments.

Nuclear Program Uncertainty and Geopolitical Tension

Iran’s nuclear program remains a flashpoint, with recent US and Israeli strikes on nuclear sites and Iran’s threats to weaponize. The unresolved nuclear issue heightens geopolitical risk, complicating long-term investment and trade planning for international businesses.

Regulatory Uncertainty for Foreign Investors

China’s evolving regulatory environment, including increased scrutiny of foreign acquisitions and new restrictions on sensitive sectors, creates uncertainty for international investors. While IPO reforms and market opening continue, the risk of abrupt policy shifts remains a key concern for strategic planning.

Communications Blackouts and Information Risks

Iran has imposed nationwide internet and phone shutdowns, severely restricting information flow. These blackouts hinder business continuity, disrupt logistics, and complicate due diligence, heightening operational uncertainty for all international stakeholders.

AI Boom and Technology Market Speculation

Surging investment in artificial intelligence and digital infrastructure is driving market exuberance, with concerns about bubble dynamics and financing risks. US-led technology standards and export controls challenge global competitiveness, supply chain resilience, and cross-border innovation strategies.

Geopolitical Tensions with US and China

President Macron’s criticism of US sanctions and China’s aggressive trade practices underscores France’s drive for strategic autonomy and regulatory sovereignty. These tensions heighten risks for multinationals in tech, energy, and advanced manufacturing, with potential for retaliatory measures and regulatory divergence.

Labor Market and Social Model Reforms Debate

Political debate is intensifying over labor market and welfare reforms, including proposals to end the 35-hour workweek and tighten unemployment benefits. Such reforms could reshape labor costs, productivity, and the attractiveness of France for foreign investors, but also risk social unrest.

Shifting International Investment Strategies

Due to domestic uncertainty, 56% of French business leaders now prioritize international expansion, especially in Europe and Southeast Asia. This trend reflects efforts to mitigate local risks, diversify revenue, and secure talent, but may slow France’s domestic reindustrialization agenda.

Digital Finance and Stablecoin Experimentation

Pakistan’s partnership with World Liberty Financial, linked to the Trump family, on a dollar-pegged stablecoin signals a bold shift toward digital finance. The initiative aims to streamline remittances and attract blockchain investment, but raises regulatory, ethical, and geopolitical concerns.

Regulatory and Political Uncertainties

Brazil faces ongoing regulatory changes, including tax reforms and sector-specific rules, as well as political uncertainties tied to the 2026 election cycle. These factors can affect the business environment, requiring vigilant monitoring by international investors and operators.

Energy Costs and Industrial Competitiveness

High energy costs and unreliable infrastructure continue to undermine Pakistan’s industrial competitiveness. Policymakers are considering lowering power tariffs and improving credit access for SMEs to boost manufacturing and attract foreign direct investment, contingent on IMF approval.

Energy Transition and Renewables Surge

Saudi Arabia is rapidly expanding renewable energy capacity, with solar and wind projected to deliver nearly 20% of electricity by 2029. The Kingdom’s energy transition, supported by facilities like CATL’s Riyadh hub, is critical for decarbonization, industrial competitiveness, and compliance with global standards such as the EU’s Carbon Border Adjustment Mechanism.

Supply Chain Diversification and Realignment

Indian exporters are actively shifting supply chains, establishing subsidiaries in the US and Africa, and targeting new markets in Europe and Asia to offset US tariff risks. This trend is accelerating India’s integration into alternative global value chains and reducing overdependence on single markets.

Strategic Autonomy in Defense and Technology

France is accelerating defense spending and urging local industry to modernize, but also warns of shifting procurement to European suppliers if domestic firms lag. This push for strategic autonomy impacts supply chains, procurement strategies, and cross-border industrial cooperation.

Supply Chain Resilience and Diversification

The US-Taiwan deal includes mechanisms for ongoing consultation on tariff and supply chain issues, supporting resilience against shocks. Taiwan’s strategy emphasizes global diversification, advanced packaging, and maintaining technological leadership amid rising global competition.

Export-Led Growth Under Global Pressures

Vietnam’s export-driven economy faces mounting US tariffs (up to 20%) and EU trade measures, threatening key market access. The government is actively diversifying export destinations to mitigate risks, but global trade tensions remain a significant operational challenge.

Regional Geopolitical Ambitions and Risks

Saudi Arabia is asserting a more independent regional role, recalibrating relations with Iran, Turkey, and the UAE, and engaging in Yemen. While this enhances its influence, ongoing regional instability and shifting alliances present risks to supply chains, investment security, and long-term business planning.

Labor Market Restructuring and Foreign Workers

Israel has sharply reduced Palestinian labor, replacing it with foreign workers, especially in construction and agriculture. This structural shift affects wage dynamics, labor standards, and operational costs, introducing new vulnerabilities and regulatory scrutiny for businesses reliant on manual labor.

Selective Openness and Strategic Free Trade Zones

The launch of Hainan as the world’s largest free trade port exemplifies China’s approach to selective openness—attracting global capital and technology while maintaining central control. Such initiatives offer new opportunities but also reinforce the need for careful navigation of regulatory and political boundaries.

Persistent Export Decline and Trade Deficit

Pakistan’s exports fell by 20.4% in December 2025, marking the fifth consecutive month of decline. The trade deficit widened to $19.2 billion for July–December 2025, up 35% year-on-year. This structural weakness threatens external stability and growth.

Regulatory and Fiscal Policy Evolution

Ongoing reforms in GST, tax policy, and fiscal decentralization are shaping India’s investment climate. States are seeking greater fiscal autonomy and infrastructure funding, while regulatory changes continue to impact business operations, compliance, and long-term strategic planning.

Ruble Volatility and Financial Strain

The Russian ruble faces renewed pressure due to falling export revenues and reduced central bank interventions. Currency instability heightens risks for foreign investors and complicates cross-border transactions and financial planning.

US-China Technology Competition and Export Controls

US policy reversals on AI chip export controls have allowed Nvidia to resume sales to China, raising concerns about US technological leadership and intellectual property risks. This shift could boost China’s AI capabilities, alter global tech supply chains, and intensify the race for technological standards and market access.

Geopolitical Balancing: China, US, Japan

South Korea is navigating complex regional dynamics, balancing economic ties with China, security alignment with the US, and strategic engagement with Japan. President Lee’s diplomatic outreach aims to stabilize relations and manage risks from Taiwan tensions and North Korean provocations, affecting business confidence and supply chain security.

US Retreat From Climate Treaties

The United States’ withdrawal from the UNFCCC and 65 other international organizations marks a decisive shift away from multilateral climate cooperation. This move risks isolating US firms from global climate finance, standards, and supply chains, impacting competitiveness and international investment.