The second Trump administration continues to take global markets on a tariff roller coaster. Within its first 100 days, it pushed the effective United States tariff rate to its highest level in a century – only to stage a series of sharp reversals in quick succession.

While some of the moves are near-term market positive and have reduced immediate recession risk, few sustainable trade deals have been reached, and United States tariffs remain at their highest since the 1940s. Focusing too much on the peak risks missing the fact that today’s tariff levels are still unusually high and more unpredictable than before.

The United States–China 90-day tariff reduction was less a shift in strategy than a retreat from self-harm. At 145 percent and 125 percent, respectively, tariffs had effectively reached embargo levels.

The ups and downs of the trade war have masked a deeper shift — the reversal of United States economic and security leadership that have underpinned the global order since World War II.

Shifting global order

The foundational underpinnings of the global order, and with it the assumptions that multinationals have operated on for nearly a century, are in flux. We are moving away from a geopolitical and economic order historically anchored by the United States and toward a new structure that is only beginning to emerge.

These shifts are already playing out in the capital markets: the dollar has weakened even as treasury yields have risen – which signals that the structural foundations supporting the dollar and global demand for United States debt are under strain.

Market confidence has undoubtedly been shaken and in its place, a laser-like focus on economic conditions, trade policy and geopolitical risk is needed to feed short- and long-term scenario planning. Resilience and risk reduction have become priorities as business leaders must now take a longer-term analysis of market size, growth and geopolitical risk to ensure a balanced and resilient portfolio.

Trade implications and emerging markets influence

The speed and breadth of change in United States trade policy in the first 100 days of the second Trump administration has eclipsed the entire first Trump term. These shifts come amid the increased politicization of foreign direct investment – under both political parties and worldwide. Japan’s recent assertion as a national security threat when seeking to invest in a United States steelmaker illustrates this shift and the limits of strategies such as ‘friendshoring’.

Meanwhile, the rise of emerging markets in South-East Asia, the Middle East, Africa and Latin America will become a key focus for all global businesses that seek to diversify their portfolios. Emerging markets have doubled their share of global GDP, from just 22 percent in 2001 to almost 40 percent today, according to the World Bank.

In this time, economic ties strengthen among emerging markets, and 2025 will see the dual push for emerging market integration and alternative multilateral institutions, creating a more complex global operating environment.

China will play a critical role in emerging market development as its own foreign direct investment focus extends across the Belt and Road Initiative countries, rising 9.2 percent in 2024 versus the same period in 2023, according to EY analysis. Chinese outbound investment will focus on markets with robust industrial capacity and supply chain de-risk, such as those within the South-East Asian region.

Meanwhile, India and the Middle East, with their growing outbound ambitions, will play significant roles in this intensifying integration of emerging market influence.

Multinational businesses in both emerging and developed markets are likely to have growth opportunities in these regions as market access and partnerships are eagerly sought after. But business leaders must simultaneously account for any downside political risks ranging from data and intellectual property security regulations, export controls to sanctions and investment screening regimes.

M&A outlook in flux but safe-haven opportunities remain

At the start of May, the ‘EY-Parthenon CEO Outlook Survey’ identified a decline in Asia–Pacific CEOs pursuing transactions to achieve their strategic goals, a shift from earlier in the year. Now, only 53 percent are considering mergers and acquisitions, compared to 61 percent in January, influenced by multiple tariff announcements and their potential impact on businesses.

Given the change in tariff policies and uncertainty in market direction, portfolio realignment is now needed to counter geopolitical risk, shifting market growth potential while also considering trade policy and supply chain risks in all investment decisions.

Pockets of opportunity remain, such as in South-East Asia. Despite risks from recent tariff announcements out of Washington, the region could see increased investment and partnerships as governments and businesses seek growth opportunities in the volatile landscape.

Further results from the ‘CEO Outlook Survey’ indicate that businesses expect increased investments through joint ventures and minority stakes in Asian companies. This stems from businesses’ need to manage uncertainty in markets affected by shifting trade dynamics, such as China, Canada, Mexico and the European Union.

There are clear opportunities in markets and regions of growing domestic demand to build domestic supply chain ecosystems to avoid tariff risks. The challenge with this strategy is that it relies not only on local procurement and manufacturing, but also on the ability to locally contain the destination of finished goods.

Mature markets like Japan and Korea face the complex challenge of restructuring their companies’ global supply chains, which span both upstream sourcing and downstream production, to navigate geopolitical pressures.

Rebooting the business dashboard for all possibilities

In this era of heightened uncertainty, no scenario can be ruled out. Conventional decision models must now be expanded to take in previously considered outlier and non-consensus views. There is a realization that leaders must minimize their over-reliance on past trusted indicators and develop new early warning indicators to monitor for geopolitical risk.

Reinventing the business dashboard is the new priority. Real-time data and improved predictive modeling to better inform decision makers have become even more critical. There must be a new structured approach to assess tension and escalation levels across different markets. Businesses must be prepared to turn to more sources for insight and be ready to take course-correcting action rapidly when necessary.

Raising the bar even higher, decisions should be made within a globally consistent framework, considering the prevalence of information in today’s era. Regions need to align their strategies uniformly, as inconsistencies may lead to criticism or operational challenges for the company.

This is new and uncharted territory; nothing can be taken for granted and business leaders must accept this new hyper-politicized environment. Engaging with stakeholders is the key. Include policymakers, regulators, civil society groups, employees, investors and customers in order to plan and adjust strategy to incorporate the new growing responsibilities and risks.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms. 

Opinions expressed by The CEO Magazine contributors are their own.