Tariffs and Trade Wars: Navigating Geopolitical Uncertainty

Early in 2016 economist Paul Krugman wrote a famous article in the New York Times asking if the western world was moving into a “Protectionist Moment”. It was a period of significant popular backlash against free trade policies which had contributed to the de-industrialisation of western economies.

Nearly a decade later and the Protectionist Moment is apparently yet to pass. The words “national interest” are on the lips of politicians of all stripes.

The trend was accelerated during the pandemic as countries closed borders to one another, highlighting to many a precarious dependence on fragile supply chains and just-in-time delivery for critical goods, especially pharmaceuticals. Many governments around the world have since been exploring strategies of greater self-reliance in critical sectors such as energy, food, and medicine.

Out of the pandemic also emerged a different, but related trend of governments using trade restrictions as tools of international coercion. In Australia’s case, we faced Chinese tariffs on our beef, barley and wine in reprimand to calling for an inquiry into the origin of Covid. While those tariffs have since been removed, this method of strong-arm diplomacy has only grown with the new Trump Administration now wielding tariffs bluntly to exact concessions from friend and foe alike.

Other signs pointing to more restrictive, nationalistic and volatile global trade include:

• More pointed international jostling for control of strategic trade areas – the South China Sea, Arctic sea-lanes, the Panama Canal, and the Straits of Hormuz.
• Reciprocal national bans on communications and Artificial Intelligence tech –from WhatsApp and Tik Tok, to DeepSeek and ChatGPT.
• Governments tightening national controls over critical resources like rare earth minerals and semiconductors.

Heightening geopolitical tensions have fractured trust between nations. While the battered rules-based system remains intact – smart businesses, particularly those that operate across multiple jurisdictions, are nevertheless preparing to operate in a more restrictive and capricious international order.

Things to consider for your business:

Businesses can take practical steps to build resilience to shock and prepare for life under more volatile and nationalistic trade. Some key steps include:

• Scenario Planning – Develop response options against best case, worst case and most likely scenarios.
• Wargame – Conduct a table-top exercise using these options to identify vulnerabilities and challenge your team.
• Opportunity – Look for opportunities that the situation presents, including to support your customers through uncertainty.
• Stakeholders – Get active with your stakeholders. Engage them to understand the impacts, seek collective solutions and explore opportunities to influence the outcomes in a mutually beneficial manner.

As geopolitical uncertainty reshapes global trade, the only certainty is that businesses with resilience and strategic foresight will be the ones thriving in this new reality.