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Situation Report 20 January, 2025: Donald Trump’s Inauguration and the Geopolitical Effects

Note: 


  1. This situation report brings together the past 12 months of KSG assessments on the effects of a Trump administration.


  2. KSG created a complementary strategic report on the Trump administration’s potential effects on cryptocurrencies, and the geopolitical factors that will impact them (available only to C-GIA members).


Key Takeaways:


  • The incoming Trump administration signals major shifts in trade policy, with planned 25% tariffs targeting key allies including the EU, Mexico, and Canada, likely positioning US manufacturing for greater competitiveness.


  • Energy policy will pivot sharply toward hydrocarbons, with Trump withdrawing from the Paris Agreement and boosting domestic oil/gas production, while repealing EV incentives and clean energy policies from the IRA.


  • KSG assesses that Trump's strategic leverage over Europe through energy and trade policy is likely to achieve key objectives - securing increased NATO defence spending, a ceasefire agreement in the Russo-Ukrainian conflict, and recalibrating trade imbalances.


  • KSG assesses that tensions with China will likely escalate through increased tariffs and critical mineral export controls, potentially disrupting semiconductor, EV, and renewable energy supply chains while forcing market diversification.



Background:


Donald Trump will be inaugurated on the 20th of January and set to be the 47th President of the United States. In his second term, Trump inherits a new geopolitical landscape, with: 


  • The resignation of Justin Trudeau

  • A fledgling regime in Syria

  • A fragile Israel-Hamas ceasefire

  • The ongoing Russia-Ukraine war

  • A China with increasing global influence & a desire to annex Taiwan


Some of the President-elect's key nominations include: 


  • Marco Rubio for Secretary of State

  • Pete Hegseth for Defense Secretary

  • Tulsi Gabbard for Director of National Intelligence 

  • Chris Wright for Secretary of Energy

  • Elon Musk and Vivek Ramaswamy for the Department of Government Efficiency


Forward Look:


United States


Trade and Tariffs

  • KSG assesses that the protectionist tariffs will have the desired effects Trump has outlined, increasing US businesses competitiveness and reinforcing national security through bolstering sectors like steel and energy, as well as reshoring supply chains where possible. 


  • KSG has previously assessed that the US will likely impose retaliatory tariffs and export controls on critical minerals, affecting semiconductor, solar panel, and electric vehicle (EV) manufacturing sectors.


Energy and Climate Policy

  • KSG anticipates that the Trump administration will likely prioritize expanding onshore oil drilling, relaxing emissions standards and withdrawing from the Paris Climate Agreement. This will allow US  manufacturing, steel, and energy firms to lower compliance costs, enable faster project approvals and expansions, and make US firms more competitive globally.


  • KSG assesses increased promotion of US hydrocarbon industries throughout Trump’s 4 years in office,  facilitating greater investment in oil, gas, and coal sectors, alongside expanded drilling and prioritised pipeline construction. Chris Wright, the nominated Secretary of Energy, will likely support the expansion of energy production, including commercial nuclear and liquified natural gas (LNG) in efforts to bolster US energy security. 


Auto Industry 

  • KSG assesses that there will be increased regulatory support throughout Trump’s four year term for fossil-fuel vehicles, paired with a repeal of Biden's EV policies, including the $7,500 consumer tax credit. Repealment of the Inflation Reduction Act (IRA) will likely cause challenges to US EV firms in 2025 as losing consumer EV tax credits and battery production incentives will likely reduce demand and raise costs.


  • Overall, KSG assesses that US firms like Ford and General Motors will likely benefit through 2027 due to insulation from foreign EV competition and government support of traditional vehicle manufacturers. Foreign companies like Volkswagen, Hyundai and BMW are likely to face tariffs, causing a drop in US demand and increased production costs, although their innovation advantage will allow them to continue to outcompete US firms globally.


  • KSG assesses that tariffs on upstream battery materials for EVs will likely raise production costs for EV firms.


China 


  • KSG assesses that the US will impose additional tariffs on China in the first months of Trump’s presidency, especially as Trump’s Secretary of State nomination, Marco Rubio views China as the “biggest threat” to US prosperity. Due to China’s relatively weaker economy as opposed to 2018, KSG assesses that China will likely prefer to avoid an aggressive trade war that could further damage its economy and instead focus on export controls on critical minerals. 


  • Furthermore,  KSG assesses that Chinese export restrictions on critical minerals will likely disrupt US production of renewable energy technologies like EVs, batteries, and wind turbines, as well as key military equipment, underscoring the need for greater US supply chain resilience.


Europe 


Trade 

  • KSG assesses that the EU will likely be significantly affected by Trump’s tariffs. Key European exports to the US, including machinery, autos, chemicals, and agri-food, will be particularly vulnerable.


  • From the beginning of Trump’s term, the EU will likely increase its purchase of American goods, including LNG. KSG believes the EU will likely use energy exports as leverage to obtain favourable tariff deals. KSG consultation suggested that while this is in line with Trump’s transactional approach to diplomacy, the President will likely seek additional concessions.


  • KSG assesses that several EU countries will likely work to negotiate a better deal with the US on their products. Cooperation will likely be most successful in EU countries that align with Trump politically like Hungary and Italy. Nations like Spain and Germany, conversely, will likely be hit by tariffs that will damage relations with the US. Germany, in particular, could face severe economic losses, as its exports with the US are worth roughly $160 billion.


  • KSG assesses that the EU is likely to take retaliatory action to US tariffs by March 2025, by diversifying export markets with emerging economies in Southeast Asia and Latin America, amplifying World Trade Organization (WTO) support, expanding the Multi-Party Interim Arbitration arrangement (MPIA), and utilizing the Anti-Coercion Instrument (ACI) to counterbalance US trade restrictions and protect European industries over the next four years. 


Russia-Ukraine

  • KSG assesses that the Trump administration will quickly begin efforts to end the war in Ukraine. Trump will likely use the sustainment of military aid to Ukraine to incentivise both sides into engaging with his peace proposals.


  • KSG assesses that the Trump administration’s peace proposals are highly likely to seek territorial concessions from Ukraine along the existing lines of engagement with minor adjustments in the Donbas region and southern Ukraine. 


  • KSG assesses that peacekeepers from NATO countries are increasingly likely to form part of the eventual ceasefire or comprehensive peace agreement.  Recent signals from the French and British governments indicate that officials are supportive of proposals by Trump aides to deploy European peacekeepers to guarantee Ukrainian security. 


  • However, Moscow is highly likely to push back heavily on the peacekeeper proposal and it remains to be seen to what extent the Trump administration is willing to exercise its leverage over Russia on this particular issue. Moreover, the proposal is somewhat likely to cause controversy and face opposition from European far-right and far-left politicians, who will almost certainly argue against sending European troops to Ukraine - Russian information warfare will then almost certainly aim to amplify these perspectives and exacerbate social divisions in Europe.


NATO

  • KSG assesses that EU states are likely to increase their defence budgets in an effort to appease the US and secure better tariff agreements in the first year, especially given Trump and his nominated Defense Secretary’s (Pete Hegesth) criticism of European NATO allies who do not meet their defence commitments. KSG assesses that this increased spending will benefit both American defence manufacturers such as Northrop Grumman and Lockheed Martin, and European defence firms like BAE and Thales, due to the growing demand for unmanned aerial vehicles, air and missile defense systems and cyber defence.


Middle East 


  • KSG assesses that Trump will likely engage in normalisation talks between Israel and Saudi Arabia following the Gaza ceasefire and will push to expand the Abraham Accords.


  • KSG assesses that in Syria,  the Trump administration will focus on degrading ISIS’s presence, sustaining demand for munitions from defence firms like Lockheed Martin and Boeing. Under President Trump, the US is unlikely to engage further in Syria.


  • KSG assesses that US forces will likely ramp up pressure on the Houthis in Yemen and prioritize Red Sea maritime security in the first year of the Trump administration.


Latin America 


  • KSG assesses that Trump’s 25% tariff on Mexican goods, aimed at curbing migrant flows and fentanyl trafficking, could significantly disrupt the Mexican automotive and global manufacturing industries as foreign firms look to reroute trade through Mexico to avoid US sanctions. Major automakers like Stellantis, Volkswagen, BMW and General Motors with substantial manufacturing operations in Mexico, will likely face increased production costs.


  • KSG assesses that Mexican President Claudia Sheinbaum’s actions, like cracking down on cross border drug and migration flows, signal Mexico’s intent to pursue bilateral trade agreements and maintain a favorable US-Mexico trade relationship, making a trade war unlikely.


  • KSG assesses that Brazil, Peru, and other Latin American nations aiming to reduce dependence on the US dollar or attract greater Chinese investment will likely face heightened tariffs under the Trump administration. Consequently, the US is likely to respond with increased tariffs on these countries, but will likely prioritize good relations with Chile and Argentina to ensure access to lithium supplies.


  • KSG assesses that increased Venezuelan repression under the Maduro regime will likely lead the incoming Trump administration to revoke oil licences for oil companies in Venezuela, reducing oil production and creating supply gaps for US Gulf Coast heavy crude refineries. This is likely to reinforce the reliance on other suppliers, thus causing a rise in global oil prices due to reduced flexibility in supply. 


Canada 


  • KSG assesses that Trump’s 25% tariffs on Canada will likely increase the strength of the US dollar and will significantly weaken the Canadian Dollar, boosting demand for Canadian exports from non-US sources.


  • KSG assesses that the resignation of Justin Trudeau will likely strengthen US-Canadian ties, especially in nuclear energy, as Canada’s nuclear capabilities will likely pair well with the goals of Trump’s Secretary of Energy pick, Chris Wright, who has also endorsed nuclear energy.  


  • KSG assesses that US tariffs on sectors like automotive manufacturing, crude oil, and LNG will increase prices for Canadian firms and limit US market access. Given that  60% of US crude oil imports are from Canada, KSG assesses that US oil firms will likely become more reliant on the flow of crude oil from Middle Eastern sources like Saudi Arabia and Iraq. 


Africa 


  • KSG assesses the African Growth and Opportunity Act will likely not be terminated in 2025. Trump’s Secretary of State, Marco Rubio, will likely prioritize countering Chinese influence on the continent and securing access to critical minerals by supporting initiatives like the Development Finance Corporation and private investment through Prosper Africa


  • KSG assesses that under Trump, the US will also continue to counter ISIS, al-Shabaab and other militant groups active on the African continent, leveraging US security presence to dissuade African nations from embracing Russian security forces.


Most Likely Scenario in 6 months - July 2025


US Trade and Tariffs

  • Trump will have implemented tariffs aimed at pressuring the EU, Canada, Mexico, and China. Key US sectors, including steel, automotive, and agriculture, will have been shielded from EU competition. 


  • The EU will have disputed these measures at the WTO, deployed the ACI and initiated trade negotiations with the US, using US LNG exports as a bargaining tool to mitigate tariff impacts. EU member states with export-driven economies like Germany, Italy, and France, will have engaged in informal talks with the US seeking more favourable export terms. 


  • Mexico will have intensified investments in counter-narcotics operations and border security to appease US demands and prevent a trade conflict, aiming to preserve its attractiveness for automotive manufacturers and safeguard production facilities. Canada will have retaliated by imposing tariffs on US goods, negatively impacting the aluminium and steel sector.


US hydrocarbon and energy industry

  • Trump will have weakened the IRA and re-exited from the Paris Agreement. 


  • The US will also have offered subsidies to the US hydrocarbon industry and reduced regulation on emissions. 


  • Trump’s tariffs on Canada will allow for the US hydrocarbon industry to expand with less international competition, companies such as ExxonMobil, Chevron, and ConocoPhillips, will have seen an increase in demand as a result.


  • Companies specializing in LNG like Cheniere Energy will play a critical role in energy security, with rising demand for LNG exports following energy discussions between the US and the EU. This shift towards LNG will drive infrastructure development for LNG terminals and pipelines, benefiting construction and engineering firms like Bechtel and McDermott International.


China Relations and Critical Minerals

  • China will have retaliated to the Trump administration's tariffs with export controls on rare earth elements. This will disrupt key US sectors like semiconductor manufacturing, solar panels, and EV production, amplifying global supply chain vulnerabilities.


  • China’s export sectors, particularly technology and energy, will have faced significant challenges due to heightened US tariffs. The Chinese green energy sector will have stagnated as reduced export revenues, constrained by US tariffs, limit funding for research and development. US tariffs on Chinese goods will have led to a redirection of surplus Chinese exports to Latin American, European and Southeast Asian markets.


NATO, Russia, Ukraine

  • President Trump will have secured a ceasefire between Russia and Ukraine by leveraging the threat of increased U.S. oil production and military aid to Ukraine against Moscow, whilst threatening Ukraine with cuts to military assistance. NATO members, Gulf states, and Belarus will have participated, while China and North Korea remain uninvolved.


  • Non-US NATO members will have assumed the leading role in the coordination and supply of military aid to Ukraine - France, Britain, Germany, and the Nordic countries will be Ukraine’s most involved supporters. These countries will also provide a limited contingent of peacekeepers/observers that will monitor the ceasefire along contact lines in eastern Ukraine.


  • The ceasefire will hold on an official level. However, KSG wargaming concludes that Russia will escalate grey zone warfare tactics in the cyber and information domains against Ukraine and its European allies to disrupt peacekeeping operations and turn public sentiment against the presence of European troops in Ukraine. Furthermore, limited kinetic breaches of the ceasefire targeting Ukrainian troops will occasionally occur, as Moscow will look to provoke escalatory responses from Ukrainian troops.


  • Negotiations for a comprehensive peace agreement will still be ongoing, as negotiators will struggle to reconcile antithetical demands between Russia and Ukraine.

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