There is a lot of noise in global markets right now. Executives around the world are scrambling to find the signal. They are asking two fundamental questions: How should I make sense of what’s going on, and what should I do about it?
What’s going on?
While media headlines change daily—if not hourly—three trends are here to stay.
- Increased volatility will likely persist for at least the next few years. Tariff tensions won’t resolve in a matter of weeks or months. Trade deals are complex and normally take a year or more to negotiate. With drama and unpredictability seeming to define our current moment, it’s time to buckle up.
- The move toward post-globalization has accelerated. The era of ever-expanding global trade and connectivity is reversing. This trend didn’t start this month, nor is it confined to the US. Between 2012 and 2022, the number of global trade restrictions imposed annually increased by a factor of ten. Raising tariffs and trade barriers is relatively easy; lowering them is much harder. Trade will, of course, continue, but in a multipolar world with weakened global institutions, expect more bilateral and regional arrangements. Increasingly, they may exclude the US.
- Expect depressed global markets and, potentially, a recession. Recent US economic policy has already dampened equity and bond markets. In a Wall Street Journal survey conducted in early April, economists estimated a 45% probability of a recession in the next 12 months. Even without a recession, market volatility is hitting assets held by US consumers. Combined with inflation—a top concern of 51% of US consumers surveyed shortly before the tariff announcement on April 2—this could lead to reduced consumer spending.
What should business leaders do?
- Engage. Historically, many companies felt they could ignore geopolitics. For most organizations, that era is truly over. Direct lobbying may or may not make sense, but every firm needs to think through how geopolitics might affect its business and incorporate that thinking into its strategic decision making. As part of this, it is important to remember what we have learned about building strong global companies, including how to manage change during times of volatility and transition.
- Dust off the resiliency playbook. This could be a playbook developed during the Covid pandemic, with adjustments as needed. It might include setting up tariff “war rooms,” as some companies are beginning to do, to quickly develop strategies to mitigate business risks. Plans must certainly include preparation for a potential downturn in the global economy and consumer demand. Take a broad approach that includes strategic, operational, and supply chain resilience, along with managing the environmental risks of your physical assets.
-
Play the long game. While it may be tempting to react aggressively to the news of the week, most capital allocation is long term. The decision to move production to the US, for example, depends on many factors. Tariffs are only one. Global CEOs I have spoken to say that, even with tariffs in place, relocating manufacturing to the US is rarely economical. Higher labor costs alone can be prohibitive, and such investments require many years to pay off.
Consider what it would cost to make iPhones in the US. Apple’s supplier Foxconn manufactures more than 200 million iPhones per year, a feat made possible by China’s strong engineering talent and relatively low wages. Bank of America Securities analyst Wamsi Mohan estimates that labor costs for assembling and testing iPhones in the US would be five times higher—$200 per phone vs. $40. The price of an iPhone 16 Pro Max could rise by 91% with the cost of tariffs included. Apple leadership has noted in the past that there are not enough American tooling engineers capable of working on and configuring the machines that turn Apple’s sophisticated designs into physical phones.
We are in turbulent times. Today’s economic and geopolitical forces will have ramifications for years to come. Leaders who filter out the noise and stay grounded in key signals will be in the best position to develop thoughtful strategies for their businesses and weather the storms ahead.