The global impact of the second Trump administration and the geopolitical risks

On the economic front, the United States has restricted China's access to advanced technologies like semiconductors and related equipment that could be converted to military use. It adopted a so-called "small yard, high fence" approach (tightly targeted export controls), encouraging allies and partners to take similar measures as the United States, including export and investment restrictions. Efforts to maintain a common front with allies on China policy were a major feature of President Biden's diplomacy.

Like President Biden, President-elect Trump has placed China at the center of his economic strategy agenda, but his approach is fundamentally different.

In keeping with his "America First" philosophy, Trump aims for a broader decoupling of the United States and Chinese economies. For example, he may significantly increase tariff rates on Chinese imports or revoke China’s permanent normal trade relations (PNTR) status. For Trump, the key is to reduce the U.S. trade deficit. Unlike President Biden, who cooperated with allies and worked to shape the environment around China, Trump tends to prioritize bilateral deals that do not rely on allies.

The emphasis on "give and take" and a strong preference for bilateral over multilateral relationships is a pattern already seen during the first Trump administration. Trump sees tariffs as a card to play in trade negotiations. I believe that he will take major action early in his second administration, which will bring us into an era of difficult U.S.-China relations.

Moving our attention to foreign policy in other regions; first, it will be more likely that the U.S., Japan, and South Korea come to the table together for discussions less frequently. Trump prefers bilateral engagement, an area where he can wield the most influence. In these engagements, he may pressure Japan, South Korea, and Taiwan to increase defense spending and/or purchase U.S.-made equipment.

In addition, the United States approved significant arms sales to and boosted its diplomatic engagement with Taiwan during the first Trump administration. However, Trump has since expressed dissatisfaction with defense spending on Taiwan and has questioned Taiwan’s importance. The future of U.S. foreign policy toward Taiwan remains uncertain, with the potential for abrupt change in direction.

In the Biden administration, the relationship with China was competitive but with an atmosphere of willingness toward managing relations. However, Trump has no such intention. China is a competitor, which will lead to a period of “transactionalism and negotiation.” These changes will likely lead to economic decoupling.

So then, how will this affect Japan? During his presidential campaign, Trump mentioned that he would impose a uniform 10 to 20 percent tariff on all imports, which seems unlikely to become actual policy. However, I believe it is very possible that Trump will foster an environment where Japanese companies are unilaterally regarded as "bad actors" in the United States, for example, by taking political steps to strongly criticize any behavior that appears to not be in the best interests of the United States.

The first specific impact on Japanese companies is inflation. Trump's fiscal, monetary, and trade policies will likely lead to a stronger dollar, affecting sales and revenue in the United States. In addition, there may be a new round of trade negotiations between Japan and the United States, as seen during the first Trump administration. If this happens, Japanese companies would need to consider how to position themselves in these negotiations and maximize their value.

If a Japanese company exports goods manufactured in China to the United States, not only will it be subject to tariffs, but its entire supply chain could be called into question. The question will be how closely a Japanese company's supply chain is tied to Chinese companies and how threatening it is perceived to U.S. economic security.

It is important to note that the criteria for judging what constitutes a "minor problem" and a "major threat" in the context of relations with Chinese companies differ greatly between Japan and the United States. Japanese companies need to be prepared, as these judgments will be made through the perspective of politics and economic security.

The world will likely head into an era defined by protectionism. The United States will aggressively raise tariffs, while China in turn raises tariffs on the United States. Should this escalate, China may respond in the economic sphere, for example, by imposing further export restrictions on raw materials used by companies across many supply chains.

With regard to supply chains, the U.S. government and other governments are paying greater attention to security than supply efficiency. Going forward, supply chains are likely to be shortened and fragmented.

Let me also turn your attention to Ukraine. My personal belief is that, even if Trump and Russian President Vladimir Putin negotiate, there will not be an end to the war, and that the situation will become even more complicated. An important benchmark will be the possible negotiations between Trump and Chinese President Xi Jinping in late 2025.

However, they often maintain a certain distance from the policies and values of Western countries, as seen, for example, in their positions on the war in Ukraine. Even in the West with regard to sustainability, we are beginning to see a movement against climate change measures because of their economic burden. The fact that Trump, who is reluctant to take action on climate change, has gained support is one indication of this.

In this increasingly uncertain and complex business environment, it is important to strengthen business intelligence. It will be necessary not only to simply share and collect information, but also to be carefully selective with information, then to analyze and make this information meaningful by capturing the needs of decision makers. However, few companies are currently able to establish and utilize the intelligence cycle as a process, in which the intelligence function is used to plan policies.

In order to utilize the intelligence function, it is important to identify its purpose and potential outputs for utilization, and to design hypothetical scenarios with an awareness of the timeframe, as well as to have an organized understanding of events that could become inflection points for future trends. In addition, to improve the quality and objectivity of information, it is necessary to utilize external networks, including experts, and forecasts based on AI and data analysis.

To overcome this situation, it is necessary to build a long-term vision-driven management system based on the assumption that the environment will change drastically and to strengthen the intelligence function to ascertain changes in the business environment.

A long-term vision-driven management system is a management style that does not put medium-term plan values at the core, but rather provides overarching directions, including broad long-term policies, value-add to society, and structural changes in the business portfolio, and then shows progress in this direction. This results in a style that is less affected by short-term changes. Here, the intelligence function is responsible for identifying signs of changes in industry and supply chains that will affect business drivers toward goal achievement, and for ensuring a constant relevance to the business plan.

In some cases, separate and independent departments are created for the long-term vision-driven management system and the intelligence function, but even in these situations it is important to practice management design that ensures their mutual interaction. Since it is necessary to constantly capture and integrate information, it is necessary to design a system that links the respective flows of work and information at the practical level — in other words, what information should be captured as predictive information and how it should be reflected in management planning.

This does not mean simply stopping medium-term management planning, but rather reworking the management system itself. In today's rapidly changing world, companies must define an unwavering long-term vision, and form a management system that will continue to identify and respond to ever-changing predictive signs toward that vision.