24 January 2025
In this edition of the Strategic Memo, we analyze the sweeping changes brought by President Donald Trump’s return to the U.S. government, focusing on the aggressive implementation of his America First agenda and its implications for businesses and global markets. We also explore the rise of a corporatist economic model, highlighting its potential benefits and risks for industries. Finally, we turn to Latin America, assessing the evolving political, economic, and security dynamics that define the region’s trajectory, from the threats posed by organized crime to opportunities in commodities and green energy sectors.
Trump’s Upending of Government
On his first day in office, President Donald Trump signed dozens of executive orders and outlined policies focused on his "America First" agenda. He declared a national emergency at the U.S.-Mexico border, deploying troops, resuming wall construction, reinstating the "Remain in Mexico" program, and shutting down the CBP One app. Trump also designated cartels and gangs as "global terrorists" and challenged birthright citizenship for undocumented migrants’ children, sparking legal challenges. Internationally, he signaled U.S. withdrawal from the Paris Agreement, paused foreign development aid, and began exiting the World Health Organization. Domestically, he ended diversity programs, rolled back transgender protections, declared an energy emergency, delayed TikTok’s ban enforcement, and pardoned over 1,500 individuals linked to the January 6 Capitol attack.
All of this signals Trump’s aggressive approach to the America First agenda. Although each of these policies is worth considering in time, the most immediately impactful will be significant disruptions to the nature of the federal government. First, the Trump administration has mandated all federal employees in DEI roles be placed on paid administrative leave, with plans for dismissing them by January 31. Federal agencies are instructed to shut down DEI offices and programs, including removing related websites and social media accounts. The move follows President Trump's executive order ending “radical and wasteful” DEI initiatives in federal agencies, emphasizing a return to merit-based hiring.
Second, Trump ordered a “freeze on the hiring of Federal civilian employees, to be applied throughout the executive branch. As part of this freeze, no Federal civilian position that is vacant at noon on January 20, 2025, may be filled, and no new position may be created except as otherwise provided for in this memorandum or other applicable law.” Third, another executive order emphasized "restoring accountability" in federal roles that influence policy. It mandates increased transparency and oversight for senior officials involved in shaping policy decisions, aiming to ensure these individuals uphold high standards and prioritize public interest over personal or political motives. Federal employees currently in or seeking senior positions should remain aware of the heightened scrutiny this order entails.
The significant changes in federal government policies under Trump’s America First agenda are likely to have substantial impacts on businesses. Some corporations are already heavily moving away from DEI programs because they are deeply unpopular with customers. Trump’s elimination of the programs at the federal level will likely catalyze this, and significantly more corporations will find it politically useful to eliminate their DEI programs as well. That will both reduce and increase their risks in “reputation warfare” in polarized markets. In addition, the federal hiring freeze may disrupt public-private collaborations, in the short term due to customer consideration.
Businesses reliant on government contracts could face delays or reduced opportunities due to the freeze on new hires. Additionally, the emphasis on "restoring accountability" for senior federal officials might lead to slower decision-making processes, impacting industries reliant on swift regulatory approvals or guidance. Internationally, policies like withdrawing from the Paris Agreement and foreign aid cuts may alter trade dynamics, creating uncertainty for businesses involved in global markets. These shifts underscore the need for businesses to adapt to a changed federal government that is likely to have fewer resources for oversight, which will have both positives and negatives.
America’s New Corporatist Model
President Donald Trump's economic policies will be a significant departure from his predecessors as he solidifies a corporatist model by fostering close collaboration between the government and large corporations to achieve national economic objectives. His administration's approach includes significant deregulation efforts, particularly in the financial sector, aiming to stimulate economic growth and increase deal-making opportunities for investment banks. Additionally, Trump's protectionist trade policies, such as imposing tariffs on imports, are designed to incentivize domestic production and reduce reliance on foreign goods, aligning corporate interests with national goals. Furthermore, substantial corporate tax reductions and subsidies for strategic industries under his administration aim to encourage investment and economic activity within the United States. These strategies collectively illustrate a corporatist economic model where the government actively partners with and influences corporate entities to drive the nation's economic agenda.
On his first day in office, Trump signed an executive order laying the foundation for his aggressive trade agenda. While initially avoiding direct tariffs, the order set in motion reviews and investigations targeting trade deficits, national security risks from imports, and China’s trade practices. Trump ordered evaluations of the U.S. trade deficit and industrial base to justify potential global tariffs under existing legal frameworks. The order also expanded on Biden-era export controls and restrictions on Chinese technology, such as electric vehicles. Specific to China, Trump directed reviews of Beijing’s compliance with the Phase One trade deal, its unfair practices, and the use of third countries to bypass tariffs. These measures could lead to increased tariffs on countries like Vietnam, Malaysia, and Mexico. Trump also called for legislative actions to strip China of its preferential trade status. His actions signal an intent to reshape global trade through tariffs and negotiations, posing risks to international economic stability.
Another example is Trump’s announcement of a private sector investment of up to $500 billion in AI infrastructure, spearheaded by OpenAI, SoftBank, and Oracle under a joint venture named "Stargate." The initiative will construct 20 large data centers across the U.S., starting in Texas, creating over 100,000 jobs and focusing on applications such as AI-powered healthcare solutions. $100 billion has already been committed, with the remaining funds to be deployed over four years. This venture follows the reversal of a Biden-era AI executive order and comes amid concerns about power consumption from data centers and increased risks of energy shortages. The project builds on a reported 2024 collaboration between OpenAI and Microsoft for an AI supercomputer also named "Stargate." Finally, Prosper Africa (started in Trump’s first term) and the African Export-Import Bank (Afreximbank) have signed a Memorandum of Understanding to enhance trade and investment between the United States and Africa in sectors such as creative industries, critical minerals, emerging technologies, and textiles. The partnership focuses on facilitating access to capital, providing technical advisory support, promoting SME growth, and leveraging initiatives like Creative Africa Nexus.
All of this indicates the move towards a fully corporatist model by the Trump administration. This model offers both economic benefits and potential costs. On the positive side, deregulation and corporate tax cuts could stimulate business activity, driving GDP growth and job creation. Key industries, such as manufacturing and energy, may benefit from reduced operational constraints and revitalization. However, the model also carries significant costs. Protectionist trade policies, such as tariffs, risk triggering trade wars, raising costs for consumers and businesses, and destabilizing global markets. Balancing these outcomes is crucial for sustainable development, and businesses will need to understand the mechanisms of the new model to be effective.
Latin America – Political Risk 2025
Latin America faces a mix of challenges and opportunities shaped by evolving political, economic, and security dynamics. President Donald Trump is highly likely to bring increased U.S. focus on the region, driven by his priorities of reducing migration and drug flows. With a cabinet familiar with Latin America and interventionist policies underpinned by the Monroe Doctrine, countries are likely face tariffs, sanctions, or even limited military action. Mexico stands as the most vulnerable due to its economic ties to the U.S. and fiscal concerns under President Claudia Sheinbaum. Socialist regimes like Venezuela, Cuba, and Nicaragua may see less aggressive policies to avoid triggering migration crises, while conservative allies like Argentina’s Javier Milei and El Salvador’s Nayib Bukele will find support. Conversely, non-aligned leaders such as Colombia’s Gustavo Petro, Brazil’s Lula da Silva, and Peru’s Dina Boluarte could face antagonism. Regional leaders, bolstered by public popularity, appear ready to retaliate, with some potential for cooperation on security and nearshoring initiatives.
Organized crime remains a pervasive issue. Cartels, enriched by doubling cocaine production and expanding smuggling routes, have transformed peaceful nations like Ecuador, Chile, and Costa Rica into hubs of violence. Criminal networks have diversified into illegal gold mining and migrant smuggling, generating revenues rivaling or exceeding those from cocaine. The economic and social impact is immense, with crime costing the region 3.4% of GDP annually, diverting resources from education and social services, discouraging investment, and driving emigration. In Peru, illegal mining threatens the legitimate copper industry, while spending on private security now surpasses the national police budget. However, a shift in public tolerance for crime is evident, with leaders like Nayib Bukele, known for his hardline tactics, gaining widespread support. Upcoming elections in Chile, Brazil, and Colombia could further solidify a trend toward conservative governance.
Despite these challenges, most Latin American economies demonstrate resilience. GDP growth is moderate, inflation has decreased, and capital flows remain robust, supported by current account deficits below 1% of GDP and healthy international reserves. Real wages have risen in most countries, poverty is declining, and public optimism about personal economic futures reached a record high of 52% in 2024. Foreign direct investment continues to flow into commodities, green energy sectors, and critical minerals essential for the energy transition. Initiatives like Saudi Arabia’s investment conference in Rio and the opening of Peru’s Chancay port signal a growing interest in the region’s economic potential. However, concerns persist about Mexico’s economic slowdown under new leadership and Brazil’s fiscal management under Lula. Long-term growth, estimated at 2% by the Inter-American Development Bank, is insufficient to meet rising demands, yet the region remains a land of opportunity for those willing to navigate its inherent risks and uncertainties. Latin America’s duality of resilience and volatility continues to define its trajectory.
