US Election 2024 - Global Economy on the Line, No Matter Who Wins

As many of you know, I've been doing project missions in the USMCA region recently and finally, after so many years, I'm back operating in Mexico. Brazil and Mexico are already my favorites in Latin America. In these projects, I always had/have a lively exchange with the border states of the USA in particular - especially Arizona, New Mexico and Texas.

Now, the world waits with bated breath as the United States heads toward the Nov. 05, 2024 presidential election. With frontrunners Donald Trump and Kamala Harris presenting opposing strategies for America’s future, the outcome will ripple across global markets, impacting everything from inflation to climate policy. Whether it’s a second Trump administration or a first term under Harris, the policies of the next US president will have far-reaching economic consequences.

The State of the US Economy: Resilient but Unstable

The US economy has shown resilience, weathering higher interest rates and persistent global uncertainties. However, inflation remains a significant challenge. The Federal Reserve’s policy responses—already impacting the domestic economy—are increasingly reactive to an environment of supply shocks and structural labor shortages. A new administration, regardless of political orientation, will need to navigate a more unpredictable inflation landscape.

Policies aimed at stimulating demand, like tax cuts, or those that target supply issues, such as tariff increases, could bring renewed inflationary pressure. This would leave the Federal Reserve with little choice but to raise interest rates further, potentially reaching an uncomfortable level that could strain the economy.

The question remains: how will US policies impact not only the domestic economy but global trade?

Global Trade in the Balance

Global trade, already recalibrated during Trump’s first term, hangs in the balance. Trump’s administration took a hard stance on tariffs, especially against China, marking a departure from prior US trade policy. His 2024 campaign continues this theme, emphasizing tariffs as a tool for economic leverage. Should Trump win, tariffs on Chinese imports could climb modestly from 2.5% to about 4.5%, short of his campaign’s 10% goal but still potent enough to erode US growth. Higher tariffs would likely stoke inflationary pressures, adding another layer of complexity to the Federal Reserve’s already delicate balancing act.

In contrast, a Harris presidency would bring different trade priorities. The Biden administration has championed industrial subsidies as a way to protect and foster domestic industries. These subsidies represent a subtler form of protectionism, one that is likely to continue if Harris prevails. While tariffs may not increase under Harris, her administration’s approach could still disrupt trade dynamics, as US subsidies could disadvantage foreign competitors.

Energy and Climate: A Divisive Path

Both candidates share a broad ambition for energy independence and economic self-sufficiency. However, their approaches to achieving these goals differ sharply, especially in terms of climate policy. For Kamala Harris, climate regulations would tighten, bolstering the clean energy sector and accelerating the shift away from fossil fuels. Her administration would likely emphasize reducing emissions, supporting renewable infrastructure, and aiming for aggressive climate targets.

In contrast, Donald Trump’s energy policy seeks to sustain the fossil fuel industry, at least in the short term. Although market trends suggest an eventual shift to renewables, a Trump administration could slow this progress by rolling back environmental regulations and promoting fossil fuel production. This divergence could fracture the global response to climate change, leading to economic costs that go beyond national borders and stalling the worldwide green transition.

What Lies Ahead?

Ultimately, the outcome of the 2024 election could set the tone for the global economy in the coming years. A Trump victory signals renewed trade tensions, potential inflation surges, and a delay in climate progress, while a Harris administration would continue a protectionist stance through subsidies and champion more climate-focused policies.For global markets and economies intertwined with the US, the aftershocks of November’s vote will likely be felt for years.

No matter the victor, the world must prepare for an era of economic policies driven by national priorities—and the wide-reaching global impact that accompanies them.

A Closer Look on Mexico

USMCA Faces New Scrutiny Amid Election Threats and Geopolitical Tensions

In the evolving landscape of North American trade, the United States-Mexico-Canada Agreement (USMCA) faces increasing scrutiny as geopolitical and economic dynamics shift. A surge in Chinese imports flowing into Mexico has raised questions about the resilience and long-term objectives of the trade deal. As the 2026 review of the USMCA approaches, experts speculate on the impact of upcoming elections and policy shifts on the future of North American trade.

Mexico’s Role in the Supply Chain Reconfiguration

Talking with C-level managers of Freightos, highlights that Mexico has become an attractive destination for foreign companies, including American firms, to mitigate costs in response to global supply chain disruptions. During our project missions 2023/24 in Mexico It’s clear that foreign and American companies are turning to Mexico to lower costs amid ongoing supply chain reconfigurations. This trend, which began during the pandemic, has gained momentum as businesses seek to build resilience and adapt to economic shifts.

The influx of Chinese goods into Mexico is driven not only by lower production costs but also by strategic advantages. Mexico’s proximity to the U.S. makes it an attractive alternative for companies looking to move goods efficiently into the North American market. However, the question remains whether the next U.S. administration will closely examine the USMCA’s role in facilitating these trade flows, potentially reconsidering provisions that enable Asian goods to enter the U.S. market via Mexico.

USMCA Review - A Period of Uncertainty

The USMCA, which replaced the North American Free Trade Agreement (NAFTA) in 2020, includes a six-year review clause, with the first review scheduled for July 2026. This provision allows any of the three countries to propose changes or withdraw from the agreement, triggering a prolonged period of uncertainty should any party opt to negotiate different terms.

During all project missions executed, specially in 2024, I emphasized that this review will likely include a close examination of how Chinese goods enter North America through Mexico. It seems that China is using Mexico as a strategic platform to move materials and parts into North America, I would remarked, adding that the question of how to handle duties—tariffs imposed on Chinese goods—could become a major topic in the 2026 review discussions.

Potential Policy Changes Under a New Administration

The U.S. political landscape will play a critical role in shaping the future of the USMCA. The potential return of former President Donald Trump, who was instrumental in renegotiating NAFTA into the USMCA, has raised concerns among logistics managers and companies. Some fear that a renewed Trump administration could lead to additional tariffs on Chinese goods entering the U.S., possibly as high as 60% to 100%. Businesses are already strategizing to front-load imports to mitigate the risk of sudden policy shifts that could impact costs and trade flows.

During our iMB.Solutions project missions with a European client of mobility industry in the first semester of 2024, we analyst a huge bundge of information sources, among national press secretary for Trump’s 2024 campaign, emphasized that Trump would continue his approach of prioritizing American workers and farmers in trade negotiations. They argued that the current administration’s policies have allowed China to gain undue advantages, particularly with regard to electric vehicle mandates, and warned that these issues could worsen if the current administration remains in office.

While the Harris-Biden administration has yet to comment on these developments, the impact of a potential policy shift could have significant implications for trade relations, particularly if stricter regulations are placed on Chinese imports routed through Mexico.

Mexico’s Growing Role in North American Trade

Despite potential challenges, we (iMB.Solutions) believe that Mexico’s role in North American supply chains will continue to expand. If all three countries agree to renew the USMCA, we (iMB.Solutions) don’t expect the flow of goods from China into Mexico to slow down.

As global trade evolves in an increasingly complex geopolitical environment, Mexico’s strategic importance within North America is set to grow, further strengthening its role in regional supply chains.

In the lead-up to the USMCA’s 2026 review, companies are closely monitoring political and economic developments. For businesses navigating this complex trade environment, Mexico remains a critical hub, but the road ahead is clouded with uncertainty. The outcome of the todays U.S. elections and the subsequent USMCA review will play a decisive role in determining whether Mexico can sustain its current position as a key node in North American supply chains.

If you want to dive a little deeper into scenario generation, here is my absolute blog recommendation. Without question, it's also a highlight if you're looking for a rapidly new approach to strategic planning. In any case, I am very focused on USMCA - no matter how it turns out, you should be prepared for tactical adjustments with a view to value creation in USMCA. But remember: strategic scenario generation comes before tactics.

>>> READ BLOG: Unlocking Strategic Business Scenarios with Generative AI as a Project Assistant - Scenario Generation USMCA

https://www.imb.solutions/blog-newsletter/unlocking-strategic-business-scenarios-with-generative-ai-as-a-project-assistant-scenario-generation-usmca

Contextual Intel - Using Brazil as an Example

What is Brazil's profiling and thus the implications for your business in the country?

Soft Power

Brazil maintains the largest global number of neutral relations with other nations, one could also say conflict-free relations. This correlation of Brazil with the world is repeatedly confirmed by the periodically published report of the Harvard Business School on the so-called soft powers in the world. There are two ways to interpret this relationship pattern.

It is easy to do business in Brazil because the local partners are very open to the opinions, business models, values and behavior of outsiders.

But ... .

Brazilians like to learn from the outside world, but it doesn't matter if a business model works in another part of the world. They have to show that it works in the Brazilian reality.

This is a basic understanding to do business in Brazil, to initiate a reorganization, a restructuring process, a business transformation or even a new start of the company or brand in the national Brazilian market. It is crucial to accept this reality and build the contextual intelligence for your operation in Brazil.

Where do we come from?

Over the past four decades, many managers have been convinced that management know-how could be easily transferred to other cultures (...), including Brazil. Gradually it became clear that the differences were greater and that only the company that was able to adapt to local challenges would be able to operate abroad with a strong comparative advantage in the specific market.

It no longer makes sense to apply the same management practice around the globe, although we like to believe that it does. There is no doubt that management goals such as value creation and development of local management personnel are accepted and make sense worldwide.

But only one step further, by looking beyond the general description of management, we see the cultural differences and meanings of these words. The local Brazilian culture, the history of the nation, the institutional structure, the geographical environment, education and social development of the society define different views on how to motivate Brazilians and which values are really important.

Change mindset - avoid risk!

This is by far the best approach to localize the risks and integrate them into the scenario compass. It is not the study of country risks or exchange rate movements alone.

The one-to-one transfer of technology and management know-how to Brazil harbors a hidden risk: being convinced that the know-how implemented at headquarters will naturally bring success in Brazil. It rarely works out one-to-one.

The analytical tools available today are excellent, but adapting to the Brazilian reality on site and using them defines one of the success factors. We at iMB.Solutions defined this requirement as contextual intelligence.

Contextual intelligence is essential for success in Brazil, even when entering a new market or restructuring local operations. It defines the ability to know and accept the limits of knowledge in the head office and to adapt the requirement and knowledge to new environments.

The media is full of sensational failed companies that wanted to gain a foothold in Brazil. This situation is especially true for medium and small companies. As long as the contextual intelligence is not acquired and ready for application in the Brazilian management environment, the risk of failure is more than increased.

To this day, I still encounter many companies from industrialized countries that are convinced that similar industrial sectors around the world have similar structures and similar profitability profiles, including Brazil.

They came to the conclusion that similar industries should generate almost the same profits with the same management tools. The so-called industry analysis and unreflected so-called benchmark analysis was one of the most powerful working tools for the management of the headquarters.

What do we see?

The analyses carried out in our projects objectively and without prejudice came to a different conclusion in about 4/5 of the cases:

We were not able to confirm the management's decades-long assumption that branches in emerging markets could achieve the same results with the same management tools. Over the past almost 20 years, we have been able to do so with companies from a wide range of industries, including the automotive industry, oil and gas, packaging, general mechanical and plant engineering, engineering, mining and real estate.

No solid profiles have been confirmed, and the profitability of the same industry sectors in different countries showed enormous and incredible variation. Very often the parent companies in the reorganizations tried to establish benchmarks to other branches of other emerging markets again and again.

Functions and roles change

The holistic understanding of Brazil, the individual behavior of professionals in the subsidiaries and in the parent company, culture and history, combined with the knowledge of the industrial sector and the ability to adapt management tools to the individual situation had some fundamental effects on the local Brazilian operations and the interpretation in the responsible headquarters:

The position and selection of expatriates was re-defined and companies started to be much more sensitive when sending expatriates to Brazil. And in many cases even to refrain from doing so.

The role of a globally uniform effect of a specific technology or management tool used in a specific industry sector was no longer as relevant. This then also placed higher demands on controlling in the parent company and forced controlling to take a more differentiated look at individual regions and markets.

Example: India vs. Brazil

I vividly remember a project where we had an intensive exchange with the Indian branch office as part of a reorganization. At the European parent company, India was regarded as the successful model for emerging markets.

But the result was quite different. India had such low personnel costs that we were never able to reach from Brazil. We could never compensate for this comparative factor of India.

But did we really want to?

No!

People as the only certain cost factor and commodity in the value chain could not be the goal!

Through targeted supplier development and the uncompromising nationalization of some product lines in Brazil, the products manufactured in the country became cheaper than the Indian product due to a higher quality of the end product, a significantly lower complaint rate and a much more concentrated production integration.

Brazil's higher personnel costs no longer played a role in the full-cost calculation and the post-calculation.

The Brazilian subsidiary has developed a solid export business in recent years, which helps to keep budget figures on track, especially in the Covid19 pandemic.

Sensitive homework must be done

One of the most difficult tasks is the sensitive coordination of the solid management models used in the head office. It is crucial to understand how important it is to distinguish between general principles that are taught at headquarters and have been rooted for decades, and specific manifestations about the Brazilian market or the behavior of a local manager in an existing subsidiary in Brazil.

The management concepts must be adapted to the respective country and culture. Best practices from other regions of the world cannot be transferred without a sensitive analysis and robust on-site assessment. If this transfer is not elaborated and implemented by a strong local partner in Brazil with the necessary context intelligence, the local operation may be doomed to failure and the investment may be lost.

In addition, the necessary brand awareness in the relevant customer group to be established in the Brazilian market during or after a reorganization could be jeopardized and the product launch could be impaired.

We have seen time and again that companies with great success have clearly defined processes in certain geographical markets. In contrast, these companies have operational difficulties in redesigning and re-adjusting processes in another location, such as Brazil.

Top management rarely has the time to devote to these tasks, and expatriates often do not have the contextual intelligence to act accordingly. The reverse engineering of process adaptation, often cited by successful medium-sized companies, is negatively influenced by this.

Managers have to find new channels to operate in Brazil and face the unknown institutional market environment. Prejudices and very rigid business models are big obstacles and very costly. It is necessary to accept new local experiments and adjustments to find the way that really works.

The next step

This view has implications for your company. What does contextual intelligence mean for your local organization, your team, your management team in Brazil? Under which premises should the team be built and managed?

If you sometimes ask yourself questions like this, if you look at the performance of your Brazilian subsidiary, if you have the feeling that the whole thing is possibly more complex than expressed in brief conversations at the coffee machine - then we could have a chat about your topic.

I have very deep experience in working with a wide variety of corporate cultures from a wide variety of continents. We are also experienced in transferring and implementing successfully proven concepts from a Brazilian project mission to other branches of your company. 

E-mail me or give me a call!